As filed with the Securities and Exchange Commission on August 12, 1997
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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TEKGRAF, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 5045 58-2326488
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(State or Other Jurisdic- (Primary Standard Industrial (I.R.S. Employer
tion of Incorporation) Classification Code Number) Identification
Number)
2979 Pacific Drive, Suite B
Norcross, Georgia 30071
phone # (770) 441-1107
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
------------------------
Phillip C. Aginsky, Chairman
Tekgraf, Inc.
2979 Pacific Drive, Suite B
Norcross, Georgia 30071
phone # (770) 441-1107
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
------------------------
Copies to:
Fran Stoller, Esq. Barry A. Brooks, Esq.
Bachner, Tally, Polevoy & Misher LLP Paul, Hastings, Janofsky & Walker LLP
380 Madison Avenue, 18th Floor 399 Park Avenue
New York, New York 10017 New York, New York 10022
(212) 687-7000 (212) 318-6000
Approximate date of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of the securities being registered on this form
are to be offered on a delayed or continuous basis pursuant
to Rule 415 under the Securities Act of 1933, please check
the following box. |X|
If this form is filed to register additional
securities for an offering pursuant to Rule 462(b) under the
Securities Act, please check the following box and list the
Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_|
If this form is a post-effective amendment filed
pursuant to Rule 462(c) under the Securities Act, check the
following box and list the Securities Act registration
statement number of the earlier registration statement
for the same offering. |_|
If the delivery of the prospectus is expected to be
made pursuant to Rule 434, please check the following box. |_|
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<PAGE>
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed
Maximum Maximum
Offering Aggregate Amount of
Title of Each Class of Amount to Price Per Offering Registration
Securities to be Registered be Registered Unit (1) Price (1) Fee
--------------------------- ------------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Units, each consisting of 2,875,000(2) $5.00 $14,375,000 $4,356.00
one share of Class A Common
Stock, $.001 par value, and one
Warrant
Class A Common Stock, $.001 2,875,000 7.00 20,125,000 6,098.00
par value(3)
Unit Purchase Option (4) 250,000 .001 250 --
Units, each consisting one share 250,000 6.00 1,500,000 455.00
of Class A Common Stock, $.001
par value, and one Warrant(5)
Class A Common 250,000 7.00 1,750,000 530.00
---------- ---------
Stock, $.001 par value(5)
Total $37,750,250 $11,439.00
========== =========
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee.
(2) Includes 375,000 Units subject to the Underwriters' over-allotment
option.
(3) Issuable upon exercise of the Warrants.
(4) To be issued to the Representative of the Underwriters and its
designees.
(5) Issuable upon exercise of the Unit Purchase Option and/or the
Warrants issuable thereunder.
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there are
also being registered such additional shares of Common Stock as may become
issuable pursuant to anti-dilution provisions upon exercise of the Warrants and
the Unit Purchase Option.
------------------------
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION - DATED AUGUST 12, 1997
PROSPECTUS
TEKGRAF, INC.
2,500,000 Units
Consisting of 2,500,000 Shares of Class A Common Stock
and 2,500,000 Redeemable Warrants
Each unit ("Unit") offered by Tekgraf, Inc. (the "Company") consists of
one share of Class A common stock, $.001 par value ("Class A Common Stock") and
one redeemable warrant ("Warrant"). The components of the Units will be
separately transferable immediately upon issuance. Each Warrant entitles the
holder to purchase one share of Class A Common Stock at an exercise price of
$7.00, subject to adjustment, at any time through the fifth anniversary of the
date of this Prospectus. Commencing one year from the date hereof, the Warrants
are subject to redemption by the Company at a redemption price of $.05 per
Warrant on 30 days' written notice, provided the closing bid price of the Class
A Common Stock averages in excess of $9.80 per share for any 30 consecutive
trading days ending within 15 days of the notice of redemption. See "Description
of Securities." It is anticipated that the initial public offering price will be
$5.00 per Unit.
As of the date hereof, 4,000,000 shares of Class B common stock, $.001 par
value ("Class B Common Stock") of the Company are outstanding. The Class A
Common Stock and the Class B Common Stock are substantially identical on a
share-for-share basis, except that the holders of Class B Common Stock have five
votes per share and the holders of Class A Common Stock have one vote per share
on each matter considered by stockholders. See "Description of Securities."
Prior to this offering (the "Offering"), there has been no public market
for the Units, Class A Common Stock or Warrants and there can be no assurance
that such a market will develop. The Company has applied for quotation of the
Units, Class A Common Stock and Warrants on The Nasdaq National Market
("Nasdaq") under the symbols TKGFU, TKGFA and TKGFW, respectively. The initial
public offering of the Units and the exercise price and other terms of the
Warrants were arbitrarily determined by negotiation between the Company and D.
H. Blair Investment Banking Corp. (the "Representative"), as Representative of
the several underwriters (the "Underwriters"). For information concerning a
Securities and Exchange Commission investigation relating to the Representative,
see "Risk Factors" and "Underwriting."
------------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" COMMENCING ON PAGE 8 AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Underwriting Discounts
and Proceeds to Company (2)
Price to Public Commissions (1)
- --------------------------------------------------------------------------------
Per Unit $ $ $
Total (3) $ $ $
- --------------------------------------------------------------------------------
(footnotes on following page)
The Units are being offered on a "firm commitment" basis by the
Underwriters when, as and if delivered to and accepted by the Underwriters,
subject to their right to reject orders in whole or in part and subject to
certain other conditions. It is expected that the delivery of the certificates
representing the Units will be made against payment at the offices of D.H. Blair
Investment Banking Corp., 44 Wall Street, New York, New York on or about ______,
1997.
D.H. BLAIR INVESTMENT BANKING CORP.
The date of this Prospectus is _______, 1997
<PAGE>
(Footnotes from previous page)
(1) Does not include additional compensation to be received by the
Representative in the form of (i) a non-accountable expense allowance of
$___, or $___ per Unit ($___ if the over-allotment option is exercised in
full); and (ii) an option, exercisable over a period of three years
commencing two years from the date of this Prospectus, to purchase up to
250,000 Units at $___ per Unit (the "Unit Purchase Option"). The Company
has also agreed to indemnify the Underwriters against certain liabilities
under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting estimated expenses of $___ payable by the Company,
including the non-accountable expense allowance payable to the
Representative.
(3) The Company has granted to the Underwriters a 30-day option (which may be
exercised by the Representative, individually) to purchase up to 375,000
additional Units on the same terms and conditions as set forth above,
solely to cover over-allotments, if any. If the over-allotment option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $___, $___ and $___,
respectively. See "Underwriting."
------------------------
The Company intends to furnish its stockholders and holders of Warrants
with annual reports containing consolidated financial statements audited by its
independent accountants.
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE UNITS, THE CLASS A
COMMON STOCK AND/OR THE WARRANTS. SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF
SECURITIES FOLLOWING THE PRICING OF THE OFFERING TO COVER A SYNDICATE SHORT
POSITION IN THE UNITS, THE CLASS A COMMON STOCK AND/OR THE WARRANTS OR FOR THE
PURPOSE OF MAINTAINING THE PRICE OF THE UNITS, THE CLASS A COMMON STOCK AND/OR
THE WARRANTS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
------------------------------------
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<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements (including the notes thereto) appearing elsewhere in this Prospectus.
Except as otherwise noted, all information in this Prospectus (i) assumes no
exercise of (a) the Underwriters' over-allotment option; (b) the Warrants; (c)
the Unit Purchase Option; or (d) options granted or available for grant under
the Company's stock option plan; and (ii) gives effect to (a) a stock split
effected in May 1997; (b) the reincorporation of the Company by merger under the
laws of the State of Delaware and a recapitalization effected in June 1997; and
(c) the Acquisitions. See "- The Acquisitions and Recapitalization,"
"Capitalization," and "Management - Stock Option Plan."
The Company
The Company is engaged in the manufacture, configuration, distribution and
servicing of computers and computer peripherals, hardware and software. The
operations of the Company are conducted through its Graphics Division and its
Technology Division.
The Graphics Division currently consists of five regional distributors
which specialize in marketing, sales, support and wholesale distribution of
high-end computer graphics technologies (i.e. peripherals, software, subsystems
and consumable products) to value-added resellers ("VARs"), dealers and systems
integrators in the digital prepress, presentation graphics, professional color
desktop publishing, large format display graphics, digital imaging, electronic
drawing management ("EDMS"), computer-aided design ("CAD") and other emerging
computer graphics technologies markets. Among the products the Graphics Division
distributes and sells are color scanners, color digital film recorders, digital
cameras, color laser printers, color-calibrated monitors, audio-visual
presentation systems, raster image processors ("RIPs"), ink jet printers,
plotters, pre-press software, image setters, color proofers and mass storage
devices. With the exception of Southern California, Arizona, New Mexico and New
England, the Graphics Division gives computer graphics manufacturers a national
distribution presence with the benefits of local, technical sales and support
through facilities located in Chicago, Baltimore, Oakland, Atlanta and Houston.
The Graphics Division was established as a result of the Company's recent
acquisition of five operating companies. See "The Acquisitions and
Recapitalization" below. The establishment of this division reflects the
Company's overall business strategy to become a nationally-recognized,
vertically-integrated provider of computer products and services.
The activities of the Technology Division consist primarily of the
configuration, design and assembly of custom designed network and internet
servers and workstations in the form of personal computers ("PCs") under the
Crescent Computer brand and the resale of Digital Equipment Corporation ("DEC")
equipment to the nationwide DEC-installed customer base. The Crescent Computer
is a PC which can be assembled in a number of different configurations using
standard component parts. Customization enables the Company to accommodate
customer computer needs with respect to storage capacity, speed, price,
applications, size, configuration and a range of other considerations that can
be accommodated in whole or in part by the selection of appropriate components.
The Company also provides services to its customers, including system
architecture design, customization, hardware consulting and continuing support
and assistance in the maintenance and operations of Company purchased
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<PAGE>
products. Crescent Computers are currently being used to operate non-sterile
heart catheterization diagnostic equipment, as voice mail/auto attendant
controllers, in informational kiosks and in other process-control applications.
The Company will seek to expand its operations through internal growth of
both of its operating divisions. Additionally, the Company will seek to increase
the customer base of the Technology Division by increased marketing of its
products utilizing the marketing and distribution structure established by the
Graphics Division. Further, the Company intends to expand the Graphics
Division's national marketing network.
The Company also intends to continue to expand its operations through the
acquisition of complementary businesses. The Company will focus its acquisition
activities on profitable technology companies that can be consolidated into the
Company's existing divisional structure, increase divisional revenues, expand
the geographic and technical scope of the Company's operations, and offer a
greater range of products and services to existing and potential customers.
Although the Company continually explores acquisition possibilities and has
targeted a number of computer graphics distributors, including New England
Computer Graphics ("NECG") in Westford, Massachusetts, it is not currently
involved in any active discussions or negotiations with respect to any potential
acquisitions. There can be no assurance that the Company's acquisition program
will be successful, that the NECG or any other acquisition will be successfully
completed, that any entities acquired will be successfully integrated into the
Company or will result in significant additional revenues or profits to the
Company.
The Company was incorporated in the State of Georgia in February 1993
under the name Crescent Computers, Inc. ("Crescent") and was the successor to
Crescent Computer Services which was founded in 1988. Crescent acquired a
controlling interest in Prisym Technologies, Inc., a Georgia corporation
("Prisym"), upon the inception of such company in December 1994. In June 1997,
the Company completed the acquisition of all of the outstanding capital stock of
each of G&R Marketing, Inc., an Illinois corporation ("G&R"), Microsouth, Inc.,
a Georgia corporation ("Microsouth"), tekgraf, inc., a Texas corporation
("tekgraf Texas"), Computer Graphics Distributing Company, a Maryland
corporation ("CGD"), Intelligent Products Marketing, Inc. ("IPM") and IG
Distribution, Inc. ("IG"), each a California corporation and together doing
business as Intelligent Graphics Distribution ("IGD"). See "The Acquisitions and
Recapitalization" below. Subsequent to the Acquisitions (as defined below), the
Company reincorporated by merger under the laws of the State of Delaware into a
wholly-owned Delaware subsidiary (the "Merger") and changed its name to Tekgraf,
Inc. The Company's executive offices are located at 2979 Pacific Drive,
Norcross, Georgia, 30071 and its telephone number is (770) 441-1107. Unless
otherwise indicated, all references herein to the Company include Crescent,
Prisym, G&R, Microsouth, tekgraf Texas, CDG and IGD.
The Acquisitions and Recapitalization
In June 1997, the Company completed the acquisition (the "Acquisitions")
of the outstanding capital stock of G&R, Microsouth, tekgraf Texas, CGD, IPM and
IG (collectively, the "Subsidiaries" and each a "Subsidiary") in exchange for
the issuance of an aggregate of 6,576 shares of its common stock. See
"Management's Discussion and Analysis of Financial
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<PAGE>
Condition and Results of Operations" and "Certain Transactions - The
Acquisitions." The Company subsequently effected the Merger and a 400-for-one
stock split and recapitalization (the "Recapitalization") pursuant to which such
shares were exchanged for an aggregate of 2,630,400 shares of Class B Common
Stock. See "Description of Securities." The Acquisitions are being accounted for
under the purchase method of accounting. See "Unaudited Pro Forma Combined
Financial Statements."
The Offering
Securities Offered.............. 2,500,000 Units, each Unit consisting of one
share of Class A Common Stock and one
Warrant. Each Warrant entitles the holder to
purchase one share of Class A Common Stock
at an exercise price of $7.00, subject to
adjustment, at any time through the fifth
anniversary of the date of this Prospectus.
The Warrants are subject to redemption in
certain circumstances. See "Description of
Securities."
Common Stock Outstanding
Before Offering (1):
Class A Common Stock.... 0 shares
Class B Common Stock.... 4,000,000 shares (2)
---------
Total.............. 4,000,000 shares (2)
=========
Common Stock Outstanding
After Offering (1):
Class A Common Stock.... 2,500,000 shares (3)
Class B Common Stock.... 4,000,000 shares (2)
---------
Total............... 6,500,000 shares (2)(3)
=========
Use of Proceeds................. For bank debt retirement; future
acquisitions; consolidation expenses; sales
and marketing; and for working capital. See
"Use of Proceeds."
Proposed Nasdaq Symbols......... Units -- TKGFU
Class A Common Stock -- TKGFA
Warrants -- TKGFW
Risk Factors.................... The securities being sold in the Offering
involve a high degree of risk and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
- ----------
(1) For a description of the Class A Common Stock and Class B Common Stock
(collectively, the "Common Stock"), see "Description of Securities -
Common Stock."
(2) Includes an aggregate of 200,000 shares of Class B Common Stock (the
"Escrow Shares") which have been deposited into escrow by the holders
thereof. The Escrow
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<PAGE>
Shares are subject to cancellation and will be contributed to the capital
of the Company if the Company does not attain certain earnings levels or
the market price of the Company's Class A Common Stock does not achieve
certain levels. If such earnings or market price levels are met, the
Company will record a substantial non-cash charge to earnings, for
financial reporting purposes, as compensation expense relating to the
value of the Escrow Shares released to Company officers, directors and
employees. See "Risk Factors - Charge to Income in the Event of Release of
Escrow Shares and Escrow Options," "Capitalization" and "Principal
Stockholders." Also includes an aggregate of 1,600,000 shares of Class B
Common Stock (the "Indemnification Shares") which were deposited in escrow
by the holders thereof to cover potential claims for indemnification by
the Company under the stock purchase agreements entered into in connection
with the Acquisitions. See "Certain Transactions - The Acquisitions."
(3) Excludes (i) up to 750,000 shares of Class A Common Stock issuable upon
exercise of the Underwriters' over-allotment option and the Warrants
included in such option; (ii) 2,500,000 shares of Class A Common Stock
issuable upon exercise of the Warrants included in the Units offered
hereby; (iii) 500,000 shares of Class A Common Stock issuable upon
exercise of the Unit Purchase Option and the Warrants included in such
option; and (iv) 300,000 shares of Class A Common Stock reserved for
issuance under the Company's 1997 Stock Option Plan. See "Management -
Stock Option Plan," "Certain Transactions" and "Description of
Securities."
Summary Selected Pro Forma Combined Financial Data
Effective June 2, 1997, Crescent acquired all of the outstanding common
stock of the Subsidiaries. The following summary unaudited pro forma combined
financial data presents certain pro forma data for the combined Company.
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1996 March 31, 1997
----------------- --------------
(in thousands, except share and per share data)
<S> <C> <C>
Combined Pro Forma Statement of
Income Data(1):
Net sales(2) $ 68,902 $ 17,599
Cost of goods sold(3) 57,643 14,711
Gross profit 11,259 2,888
Operating expenses:
Selling, general and administrative(4) 7,521 1,916
Depreciation 162 48
Amortization(5) 220 55
Operating income 3,356 869
Other income(6) 138 73
Interest expense(7) 431 83
Income before provision for income taxes,
minority interest and extraordinary gain 3,064 859
Provision for income taxes(8) 1,281 356
Income before minority interest and extraordinary gain 1,783 502
Minority interest 24
Income before extraordinary gain 1,783 478
Pro forma income per share before extraordinary
gain - primary .47 .13
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Estimated pro forma weighted average shares
outstanding - primary(9) 3,800,000 3,800,000
Pro forma income per share before extraordinary
gain - fully diluted $.45 $.12
==== ====
Estimated pro forma weighted average shares
outstanding - fully diluted (9) 4,000,000 4,000,000
========= =========
</TABLE>
At March 31, 1997
-----------------------------------------------
Combined Pro Forma Pro Forma(10)(11) As Adjusted(10)(12)
Balance Sheet Data: ----------------- -------------------
Working capital $ 3,566 $
Total assets 22,922
Total debt 6,443
Stockholders' equity 7,440
- ----------
(1) See "Unaudited Pro Forma Combined Financial Statements" relating to the
year ended December 31, 1996 and the three months ended March 31, 1997.
(2) Adjusted to reflect the Acquisitions and the elimination of revenue
between IPM and IG.
(3) Adjusted to reflect the Acquisitions and the elimination of expenses of
affiliated entities of the Subsidiaries not acquired by Crescent.
(4) Adjusted to reflect the Acquisitions and the reductions in compensation
levels that certain former stockholders of the Subsidiaries have
contractually agreed to receive from the Company subsequent to the
Acquisitions.
(5) Adjusted to reflect the amortization of the estimated goodwill recorded in
connection with the Acquisitions.
(6) Adjusted to reflect the elimination of expenses between IPM and IG.
(7) Adjusted for the elimination of pro rata interest expense on capital to be
contributed by the pre-Acquisition stockholders of Crescent.
(8) Gives effect to the estimated provision to reflect federal and state
income taxes as if all of the Subsidiaries had been C Corporations and the
incremental provision for the pro forma adjustments.
(9) Gives effect to the Acquisitions and subsequent Recapitalization.
Fully-diluted weighted average shares outstanding include the Escrow
Shares.
(10) See "Unaudited Pro Forma Combined Financial Statements" as of March 31,
1997.
(11) Gives effect to (i) the Acquisitions in accordance with SAB 97 and APB 16,
(ii) the combination of the Subsidiaries with Crescent as if such
combination had occurred as of March 31, 1997, (iii) cash borrowed from
banks to fund, and resulting adjustment to the respective liabilities for
the estimated excess net asset value due to the former stockholders of the
Subsidiaries, the amounts due to the stockholders of Crescent, and notes
payable to former stockholders of the Subsidiaries, (iv) the elimination
of related party balances between IPM and IG and (v) the elimination of
common stock of the Subsidiaries and the issuance of 2,630,400 shares
(including the Escrow Shares) of Class B Common Stock to stockholders of
the Subsidiaries.
(12) Adjusted to reflect the sale of 2,500,000 shares of Class A Common Stock
offered hereby at an assumed initial offering price of $5.00 per share and
the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
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<PAGE>
RISK FACTORS
The securities offered hereby are speculative in nature and an investment
in the Units offered hereby involves a high degree of risk. Statements in this
Prospectus that are not historical facts are forward-looking statements that are
subject to risks and uncertainties. Statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future are based
on information available to the Company on the date hereof, and the Company
assumes no obligation to update any such forward-looking statements. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth below and elsewhere in this Prospectus. In evaluating the Company's
business and an investment in the Units offered hereby, prospective investors
should carefully consider the following risk factors in addition to the other
information in this Prospectus.
No Prior Combined Operating History and Risks Associated with Combined
Operations. The Company has no operating history as a combined entity. Although
the members of the Graphics Division in the past several years have cooperated
in a number of business ventures in connection with their membership in certain
trade organizations, each of G&R, Microsouth, tekgraf Texas, CGD and IGD have
operated as independent businesses with independent management for more than the
past eight years. The Company's success will depend, in part, on its ability to
manage and combine the operations of these companies in a single organizational
structure. There can be no assurance that the businesses of such companies can
be successfully integrated or that the combination into one larger entity will
not place a significant strain on the management and key technical resources of
the Company. The Company has only recently commenced planning for the
centralization of certain administrative functions from the existing six
locations to its executive offices in Georgia, and there can be no assurance
that unanticipated delays in consolidation will not occur. There can be no
assurance that the Company will be able to implement its business plans as a
consolidated entity or continue to achieve profitable operations.
Risk of Expansion. The sales of the Company's Graphics Division are
currently derived from sales in most geographic regions of the United States,
with the exception of Southern California, Arizona, New Mexico and New England.
The Company is seeking to expand its market for computer graphics technology
sales to include the remainder of the United States and Canada, and to increase
both the number of product lines it resells from manufacturers for whom it
currently performs outsourcing and the number of manufacturers whose products it
offers for resale. While the Company's sales force is established in its
existing market areas, there can be no assurance that the Company's efforts to
establish a national sales force will be successful. Further, there can be no
assurance that the Company will be successful in the transition from separate
companies operating in distinct regional areas into one entity servicing a large
portion of the United States. If the Company were unable to make the necessary
adjustments in its methods of operations and in its orientation and focus, it
would have an adverse effect on the ability of the Company's Graphics Division
to achieve successful national expansion. See "Business - Strategy."
Competition; Technological Change and Obsolescence. The business of
manufacturing and selling computers and computer peripheral equipment is
intensely
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<PAGE>
competitive and rapidly changing. The Company believes that the principal
competitive factors in this industry include relative price and performance,
product availability, technical expertise, financial stability, service, support
and reputation. The Crescent Computers manufactured by the Company's Technology
Division are constructed with standardized parts which are available to others
in the market. The Technology Division's competitors include established
computer product manufacturers, some of which supply products to the Company,
computer resellers, distributors and service providers. Some of the Technology
Division's current and potential competitors have substantially greater
financial, managerial, development, sales, marketing, technical and other
competitive resources than those of the Company. As a result, the Technology
Division's competitors may be able to devote greater resources than the Company
to the sales and service of their computer products. As the computer market in
which the Technology Division competes has matured, product price competition
has intensified and is likely to continue to intensify, which may make it too
costly for the Company to continue its "made-to-order" method of doing business.
One of the results of this competition may be to lower sales prices and decrease
profit margins.
Technological competition from other and longer established computer
hardware manufacturers and software developers is significant and expected to
increase. The Company's Technology Division expects that hardware manufacturers
and software developers will continue to enter the market to provide and package
integrated information distribution solutions to the same customer base served
by the Company's Technology Division. All such market participants will compete
intensely to maintain or improve their market shares and revenues. Most of the
companies with which the Company's Technology Division competes have
substantially greater capital resources, research and development staffs,
marketing and distribution programs and facilities, and many of them have
substantially greater experience in the production and marketing of products.
In the development market for network servers and workstations, the
Company experiences competition from hundreds of small companies and a number of
significant competitors, including such major industry participants as IBM,
Compaq Computers, Inc. and Dell Computer Corp. Accordingly, there is no
assurance that the Crescent Computer will continue to achieve sufficient market
acceptance to assure the Company's future success and long range profitability
in the face of competition with such significantly larger and better capitalized
companies.
The Company's Graphics Division competes primarily with computer equipment
manufacturers that either utilize an in-house sales force to market their
products to resellers and directly to end-users or utilize the services of
large, national fulfillment distributors. See "Business - Competition."
Risks Relating to Acquisitions; Charge to Earnings for Amortization of
Goodwill from Acquisitions; Possible Issuance of Additional Common Stock in
Acquisitions. A key element of the Company's strategy is to continue to expand
through acquisitions of companies engaged in the distribution and/or marketing
of computers and/or computer hardware, software and peripherals. The Company
believes that its future growth depends, in part, upon the successful
implementation of this program. See "Business - Strategy." The failure of the
acquisition program could have a material adverse effect on the Company. The
Company has allocated a
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<PAGE>
substantial portion of the proceeds of the Offering to pursue potential
acquisition opportunities, although there can be no assurance that the Company
will consummate such acquisitions or, if any such acquisitions do occur, that
they will be successful in enhancing the Company's business. Acquisitions may
adversely affect the Company's operations in the short-term, depending on many
factors, including capital requirements and the accounting treatment of such
acquisitions. For example, the Company estimates that approximately $3.3 million
of goodwill will be recognized relating to the Acquisitions, which will be
charged to earnings as it is amortized over the next 15 years. In addition to
the amortization of acquired intangible assets (such as goodwill), the Company's
acquisition strategy could pose a number of special risks, including the
diversion of management's attention, the assimilation of the operations and
personnel of the acquired companies, the incorporation of acquired products into
existing product lines, adverse short-term effects on reported operating
results, the loss of key employees and the difficulty of presenting a unified
corporate image. There can be no assurance that the Company will successfully
identify, complete or integrate acquisitions or that any acquisitions, if
completed successfully, will perform as expected, will not result in significant
unexpected liabilities or will ever contribute significant revenues or profits
to the Company. The failure to successfully integrate the business of any entity
acquired by the Company would have a material adverse affect on the Company.
Further, the consideration for acquisitions may involve cash, notes and a
significant number of shares of Common Stock or warrants to purchase shares of
Common Stock, depending on the size of the acquisition. The Company may issue a
substantial number of additional shares of Common Stock if it consummates
several acquisitions, which may result in dilution to investors in the Offering
and may not be accretive in earnings per share.
Broad Discretion as to Use of Proceeds; Absence of Substantive Disclosure
Relating to, and Inability of Stockholders to Evaluate, Future Acquisitions. The
Company has broad discretion with respect to the specific application of a
significant portion of the net proceeds of the Offering, as approximately % of
the net proceeds will be applied to working capital and approximately % of the
net proceeds are intended to be applied towards consummating acquisitions.
Further, if all or a portion of the Underwriters' over- allotment option is
exercised, it is anticipated that the net proceeds therefrom will be utilized
for acquisitions and working capital purposes. Although the Company continually
explores acquisition possibilities and has targeted a number of companies,
including NECG, an entity owned by certain officers and stockholders of the
Company, it is not currently negotiating any acquisitions and has no agreements,
arrangements or understandings regarding potential acquisitions. See "-
Potential Conflicts of Interest; Transactions with Affiliates." There can be no
assurance that the acquisition of NECG will be successfully completed, that the
Company will make any additional acquisitions or, if made, that any such
acquisitions will be successful. A Company decision to utilize a substantial
portion of the net proceeds of the Offering for acquisitions reduces the
resources available to complete its other expansion and growth objectives. In
such event, the Company may be required to obtain additional financing to
achieve such objectives. There can be no assurance that such financing will be
available, or, if available, will be on terms acceptable to the Company.
Although management of the Company will endeavor to evaluate the risks inherent
in any particular acquisition, there can be no assurance that the Company will
properly ascertain all such risks. Management of the Company will have virtually
unrestricted flexibility in identifying and selecting prospective acquisition
candidates. The Company does
- 10 -
<PAGE>
not intend to seek stockholder approval for any acquisitions unless required by
applicable law or regulations and stockholders will most likely not have an
opportunity to review financial information on an acquisition candidate prior to
consummation of an acquisition. See "Use of Proceeds" and "Business - Strategy."
Dependence of Graphics Division on Distribution Arrangements with
Manufacturers; Risk of Termination of Agreements. The Company's relationships
with computer product manufacturers are based substantially on mutual
satisfaction with the relationships in addition to the terms of the contractual
arrangements between the parties. The Company's distribution agreements
generally provide for termination by either party without cause on either 30 or
60 days' notice and for the Company to act as a distributor on a non-exclusive
basis for specified geographic territories. The Company's Graphics Division
relies on a limited number of suppliers of computer products for a significant
portion of its revenues. There can be no assurance that some or any of the
Company's suppliers will not elect to change distributors or their method of
distribution, e.g., utilize an in-house sales force. The loss of any significant
supplier or the loss of any significant product line could adversely affect the
Company's ability to service customers and, as a result, could have a material
adverse effect on the Company's operating results. There can be no assurance
that the Company would be able to fully replace the loss of any significant
supplier. Further, although part of the Company's growth strategy after the
Offering will be to expand the number of manufacturers whose products it
distributes and the number of product lines it distributes generally, there can
be no assurance that the Company will achieve such expansion. See "Business -
The Company's Divisions and Products."
Dependence of Technology Division on Suppliers; Reliance on DEC. The
Company assembles the Crescent Computer principally from standardized components
from outside sources and relies on such outside sources to manufacture the
components of the Crescent Computer, none of which are contractually obligated
to meet the long-term requirements of the Company. In the event that any of the
Company's current suppliers suffer quality control problems or financial
difficulties, the Company would be required to find alternative sources of
supply. While the Company is aware of a number of sources of supply for most
components, there can be no assurance that current or alternative sources will
be able to supply all of the Company's demands on a timely basis or that the
Company would be able to locate alternative sources of supply to deliver high
quality components on a timely basis or at all. Further, substitution of
alternative suppliers could result in delays in the delivery of any such
components, temporary business dislocations and a decline in sales. In addition,
reliance on outside sources reduces the Company's control over production costs.
The Company, through its Prisym subsidiary, is an authorized DEC reseller.
During the year ended December 31, 1996 and the three months ended March 31,
1997, revenues derived from the sale of DEC and DEC-related products accounted
for 37.5% and 40.9%, respectively, of the Technology Division's revenues. Prisym
has no written supply agreement with DEC. In addition, DEC has historically
experienced production problems which have led to supply shortages. The
termination of the Company's relationship with DEC or the inability to obtain
product supplies when needed could have a material adverse affect on the
Company's financial condition and results of operations. See "Business - The
Company's Divisions and Products Technology Division."
- 11 -
<PAGE>
Customer Concentration in Technology Division. The Company's Technology
Division typically sells significant amounts of equipment to a small number of
customers, the composition of which changes from year to year as customer
equipment needs vary. Therefore, at any one time, a large portion of the
Technology Division's sales may be derived from a limited number of customers.
During the year ended December 31, 1996 and the three months ended March 31,
1997, three customers accounted for an aggregate of approximately 14% and 11% of
the Technology Division's sales, respectively. The loss of such customers could
have a material adverse effect on the Company's operations if the Company does
not replace such customers on a timely basis. See "Business - The Company's
Divisions and Products."
Possible Need for Additional Financing. Although the Company believes that
the net proceeds from the Offering, together with available funds, will enable
it to fund its operations and acquisition strategy for at least 12 months, in
the event the Company fails to generate sufficient revenues during such period,
the Company may be required to seek substantial additional financing to continue
its activities and to implement its acquisition plan, which may include debt
financing. Significant growth could also require the Company to seek additional
financing. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business - Strategy."
Fluctuations in Financial Results. The Company's sales and operating
results may vary significantly from year to year and from quarter to quarter as
a result of a variety of factors, including the introduction of new products by
competitors, pricing pressures, the timing of the completion or the cancellation
of projects, the evolving and unpredictable nature of the markets in which
computer products are sold and economic conditions generally or in certain
geographic areas in which the Company's customers do business. Furthermore, the
Company may be unable to control spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, there can be no assurance that
sales and net income, if any, in any particular quarter will not be lower than
sales and net income, if any, in a preceding or comparable quarter or quarters.
In addition, sales and net income, if any, in any particular quarter are not
likely to be indicative of the results of operations for the Company for any
other quarter or for the full year. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The trading prices of the
Company's securities may fluctuate significantly in response to variations in
the Company's quarterly or annual results of operations.
Potential Conflicts of Interest; Transactions with Affiliates. William
Rychel, the Co-President and a director of the Company, is a principal
stockholder of NECG, a distributor of computer graphic products located in
Massachusetts. Thomas Gust, a principal stockholder of the Company, and A.
Lowell Nerenberg, a stockholder and employee of the Company, are also principal
stockholders of NECG. The Company has targeted NECG as an entity it may seek to
acquire after the completion of the Offering, although the terms and conditions
of such acquisition have not yet been negotiated.
Distributions and Other Payments to Insiders; Substantial Portion of
Proceeds to be Used for Debt Repayment. Prior to completion of the Offering, the
Company intends to make certain distributions and payments to, or for the
benefit of, certain officers, directors and stockholders of the Company as
follows: approximately (i) $1,200,000 in cash will be
- 12 -
<PAGE>
distributed to the former stockholders of Microsouth and tekgraf Texas,
including Martyn Cooper and J. Thomas Woolsey, officers and directors of the
Company, as purchase price adjustments in connection with the Acquisitions (such
payments, together with other payments to be made to the former stockholders of
the Subsidiaries, the"Purchase Price Adjustments"); (ii) $2,100,000 will be paid
to Alongal Extrusions, Inc. ("Alongal"), a company owned by a principal
stockholder of the Company, in repayment of working capital advances; (iii)
$1,700,000 will be used to repay amounts outstanding under bank lines of credit
currently maintained by G&R and CGD which are personally guaranteed by certain
of the Company's stockholders, including William M. Rychel, Co-President and a
director of the Company; (iv) $90,000 of outstanding indebtedness will be repaid
to two former stockholders of CGD; and (v) $125,000 of outstanding indebtedness
will be repaid to a former stockholder of IPM and IG. The foregoing payments
will be funded by excess cash contributed in connection with the Acquisitions,
contributions to capital to be made by certain stockholders of the Company and a
bank line of credit expected to be obtained prior to completion of the Offering.
The Company intends to utilize approximately $3,200,000 of the net proceeds of
the Offering to repay the amount which it anticipates to have outstanding under
such bank line. It is expected that Mr. Aginsky and all principal stockholders
of the Company will be required to personally guarantee such bank debt, which
guarantee will be cancelled upon its repayment. See "Use of Proceeds,"
"Dividends and Distributions" and "Certain Transactions - Other Transactions."
Lack of Patents; Reliance on Proprietary Rights. The Company has no
patents and its success will depend, in part, on its ability to preserve its
trade secrets and to operate without infringing the proprietary rights of third
parties. The Company seeks to protect its trade secrets and proprietary
know-how, in part, by confidentiality agreements with employees, consultants,
advisors, and others. There can be no assurance that such employees,
consultants, advisors, or others will maintain the confidentiality of such trade
secrets or proprietary information, or that the trade secrets or proprietary
know-how of the Company will not otherwise become known or be independently
developed by competitors in such a manner that the Company will have no
practical recourse.
Dependence on Key Personnel. The Company is highly dependent on the
services of its Chairman, Phillip C. Aginsky, and its Co-Presidents, Dan I.
Bailey and William M. Rychel, as well as the other principal members of
management and technical staff of the Company. The future success of the Company
depends in large part upon its ability to attract and retain highly qualified
personnel. The Company faces intense competition for such highly qualified
personnel from other technology companies and may have to pay higher salaries to
attract and retain such personnel. There can be no assurance that sufficient
qualified personnel can be hired on a timely basis or retained. The loss of such
key personnel or failure to recruit additional key personnel could have a
material adverse effect on the Company's business, financial condition and
results of operations. Messrs. Aginsky, Bailey and Rychel have entered into
employment agreements with the Company which contain non-competition provisions.
Such provisions may be unenforceable in certain states. See "Management."
Control by Insiders; Potential Anti-Takeover Effect of Shares Having
Disproportionate Voting Rights. Upon completion of the Offering, the existing
stockholders of the Company, as the holders of Class B Common Stock, will
beneficially own approximately 61.5% of the outstanding Common Stock (including
the Escrow Shares and the Indemnification
- 13 -
<PAGE>
Shares) of the Company, representing approximately 88.9% of the voting power
and will be able to elect the Company's directors and thereby direct the
policies of the Company. Furthermore, the disproportionate vote afforded the
Class B Common Stock could also serve to impede or prevent a change of control
of the Company. As a result, potential acquirers may be discouraged from seeking
to acquire control of the Company through the purchase of Class A Common Stock,
which could have a depressive effect on the price of the Company's securities.
See "Principal Stockholders" and "Description of Securities."
Immediate Dilution; Recent Exchange of Common Stock at Prices
Substantially Below Initial Public Offering Price. In connection with the
Acquisitions, William M. Rychel, J. Thomas Woolsey and Martyn Cooper, officers
and directors of the Company, and the other stockholders of G&R, Microsouth,
tekgraf Texas, CGD and IGD were issued an aggregate of 2,630,400 shares of Class
B Common Stock (including the Escrow shares) at an effective purchase price of
$2.54 per share (excluding the Escrow Shares.) The purchasers of the Units in
the Offering will incur an immediate dilution of approximately $____, or __%, in
the pro forma per share net tangible book value of their Class A Common Stock,
allocating no value to the Warrants included in the Units ($____, or ___%, if
the Underwriters' over-allotment option is exercised in full). Additional
dilution to public investors, if any, may result to the extent that the Warrants
and/or the Representative's Unit Purchase Option are exercised at a time when
the net tangible book value per share of Common Stock exceeds the exercise price
of any such securities. See "Dilution."
Charge to Earnings in the Event of Release of Escrow Shares. In the event
any shares are released from escrow to the holders who are officers, directors,
employees or consultants of the Company, a compensation expense will be recorded
for financial reporting purposes. Accordingly, in the event of the release of
the Escrow Shares, the Company will recognize during the period in which the
earnings thresholds are probable of being met or such stock levels achieved, a
substantial non-cash charge to earnings equal to the fair market value of such
shares and options on the date of their release, which would have the effect of
significantly increasing the Company's loss or reducing or eliminating earnings,
if any, at such time. The recognition of such compensation expense may have a
depressive effect on the market price of the Company's securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Release of Escrow Shares," "Principal Stockholders" and
"Description of Securities." Notwithstanding the foregoing discussion, there can
be no assurance that the Company will attain the targets which would enable the
Escrow Shares to be released from escrow.
Potential Adverse Effects of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of shares of "blank check" preferred
stock, which will have such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors will be empowered, without stockholder approval (but subject to
applicable government regulatory restrictions), to issue preferred stock with
dividend, liquidation, conversion, voting or other rights which could adversely
affect the voting power or other rights of the holders of the Common Stock. In
the event of such issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. Although the Company has no present intention to issue
any shares of preferred stock, there can be no
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<PAGE>
assurance that the Company will not do so in the future. See "Description of
Securities - Preferred Stock."
No Dividends. The Company does not expect to declare or pay any cash or
other dividends on its Common Stock in the foreseeable future. See "Dividends
and Distributions."
No Public Market for Securities; Possible Volatility of Market Price;
Arbitrary Determination of Offering Price. Prior to the Offering, there has not
been any market for any of the Company's securities, and there can be no
assurance that an active trading market will develop or be sustained after the
Offering. The initial public offering price of the Units and the exercise prices
and other terms of the Warrants have been determined by negotiation between the
Company and the Representative and are not necessarily related to the Company's
asset value, net worth, results of operations or any other criteria of value and
may not be indicative of the prices that may prevail in the public market. The
market prices of the Units, Class A Common Stock and Warrants could also be
subject to significant fluctuations in response to variations in the Company's
operations, expansion plans, general trends in the industry and other factors,
including extreme price and volume fluctuations which have been experienced by
the securities markets from time to time. See "Underwriting."
Outstanding Warrants and Options; Exercise of Registration Rights. Upon
completion of the Offering, the Company will have outstanding (i) 2,500,000
Warrants to purchase an aggregate of 2,500,000 shares of Class A Common Stock;
and (ii) the Unit Purchase Option to purchase an aggregate of 500,000 shares of
Class A Common Stock, assuming exercise of the underlying Warrants. The Company
also has 300,000 shares of Class A Common Stock reserved for issuance upon
exercise of options under its 1997 Stock Option Plan, of which options to
purchase up to 75,000 shares are expected to be granted on the date of this
Prospectus. Holders of such warrants and options are likely to exercise them
when, in all likelihood, the Company could obtain additional capital on terms
more favorable than those provided by warrants and options. Further, while such
warrants and options are outstanding, the Company's ability to obtain additional
financing on favorable terms may be adversely affected. The holders of the Unit
Purchase Option have certain demand and "piggy-back" registration rights with
respect to their securities. Exercise of such rights could involve substantial
expense to the Company. See "Management - Stock Option Plan," "Description of
Securities" and "Underwriting."
Potential Adverse Effect of Redemption of Warrants. Commencing one year
from the date of this Prospectus, the Warrants may be redeemed by the Company at
a redemption price of $.05 per Warrant upon not less than 30 days' prior written
notice if the closing bid price of the Common Stock shall have averaged in
excess of $9.80 per share for 30 consecutive trading days ending within 15 days
of the notice of redemption. Redemption of the Warrants could force the holders
to (i) exercise the Warrants and pay the exercise price therefor at a time when
it may be disadvantageous for the holders to do so, (ii) sell the Warrants at
the then current market price when they might otherwise wish to hold the
Warrants, or (iii) accept the nominal redemption price which, at the time the
Warrants are called for redemption, is likely to be substantially less than the
market value of the Warrants. See "Description of Securities - Redeemable
Warrants."
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<PAGE>
Current Prospectus and State Registration to Exercise Warrants. Holders of
Warrants will be able to exercise the Warrants only if (i) a current prospectus
under the Securities Act relating to the securities underlying the Warrants is
then in effect and (ii) such securities are qualified for sale or exempt from
qualification under the applicable securities laws of the states in which the
various holders of Warrants reside. Although the Company has undertaken and
intends to use its best efforts to maintain a current prospectus covering the
securities underlying the Warrants following completion of the Offering to the
extent required by Federal securities laws, there can be no assurance that the
Company will be able to do so. The value of the Warrants may be greatly reduced
if a prospectus covering the securities issuable upon the exercise of the
Warrants is not kept current or if the securities are not qualified, or exempt
from qualification, in the states in which the holders of Warrants reside.
Persons holding Warrants who reside in jurisdictions in which such securities
are not qualified and in which there is no exemption will be unable to exercise
their Warrants and would either have to sell their Warrants in the open market
or allow them to expire unexercised. If and when the Warrants become redeemable
by the terms thereof, the Company may exercise its redemption right even if it
is unable to qualify the underlying securities for sale under all applicable
state securities laws. See "Description of Securities - Redeemable Warrants."
Possible Adverse Effect on Liquidity of the Company's Securities Due to
the Investigation of the Representative by the Securities and Exchange
Commission. The Commission is conducting an investigation concerning various
business activities of the Representative. The investigation appears to be broad
in scope, involving numerous aspects of the Representative's compliance with the
Federal securities laws and compliance with the Federal securities laws by
issuers whose securities were underwritten by the Representative, or in which
the Representative made over-the-counter markets, persons associated with the
Representative, such issuers and other persons. The Company has been advised by
the Representative that the investigation has been ongoing since at least 1989
and that it is cooperating with the investigation. The Representative cannot
predict whether this investigation will ever result in any type of formal
enforcement action against the Representative, or, if so, whether any such
action might have an adverse effect on the Representative or the securities
offered hereby. See "Underwriting."
Shares Eligible for Future Sale. Future sales of Common Stock by existing
stockholders pursuant to Rule 144 under the Securities Act or otherwise, could
have an adverse effect on the price of the Company's securities. Upon the sale
of the 2,500,000 Units offered hereby, the Company will have outstanding
2,500,000 shares of Class A Common Stock, 4,000,000 shares of Class B Common
Stock and 2,500,000 Warrants (2,875,000 shares of Class A Common Stock and
2,875,000 Warrants if the Underwriters over-allotment option is exercised in
full). The 4,000,000 outstanding shares of Class B Common Stock are "restricted
securities" within the meaning of Rule 144 under the Securities Act and may not
be sold publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. 1,369,600 of such
shares are currently eligible for sale in the public market pursuant to Rule 144
and the remainder will become so eligible commencing June 1998 (subject to the
restrictions on transferability relating to the Escrow Shares and volume
limitations). However, all the holders of the shares of Class B Common Stock
outstanding prior to the Offering have agreed not to sell or otherwise dispose
of any securities of the Company for a period of 13 months from the date of this
Prospectus without the
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<PAGE>
Representative's prior written consent and for the 10 months thereafter not to
sell more than 10% of their holdings in any month on a culmulative basis without
such consent. The holders of the Unit Purchase Option have certain demand and
"piggy-back" registration rights with respect to their securities. The exercise
of such rights could involve significant expense to the Company. Sales of Common
Stock, or the possibility of such sales, in the public market may adversely
affect the market price of the securities offered hereby. See "Description of
Securities," "Shares Eligible for Future Sale" and "Underwriting."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,500,000 Units
offered hereby, after deducting underwriting discounts and commissions and other
expenses of the Offering, are estimated to be approximately $___________
($_________ if the Underwriters' over-allotment option is exercised in full).
The Company expects the net proceeds to be utilized approximately as follows:
Approximate
Amount
Application of Net Proceeds
----------- ---------------
Bank debt retirement (1)..................... $ 3,200,000
Future acquisitions ......................... 3,700,000
Consolidation expenses (2)................... 800,000
Sales and marketing (3)...................... 500,000
Working capital (4)..........................
-----------
Total................................... $
===========
- ----------
(1) Represents the amount anticipated to be outstanding under a bank line of
credit expected to be obtained prior to the Offering. Such bank debt will
be used to fund a portion of the following: Purchase Price Adjustments to
be made in connection with the Acquisitions, repayment of outstanding
indebtedness to Alongal, retirement of bank lines of credit currently
maintained by G&R and CGD, repayment on notes payable to former
stockholders of the Subsidiaries and working capital. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
(2) Includes installation of high speed telecommunications lines and an MIS
System. See "Business - Facilities and Administrative Functions."
(3) Includes implementation of a national promotional campaign. See "Business
- Customers, Sales and Marketing."
(4) Represents amounts for general corporate purposes, including inventory
purchases, the financing of receivables, and general and administrative
expenses.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering during the next approximately 12 months. This
estimate is based on certain assumptions, including that the consolidation of
the acquired companies is successfully completed, revenues from operations do
not fall below anticipated levels, no events occur which would cause the Company
to abandon any particular efforts and that competitive conditions remain stable.
The amounts actually expended for each purpose may vary significantly in the
event any of these assumptions prove inaccurate. The Company reserves the right
to change its use of proceeds as unanticipated events may cause the Company to
redirect its priorities and reallocate the proceeds accordingly.
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<PAGE>
Any additional proceeds received upon exercise of the Underwriters'
over-allotment option will be added to working capital. Pending utilization, the
net proceeds of the Offering will be invested in short-term, interest-bearing
investments.
DIVIDENDS AND DISTRIBUTIONS
Prior to completion of the Offering, approximately $1,200,000 in cash will
be distributed to the former stockholders of the Subsidiaries, including William
Rychel, Martyn Cooper and J. Thomas Woolsey, officers and directors of the
Company, as Purchase Price Adjustments in connection with the Acquisitions. See
"Certain Transactions - The Acquisitions."
The Company does not anticipate paying cash dividends on its Common Stock
in the foreseeable future. The Company currently intends to retain all earnings,
if any, for use in the expansion of the Company's business. The declaration and
payment of future dividends, if any, will be at the sole discretion of the Board
of Directors and will depend upon the Company's profitability, financial
condition, cash requirements, future prospects and other factors deemed relevant
by the Board of Directors.
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<PAGE>
CAPITALIZATION
The following table sets forth the actual capitalization of the Company as
of March 31, 1997 giving retroactive effect to a stock split effected in May
1997 and the Recapitalization; the pro forma capitalization of the Company as of
March 31, 1997 giving effect to (i) the Acquisitions in accordance with SAB 97
and APB 16, (ii) the combination of the Subsidiaries and Crescent as if such
combination had occurred as of March 31, 1997, and (iii) the elimination of
common stock of the Subsidiaries and the issuance of 2,630,400 shares of Class B
Common Stock (including the Escrow Shares) to the stockholders of the
Subsidiaries; and the as adjusted capitalization of the Company as of March 31,
1997 giving effect to the (i) issuance of 2,500,000 shares of Class A Common
Stock in connection with the Offering. This table should be read in conjunction
with the Unaudited Pro Forma Combined Balance Sheet as of March 31, 1997 and the
audited historical consolidated financial statements of Crescent, and the notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------------
Actual Pro Forma As Adjusted
------ --------- -----------
(in thousands, except share data)
<S> <C> <C> <C>
Due to related entities 2,081 38
Minority interest 24 24
Due to stockholders 14
Bank debt -- 6,443
Stockholders' Equity:
Preferred Stock, $.001 par value;
5,000,000 shares authorized; no
shares issued and outstanding actual;
pro forma, and as adjusted -- --
Class A Common Stock, $.001 par value,
31,000,000 shares authorized; no
shares issued and outstanding actual
and pro forma; 2,500,000 shares issued
and outstanding as adjusted (1) -- --
Class B Common Stock, $.001 par value,
4,000,000 shares authorized, 1,369,600
shares issued and outstanding actual;
4,000,000 shares issued and
outstanding pro forma and as adjusted (2) 1 4
Additional paid-in capital -- 7,317
Retained earnings 119 119
Total stockholders' equity ............ 120 7,440
Total capitalization................... 2,238 13,945
</TABLE>
- ----------
(1) Excludes (i) up to 750,000 shares issuable upon exercise of the
Underwriters' over-allotment option and the Warrants included in such
option; (ii) 2,500,000 shares issuable upon exercise of the Warrants
included in the Units offered hereby; (iii) 500,000 shares issuable upon
exercise of the Unit Purchase Option and the Warrants included in such
option; or (iv) 300,000 shares reserved for issuance under the Company's
1997 Stock Option Plan. See "Management - Stock Option Plan," "Certain
Transactions" and "Description of Securities."
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<PAGE>
(2) Includes the Escrow Shares and the Indemnification Shares. See "Principal
Stockholders - Escrow Shares" and "Certain Transactions - The
Acquisitions."
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<PAGE>
DILUTION
The following discussion and tables allocate no value to the Warrants
contained in the Units. Such discussion and tables should be read in conjunction
with the Unaudited Pro Forma Combined Balance Sheet as of March 31, 1997 and the
audited historical consolidated financial statements of Crescent, and the notes
thereto included elsewhere in this Prospectus.
Dilution represents the difference between the initial public offering
price paid by the purchasers in the Offering and the net tangible book value per
share immediately after completion of the Offering. Net tangible book value per
share represents the amount of the Company's total assets minus the amount of
its intangible assets and liabilities, divided by the number of shares of Common
Stock outstanding. At March 31, 1997, the Company had an actual historical net
tangible book value of approximately $120,000 or $.09 per share, giving
retroactive effect to a stock split effected in May 1997 and the
Recapitalization. At such date, the Company had a pro forma net tangible book
value of approximately $4,140,000 or $1.09 per share (excluding the Escrow
Shares). The pro forma adjustment to the actual historical net tangible book
value gives effect to the Acquisitions. After giving retroactive effect to the
sale of 2,500,000 Units offered hereby, and the Company's receipt of the net
proceeds therefrom less underwriting discounts, commissions and other estimated
expenses of the Offering (anticipated to aggregate $ ), the net tangible book
value of the Company, as adjusted, at March 31, 1997 would have been $________
or $_____ per share. This would result in an immediate dilution to the public
investors of $ per share and the aggregate increase in the pro forma net
tangible book value to present stockholders would be $ per share ($___ per share
if the Escrow Shares were excluded). The following table illustrates this pro
forma per share dilution:
Assumed public offering price per share................... $5.00
Pro forma net tangible book value per share
before Offering.............................. $
Increase per share attributable to new investors... $
---
Net tangible book value per share after Offering.......... $ .
----
Dilution per shares to new investors (1).................. $ .
====
- ----------
(1) If the over-allotment option is exercised in full, the net tangible book
value after the Offering would be approximately $ per share, resulting in
dilution to new investors in the Offering of $ per share.
The following table summarizes the differences between existing
stockholders and new investors with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid to the Company
and the average price per share paid by the pre-Acquisition stockholders of the
Company, by the Acquisition stockholders and by new investors:
- 22 -
<PAGE>
<TABLE>
<CAPTION>
Total
Consideration Average
Shares Purchased Paid Price
--------------------- ------------------ Per
Number Percent Amount Percent Share
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Original Stockholders................. 1,369,600(1) 21.07% $ 936,100(2) . % $ (2)
Acquisition Stockholders.............. 2,630,400(1) 40.47 -- (3) -- -- (3)
New Investors......................... 2,500,000 38.46 $ .
--------- ------ -------- ------
Total................................. 6,500,000 100.00% $ 100.00%
========= ====== ======== ======
</TABLE>
- ----------
(1) Includes the Escrow Shares and Indemnification Shares.
(2) Includes amounts to be contributed to the capital of the Company prior to
the Offering by Anita, Ltd., a principal stockholder of the Company, and
the other pre-Acquisition stockholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Certain
Transactions - Other Transactions."
(3) Exclusive of the consideration provided in connection with the
Acquisitions. See "Certain Transactions." The effective purchase price of
these shares, which was based in part, on an independent appraisal of the
fair value of Crescent's Common Stock, was $2.54 per share (excluding the
Escrow Shares).
The foregoing table does not give effect to exercise of any outstanding
options or warrants. To the extent such options or warrants are exercised there
will be further dilution to new investors. See "Management - Stock Option Plan"
and "Description of Securities."
- 23 -
<PAGE>
Unaudited Pro Forma Combined Financial Statements
Effective June 2, 1997, Crescent acquired the outstanding common stock of
G&R, Microsouth, tekgraf Texas, CGD, IPM and IG. Based upon the provisions of
APB 16 and SAB 97, the Acquisitions will be accounted for as purchases. The
unaudited pro forma combined balance sheet gives effect to the Acquisitions and
the Offering as if they had occurred on March 31, 1997. The unaudited pro forma
combined statements of income give effect to the Acquisitions as if they had
occurred at the beginning of the earliest period presented. The pro forma
adjustments are based on preliminary estimates, available information and
certain assumptions that management deems appropriate. The pro forma financial
data does not purport to represent what the Company's financial position or
results of operations would actually have been if such transactions in fact had
occurred on those dates or to project the Company's financial position or
results of operations for any future period. See "Risk Factors" included
elsewhere herein.
The accompanying unaudited pro forma combined financial statements present
Crescent combined with the Subsidiaries and give effect to the following pro
forma adjustments: (i) adjustment to reflect cash borrowed from banks to fund,
and resulting adjustment to the respective liabilities, for the excess net asset
value due to the former stockholders of the Subsidiaries, amounts due to current
and former stockholders of Crescent, and notes payable to former stockholders of
the Subsidiaries; (ii) adjustment to reflect the elimination of transactions
between IPM and IG, and the elimination of expenses related to affiliated
entities of the Subsidiaries not acquired by Crescent; (iii) adjustment to
reflect the reductions in compensation levels that certain former stockholders
of the Subsidiaries and officers of Crescent have contractually agreed to
receive subsequent to the Acquisitions; (iv) adjustment to reflect the
amortization of the estimated goodwill recorded in connection with the
Acquisitions; (v) adjustment for the elimination of interest expense on capital
to be contributed by the pre-Acquisition stockholders of Crescent; (vi) gives
effect to the estimated provision to reflect federal and state income taxes as
if all of the Subsidiaries had been C Corporations and the incremental provision
for the pro forma adjustments; and (vii) gives effect to the Recapitalization.
The "As Adjusted" combined balance sheet of Crescent includes post acquisition
adjustments for the sale of Class A Common Stock in the Offering and the
application of estimated proceeds therefrom. These statements are derived from
the historical financial statements of Crescent and the Subsidiaries which are
included elsewhere.
The Company has performed a preliminary analysis of the savings that it
expects to realize as a result of (i) consolidating certain general and
administrative functions; (ii) the interest earned on the net proceeds of the
Offering remaining after payment of the expenses of the Offering and cash to pay
outstanding debt; and (iii) efficiencies in other general and administrative
areas. The Company has not and cannot accurately qualify these savings. It is
anticipated that these savings will be partially offset by costs of being a
public company. However, these costs, like the savings that they offset, cannot
be quantified accurately. Accordingly, neither items have been included in the
accompanying pro forma financial information.
These pro forma combined financial statements should be read in
conjunction with other information contained elsewhere under the heading
"Selected Financial and Operating Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the historical financial
statements of Crescent and the Subsidiaries. See "Index to Financial
Statements."
24
<PAGE>
Tekgraf, Inc.
Pro Forma Combined Statement of Operations
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Intelligent Computer
tekgraf, Products IG Graphics G&R Combined
Microsouth, inc. Marketing, Distributing Distributing, Marketing, Acquired
Inc. (Texas) Inc. Inc. Inc. Inc. Companies
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $10,325,373 $4,062,901 $9,058,790 $44,715 $11,002,868 $21,038,228 $55,532,875
Cost of goods sold 8,594,719 3,380,486 7,578,307 9,143,743 18,117,338 46,814,593
---------------------------------------------------------------------------------------------------
Gross profit 1,730,654 682,415 1,480,483 44,715 1,859,125 2,920,890 8,718,282
Operating expenses:
Selling, general and 1,256,356 339,740 1,333,230 474 1,608,903 2,551,281 7,089,984
administrative
Depreciation 8,566 9,858 42,961 26,787 56,549 144,721
Amortization (66,990) (31,412) (98,402)
---------------------------------------------------------------------------------------------------
Income from operations 532,722 364,229 104,292 44,241 223,435 313,060 1,581,979
Other income (expense) 27,625 21,831 (25,903) 54,861 182 78,596
Interest expense 60,000 15,000 123,675 140,194 338,869
---------------------------------------------------------------------------------------------------
Income before provision for 500,347 371,060 78,389 44,241 154,621 173,048 1,321,706
income taxes
Provision for income taxes 22,064 7,782 50,758 3,600 84,204
---------------------------------------------------------------------------------------------------
Net income $500,347 $371,060 $56,325 $36,459 $103,863 $169,448 $1,237,502
===================================================================================================
</TABLE>
25
<PAGE>
Tekgraf, Inc.
Pro Forma Combined Statement of Operations, Continued
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Combined Crescent Forma
Acquired Computers, ------------------------------
Companies Inc. Acquisition Adjustments Pro Forma
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $55,532,875 $13,414,131 $(44,715) (f) $68,902,291
Cost of goods sold 46,814,593 10,951,551 $(123,338) (a) 57,642,806
---------------------------------------------------------------------------------------------
Gross profit 8,718,282 2,462,580 123,338 (44,715) 11,259,485
Operating expenses:
Selling, general and administrative 7,089,984 2,244,924 (1,671,428) (b) (142,002) (a) 7,521,478
Depreciation 144,721 16,999 161,720
Amortization (98,402) 98,402 (c) 220,000 (g) 220,000
---------------------------------------------------------------------------------------------
Income from operations 1,581,979 200,657 1,696,364 (122,713) 3,356,287
Other income 78,596 14,916 44,715 (f) 138,227
Interest expense 338,869 159,500 (67,860) (d) 430,509
---------------------------------------------------------------------------------------------
Income before provision for income taxes 1,321,706 56,073 1,764,224 (77,998) 3,064,005
Provision for income taxes 84,204 13,000 1,183,558 (e) 1,280,762
---------------------------------------------------------------------------------------------
Net income $1,237,502 $43,073 $1,764,224 $(1,261,556) $1,783,243
=============================================================================================
Pro forma net income per share - primary $.47
================
Estimated pro forma weighted average shares outstanding - primary 3,800,000 (h)
================
Pro forma net income per share - fully diluted $.45
================
Estimated pro forma weighted average shares outstanding - fully diluted 4,000,000 (h)
================
</TABLE>
The accompanying notes are an integral part of this statement.
26
<PAGE>
Tekgraf, Inc.
Notes to Unaudited Pro Forma Combined Statement of Operations
for the year ended December 31,1996
(a) Reflects the elimination of expenses related to affiliated entities of the
Subsidiaries which were not acquired by Crescent.
(b) Adjusted to reflect the reductions in compensation levels that certain
former stockholders of the Subsidiaries and officers of Crescent have
contractually agreed to receive from the Company subsequent to the
Acquisitions.
(c) Reflects the elimination of amortization related to negative goodwill.
(d) Reflects the elimination of the pro rata interest expense incurred on
capital to be contributed by the pre-Acquisition stockholders of Crescent.
(e) Gives effect to the estimated provision to reflect federal and state
income taxes as if all of the Subsidiaries had been C Corporations and the
incremental provision for the pro forma adjustments. This adjustment
records income tax expense at an effective combined tax rate of 39%,
adjusted for non-deductible goodwill amortization.
(f) Reflects the elimination of transactions between IPM and IG.
(g) Adjusted to reflect the amortization of the estimated goodwill recorded in
connection with the Acquisitions. Goodwill is being amortized over 15
years.
(h) Gives effect to the Acquisitions and subsequent Recapitalization. Fully
diluted weighted average shares outstanding include the 200,000 Escrow
Shares.
27
<PAGE>
Tekgraf, Inc.
Unaudited Pro Forma Combined Balance Sheet
March 31, 1997
<TABLE>
<CAPTION>
Intelligent Computer
Products IG Graphics G&R Combined
Microsouth, tekgraf, Marketing, Distributing Distributing, Marketing, Acquired
Inc. inc. (Texas) Inc. Inc. Inc. Inc. Companies
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 212,889 $ 391,916 $ 12,158 $ 400 $ 556 $ 617,919
Accounts receivable, net 1,845,190 480,881 1,108,610 1,981,723 2,611,623 8,028,027
Inventory, net 933,250 247,012 927,694 1,100,663 1,923,602 5,132,221
Other receivables 46,315 317,106 363,421
Due from related entities 23,321 $90,514 166,682 280,517
Prepaid expenses 5,342 4,866 9,775 65 64,660 28,844 113,552
Deferred income taxes 56,056 16,174 72,230
---------------------------------------------------------------------------------------------------
Total current assets 3,019,992 1,124,675 2,160,608 90,579 3,163,620 5,048,413 14,607,887
---------------------------------------------------------------------------------------------------
Property and equipment, net 58,074 28,945 87,176 117,533 79,864 371,592
Due from related entities 14,329 14,329
Other assets 2,751 8,180 5,165 68,328 3,200 87,624
---------------------------------------------------------------------------------------------------
Total assets $3,080,817 $1,176,129 $2,252,949 $90,579 $3,349,481 $5,131,477 $15,081,432
===================================================================================================
Current portion of debt $1,148,962 $1,091,014 $ 2,239,976
Accounts payable $1,415,571 $468,360 $1,130,918 1,212,261 3,292,978 7,520,088
Accrued expenses 25,650 154,922 157,513 53,423 391,508
Due to related entities 128,723 128,723
Note payable, stockholder 40,000 40,000
Income taxes payable 40,856 41,852 82,708
Deferred income taxes 4,153 4,153
---------------------------------------------------------------------------------------------------
Total current liabilities $1,441,221 $ 468,360 $1,459,572 $2,600,588 $4,437,415 $10,407,156
---------------------------------------------------------------------------------------------------
Debt, less current maturities $ 28,397 $ 28,397
Negative goodwill, net $ 552,664 $ 263,405 816,069
Note payable, stockholder 50,000 50,000
Deferred income taxes 3,327 3,327
Common stock 100 100 125,005 1,000 18,762 2,100 147,067
Retained earnings 1,086,832 444,264 668,372 89,579 648,407 691,962 3,629,416
---------------------------------------------------------------------------------------------------
Total stockholders' equity 1,086,932 444,364 793,377 90,579 667,169 694,062 3,776,483
---------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $3,080,817 $1,176,129 $2,252,949 $90,579 $3,349,481 $5,131,477 $15,081,432
===================================================================================================
</TABLE>
28
<PAGE>
Tekgraf, Inc.
Unaudited Pro Forma Combined Balance Sheet, Continued
March 31, 1997
<TABLE>
<CAPTION>
Combined Crescent Post
Acquired Computers, Pro Forma Acquisition Acquisition As
Companies Inc. Adjustments Pro Forma Adjustments Adjusted
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 617,919 $ 667,409 $ 1,285,328 (j)
Accounts receivable, net 8,028,027 1,712,460 9,740,487
Inventory, net 5,132,221 704,886 $ 482,000(b) 6,319,107
Other receivables 363,421 363,421
Due from related entities 280,517 (90,514)(c) 190,003
Due from stockholders 936,000(e) 936,000
Prepaid expenses 113,552 113,552
Deferred income taxes 72,230 1,200 73,430
-----------------------------------------------------------------------------------------------------
Total current assets 14,607,887 3,085,955 1,327,486 19,021,328
-----------------------------------------------------------------------------------------------------
Goodwill 3,300,000(d) 3,300,000
Property and equipment, net 371,592 51,285 422,877
Due from related entities 14,329 14,329
Other assets 87,624 76,153 163,777
-----------------------------------------------------------------------------------------------------
Total assets $15,081,432 $3,213,393 $4,627,486 $22,922,311
=====================================================================================================
Current portion of debt $ 2,239,976 $4,202,883(a) $ 6,442,859 (k)
Accounts payable 7,520,088 862,439 8,382,527
Accrued expenses 391,508 26,701 418,209
Due to related entities 128,723 2,080,502 (2,080,502)(a) $(90,514)(c) 38,209
Note payable, stockholder 40,000 (40,000)(a)
Due to stockholders, net 13,552 (13,552)(a)
Income taxes payable 82,708 86,200 168,908
Deferred income taxes 4,153 4,153
-----------------------------------------------------------------------------------------------------
Total current liabilities 10,407,156 3,069,394 2,068,829 (90,514) 15,454,865
-----------------------------------------------------------------------------------------------------
Debt, less current maturities 28,397 (28,397)(a)
Negative goodwill, net 816,069 (816,069)(b)
Note payable, stockholder 50,000 (50,000)(a)
Deferred income taxes 3,327 100 3,427
Minority interest 23,948 23,948
Common stock 147,067 1,370 (144,437)(f) 4,000 (l)
APIC 7,317,490(g) 7,317,490
Retained earnings 3,629,416 118,581 (1,990,432)(a) (1,638,984)(h) 118,581
-----------------------------------------------------------------------------------------------------
Total stockholders' equity 3,776,483 119,951 (1,990,432) 5,534,069 7,440,071
-----------------------------------------------------------------------------------------------------
Total liabilities and
stockholders' equity $15,081,432 $3,213,393 -- $4,627,486 $22,922,311
=====================================================================================================
</TABLE>
The accompanying notes are an integral part of this statement.
29
<PAGE>
Tekgraf, Inc.
Notes to Unaudited Pro Forma Combined Balance Sheet
March 31, 1997
(a) Records cash borrowed from banks to fund, and resulting adjustment to
the respective liabilities for (i) the estimated excess net asset value
due to the former stockholders of the Subsidiaries of $1,990,432, (ii)
the amounts due to the stockholders of Crescent of $13,552, (iii) notes
payable to former stockholders of the Subsidiaries of $90,000; and (iv)
amounts due to a former stockholder of Crescent of $2,080,502.
(b) Records the estimated effect of certain acquisition adjustments. These
adjustments include (i) the increase in inventory to its fair value
less estimated costs to sell of $482,000, and (ii) the elimination of
negative goodwill of $816,069.
(c) Records the elimination of related party balances between IPM and IG.
(d) Records the estimate of the goodwill to be recorded in connection with
the Acquisitions. The estimate was based on March 31, 1997 financial
information and using all aspects of the Acquisitions including the
negotiations and an independent appraisal of the fair value of the
Common Stock of Crescent.
Fair value of Crescent stock issued in connection
with the Acquisitions $6,310,000
Fair value of assets and liabilities acquired, net (3,010,000)
----------
Estimated goodwill $3,300,000
==========
(e) Records the estimated amounts due from the pre-Acquisition stockholders
of Crescent for capital contributions required pursuant to the
Acquisitions.
(f) Records the adjustment to reflect the (i) elimination of common stock
of the Subsidiaries of $147,067, and (ii) the issuance of 2,630,400
shares of Class B Common Stock (including the Escrow Shares), with a
par value of $.001, to the former stockholders of the Subsidiaries.
(g) Records the net adjustment to reflect (i) the issuance of Class B
Common Stock in connection with the Acquisitions of $6,381,490, and
(ii) the estimated contribution to capital of amounts due from the
pre-Acquisition stockholders of Crescent of $936,000.
(h) Records the adjustment to reflect the elimination of the Subsidiary
balances, giving effect to pro forma adjustment (a) recording the
excess net asset value due to the former stockholders of the
Subsidiaries.
(i) Records the estimated proceeds from the issuance of 2,500,000 shares of
Class A Common Stock at an assumed initial public offering price of
$5.00 per share, net of (i) estimated offering costs of $_________
consisting primarily of underwriting discounts and commissions,
accounting fees, legal fees and printing expenses, and (ii) the
repayment of cash borrowed from banks of $_______.
(j) Records the repayment of cash borrowed from banks with proceeds from
the Offering.
(k) Records the par value of the 2,500,000 shares of Class A Common Stock
issued in connection with the Offering.
(l) Records the adjustment to reflect the issuance of 2,500,000 shares of
Class A Common Stock at an assumed offering price of $5.00 per share
less estimated offering costs of $____________.
30
<PAGE>
Tekgraf, Inc.
Pro Forma Combined Statement of Operations
for the three months ended March 31, 1997
<TABLE>
<CAPTION>
Intelligent Computer
Products IG Graphics G&R Combined
Microsouth, tekgraf, inc. Marketing, Distributing Distributing, Marketing, Acquired
Inc. (Texas) Inc. Inc. Inc. Inc. Companies
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales $3,247,828 $1,056,163 $1,600,512 $9,706 $3,172,540 $5,391,665 $14,478,414
Cost of goods sold 2,741,010 864,082 1,323,736 2,604,066 4,669,017 12,201,911
---------------------------------------------------------------------------------------------------
Gross profit 506,818 192,081 276,776 9,706 568,474 722,648 2,276,503
Operating expenses:
Selling, general and
administrative 306,857 83,758 294,941 451 399,839 636,280 1,722,126
Depreciation 3,000 2,504 12,000 6,890 13,500 37,894
Amortization (16,747) (7,882) (24,629)
---------------------------------------------------------------------------------------------------
Income (loss) from
operations 213,708 113,701 (30,165) 9,255 161,745 72,868 541,112
Other income 7,164 17,504 28,229 2,500 1,120 56,517
Interest expense 35,843 32,939 68,782
---------------------------------------------------------------------------------------------------
Income (loss) before income 220,872 131,205 (1,936) 9,255 128,402 41,049 528,847
taxes and extraordinary gain
Provision for income taxes 2,365 4,272 44,941 51,578
---------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary gain $220,872 $131,205 $ (4,301) $4,983 $ 83,461 $ 41,049 $ 477,269
===================================================================================================
</TABLE>
31
<PAGE>
Tekgraf, Inc.
Pro Forma Combined Statement of Operations, Continued
for the three months ended March 31, 1997
<TABLE>
<CAPTION>
Combined Crescent
Acquired Computers,
Companies Inc. Pro Forma Adjustments Pro Forma
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $14,478,414 $3,130,610 $(9,706) (f) $17,599,318
Cost of goods sold 12,201,911 2,519,472 $(9,907) (a) 14,711,476
------------------------------------------------ ----------- --------------
Gross profit 2,276,503 611,138 9,907 (9,706) 2,887,842
Operating expenses:
Selling, general and administrative 1,722,126 363,220 (169,400) (b) 1,915,946
Depreciation 37,894 10,367 48,261
Amortization (24,629) 24,629 (c) 55,000 (g) 55,000
------------------------------------------------ ----------- --------------
Income from operations 541,112 237,551 154,678 (64,706) 868,635
Other income 56,517 6,407 9,706 (f) 72,630
Interest expense 68,782 25,000 (11,175) (d) 82,607
------------------------------------------------ ----------- --------------
Income before provision for income taxes,
minority interest and extraordinary gain 528,847 218,958 165,853 (55,000) 858,658
Provision for income taxes 51,578 85,400 219,349 (e) 356,327
------------------------------------------------ ----------- --------------
Income before minority interest and
extraordinary gain 477,269 133,558 (53,496) (55,000) 502,331
Minority interest 23,948 23,948
------------------------------------------------ ----------- --------------
Income before extraordinary gain $477,269 $109,610 $(53,496) $(55,000) $478,383
================================================ =========== ==============
Pro forma income before extraordinary gain per share - primary .13
==============
Estimated pro forma weighted average shares outstanding - primary 3,800,000(h)
==============
Pro forma income before extraordinary gain per share - fully diluted $.12
==============
Estimated pro forma weighted average shares outstanding - fully diluted 4,000,000(h)
==============
</TABLE>
The accompanying notes are an integral part of this statement.
32
<PAGE>
tekgraf, Inc.
Notes to Unaudited Pro Forma Combined Statement of Operations
for the three months ended March 31, 1997
(a) Reflects the elimination of expenses related to affiliated entities of
the Subsidiaries which were not acquired by Crescent.
(b) Adjusts to reflect the reductions in the compensation level that
certain former stockholders of the Subsidiaries and officers
of Cresent have contractually agreed to receive from the Company
subsequent to the Acquisitions.
(c) Reflects the elimination of amortization related to negative goodwill.
(d) Reflects the elimination of the pro rata interest expense incurred on
capital to be contributed by the pre-Acquisition stockholders of
Crescent.
(e) Gives effect to the estimated provision to reflect federal and state
income taxes as if all of the Subsidiaries had been C Corporations and
the incremental provision for the pro forma adjustments. This
adjustment records income tax expense at an effective combined tax rate
of 39%, adjusted for non-deductible goodwill amortization.
(f) Reflects the elimination of transactions between IPM and IG.
(g) Adjusted to reflect the amortization of the estimated goodwill recorded
in connection with the Acquisitions. Goodwill is being amortized over
15 years.
(h) Gives effect to the Acquisitions and subsequent Recapitalization. Fully
diluted weighted average shares outstanding include the 200,000 Escrow
Shares.
33
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
Effective June 2, 1997, Crescent acquired all of the outstanding common
stock of G&R, Microsouth, tekgraf Texas, CGD, IPM and IG (the "Subsidiaries").
The financial information presented below represents selected historical data
for Crescent and these Subsidiaries. For a discussion of the pro forma combined
operating results, see the "Unaudited Pro Forma Combined Statements of
Operations" of the Company and related notes thereto. The following selected
financial and operating data selected by the Company should be read in
conjunction with the audited financial statements of Crescent and the
Subsidiaries and the related notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The selected financial data of Crescent as of December 31, 1995 and 1996
and for each of the three years in the period ended December 31, 1996, of G&R
and CGD for each of the three years in the period ended December 31, 1996, of
IPM and IG for the years ended December 31, 1995 and 1996, of Microsouth for the
six month period ended December 31, 1995 and for the year ended December 31,
1996, and of tekgraf Texas for the year ended December 31, 1996, have been
derived from financial statements audited by Coopers & Lybrand L.L.P. which
appear elsewhere. The audited historical financial statements have been included
in accordance with Securities and Exchange Commission (SEC) Staff Accounting
Bulletin No. 80.
All other selected financial data have been derived from unaudited
financial statements which have been prepared on the same basis as the audited
financial statements and, in the opinion of management of Crescent and the
Subsidiaries, reflect all adjustments, consisting only of normal, recurring
adjustments, necessary for a fair presentation of such data. All amounts are
presented in thousands except share and per share data.
- 34 -
<PAGE>
Crescent
Statement of Income Data(1):
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31,
------------ -----------------
1993 1994 1995 1996 1996 1997
------- ------- -------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 4,943 $ 6,340 $ 12,277 $13,414 $3,416 $3,131
Cost of goods sold 4,214 5,228 10,368 10,952 2,830 2,519
------- ------- -------- ------- ------ ------
Gross profit 729 1,111 1,910 2,463 586 611
Operating expenses:
Selling, general and administrative 772 1,082 1,761 2,245 372 363
Depreciation 4 8 28 17 4 10
------- ------- -------- ------- ------ ------
Operating income (loss) (47) 21 120 201 210 238
Other income 39 15 13 6
Interest expenses 3 40 126 160 30 25
------- ------- -------- ------- ------ ------
Income (loss) before taxes and
minority interest (11) (19) (5) 56 193 219
Provision (benefit) for income taxes (4) (4) (2) 13 45 85
------- ------- -------- ------- ------ ------
Income (loss) before minority (15) (15) (4) 43 149 134
Minority interest 9 24
------- ------- -------- ------- ------ ------
Net income (loss) $ (15) $ (15) $ (4) $ 43 $ 139 $ 110
======= ======= ======== ======= ====== ======
</TABLE>
Balance Sheet Data:
December 31, December 31, March 31,
1995 1996 1997
------------ ------------ ---------
Working capital $ (51) $ (104) $17
Total assets 2,264 3,007 3,213
Due to stockholders, net 1,616 2,211 14
Due to related entities 2,081
Stockholders' equity (deficit) (33) 10 120
- ----------
(1) Crescent began operations in March of 1993, accordingly data is provided
only for fiscal years 1993 through 1996.
- 35 -
<PAGE>
Microsouth:
Statement of Income Data:
<TABLE>
<CAPTION>
Three Months Ended
Six Month Period Year Ended March 31,
Ended December 31, December 31, ------------------
1995 1996 1996 1997
------------------ ------------ ------- -------
<S> <C> <C> <C> <C>
Net sales $ 4,636 $ 10,325 $ 2,273 $ 3,248
Cost of goods sold 3,933 8,595 1,969 2,741
------- -------- ------- -------
Gross profit 703 1,731 303 507
Operating expenses:
Selling, general and administrative 590 1,256 258 307
Depreciation 2 9 2 3
Amortization (33) (67) (17) (17)
------- -------- ------- -------
Operating income 145 533 61 214
Other income 16 28 16 7
Interest expenses 5 60 15 --
------- -------- ------- -------
Income before extraordinary gain 156 500 62 221
Extraordinary gain -- -- -- 210
------- -------- ------- -------
Net income (loss) $ 156 $ 500 $ 62 $ 431
======= ======== ======= =======
</TABLE>
tekgraf Texas
Statement of Income Data:
Year Ended Three months ended
December 31, March 31,
1996 1996 1997
------------ ---- ----
Net sales $4,063 $ 920 $1,056
Cost of goods sold 3,380 779 864
------ ----- ------
Gross profit 682 141 192
Operating expenses:
Selling, general and administrative 340 67 84
Depreciation 10 2 3
Amortization (31) (6) (8)
------ ----- ------
Operating income 364 77 114
Other income 22 12 18
Interest expenses 15 5
------ ----- ------
Income before extraordinary gain 371 84 131
Extraordinary gain -- -- 70
------ ----- ------
Net income $ 371 $ 84 $ 201
====== ===== ======
-36-
<PAGE>
IGD (IPM and IG)
Statement of Income Data:
IPM:
<TABLE>
<CAPTION>
Years ended December 31, Three Months ended March 31,
------------------------ ----------------------------
1995 1996 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $7,647 $9,059 $2,661 $1,601
Cost of goods sold 6,344 7,578 2,211 1,324
------ ------ ------ ------
Gross profit 1,303 1,480 450 277
Operating expenses:
Selling, general and administrative 1,052 1,333 329 295
Depreciation 46 43 15 12
------ ------ ------ ------
Operating income (loss) 205 104 106 (30)
Other income (expense) (65) (26) (35) 28
------ ------ ------ ------
Income (loss) before taxes 140 78 72 (2)
Provision for income taxes 46 22 6 2
------ ------ ------ ------
Net income (loss) $ 94 $ 56 $ 65 $ (4)
====== ====== ====== ======
IG:
Revenue $ 35 $ 45 $ 15 $ 10
Selling, general and administrative` 1 1 -- 1
Operating income 34 44 15 9
Provision for income taxes 10 8 2 4
------ ------ ------ ------
Net income $ 25 $ 36 $ 13 $ 5
====== ====== ====== ======
</TABLE>
CGD:
Statement of Income Data:
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, March 31,
-------------------------------- -----------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $12,948 $11,095 $11,003 $ 2,518 $3,173
Cost of goods sold 11,110 9,192 9,144 2,127 2,604
------- ------- ------- ------- ------
Gross profit 1,838 1,903 1,859 391 568
Operating expenses:
Selling, general and administrative 1,564 1,670 1,609 312 400
Depreciation 20 19 27 4 7
------- ------- ------- ------- ------
Operating income 255 214 223 75 162
Other income 23 17 55 8 3
Interest expense 154 145 124 26 36
------- ------- ------- ------- ------
Income before taxes 123 87 155 56 128
Provision for income taxes 45 20 51 19 45
------- ------- ------- ------- ------
Net income $ 79 $ 66 $ 104 $ 36 $ 83
======= ======= ======= ======= ======
</TABLE>
-37-
<PAGE>
G&R
Statement of Income Data:
<TABLE>
<CAPTION>
Years ended Three months ended
December 31, March 31,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales $21,317 $20,784 $21,038 $5,009 $5,392
Cost of goods sold 18,677 17,990 18,117 4,282 4,669
------- ------- ------- ------ ------
Gross profit 2,640 2,794 2,921 727 723
Operating expenses:
Selling, general and administrative 2,281 2,387 2,551 628 636
Depreciation 48 67 57 14 14
------- ------- ------- ------ ------
Operating income 311 339 313 85 73
Other income 1 1
Interest expense 137 166 140 35 33
------- ------- ------- ------ ------
Income before taxes 174 174 173 50 41
Provision for income taxes 3 3 4
------- ------- ------- ------ ------
Net income $ 170 $ 171 $ 169 $ 50 $ 41
======= ======= ======= ====== ======
</TABLE>
Combined Pro Forma Statement of Income Data(1):
<TABLE>
<CAPTION>
Year ended Three months ended
December 31, March 31,
1996 1997
---------- ------------------
<S> <C> <C>
Net sales(2) $ 68,902 $ 17,599
Cost of goods sold(3) 57,643 14,711
---------- ----------
Gross profit 11,259 2,888
Operating expenses:
Selling, general and administrative(4) 7,521 1,916
Depreciation 162 48
Amortization(5) 220 55
---------- ----------
Operating income: 3,356 869
Other income(6) 138 73
Interest expense 431 83
---------- ----------
Income before provision for income taxes, minority interest
and extraordinary gain(7) 3,064 859
Provision for income taxes(8) 1,281 356
---------- ----------
Income before minority interest and extraordinary gain $ 1,783 $ 502
---------- ----------
Minority interest -- 24
---------- ----------
Income before extraordinary gain $ 1,783 $ 478
---------- ----------
Pro forma income per share before extraordinary gain - primary $ .47 $ .13
---------- ----------
Estimated pro forma weighted average shares outstanding - primary(9) 3,800,000 3,800,000
========== ==========
Pro forma income per share before extraordinary gain - fully diluted $ .45 $ .12
========== ==========
Estimated pro forma weighted average shares outstanding - fully diluted(9) 4,000,000 4,000,000
========== ==========
</TABLE>
(1) See "Unaudited Pro Forma Combined Financial Statements" of the Company
relating to the year ended December 31, 1996 and the three months ended
March 31, 1997.
(2) Adjusted to reflect the Acquisitions, the elimination of revenue between
IPM and IG, and the elimination of expenses related to affiliated entities
of the Subsidiaries not acquired by Crescent.
(3) Adjusted to reflect the Acquisitions and the elimination of expenses
related to affiliated entities of the Subsidiaries not acquired by
Crescent.
(4) Adjusted to reflect the Acquisitions and the reductions in the
compensation level that certain stockholders of the Subsidiaries and
Crescent have agreed to receive from the Company subsequent to the
Acquisitions.
(5) Adjusted to reflect the amortization of the estimated goodwill recorded in
connection with the Acquisitions.
(6) Adjusted to reflect the elimination of expenses between IPM and IG.
(7) Adjusted for the elimination of the pro rata interest expense on capital
to be contributed by the pre-Acquisition stockholders of Crescent.
-38-
<PAGE>
(8) Gives effect to the estimated provision to reflect federal and state
income taxes as if all of the Subsidiaries been C Corporations and the
incremental provision for the pro forma adjustments.
(9) Gives effect to the Acquisitions and subsequent Recapitalization. Fully-
diluted weighted average shares outstanding include the Escrow Shares.
Combined Pro Forma Balance Sheet Data:
March 31, 1997
Pro Forma As Adjusted
(1)(2) (1)(3)
----------- ----------
Working capital $ 3,566
Total assets 22,922
Total debt 6,443
Stockholders' equity 7,440
(1) See Unaudited Pro Forma Combined Financial Statements of the Company as of
March 31, 1997.
(2) Gives effect to (i) the Acquisitions in accordance with SAB 97 and APB 16,
(ii) the combination of the Subsidiaries with Crescent as if such
combination had occurred as of March 31, 1997, (iii) cash borrowed from
banks to fund, and resulting adjustment to the respective liabilities for
the estimated excess net asset value due to the former stockholders of the
Subsidiaries, the amounts due to the current and former stockholders of
Crescent, and notes payable to former stockholders of the Subsidiaries,
(iv) the elimination of related party balances between IPM and IG, (v) the
elimination of common stock of the Subsidiaries and the issuance of
2,630,400 shares of Class B Common Stock (including the Escrow Shares) to
former stockholders of the
Subsidiaries.
(3) Adjusted to reflect the sale of 2,500,000 shares of Class A Common stock
offered hereby at an assumed initial public offering price of $5.00 per
share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds".
-39-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's unaudited pro forma combined financial statements and the audited
financial statements of the Company and the Subsidiaries, and the notes thereto,
appearing elsewhere in this Prospectus.
Results of Operations
Overview
Crescent was incorporated in Georgia in March 1993. In December 1994,
Crescent completed the acquisition of a 60% interest in Prisym. In June 1997,
Crescent completed the acquisition of a 100% interest in each of the
Subsidiaries. The Acquisitions of each of the Subsidiaries has been accounted
for using the purchase method of accounting. Subsequent to the Acquisitions, the
Company completed the Merger pursuant to which it reincorporated in the State of
Delaware and effected a recapitalization pursuant to which each share of common
stock of the Georgia entity was exchanged for 400 shares of Class B Common Stock
of the Delaware entity.
The Subsidiaries have operated throughout the periods presented as
independent private companies, and, as such, their results of operations reflect
two structures, S Corporations and C Corporations. The particular corporate
structure of each Subsidiary has influenced, among other things, the historical
levels of compensation paid to its principals. Certain of such individuals have
contractually agreed to a reduction in their compensation and benefits in
connection with the Acquisitions. The compensation differential and the related
income tax effects have been reflected in the pro forma adjustments in the
accompanying pro forma information provided elsewhere in this Prospectus.
Net sales reflect the sale of the Company's products, net of allowances
for returns and other adjustments and include minimal revenues related to
services performed at the Company's premises. Sales are generated from the sale
of products in both the domestic and international markets. No individual
customer accounted for more than 6% of sales during 1996 or during the three
months ended March 31, 1997 on a combined basis.
Cost of goods sold consists primarily of product costs (cost of
manufacture or acquisition) and freight charges. Cost of sales also includes
direct expenses, such as labor and inventory, obtaining FCC certification of
products where required, the cost of shipping and delivery charges to bring the
product to the Company's premises, as well as overhead allocated to direct
expenses, incurred in manufacturing products sold by the Company. The direct
cost associated with providing services performed by the Company for its
customers is also included in the cost of goods sold.
Sales and gross profits depend in part on the volume and mix of components
and finished goods contained in the Company's inventory from time to time.
Manufactured product sales have a higher gross profit margin with a relatively
lower volume of sales per customer, while component sales have a comparably low
gross profit with a relatively high volume of sales per
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<PAGE>
customer. The Company expects that gross margins will continue at the levels
experienced in 1996
A large portion of the Company's operating expenses is relatively fixed.
Since the Company does not obtain long-term purchase orders or commitments from
its customers, it must anticipate the future volume of orders based upon
historical purchasing practices of its customers as to their future
requirements. Cancellations, reductions or delays in orders by a customer or
group of customers could have a material adverse effect on the Company's
business, financial condition and results of operations.
Selling, general and administrative ("SG&A") expenses include costs
related to the Company's sales force, which are comprised of both direct
employees of the Company and independent sales representatives. Included are
direct labor costs for in-house sales representatives as well as commissions
paid to both in-house and independent sales personnel. Costs associated with
marketing and advertising of the Company's products are also included in SG&A
expenses, along with expenses relating to corporate and administrative functions
that serve to support the existing products and service business of the Company,
as well as to provide the infrastructure for future growth. Also reflected as
SG&A expenses are certain management, supervisory and staff salaries and
employee benefits, data processing, training, rent, and office supply costs.
Interest expense includes costs and expenses associated with working
capital indebtedness, as evidenced by outstanding balances on the Company's
principal credit facilities, and working capital advances made by certain
current and former stockholders.
Economies of scale and elimination of duplicate overhead and
administrative costs are expected to reduce future operating costs. Offsetting
these anticipated benefits are anticipated increases in personnel costs and
expenses to be incurred in developing the Company's corporate infrastructure and
the costs associated with being a public company. The Company does not believe
these costs can be accurately quantified. Accordingly, neither the anticipated
savings nor the anticipated costs have been included in the pro forma financial
information included herein. As a result, historical combined results may not be
comparable to, or indicative of, future performance.
The following financial information has been rounded in order to simplify
its presentation. However, the percentages provided below are calculated using
the detailed financial information contained in the financial statements, the
notes thereto and the other financial data included elsewhere in the Prospectus.
Year-end comparisons are only presented for the periods for which full year
financial statements are included herein.
Crescent
Three Months Ended March 31, 1997 Compared With Three Months Ended March
31, 1996
Net Sales. Net sales decreased $285,000, or 8.3%, to $3.13 million for the
three months ended March 31, 1997 (the "1997 quarter") compared to $3.42 million
for the three months
-41-
<PAGE>
ended March 31, 1996 (the "1996 quarter"). The decrease in net sales was
primarily attributable to the loss of a customer and a shift in focus to higher
margin sales.
Gross Profit. Gross profit increased $25,000, or 4.3%, to $611,000 for the
1997 quarter compared to $586,000 for the 1996 quarter. Gross margin increased
to 19.5% for the 1997 quarter compared to 17.2% for the 1996 quarter. The
increases were primarily attributable to the shift to higher margin sales.
SG&A Expenses. SG&A expenses decreased $9,000, or 2.4%, to $363,000 for
the 1997 quarter compared to $372,000 for the 1996 quarter. SG&A expenses as a
percentage of net sales increased to 11.6% for the 1997 quarter compared to
10.9% for the 1996 quarter. This change was primarily attributable to an
increase in sales commissions and the hiring of additional technical personnel.
Operating Income. Operating income increased $28,000 to $238,000 for the
1997 quarter compared to $210,000 for the 1996 quarter.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
Net sales. Net sales increased $1.14 million, or 9.3%, to $13.41 million
for the year ended December 31, 1996 ("1996") compared to $12.28 million for the
year ended December 31, 1995 ("1995"). The increase in net sales was primarily
attributable to strong sales in the OEM sector and increased market penetration
by Prisym.
Gross Profit. Gross profit increased $553,000, or 29%, to $2.46 million
for 1996 compared to $1.91 million for 1995. Gross margin increased to 18.4% for
1996 compared to 15.6% for 1995, primarily as a result of the growth in system
sales to specialized OEMs.
SG&A Expenses. SG&A expenses increased $484,000, or 27.5%, to $2.24
million for 1996 compared to $1.76 million for 1995. This increase was primarily
attributable to increased infrastructure and higher commissions. SG&A expenses
as a percentage of net sales increased to 16.7% for 1996 compared to 14.3% for
1995.
Operating Income. Operating income increased $81,000, or 68%, to $201,000
for 1996 compared to $120,000 for 1995.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Net Sales. Net sales increased $5.94 million, or 94%, to $12.28 million
for 1995 compared to $6.34 million for the year ended December 31, 1994
("1994"). The increase in net sales was primarily attributable to the
acquisition of Prisym in December 1994.
Gross Profit. Gross profit increased $799,000, or 72%, to $1.91 million
for 1995 compared to $1.11 million for 1994. Gross margin decreased to 15.6% for
1995 compared to 17.5% for 1994, primarily as a result of an increase in sales
by Prisym which operates at lower margins.
-42-
<PAGE>
SG&A Expenses. SG&A expenses increased $679,000, or 62.8%, to $1.77
million for 1995 compared to $1.08 million for 1994. This increase was primarily
attributable to the addition of the costs of Prisym. SG&A expenses as a
percentage of net sales decreased to 14.3% for 1995 compared to 17.1% for 1994.
Operating Income. Operating income increased $99,000 to $120,000 for 1995
compared to $21,000 for 1994.
tekgraf Texas
Three Months Ended March 31, 1997 Compared With Three Months Ended
March 31, 1996
Net Sales. Net sales increased $136,000, or 15%, to $1.06 million for the
1997 quarter compared to $920,000 for the 1996 quarter. The increase resulted
primarily from a broadening of tekgraf Texas' customer base combined with
greater market acceptance of certain of the company's principal products.
Gross Profit. Gross profit increased $51,000, or 36%, to $192,000 for the
1997 quarter compared to $141,000 for the 1996 quarter. Gross margin increased
to 18% for the 1997 quarter compared to 15% for the 1996 quarter, primarily as a
result of a shift in the company's business to the sale of higher margin
systems.
SG&A Expenses. SG&A expenses increased $17,000, or 25%, to $84,000 for the
1997 quarter compared to $67,000 for the 1996 quarter. This increase was
primarily attributable to higher commissions associated with the increase in
higher margin sales. SG&A expenses as a percentage of net sales increased to
8.0% for the 1997 quarter compared to 7.3% for the 1996 quarter, primarily as a
result of an increase in outside sales expenses.
Operating Income. Operating income increased $37,000 to $114,000 for the
1997 quarter compared to $77,000 for the 1996 quarter.
Included in the 1997 quarter was an extraordinary gain of $70,000
resulting from the early extinguishment of a note payable with the former parent
of Tekgraf Texas. See "Certain Transactions - Pre-Acquisition Transactions
Between the Subsidiaries and Their Respective Affiliates."
IGD (IPM and IG)
Three Months Ended March 31, 1997 Compared With Three Months Ended
March 31, 1996
Net Sales. Net sales decreased by $1.07 million, or 40.1%, to $1.61
million for the 1997 quarter compared to $2.68 million for the 1996 quarter. The
decrease in IGD's net sales was primarily attributable to a reduction in demand
for low and mid-range scanner products and increased competition in the sale of
high-end proofing systems. In addition, an aggressive sale promotion run by a
vendor in the 1996 quarter was not repeated in the 1997 quarter.
-43-
<PAGE>
Gross Profit. Gross profit decreased $179,000, or 38.5%, to $286,000 for
the 1997 quarter compared to $465,000 for the 1996 quarter, in line with the
decline in sales. Gross margin increased to 17.3% for the 1997 quarter compared
to 16.9% for the 1996 quarter, reflecting a shift in product mix to higher
margin sales.
SG&A Expenses. SG&A expenses decreased $34,000, or 10.3%, to $295,000 for
the 1997 quarter compared to $329,000 for the 1996 quarter, primarily as a
result of reductions of costs in line with reduced sales. As a result of the
decrease in revenues, SG&A expenses as a percentage of net sales increased to
18.3% for the 1997 quarter compared to 12.3% for the 1996 quarter.
Operating Income. Operating income decreased $142,000 to a loss of $21,000
for the 1997 quarter compared to income of $121,000 for the 1996 quarter.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
Net Sales. Net sales increased $1.42 million, or 18.5%, to $9.10 million
for 1996 compared to $7.68 million for 1995. The increase in net sales was
primarily attributable to increased sales in certain product lines and an
expanded customer base.
Gross Profit. Gross profit increased $187,000, or 14.0%, to $1.52 million
for 1996 compared to $1.34 million for 1995. Gross margin decreased to 16.7% for
1996 compared to 17.4% for 1995, primarily as a result of an increase in lower
margin sales.
SG&A Expenses. SG&A expenses increased $282,000, or 26.8%, to $1.33
million for 1996 compared to $1.05 million for 1995. This increase was primarily
attributable to an increase in personnel and higher commissions. SG&A expenses
as a percentage of net sales increased to 14.7% for 1996 compared to 13.7% for
1995.
Operating Income. Operating income decreased $91,000 to $148,000 for 1996
compared to $239,000 for 1995.
CGD
Three Months Ended March 31, 1997 Compared With Three Months Ended March
31, 1996.
Net Sales. Net sales increased $655,000, or 26.0%, to $3.17 million for
the 1997 quarter compared to $2.52 million for the 1996 quarter. The increase in
net sales was primarily attributable to the introduction of new products and
increased sales of one of the Company's existing product lines. In addition, bad
weather conditions adversely impacted sales during the 1996 period.
Gross Profit. Gross profit increased $177,000, or 45.2%, to $568,000 for
the 1997 quarter compared to $391,000 for the 1996 quarter. Gross margin
increased to 17.9% for the 1997 quarter compared to 15.5% for the 1996 quarter,
primarily as a result of an increase in sales of higher margin product lines.
-44-
<PAGE>
SG&A Expenses. SG&A expenses increased $88,000, or 28.2%, to $400,000 for
the 1997 quarter compared to $312,000 for the of 1996 quarter. This increase was
primarily attributable to a net increase in personnel and sales commissions.
SG&A expenses as a percentage of net sales remained relatively stable at 12.6%
for the 1997 quarter and 12.4% for the 1996 quarter.
Operating Income. Operating income increased $87,000 to $162,000 for the
1997 quarter compared to $75,000 for the 1996 quarter.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
Net Sales. Net sales decreased $92,000, or 1.0%, to $11.00 million for
1996 compared to $11.10 million for 1995. The decrease in 1996's net sales was
primarily attributable to an approximately $2.0 million decrease in sales of one
of the Company's product lines as its competitive advantages declined, which was
offset by an increase in net sales from a different product line.
Gross Profit. Gross profit decreased $44,000, or 2.3%, to $1.86 million
for 1996 compared to $1.90 million for 1995. Gross margin decreased to 16.9% for
1996 compared to 17.2% for 1995, primarily as a result of the loss of a higher
margin product line and the increase in sales of lower margin products.
SG&A Expenses. SG&A expenses decreased $61,000, or 3.7%, to $1.61 million
for 1996 compared to $1.67 million for 1995. This decrease was primarily
attributable to decreases in commissions and profit sharing contributions. SG&A
expenses as a percentage of net sales decreased to 14.6% for 1996 compared to
15.1% for 1995.
Operating Income. Operating income increased $9,000 to $223,000 for 1996
compared to $214,000 for 1995.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Net Sales. Net sales decreased $1.85 million, or 14.3%, to $11.10 million
for 1995 compared to $12.95 million for 1994. The decrease in 1995's net sales
was primarily attributable to the loss of one product line as a result of the
applicable vendor's loss of its marketing rights to its top product. This
product line had accounted for in excess of $2.5 million in net sales in 1994.
Gross Profit. Gross profit increased $65,000, or 3.5%, to $1.90 million
for 1995 compared to $1.84 million for 1994. Gross margin increased to 17.2% for
1995 compared to 14.2% for 1994. The increases primarily resulted from the
discontinuation of low margin product lines such as color monitors and the
introduction of higher margin graphic arts related lines.
SG&A Expenses. SG&A expenses increased $106,000, or 6.8%, to $1.67 million
for 1995 compared to $1.56 million for 1994, primarily as a result of an
increase in bad debt write-offs. SG&A expenses as a percentage of net sales
increased to 15.1% for 1995 compared to
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<PAGE>
12.1% for 1994.
Operating Income. Operating income decreased $41,000 to $214,000 for 1995
compared to $254,000 for 1994.
G&R
Three Months Ended March 31, 1997 Compared with Three Months Ended
March 31, 1996
Net Sales. Net sales increased $383,000, or 7.6%, to $5.39 million for the
1997 quarter compared to $5.01 million for the 1996 quarter, primarily as a
result the addition of new product lines from existing vendors.
Gross Profit. Gross profit decreased $4,000, or .6%, to $723,000 for the
1997 quarter compared to $727,000 for the 1996 quarter. Gross margin decreased
to 13.5% for the 1997 quarter compared to 14.5% for the 1996 quarter. These
decreases were primarily attributable to an increase in sales of lower margin
products.
SG&A Expenses. SG&A expenses increased $8,000, or 1.3%, to $636,000 for
the 1997 quarter compared to $628,000 for the 1996 quarter, primarily as a
result of an increase in personnel. SG&A expenses as a percentage of net sales
decreased to 11.8% for the 1997 quarter compared to 12.5% for the 1996 quarter.
Operating Income. Operating income decreased $12,000 to $73,000 for the
1997 quarter compared to $85,000 for the 1996 quarter.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
Net Sales. Net sales increased $254,000, or 1.2%, to $21.0 million for
1996 compared to $20.78 million for 1995, primarily as a result of the addition
of new product lines which offset the discontinuance of other product lines.
Gross Profit. Gross profit increased $127,000, or 4.5%, to $2.9 million
for 1996 compared to $2.79 million for 1995. Gross margin increased to 13.9% for
1996 compared to 13.4% for 1995, primarily as a result of sales of higher margin
products.
SG&A Expenses. SG&A expenses increased $164,000, or 6.9%, to $2.55 million
for 1996 compared to $2.39 million for 1995, primarily as a result of a
commission rate change for 1996, and the addition of sales personnel. SG&A
expenses as a percentage of net sales increased to 12.1% for 1996 compared to
11.5% for 1995.
Operating Income. Operating income decreased $26,000 to $313,000 for 1996
compared to $339,000 for 1995.
-46-
<PAGE>
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994.
Net Sales. Net sales decreased $533,000, or 2.5%, to $20.78 million for
1995 compared to $21.32 million for 1994, primarily as a result of the loss or
discontinuance of product lines.
Gross Profit. Gross profit increased $154,000, or 5.8%, to $2.79 million
for 1995 compared to $2.64 million for 1994. Gross margin increased to 13.4% for
1995 compared to 12.4% for 1994, primarily as a result of a shift to higher
margin product line sales.
SG&A Expenses. SG&A expenses increased $106,000, or 4.6%, to $2.39 million
for 1995 compared to $2.28 million for 1994. This increase was primarily
attributable to increased overhead associated with a facilities expansion. SG&A
expenses as a percentage of net sales increased to 11.5% for 1995 compared to
10.7% for 1994.
Operating Income. Operating income increased $28,000 to $339,000 for 1995
compared to $311,000 for 1994.
Microsouth
Three Months Ended March 31, 1997 Compared With Three Months Ended
March 31, 1996
Net Sales. Net sales increased $975,000, or 42.9%, to $3.25 million for
the 1997 quarter compared to $2.27 million for the 1996 quarter, primarily as a
result of the expansion of Microsouth's graphics product lines from existing
vendors. Microsouth also benefited by an increase in product sales to one of its
customers and the establishment of new vendor relationships.
Gross Profit. Gross profit increased $204,000, or 67.3%, to $507,000 for
the 1997 quarter compared to $303,000 for the 1996 quarter. Gross margin
increased to 15.6% for the 1997 quarter compared to 13.3% for the 1996 quarter,
primarily as a result of a shift in product mix to higher margin products.
SG&A Expenses. SG&A expenses increased $49,000, or 19%, to $307,000 for
the 1997 quarter compared to $258,000 for the 1996 quarter reflecting increased
commissions associated with increased sales levels. SG&A expenses as a
percentage of net sales decreased to 9.5% for the 1997 quarter compared to 11.4%
for the 1996 quarter.
Operating Income. Operating income increased $153,000 to $214,000 for the
1997 quarter compared to $61,000 for the 1996 quarter.
Included in the 1997 quarter was an extraordinary gain of $210,000
resulting from the early extinguishment of a note payable with the former parent
of Microsouth. See "Certain Transactions - Pre-Acquisition Transactions Between
the Subsidiaries and Their Respective Affiliates."
Future Adoption of Recently Issued Accounting Standards
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The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, Disclosures About Segments of an Enterprise and
Related Information ("SFAS 131"), No. 130, Reporting Comprehensive Income ("SFAS
130"), No. 129, Disclosure of Information About Capital Structure ("SFAS 129"),
and No. 128, Earnings Per Share ("SFAS 128"). SFAS 131 specifies revised
guidelines for determining an entity's operating segments and the type and level
of financial information to be disclosed. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains, and losses) in a full set of general-purpose financial
statements. SFAS 129 consolidates the existing requirements to disclose certain
information about an entity's capital structure, and SFAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share.
These Standards are effective for periods ending after December 31, 1997.
The Company believes that the impact of these Standards, when adopted,
will not have a material impact on the Company's financial statements and
financial statement presentation when presented on a comparable basis.
Impact of Inflation
Management believes that inflation has not had a material impact on the
Company's business.
Liquidity and Capital Resources
Since inception, the Company has financed its operations through a
combination of cash flow from operations, bank borrowings and equity capital.
The Company's capital requirements have arisen primarily in connection with
purchases of fixed assets, including acquisitions.
The Company maintains several bank lines of credit that provide for
borrowings up to $4.5 million. The Company has a revolving credit facility with
LaSalle Bank - Illinois (the "LaSalle Facility") that provides for borrowings up
to $2,000,000 based on a percentage of certain accounts receivable which matures
on December 31, 1997 and bears interest at the lender's prime rate plus .5%. The
LaSalle Facility is secured by G&R's accounts receivable, inventory, equipment
and fixtures and a portion is guaranteed by stockholders of the Company. At June
30, 1997, the outstanding balance on the LaSalle Facility was approximately
$1.29 million. The Company also has a revolving credit facility with NationsBank
of Maryland, N.A. (the "NationsBank Facility") that provides for borrowings up
to $2,250,000 based on a percentage of certain accounts receivable and inventory
which matures on September 30, 1997 and bears interest at the lender's prime
rate plus 2%. The NationsBank Facility is secured by CGD's accounts receivable,
inventory and general intangibles and is guaranteed by stockholders of the
Company. At June 30, 1997, the outstanding balance on the NationsBank Facility
was approximately $757,000. The Company also has a revolving line of credit with
Wells Fargo Bank, National Association (the "Wells Fargo Facility") in the
principal amount of $250,000 which matures on January 10, 1998 and bears
interest at the lender's prime rate plus .75%. The Wells Fargo Facility is
unsecured and is guaranteed by a stockholder of the Company. At June 30, 1997,
the outstanding balance on the Wells Fargo Facility was $51,000.
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The Company intends to repay the outstanding amounts on the LaSalle
Facility, the NationsBank Facility and the Wells Fargo Facility prior to the
Offering. It is anticipated that the Company will obtain a new bank line of
credit, a portion of which will be used, together with available cash, to repay
such existing bank facilities. The Company will repay all amounts outstanding
under the new bank line from the proceeds of the Offering. See "Use of
Proceeds."
The Company has guaranteed $496,000 of bank borrowings incurred by a
company owned by affiliates of the Company. See "Certain Transactions."
From time to time since the Company's inception, Alongal has made advances
to the Company for working capital purposes. At December 31, 1996 and March 31,
1997, amounts owed to Alongal were $2,109,000 and $2,081,000, respectively. Such
advances bear interest at the rate of 8% per annum and are payable on demand.
Prior to completion of the Offering, the Company intends to repay such
indebtedness. At such time, the pre-Acquisition stockholders of the Company will
contribute an aggregate of $936,000 to the capital of the Company.
Prior to the Offering, the Company will make payments in the aggregate
amount of approximately $1,200,000 to the stockholders of Microsouth and tekgraf
Texas, reflecting Purchase Price Adjustments in connection with the
Acquisitions. See "Dividends and Distributions" and "Certain Transactions."
The Company's principal commitments at June 30, 1997 consisted primarily
of debt of (i) approximately $1.2 million of Purchase Price Adjustments relating
to the Acquisitions; (ii) leases of premises; and (iii) the lines of credit
described above.
After the application of the net proceeds of the Offering as set forth in
"Use of Proceeds," the Company believes that its cash balances, and cash flows
from operations will be sufficient to meet its working capital and capital
requirements for at least the next 12 months.
A key element of the Company's strategy is to continue to expand through
acquisitions of companies engaged in the distribution and/or marketing of
computers and/or computer hardware, software and peripherals. See "Business -
Strategy." Such acquisitions are expected to involve the issuance of stock,
cash, debt or a combination thereof.
Release of Escrow Shares
In connection with the Offering, the holders of the Company's Class B
Common Stock are placing a portion of their shares into escrow pending the
Company's attainment of certain earnings or market price goals. See "Principal
Stockholders." In the event the Escrow Shares are released from escrow to
directors, officers, employees or consultants of the Company, the release will
be treated, for financial reporting purposes, as compensation expense to the
Company. Accordingly, the Company will, in the event of the release of the
Escrow Shares recognize during the period in which the earnings or market price
targets are met, what could be a substantial one-time charge which would
substantially increase the Company's loss or reduce or eliminate earnings, if
any, at such time. The amount of compensation expense recognized by the Company
will not affect the Company's total stockholders' equity.
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BUSINESS
Overview
The Company commenced operations in February 1993 to engage in the
manufacture of custom or "made-to order" premium servers and network
workstations under the Crescent Computer brand name. In December 1994, the
Company acquired a controlling interest in Prisym, an authorized DEC Reseller.
In June 1997, the Company completed the acquisition of all of the outstanding
capital stock of G&R, Microsouth, tekgraf Texas, CGD, IPM and IG, all of which
are regional distributors specializing in computer graphics technologies.
Subsequent to the Acquisitions and in connection with the Merger, the Company
changed its name to Tekgraf, Inc. and organized its operations into two
divisions: the Graphics Division, a wholesale distribution network of high-end
computer graphics products; and the Technology Division, which is engaged in the
manufacture, sale and support of the Crescent Computer and distribution of
related components and DEC Reseller activities.
Strategy
The Company's overall business strategy is to become a
nationally-recognized, vertically-oriented provider of computer products and
services. The Company intends to accomplish this goal through internal growth of
its operating divisions, acquisitions of complementary businesses and expansion
into selected international markets.
Internal Growth. The Company anticipates that it will be able to expand
its operations through internal growth of each of its operating divisions. The
Company will seek to increase the customer base of the Technology Division by
utilizing the consolidated marketing and distribution structure of the Graphics
Division achieved as a result of the Acquisitions, by increased marketing of the
Crescent Computer to selected markets, and through enhanced product and service
offerings. The Company believes that the increased technical personnel and
capabilities will enable Prisym to achieve higher certifications with DEC,
thereby broadening the product mix it can make available to its customers.
Acquisitions. The Company intends to expand its operations through
acquisitions of complementary businesses. The Company will focus its acquisition
activities on profitable technology companies that can be integrated into the
Company's existing divisional structure, increase divisional revenues, expand
the geographic and technical scope of the Company's operations and offer a
greater range of products and services to existing and potential customers.
Although the Company continually explores acquisition possibilities and has
targeted a number of computer graphics distributors, including NECG in Westford
Massachusetts, it is not currently engaged in active discussions or negotiations
with respect to any potential acquisitions and has no agreements, arrangements
or understandings regarding any potential acquisitions. There can be no
assurance that the Company's acquisition program will be successful, that the
acquisition of NECG or any other company will be completed or that, if
completed, any companies acquired will be profitable, or will result in revenues
to the Company.
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International Expansion. The Company intends to market the Crescent
Computer and components, as well as products and services distributed by the
Graphics Division, to selected international markets, such as Canada, the United
Kingdom, South Africa and Australia.
The Company's Divisions and Products
The Graphics Division
General
The Graphics Division currently consists of five regional wholesale
distributor subsidiaries which specialize in computer graphics technologies --
G&R, Microsouth, tekgraf Texas, CGD and IGD. The Graphics Division sells and
supports products in the digital prepress, presentation graphics, color desktop
publishing, large format display graphics, digital imaging, electronic drawing
management, CAD and other emerging computer graphics technologies markets. The
Company provides value-added sales, marketing, fulfillment, and logistics
support for more than 30 manufacturers of a broad array of complex computer
graphics hardware and software. See "-Products and Markets."
Although initially comprised of six individual companies, central to the
business model of the Graphics Division and a core motivation for the
Acquisitions and the resulting business combination were the pre-existing
relationships among such companies and their principals. The desire to provide
manufacturers with national sales and marketing programs fostered close
cooperation among these regional firms, ultimately leading to the formation of
two trade associations, the David Group and the Vision Group. The purpose of
these associations was to facilitate joint marketing and promotion, product line
acquisitions, the sharing of technical resources and sales strategies, and the
transfer of excess inventory. All of the companies that make up the Graphics
Division are current or former members of one or both of such trade
associations.
The goal of the Graphics Division is to build on the aforementioned
historic inter-company cooperation and function as a single entity with respect
to sales, marketing, advertising, public relations, technical support and
technology evaluation. With the current exception of the areas of Southern
California, Arizona, New Mexico and New England, the Graphics Division is in a
position to provide computer graphics manufacturers a national distribution
presence with the key benefit of local technical sales and support. See "-
Customers, Sales and Marketing." After completion of the Offering, the Company
intends to acquire additional regional distributors of computer graphics
technology in order to increase the geographic scope of the operations of the
Graphics Division. There can be no assurance, however, that the Company will
successfully complete any such acquisitions.
During the year ended December 31, 1996 and the three months ended March
31, 1997, revenues from the Graphics Division accounted for 80.5% and 82.1%,
respectively, of the Company's total revenues on a pro forma combined basis.
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Products and Markets
The Company's Graphics Division distributes and supports products of over
30 manufacturers, including Agfa Division of Bayer Corporation, Electronics For
Imaging (EFI) Encad, Inc., Epson America, Inc., Mitsubishi Electronics America,
Inc., Scitex America Corporation and Vidar Systems Corporation. Among the
products the Graphics Division distributes and sells are color scanners, color
digital film recorders, digital cameras, color laser printers, color-calibrated
monitors, audio-visual presentation systems, raster image processors (RIPs), ink
jet printers, plotters, pre-press software, image setters, color proofers, mass
storage devices and the consumable products used in many of such products.
Prices typically range from less than $100 to in excess of $100,000.
The Company's agreements with manufacturers are generally non-exclusive,
provide for wholesale distribution to dealers and resellers in specified
geographic territories and are terminable by either party without cause on
either 30 or 60 days' notice.
It is the intention of the Graphics Division to initially operate in the
following four vertical markets:
o Digital Pre-Press
o Computer-Aided Design (CAD)
o Electronic Drawing Management Systems (EDMS)
o Display Graphics
Digital Pre-Press. Over the last three years, there has been a dramatic
shift in the process printing industry from manual, analog production of printed
materials to the use of computers. Historically the production of a printed
brochure, magazine or catalog involved hundreds of manual steps using
photographic materials to produce the final press-ready copy.
With rapid advances in software and hardware, much of today's printed
materials are produced digitally. The print production process now allows a
printed piece to go from concept to imaged printing plate in a fully digital
environment. Copywriting, proofing and revisions all take place on a desktop
computer, increasing the speed and efficiency of the pre-press process, and
streamlining personnel requirements in the process. The Company believes this
market is in a period of rapid transition regarding the manner in which
electronics products are delivered to the traditional printing customer. When
digital pre-press systems sold for $200,000 per seat (user), most manufacturers
used a captive direct sales force to sell to the end-user. Today, the typical
seat sells for under $20,000, forcing manufacturers to utilize a reseller
channel to deliver their products.
The Graphics Division sells input, proofing, networking, color management
software and output devices, which are integral parts of a digital pre-press
system. These products are typically sold through two classes of resellers:
graphic arts dealers who have traditionally sold film, chemicals, printing
plates and other analog pre-press supplies, and graphics VARs who have
specialized in pre-press workflow technologies and the automation of the
pre-press process.
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Computer Aided Design (CAD). Over the last ten years, traditional drafting
tables have given way to the desktop computer. Today, most architectural and
engineering design and drafting in the United States is done using a desktop
computer or workstation.
The CAD market is a more mature digital market than digital pre-press. As
a result, the delivery mechanism for products into this market has adapted to
the combination of less expensive products and more informed buyers. According
to industry sources, over 90% of all CAD software and peripherals are delivered
using a multi-tiered reseller channel.
The Graphics Division sells primarily processing and output products in
this market, with plotters, high-resolution graphics displays and optical
storage representing the majority of sales.
Electronic Drawing Management Systems (EDMS). The use of CAD systems in
the engineering and architectural community has created a workflow problem for
those firms which have embraced CAD - what to do with the archive of manually
drafted drawings.
EDMS allow these customers to capture (i.e., scan) paper drawings and
store them digitally. When needed, they can be retrieved, annotated, printed or
converted to CAD format for further revision. Since most of these functions can
be performed using existing CAD workstations or PC's, the cost of converting to
an EDMS systems is relatively low, and the demand for such systems is growing
dramatically.
The Graphics Division sells all of the components necessary for the
installation of an EDMS system, including large format scanners, archiving and
manipulation software, optical storage systems and output devices.
Display Graphics. The most rapidly growing segment of the computer
graphics output market is display graphics. Display graphics, or large format
graphics describes a process that allows computer-generated or captured images
to be printed in sizes up to 60" wide.
Historically, these images could only be printed on color electrostatic
printers costing over $120,000. However, over the last three years, significant
advances in ink-jet technology, software, specialty inks and media have placed
the cost of entry for display graphics systems starting at under $10,000, and
market acceptance has been rapid. End-users of this technology include a wide
range of industries and markets, such as:
o Trade-show graphics - production of booth and arcade displays
o Point of Sale graphics - floor displays
o Sign Shops - traditional signage, fleet graphics
o Print-for-Pay (e.g., Kinkos, Sir Speedy)
o Package Design - package prototyping
o Graphic Arts - imposition proofing
Products sold to this market include large-format ink-jet printers
(ENCAD), faster image processing software (Amiable Technologies, EFI, Onyx
Graphics, PISA), lamination systems (Seal Products, a division of Hunt
Manufacturing) and a wide range of inks, papers and other specialty media.
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Customers, Sales and Marketing
The Graphics Division's customers are principally value-added resellers
(VARs) and systems integrators (SIs), as well as, for certain products,
retailers, mass merchandisers and direct marketers. VARs typically focus on
sales to users in specific vertical markets where the selling organization has
unique knowledge and expertise concerning the prospective customer's
application. These customers purchase products from the Company and resell them
as an integrated solution bundled with installation services and post-sales
support. SIs typically purchase products from the Company for further
integration into a much larger solution comprised of components from many
sources. These solutions typically are very large in scale and may involve an
integration contract between the SI and the end-user customer. The Graphics
Division utilizes the retail, mass merchant and direct marketing sales channels
when product demand is firmly established and a lower cost mechanism of delivery
to the end user is warranted.
Currently, the Graphics Division has 21 outside and 16 inside sales
representatives and seven technical support representatives. The Company
believes that this constitutes the highest concentration of sales and technical
support professionals in the country devoted to the sales, marketing, and
support of high-end computer graphics products. The Company's sales
representatives receive commissions based on sales. During each of the years
ended December 31, 1995 and 1996 and the three months ended March 31, 1997,
compensation paid to outside sales representative amounted to less than 5% of
the Company's sales.
Each regional office of the Graphics Division maintains and has training
and demonstration facilities equipped with its manufacturers' hardware and
applications software. These resources are made available to prospects and
customers for product evaluations, product training, demonstrations, benchmark
testing and in-house and in-the-field seminars. In addition, the Graphics
Divisions' sales force and technical sales representatives are trained to
demonstrate the technology it distributes and the applications of such
technology. Inside and outside technical sales representatives are also trained
to understand their manufacturers' products, the competitors' products, related
applications, software and the relevant end-user markets.
The Company believes the service offered by the Graphics Division is
unique in providing face-to-face sales, marketing, and distribution of mid- to
high-end computer graphics products sold through vertical reseller channels.
Typically, products carried by the Graphics Division are relatively complex,
requiring technical sales training, product demonstrations, product training,
pre-sale and post-sale technical support and immediate product availability.
Selling and supporting products in these markets requires knowledge of many
distinct types of hardware and software as well as communications protocols,
networking architecture, file formats, compression techniques, and other systems
integration issues. Manufacturers of products with such a level of complexity
often need to leverage their own limited resources by selling and distributing
through reseller organizations. Similarly, reseller organizations are often
severely limited in the technical sales and marketing resources they can devote
to the sale of specific products. To address this problem, each regional office
of the Graphics Division augments both the manufacturer's and the reseller's
staff, capitalizing on its ongoing relationships with the local resellers and
end user community. Resellers are trained and assisted
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by Graphics Division staff in all aspects of sales, marketing, distribution and
installation of its products.
The Company believes that the Acquisitions and the consolidation of the
operations of G&R, Microsouth, tekgraf Texas, CGD and IGD into the Graphics
Division will enable it to establish a national distribution network. In
addition to economies of scale achieved by the Company, the Company believes
that it will be more cost-effective for certain manufacturers of computer
graphics technology and peripheral equipment to utilize the Company as a
distributor than to maintain their own extensive internal sales forces.
The Technology Division
General
The operations of the Technology Division currently consist of the
manufacture of the Crescent Computer and the DEC Reseller activities of Prisym.
The Company custom designs, assembles and sells custom or "made-to-order"
premium servers or workstations (Crescent Computers) and related technology to
VARs, vertical solution providers ("VSPs"), corporations, universities and the
government. See "- Customers, Sales and Marketing." The Company also provides
services to its customers, including system architecture design, hardware
consulting and customer support.
Products
The Crescent Computer is a PC which can be assembled in a number of
different configurations using standard component parts. Although many of the
Crescent Computers are based on standard configurations, customization enables
the Company to accommodate customer computer needs with respect to storage
capacity, speed, price, applications, size, configuration and a range of other
considerations that can be accommodated in whole or in part by the selection of
appropriate components. The Company works with SIs on network configuration. The
Company also provides its customers with continuing technical support and
assistance in the maintenance and operations of Company purchased products.
Crescent Computers are currently being used to operate non-sterile heart
catheterization diagnostic equipment, as voice mail/auto-attendant controllers,
in informational kiosks and in other process-control applications. The Company
also sells servers and RAID storage systems to VARs and other companies seeking
to create Internet websites, internal networks, graphics and CAD workstations
and application servers.
Through Prisym, the Company provides DEC's Alpha-based Workstations and
servers, mass storage, printers, components and computer peripherals and
supplies to the nationwide installed base of DEC customers. Prisym's customers
include Fortune 500 companies, governmental agencies and educational
institutions.
During the year ended December 31, 1996 and the three months ended March
31, 1997, sales by the Technology Division accounted for 19.5% and 17.9% of the
Company's revenues, respectively, on a pro forma combined basis.
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Manufacturing and Suppliers
The Company's manufacturing operations consist of the assembly of Crescent
Computers at its facility in Norcross, Georgia and the testing of the electronic
and mechanical components incorporated into its products.
The Company has elected to assemble its products utilizing principally
off-the-shelf electronic components parts available from multiple sources. The
Company believes that this practice helps to ensure better quality control and
pricing by allowing the Company to select the best manufactured and best
performing components available on the market (rather than a proprietary product
that may fall behind the "curve" in terms of either such characteristic), and to
purchase such components from marketplace sources that offer the best prices at
the time the particular components are needed for production (rather than to
have prices dictated by the limited sources able to provide a proprietary
component). The Company obtains component parts on a purchase order basis and
does not have long-term contracts with any of its suppliers. To date, the
Company has not experienced significant interruptions in the supply of such
component parts, and believes that numerous qualified suppliers are available.
The Company believes that the inability of any of its current suppliers, except
as specified below, to provide component parts to the Company would not
adversely affect the Company's operations and that alternate sources could be
readily established.
The Company currently obtains the motherboards (a primary component of the
PC) from two sources. Certain of the Company's file server products incorporate
a motherboard which is currently purchased from a sole supplier. Although the
Company has to date been able to obtain adequate supplies of this component and
does not anticipate any related sourcing problems, the inability in the future
to obtain sufficient numbers of such components or to develop alternative
sources could result in delays in product introductions or shipments. Such
delays could have a material and adverse effect on the Company's results of
operations. The Company plans to attempt development of additional alternative
sources to limit any adverse impact on the Company's result of operations.
The Company has established a comprehensive testing and qualification
program to ensure that all subassemblies meet the Company's specifications and
standards before final assembly and testing. The Company's quality control
program includes diagnostic tests, assembly, burn-in, final configuration and
final quality assurance tests and the employment of process controls at its
manufacturing facility. The Company has also implemented quality control
policies that are reviewed and accepted by the Company's major customers. The
Company believes that this procedure helps ensure a high-quality product.
The Company's own manufacturing facility totals approximately 4,000 square
feet. The Company believes that additional manufacturing facilities, if
necessary, are available. The Company is currently operating at approximately
50% of capacity at this facility. See "- Facilities and Administrative
Functions."
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Customers, Sales and Marketing
Customers for the Crescent Computer include OEMs, other vertical market
computer resellers, computer dealers, universities, government entities and
corporations. The Technology Division does not market to individual end-users,
focusing instead on establishing relationships with entities which will
constitute repeat sales and have internal computer support personnel capable of
handling local issues prior to involvement of Company personnel.
Prisym markets to the current installed base of DEC customers. Such
customers primarily include Fortune 500 and other large corporations,
governmental agencies and educational institutions.
The Company currently distributes Technology Division products principally
through the efforts of its internal direct sales force. In the future, the
Company intends to offer Technology Division products through its recently
acquired Graphics Division sales force. Following completion of the Offering,
the Company will continue to expand its marketing efforts and seek to (i) expand
the customer base for the Crescent Computer, (ii) expand the geographic market
serviced by the Graphics Division and (iii) increase both the number of products
distributed and the number of manufacturers whose products are distributed by
the Graphics Division.
Service and Support
The Company believes that customer service and support is a significant
competitive factor in the network systems market in which it sells the Crescent
Computer and will become more important as local area networks ("LANs") become
more complex and as more enterprises implement business-critical applications on
their networks. The Company supports its customers by providing rapid problem
resolutions both during and after the installation process. The Company
maintains a technical support organization that assists customers in
troubleshooting problems and providing replacement parts. The Company provides a
toll-free hotline to help diagnose and correct system interruptions as they
occur at customer sites and its support staff is available during normal
business hours.
The Company warrants all of its Crescent Computer servers and workstations
against defects in materials and workmanship for two years. During the warranty
period, the Company will repair or replace any Crescent Computer, or component
thereof, which the Company identifies as defective. The Company will, under
certain circumstances, send replacement parts to the customer site prior to
return of the defective component in order to minimize down time. The Company
has contracted with a service provider to furnish on-site service of Crescent
Computers to customers which choose that option.
The Company's product warranties do not materially differ from those
generally available in the industry. In most instances, the Company receives
warranties on its products from its vendors which are at least equivalent to
those it provides to its customers. To date, the Company has not experienced
significant claims under its warranties.
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Backlog
The Company does not have significant backlog because (i) the Technology
Division is able to manufacture and deliver products generally within a few days
of order receipt and it has no long-term contracts to supply products to
customers (but rather manufactures and sells products on the basis of individual
purchase orders as and when received) and (ii) the Graphics Division generally
receives orders for shipment the same or next day. Accordingly, backlog at the
beginning of a quarter may not represent a significant percentage of the
products anticipated to be sold in that quarter. Quarterly revenues and
operating results depend on the volume and timing of bookings received during
the quarter, which are difficult to forecast. Therefore, management of the
Company does not consider order backlog a significant indicator of the Company's
future revenues.
Competition
The business of manufacturing and selling computers and computer
peripheral equipment is intensely competitive and rapidly changing. The Company
believes that the principal competitive factors in this industry include
relative price and performance, product availability, technical expertise,
financial stability, service, support and reputation.
The Company's Graphics Division competes primarily with computer equipment
manufacturers that either utilize an in-house sales force to market their
products to resellers and end-users or utilize the services of large, national
fulfillment distributors. The Company believes that its primary competition will
come from the latter category whose specialty is order fulfillment. The Company
believes that the key factors differentiating it from such competitors lies in
its ability to provide technical sales training, product demonstrations, product
training, pre- and post-sale technical support and evaluation units.
The Company's Crescent Computers are constructed with standardized parts
which are available to others in the market. The Company's competitors include
established computer product manufacturers, some of which supply products to the
Company, computer resellers, distributors and service providers. Some of the
Company's current and potential competitors have substantially greater
financial, sales, marketing, technical and other competitive resources than
those of the Company. As a result, the Company's competitors may be able to
devote greater resources than the Company to the sales and service of their
computer products. As the computer market in which the Company competes has
matured, product price competition has intensified and is likely to continue to
intensify, which may make it too costly for the Company to continue its "made to
order" method of doing business. One of the results of this competition may be
to lower sales prices and decrease profit margins.
Technological competition from other and longer established computer
hardware manufacturers and software developers is significant and expected to
increase. The Company expects that hardware manufacturers and software
developers will continue to enter the market to provide and package integrated
information distribution solutions to the same customer base served by the
Company's Technology Division. All such market participants will compete
intensely to maintain or improve their market shares and revenues. Most of the
companies with which the Company's Technology Division competes have
substantially greater capital
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resources, research and development staffs, marketing and distribution programs
and facilities, and many of them have substantially greater experience in the
production and marketing of products.
In the development market for network servers and workstations, the
Company experiences competition from hundreds of small companies and a number of
significant competitors, including such major industry participants as IBM,
Microsoft Corporation, Novell, Inc. and Compaq Computers, Inc. Accordingly,
there is no assurance that the Crescent Computer will continue to achieve
sufficient market acceptance to assure the Company's future success and long
range profitability in the face of competition with such significantly larger
and better capitalized companies.
With respect to the Technology Division's DEC reseller activities, the
Company faces competition from several national and regional companies, many of
which are substantially larger and more established than the Company and have
national sales forces.
Intellectual Property
The Company has no patents and its success will depend, in part, on its
ability to preserve its trade secrets and proprietary know-how, and to operate
without infringing the proprietary rights of third parties.
The Company seeks to protect trade secrets and proprietary know-how, in
part, by confidentiality agreements with employees, consultants, advisors, and
others. There can be no assurance that such employees, consultants, advisors, or
others, will maintain the confidentiality of such trade secrets or proprietary
information, or that the trade secrets or proprietary know-how of the Company
will not otherwise become known or be independently developed by competitors in
such a manner that the Company will have no practical recourse.
Product Research and Market Development
The market for the Company's products is characterized by rapid
technological change and evolving industry standards, and it is highly
competitive with respect to timely product innovations. The introduction of
products embodying new technology and the emergence of new industry standards
can render existing products obsolete and unmarketable. The Company believes
that its future success will depend upon its ability to develop, manufacture and
market new products and enhancements to existing products on a cost-effective
and timely basis.
If the Company is unable for technological or other reasons to develop
products in a timely manner in response to changes in the industry, or if
products or product enhancements that the Company develops do not achieve market
acceptance, the Company's business will be materially and adversely affected.
The Company has in the past experienced delays in introducing certain of its
products and enhancements, and there can be no assurance that it will not
encounter technical or other difficulties that could in the future delay the
introduction of new products or enhancement. Such delays in the past have
generally resulted from the Company's need to obtain a requisite component from
a third-party vendor whose own development process has been delayed (e.g., the
RAID controller card for the Company's server products).
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Employees
As of July 31, 1997, the Company had 97 full-time employees, 22 in the
Technology Division and 75 in the Graphics Division, and three part-time
employees. The Company intends to hire additional management, administrative,
technical and sales personnel upon completion of the Offering. None of the
Company's employees is represented by a labor union and the Company believes its
relations with its employees are satisfactory.
Facilities and Administrative Functions
The Company's executive offices and manufacturing and warehousing
facilities are located in approximately 7,600 square feet in Norcross, Georgia
pursuant to a lease expiring October 31, 1998 which provides for an annual
rental of $30,600. During the next several months, the Company intends to
relocate to approximately 15,100 square feet of space in a building owned by a
corporation which is beneficially owned by certain officers, directors and
stockholders of the Company or members of their immediate families. See "Certain
Transactions." The Company will occupy such space pursuant to a lease expiring
four years from occupancy which provides for an annual rental ranging from
$90,720 during the first year to $102,048 during the fourth year. Prisym
currently occupies a portion of such space for an annual rental of $36,000 and
it is expected that after occupancy by the Company, it will continue to occupy
such space.
The table below sets forth certain information with respect to leased
properties of the Graphics Division, all of which are leased from non-affiliated
lessors:
Lease Terms
-----------------------
Approximate Square Expiration Annual
Location Footage Date Rental(1)
-------- --------- ---------- ---------
980 Corporate Woods Parkway
Vernon Hills, Illinois 14,935 5/31/00 $159,058
645 Hembree Parkway
Roswell, Georgia 10,447 4/30/98 $ 47,012
620 East Diamond Avenue
Gaithersburg, Maryland 8,993 6/30/99 $ 91,368
7020 Knoll Center Parkway
Pleasanton, California 7,892 12/8/01 $ 96,888(2)
6721 Port West 5,495 2/28/98 $ 45,000
Houston, Texas
- ----------
(1) Certain of these leases provide for moderate annual rental increases.
(2) A portion of these premises is being subleased to a company affiliated
with IGD for an annual rental of approximately $39,000
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The Company also maintains five regional warehouses for the Graphics
Division. As part of its ongoing consolidation, the Company is examining the
feasibility of reducing the number of warehouses to three.
The Company has recently begun examining centralization of administrative
and marketing functions from the existing seven locations to its executive
offices in Georgia. Management is currently evaluating accounting systems and
integrated Management Information Systems ("MIS") that will provide inventory
management, billing and collection management, accounts receivable and accounts
payable management and streamlined consolidated financial reporting. See "Use of
Proceeds." In addition, the MIS system being evaluated is intended to increase
the Company's customer service and sales capabilities by providing contact
management, customized management reports, facilitating order tracking and
automating sales projections.
Legal Proceedings
The Company has been named in a lawsuit filed by Southside International
Trading, Inc., a Georgia corporation ("Southside") in the Superior Court of
Gwinnett County, Georgia alleging breach of contract and various violations of
the Georgia Trade Secrets Act. The lawsuit alleges that an employee of the
Company (the "Employee") was subject to certain non-competition provisions
pursuant to an employment agreement with Southside, which provisions had been
breached as a result of the Employee's alleged solicitation of Southside's
customers as an employee of the Company. Southside is seeking an aggregate
$500,000 in compensatory and $1,000,000 in punitive damages from the Company and
the Employee. The Company has filed a counterclaim against Southside alleging
that Southside had insufficient basis in fact or law to bring a claim against
the Company and had failed to specify any purported wrongful conduct on the part
of the Company. The Company is not involved in any other material legal
proceedings. Certain of the Company's stockholders have agreed to indemnify the
Company for defense and settlement of this suit, including reimbursement of
attorneys' fees. See "Certain Transactions The Acquisitions."
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MANAGEMENT
Executive Officers and Directors
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as of June 1, 1997.
Name Age Position
- ---- --- --------
Phillip C. Aginsky(1)(2) 44 Chairman of the Board of Directors
Dan I. Bailey 42 Co-President-Technology Division
William M. Rychel(2) 46 Co-President-Graphics Division
Martyn Cooper 48 Director
J. Thomas Woolsey 48 Director
- ----------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Phillip C. Aginsky has served as Chairman of the Board of Directors of the
Company since March 1993. From September 1990 to February 1992, Mr. Aginsky was
the Chairman and Chief Executive Officer of Bennett & Fountain PLC, an
electrical and electronic wholesaler. In 1981, he joined ElCentre Holdings
Limited ("ElCentre"), South Africa's largest electrical manufacturer and
distributor, serving as Group Administrative Director until 1989, and served in
the same capacity at Voltex Holding Limited, ElCentre's operating subsidiary,
until the sale of such entity in 1990. Mr. Aginsky earned a Bachelor of
Commerce, a Certificate in the Theory of Accounting, Higher Diplomas in Tax Law
and Company Law and a Master of Business Administration from the University of
Witwatersrand in Johannesburg, South Africa.
Dan I. Bailey has served as Co-President -- Technology Division and a
director of the Company since March 1993. He joined the Company's predecessor
entity as Sales Manager in September 1990. From April 1990 to September 1990,
Mr. Bailey owned Datanet, a computer hardware sales company. Prior thereto, he
was a police officer for ten years.
William M. Rychel became Co-President - Graphics Division and a director
of the Company upon completion of the Acquisitions in June 1997. Prior thereto,
he served as the President of G&R, a company he co-founded in 1985.
Martyn Cooper became a Regional Sales Director and a director of the
Company upon completion of the Acquisitions in June 1997. Prior thereto, he
served as the President of tekgraf Texas, a company he founded in 1987. Mr.
Cooper earned a bachelor's of science degree in mathematics from the University
of Surrey in England.
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J. Thomas Woolsey became a Regional Sales Director and a director of the
Company upon completion of the Acquisitions in June 1997. Prior thereto, he
served as the President and General Manager of Microsouth from 1989 to June
1997. From 1983 to 1989, Mr. Woolsey was an outside sales and product marketing
specialist for Microsouth and a Professor of Engineering Technology at Walters
State Community College. Mr. Woolsey earned a bachelor's of science degree in
industrial engineering and a master's degree in finance and marketing from the
University of Tennessee, Knoxville.
The Company intends to hire a Chief Financial Officer prior to completion
of the Offering and is currently interviewing potential candidates.
Directors serve until the next annual meeting or until their successors
are elected and qualified. Officers serve at the discretion of the Board of
Directors, subject to rights, if any, under contracts of employment. See
"Management - Employment Agreements."
The Delaware General Corporation Law permits a corporation through its
Certificate of Incorporation to eliminate prospectively the personal liability
of its directors to the corporation or its stockholders for damages for breach
of fiduciary duty of care as a director, with certain exceptions. The exceptions
include acts or omissions in bad faith or which involve intentional misconduct
or knowing violations of law, improper declaration of dividends, and
transactions from which the director personally gained a financial profit or
other advantage to which he was not legally entitled. The Company's Certificate
of Incorporation eliminates personal liability of its directors to the extent
permitted by this statutory provision.
The Company has been advised that it is the position of the Securities and
Exchange Commission that insofar as the foregoing provision may be invoked to
disclaim liability for damages arising under the Securities Act, such provision
is against public policy as expressed in the Securities Act and is therefore
unenforceable.
Board Committees and Designated Directors
The Board of Directors has a Compensation Committee and an Audit
Committee. The Compensation Committee makes recommendations to the Board
concerning salaries and incentive compensation for officers and employees of the
Company and may administer the Company's 1997 Stock Option Plan. See "Management
- - Stock Option Plan." The Audit Committee reviews the results and scope of the
audit and other accounting related matters.
The Company has agreed, if requested by the Representative, to nominate a
designee of the Representative to the Company's Board of Directors for a period
of five years from the date of this Prospectus. See "Underwriting."
Director Compensation
After completion of the Offering, non-employee directors will receive $500
for each Board and committee meeting attended and will be reimbursed for their
expenses in attending such meetings. Directors are not precluded from serving
the Company in any other capacity and
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receiving compensation therefor. Directors are also entitled to receive options
under the Company Stock Option Plan.
Executive Compensation
The following table sets forth information concerning the compensation
awarded to, earned by, or paid for services rendered to the Company and its
Subsidiaries in all capacities during the fiscal year ended December 31, 1996,
by (i) the Company's principal executive officer and (ii) the Company's and the
Subsidiaries' most highly compensated executive officers whose salary and bonus
for such year exceeded $100,000.
Summary Compensation Table
Annual Compensation
------------------- All Other
Name and Principal Position Salary($) Bonus($) Compensation($)
- --------------------------- --------- -------- ---------------
Phillip C. Aginsky (1)................ -- 369,137 3,338(2)
Chairman of Crescent
Dan I. Bailey......................... 60,000 131,000 1,820(2)
President of Crescent
Peter Goletz.......................... 60,000 131,000 1,820(2)
Vice President of Crescent
William M. Rychel..................... 120,000 50,000 67,889(3)
President of G&R
Patrick J. McLaughlin................. 64,000 108,937 1,629(2)
Vice President of IGD
- ----------
(1) Includes $135,000 paid to Alongal as a management fee for providing Mr.
Aginsky's services to the Company. See "Certain Transactions." Mr. Aginsky
serves as President of Alongal.
(2) Consists of health insurance premiums paid by the Company.
(3) Includes $16,182 of life and health insurance premiums paid by G&R and
$51,707 of other perquisites, including club membership fees, automobile
allowances and personal travel.
Employment Agreements
In June 1997, the Company entered into two-year employment agreements with
each of Messrs. Aginsky, Bailey, Rychel, Cooper and Woolsey, as well as with
Patrick J. McLaughlin and A. Lowell Nerenberg, who serve as Regional Sales
Directors, each of which provides for a base annual compensation of $125,000.
Annual bonuses are payable at the discretion of the Board.
All of the agreements also contain two-year post-termination
confidentiality and non-competition provisions. Public policy limitations and
the difficulty of obtaining injunctive relief may impair the Company's ability
to enforce the non-competition and nondisclosure covenants made by its
employees.
The Company has agreed with the Representative that the compensation of
the Company's executive officers, division managers and regional operating
managers will not
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exceed $125,000 for any of such individuals for a period of 13 months from the
closing of the Offering.
The Company has applied for key-person life insurance in the amount of
$2,000,000 on the lives of each of Messrs. Aginsky, Bailey and Rychel.
Compensation Committee Interlocks and Insider Participation
During the fiscal year ended December 31, 1996, Phillip C. Aginsky, Dan I.
Bailey and Peter Goletz participated in deliberations of the Company's Board of
Directors concerning executive officer compensation.
Key Personnel
A. Lowell Nerenberg became a Regional Sales Director of the Company upon
completion of the Acquisitions. Prior thereto, he served as President of CGD, a
company he founded in 1986.
Patrick J. McLaughlin became a Regional Sales Director of the Company upon
completion of the Acquisitions. Prior thereto, he served as Vice President of
IPM and IG, companies he co-founded in 1989.
Stock Option Plan
In August 1997, the Board of Directors adopted and the Company's
stockholders approved, the 1997 Stock Option Plan (the "Plan") covering 300,000
shares of the Company's Class A Common Stock pursuant to which employees,
officers and directors of, and consultants or advisers to, the Company and any
subsidiary corporations are eligible to receive incentive stock options
("incentive options") within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code") and/or options that do not qualify as
incentive options ("non-qualified options"). The Plan, which expires in August
2007, will be administered by the Board of Directors or a committee of the Board
of Directors, provided, however, that with respect to "officers" and
"directors," as such terms are defined for the purposes of Rule 16b-3 ("Rule
16b-3") promulgated under the Securities Exchange Act of 1934 (the "Exchange
Act"), such committee shall consist of "disinterested" directors as defined in
Rule 16b-3, but only if at least two directors meet the criteria of
"disinterested" directors as defined in Rule 16b-3. The purposes of the Plan are
to ensure the retention of existing and future executive personnel, key
employees, directors, consultants and advisors who are expected to contribute to
the Company's future growth and success and to provide additional incentive by
permitting such individuals to participate in the ownership of the Company, and
the criteria to be utilized by the Board of Directors or the committee in
granting options pursuant to the Plan will be consistent with these purposes.
The Plan provides for automatic grants of options to certain directors in the
manner set forth below.
Options granted under the Plan may be either incentive options or
non-qualified options. Incentive options granted under the Plan are exercisable
for a period of up to 10 years from the date of grant at an exercise price which
is not less than the fair market value of the Class A
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Common Stock on the date of the grant, except that the term of an incentive
option granted under the Plan to a stockholder owning more than 10% of the
outstanding voting power may not exceed five years and its exercise price may
not be less than 110% of the fair market value of the Class A Common Stock on
the date of the grant. To the extent that the aggregate fair market value, as of
the date of grant, of the shares for which incentive options become exercisable
for the first time by an optionee during the calendar year exceeds $100,000, the
portion of such option which is in excess of the $100,000 limitation will be
treated as a non-qualified option. Options granted under the Plan to officers,
directors or employees of the Company may be exercised only while the optionee
is employed or retained by the Company or within 90 days of the date of
termination of the employment relationship or directorship. However, options
which are exercisable at the time of termination by reason of death or permanent
disability of the optionee may be exercised within 12 months of the date of
termination of the employment relationship or directorship. Upon the exercise of
an option, payment may be made by cash or by any other means that the Board of
Directors or the committee determines. No option may be granted under the Plan
after August 2007.
Options may be granted only to such employees, officers and directors of,
and consultants and advisors to, the Company or any subsidiary of the Company as
the Board of Directors or the committee shall select from time to time in its
sole discretion, provided that only employees of the Company or a subsidiary of
the Company shall be eligible to receive incentive options. An optionee may be
granted more than one option under the Plan. The Board of Directors or the
committee will, in its discretion, determine (subject to the terms of the Plan)
who will be granted options, the time or times at which options shall be
granted, and the number of shares subject to each option, whether the options
are incentive options or non-qualified options, and the manner in which options
may be exercised. In making such determination, consideration may be given to
the value of the services rendered by the respective individuals, their present
and potential contributions to the success of the Company and its subsidiaries
and such other factors deemed relevant in accomplishing the purpose of the Plan.
To date, no options have been granted under the Plan. The Company intends
to grant options to purchase an aggregate of 75,000 shares to employees on the
date of this Prospectus. Such options will be exercisable at $5.00 per share and
will vest in four equal annual installments commencing on the date of grant.
Certain Statutory and Charter Provisions
Section 203 of the Delaware General Corporation Law provides, in general,
that a stockholder acquiring more than 15% of the outstanding voting shares of a
corporation subject to the statute (an "Interested Stockholder") but less than
85% of such shares may not engage in certain "Business Combinations" with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's Board of Directors approved either the Business Combination or the
transaction in which the stockholder became an Interested Stockholder or (ii)
the Business Combination is approved by the corporation's Board of Directors and
authorized by a vote of at least two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Stockholder.
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Section 203 defines the term "Business Combination" to encompass a wide
variety of transactions with or caused by an Interested Stockholder in which the
Interested Stockholder receives or could receive a benefit on other than a pro
rata basis with other stockholders, including mergers, certain asset sales,
certain issuances of additional shares to the Interested Stockholders,
transactions with the corporation which increase the proportionate interest of
the Interested Stockholder or transactions in which the Interested Stockholder
receives certain other benefits.
These provisions could have the effect of delaying, deferring or
preventing a change of control of the Company. The Company's stockholders, by
adopting an amendment to the Certificate of Incorporation or bylaws of the
Company, may elect not to be governed by Section 203, effective twelve months
after adoption. Neither the Certificate of Incorporation nor the bylaws of the
Company currently excludes the Company from the restrictions imposed by Section
203.
The General Corporation Law of Delaware permits a corporation through its
Certificate of Incorporation to eliminate the personal liability of its
directors to the corporation or its stockholders for monetary damages for breach
of fiduciary duty of loyalty and care as a director, with certain exceptions.
The exceptions include a breach of the director's duty of loyalty, acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, improper declarations of dividends, and transactions from
which the directors derived an improper personal benefit. The Company's
Certificate of Incorporation exonerates its directors from monetary liability to
the fullest extent permitted by this statutory provision.
Limitation of Liability and Indemnification Matters
The Company intends to enter into indemnification agreements
("Indemnification Agreement(s)") with each of its directors and officers after
the Offering. Each such Indemnification Agreement will provide that the Company
will indemnify the indemnitee against expenses, including reasonable attorneys'
fees, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of his performance of his duties as a
director or officer, other than an action instituted by the director or officer.
Such indemnification will be available if the indemnitee acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company, and, with respect to any criminal action, had no reasonable
cause to believe his conduct was unlawful. The Indemnification Agreements will
also require that the Company indemnify the director or other party thereto in
all cases to the fullest extent permitted by applicable law. Each
Indemnification Agreement will permit the director or officer that is party
thereto to bring suit to seek recovery or amounts due under the Indemnification
Agreement and to recover the expenses of such a suit if he is successful.
The Company's By-laws provide that the Company shall indemnify its
directors, officers, employees or agents to the full extent permitted by the
laws of Delaware, and the Company shall have the right to purchase and maintain
insurance on behalf of any such person whether or not the Company would have the
power to indemnify such person against the liability. The Company has not
currently purchased any such insurance policy on behalf on any of its directors,
officers, employees or agents.
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At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for indemnification.
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CERTAIN TRANSACTIONS
Transactions with Alongal and Anita
Alongal Extrusions, Inc. is a Georgia corporation which is wholly-owned by
Anita, Ltd. ("Anita"), a principal stockholder of the Company. Anita is
wholly-owned by the New Freedom Trust, a trust for the benefit of the father of
Phillip C. Aginsky, Chairman of the Board of the Company. See "Principal
Stockholders." Mr. Aginsky serves as President of Alongal.
From time to time since the Company's inception, Alongal has made advances
to the Company for working capital purposes. During the years ended December 31,
1994, 1995 and 1996 and the three months ended March 31, 1997, the Company made
interest payments to Alongal of approximately $40,000, $126,000, $160,000 and
$25,000, respectively. At March 31, 1997, the amount owed to Alongal was
approximately $2,081,000. Such advances bear interest at the rate of 8% per
annum and are payable on demand. Prior to completion of this Offering, the
Company intends to repay such indebtedness. At the same time, Anita will
contribute $477,000 to the capital of the Company. See " - Other Transactions."
During the years ended December 31, 1994 and 1996, the Company paid
Alongal management fees of $45,000 and $135,000, respectively, for providing the
services of Mr. Aginsky. See "Management - Executive Compensation." The Company
does not intend to pay management fees to Alongal after completion of the
Offering.
Pre-Acquisition Transactions Between the Subsidiaries and Their Respective
Affiliates
William M. Rychel, Co-President and a director of the Company and the
President of G&R, and Thomas Gust, a principal stockholder of the Company, are
the co-owners, together with Mr. Gust's brother, of G/B Marketing, Inc. ("G/B"),
a manufacturers' representative in the computer graphics business which shares
office space with G&R. G&R makes payments on behalf of G/B for such firm's
portion of certain overhead expenses, including rent, telephone and facilities
maintenance. G/B generally reimburses G&R for such costs on a monthly basis.
During the years ended December 31, 1994, 1995 and 1996 and the three months
ended March 31, 1997, the total amount of such payments made on behalf of G/B
were $115,000, $134,000, $82,000 and $20,000, respectively. From time to time
G&R also advances funds to G/B for working capital purposes. At December 31,
1996 and March 31, 1997, amounts owed by G/B to G&R were $72,000 and $60,000,
respectively.
From time to time, G&R has sold inventory at cost to NECG. NECG is owned
15% by each of Messrs. Rychel and Thomas Gust, 30% by A. Lowell Nerenberg, an
officer and stockholder of the Company, and the balance by unaffiliated parties.
During the years ended December 31, 1994, 1995 and 1996 and the three months
ended March 31, 1997, such transactions amounted to $785,000, $678,000, $521,000
and $132,000, respectively.
J. Thomas Woolsey, a director of the Company and the former President of
Microsouth, was the owner of Americad, Inc. ("Americad"), a mail order computer
sales company which was in operation from April 1995 through April 1997.
Americad purchased products from various distributors, including Microsouth, for
resale to the end user. During the years ended December
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31, 1995 and 1996 and the three months ended March 31, 1997, Americad's
purchases from Microsouth aggregated $110,000, $103,000 and $8,000,
respectively.
Prior to completion of the Acquisitions, Microsouth performed certain
software development services on behalf of JTW Acquisitions, L.P., an entity
owned by Mr. Woolsey, for which it was not reimbursed. During the years ended
December 31, 1995 and 1996 and the three months ended March 31, 1997, Microsouth
incurred charges of $42,000, $85,000 and $19,000, respectively, relating to this
project.
In March 1993, J. Thomas Woolsey and Martyn Cooper sold their 100%
interests in Microsouth and tekgraf Texas, respectively, to Network Imaging
Corporation, a publicly-held company ("NIC"). During the next several years,
such individuals continued to run their businesses as separate subsidiaries of
NIC. In June 1995, Messrs. Woolsey and Cooper repurchased their respective
companies from NIC for $1,000,000 and $375,000, respectively, which purchase
prices were represented by a combination of cash and promissory notes. In
connection with such repurchases, Messrs. Woolsey and Cooper borrowed $250,000
and $125,000, respectively, from their respective companies pursuant to five
year promissory notes bearing interest at 110% of the Applicable Federal Funds
Rate (8.25% at December 31, 1996) (the "NIC Notes"). In July 1995, the NIC Notes
were offset and cancelled in connection with a restructuring of Microsouth and
tekgraf Texas. In December 1996, tekgraf Texas paid $180,000 to NIC in
consideration of the cancellation of its $250,000 note. Microsouth paid $540,000
to NIC in cancellation of its $750,000 note. As a result of such repurchases,
tekgraf Texas and Microsouth recognized extraordinary gains of $70,000 and
$210,000, respectively. See "Selected Financial and Operating Data."
From time to time, Edward H. L. Mason, the former President of IGD, made
working capital advances to IGD. At August 12, 1997, the principal amount owed
to Mr. Mason was $125,000. Such advances bear interest at the rate of 9.25% per
annum and will be repaid prior to the Offering.
From time to time, Beverly and A. Lowell Nerenberg, former officers of
CGD, made working capital advances to CGD. At August 12, 1997, the principal
amount owed to the Nerenbergs was $90,000, $50,000 of which is subordinated to
amounts owed under the NationsBank Facility. Such advances bear interest at the
rate of 12% per annum and will be repaid prior to the Offering.
The Acquisitions
In May 1997, the Company entered into stock purchase agreements (the
"Agreements") with each of the Subsidiaries pursuant to which the Company issued
an aggregate of 2,630,400 shares of its Class B Common Stock in exchange for all
of the outstanding capital stock of each of the Subsidiaries. Pursuant to the
terms of the Agreements, the Subsidiaries agreed to deliver a defined guaranteed
net asset value ("NAV") as of the closing date of June 2, 1997. The excess net
book value over the warranted NAV actually delivered by the Subsidiaries will be
distributed to the former stockholders of the Subsidiaries as Purchase Price
Adjustments.
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Prior to the Offering, the Company will make payments in the approximate
aggregate amount of $1,200,000 to the former stockholders of the Subsidiaries,
reflecting such Purchase Price Adjustments. See "Dividends and Distributions"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The following sets forth (i) the number of shares of Class B Common Stock
received in the Acquisitions by executive officers, directors and principal
stockholders of the Company and (ii) the estimated dollar amount to be paid to
such individuals as a result of Purchase Price Adjustments:
Name Number of Shares(1) Amount of Adjustment
- ---- ------------------- --------------------
William Rychel 490,800 $________________
J. Thomas Woolsey 634,400 $________________
Martyn Cooper 333,600 $________________
Thomas A. Gust 511,200 $________________
- -------------
(1) Includes such individuals' Escrow Shares and Indemnification Shares.
The Agreements provide that the representations and warranties contained
therein shall survive for a period of two years from the date of the Agreements.
An aggregate of 1,600,000 of the shares of Class B Common Stock issued pursuant
to the Agreements have been placed in escrow to cover potential claims for
indemnification by the Company under the Agreements.
Transactions with PDP
PDP, Inc. ("PDP") is a Georgia corporation owned 22.5% by each of Dan I.
Bailey, Co-President and a director of the Company, and Peter Goletz, a
principal stockholder of the Company, and 51% by the wife of Phillip Aginsky.
The Company intends to relocate its executive offices to a building owned by PDP
upon completion of the Offering. See "Business--Facilities and Administrative
Functions." In connection with the acquisition of the aforementioned building,
PDP incurred bank indebtedness of $496,000. The bank loan was guaranteed by
Messrs. Bailey and Goletz and Alongal. The Company has also guaranteed repayment
of such debt.
Other Transactions
Certain stockholders of the Company, including Dan I. Bailey, Co-President
and a director of the Company, have made non-interest bearing working capital
advances to the Company over the past several years. At December 31, 1994, 1995
and 1996 and March 31, 1997, amounts owed to Mr. Bailey aggregated approximately
$35,000, $30,000, $64,000 and $24,000, respectively. Such advances are payable
on demand.
Prior to completion of the Offering, the pre-Acquisition stockholders of
the Company will contribute an aggregate of $936,000 to the capital of the
Company. Of such amount, Anita will contribute $477,000 and Dan I. Bailey,
Co-President and a director of the Company, and Peter Goletz, a principal
stockholder of the Company, will each contribute $211,000.
The Company believes that all of the transactions set forth above were
made on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties.
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The Company has adopted a policy that all future transactions, including loans,
between the Company and its officers, directors, principal stockholders and
their affiliates will be approved by a majority of the Board of Directors,
including a majority of the independent and disinterested outside directors on
the Board of Directors, and will continue to be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of Common Stock by (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (ii) each director of the Company,
(iii) each executive officer of the Company, and (iv) all executive officers and
directors of the Company as a group, (a) prior to the Offering and (b) as
adjusted to give effect to the sale of the 2,500,000 Units offered hereby:
<TABLE>
<CAPTION>
Shares Percent of
Beneficially Percent of Shares Beneficially Voting Power
Owned(2) Owned After Offering
------------ ------------------------------ --------------
Before After
Name and Address of Beneficial Owner(1) Offering Offering
- --------------------------------------- -------- --------
<S> <C> <C> <C> <C>
Anita, Ltd................................ 698,400(4)(5) 17.46% 10.74% 15.52%
Phillip C. Aginsky........................ 698,400(3) 17.46% 10.74% 15.52%
Dan I. Bailey............................. 308,400(4)(5) 7.1% 4.74% 6.85%
William M. Rychel......................... 490,800(4) 12.27% 7.55% 10.91%
Martyn Cooper............................. 333,600(4) 8.34% 5.13% 7.41%
Peter Goletz.............................. 308,400(4)(5) 7.71% 4.74% 6.85%
Thomas A. Gust............................ 511,200(4) 12.78% 7.86% 11.36%
Beverly Nerenberg......................... 256,000(4)(6) 6.40% 3.94% 5.69%
J. Thomas Woolsey......................... 634,400(4) 15.86% 9.76% 14.10%
All executive officers and directors
as a group (5 persons).................. 2,465,600(2)(4) 61.64% 37.93% 54.79%
</TABLE>
- ----------
(1) Unless otherwise indicated, the address of such individual is c/o the
Company
(2) All of such shares are Class B Common Stock. See "Description of
Securities." Includes such individuals' Escrow Shares and the
Indemnification Shares. See "- Escrow Shares" below and "Certain
Transactions - The Acquisitions."
(3) Consists of the shares owned by Anita, Ltd., a company owned by the New
Freedom Trust, a trust for the benefit of Mr. Aginsky's father. The
trustee of the New Freedom Trust, appointed by Mr. Aginsky's father-in-
law, as Protector, is Riverbank, Ltd. Mr. Aginsky disclaims beneficial
ownership of the shares held by Anita, Ltd.
(4) Includes shares which are being held in escrow to cover potential claims
for indemnification in connection with the Acquisitions. See "Certain
Transactions."
(5) Messrs. Bailey and Goletz have each pledged all of their shares and
granted an irrevocable proxy to Anita in consideration for personal loans.
(6) Includes shares held by her husband.
Escrow Shares
In connection with the Offering, the holders of the Company's Class B
Common Stock have agreed to place an aggregate of 200,000 shares into escrow
pursuant to an escrow agreement (the "Escrow Agreement") with American Stock
Transfer & Trust Company, as escrow agent. The Escrow Shares may be voted, but
are not transferable or assignable other than to a permitted transferee (as
defined) who agrees to be bound by the Escrow Agreement.
The Escrow Shares will be released from escrow if, and only if, one or
more of the following conditions is/are met:
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(a) the Company's net income before provision for income taxes and exclusive
of any extraordinary earnings (all as audited by the Company's independent
public accountants) (the "Minimum Pretax Income") amounts to at least
$8,700,000 for the fiscal year ending December 31, 1998;
(b) the Minimum Pretax Income amounts to at least $13,000,000 for the fiscal
year ending December 31, 1999;
(c) the Minimum Pretax Income amounts to at least $17,900,000 for the fiscal
year ending December 31, 2000;
(d) the Closing Price (as defined in the Escrow Agreement) of the Class A
Common Stock averages in excess of $13.50 per share for 30 consecutive
business days during the 18- month period commencing on the date of this
Prospectus;
(e) the Closing Price of the Class A Common Stock averages in excess of $16.75
per share for 30 consecutive business days during the 18-month period
commencing 18 months from the date of this Prospectus.
The Minimum Pretax Income amounts set forth above will be calculated
exclusive of any extraordinary earnings, including any charge to income
resulting from release of the Escrow Shares and any property distributed in
respect of such shares. Minimum Pretax Income will be calculated assuming
release of the Escrow Shares and conversion or exercise of all outstanding
equity securities of the Company convertible into or exchangeable for Common
Stock, whether or not convertible or exchangeable at the time of computation and
after adjustment for any stock dividends, stock splits or similar events. The
Closing Price amounts set forth above are subject to adjustment in the event of
any stock splits, reverse stock splits or other similar events.
Any money, securities, rights or property distributed in respect of the
Escrow Shares, including any property distributed as dividends or pursuant to
any stock split, merger, recapitalization, dissolution, or total or partial
liquidation of the Company, shall be held in escrow until release of the Escrow
Shares. If none of the applicable Minimum Pretax Income or Closing Price levels
set forth above have been met by March 31, 2001, the Escrow Shares, as well as
any dividends or other distributions made with respect thereto, will be
cancelled and contributed to the capital of the Company. The release of the
Escrow Shares to officers, directors, employees and consultants of the Company
will be deemed compensatory and, accordingly, will result in a substantial
charge to reportable earnings, which would equal the fair market value of such
shares on the date of release. Such charge could substantially reduce or
eliminate the Company's net income, if any, for financial reporting purposes for
the period during which such shares are, or become probable of being, released
from escrow. Although the amount of compensation expense recognized by the
Company will not affect the Company's total stockholders' equity, it may have a
negative effect on the market price of the Company's securities.
The Minimum Pretax Income and Closing Price levels set forth above were
determined by negotiation between the Company and the Representative and should
not be construed to
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<PAGE>
imply or predict any future earnings by the Company or any increase in the
market price of its securities.
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<PAGE>
DESCRIPTION OF SECURITIES
Units
Each Unit consists of one share of Class A Common Stock and one redeemable
Warrant. Each Warrant entitles the holder to purchase one share of Class A
Common Stock. The Class A Common Stock and Warrants comprising the Units are
transferable separately immediately upon issuance.
Common Stock
Class A Common Stock
The Company is authorized to issue 31,000,000 shares of Class A Common
Stock, $.001 par value, none of which are currently issued and outstanding.
Holders of Class A Common Stock have the right to cast one vote for each share
held of record on all matters submitted to a vote of holders of Class A Common
Stock. The Class A Common Stock and Class B Common Stock vote together as a
single class on all matters on which stockholders may vote, except when class
voting is required by applicable law.
Holders of Class A Common Stock are entitled to dividends, together with
the holders of Class B Common Stock, pro rata based on the number of shares
held, when, as and if declared by the Board of Directors, from funds legally
available therefor subject to the rights of holders of preferred stock. In the
case of dividends or other distributions payable in stock of the Company,
including distributions pursuant to stock splits or division of stock of the
Company, only shares of Class A Common Stock will be distributed with respect to
Class A Common Stock. In the event of liquidation, dissolution or winding up of
the affairs of the Company, all assets and funds of the Company remaining after
the payment to creditors and to holders of preferred stock shall be distributed,
pro rata, among the holders of the Class A Common Stock and the Class B Common
Stock. Holders of Class A Common Stock are not entitled to preemptive,
subscription, cumulative voting or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Class A Common Stock.
All shares of Class A Common Stock to be offered by the Company hereby, when
issued, will be fully paid and non-assessable.
Class B Common Stock
The Company is authorized to issue 4,000,000 shares of Class B Common
Stock, $.001 par value, all of which are issued and outstanding and held by 14
stockholders of record. Each share of Class B Common Stock is entitled to five
votes on all matters on which stockholders may vote, including the election of
directors. The Class A Common Stock and Class B Common Stock vote together as a
single class on all matters on which stockholders may vote, except when class
voting is required by Delaware law.
Holders of Class B Common Stock are entitled to participate together with
the holders of Class A Common Stock, pro rata based on the number of shares
held, in the payment of cash dividends and in the liquidation, dissolution and
winding up of the Company subject to the rights of holders of Preferred Stock.
In the case of dividends, or other distributions payable in stock of
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the Company, including distributions pursuant to stock splits or divisions of
stock of the Company, only shares of Class A Common Stock shall be distributed
with respect to Class B Common Stock.
Each share of Class B Common Stock is automatically converted into one
share of Class A Common Stock upon (i) its sale, gift or transfer, except in the
case of a transfer to a trust for which the original holder acts as sole trustee
or to any other holder of Class B Common Stock; (ii) the death of the original
holder thereof, including in the case of the original holder having transferred
the Class B Common Stock to a trust for which the original holder served as
trustee during his or her lifetime; or (iii) the conversion of an aggregate of
75% of the authorized shares of Class B Common Stock into Class A Common Stock.
The difference in voting rights increases the voting power of the holders
of Class B Common Stock and accordingly has an anti-takeover effect. The
existence of the Class B Common Stock may make the Company a less attractive
target for a hostile takeover bid or render more difficult or discourage a
merger proposal, an unfriendly tender offer, a proxy contest, or the removal of
incumbent management, even if such transactions were favored by the stockholders
of the Company other than the holders of Class B Common Stock. Thus, the
stockholders may be deprived of an opportunity to sell their shares at a premium
over prevailing market prices in the event of a hostile takeover bid. Those
seeking to acquire the Company through a business combination will be compelled
to consult first with the holders of Class B Common Stock in order to negotiate
the terms of such business combination. Any such proposed business combination
will have to be approved by the Board of Directors, which may be under the
control of the holders of Class B Common Stock, and if stockholder approval were
required, the approval of the holders of Class B Common Stock will be necessary
before any such business combination can be consummated.
Redeemable Warrants
Each Warrant entitles the registered holder to purchase one share of Class
A Common Stock at an exercise price of $7.00 at any time until 5:00 P.M., New
York City time, on, 2002. Commencing one year from the date of this Prospectus,
the Warrants are redeemable by the Company on 30 days' written notice at a
redemption price of $.05 per Warrant if the "closing price" of the Company's
Class A Common Stock for any 30 consecutive trading days ending within 15 days
of the notice of redemption averages in excess of $9.80 per share. "Closing
price" shall mean the closing bid price if listed in the over-the-counter market
on Nasdaq or otherwise or the closing sale price if listed on the Nasdaq
National Market or a national securities exchange. All Warrants must be redeemed
if any are redeemed.
General. The Warrants will be issued pursuant to a warrant agreement (the
"Warrant Agreement") among the Company, the Representative and American Stock
Transfer & Trust Company, New York, New York, as warrant agent (the "Warrant
Agent"), and will be evidenced by warrant certificates in registered form. The
Warrants provide for adjustment of the exercise price and for a change in the
number of shares issuable upon exercise to protect holders against dilution in
the event of a stock dividend, stock split, combination or reclassification of
the Common Stock or upon issuance of shares of Common Stock at prices lower than
the market price of the Common Stock, with certain exceptions.
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<PAGE>
The exercise prices of the Warrants were determined by negotiation between
the Company and the Representative and should not be construed to be predictive
of or to imply that any price increases in the Company's securities will occur.
The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Class A Common Stock for issuance upon the
exercise of the Warrants. A Warrant may be exercised upon surrender of the
Warrant certificate on or prior to its expiration date (or earlier redemption
date) at the offices of the Warrant Agent, with the "Subscription Form" on the
reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Warrant is being exercised. Shares issued upon exercise of Warrants
and payment in accordance with the terms of the Warrants will be fully paid and
non-assessable.
For the life of the Warrants, the holders thereof have the opportunity to
profit from a rise in the market value of the Class A Common Stock, with a
resulting dilution in the interest of all other stockholders. So long as the
Warrants are outstanding, the terms on which the Company could obtain additional
capital may be adversely affected. The holders of the Warrants might be expected
to exercise them at a time when the Company would, in all likelihood, be able to
obtain any needed capital by a new offering of securities on terms more
favorable than those provided for by the Warrants.
The Warrants do not confer upon the Warrantholder any voting or other
rights of a stockholder of the Company. Upon notice to the Warrantholders, the
Company has the right to reduce the exercise price or extend the expiration date
of the Warrants.
Unit Purchase Option
The Company has agreed to grant to the Representative and its designees,
upon the closing of the Offering, the Unit Purchase Option to purchase up to
250,000 Units. These Units will be identical to the Units offered hereby except
that the Warrants included in the Unit Purchase Option will only be subject to
redemption by the Company after the Unit Purchase Option has been exercised and
the underlying Warrants are outstanding. The Unit Purchase Option cannot be
transferred, sold, assigned or hypothecated for two years, except to any officer
of the Underwriters or members of the selling group or their respective
officers. The Unit Purchase Option is exercisable during the three-year period
commencing two years from the date of this Prospectus at an exercise price of
$____ per Unit ( % of the initial public offering price) subject to adjustment
in certain events to protect against dilution. The holders of the Unit Purchase
Option have certain demand and piggyback registration rights. See
"Underwriting."
Preferred Stock
The Company is authorized to issue up to 5,000,000 shares of "blank-check"
preferred stock (the "Preferred Stock"). The Board of Directors will have the
authority to issue this Preferred Stock in one or more series and to fix the
number of shares and the relative rights, conversion rights, voting rights and
terms of redemption (including sinking fund provisions) and liquidation
preferences, without further vote or action by the stockholders. If shares of
Preferred
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<PAGE>
Stock with voting rights are issued, such issuance could affect the voting
rights of the holders of the Company's Common Stock by increasing the number of
outstanding shares having voting rights, and by the creation of class or series
voting rights. If the Board of Directors authorizes the issuance of shares of
Preferred Stock with conversion rights, the number of shares of Common Stock
outstanding could potentially be increased by up to the authorized amount.
Issuance of Preferred Stock could, under certain circumstances, have the effect
of delaying or preventing a change in control of the Company and may adversely
affect the rights of holders of Common Stock. Also, Preferred Stock could have
preferences over the Common Stock (and other series of preferred stock) with
respect to dividend and liquidation rights. The Company currently has no plans
to issue any Preferred Stock.
Anti-Takeover Protections
The voting provisions of the Class A Common Stock and Class B Common Stock
and the broad discretion conferred upon the Board of Directors with respect to
the issuance of series of Preferred Stock (including with respect to voting
rights) could substantially impede the ability of one or more stockholders
(acting in concert) to acquire sufficient influence over the election of
directors and other matters to effect a change in control or management of the
Company, and the Board of Directors' ability to issue Preferred Stock could also
be utilized to change the economic and control structure of the Company. As a
result, such provisions, together with certain other provisions of the By-Laws
summarized in the succeeding paragraph, may be deemed to have an anti-takeover
effect and may delay, defer or prevent a tender offer or takeover attempt that a
stockholder might consider in such stockholder's best interest, including
attempts that might result in a premium over the market price for the Common
Stock hold by stockholders.
Transfer Agent
American Stock Transfer & Trust Company, New York, New York, serves as
Transfer Agent for the shares of Common Stock and Warrant Agent for the
Warrants.
Registration Rights
The holders of the Unit Purchase Option will have demand and piggy-back
registration rights relating to such options and the underlying securities. See
"Underwriting."
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering the Company will have outstanding
2,500,000 shares of Class A Common Stock, 4,000,000 shares of Class B Common
Stock and 2,500,000 Warrants. The 4,000,000 outstanding shares of Class B Common
Stock are "restricted securities" within the meaning of Rule 144 under the
Securities Act and may not be sold publicly unless they are registered under the
Securities Act or are sold pursuant to Rule 144 or another exemption from
registration. 1,369,600 of such shares are currently eligible for sale in the
public market pursuant to Rule 144 and the remainder will become so eligible
commencing June 1998 (subject to the restrictions on transferability relating to
the Escrow Shares and volume limitations). However, all the holders of the
shares of Class B Common Stock outstanding prior to the Offering have agreed not
to sell or otherwise dispose of any securities of the Company for a period of 13
months after the date of this Prospectus without the Representative's prior
written consent.
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three-month period a number of restricted shares beneficially owned
for at least one year that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) an amount equal to the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least three years is entitled to sell such
shares without regard to the volume or other resale requirements.
The Representative has demand and "piggy-back" registration rights with
respect to the securities underlying the Unit Purchase Option. See
"Underwriting."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
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<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below have severally agreed to purchase from the Company on a
"firm commitment" basis, if any are purchased, the respective number of Units
set forth opposite their names.
Underwriter Number of Units
----------- ---------------
D. H. Blair Investment Banking Corp.
---------
Total 2,500,000
=========
The Underwriters have advised the Company that they propose to offer the
Units to the public at the public offering price set forth on the cover page of
this Prospectus and to certain dealers who are members of the NASD, at such
prices less concessions of not in excess of $ per Unit, of which a sum not in
excess of $ per Unit may in turn be reallowed to other dealers who are members
of the NASD. After the commencement of the Offering, the public offering price,
the concession and the reallowance may be changed by the Underwriters.
The Company has granted to the Underwriters (or, at is option, the
Representative, individually) an option, exercisable during the 30-day period
commencing on the date of this Prospectus, to purchase from the Company at the
public offering price, less underwriting discounts, up to 375,000 additional
Units for the purpose of covering over-allotments, if any.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriters a non-accountable expense allowance equal
to 3% of the gross proceeds derived from the sale of Units offered hereby,
including any Units purchased pursuant to the Underwriters' over-allotment
option, $40,000 of which has been paid to date.
Holders of all of the Company's outstanding shares of Class B Common Stock
have agreed not to sell, assign, transfer or otherwise dispose of any of their
shares for a period of 13 months from the date of this Prospectus without the
prior written consent of the Representative and for the 10 months thereafter not
to sell more than 10% of their holdings in any month on a culmulative basis
without such consent.
During the five-year period from the date of this Prospectus, in the event
the Representative originates a financing or a merger, acquisition or
transaction to which the Company is a party, the Representative will be entitled
to receive a finder's fee in consideration for origination of such transaction.
The fee is based on a percentage of the consideration paid in the transaction
ranging from 7% of the first $1,000,000 to 2 1/2% of any consideration in excess
of $9,000,000.
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<PAGE>
The Company has agreed not to solicit Warrant exercises other than through
the Representative, unless the Representative declines to make such
solicitation. Upon any exercise of the Warrants after the first anniversary of
the date of this Prospectus, the Company will pay the Representative a fee of 5%
of the aggregate exercise price of the Warrants, if (i) the market price of the
Company's Common Stock on the date the Warrants are exercised is greater than
the then exercise price of the Warrants; (ii) the exercise of the Warrants was
solicited by a member of the NASD; (iii) the Warrants are not held in a
discretionary account; (iv) disclosure of compensation arrangements was made
both at the time of the Offering and at the time of exercise of the Warrants;
and (v) the solicitation of exercise of the Warrant was not in violation of
Regulation M promulgated under the Exchange Act.
The Company has agreed to sell to the Representative and its designees,
for nominal consideration, the Unit Purchase Option to purchase up to 250,000
Units, substantially identical to the Units being offered hereby, except that
the Warrants included therein are subject to redemption by the Company at any
time after the Unit Purchase Option has been exercised and the underlying
warrants are outstanding. The Unit Purchase Option will be exercisable during
the three-year period commencing two years from the date of this Prospectus at
an exercise price of $ per Unit, subject to adjustment in certain events to
protect against dilution, and are not transferable for a period of two years
from the date of this Prospectus except to officers of the Underwriters or to
members of the selling group or their respective officers. The Company has
agreed to register during the four-year period commencing one year from the date
of this Prospectus, on two separate occasions, the securities issuable upon
exercise thereof under the Securities Act, the initial such registration to be
at the Company's expense and the second at the expense of the holders. The
Company has also granted certain "piggy-back" registration rights to holders of
the Unit Purchase Option.
The Representative has informed the Company that it does not expect to
make sales of the Units offered hereby to discretionary accounts.
The Securities and Exchange Commission (the "Commission") is conducting an
investigation concerning various business activities of the Representative. The
investigation appears to be broad in scope, involving numerous aspects of the
Representative's compliance with the Federal securities laws and compliance with
the Federal securities laws by issuers who securities were underwritten by the
Representative, or in which the Representative made over-the-counter markets,
persons associated with the Representative, such issuers and other persons. The
Company has been advised by the Representative that the investigation has been
ongoing since at least 1989 and that it is cooperating with the investigation.
The Representative cannot predict whether this investigation will ever result in
any type of formal enforcement action against the Representative, or, if so,
whether any such action might have an adverse effect on the Representative or
the securities offered hereby.
In connection with the Offering, the Underwriters and certain selling
group members may engage in certain transactions that stabilize, maintain or
otherwise affect the market price of the Units, the Class A Common Stock and the
Warrants. Such transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M, pursuant to which such persons may bid
for or purchase the Units, the Class A Common Stock and the Warrants for the
purpose of pegging, fixing or maintaining the market price of such securities.
The Underwriters
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<PAGE>
may also create a short position in the Units by selling more Units in
connection with the Offering than they are committed to purchase from the
Company, and in such case the Underwriters may reduce all or a portion of that
short position by purchasing the Units, the Class A Common Stock and the
Warrants in the open market. The Underwriters also may also elect to reduce any
short position by exercising all or any portion of the over-allotment option
described herein. In addition, the Representative may impose "penalty bids"
whereby selling commissions allowed to syndicate members or other broker-dealers
in respect of the Units sold in the Offering for their account may be reclaimed
by the Representative if the securities comprising the Units are repurchased by
the Representative or any syndicate member in stabilizing or covering
transactions. Any of the transactions described in this paragraph may stabilize
or maintain the market price of the Units, the Class A Common Stock and the
Warrants at a level above that which might otherwise prevail in the open market.
Neither the Company nor the Representative may make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Units, the Class A Common Stock and
the Warrants. In addition, neither the Company nor the Representative makes any
representation that the Representative or any syndicate member will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the public offering price of the Units
offered hereby and the terms of the Warrants have been determined by negotiation
between the Company and the Representative and are not necessarily related to
the Company's asset value, net worth or other established criteria of value.
Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of and the prospects for the
industry in which the Company competes, the present state of the Company's
development and its future prospects, an assessment of the Company's management,
the Company's capital structure, demand for similar securities of comparable
companies and such other factors as were deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby has been passed upon for the
Company by Bachner, Tally, Polevoy & Misher LLP, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Paul, Hastings,
Janofsky & Walker LLP, New York, New York.
EXPERTS
The financial statements of Crescent, G&R and CGD as of December 31, 1996
and 1995 and for each of the three years in the period ended December 31, 1996,
of IPM and IG as of December 31, 1996 and 1995 and for the year then ended, of
Microsouth as of December 31, 1996 and 1995 and for the year ended December 31,
1996 and the six month period ended December 31, 1995, and of tekgraf Texas as
of December 31, 1996 and for the year then ended appearing in this Prospectus
and Registration Statement have been audited by Coopers &
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Lybrand L.L.P., independent accountants, as set forth in their reports thereon
appearing elsewhere herein and in the Registration Statement, and are included
in reliance upon such reports given upon the authority of such firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Exchange Act. The Company
has filed a Registration Statement on Form S-1 under the Securities Act with the
Commission in Washington, D.C. with respect to the Units offered hereby. This
Prospectus, which is part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Units
offered hereby, reference is hereby made to the Registration Statement and such
exhibits, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison (Suite 1400), Chicago, Illinois 60661. Copies
of such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. In addition, the Commission maintains a Website
on the Internet that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The address of the Commission's Website is http://www.sec.gov.
Following the Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish to its
stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
Historical Financial Statements of Crescent Computers and the Subsidiaries
Page
----
CRESCENT COMPUTERS, INC.
Report of Independent Accountants F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Income F-4
Consolidated Statements of Stockholder's Equity F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7
MICROSOUTH, INC.
Report of Independent Accountants F-13
Balance Sheets F-14
Statements of Income F-15
Statements of Stockholder's Equity F-16
Statements of Cash Flows F-17
Notes to Financial Statements F-18
TEKGRAF, INC.
Report of Independent Accountants F-22
Balance Sheets F-23
Statements of Income F-24
Statements of Stockholder's Equity F-25
Statements of Cash Flows F-26
Notes to Financial Statements F-27
INTELLIGENT PRODUCTS MARKETING, INC.
Report of Independent Accountants F-33
Balance Sheets F-34
Statements of Income F-35
Statements of Stockholders' Equity F-36
Statements of Cash Flows F-37
Notes to Financial Statements F-38
IG DISTRIBUTION, INC.
Report of Independent Accountants F-42
Balance Sheets F-43
Statements of Income F-44
Statements of Stockholders' Equity F-45
Statements of Cash Flows F-46
Notes to Financial Statements F-47
COMPUTER GRAPHICS DISTRIBUTING, INC.
Report of Independent Accountants F-52
Balance Sheets F-53
Statements of Income F-54
Statements of Stockholders' Equity F-55
Statements of Cash Flows F-56
Notes to Financial Statements F-57
G&R MARKETING, INC.
Report of Independent Accountants F-59
Balance Sheets F-60
Statements of Income F-61
Statements of Stockholders' Equity F-62
Statements of Cash Flows F-63
Notes to Financial Statements F-64
F-1
<PAGE>
Report of Independent Accountants
To the Shareholders
Crescent Computers, Inc.
We have audited the accompanying consolidated balance sheets of Crescent
Computers, Inc. as of December 31, 1995 and 1996, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Crescent Computers, Inc. as of December 31, 1995 and 1996, and the results of
their consolidated operations and their cash flows for each of the three years
in the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Atlanta, Georgia
June 2, 1997 except for
Note 8 as to which the
date is June 17, 1997
F-2
<PAGE>
Crescent Computers, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31, March 31, 1997
1995 1996 (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 305,821 $ 633,027 $ 667,409
Accounts receivable, less allowance for
doubtful accounts of $17,000
and $35,000 at December 31, 1995
and 1996, respectively 1,382,673 1,621,180 1,712,460
Inventories 549,274 636,019 704,886
Deferred income taxes 8,400 1,500 1,200
----------- ----------- -----------
Total current assets 2,246,168 2,891,726 3,085,955
----------- ----------- -----------
Property and equipment:
Furniture and fixtures 44,531 83,294 83,294
Computer equipment 5,946 36,225 41,123
----------- ----------- -----------
50,477 119,519 124,417
Less accumulated depreciation (45,766) (62,765) (73,132)
----------- ----------- -----------
4,711 56,754 51,285
Deferred income taxes 800
Other assets 12,732 58,629 76,153
----------- ----------- -----------
Total assets $ 2,264,411 $ 3,007,109 $ 3,213,393
=========== =========== ===========
LIABILITIES
Current liabilities:
Due to stockholders, net $ 1,615,864 $ 2,211,164 $ 13,552
Due to related entities 2,080,502
Accounts payable 648,977 710,896 862,439
Accrued expenses 32,302 69,408 26,701
Income taxes payable 4,100 86,200
----------- ----------- -----------
Total current liabilities 2,297,143 2,995,568 3,069,394
----------- ----------- -----------
Deferred income taxes 1,200 100
Minority interest 23,948
Commitments and contingencies
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value, 4,000,000 shares
authorized; 1,369,600 shares issued and outstanding
at December 31, 1995 and 1996, respectively.
(See Note 8) 1,370 1,370 1,370
Retained earnings (deficit) (34,102) 8,971 118,581
----------- ----------- -----------
Total stockholders' equity (deficit) (32,732) 10,341 119,951
----------- ----------- -----------
Total liabilities and stockholders' equity $ 2,264,411 $ 3,007,109 $ 3,213,393
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-3
<PAGE>
Crescent Computers, Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31 March 31, March 31,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $ 6,339,574 $ 12,277,340 $13,414,131 $3,415,851 $3,130,610
Cost of goods sold 5,228,141 10,367,789 10,951,551 2,830,034 2,519,472
----------- ------------ ----------- ---------- ----------
Gross profit 1,111,433 1,909,551 2,462,580 585,817 611,138
Operating expenses:
Selling, general and administrative 1,082,370 1,760,957 2,244,924 371,812 363,220
Depreciation 8,450 28,349 16,999 4,000 10,367
----------- ------------ ----------- ---------- ----------
Income from operations 20,613 120,245 200,657 210,005 237,551
Other income 14,916 13,014 6,407
Interest expense 39,743 125,566 159,500 30,000 25,000
----------- ------------ ----------- ---------- ----------
Income (loss) before provision
(benefit) for income taxes
taxes and minority interest (19,130) (5,321) 56,073 193,019 218,958
Provision (benefit) for income taxes (3,900) (1,600) 13,000 44,500 85,400
----------- ------------ ----------- ---------- ----------
Income (loss) before minority interest (15,230) (3,721) 43,073 148,519 133,558
Minority interest 9,289 23,948
----------- ------------ ----------- ---------- ----------
Net income (loss) $ (15,230) $ (3,721) $ 43,073 $ 139,230 $ 109,610
=========== ============ =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-4
<PAGE>
Crescent Computers, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the years ended December 31, 1994, 1995 and 1996
Retained
Number of Common Earnings
Shares Stock (Deficit) Total
Balances, January 1, 1994 1,369,600 $ 1,370 $(15,151) $(13,781)
Net loss (15,230) (15,230)
---------- -------- -------- --------
Balances, December 31, 1994 1,369,600 1,370 (30,381) (29,011)
Net loss (3,721) (3,721)
---------- -------- -------- --------
Balances, December 31, 1995 1,369,600 1,370 (34,102) (32,732)
Net income 43,073 43,073
---------- -------- -------- --------
Balances, December 31, 1996 1,369,600 $ 1,370 $ 8,971 $ 10,341
========== ======== ======== ========
The accompanying notes are an integral part of the
consolidated financial statements.
F-5
<PAGE>
Crescent Computers, Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31, March 31,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (15,230) $ (3,721) $ 43,073 $ 139,230 $ 109,610
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 8,450 28,349 16,999 4,000 10,367
Provision for doubtful accounts receivable 8,474 2,800 18,000
Deferred income taxes (3,900) (1,600) 8,900 (800)
Minority interest 9,289 23,948
Changes in assets and liabilities:
Accounts receivable (487,281) (417,787) (256,507) (203,678) (91,280)
Inventories (151,321) (137,289) (86,745) (58,693) (68,867)
Other assets 4,090 1,456 (45,897) (377) (17,524)
Accounts payable and accrued expenses 203,660 357,377 99,025 (129,345) 104,736
Income taxes payable 4,100 44,500 86,200
----------- --------- ----------- --------- ---------
Net cash provided (used) by operating activities (433,058) (170,415) (199,052) (195,074) 156,390
----------- --------- ----------- --------- ---------
Cash flows from investing activities:
Payments for purchase of property and equipment (8,450) (33,060) (69,042) (26,463) (4,898)
----------- --------- ----------- --------- ---------
Net cash used by investing activities (8,450) (33,060) (69,042) (26,463) (4,898)
----------- --------- ----------- --------- ---------
Cash flows from financing activities:
Advance from stockholders 1,150,752 472,272 1,115,957 187,178
Repayment of advance from stockholders and
related entities (449,869) (280,130) (520,657) (117,110)
----------- --------- ----------- --------- ---------
Net cash provided (used) by financing activities 700,883 192,142 595,300 187,178 (117,110)
----------- --------- ----------- --------- ---------
Increase (decrease) in cash and cash equivalents 259,375 (11,333) 327,206 (34,359) 34,382
Cash and cash equivalents, beginning of period 57,779 317,154 305,821 305,821 633,027
----------- --------- ----------- --------- ---------
Cash and cash equivalents, end of period $ 317,154 $ 305,821 $ 633,027 $ 271,462 $ 667,409
=========== ========= =========== ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 39,743 $ 120,109 $ 159,500 $ 30,000 $ 25,000
=========== ========= =========== ========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
F-6
<PAGE>
Crescent Computers, Inc.
Notes to Consolidated Financial Statements
1. Organization, Basis of Presentation and Nature of Operations:
Organization
The consolidated financial statements of Crescent Computers, Inc. ("the
Company" or "Crescent") include the accounts of Prisym Technologies of
Georgia, Inc. ("Prisym"), a 60% owned subsidiary. Minority interest, if
any, represents minority stockholder's proportionate share of the equity
in the subsidiary. All significant intercompany balances, transactions and
profits have been eliminated in consolidation.
Basis of Presentation
The consolidated financial statements are prepared on the basis of
generally accepted accounting principles. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at December 31, 1995 and 1996
and reported amounts of revenues and expenses for each of the three years
in the period ended December 31, 1996. Significant estimates include
primarily those made for the allowance for doubtful accounts. Actual
results could differ from those estimates made by management.
Nature of Operations
Crescent is a manufacturer, integrator and distributor of premium personal
computers, workstations, and internet/intranet servers. Crescent's
operations are located in Atlanta, Georgia and products are sold either
directly or through distributors. Prisym markets workstations, printers,
mass storage, components and peripherals of a major U.S. manufacturer.
Prisym has offices located in Atlanta, Georgia and Greenville, South
Carolina.
Inherent in the accompanying consolidated financial statements are certain
risks and uncertainties. These risks and uncertainties include, but are
not limited to: the impact of competitive products, competition, available
sources of supply and various technology related risks.
F-7
<PAGE>
Crescent Computers, Inc.
Notes to Consolidated Financial Statements, Continued
2. Summary of Significant Accounting Policies:
Interim Financial Statements
The accompanying unaudited interim consolidated financial statements as
of March 31, 1997 and for the three months ended March 31, 1996 and 1997
have not been audited by independent accountants. However, they have been
prepared in conformity with the accounting principles stated in the
audited financial statements for the three years in the period ended
December 31, 1996 and include all adjustments, which were of a normal and
recurring nature which, in the opinion of management are necessary to
present fairly the financial position of the Company and the results of
operations and cash flows for each of the periods presented. The operating
results for the interim periods are not necessarily indicative of results
for the full year.
Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances at financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not
experienced any losses in such accounts.
Inventories
Inventories are stated at the lower of cost (determined principally by the
first-in, first-out method) or market. Inventory is comprised primarily of
raw materials and the Company maintains a reserve for its estimate of
excess, obsolete and damaged goods.
In most instances, the Company receives warranties on its products from
its vendors which are at least equivalent to those it provides to its
customers.
Property and Equipment
Property and equipment are stated at cost. Property and equipment are
depreciated on a straight-line basis over their estimated useful lives
which range from 3 to 7 years.
Amounts expended for maintenance and repairs are charged to expense as
incurred. Upon disposition, both the related cost and accumulated
depreciation accounts are relieved and the related gain or loss is
credited or charged to operations.
Revenue
Sales are recognized upon the shipment of products to the customer or
distributor.
The Company performs ongoing credit evaluations and provides an allowance
for potential credit losses against the portion of accounts receivable
which is estimated to be uncollectible. Such losses have historically been
within management's expectations.
Income Taxes
The provision for income taxes and corresponding balance sheet accounts
are determined in accordance with SFAS No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax liabilities and assets
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes.
The deferred tax assets and liabilities are classified according to the
financial statement classification of the assets and liabilities
generating the differences. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Crescent and Prisym file separate federal income tax returns.
F-8
<PAGE>
Crescent Computers, Inc.
Notes to Consolidated Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments
The Company's financial instruments include its debt obligations.
Management believes that substantially all of these instruments bear
interest at rates which approximate prevailing market rates for
instruments with similar characteristics and, accordingly, that the
carrying values for these instruments are reasonable estimates of fair
value.
3. Related Party Transactions:
Included in the due to stockholder balance at December 31, 1995 and 1996
are advances from the Company's majority stockholder of $1,553,975 and
$2,109,325 (see Note 8), respectively, and advances from other
stockholders of $61,889 and $101,840, respectively. During each of the
three years in the period ended December 31, 1996, the Company recognized
interest expense on the advances from the majority stockholder of
approximately $40,000, $126,000, and $160,000, respectively. The advances
from the majority stockholders bear interest at 8%. The advances from
other stockholder do not bear interest. All advances from stockholders are
due on demand. During the three months ended March 31, 1997, the Company's
majority stockholder transferred ownership of the outstanding common stock
of the Company to its parent. Accordingly, amounts previously classified
as due to stockholders in the consolidated balance sheet have been
reported as amounts due to a related entity in the consolidated balance
sheet as of March 31, 1997.
During the years ended December 31, 1994 and 1996, the Company paid
management fees to the majority stockholder of $45,000 and $135,000,
respectively. During each of three month periods ended March 31, 1996 and
1997, no management fees were paid.
At December 31, 1996, the Company has guaranteed debt of an entity owned
by certain stockholders of the Company of $496,000.
4. Income Taxes:
The provision (benefit) for income taxes for the years ended December 31,
is as follows
1994 1995 1996
Current $ -- -- $ 4,100
Deferred (3,900) $ (1,600) 8,900
------- -------- -------
$(3,900) $ (1,600) $13,000
======= ======== =======
F-9
<PAGE>
Crescent Computers, Inc.
Notes to Consolidated Financial Statements, Continued
4. Income Taxes, continued:
A reconciliation of federal statutory and effective income tax rates is as
follows:
1994 1995 1996
Statutory U.S. federal income tax rate 15.0% 15.0% 15.0%
Effect of:
State income taxes, net of federal benefit 5.0 5.0 5.0
Non-deductible meals and entertainment 8.0 1.5
Stockholder life insurance 1.5
Other, net 2.0
------ ------ ------
Effective rate 20.0% 30.0% 23.0%
====== ====== ======
Benefits of approximately $8,400 were recognized due to operating loss
carryforwards during 1996.
An analysis of the deferred income tax assets and liabilities at December
31, is as follows:
1995 1996
Current deferred income tax assets:
Net operating loss carryforwards $8,400 $ 1,500
------ --------
Total current deferred income tax assets $8,400 $ 1,500
====== ========
Non-current deferred income tax assets:
Net operating loss carryforwards $ 800
------ --------
Total non-current deferred income tax assets $ 800
====== ========
Non-current deferred income tax liabilities:
Property and equipment $(1,200)
------ --------
Total non-current deferred income tax liabilities $(1,200)
====== ========
The net operating loss carryforwards expire in 2011. Management believes
that realization of the net deferred tax assets is more likely than not
due primarily to anticipated future taxable income and the reversal of
existing taxable temporary differences.
F-10
<PAGE>
Crescent Computers, Inc.
Notes to Consolidated Financial Statements, Continued
5. Commitments and Contingencies:
Operating Lease
The Company leases office space under an operating lease expiring in 1998.
At December 31, 1996 minimum rentals due under the lease were as follows:
1997 $ 27,216
1998 22,680
---------
$ 49,896
=========
Rent expense for the years ended December 31, 1994, 1995 and 1996 was
approximately $60,000, respectively.
An additional building is currently being leased from an affiliated entity
on a month-to-month basis with monthly rentals of approximately $3,000.
Litigation
The Company is involved from time to time in litigation on matters which
are routine to the conduct of its business. Although the outcome of any
litigation cannot be predicted with certainty, the Company does not
believe that any outstanding litigation will have a material adverse
effect on the Company's consolidated financial position, results of
operations, or cash flows.
6. Net Income (Loss) Per Common Share:
Primary and fully diluted net income (loss) per common share are computed
by dividing net income (loss) by the weighted average number of common
shares and common share equivalents outstanding during the period. There
were no common stock equivalents during each of the periods presented.
Primary and fully diluted weighted average shares outstanding for each of
the three years in the period ended December 31, 1996 were 1,369,600.
Primary and fully diluted net income (loss) per common share was
approximately $(.01), $(.003), and $.03 for each of the three years in the
period ended December 31, 1996, respectively, and $.08 for the three
months ended March 31, 1997 (see Note 8).
7. Future Adoption of Recently Issued Accounting Standards:
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131, Disclosures About Segments of an Enterprise
and Related Information ("SFAS 131"), No. 130, Reporting Comprehensive
Income ("SFAS 130"), No. 129, Disclosure of Information About Capital
Structure ("SFAS 129"), and No. 128, Earnings Per Share ("SFAS 128"). SFAS
131 specifies revised guidelines for determining an entity's operating
segments and the type and level of financial information to be disclosed.
SFAS 130 establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full
set of general-purpose financial statements. SFAS 129 consolidates the
existing requirements to disclose certain information about an entity's
capital structure, and SFAS 128 specifies the computation, presentation,
and disclosure requirements for earnings per share. These Standards are
effective for periods ending after December 15, 1997.
The Company believes that the impact of these Standards, when adopted,
will not have a material impact on the Company's consolidated financial
statements.
F-11
<PAGE>
Crescent Computers, Inc.
Notes to Consolidated Financial Statements, Continued
8. Subsequent Events:
Acquisitions
Effective June 2, 1997, the Company completed the acquisition of 100% of
the outstanding common stock of G&R Marketing, Inc., MicroSouth, Inc.,
tekgraf, inc., Computer Graphics Distributing Company, Intelligent
Products Marketing, Inc., and IG Distributing, Inc. (collectively the
"Subsidiaries") in exchange for the issuance of 2,698,880 (adjusted for
the stock splits and including 200,000 shares to be placed in escrow as
required by the letter of intent described below which if released will be
accounted for as compensation) shares of common stock of the Company. The
acquisitions will be accounted for under the purchase method of
accounting.
Pursuant to the terms of the stock purchase purchase agreements (the
"Agreements"), the Subsidiaries are required to deliver a defined
guaranteed net asset value ("NAV"). The Subsidiaries' excess net book
value over the NAV will be distributed in cash to the former stockholders
of the Subsidiaries. It is anticipated that the excess NAV will be
distributed during August 1997 from cash balances and a line of credit the
Company expects to obtain.
Pursuant to the terms of the Agreements, pre-acquisition Crescent
stockholders will contribute approximately $936,000 to capital. This
contribution is expected to occur during August 1997.
Stock Splits and Recapitalization
On May 1, 1997 the Company increased the outstanding shares from 100 to
3,424 by declaring a 34.24 for 1 stock split of the Company's common stock
(par value of $1.00). On June 2, 1997, in connection with a
reincorporation in Delaware, the Company declared a 400 for 1 stock split
of the Company's common stock pursuant to which all of the Company's
outstanding common stock were exchanged for 4,000,000 shares of Class B
Common Stock with a par value of $.001. The consolidated balance sheets as
of December 31, 1995 and 1996, and March 31, 1997 have been retroactively
adjusted for these stock splits.
As part of the reincorporation, the Company changed its name to Tekgraf,
Inc.
Employment Agreements
Certain stockholders of the Company have entered into employment
agreements with the Company which provide for a set base salary,
participation in future incentive bonus plans, stock option plans, certain
other benefits, and a covenant not to compete following termination of
such person's employment.
Letter of Intent
On June 17, 1997, the Company signed a non-binding letter of intent for an
initial public offering of its securities.
F-12
<PAGE>
Report of Independent Accountants
To the Shareholder
MicroSouth, Inc.
We have audited the accompanying balance sheets of MicroSouth, Inc. as of
December 31, 1995 and 1996, and the related statements of income, changes in
stockholder's equity and cash flows for the six month period ended December 31,
1995 and for the year ended December 31, 1996. 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 MicroSouth, Inc. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for the
six month period ended December 31, 1995 and for the year ended December 31,
1996 in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Atlanta, Georgia
June 2, 1997
F-13
<PAGE>
MicroSouth, Inc.
Balance Sheets
<TABLE>
<CAPTION>
ASSETS December 31, December 31, March 31, 1997
1995 1996 (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 538,138 $ 519,568 $ 212,889
Accounts receivable, less allowance for doubtful
accounts of $94,966 and $12,616 at December
31, 1995 and 1996 1,258,667 1,299,620 1,845,190
Inventories, net 1,044,787 1,147,504 933,250
Due from related entity 16,360 10,229 23,321
Prepaid expenses 7,158 6,443 5,342
----------- ----------- -----------
Total current assets 2,865,110 2,983,364 3,019,992
----------- ----------- -----------
Property and equipment:
Furniture and equipment 17,916 67,743 71,432
Less accumulated depreciation (1,792) (10,358) (13,358)
----------- ----------- -----------
16,124 57,385 58,074
Other assets 2,751 2,751 2,751
----------- ----------- -----------
Total assets $ 2,883,985 $ 3,043,500 $ 3,080,817
=========== =========== ===========
LIABILITIES
Current liabilities:
Current maturities of long-term debt $ 225,000
Accounts payable $ 1,312,705 1,557,229 $1,415,571
Accrued expenses 29,166 35,800 25,650
----------- ----------- -----------
Total current liabilities 1,341,871 1,818,029 1,441,221
----------- ----------- -----------
Long-term debt, less current maturities 750,000
Negative goodwill, net 636,401 569,411 552,664
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, $.10 par value, 1,000,000 shares
authorized, 1,000 shares issued and outstanding at
December 31, 1995 and 1996 100 100 100
Retained earnings 155,613 655,960 1,086,832
----------- ----------- -----------
Total stockholder's equity 155,713 656,060 1,086,932
----------- ----------- -----------
Total liabilities and stockholder's equity $ 2,883,985 $ 3,043,500 $ 3,080,817
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-14
<PAGE>
MicroSouth, Inc.
Statements of Income
<TABLE>
<CAPTION>
Six Month
Period Ended Year Ended Three Months Ended
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 4,636,127 $ 10,325,373 $ 2,272,609 $ 3,247,828
Cost of goods sold 3,933,444 8,594,719 1,969,403 2,741,010
----------- ------------ ----------- -----------
Gross profit 702,683 1,730,654 303,206 506,818
Operating expenses:
Selling, general and administrative 589,729 1,256,356 257,529 306,857
Depreciation 1,792 8,566 1,550 3,000
Amortization (33,495) (66,990) (16,747) (16,747)
----------- ------------ ----------- -----------
Income from operations 144,657 532,722 60,874 213,708
Other income 15,956 27,625 16,075 7,164
Interest expense 5,000 60,000 15,000
----------- ------------ ----------- -----------
Income before extraordinary gain 155,613 500,347 61,949 220,872
Extraordinary gain 210,000
----------- ------------ ----------- -----------
Net income $ 155,613 $ 500,347 $ 61,949 $ 430,872
=========== ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-15
<PAGE>
MicroSouth, Inc.
Statements of Changes in Stockholder's Equity
for the year ended December 31, 1996 and for the six month period ended December
31, 1995
Number of Common Retained
Shares Stock Earnings Total
Balances, July 1, 1995 1,000 $ 100 $ -- $ 100
Net income 155,613 155,613
------- -------- -------- --------
Balances, December 31, 1995 1,000 100 155,613 155,713
Net income 500,347 500,347
------- -------- -------- --------
Balances, December 31, 1996 1,000 $ 100 $655,960 $656,060
======= ======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-16
<PAGE>
MicroSouth, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Six Month
Period Ended Year Ended Three Months Ended
December 31, December 31, March 31, March 31,
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 155,613 $ 500,347 $ 61,949 $ 430,872
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation and amortization (30,703) (58,424) (15,197) (13,747)
Provision for doubtful accounts receivable 94,966 22,350
Provision for inventory obsolescence 21,000 10,000
Extraordinary gain (210,000)
Changes in assets and liabilities:
Accounts receivable (76,936) (63,303) (61,239) (545,570)
Inventories (178,373) (112,717) 128,208 214,254
Due from related entity (16,360) 6,131 (13,114) (13,092)
Prepaid expenses 15,449 715 (1,837) 1,101
Accounts payable and accrued expenses 555,715 251,158 (282,195) (151,808)
--------- --------- --------- ---------
Net cash provided (used) by operating
activities 540,371 556,257 (183,425) (287,990)
--------- --------- --------- ---------
Cash flows from investing activities:
Payments for purchase of property and
equipment (17,916) (49,827) (14,048) (3,689)
--------- --------- --------- ---------
Net cash used by investing activities (17,916) (49,827) (14,048) (3,689)
--------- --------- --------- ---------
Cash flows from financing activities:
Repayment of long-term debt (525,000) (15,000)
--------- --------- --------- ---------
Net cash used by financing activities (525,000) (15,000)
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents 522,455 (18,570) (197,473) (306,679)
Cash and cash equivalents, beginning of period 15,683 538,138 538,138 519,568
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 538,138 $ 519,568 $ 340,665 $ 212,889
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 5,000 $ 60,000 $ 15,000 $ --
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-17
<PAGE>
MicroSouth, Inc.
Notes to Financial Statements
1. Basis of Presentation and Nature of Operations:
Basis of Presentation
The financial statements are prepared on the basis of generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at December 31, 1995 and 1996 and
reported amounts of revenues and expenses for the six month period ended
December 31, 1995 and for the year ended December 31, 1996. Significant
estimates include those made for the allowance for doubtful accounts and
inventory reserves for excess, obsolete and damaged products. Actual
results could differ from those estimates made by management.
Nature of Operations
The Company is a distributor and marketer of a broad array of complex
computer graphics hardware and software in the southeastern United States.
Customers consist primarily of value added resellers and vertical solution
providers. The Company also provides technical support and training to its
customers.
Inherent in the accompanying financial statements are certain risks and
uncertainties. These risks and uncertainties include, but are not limited
to: the impact of competitive products, competition, and available sources
of supply.
2. Summary of Significant Accounting Policies:
Interim Financial Statements
The accompanying unaudited interim financial statements as of March 31,
1997 and for the three months ended March 31, 1996 and 1997 have not been
audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the audited financial
statements for the six month period ended December 31, 1995 and for the
year ended December 31, 1996 and include all adjustments, which were of a
normal and recurring nature, which in the opinion of management are
necessary to present fairly the financial position of the Company and the
results of operations and cash flows for each of the periods presented.
The operating results for the interim periods are not necessarily
indicative of results for the full year.
Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances at financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not
experienced any losses in such accounts.
F-18
<PAGE>
MicroSouth, Inc.
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Inventories
Inventories are stated at the lower of cost (determined principally by the
first-in, first-out method) or market. Inventory is comprised primarily of
finished goods and the Company maintains a reserve for its estimate of
excess, obsolete and damaged goods.
Property and Equipment
Property and equipment are stated at cost. Property and equipment are
depreciated on a straight-line basis over their estimated useful lives
which range from 3 to 7 years.
Amounts expended for maintenance and repairs are charged to expense as
incurred. Upon disposition, both the related cost and accumulated
depreciation accounts are relieved and the related gain or loss is
credited or charged to operations.
Revenue
Sales are recognized upon the shipment of products to the customer.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the number of entities comprising the
Company's customer base. The Company performs ongoing credit evaluations
and provides an allowance for potential credit losses against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have historically been within management's expectations.
Income Taxes
MicroSouth has elected S corporation status as defined by the Internal
Revenue Code. Under this election, taxable income and any applicable tax
credits are included in the income tax return of the stockholder, and any
federal and state income tax liability is borne by the stockholder.
Fair Value of Financial Instruments
The Company's financial instruments include its debt obligation. During
December of 1996 the Company renegotiated the terms of the debt
obligation. See Note 4. Accordingly, the fair value of the debt is
approximately $15,000.
F-19
<PAGE>
MicroSouth, Inc.
Notes to Financial Statements, Continued
3. Negative Goodwill:
Effective June 30, 1995, TW Acquisitions ("TW") acquired all of the common
stock of MicroSouth in exchange for $250,000 in cash and a note payable of
$750,000. The fair value of the assets acquired was approximately
$2,454,152 and liabilities assumed totaled $784,256. TW was a holding
company with no operations. In July 1995, TW and MicroSouth were legally
consolidated and their name changed to MicroSouth, Inc. As a result of the
acquisition on June 30, 1995, negative goodwill of $669,896 was recognized
as the purchase price was less than the fair value of the net assets
acquired. Negative goodwill is being amortized, on a straight-line basis,
over its estimated economic life of 10 years. Accumulated amortization
amounted to approximately $33,495 and $100,485 at December 31, 1995 and
1996, respectively.
4. Note Payable:
Long-term debt at December 31, 1995 and 1996 consists of a note payable
with the former parent of MicroSouth. This note was issued in connection
with the 1995 acquisition. The note bears interest at 8%, is
collateralized by the common stock of the Company, and the original terms
required monthly principal and quarterly interest payments beginning in
January of 1997.
During December 1996, the Company entered into an agreement with the
former parent to renegotiate the terms of the original note. As a result,
the Company made payments to the former parent of $525,000 during December
1996 and the remaining $15,000 during March 1997 which resulted in the
recognition of an extraordinary gain of $210,000 during the three month
period ended March 31, 1997.
5. Related Party Transactions:
The Company is affiliated through common ownership with an entity whose
operating expenses, such as rent, utilities, insurance and other expenses
are shared with the Company. Amounts due from the related entity under
this arrangement were $16,360 and $10,229 at December 31, 1995 and 1996,
respectively.
6. Commitments and Contingencies:
Operating Lease
The Company leases office space under an operating lease expiring in 1998.
At December 31, 1996 minimum rentals due under the lease were as follows:
1997 $ 46,419
1998 15,671
----------
$ 62,090
==========
F-20
<PAGE>
MicroSouth, Inc.
Notes to Financial Statements, Continued
6. Commitments and Contingencies, continued:
Operating Lease, continued
Rent expense for the six month period ended December 31, 1995 and for the
year ended December 31, 1996 was $22,322, and $44,644, respectively.
Litigation
The Company is involved from time to time in litigation on matters which
are routine to the conduct of its business. Although the outcome of any
litigation cannot be predicted with certainty, the Company does not
believe that any outstanding litigation will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
7. Subsequent Events:
On June 2, 1997, the Company closed on a stock purchase agreement (the
"Agreement") completing the sale of all of the outstanding common stock of
MicroSouth, Inc. in exchange for 1,586 shares of common stock of Crescent
Computers, Inc. ("Crescent"). The acquisition by Crescent will be
accounted for under the purchase method of accounting. Pursuant to the
Agreement, the Company is required to deliver a defined guaranteed net
asset value ("NAV"). The Company's excess net book value over the NAV will
be distributed in cash to the Company's stockholder. It is anticipated
that the distribution will occur during August 1997. In addition, and also
pursuant to the Agreement, the stockholder of the Company has entered into
an employment agreement with Crescent which provides for a set base
salary, participation in future incentive bonus plans, certain other
benefits, and a covenant not to compete following termination of such
person's employment.
F-21
<PAGE>
Report of Independent Accountants
To the Shareholders
Computer Graphics Distributing Company
We have audited the accompanying balance sheets of Computer Graphics
Distributing Company as of December 31, 1995 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1996. 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 Computer Graphics Distributing
Company as of December 31, 1995 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1996
in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
McLean, Virginia
May 12, 1997, except for
Note 9 as to which the date
is June 30, 1997
F-22
<PAGE>
Computer Graphics Distributing Company
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31, March 31, 1997
1995 1996 (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 400 $ 3,809 $ 400
Accounts receivable, less allowance for doubtful
accounts of $46,889 and $38,196 at
December 31, 1995 and 1996, respectively 1,818,736 1,810,341 1,981,723
Inventories, net 964,701 1,132,089 1,100,663
Prepaid expenses and other assets 78,745 63,060 64,660
Current deferred income taxes 16,438 17,180 16,174
----------- ----------- -----------
Total current assets 2,879,020 3,026,479 3,163,620
----------- ----------- -----------
Property and equipment:
Furniture and equipment 206,514 223,745 225,548
Automobiles 47,020 109,565 109,565
----------- ----------- -----------
253,534 333,310 335,113
Less accumulated depreciation (184,089) (210,689) (217,580)
----------- ----------- -----------
69,445 122,621 117,533
Other assets 55,837 65,828 68,328
----------- ----------- -----------
Total assets $ 3,004,302 $ 3,214,928 $ 3,349,481
=========== =========== ===========
LIABILITIES
Current liabilities:
Current maturities of long-term debt
and line of credit $ 1,043,473 $ 1,371,241 $ 1,148,962
Note payable, stockholders - 40,000 40,000
Accounts payable 1,223,581 977,555 1,212,261
Accrued expenses 193,542 123,622 157,513
Income taxes payable - 29,217 41,852
----------- ----------- -----------
Total current liabilities 2,460,596 2,541,635 2,600,588
----------- ----------- -----------
Long-term debt, less current maturities 13,661 36,258 28,397
Note payable, stockholders 50,000 50,000 50,000
Deferred income taxes 200 3,327 3,327
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, no par value, 5,000 shares
authorized; 3,730 shares issued and outstanding 18,762 18,762 18,762
Retained earnings 461,083 564,946 648,407
----------- ----------- -----------
Total stockholders' equity 479,845 583,708 667,169
----------- ----------- -----------
Total liabilities and stockholders' equity $ 3,004,302 $ 3,214,928 $ 3,349,481
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-23
<PAGE>
Computer Graphics Distributing Company
Statements of Income
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31 March 31, March 31,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $12,947,702 $11,095,229 $11,002,868 $2,517,897 $3,172,540
Cost of goods sold 11,109,707 9,192,033 9,143,743 2,126,875 2,604,066
---------- ---------- ----------- ---------- ----------
Gross profit 1,837,995 1,903,196 1,859,125 391,022 568,474
Operating expenses:
Selling, general and administrative 1,563,669 1,669,761 1,608,903 312,158 399,839
Depreciation 19,613 19,356 26,787 4,343 6,890
---------- ---------- ----------- ---------- ----------
Income from operations 254,713 214,079 223,435 74,521 161,745
Other income, net 22,750 17,070 54,861 7,547 2,500
Interest expense 153,967 144,620 123,675 26,445 35,843
---------- ---------- ----------- ---------- ----------
Income before provision for income taxes 123,496 86,529 154,621 55,623 128,402
Provision for income taxes 44,815 20,328 50,758 19,468 44,941
---------- ---------- ----------- ---------- ----------
Net income $ 78,681 $ 66,201 $ 103,863 $ 36,155 $ 83,461
=========== ========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-24
<PAGE>
Computer Graphics Distributing Company
Statements of Changes in Stockholders' Equity
for the years ended December 31, 1994, 1995 and 1996
Number of Common Retained
Shares Stock Earnings Total
Balances, January 1, 1994 3,630 $ 8,762 $316,201 $324,963
Net income 78,681 78,681
-------- -------- -------- --------
Balances, December 31, 1994 3,630 8,762 394,882 403,644
Common stock issued 100 10,000 10,000
Net income 66,201 66,201
-------- -------- -------- --------
Balances, December 31, 1995 3,730 18,762 461,083 479,845
Net income 103,863 103,863
-------- -------- -------- --------
Balances, December 31, 1996 $ 3,730 $ 18,762 $564,946 $583,708
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-25
<PAGE>
Computer Graphics Distributing Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31, March 31,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 78,681 $ 66,201 $ 103,863 $ 36,155 $ 83,461
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 19,613 19,356 26,787 4,343 6,890
Provision for doubtful accounts receivable (73,173) 22,401 (8,693)
Provision for inventory obsolescence 20,533 (51,334) 13,547 2,171
Deferred income taxes 14,862 8,145 2,385 1,355 1,006
Loss on disposal of equipment 11,639 250
Changes in assets and liabilities:
Accounts receivable (746,779) 614,504 17,088 (72,124) (171,382)
Inventories (214,240) 288,460 (184,738) (87,356) 29,255
Prepaid expenses (38,606) (1,338) 22,263 14,268 (5,620)
Other assets (4,576) (48,191) (16,569) 36,282 1,520
Accounts payable and accrued expenses 349,318 135 (303,171) (17,986) 258,533
Income taxes payable 4,513 (13,462) 29,217 18,113 12,635
--------- --------- --------- -------- ---------
Net cash provided (used) by operating activities (589,854) 916,516 (297,771) (66,950) 218,469
--------- --------- --------- -------- ---------
Cash flows from investing activities:
Proceeds from sale of equipment 3,000 795
Payments for purchase of equipment (2,864) (47,802) (77,205) (6,094) (1,802)
--------- --------- --------- -------- ---------
Net cash used by investing activities (2,864) (44,802) (76,410) (6,094) (1,802)
--------- --------- --------- -------- ---------
Cash flows from financing activities:
Increase (decrease) in line of credit 741,554 (928,814) 307,721 86,385 (222,863)
Proceeds from long-term debt 30,523 60,152
Repayment of long-term debt (25,000) (6,922) (17,508) (2,402) (7,277)
Proceeds from note payable, stockholders 40,000
Proceeds from issuance of common stock 10,000
Bank overdraft (113,112) 12,775 (12,775) (10,939) 10,064
--------- --------- --------- -------- ---------
Net cash provided (used) by financing activities 603,442 (882,438) 377,590 73,044 (220,076)
--------- --------- --------- -------- ---------
Increase (decrease) in cash and cash equivalents 10,724 (10,724) 3,409 (3,409)
Cash and cash equivalents, beginning of period 400 11,124 400 400 3,809
--------- --------- --------- -------- ---------
Cash and cash equivalents, end of period $ 11,124 $ 400 $ 3,809 $ 400 $ 400
========= ========= ========= ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 148,580 $ 151,351 $ 119,461 $ 16,790 $ 36,443
========= ========= ========= ======== =========
Cash paid during the period for income taxes $ 35,372 $ 32,853 $ 1,618 $ $ 37,376
========= ========= ========= ======== =========
</TABLE>
Supplemental non-cash investing and financing activities:
During 1994, 1995 and 1996, the Company transferred $3,688, $5,845 and $3,803,
respectively, from inventory to property and equipment.
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
Computer Graphics Distributing Company
Notes to Financial Statements
1. Basis of Presentation and Nature of Operations:
Basis of Presentation
The financial statements are prepared on the basis of generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at December 31, 1995 and 1996, and
reported amounts of revenues and expenses for each of the three years in
the period ended December 31, 1996. Significant estimates include those
made for the allowance for doubtful accounts and inventory reserves for
excess, obsolete and damaged products. Actual results could differ from
those estimates made by management.
Nature of Operations
Computer Graphics Distributing Company ("the Company") is a distributor
and marketer of a broad array of complex computer graphics hardware and
software in the mid-Atlantic and northeastern United States. Customers
consist primarily of value added resellers and vertical solution
providers.
Inherent in the accompanying financial statements are certain risks and
uncertainties. These risks and uncertainties include, but are not limited
to: the impact of competitive products, competition, and available sources
of supply.
2. Summary of Significant Accounting Policies:
Interim Financial Statements
The accompanying unaudited interim financial statements as of March 31,
1997 and for the three months ended March 31, 1996 and 1997, have not been
audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the audited financial
statements for the three years in the period ended December 31, 1996 and
include all adjustments, which were of a normal and recurring nature
which, in the opinion of management, are necessary to present fairly the
financial position of the Company and the results of operations and cash
flows for the periods presented. The operating results for the interim
periods are not necessarily indicative of results for the full year.
Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances at financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not
experienced any losses in such accounts.
F-27
<PAGE>
Computer Graphics Distributing Company
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Inventories
Inventories are stated at the lower of cost (determined principally by the
first-in, first-out method) or market. Inventory is comprised primarily of
finished goods. The Company maintains a reserve for its estimate of
excess, obsolete and damaged goods.
Property and Equipment
Property and equipment are stated at cost. Property and equipment are
depreciated on a straight-line basis over their estimated useful lives
which range from 3 to 7 years.
Amounts expended for maintenance and repairs are charged to expense as
incurred. Upon disposition, both the related cost and accumulated
depreciation accounts are relieved and the related gain or loss is
credited or charged to operations.
Revenue
Sales are recognized upon the shipment of products to the customer.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the number of entities comprising the
Company's customer base. The Company performs ongoing credit evaluations
and provides an allowance for potential credit losses against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have historically been within management's expectations.
Income Taxes
The provision for income taxes and corresponding balance sheet accounts
are determined in accordance with SFAS No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax liabilities and assets
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes.
The deferred tax assets and liabilities are classified according to the
financial statement classification of the assets and liabilities
generating the differences. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
Fair Value of Financial Instruments
The Company's financial instruments include its debt obligations.
Management believes that these instruments bear interest at rates which
approximate prevailing market rates for instruments with similar
characteristics and, accordingly, that the carrying values for these
instruments are reasonable estimates of fair value.
F-28
<PAGE>
Computer Graphics Distributing Company
Notes to Financial Statements, Continued
3. Long-Term Debt and Line of Credit:
Long-term debt and line of credit at December 31, 1995 and 1996 consists
of the following:
1995 1996
Line of credit with a bank totaling
$2,250,000 bearing interest at the
bank's prime rate (8.25% at
December 31, 1996) plus 2%,
collateralized by accounts
receivable and inventory, subject
to certain loan covenant
restrictions relating to minimum
capital, and expires June 30, 1997
(see Note 9)
$ 1,033,533 $ 1,341,254
Various installment notes payable with
banks bearing interest at rates
ranging from 7.5% to 8.5%, payable
in monthly principal and interest
installments through 1998,
collateralized by certain
equipment with a net book value of
$78,000 at December 31, 1996 23,601 66,245
Note payable to stockholders (see Note 5) 50,000 90,000
----------- -----------
1,107,134 1,497,499
Less current maturities (1,043,473) (1,411,241)
----------- -----------
$ 63,661 $ 86,258
=========== ===========
At December 31, 1996, aggregate maturities of long-term debt and line of
credit are as follows:
1997 $1,411,241
1998 73,494
1999 12,764
----------
$1,497,499
==========
4. Income Taxes:
The provision for income taxes for the years ended December 31, is as
follows:
Federal State Total
1994
Current $ 22,575 $ 7,378 $ 29,953
Deferred 12,633 2,229 14,862
-------- -------- --------
$ 35,208 $ 9,607 $ 44,815
======== ======== ========
1995
Current $ 8,778 $ 3,405 $ 12,183
Deferred 6,923 1,222 8,145
-------- -------- --------
$ 15,701 $ 4,627 $ 20,328
======== ======== ========
1996
Current $ 40,523 $ 7,850 $ 48,373
Deferred 2,027 358 2,385
-------- -------- --------
$ 42,550 $ 8,208 $ 50,758
======== ======== ========
F-29
<PAGE>
Computer Graphics Distributing Company
Notes to Financial Statements, Continued
4. Income Taxes, continued:
The sources and tax effects of the temporary differences comprising the
Company's net deferred tax assets at December 31, 1995 and 1996 are as
follows:
1995 1996
Allowance for doubtful accounts receivable $ 14,067 $ 11,459
Allowance for inventory obsolescence -- 4,064
Allowance for sales returns 2,371 1,657
Property and equipment (200) (3,327)
---------- ----------
Net deferred tax assets $ 16,238 $ 13,853
========== ==========
Management believes that realization of the net deferred tax assets is
more likely than not primarily on the basis of its evaluation of the
Company's anticipated profitability over the period of years that the
temporary differences are expected to become tax deductions. It believes
that sufficient book and taxable income will be generated to realize the
benefit of these tax assets.
The Company's effective income tax rate for the years ended December 31,
1994, 1995 and 1996 varied from the federal statutory income rate as a
result of the tax effect of the following factors:
1994 1995 1996
Statutory rate 25% 20% 28%
State income taxes, net of federal benefit 6 4 4
Permanent differences 2 -- 1
Other 3 (1) --
-------------------------
Effective tax rate 36% 23% 33%
=========================
5. Related Party Transactions:
Included in long-term debt at December 31, 1995 and 1996 is a note payable
to stockholders of the Company amounting to $50,000 and $90,000,
respectively. The note bears interest at 12% and has no stated maturity
date; however, the stockholders have agreed not to require repayment of
$50,000 of the balance prior to January 1, 1999. The note payable is
subordinate to the line of credit.
F-30
<PAGE>
Computer Graphics Distributing Company
Notes to Financial Statements, Continued
6. Commitments and Contingencies:
Operating Lease
The Company leases office space under an operating lease expiring in 1999.
At December 31, 1996 minimum rentals due under the lease were as follows:
$86,077 for 1997, $95,015 for 1998 and $49,408 for 1999.
Litigation
The Company is involved from time to time in litigation on matters which
are routine to the conduct of its business. Although the outcome of any
litigation cannot be predicted with certainty, the Company does not
believe that any outstanding litigation will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
7. Employee Benefit Plan:
The Company has a profit-sharing plan for eligible employees as defined by
the plan, and participants are allowed to make voluntary non-forfeitable
contributions. The Company made discretionary contributions to the plan of
$35,367, $93,134 and $17,641 in 1994, 1995 and 1996, respectively.
8. Other Income, Net
Other income for the years ended December 31, 1994, 1995 and 1996 consists
of the following:
1994 1995 1996
Interest income $15,526 $ 13,842 $ --
Increase in cash surrender value -
life insurance 7,061 14,867 10,045
Loss on sale of equipment -- (11,639) (250)
Other 163 -- 45,066
------- -------- --------
$22,750 $ 17,070 $ 54,861
======= ======== ========
In 1996, the Company earned $45,000 by assisting a customer in completing
the necessary procedures required to have the customer's products added to
certain General Services Administration supply schedules.
F-31
<PAGE>
Computer Graphics Distributing Company
Notes to Financial Statements, Continued
9 . Subsequent Events:
On June 2, 1997, the Company closed on a stock purchase agreement (the
"Agreement") completing the sale of all of the outstanding common stock of
Computer Graphics Distributing Company in exchange for 751 shares of
common stock of Crescent Computers, Inc. ("Crescent"). The acquisition by
Crescent will be accounted for under the purchase method of accounting.
Pursuant to the Agreement, the Company is required to deliver a defined
guaranteed net asset value ("NAV"). The Company's excess net book value
over the NAV will be distributed in cash to the Company's stockholders. It
is anticipated that the distribution will occur during August 1997. In
addition, and also pursuant to the Agreement, the stockholders of the
Company have entered into employment agreements with Crescent which
provide for a set base salary, participation in future incentive bonus
plans, certain other benefits, and a covenant not to compete following
termination of such person's employment.
On June 30, 1997, the Company extended the line of credit with a bank
through September 30, 1997.
F-32
<PAGE>
Report of Independent Accountants
To the Shareholder
tekgraf, inc.
We have audited the accompanying balance sheet of tekgraf, inc. as of December
31, 1996, and the related statements of income, changes in stockholder equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of tekgraf, inc. as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
June 2, 1997
F-33
<PAGE>
tekgraf, inc.
Balance Sheets
December 31, March 31, 1997
1996 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 386,680 $ 391,916
Accounts receivable, less allowance for doubtful
accounts of $5,956 at December 31, 1996 316,126 480,881
Inventories, net 227,814 247,012
Prepaid expenses 4,866 4,866
----------- -----------
Total current assets 935,486 1,124,675
----------- -----------
Property and equipment:
Furniture and equipment 68,629 70,673
Leasehold improvements 425 425
Automobiles 25,188 25,188
----------- -----------
94,242 96,286
Less accumulated depreciation (65,543) (67,341)
----------- -----------
28,699 28,945
Employee note receivable 14,585 14,329
Other assets, net 8,260 8,180
----------- -----------
Total assets $ 987,030 $ 1,176,129
=========== ===========
LIABILITIES
Current liabilities:
Note payable $ 75,000
Accounts payable 396,996 $ 468,360
Accrued expenses 508
----------- -----------
Total current liabilities 472,504 468,360
----------- -----------
Negative goodwill, net 271,367 263,405
Commitments and contingencies
STOCKHOLDER'S EQUITY
Common stock, $.10 par value, 1,000,000 shares
authorized; 1,000 shares issued and outstanding 100 100
Retained earnings 243,059 444,264
----------- -----------
Total stockholder's equity 243,159 444,364
----------- -----------
Total liabilities and stockholder's equity $ 987,030 $ 1,176,129
=========== ===========
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
tekgraf, inc.
Statements of Income
Year Ended Three Months Ended
December 31, March 31, March 31,
1996 1996 1997
(Unaudited)
Net sales $ 4,062,901 $ 919,529 $ 1,056,163
Cost of goods sold 3,380,486 778,922 864,082
----------- ----------- -----------
Gross profit 682,415 140,607 192,081
Operating expenses:
Selling, general and administrative 339,740 66,852 83,758
Depreciation 9,858 2,458 2,504
Amortization (31,412) (5,571) (7,882)
----------- ----------- -----------
Income from operations 364,229 76,868 113,701
Other income 21,831 11,915 17,504
Interest expense 15,000 5,000
----------- ----------- -----------
Income before extraordinary item 371,060 83,783 131,205
Extraordinary gain 70,000
----------- ----------- -----------
Net income $ 371,060 $ 83,783 $ 201,205
=========== =========== ===========
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE>
tekgraf, inc.
Statement of Changes in Stockholder's Equity
for the year ended December 31, 1996
<TABLE>
<CAPTION>
Retained
Number of Common Earnings
Shares Stock (Deficit) Total
<S> <C> <C> <C> <C>
Balances, January 1, 1996 1,000 $ 100 $ (28,001) $ (27,901)
Stockholder
distribution (100,000) (100,000)
Net income 371,060 371,060
--------- --------- --------- ---------
Balances, December 31, 1996 1,000 $ 100 $ 243,059 $ 243,159
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
tekgraf, inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, March 31, March 31,
1996 1996 1997
(Unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 371,060 $ 83,783 $ 201,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization (21,554) (5,504) (6,154)
Provision for doubtful accounts receivable 5,966 (5,966)
Extraordinary gain (70,000)
Changes in assets and liabilities:
Accounts receivable 1,915 (49,314) (158,799)
Inventories (53,974) 68,998 (19,198)
Prepaid expenses (4,866) (7,506)
Employee notes receivable (14,585) 256
Other assets (2,422) 40 80
Accounts payable and accrued expenses 189,760 (18,493) 70,856
--------- --------- ---------
Net cash provided by operating activities 471,300 72,004 12,280
--------- --------- ---------
Cash flows from investing activities:
Payments for purchase of property and equipment (10,824) (2,044)
--------- --------- ---------
Net cash used by investing activities (10,824) (2,044)
--------- --------- ---------
Cash flows from financing activities:
Distribution to stockholder (100,000)
Repayment of debt (175,000) (5,000)
--------- --------- ---------
Net cash used by financing activities (275,000) (5,000)
--------- --------- ---------
Increase in cash and cash equivalents 185,476 72,004 5,236
Cash and cash equivalents, beginning of period 201,204 201,204 386,680
--------- --------- ---------
Cash and cash equivalents, end of period $ 386,680 $ 273,208 $ 391,916
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 15,000 $ 5,000 $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
tekgraf, inc.
Notes to Financial Statements
1. Basis of Presentation and Nature of Operations:
Basis of Presentation
The financial statements are prepared on the basis of generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at December 31, 1996 and reported
amounts of revenues and expenses for the year then ended. Significant
estimates include those made for the allowance for doubtful accounts.
Actual results could differ from those estimates made by management.
Nature of Operations
tekgraf, inc. (the "Company") is a distributor and marketer of a broad
array of complex computer graphics hardware and software in the
southwestern United States. Customers consist primarily of value added
resellers and vertical solution providers.
Inherent in the accompanying financial statements are certain risks and
uncertainties. These risks and uncertainties include, but are not limited
to: the impact of competitive products, competition, and available sources
of supply.
2. Summary of Significant Accounting Policies:
Interim Financial Statements
The accompanying unaudited interim financial statements as of March 31,
1997 and for the three months ended March 31, 1996 and 1997 have not been
audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the audited financial
statements for the year ended December 31, 1996 and include all
adjustments, which were of a normal and recurring nature which, in the
opinion of management, are necessary to present fairly the financial
position of the Company and the results of operations and cash flows for
the periods presented. The operating results for the interim periods are
not necessarily indicative of results for the full year.
Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances at financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not
experienced any losses in such accounts.
F-38
<PAGE>
tekgraf, inc.
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Inventories
Inventories are stated at the lower of cost (determined principally by the
first-in, first-out method) or market. Inventory is comprised primarily of
finished goods and the Company maintains a reserve for its estimate of
excess, obsolete and damaged goods.
Property and Equipment
Property and equipment are stated at cost. Property and equipment are
depreciated on a straight-line basis over their estimated useful lives
which range from 3 to 7 years.
Amounts expended for maintenance and repairs are charged to expense as
incurred. Upon disposition, both the related cost and accumulated
depreciation accounts are relieved and the related gain or loss is
credited or charged to operations.
Revenue
Sales are recognized upon the shipment of products to the customer.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the number of entities comprising the
Company's customer base. The Company performs ongoing credit evaluations
and provides an allowance for potential credit losses against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have historically been within management's expectations.
Income Taxes
The Company has elected S corporation status as defined by the Internal
Revenue Code. Under this election, taxable income and any applicable tax
credits are included in the income tax return of the stockholder, and any
federal and state income tax liability is borne by the stockholder.
F-39
<PAGE>
tekgraf, inc.
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments
The Company's financial instruments include its note payable and employee
note receivable. Management believes that the employee notes receivable
bear interest at rates which approximate prevailing market rates for
instruments with similar characteristics and, accordingly, that the
carrying value is a reasonable estimate of fair value. During December of
1996 the Company renogiated the terms of the note payable. See Note 4.
Accordingly, the fair value of the note payable at December 31, 1996 is
approximately $5,000.
3. Negative Goodwill:
Effective June 30, 1995, MC Acquisitions ("MC") acquired all of the common
stock of tekgraf in exchange for $125,000 in cash and a note payable of
$245,000. MC was a holding company with no operations. In July 1995, MC
and tekgraf were legally consolidated and their name changed to tekgraf,
inc. As a result of the acquisition on June 30, 1995 negative goodwill of
$318,486 was recognized as the purchase price was less than the fair value
of the net assets acquired. Negative goodwill is being amortized, on a
straight-line basis, based its estimated economic life of 10 years.
Accumulated amortization amounted to approximately $47,119 at December 31,
1996.
4. Notes Payable:
Long-term debt at December 31, 1996 consists of a note payable with the
former parent of the Company. This note was issued in connection with the
1995 acquisition. The note bears interest at 8%, is collateralized by the
common stock of the Company, and the original terms required monthly
principal and interest payments beginning in July of 1997.
During December 1996, the Company entered into an agreement with the
former parent to renegotiate the terms of the original note. As a result,
the Company made payments to the former parent of $170,000 during December
1996 and the remaining $5,000 during March 1997 which resulted in the
recognition of an extraordinary gain of $70,000 during the three month
period ended March 31, 1997.
5. Commitments and Contingencies:
The Company leases office space under an operating lease expiring in 1998.
At December 31, 1996 minimum rentals due under the lease were as follows:
1997 $ 44,094
1998 7,500
--------
$ 51,594
========
Rent expense for the year ended December 31, 1996 was $41,089.
F-40
<PAGE>
tekgraf, inc.
Notes to Financial Statements, Continued
6. Subsequent Events:
On June 2, 1997, the Company closed on a stock purchase agreement (the
"Agreement") completing the sale of all of the outstanding common stock of
tekgraf in exchange for 834 shares of common stock of Crescent Computers,
Inc. ("Crescent"). The acquisition by Crescent will be accounted for under
the purchase method of accounting. Pursuant to the Agreement, the Company
is required to deliver a defined guaranteed net asset value ("NAV"). The
Company's excess net book value over the NAV will be distributed in cash
to the Company's stockholders. It is anticipated that the distribution
will occur during August 1997. In addition, and also pursuant to the
Agreement, the stockholders of the Company have entered into employment
agreements with Crescent which provide for a set base salary,
participation in future incentive bonus plans, certain other benefits, and
a covenant not to compete following termination of such person's
employment.
F-41
<PAGE>
Report of Independent Accountants
To the Shareholders
Intelligent Products Marketing, Inc.
We have audited the accompanying balance sheets of Intelligent Products
Marketing, Inc. as of December 31, 1995 and 1996, and the related statements of
operations, changes in stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intelligent Products Marketing,
Inc. as of December 31, 1995 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
June 2, 1997
F-42
<PAGE>
Intelligent Products Marketing, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31, March 31, 1997
1995 1996 (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 140,821 $ 700 $ 12,158
Accounts receivable, less allowance for
doubtful accounts of $34,850 at
December 31, 1996 942,956 1,405,044 1,108,610
Inventories, net 649,591 428,086 927,694
Other receivables 27,087 38,595 46,315
Prepaid expenses 10,003 6,201 9,775
Deferred income taxes 42,874 58,228 56,056
----------- ----------- -----------
Total current assets 1,813,332 1,936,854 2,160,608
----------- ----------- -----------
Property and equipment:
Furniture and equipment 388,665 412,747 421,626
Leasehold improvements 4,674 4,675 4,675
----------- ----------- -----------
393,339 417,422 426,301
Less accumulated depreciation (284,164) (327,125) (339,125)
----------- ----------- -----------
109,175 90,297 87,176
Other assets 4,930 5,315 5,165
----------- ----------- -----------
Total assets $ 1,927,437 $ 2,032,466 $ 2,252,949
=========== =========== ===========
LIABILITIES
Current liabilities:
Accounts payable $ 832,376 $ 801,681 $ 1,130,918
Accrued expenses 136,069 146,243 154,922
Due to related entities 181,335 127,829 128,723
Bank overdraft 109,789
Income taxes payable 33,524 45,286 40,856
Deferred income taxes 2,780 3,960 4,153
----------- ----------- -----------
Total current liabilities 1,186,084 1,234,788 1,459,572
----------- ----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000 shares
authorized; 500 shares issued and
outstanding at December 31, 1995 and 1996
respectively 125,005 125,005 125,005
Retained earnings 616,348 672,673 668,372
----------- ----------- -----------
Total stockholders' equity 741,353 797,678 793,377
----------- ----------- -----------
Total liabilities and stockholders' equity $ 1,927,437 $ 2,032,466 $ 2,252,949
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE>
Intelligent Products Marketing, Inc.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31, March 31,
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 7,646,803 $ 9,058,790 $ 2,661,491 $ 1,600,512
Cost of goods sold 6,343,894 7,578,307 2,211,342 1,323,736
----------- ----------- ----------- -----------
Gross profit 1,302,909 1,480,483 450,149 276,776
Operating expenses:
Selling, general and administrative 1,051,974 1,333,230 328,958 294,941
Depreciation 46,210 42,961 15,000 12,000
----------- ----------- ----------- -----------
Income (loss) from operations 204,725 104,292 106,191 (30,165)
Other income (expense), net (64,906) (25,903) (34,650) 28,229
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes 139,819 78,389 71,541 (1,936)
Provision for income taxes 45,946 22,064 6,210 2,365
----------- ----------- ----------- -----------
Net income (loss) $ 93,873 $ 56,325 $ 65,331 $ (4,301)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE>
Intelligent Products Marketing, Inc.
Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995 and 1996
Number of Common Retained
Shares Stock Earnings Total
Balances, January 1, 1995 500 $125,005 $522,475 $647,480
Net income 93,873 93,873
-------- -------- -------- --------
Balances, December 31, 1995 500 125,005 616,348 741,353
Net income 56,325 56,325
-------- -------- -------- --------
Balances, December 31, 1996 500 $125,005 $672,673 $797,678
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE>
Intelligent Products Marketing, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31, March 31,
1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 93,873 $ 56,325 $ 65,331 $ (4,301)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation 46,210 42,961 15,000 12,000
Provision for doubtful accounts receivable (31,878) 34,850 (34,850)
Provision for obsolete inventories 34,333 (7,641)
Deferred income taxes (3,085) (14,174) 2,365
Changes in assets and liabilities:
Accounts receivable (327,288) (496,938) (512,587) 331,284
Inventories (163,789) 229,146 (182,517) (499,608)
Other receivables 9,066 (11,508) (15,515) (7,720)
Prepaid expenses 8,756 3,802 1,890 (3,574)
Other assets (150) (385) 1,000 150
Accounts payable and accrued expenses 51,910 (20,521) 573,957 337,916
Due to related entities 181,335 (53,506) (108,064) 894
Income taxes payable 27,314 11,762 8,558 (4,430)
--------- --------- --------- ---------
Net cash provided (used) by operating activities (73,393) (225,827) (152,947) 130,126
--------- --------- --------- ---------
Cash flows from investing activities:
Payments for purchase of property and equipment (30,586) (24,083) (19,872) (8,879)
--------- --------- --------- ---------
Net cash used by investing activities (30,586) (24,083) (19,872) (8,879)
--------- --------- --------- ---------
Cash flows from financing activities:
Bank overdraft 109,789 31,998 (109,789)
--------- --------- --------- ---------
Net cash provided (used) by financing activities 109,789 31,998 (109,789)
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents (103,979) (140,121) (140,821) 11,458
Cash and cash equivalents, beginning of period 244,800 140,821 140,821 700
--------- --------- --------- ---------
Cash and cash equivalents, end of period $ 140,821 $ 700 $ $ 12,158
========= ========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the period for income taxes $ 21,717 $ 24,476 $ 7,917 $ 4,430
========= ========= ========= =========
Cash paid during the period for interest $ 1,965 $ 5,214 $ 1,499 $ 138
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE>
Intelligent Products Marketing, Inc.
Notes to Financial Statements
1. Basis of Presentation and Nature of Operations:
Basis of Presentation
The financial statements are prepared on the basis of generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at December 31, 1995 and 1996 and
reported amounts of revenues and expenses for the years then ended.
Significant estimates include those made for the allowance for doubtful
accounts and inventory reserves for excess, obsolete and damaged products.
Actual results could differ from those estimates made by management.
Nature of Operations
Intelligent Products Marketing, Inc. ("the Company") is a distributor and
marketer of a broad array of complex computer graphics hardware and
software in the western United States. Customers consist primarily of
value added resellers and vertical solution providers. Distribution and
representation contracts with manufacturers are primarily held by two
affiliated companies, IG Distribution , Inc. and IP Marketing, Inc., which
have granted the rights to execute these contracts to the Company in
exchange for a percentage of gross profit.
Inherent in the accompanying financial statements are certain risks and
uncertainties. These risks and uncertainties include, but are not limited
to: the impact of competitive products, competition, and available sources
of supply.
2. Summary of Significant Accounting Policies:
Interim Financial Statements
The accompanying unaudited interim financial statements as of March 31,
1997 and for the three months ended March 31, 1996 and 1997 have not been
audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the audited financial
statements for the year ended December 31, 1995 and 1996 and include all
adjustments, which were of a normal and recurring nature which, in the
opinion of management, are necessary to present fairly the financial
position of the Company and the results of operations and cash flows for
the periods presented. The operating results for the interim periods are
not necessarily indicative of results for the full year.
F-47
<PAGE>
Intelligent Products Marketing, Inc.
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances at financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not
experienced any losses in such accounts.
Inventories
Inventories are stated at the lower of cost, using the average method, or
market. Inventory is comprised primarily of finished goods and the Company
maintains a reserve for its estimate of excess, obsolete and damaged
goods.
Property and Equipment
Property and equipment are stated at cost. Property and equipment are
depreciated on a straight-line basis over their estimated useful lives
which primarily range from 5 to 7 years.
Amounts expended for maintenance and repairs are charged to expense as
incurred. Upon disposition, both the related cost and accumulated
depreciation accounts are relieved and the related gain or loss is
credited or charged to operations.
Revenue
Sales are recognized upon the shipment of products to the customer.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the number of entities comprising the
Company's customer base. The Company performs ongoing credit evaluations
and provides an allowance for potential credit losses against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have historically been within management's expectations.
Income Taxes
The provision for income taxes and corresponding balance sheet accounts
are determined in accordance with SFAS No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax liabilities and assets
are determined based on temporary differences between the bases of certain
assets and liabilities for income tax and financial reporting purposes.
The deferred tax assets and liabilities are classified according to the
financial statement classification of the assets and liabilities
generating the differences. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
F-48
<PAGE>
Intelligent Products Marketing, Inc.
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments
Carrying amounts of certain of the Company's financial instruments
including cash equivalents, accounts receivable, accounts payable and
other accrued liabilities approximate fair value due to their short
maturities.
3. Line of Credit:
The Company has available a line of credit of $250,000 of which no amounts
were outstanding at December 31, 1996 and 1995. Interest is payable
monthly at the bank's prime lending rate (8.25% at December 31, 1996) plus
.75% and expires January 9, 1997. The line of credit is guaranteed by two
stockholders of the Company, and has been extended under the same
conditions for an additional year.
4. Income Taxes:
The provision (benefit) for income taxes for the years ended December 31,
is as follows:
1995 1996
Current $ 49,031 $ 36,238
Deferred (3,085) (14,174)
-------- --------
$ 45,946 $ 22,064
======== ========
F-49
<PAGE>
Intelligent Products Marketing, Inc.
Notes to Financial Statements, Continued
4. Income Taxes, continued:
The temporary differences between the tax bases of assets and liabilities
for income tax and financial reporting which give rise to deferred taxes
at December 31, 1995 and 1996 consist primarily of reserves for inventory
and accounts receivable and accrued bonuses. Management believes that
realization of the net deferred tax assets is more likely than not
primarily due to anticipated future taxable income.
The Company's effective income tax rate varied from the federal statutory
income rate due primarily to state income taxes, net of the federal income
tax benefit, non-deductible meals and entertainment expenses and federal
sur-tax exemptions.
5. Related Party Transactions:
As of December 31, 1995 and 1996, amounts due to affiliated companies were
$181,335 and $127,829, respectively. In addition, commission expense
related to the execution of distribution contracts on behalf of an
affiliated company is $34,768 and $44,715 in 1995 and 1996, respectively.
6. Commitments and Contingencies:
Operating Lease
The Company leases office space under noncancelable operating leases
expiring in 2001. At December 31, 1996 minimum rentals due under the lease
were as follows:
1997 $ 96,888
1998 96,888
1999 96,888
2000 96,888
2001 89,199
---------
$ 476,751
=========
Rental expense under operating leases for 1995 and 1996 is $60,495 and
$60,507, respectively.
Litigation
The Company is involved from time to time in litigation on matters which
are routine to the conduct of its business. Although the outcome of any
litigation cannot be predicted with certainty, the Company does not
believe that any outstanding litigation will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
F-50
<PAGE>
Intelligent Products Marketing, Inc.
Notes to Financial Statements, Continued
7. Employee Benefit Plan:
The Company maintains a Profit Sharing Plan ("the Plan") under section
401(k) of the Internal Revenue Code. The Company's contributions to the
Plan for eligible employees are a percentage of compensation, up to a
maximum of 15%, depending on profitability. Total Company contributions
under the Plan during 1995 and 1996 were $145,000 and $120,000,
respectively.
8. Subsequent Events:
On June 2, 1997, the Company closed on a stock purchase agreement (the
"Agreement") completing the sale of all of the outstanding common stock of
Intelligent Products Marketing, Inc. and an affiliated company, IG
Distribution, Inc., in exchange for 900 shares of common stock of Crescent
Computers, Inc. ("Crescent"). The acquisition by Crescent will be
accounted for under the purchase method of accounting. Pursuant to the
Agreement, the Company is required to deliver a defined guaranteed net
asset value ("NAV"). The Company's excess net book value over the NAV will
be distributed in cash to the Company's stockholders. It is anticipated
that the distribution will occur during August 1997. In addition, and also
pursuant to the Agreement, the stockholders of the Company have entered
into employment agreements with Crescent which provide for a set base
salary, participation in future incentive bonus plans, certain other
benefits, and a covenant not to compete following termination of such
person's employment.
F-51
<PAGE>
Report of Independent Accountants
To the Shareholders
IG Distribution, Inc.
We have audited the accompanying balance sheets of IG Distribution, Inc. as of
December 31, 1995 and 1996, and the related statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IG Distribution, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
San Francisco, California
June 2, 1997
F-52
<PAGE>
IG Distribution, Inc.
Balance Sheets
December 31, December 31, March 31,
1995 1996 1997
ASSETS (Unaudited)
Current assets:
Due from affiliate $ 49,006 $ 85,531 $ 90,514
Prepaid expenses 131 65 65
------------ ------------ ------------
Total assets $ 49,137 $ 85,596 $ 90,579
============ ============ ============
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000
shares authorized; 1,000 shares
issued and outstanding at
December 31, 1995 and 1996 $ 1,000 $ 1,000 $ 1,000
Retained earnings 48,137 84,596 89,579
------------ ------------ ------------
Total stockholders' equity $ 49,137 $ 85,596 $ 90,579
============ ============ ============
The accompanying notes are an integral part of the financial statements.
F-53
<PAGE>
IG Distribution, Inc.
Statements of Income
Years Ended Three Months Ended
December 31, March 31, March 31,
1995 1996 1996 1997
(Unaudited)
Revenue $ 34,768 $ 44,715 $ 15,308 $ 9,706
Selling, general and administrative 482 474 399 451
-------- -------- -------- --------
Income from operations 34,286 44,241 14,909 9,255
Provision for income taxes, current 9,744 7,782 1,782 4,272
-------- -------- -------- --------
Net income $ 24,542 $ 36,459 $ 13,127 $ 4,983
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-54
<PAGE>
IG Distribution, Inc.
Statements of Changes in Stockholders' Equity
for the years ended December 31, 1995 and 1996
Number of Common Retained
Shares Stock Earnings Total
Balances, January 1, 1995 1,000 $ 1,000 $ 23,595 $ 24,595
Net income 24,542 24,542
------- -------- -------- --------
Balances, December 31, 1995 1,000 1,000 48,137 49,137
Net income 36,459 36,459
------- -------- -------- --------
Balances, December 31, 1996 1,000 $ 1,000 $ 84,596 $ 85,596
======= ======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-55
<PAGE>
IG Distribution, Inc.
Statements of Cash Flows
Years Ended Three Months Ended
December 31, March 31, March 31,
1995 1995 1997 1996
(Unaudited)
Cash flows from operating activities:
Net income $ 24,542 $ 36,459 $ 13,127 $ 4,983
Changes in assets and liabilities:
Due from affiliate (24,607) (36,525) (13,127) (4,983)
Prepaid expenses 65 66
-------- -------- -------- --------
Net cash provided by operating
activities -- --
-------- -------- -------- --------
Increase in cash and cash equivalents -- --
Cash and cash equivalents,
beginning of period -- -- -- --
-------- -------- -------- --------
Cash and cash equivalents,
end of period $ -- $ -- $ -- $ --
======== ======== ======== ========
The accompanying notes are an integral part of the financial statements.
F-56
<PAGE>
IG Distribution, Inc.
Notes to Financial Statements
1. Nature of Operations and Basis of Presentation:
Basis of Presentation
The financial statements are prepared on the basis of generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at December 31, 1995 and 1996 and
reported amounts of revenues and expenses for the years then ended. Actual
results could differ from those estimates made by management.
Nature of Operations
IG Distribution, Inc. ("the Company") holds contracts with certain
manufacturers/importers for the distribution of a broad array of complex
computer graphics hardware and software in the western United States.
Execution of the contracts and distribution of the products is granted to
an affiliated company (Intelligent Products Marketing, Inc.) in return for
a commission of 5% of the gross profit.
2. Summary of Significant Accounting Policies:
Interim Financial Statements
The accompanying unaudited interim financial statements as of March 31,
1997 and for the three months ended March 31, 1996 and 1997 have not been
audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the audited financial
statements for the year ended December 31, 1995 and 1996 and include all
adjustments, which were of a normal and recurring nature which, in the
opinion of management, are necessary to present fairly the financial
position of the Company and the results of operations and cash flows for
the periods presented. The operating results for the interim periods are
not necessarily indicative of results for the full year.
Revenue
Revenue represents commission revenue and all revenue is derived from an
affiliated company.
Concentration of Credit Risk
Receivables are due from an affiliated company.
F-57
<PAGE>
IG Distribution, Inc.
Notes to Financial Statement, Continued
2. Summary of Significant Accounting Policies, continued:
Income Taxes
The provision for income taxes and corresponding balance sheet accounts
are determined in accordance with SFAS No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, deferred tax liabilities and assets
are determined based on temporary differences between the basis of certain
assets and liabilities for income tax and financial reporting purposes.
As of December 31, 1995 and 1996, no such temporary differences exist.
The Company's effective income tax rate varied from the federal statutory
income tax rate due primarily to state income taxes and federal surtax
exemptions.
3. Subsequent Events:
On June 2, 1997, the Company closed on a stock purchase agreement (the
"Agreement") completing the sale of all of the outstanding common stock of
IG Distribution, Inc. and an affiliated company, Intelligent Products
Marketing, Inc., in exchange for 900 shares of common stock of Crescent
Computers, Inc. ("Crescent"). The acquisition by Crescent will be
accounted for under the purchase method of accounting. Pursuant to the
Agreement, the Company is required to deliver a defined guaranteed net
asset value ("NAV"). The Company's excess net book value over the NAV will
be distributed in cash to the Company's stockholders. It is anticipated
that the distribution will occur during August 1997. In addition, and also
pursuant to the Agreement, the stockholders of the Company have entered
into employment agreements with Crescent which provide for a set base
salary, participation in future incentive bonus plans, certain other
benefits, and a covenant not to compete following termination of such
person's employment.
F-58
<PAGE>
Report of Independent Accountants
To the Shareholders
G&R Marketing, Inc.
We have audited the accompanying balance sheets of G&R Marketing, Inc. as of
December 31, 1995 and 1996, and the related statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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 G&R Marketing, Inc. as of
December 31, 1995 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
May 12, 1997, except for
Note 7 as to which
the date is June 30, 1997
F-59
<PAGE>
G&R Marketing, Inc.
Balance Sheets
<TABLE>
<CAPTION>
December 31, December 31, March 31, 1997
1995 1996 (Unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 613 $ 591 $ 556
Accounts receivable, less allowance for
doubtful accounts of $25,822 and $25,000
at December 31, 1995 and 1996, respectively 2,402,683 2,539,987 2,611,623
Inventories, net 1,887,081 1,907,441 1,923,602
Other receivables 295,193 144,796 317,106
Due from related entities 119,686 177,241 166,682
Prepaid expenses 10,068 17,456 28,844
----------- ----------- -----------
Total current assets 4,715,324 4,787,512 5,048,413
----------- ----------- -----------
Property and equipment:
Furniture and equipment 453,738 365,869 375,039
Leasehold improvements 24,697 24,697 24,697
----------- ----------- -----------
478,435 390,566 399,736
Accumulated depreciation (355,484) (306,372) (319,872)
----------- ----------- -----------
122,951 84,194 79,864
Other assets 24,115 3,200 3,200
----------- ----------- -----------
Total assets $ 4,862,390 $ 4,874,906 $ 5,131,477
=========== =========== ===========
LIABILITIES
Current liabilities:
Line of credit $ 1,188,596 $ 1,188,598 $ 1,091,014
Accounts payable 2,964,941 2,902,969 3,292,978
Accrued expenses 77,287 31,825 53,423
State income taxes payable 3,100 3,600
----------- ----------- -----------
Total current liabilities 4,233,924 4,126,992 4,437,415
----------- ----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Common stock, no par value, 1,000,000 shares
authorized; 1,000 shares issued and outstanding
at December 31, 195 and 1996, respectively 2,100 2,100 2,100
Retained earnings 626,366 745,814 691,962
----------- ----------- -----------
Total stockholders' equity 628,466 747,914 694,062
----------- ----------- -----------
Total liabilities and stockholders' equity $ 4,862,390 $ 4,874,906 $ 5,131,477
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-60
<PAGE>
G&R Marketing, Inc.
Statements of Income
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31, March 31,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales $21,316,998 $20,783,843 $21,038,228 $5,008,908 $5,391,665
Cost of goods sold 18,676,506 17,990,180 18,117,338 4,281,553 4,669,017
----------- ----------- ----------- ---------- ----------
Gross profit 2,640,492 2,793,663 2,920,890 727,355 722,648
Operating expenses:
Selling, general and administrative 2,281,214 2,387,135 2,551,281 628,499 636,280
Depreciation 48,259 67,498 56,549 13,500 13,500
----------- ----------- ----------- ---------- ----------
Income from operations 311,019 339,030 313,060 85,356 72,868
Other income 12 1,136 182 5 1,120
Interest expense 137,486 166,114 140,194 35,167 32,939
----------- ----------- ----------- ---------- ----------
Income before provision for
state income taxes 173,545 174,052 173,048 50,194 41,049
Provision for state income taxes 3,400 3,100 3,600
----------- ----------- ----------- ---------- ----------
Net income $ 170,145 $ 170,952 $ 169,448 $ 50,194 $ 41,049
=========== =========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-61
<PAGE>
G&R Marketing, Inc.
Statements of Changes in Stockholders' Equity
for the years ended December 31, 1994, 1995 and 1996
Number of Common Retained
Shares Stock Earnings Total
Balances, January 1, 1994 1,000 $ 2,100 $314,681 $316,781
Net income 170,145 170,145
-------- --------- -------- --------
Balances, December 31, 1994 1,000 2,100 484,826 486,926
Stockholder distributions (29,412) (29,412)
Net income 170,952 170,952
-------- --------- -------- --------
Balances, December 31, 1995 1,000 2,100 626,366 628,466
Stockholder distributions (50,000) (50,000)
Net income 169,448 169,448
-------- --------- -------- --------
Balances, December 31, 1996 1,000 $ 2,100 $745,814 $747,914
======== ========= ======== ========
The accompanying notes are an integral part of the financial statements.
F-62
<PAGE>
G&R Marketing, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended Three Months Ended
December 31, March 31, March 31,
1994 1995 1996 1996 1997
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 170,145 $ 170,952 $ 169,448 $ 50,194 $ 41,049
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 48,259 67,498 56,549 13,500 13,500
Provision for doubtful accounts receivable 25,000 822 6,000 2,000
Changes in assets and liabilities:
Accounts receivable (857,177) 467,716 (137,304) (378,906) (73,636)
Other receivables 40,586 (89,039) 150,397 (66,225) (172,310)
Due from related entities (71,461) 15,631 (57,555) 7,607 10,559
Inventories (375,104) 162,122 (20,360) (504,272) (16,161)
Prepaid expenses 6,989 (4,528) (7,388) (18,181) (11,388)
Other assets 4,882 (11,721) 20,915 -- --
Accounts payable and accrued expenses 72,259 217,902 (107,434) 756,876 411,607
State income taxes payable 1,800 (300) 500 (3,100) (3,600)
------------ ------------ ------------ ----------- -----------
Net cash provided (used) by operating
activities (933,822) 997,055 67,768 (136,507) 201,620
------------ ------------ ------------ ----------- -----------
Cash flows from investing activities:
Payments for purchase of property and equipment (54,748) (73,004) (17,792) (4,862) (9,170)
------------ ------------ ------------ ----------- -----------
Net cash used by investing activities (54,748) (73,004) (17,792) (4,862) (9,170)
------------ ------------ ------------ ----------- -----------
Cash flows from financing activities:
Proceeds from line of credit 21,305,000 20,511,086 20,996,028 4,664,230 5,299,435
Repayment of line of credit (20,381,364) (21,416,079) (20,996,026) (4,522,893) (5,397,019)
Stockholder distributions (29,412) (50,000) (94,901)
------------ ------------ ------------ ----------- -----------
Net cash provided (used) by financing
activities 923,636 (934,405) (49,998) 141,337 (192,485)
------------ ------------ ------------ ----------- -----------
Decrease in cash and cash equivalents (64,934) (10,354) (22) (32) (35)
Cash and cash equivalents, beginning of period 75,901 10,967 613 613 591
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents, end of period $ 10,967 $ 613 $ 591 $ 581 $ 556
============ ============ ============ =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 150,128 $ 172,264 $ 128,363 $ 35,167 $ --
============ ============ ============ =========== ===========
Cash paid during the period for state income taxes $ 1,605 $ 3,270 $ 3,158 $ -- $ --
============ ============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-63
<PAGE>
G&R Marketing, Inc.
Notes to Financial Statements
1. Basis of Presentation and Nature of Operations:
Nature of Operations
G&R Marketing, Inc. ("the Company") is a distributor and marketer of a
broad array of complex computer graphics hardware and software in the
upper midwestern United States. Customers consist primarily of value added
resellers and vertical solution providers.
Inherent in the accompanying financial statements are certain risks and
uncertainties. These risks and uncertainties include, but are not limited
to: the impact of competitive products, competition and available sources
of supply.
Basis of Presentation
The financial statements are prepared on the basis of generally accepted
accounting principles. The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at December 31, 1995 and 1996 and
reported amounts of revenues and expenses for each of the three years in
the period ended December 31, 1996. Significant estimates include those
made for the allowance for doubtful accounts and inventory reserves for
excess, obsolete and damaged products. Actual results could differ from
those estimates made by management.
2. Summary of Significant Accounting Policies:
Interim Financial Statements
The accompanying unaudited interim financial statements as of March 31,
1997 and for the three months ended March 31, 1996 and 1997 have not been
audited by independent accountants. However, they have been prepared in
conformity with the accounting principles stated in the audited financial
statements for the three years in the period ended December 31, 1996 and
include all adjustments, which were of a normal and recurring nature,
which in the opinion of management are necessary to present fairly the
financial position of the Company and results of operations and cash flows
for the periods presented. The operating results for the interim periods
are not necessarily indicative of results for the full year.
F-64
<PAGE>
G&R Marketing, Inc.
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Cash Equivalents
The Company considers all highly liquid investments with a remaining
maturity of three months or less when purchased to be cash equivalents.
The Company maintains cash balances at financial institutions. Accounts at
each institution are insured by the Federal Deposit Insurance Corporation
up to $100,000. The Company's accounts at these institutions may, at
times, exceed the federally insured limits. The Company has not
experienced any losses in such accounts.
Inventories
Inventories are stated at the lower of cost (determined principally by the
first-in, first-out method) or market. Inventory is comprised primarily of
finished goods. The Company maintains a reserve for its estimate of
excess, obsolete and damaged goods.
Property and Equipment
Property and equipment are stated at cost. Property and equipment are
depreciated on a accelerated basis over their estimated useful lives which
range from 3 to 7 years.
Amounts expended for maintenance and repairs are charged to expense as
incurred. Upon disposition, both the related cost and accumulated
depreciation accounts are relieved and the related gain or loss is
credited or charged to operations.
Revenue
Sales are recognized upon the shipment of products to the customer.
Concentration of credit risk with respect to trade accounts receivable is
generally diversified due to the number of entities comprising the
Company's customer base. The Company performs ongoing credit evaluations
and provides an allowance for potential credit losses against the portion
of accounts receivable which is estimated to be uncollectible. Such losses
have historically been within management's expectations.
Income Taxes
The Company has elected S corporation status as defined by the Internal
Revenue Code. Under this election, taxable income and any applicable tax
credits are included in the income tax return of the stockholders, and any
federal income tax liability is borne by the stockholders. The Company's
tax status insofar as state corporate income taxes are concerned is not
effected by the election. Accordingly, the provision for state income
taxes and corresponding balance sheet accounts are determined in
accordance with SFAS No. 109, "Accounting for Income Taxes" ("SFAS 109").
Under SFAS 109, deferred tax assets and liabilities are determined based
on temporary differences between the basis of certain assets and
liabilities for income tax and financial reporting purposes, if any. The
deferred tax assets and liabilities are classified according to the
financial statement classification of the assets and liabilities
generating the differences. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be
realized.
F-65
<PAGE>
G&R Marketing, Inc.
Notes to Financial Statements, Continued
2. Summary of Significant Accounting Policies, continued:
Fair Value of Financial Instruments
The Company utilizes a line of credit to finance short-term obligations.
Management believes that this financial instrument bears interest at a
rate which approximates prevailing market rates for instruments with
similar characteristics and, accordingly, that the carrying value for this
instrument is a reasonable estimate of fair value.
3. Line of Credit :
The Company has available a line of credit of $3,000,000 of which
$1,811,402 was unused at December 31, 1996. Interest is payable monthly at
the bank's prime lending rate (8.25% at December 31, 1996) plus .50% and
expires June 30, 1997. The line of credit is collateralized by the
Company's assets, and guaranteed by the stockholders of the Company.
4. Employee Benefit Plan:
Effective January 1, 1994, the Company established a defined contribution
plan which covers all eligible employees, as defined by the plan. All
contributions are made at the discretion of the Board of Directors. Profit
sharing contribution expense for the years ended December 31, 1994 and
1995 were $55,057 and $54,124, respectively. There were no contributions
made during 1996.
5. Related Party Transactions:
The Company is affiliated through common ownership with G/B Marketing,
Inc. ("G/B"). Various operating expenses, such as rent, utilities,
insurance and other expenses are allocated to G/B and received by the
Company each month. Total operating expenses charged to G/B for the three
years in the period ended December 31, 1996 were $114,900, $134,494, and
$82,474, respectively. In addition, the Company has advances of $14,430
and $71,985 due from G/B at December 31, 1995 and 1996, respectively.
The Company has advances to stockholders of $105,256 at December 31, 1995
and 1996. These advances are due on demand.
During the normal course of business, the Company sells inventory, at
cost, to a company in the same industry, but a different geographic
region. This Company is partially owned by stockholders of the Company.
During the years in the period ended December 31, 1996, these sales
amounted to $784,862, $677,538, and $521,087, respectively.
F-66
<PAGE>
G&R Marketing, Inc.
Notes to Financial Statements, Continued
6. Commitments and Contingencies:
Operating Lease
The Company leases office space under an operating lease expiring in 2000.
At December 31, 1996 future minimum rentals due under the lease were as
follows:
1997 $ 158,062
1998 160,452
1999 162,842
2000 68,265
----------
$ 549,621
==========
Rent expense, net of amounts allocated to G/B, for each of the three years
in the period ended December 31, 1996 were $91,502, $129,147 and $155,546,
respectively.
Litigation
The Company is involved from time to time in litigation on matters which
are routine to the conduct of its business. Although the outcome of any
litigation cannot be predicted with certainty, the Company does not
believe that any outstanding litigation will have a material adverse
effect on the Company's financial position, results of operations, or cash
flows.
F-67
<PAGE>
G&R Marketing, Inc.
Notes to Financial Statements, Continued
7. Subsequent Events:
On June 2, 1997, the Company closed on a stock purchase agreement (the
"Agreement") completing the sale of all of the outstanding common stock of
G&R in exchange for 2,505 shares of common stock of Crescent Computers,
Inc. ("Crescent"). The acquisition by Crescent will be accounted for under
the purchase method of accounting. Pursuant to the Agreement, the Company
is required to deliver a defined guaranteed net asset value ("NAV"). The
Company's excess net book value over the NAV will be distributed in cash
to the Company's stockholders. It is anticipated that the distribution
will occur during August 1997. In addition, and also pursuant to the
Agreement, the stockholders of the Company have entered into employment
agreements with Crescent which provide for a set base salary,
participation in future incentive bonus plans, certain other benefits, and
a covenant not to compete following termination of such person's
employment.
On June 30, 1997, the Company extended the line of credit with a bank
through December 31, 1997.
F-68
<PAGE>
================================================================================
[Back Cover]
No dealer, salesman or other person has been authorized to give any
information or to make any representations, other than those contained in this
Prospectus, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company or by the Underwriters.
This Prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy, any securities offered hereby by anyone in any jurisdiction in
which such offer or solicitation is not authorized or in which the person making
such offer or solicitation is not qualified to do so or to anyone to whom it is
unlawful to make such offer, or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein contained is correct as of any time
subsequent to the date of this Prospectus.
-----------
TABLE OF CONTENTS
Page
----
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 18
Dividends and Distributions........... 19
Capitalization........................ 20
Dilution.............................. 21
Unaudited Pro Forma
Combined Financial Statements....... 24
Selected Financial and Operating Data. 34
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 40
Business.............................. 50
Management............................ 62
Certain Transactions.................. 69
Principal Stockholders................ 73
Description of Securities............. 76
Shares Eligible for Future Sale....... 80
Underwriting.......................... 81
Legal Matters......................... 83
Experts............................... 83
Additional Information................ 84
Index to Financial Statements......... F-1
============================
Until , 1997, all dealers effecting transactions in the registered securities,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
2,500,000 Units
TEKGRAF, INC.
Consisting of 2,500,000 shares of
Class A Common Stock and
2,500,000 Redeemable Warrants
------------------
PROSPECTUS
--------
D.H. BLAIR INVESTMENT
BANKING CORP.
___, 1997
================================================================================
<PAGE>
PART II
Information Not Required in Prospectus
Item 13. Other Expenses of Issuance and Distribution
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered (other than
underwriting discounts and commissions) are as follows:
Amount
------
SEC Registration Fee...................... $11,439.00
NASD Filing Fees.......................... 4,275.00
Nasdaq Filing Fees........................ 10,000.00
Printing and Engraving Expenses........... *
Accounting Fees and Expenses.............. *
Legal Fees and Expenses................... *
Blue Sky Fees and Expenses................ *
Transfer Agent's Fees and Expenses........ 3,500.00
Representative's Non-Accountable Expense Allowance *
Miscellaneous Expenses.................... *
----------
Total........................... $*
==========
- ----------
* To be completed by amendment
Item 14. Indemnification of Directors and Officers
The Registrant intends to enter into indemnification agreements with each
of its officers and directors, the form of which is filed as Exhibit 10.12 and
reference is hereby made to such form.
Reference is made to Section 6 of the Underwriting Agreement (Exhibit 1.1)
which provides for indemnification by the Underwriters of the Registrant, its
officers and directors.
Item 15. Recent Sales of Unregistered Securities
During the last three years, the Registrant has sold and issued the
following unregistered securities:
In June 1997, the Registrant issued an aggregate of 6,576 shares of common
stock (2,630,400 shares of Class B Common Stock on a post-recapitalization
basis) to 14 persons, including officers and directors of the Company, in
connection with the acquisition of all of the outstanding capital stock of six
entities.
II - 1
<PAGE>
The above transactions were private transactions not involving a public
offering and were exempt from the registration provisions of the Securities Act
of 1933, as amended, pursuant to Section 4(2) thereof. The sale of securities
was without the use of an underwriter, and the certificates evidencing the
shares bear a restrictive legend permitting the transfer thereof only upon
registration of the shares or an exemption under the Securities Act of 1933, as
amended.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1 - Form of Underwriting Agreement
2.1 - Plan of Merger
3.1 - Certificate of Incorporation of the Registrant
3.2 - By-laws of the Registrant
4.1 - Form of Warrant Agreement
4.2 - Form of Representative's Unit Purchase Option
5.1* - Opinion of Bachner, Tally, Polevoy & Misher LLP
10.1 - 1997 Stock Option Plan
10.2 - Employment Agreement between the Registrant and Phillip C. Aginsky
10.3 - Employment Agreement between the Registrant and Dan I. Bailey
10.4 - Employment Agreement between the Registrant and William M. Rychel
10.5 - Form of Employment Agreement between the Registrant and Regional
Sales Directors
10.6 - Stock Purchase Agreement by and among Crescent Computers, Inc. and
its shareholders and Microsouth, Inc. and its shareholders dated as
of May 1, 1997, as amended
10.7 - Stock Purchase Agreement by and among Crescent Computers, Inc. and
its shareholders and tekgraf, inc. and its shareholders dated as of
May 1, 1997, as amended
10.8 - Stock Purchase Agreement by and among Crescent Computers, Inc. and
its shareholders and G&R Marketing, Inc. and its shareholders dated
as of May 1, 1997, as amended
10.9 - Stock Purchase Agreement by and among Crescent Computers, Inc. and
its shareholders and Computer Graphics Distributing Company and its
shareholders dated as of May 1, 1997, as amended
10.10 - Stock Purchase Agreement by and among Crescent Computers, Inc. and
its shareholders and Intelligent Products Marketing, Inc. and its
shareholders and IG Distributing, Inc. and its shareholders dated as
of May 1, 1997, as amended
10.11 - Form of Escrow Agreement by and among American Stock Transfer &
Trust Company, the Registrant and certain stockholders of the
Registrant
10.12 - Form of Indemnification Agreement between the Registrant and its
directors and officers.
10.13 - Lease by and among PDP, Inc. and Crescent Computers, Inc. dated
October 17, 1996
10.14 - Lease Agreement by and between TCW Realty Fund II and Crescent
Computers, Inc. dated September 4, 1993
II - 2
<PAGE>
10.15 - Leases for property located at 7020 Koll Center Parkway by and
between Patrician Associates, Inc., Koll Bernal Avenue Associates
and Intelligent Products Marketing, Inc., as amended
10.16 - Lease by and between American National Bank and Trust Company of
Chicago and G&R Technologies dated November 13, 1991, as amended
10.17 - Commercial Lease by and between Girard Associates II Limited
Partnership and Computer Graphics Distributing Company dated March
29, 1991, as amended
10.18 - Lease between ASC North Fulton Associates Joint Venture and
Microsouth, Inc., as amended
10.19 - Lease Agreement by and between Connecticut General Life Insurance
Company and Tekgraf, Inc. dated April 14, 1994, as amended
10.20 - Voting Agreement by and between the Registrant, A. Lowell Nerenberg
and Edward H.L. Mason
11 - Computation of earnings per share
21 - Subsidiaries of the Registrant
23.1* - Consent of Bachner, Tally, Polevoy & Misher LLP - Included in
Exhibit 5.1
23.2 - Consent of Coopers & Lybrand L.L.P.
24 - Power of Attorney - Included on Page II-6
27 - Financial Data Schedule
- ----------
* To be filed by amendment.
(b) All schedules are omitted since the required information is not
present in amounts sufficient to require submission of the schedule, or because
the information required is included in the financial statements and notes
thereto.
Item 17. Undertakings
(1) The undersigned Registrant hereby undertakes that it will:
(a) File, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act,
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement, and
(iii) Include any additional or changed material information
on the plan of distribution.
(b) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(c) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the Offering.
II - 3
<PAGE>
(2) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(3) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(4) The undersigned Registrant hereby undertakes that it will:
(a) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act as part of this registration statement as of the time
it was declared effective.
(b) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and the offering of such securities at that time as the initial bona fide
offering of those securities.
II - 4
<PAGE>
CONSENT OF COUNSEL
The consent of Bachner, Tally, Polevoy & Misher LLP will be contained in
its opinion to be filed as Exhibit 5.1 to the Registration Statement.
II - 5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-1 and has authorized this Registration
Statement or Amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Norcross, State of Georgia on the 11th
day of August, 1997.
TEKGRAF, INC.
By: /s/ Phillip C. Aginsky
--------------------------
Phillip C. Aginsky,
Chairman of the Board
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below under the heading "Signature" constitutes and appoints Phillip C. Aginsky,
his true and lawful attorney-in-fact and agent with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to this registration statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully for all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement or Amendment thereto has been signed by the following
persons in the capacities and on the dates stated.
Signature Title Date
- --------- ----- ----
/s/ Phillip C. Aginsky Chairman of the Board August 11, 1997
- ----------------------- (principal executive officer, principal
Phillip C. Aginsky financial and accounting officer)
/s/ Dan I. Bailey Co-President - Technology Division and August 11, 1997
- ----------------------- Director
Dan I. Bailey
/s/ William M. Rychel Co-President - Graphics Division and August 11, 1997
- ----------------------- Director
William M. Rychel
/s/ Martyn Cooper Director August 11, 1997
- -----------------------
Martyn Cooper
/s/ J. Thomas Woolsey Director August 7, 1997
- -----------------------
J. Thomas Woolsey
II - 6
2,500,000 Units
(each Unit consisting of (i) one share of Class A Common Stock,
par value $.001 per share and (ii) one redeemable warrant to purchase
one share of Class A Common Stock)
TEKGRAF, INC.
UNDERWRITING AGREEMENT
____________, 1997
D.H. Blair Investment Banking Corp.
As Representative of the Several Underwriters
44 Wall Street
2nd Floor
New York, New York 10005
TEKGRAF, INC., a Delaware corporation (the "Company"), proposes to issue
and sell to the underwriters named in Schedule A (the "Underwriters") of this
Underwriting Agreement (the "Agreement"), for whom you are acting as
representative (the "Representative"), an aggregate of 2,500,000 Units, each
unit being hereinafter referred to as a "Unit" and consisting of (i) one share
of Class A Common Stock, par value $.001 per share, ("Shares") and (ii) one
redeemable warrant ("Warrants") to purchase one share of Class A Common Stock at
a price of $7.00 from _______, 1997 to_______, 2002. The Warrants are subject to
redemption, in certain instances commencing one year from the date of this
Agreement. In addition, the Company proposes to grant to the Underwriters (or,
at its option, the Representative, individually) the option referred to in
Section 2(b) to purchase all or any part of an aggregate of 375,000 additional
Units. Unless the context otherwise indicates, the term "Units" shall include
the 375,000 additional Units referred to above.
The aggregate of 2,875,000 Units to be sold by the Company, together with
all or any part of the 250,000 Units which the Underwriters have the option to
purchase, and the Shares and the Warrants comprising such Units, are herein
called the "Units." The Common Stock of the Company to be outstanding after
giving effect to the sale of the Shares is herein called the "Common Stock." The
Shares and Warrants included in the Units (including the Units which the
Underwriters have the option to purchase) are herein collectively called the
"Securities."
<PAGE>
You have advised the Company that you and the other Underwriters desire to
purchase, severally, the Units, and that you have been authorized by the
Underwriters to execute this Agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Units by the several
Underwriters on whose behalf you are signing this Agreement, as follows:
1. Representations and Warranties of the Company. The Company represents
and warrants to, and agrees with, the Underwriters that:
(a) A registration statement (File No. 33-____________) on Form S-1
relating to the public offering of the Units, including a form of prospectus
subject to completion, copies of which have heretofore been delivered to you,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(the "Rules and Regulations") of the Securities and Exchange Commission (the
"Commission") thereunder, and has been filed with the Commission under the Act
and one or more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will file with the
Commission either (i) if such registration statement, as it may have been
amended, has been declared by the Commission to be effective under the Act,
either (A) if the Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Units that shall identify the Preliminary
Prospectus (as hereinafter defined) that it supplements containing such
information as is required or permitted by Rules 434, 430A and 424(b) under the
Act or (B) if the Company does not rely on Rule 434 under the Act a prospectus
in the form most recently included in an amendment to such registration
statement (or, if no such amendment shall have been filed, in such registration
statement), with such changes or insertions as are required by Rule 430A under
the Act or permitted by Rule 424(b) under the Act and in the case of either
clause (i)(A) or (i)(B) of this sentence, as have been provided to and approved
by the Representative prior to the execution of this Agreement, or (ii) if such
registration statement, as it may have been amended, has not been declared by
the Commission to be effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which amendment has been
furnished to and approved by the Representative prior to the execution of this
Agreement.
As used in this Agreement, the term "Registration Statement" means such
registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto and including
any information omitted therefrom pursuant to Rule 430A under the Act and
included in the Prospectus (as hereinafter defined); the term "Preliminary
Prospectus" means each prospectus subject to completion filed with such
registration statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration Statement or any
amendment thereto at the time it was or is declared effective); the term
"Prospectus" means (A) if the Company relies on Rule 434 under the Act, the Term
Sheet relating to the Units that is first filed pursuant to Rule
2
<PAGE>
424(b)(7) under the Act, together with the Preliminary Prospectus identified
therein that such Term Sheet supplements; (B) if the Company does not rely on
Rule 434 under the Act, the prospectus first filed with the Commission pursuant
to Rule 424(b) under the Act or (C) if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed pursuant to said Rule
424(b), such term means the prospectus included in the Registration Statement;
except that if such registration statement or prospectus is amended or such
prospectus is supplemented, after the effective date of such registration
statement and prior to the Option Closing Date (as hereinafter defined), the
terms "Registration Statement" and "Prospectus" shall include such registration
statement and prospectus as so amended, and the term "Prospectus" shall include
the prospectus as so supplemented, or both, as the case may be; and the term
"Term Sheet" means any term sheet that satisfies the requirements of Rule 434
under the Act. Any reference to the "date" of a Prospectus that includes a Term
Sheet shall mean the date of such Term Sheet.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus. At the time the Registration Statement
becomes effective and at all times subsequent thereto up to and on the Closing
Date (as hereinafter defined) or the Option Closing Date, as the case may be,
(i) the Registration Statement and Prospectus will in all respects conform to
the requirements of the Act and the Rules and Regulations; and (ii) neither the
Registration Statement nor the Prospectus will include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make statements therein not misleading; provided, however, that
the Company makes no representations, warranties or agreements as to information
contained in or omitted from the Registration Statement or Prospectus in
reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of the Underwriters specifically for use in the
preparation thereof. It is understood that the statements set forth in the
Prospectus on page 2 with respect to stabilization, under the heading
"Underwriting" and the identity of counsel to the Underwriters under the heading
"Legal Matters" constitute the only information furnished in writing by or on
behalf of the several Underwriters for inclusion in the Registration Statement
and Prospectus, as the case may be.
(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus and is duly
qualified to do business as a foreign corporation and is in good standing in all
other jurisdictions in which the nature of its business or the character or
location of its properties requires such qualification, except where failure to
so qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized, issued and outstanding capital stock of the Company as
of _______, 1997 is as set forth in the Prospectus under "Capitalization";
3
<PAGE>
the shares of issued and outstanding capital stock of the Company set forth
thereunder have been duly authorized, validly issued and are fully paid and
non-assessable; except as set forth in the Prospectus, no options, warrants, or
other rights to purchase, agreements or other obligations to issue, or
agreements or other rights to convert any obligation into, any shares of capital
stock of the Company have been granted or entered into by the Company; and the
capital stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and the Shares are duly authorized, and when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and nonassessable and free of preemptive rights of any security
holder of the Company. Neither the filing of the Registration Statement nor the
offering or sale of the Units as contemplated in this Agreement gives rise to
any rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of Common Stock, except as described
in the Registration Statement.
The Warrants have been duly authorized and, when issued and delivered
pursuant to this Agreement, will have been duly executed, issued and delivered
and will constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms and entitled to the benefits provided
by the warrant agreement pursuant to which such Warrants are to be issued (the
"Warrant Agreement"), which will be substantially in the form filed as an
exhibit to the Registration Statement. The shares of Common Stock issuable upon
exercise of the Warrants have been reserved for issuance upon the exercise of
the Warrants and when issued in accordance with the terms of the Warrants and
Warrant Agreement, will be duly and validly authorized, validly issued, fully
paid and non-assessable and free of preemptive rights and no personal liability
will attach to the ownership thereof. The Warrant Agreement has been duly
authorized and, when executed and delivered pursuant to this Agreement, will
have been duly executed and delivered and will constitute the valid and legally
binding obligation of the Company enforceable in accordance with its terms. The
Warrants and the Warrant Agreement conform to the respective descriptions
thereof in the Registration Statement and Prospectus.
The Shares and the Warrants contained in the Unit Purchase Option have been
duly authorized and, when duly issued and delivered, such Warrants will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms and entitled to the benefits provided by the Unit
Purchase Option. The Shares included in the Unit Purchase Option (and the shares
of Common Stock issuable upon exercise of such Warrants) when issued and sold,
will be duly authorized, validly issued, fully paid and non-assessable and free
of preemptive rights and no personal liability will attach to the ownership
thereof.
(f) This Agreement, the Unit Purchase Option, the M/A Agreement, the
Consulting Agreement and the Escrow Agreement have been duly and validly
authorized, executed and delivered by the Company. The Company has full
4
<PAGE>
power and lawful authority to authorize, issue and sell the Units to be sold by
it hereunder on the terms and conditions set forth herein, and no consent,
approval, authorization or other order of any governmental authority is required
in connection with such authorization, execution and delivery or with the
authorization, issue and sale of the Units or the Unit Purchase Option, except
such as may be required under the Act or state securities laws.
(g) Except as described in the Prospectus, the Company is not in violation,
breach or default of or under, and consummation of the transactions herein
contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach or violation of, any of the terms or
provisions of, or constitute a default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any of the property or assets
of the Company pursuant to the terms of any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company is a party
or by which the Company may be bound or to which any of the property or assets
of the Company is subject, nor will such action result in any violation of the
provisions of the articles of incorporation or the by-laws of the Company, as
amended, or any statute or any order, rule or regulation applicable to the
Company of any court or of any regulatory authority or other governmental body
having jurisdiction over the Company.
(h) Subject to the qualifications stated in the Prospectus, the Company has
good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
owns or leases all such properties described in the Prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(i) Coopers & Lybrand L.L.P., who have given their reports on certain
financial statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are with
respect to the Company, independent public accountants as required by the Act
and the Rules and Regulations.
5
<PAGE>
(j) The financial statements, and Schedules together with related notes,
set forth in the Prospectus (or if the Prospectus is not in existence, the most
recent Preliminary Prospectus) or the Registration Statement present fairly the
financial position and results of operations and changes in cash flow position
of the Company on the basis stated in the Registration Statement, at the
respective dates and for the respective periods to which they apply. Said
statements and Schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a basis which is consistent
during the periods involved. The information set forth under the captions
"Dilution", "Capitalization", and "Selected Financial Data" in the Prospectus
fairly present, on the basis stated in the Prospectus, the information included
therein. The pro forma financial information filed as part of the Registration
Statement or included in the Prospectus (or such preliminary prospectus) has
been prepared in accordance with the Commission's rules and guidelines with
respect to pro forma financial statements, and includes all adjustments
necessary to present fairly the pro forma financial condition and results of
operations at the respective dates and for the respective periods indicated and
all assumptions used in preparing such pro forma financial statements are
reasonable.
(k) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), the Company has not incurred
any liabilities or obligations, direct or contingent, not in the ordinary course
of business, or entered into any transaction not in the ordinary course of
business, which is material to the business of the Company, and there has not
been any change in the capital stock of, or any incurrence of short-term or
long-term debt by, the Company or any issuance of options, warrants or other
rights to purchase the capital stock of the Company or any adverse change or any
development involving, so far as the Company can now reasonably foresee a
prospective adverse change in the condition (financial or other), net worth,
results of operations, business, key personnel or properties of it which would
be material to the business or financial condition of the Company and the
Company has not become a party to, and neither the business nor the property of
the Company has become the subject of, any material litigation whether or not in
the ordinary course of business.
(l) Except as set forth in the Prospectus, there is not now pending or, to
the knowledge of the Company, threatened, any action, suit or proceeding to
which the Company is a party before or by any court or governmental agency or
body, which might result in any material adverse change in the condition
(financial or other), business prospects, net worth, or properties of the
Company, nor are there any actions, suits or proceedings related to
environmental matters or related to discrimination on the basis of age, sex,
religion or race; and no labor disputes involving the employees of the Company
exist or are imminent which might be expected to adversely affect the conduct of
the business, property or operations or the financial condition or results of
operations of the Company.
6
<PAGE>
(m) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company.
(n) The Company has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its properties as described in the Prospectus and is in all
material respects complying therewith and owns or possesses adequate rights to
use all material patents, patent applications, trademarks, service marks,
trade-names, trademark registrations, service mark registrations, copyrights and
licenses necessary for the conduct of such business and had not received any
notice of conflict with the asserted rights of others in respect thereof. To the
best knowledge of the Company, none of the activities or business of the Company
are in violation of, or cause the Company to violate, any law, rule, regulation
or order of the United States, any state, county or locality, or of any agency
or body of the United States or of any state, county or locality, the violation
of which would have a material adverse impact upon the condition (financial or
otherwise), business, property, prospective results of operations, or net worth
of the Company.
(o) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law or (ii) made any payment to any state,
federal or foreign governmental officer or official, or other person charged
with similar public or quasi-public duties, other than payments or contributions
required or allowed by applicable law. The Company's internal accounting
controls and procedures are sufficient to cause the Company to comply in all
material respects with the Foreign Corrupt Practices Act of 1977, as amended.
(p) On the Closing Dates (hereinafter defined) all transfer or other taxes,
(including franchise, capital stock or other tax, other than income taxes,
imposed by any jurisdiction) if any, which are required to be paid in connection
with the sale and transfer of the Units to the several Underwriters hereunder
will have been fully paid or provided for by the Company and all laws imposing
such taxes will have been fully complied with.
(q) All contracts and other documents of the Company which are, under the
Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(r) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of the
Units hereby.
7
<PAGE>
(s) Except as disclosed in the Prospectus, the Company has no subsidiaries.
(t) The Company has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
(u) Except as previously disclosed in writing by the Company to the
Representative, no officer, director or stockholder of the Company has any
affiliation or association with any member of the National Association of
Securities Dealers Inc. ("NASD").
(v) The Company is not, and upon receipt of the proceeds from the sale of
the Units will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and regulations
thereunder.
(w) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Units other than the Preliminary Prospectus, Prospectus, the
Registration Statement or the other materials permitted by the Act, if any.
(x) The conditions for use of Form S-1, as set forth in the General
Instructions thereto, have been satisfied.
(y) There are no business relationships or related-party transactions of
the nature described in Item 404 of Regulation S-K involving the Company, the
Subsidiaries and any person described in such Item that are required to be
disclosed in the Prospectus (or, if the Prospectus is not in existence, the most
recent Preliminary Prospectus) and that have not been so disclosed.
(z) The Acquisitions, the Merger and the Recapitalization (as each such
term is defined in the Prospectus) was consummated in accordance with all
applicable laws and the Company, as the surviving entity in the Merger,
succeeded to the business and all of the assets and liabilities of Crescent
Computer, Inc. The Acquisitions, the Merger and the Recapitalization have not
and will not (i) result in any violation of the Certificate of Incorporation or
By-Laws of the Company, (ii) result in the creation of any lien, charge or
encumbrance upon any of the assets of the Company pursuant to the terms or
provisions of, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any other party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under, any contract or other agreement to which the Company is a
party or by which the Company or any of its properties is bound or affected,
except such as have been waived, consented to or would not, individually or in
the aggregate, materially and adversely affect the Company or its business,
properties,
8
<PAGE>
business prospects, condition (financial or otherwise) or results of operations
or (iii) violate or conflict with any judgment, ruling, decree, order, statute,
rule or regulation of any court or other governmental agency or body applicable
to the business or properties of the Company except such as would not,
individually or in the aggregate, materially and adversely affect the Company or
its business, properties, business prospects, condition (financial or otherwise)
or results of operations.
(aa) The Company has complied with all provisions of Section 517.075
Florida Statutes relating to doing business with the government of Cuba or with
any person or affiliate located in Cuba.
2. Purchase, Delivery and Sale of the Units.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties, and agreements herein contained, the
Company agrees to issue and sell to the Underwriters, and each such Underwriter
agrees, severally and not jointly, to buy from the Company at $_______ per Unit,
at the place and time hereinafter specified, the number of Units set forth
opposite the names of the Underwriters in Schedule A attached hereto (the "First
Units") plus any additional Units which such Underwriters may become obligated
to purchase pursuant to the provisions of Section 9 hereof. The First Units
shall consist of 2,500,000 Units to be purchased from the Company.
Delivery of the First Units against payment therefor shall take place at
the offices of D.H. Blair Investment Banking Corp., 44 Wall Street, 2nd Floor,
New York, New York 10005 (or at such other place as may be designated by
agreement between you and the Company) at 10:00 a.m., New York time, on
_________, 1997, or at such later time and date as you may designate, such time
and date of payment and delivery for the First Units being herein called the
"First Closing Date."
(b) In addition, subject to the terms and conditions of this Agreement, and
upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to the several Underwriters (or,
at its option, to the Representative, individually) to purchase all or any part
of an aggregate of an additional 375,000 Units at the same price per Unit as the
Underwriters shall pay for the First Units being sold pursuant to the provisions
of subsection (a) of this Section 2 (such additional Units being referred to
herein as the "Option Units"). This option may be exercised within 45 days after
the effective date of the Registration Statement upon notice by the
Representative to the Company advising as to the amount of Option Units as to
which the option is being exercised, the names and denominations in which the
certificates for such Option Units are to be registered and the time and date
when such certificates are to be delivered. Such time and date shall be
determined by the Representative but shall not be earlier than four nor later
than ten full business days after the exercise of said option, nor in any event
prior to the First Closing Date, and such time and date is referred to herein as
the
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"Option Closing Date." Delivery of the Option Units against payment therefor
shall take place at the offices of D.H. Blair Investment Banking Corp., 44 Wall
Street, 2nd Floor, New York, New York 10005. The number of Option Units to be
purchased by each Underwriter, if any, shall bear the same percentage to the
total number of Option Units being purchased by the several Underwriters
pursuant to this subsection (b) as the number of Units such Underwriter is
purchasing bears to the total number of the First Units being purchased pursuant
to subsection (a) of this Section 2, as adjusted, in each case by the
Representative in such manner as the Representative may deem appropriate. The
Option granted hereunder may be exercised only to cover overallotments in the
sale by the Underwriters of First Units referred to in subsection (a) above. In
the event the Company declares or pays a dividend or distribution on its Common
Stock, whether in the form of cash, shares of Common Stock or any other
consideration, prior to the Option Closing Date, such dividend or distribution
shall also be paid on the Option Units on the Option Closing Date.
(c) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriters hereunder available to you for
checking at least two full business days prior to the First Closing Date or the
Option Closing Date (which are collectively referred to herein as the "Closing
Dates"). The certificates shall be in such names and denominations as you may
request, at least two full business days prior to the Closing Dates. Time shall
be of the essence and delivery at the time and place specified in this Agreement
is a further condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Units to be purchased by
the Underwriters hereunder will be delivered by the Company to you for the
accounts of the several Underwriters against payment of the respective purchase
prices by the several Underwriters, by certified or bank cashier's checks in New
York Clearing House funds, payable to the order of the Company.
In addition, in the event the Underwriters (or the Representative,
individually) exercise the option to purchase from the Company all or any
portion of the Option Units pursuant to the provisions of subsection (b) above,
payment for such Units shall be made to or upon the order of the Company by
certified or bank cashier's checks payable in New York Clearing House funds at
the offices of D.H. Blair Investment Banking Corp., at the time and date of
delivery of such Units as required by the provisions of subsection (b) above,
against receipt of the certificates for such Units by the Representative for the
respective accounts of the several Underwriters registered in such names and in
such denominations as the Representative may request.
It is understood that you, individually and not as Representative of the
several Underwriters, may (but shall not be obligated to) make any and all
payments required pursuant to this Section 2 on behalf of any Underwriters whose
check or
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checks shall not have been received by the Representative at the time of
delivery of the Units to be purchased by such Underwriter or Underwriters. Any
such payment by you shall not relieve any such Underwriter or underwriters of
any of its or their obligations hereunder. It is also understood that you
individually rather than all of the Underwriters may (but shall not be obligated
to) purchase the Option Units referred to in subsection (b) of this Section 2,
but only to cover overallotments.
It is understood that the several Underwriters propose to offer the Units
to be purchased hereunder to the public upon the terms and conditions set forth
in the Registration Statement, after the Registration Statement becomes
effective.
3. Covenants of the Company. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible. If required, the Company
will file the Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto with the Commission in the manner and within
the time period required by Rules 434 and 424(b) under the Act. Upon
notification from the Commission that the Registration Statement has become
effective, the Company will so advise you and will not at any time, whether
before or after the effective date, file the Prospectus, Term Sheet or any
amendment to the Registration Statement or supplement to the Prospectus of which
you shall not previously have been advised and furnished with a copy or to which
you or your counsel shall have objected in writing or which is not in compliance
with the Act and the Rules and Regulations. At any time prior to the later of
(A) the completion by all of the Underwriters of the distribution of the Units
contemplated hereby (but in no event more than nine months after the date on
which the Registration Statement shall have become or been declared effective)
and (B) 25 days after the date on which the Registration Statement shall have
become or been declared effective, the Company will prepare and file with the
Commission, promptly upon your request, any amendments or supplements to the
Registration Statement or Prospectus which, in your opinion, may be necessary or
advisable in connection with the distribution of the Units.
As soon as the Company is advised thereof, the Company will advise you, and
confirm the advice in writing, of the receipt of any comments of the Commission,
of the effectiveness of any post-effective amendment to the Registration
Statement, of the filing of any supplement to the Prospectus or any amended
Prospectus, of any request made by the Commission for amendment of the
Registration Statement or for supplementing of the Prospectus or for additional
information with respect thereto, of the issuance by the Commission or any state
or regulatory body of any stop order or other order or threat thereof suspending
the effectiveness of the Registration Statement or any order preventing or
suspending the use of any preliminary prospectus, or of the suspension of the
qualification of the Units for offering in any jurisdiction, or of the
institution of any proceedings for any
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of such purposes, and will use its best efforts to prevent the issuance of any
such order, and, if issued, to obtain as soon as possible the lifting thereof.
The Company has caused to be delivered to you copies of each Preliminary
Prospectus, and the Company has consented and hereby consents to the use of such
copies for the purposes permitted by the Act. The Company authorizes the
Underwriters and dealers to use the Prospectus in connection with the sale of
the Units for such period as in the opinion of counsel to the several
Underwriters the use thereof is required to comply with the applicable
provisions of the Act and the Rules and Regulations. In case of the happening,
at any time within such period as a Prospectus is required under the Act to be
delivered in connection with sales by an underwriter or dealer of any event of
which the Company has knowledge and which materially affects the Company or the
securities of the Company, or which in the opinion of counsel for the Company or
counsel for the Underwriters should be set forth in an amendment of the
Registration Statement or a supplement to the Prospectus in order to make the
statements therein not then misleading, in light of the circumstances existing
at the time the Prospectus is required to be delivered to a purchaser of the
Units or in case it shall be necessary to amend or supplement the Prospectus to
comply with law or with the Rules and Regulations, the Company will notify you
promptly and forthwith prepare and furnish to you copies of such amended
Prospectus or of such supplement to be attached to the Prospectus, in such
quantities as you may reasonably request, in order that the Prospectus, as so
amended or supplemented, will not contain any untrue statement of a material
fact or omit to state any material facts necessary in order to make the
statements in the Prospectus, in the light of the circumstances under which they
are made, not misleading. The preparation and furnishing of any such amendment
or supplement to the Registration Statement or amended Prospectus or supplement
to be attached to the Prospectus shall be without expense to the Underwriters,
except that in case any Underwriter is required, in connection with the sale of
the Units to deliver a Prospectus nine months or more after the effective date
of the Registration Statement, the Company will upon request of and at the
expense of the Underwriter, amend or supplement the Registration Statement and
Prospectus and furnish the Underwriter with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
The Company will comply with the Act, the Rules and Regulations and the
Securities Exchange Act of 1934 and the rules and regulations thereunder in
connection with the offering and issuance of the Units.
(b) The Company will use its best efforts to qualify to register the Units
for sale under the securities or "blue sky" laws of such jurisdictions as the
Representative may designate and will make such applications and furnish such
information as may be required for that purpose and to comply with such laws,
provided the Company shall not be required to qualify as a foreign corporation
or a dealer in securities or to execute a general consent of service of process
in any jurisdiction in any action other than one arising out of the offering or
sale of the
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Units. The Company will, from time to time, prepare and file such statements and
reports as are or may be required to continue such qualification in effect for
so long a period as the Underwriters may reasonably request.
(c) If the sale of the Units provided for herein is not consummated for any
reason caused by the Company, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the expenses itemized in Section 8, including the
accountable expenses of the Representative.
(d) The Company will use its best efforts to (i) cause a registration
statement under the Securities Exchange Act of 1934 to be declared effective
concurrently with the completion of this offering and will notify the
Representative in writing immediately upon the effectiveness of such
registration statement, and (ii) if requested by the Representative, to obtain a
listing on the Pacific Stock Exchange and to obtain and keep current a listing
in the Standard & Poors or Moody's Industrial OTC Manual.
(e) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Securities Exchange Act of 1934, the Company, at its
expense, will furnish to its stockholders an annual report (including financial
statements audited by independent public accountants), in reasonable detail and
at its expense, will furnish to you during the period ending five (5) years from
the date hereof, (i) as soon as practicable after the end of each fiscal year, a
balance sheet of the Company and any of its subsidiaries as at the end of such
fiscal year, together with statements of income, surplus and cash flow of the
Company and any subsidiaries for such fiscal year, all in reasonable detail and
accompanied by a copy of the certificate or report thereon of independent
accountants; (ii) as soon as practicable after the end of each of the first
three fiscal quarters of each fiscal year, consolidated summary financial
information of the Company for such quarter in reasonable detail; (iii) as soon
as they are available, a copy of all reports (financial or other) mailed to
security holders; (iv) as soon as they are available, a copy of all
non-confidential reports and financial statements furnished to or filed with the
Commission or any securities exchange or automated quotation system on which any
class of securities of the Company is listed; and (v) such other information as
you may from time to time reasonably request.
(f) To the extent the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(g) The Company will deliver to you at or before the First Closing Date two
signed copies of the Registration Statement including all financial statements
and exhibits filed therewith, and of all amendments thereto, and will deliver to
the
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several Underwriters such number of conformed copies of the Registration
Statement, including such financial statements but without exhibits, and of all
amendments thereto, as the several Underwriters may reasonably request. The
Company will deliver to or upon the order of the several Underwriters, from time
to time until the effective date of the Registration Statement, as many copies
of any Preliminary Prospectus filed with the Commission prior to the effective
date of the Registration Statement as the Underwriters may reasonably request.
The Company will deliver to the Underwriters on the effective date of the
Registration Statement and thereafter for so long as a Prospectus is required to
be delivered under the Act, from time to time, as many copies of the Prospectus,
in final form, or as thereafter amended or supplemented, as the Underwriters may
from time to time reasonably request. The Company, not later than (i) 5:00 p.m.,
New York City time, on the date of determination of the public offering price,
if such determination occurred at or prior to 12:00 noon, New York City time, on
such date or (ii) 6:00 p.m., New York City time, on the business day following
the date of determination of the public offering price, if such determination
occurred after 12:00 noon, New York City time, on such date, will deliver to the
Underwriters, without charge, as many copies of the Prospectus and any amendment
or supplement thereto as the Underwriters may reasonably request for purposes of
confirming orders that are expected to settle on the First Closing Date.
(h) The Company will make generally available to its security holders and
to the registered holders of its Warrants and deliver to you as soon as it is
practicable to do so but in no event later than 90 days after the end of twelve
months after its current fiscal quarter, an earnings statement (which need not
be audited) covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement, which shall satisfy the
requirements of Section 11(a) of the Act.
(i) The Company will apply the net proceeds from the sale of the Units for
the purposes set forth under "Use of Proceeds" in the Prospectus, and will file
such reports with the Commission with respect to the sale of the Units and the
application of the proceeds therefrom as may be required pursuant to Rule 463
under the Act.
(j) The Company will, promptly upon your request, prepare and file with the
Commission any amendments or supplements to the Registration Statement,
Preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of Paul, Hastings, Janofsky & Walker LLP, counsel to the
several Underwriters, may be reasonably necessary or advisable in connection
with the distribution of the Units, and will use its best efforts to cause the
same to become effective as promptly as possible.
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(k) The Company will reserve and keep available that maximum number of its
authorized but unissued securities which are issuable upon exercise of the Unit
Purchase Option outstanding from time to time.
(l) For a period of 13 months from the First Closing Date, no officer,
director or stockholder of the Company will directly or indirectly, offer, sell
(including any short sale), grant any option for the sale of, acquire any option
to dispose of, or otherwise dispose of any shares of Common Stock without the
prior written consent of the Representative. In order to enforce this covenant,
the Company shall impose stop-transfer instructions with respect to the shares
owned by the stockholders of the Company until the end of such period.
(m) [INTENTIONALLY OMITTED]
(n) Prior to completion of this offering, the Company will make all filings
required, including registration under the Securities Exchange Act of 1934, to
obtain the listing of the Units, Common Stock, and Warrants on the Nasdaq
National Market (or a listing on such other market or exchange as the
Underwriters consent to), and will effect and maintain such listing for at least
five years from the date of this Agreement.
(o) The Company represents that it has not taken and agrees that it will
not take, directly or indirectly, any action designed to or which has
constituted or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of the Units, Shares or the Warrants
or to facilitate the sale or resale of the Securities.
(p) On the Closing Date and simultaneously with the delivery of the Units,
the Company shall execute and deliver to you, individually and not as
representative of the Underwriters, the Unit Purchase Option. The Unit Purchase
Option will be substantially in the form of the Representative's Unit Purchase
Option filed as an Exhibit to the Registration Statement.
(q) Without the prior written consent of the Representative, (i) during the
18 month period commencing on the date of this Agreement, the Company will not
grant options to purchase shares of Common Stock at an exercise price less than
the greater of (x) the initial public offering price of the Units (without
allocating any value to the Warrants) or (y) the fair market value of the Common
Stock on the date of grant; (ii) during the six month period commencing on the
date of this Agreement, grant options to any current officer of the Company;
(iii) during the three year period commencing on the date of this Agreement,
offer or sell any of its securities pursuant to Regulation S under the Act; (iv)
grant registration rights to any person which are exercisable sooner than 13
months from the First Closing Date; (v) issue any securities which have per
share voting rights greater than the voting rights of the Shares (or take any
corporate action which would have this effect) or (vi)
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during the 18 month period commencing on the date of this Agreement, enter into
any agreement or arrangement with any investment banking firm other than the
Underwriter relating to investment banking, corporate finance, merger and
acquisition or other similar advisory or consulting services.
(r) Mr. Phillip Aginsky, Mr. William Rychel and Mr. Dan Bailey shall be the
Chairman of Board, Co-President - Graphics Division and Co-President Technology
Division of the Company, respectively, on the Closing Dates. The Company has
obtained key person life insurance on the lives of each of Messrs. Aginsky,
Rychel and Bailey in an amount of not less than $2 million and will use its best
efforts to maintain such insurance during the five year period commencing with
the First Closing Date unless their employment with the Company are earlier
terminated. In such event, the Company will obtain a comparable policy on the
lives of each of their successor for the balance of the five year period. For a
period of thirteen months from the First Closing Date, the compensation of the
executive officers of the Company shall not be increased from the compensation
levels disclosed in the Prospectus.
(s) On the Closing Date and simultaneously with the delivery of the Units
the Company shall execute and deliver to you, individually and not as
representative of the Underwriters, an agreement with you regarding mergers,
acquisitions, joint ventures and certain other forms of transactions, in the
form previously delivered to the Company by you (the "M/A Agreement").
(t) On the Closing Date and simultaneously with the delivery of the Units,
the Company shall execute and deliver to you, and pay the first annual payment
under, a two year consulting agreement in the form previously delivered to the
Company by you (the "Consulting Agreement").
(u) So long as any Warrants are outstanding, the Company shall use its best
efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to each Underwriter and dealer as many copies of each
such Prospectus as such Underwriter or dealer may reasonably request. The
Company shall not call for redemption any of the Warrants unless a registration
statement covering the securities underlying the Warrants has been declared
effective by the Commission and remains current at least until the date fixed
for redemption. In addition, for so long as any Warrant is outstanding, the
Company will promptly notify the Representative of any material change in the
business, financial condition or prospects of the Company.
(v) Upon the exercise of any Warrant or Warrants after _______, 1998, the
Company will pay the Representative, in its individual capacity and not as
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representative of the underwriters, a fee of 5% of the aggregate exercise price
of the Warrants, of which ____% may be reallowed to the dealer who solicited the
exercise (which may also be the Representative) if (i) the market price of the
Company's Common Stock is greater than the exercise price of the Warrants on the
date of exercise; (ii) the exercise of the Warrant was solicited by a member of
the National Association of Securities Dealers, Inc., (iii) the Warrant is not
held in a discretionary account; (iv) the disclosure of compensation
arrangements has been made in documents provided to customers, both as part of
the original offering and at the time of exercise, and (v) the solicitation of
the Warrant was not in violation of Regulation M promulgated under the
Securities Exchange Act of 1934, as amended. The Company agrees not to solicit
the exercise of any Warrants other than through the Representative and will not
authorize any other dealer to engage in such solicitation without the prior
written consent of the Representative.
(w) For a period of five years from the Effective Date the Company (i) at
its expense, shall cause its regularly engaged independent certified public
accountants to review (but not audit) the Company's financial statements for
each of the first three (3) fiscal quarters prior to the announcement of
quarterly financial information, the filing of the Company's 10-Q quarterly
report and the mailing of quarterly financial information to stockholders and
(ii) shall not change its accounting firm without the prior written consent of
the Chairman or the President of the Representative.
(x) As promptly as practicable after the Closing Date, the Company will
prepare, at its own expense, hard cover "bound volumes" relating to the
offering, and will distribute at least four of such volumes to the individuals
designated by the Representative or counsel to the Underwriters.
(y) For a period of five years from the First Closing Date (i) the
Representative shall have the right, but not the obligation, to designate one
director of the Board of Directors of the Company and (ii) the Company shall
engage a public relations firm acceptable to the Underwriter.
(z) The Company shall, for a period of six years after date of this
Agreement, submit which reports to the Secretary of the Treasury and to
stockholders, as the Secretary may require, pursuant to Section 1202 of the
Internal Revenue Code, as amended, or regulations promulgated thereunder, in
order for the Company to qualify as a "small business" so that stockholders may
realize special tax treatment with respect to their investment in the Company.
(aa) On or prior to the Effective Date the Company shall have obtained
officers and directors insurance and property and casualty insurance in
appropriate amounts and shall maintain such insurance coverage for a period of
five years from the Effective Date.
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4. Conditions of Underwriters' Obligation. The obligations of the several
Underwriters to purchase and pay for the Units which they have respectively
agreed to purchase hereunder, are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and
you shall have received notice thereof not later than 10:00 A.M., New
York time, on the date on which the amendment to the registration
statement originally filed with respect to the Units or to the
Registration Statement, as the case may be, containing information
regarding the initial public offering price of the Units has been
filed with the Commission, or such later time and date as shall have
been agreed to by the Representative; if required, the Prospectus or
any Term Sheet that constitutes a part thereof and any amendment or
supplement thereto shall have been filed with the Commission in the
manner and within the time period required by Rule 434 and 424(b)
under the Act; on or prior to the Closing Dates no stop order
suspending the effectiveness of the Registration Statement shall have
been issued and no proceedings for that or a similar purpose shall
have been instituted or shall be pending or, to your knowledge or to
the knowledge of the Company, shall be contemplated by the Commission;
any request on the part of the Commission for additional information
shall have been complied with to the reasonable satisfaction of Paul,
Hastings, Janofsky & Walker LLP, counsel to the several Underwriters;
(b) At the First Closing Date, you shall have received the
opinion, together with copies of such opinion for each of the other
several Underwriters, dated as of the First Closing Date, of Bachner,
Tally, Polevoy & Misher LLP, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect
that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the State of Delaware, with full corporate power and
authority to own its properties and conduct its business as
described in the Registration Statement and Prospectus and
is duly qualified or licensed to do business as a foreign
corporation and is in good standing in _______ and in each
other jurisdiction in which the ownership or leasing of its
properties or conduct of its business requires such
qualification;
(ii) to the best knowledge of such counsel, (a) the Company
has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations
necessary to the conduct of its business as described in the
Prospectus, (b) such licenses, permits
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and other governmental authorizations obtained are in full
force and effect, and (c) the Company is in all material
respects complying therewith;
(iii) the authorized capitalization of the Company as of
_______, 1997 is as set forth under "Capitalization" in the
Prospectus; all shares of the Company's outstanding stock
requiring authorization for issuance by the Company's board
of directors have been duly authorized, validly issued, are
fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; the outstanding shares
of Common Stock of the Company have not been issued in
violation of the preemptive rights of any shareholder and
the shareholders of the Company do not have any preemptive
rights or other rights to subscribe for or to purchase, nor
are there any restrictions upon the voting or transfer of
any of the Stock; the Common Stock, the Warrants, the Unit
Purchase Option and the Warrant Agreement conform to the
respective descriptions thereof contained in the Prospectus;
the Shares have been, and the shares of Common Stock to be
issued upon exercise of the Warrants and the Unit Purchase
Option, upon issuance in accordance with the terms of such
Warrants, the Warrant Agreement and Unit Purchase Option
have been duly authorized and, when issued and delivered,
will be duly and validly issued, fully paid, non-assessable,
free of preemptive rights and no personal liability will
attach to the ownership thereof; all prior sales by the
Company of the Company's securities have been made in
compliance with or under an exemption from registration
under the Act and applicable state securities laws and no
shareholders of the Company have any rescission rights with
respect to Company securities; a sufficient number of shares
of Common Stock has been reserved for issuance upon exercise
of the Warrants and Unit Purchase Option and to the best of
such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Units
as contemplated by this Agreement gives rise to any
registration rights or other rights, other than those which
have been waived or satisfied for or relating to the
registration of any shares of Common Stock;
(iv) this Agreement, the Unit Purchase Option, the Warrant
Agreement, the M/A Agreement, the Consulting Agreement and
the Escrow Agreement have been duly and validly authorized,
executed and delivered by the Company and, assuming due
execution by each other party hereto or thereto, each
constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with
its respective terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency,
reorganization,
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moratorium or other laws of general application relating to
or affecting enforcement of creditors' rights and the
application of equitable principles in any action, legal or
equitable, and except as rights to indemnity or contribution
may be limited by applicable law;
(v) the certificates evidencing the shares of Common Stock
are in valid and proper legal form; the Warrants will be
exercisable for shares of Common Stock of the Company in
accordance with the terms of the Warrants and at the prices
therein provided for; at all times during the term of the
Warrants the shares of Common Stock of the Company issuable
upon exercise of the Warrants have been duly authorized and
reserved for issuance upon such exercise and such shares,
when issued upon such exercise in accordance with the terms
of the Warrants and at the price provided for, will be duly
and validly issued, fully paid and non-assessable;
(vi) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party
which could materially adversely affect the business,
property, financial condition or operations of the Company;
or which question the validity of the Securities, this
Agreement, the Warrant Agreement, the Unit Purchase Option,
the M/A Agreement, the Consulting Agreement or the Escrow
Agreement, or of any action taken or to be taken by the
Company pursuant to this Agreement, the Warrant Agreement,
the Unit Purchase Option, the M/A Agreement, the Consulting
Agreement or the Escrow Agreement; and no such proceedings
are known to such counsel to be contemplated against the
Company; there are no governmental proceedings or
regulations required to be described or referred to in the
Registration Statement which are not so described or
referred to;
(vii) the Company is not in violation of or default under,
nor will the execution and delivery of this Agreement, the
Unit Purchase Option, the Warrant Agreement, the M/A
Agreement, the Consulting Agreement or the Escrow Agreement,
and the incurrence of the obligations herein and therein set
forth and the consummation of the transactions herein or
therein contemplated, result in a breach or violation of, or
constitute a default under the certificate or articles of
incorporation or by-laws, in the performance or observance
of any material obligations, agreement, covenant or
condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture,
mortgage, loan agreement, lease, joint venture or other
agreement or instrument to which the Company is a party or
by which it or any of its properties may be bound or in
violation of any material order, rule, regulation, writ,
injunction, or
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decree of any government, governmental instrumentality or
court, domestic or foreign;
(viii) the Registration Statement has become effective under
the Act, and to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement is in effect, and no proceedings for that purpose
have been instituted or are pending before, or threatened
by, the Commission; the Registration Statement and the
Prospectus (except for the financial statements and other
financial data contained therein, or omitted therefrom, as
to which such counsel need express no opinion) comply as to
form in all material respects with the applicable
requirements of the Act and the Rules and Regulations;
(ix) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has
come to the attention of such counsel to cause such counsel
to have reason to believe that the Registration Statement or
any amendment thereto at the time it became effective or as
of the Closing Dates contained any untrue statement of a
material fact required to be stated therein or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading or
that the Prospectus or any supplement thereto contains any
untrue statement of a material fact or omits to state a
material fact necessary in order to make statements therein,
in light of the circumstances under which they were made,
not misleading (except, in the case of both the Registration
Statement and any amendment thereto and the Prospectus and
any supplement thereto, for the financial statements, notes
thereto and other financial information and schedules
contained therein, as to which such counsel need express no
opinion);
(x) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of
contracts and other documents are accurate and fairly
present the information required to be shown, and such
counsel is familiar with all contracts and other documents
referred to in the Registration Statement and the Prospectus
and any such amendment or supplement or filed as exhibits to
the Registration Statement, and such counsel does not know
of any contracts or documents of a character required to be
summarized or described therein or to be filed as exhibits
thereto which are not so summarized, described or filed;
(xi) no authorization, approval, consent, or license of any
governmental or regulatory authority or agency is necessary
in connection with the authorization, issuance, transfer,
sale or delivery
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of the Units by the Company, in connection with the
execution, delivery and performance of this Agreement by the
Company or in connection with the taking of any action
contemplated herein, or the issuance of the Unit Purchase
Option or the Securities underlying the Unit Purchase
Option, other than registrations or qualifications of the
Units under applicable state or foreign securities or Blue
Sky laws and registration under the Act;
(xii) the statements in the Registration Statement under the
captions "Business", "Use of Proceeds", "Management", and
"Description of Securities" have been reviewed by such
counsel and insofar as they refer to descriptions of
agreements, statements of law, descriptions of statutes,
licenses, rules or regulations or legal conclusions, are
correct in all material respects;
(xiii) the Units, the Common Stock and the Warrants have
been duly authorized for quotation on the Nasdaq National
Market; and
(xiv) to such counsel's knowledge, there are no business
relationships or related-party transactions of the nature
described in Item 404 of Regulation S-K involving the
Company, any Subsidiary and any person described in such
Item that are required to be disclosed in the Prospectus and
which have not been so disclosed.
Such opinion shall also cover such matters incident to the transactions
contemplated hereby as the Representative or counsel for the Underwriters shall
reasonably request. In rendering such opinion, such counsel may rely upon
certificates of any officer of the Company or public officials as to matters of
fact; and may rely as to all matters of law other than the law of the United
States or of the State of Delaware upon opinions of counsel satisfactory to you,
in which case the opinion shall state that they have no reason to believe that
you and they are not entitled to so rely.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus and other related matters
shall be satisfactory to or approved by Paul, Hastings, Janofsky & Walker LLP,
counsel to the several Underwriters, and you shall have received from such
counsel a signed opinion, dated as of the First Closing Date, together with
copies thereof for each of the other Underwriters, with respect to the validity
of the issuance of the Units, the form of the Registration Statement and
Prospectus (other than the financial statements and other financial data
contained therein), the execution of this Agreement and other related matters as
you may reasonably require. The Company shall have furnished to counsel for the
several Underwriters such documents as they may reasonably request for the
purpose of enabling them to render such opinion.
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(d) You shall have received a letter prior to the effective date of the
Registration Statement and again on and as of the First Closing Date from
Coopers & Lybrand L.L.P., independent public accountants for the Company,
substantially in the form approved by you, and including estimates of the
Company's revenues and results of operations for the period ending at the end of
the month immediately preceding the effective date and results of the comparable
period during the prior fiscal year.
(e) At the Closing Dates, (i) the representations and warranties of the
Company contained in this Agreement shall be true and correct with the same
effect as if made on and as of the Closing Dates and the Company shall have
performed all of its obligations hereunder and satisfied all the conditions on
its part to be satisfied at or prior to such Closing Date; (ii) the Registration
Statement and the Prospectus and any amendments or supplements thereto shall
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and shall in all material respects
conform to the requirements thereof, and neither the Registration Statement nor
the Prospectus nor any amendment or supplement thereto shall contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading; (iii)
there shall have been, since the respective dates as of which information is
given, no material adverse change, or any development involving a prospective
material adverse change, in the business, properties, condition (financial or
otherwise), results of operations, capital stock, long-term or short-term debt
or general affairs of the Company from that set forth in the Registration
Statement and the Prospectus, except changes which the Registration Statement
and Prospectus indicate might occur after the effective date of the Registration
Statement, and the Company shall not have incurred any material liabilities or
entered into any agreement not in the ordinary course of business other than as
referred to in the Registration Statement and Prospectus; and (iv) except as set
forth in the Prospectus, no action, suit or proceeding at law or in equity shall
be pending or threatened against the Company which would be required to be set
forth in the Registration Statement, and no proceedings shall be pending or
threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding would materially and adversely affect the business,
property, condition (financial or otherwise), results of operations or general
affairs of the Company, and (v) you shall have received, at the First Closing
Date, a certificate signed by each of the Chairman of the Board or the President
and the principal financial or accounting officer of the Company, dated as of
the First Closing Date, evidencing compliance with the provisions of this
subsection (e).
(f) Upon exercise of the option provided for in Section 2(b) hereof, the
obligations of the several Underwriters (or, at its option, the Representative,
individually) to purchase and pay for the Option Units referred to therein will
be subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
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<PAGE>
(i) The Registration Statement shall remain effective at the
Option Closing Date, and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings
for that purpose shall have been instituted or shall be pending,
or, to your knowledge or the knowledge of the Company, shall be
contemplated by the Commission, and any reasonable request on the
part of the Commission for additional information shall have been
complied with to the satisfaction of Paul, Hastings, Janofsky &
Walker LLP, counsel to the several Underwriters.
(ii) At the Option Closing Date there shall have been delivered
to you as Representative the signed opinion of Bachner, Tally,
Polevoy & Misher LLP, counsel for the Company, dated as of the
Option Closing Date, in form and substance satisfactory to Paul,
Hastings, Janofsky & Walker LLP, counsel to the several
Underwriters, together with copies of such opinion for each of
the other several underwriters, which opinion shall be
substantially the same in scope and substance as the opinion
furnished to you at the First Closing Date pursuant to Section
4(b) hereof, except that such opinion, where appropriate, shall
cover the Option Units.
(iii) At the Option Closing Date there shall have been delivered
to you a certificate of the Chairman of the Board or the
President and the principal financial or accounting officer of
the Company, dated the Option Closing Date, in form and substance
satisfactory to Paul, Hastings, Janofsky & Walker LLP, counsel to
the several Underwriters, substantially the same in scope and
substance as the certificate furnished to you at the First
Closing Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date there shall have been delivered
to you a letter in form and substance satisfactory to you from
______, dated the Option Closing Date and addressed to the
Underwriters confirming the information in their letter referred
to in Section 4(d) hereof and stating that nothing has come to
their attention during the period from the ending date of their
review referred to in said letter to a date not more than five
business days prior to the Option Closing Date, which would
require any change in said letter if it were required to be dated
the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units
shall be satisfactory in form and substance to you and Paul,
Hastings, Janofsky & Walker LLP, counsel to the several
Underwriters, shall have been furnished with all such documents,
certificates, and
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<PAGE>
opinions as you may request in connection with this transaction
in order to evidence the accuracy and completeness of any of the
representations, warranties or statements of the Company or its
compliance with any of the covenants or conditions contained
herein.
(g) No action shall have been taken by the Commission or the NASD the
effect of which would make it improper, at any time prior to the Closing Date,
for members of the NASD to execute transactions (as principal or agent) in the
Units, Common Stock or the Warrants and no proceedings for the taking of such
action shall have been instituted or shall be pending, or, to the knowledge of
the Representative or the Company, shall be contemplated by the Commission or
the NASD. The Company represents that at the date hereof it has no knowledge
that any such action is in fact contemplated by the Commission or the NASD. The
Company shall have advised the Underwriters of any NASD affiliation of any of
its officers, directors, stockholders or their affiliates.
(h) The estimated revenues and earnings of the Company for the _______
ending _______ 1997 will be greater than those of the _______ ended ___________,
1996.
(i) If any of the conditions herein provided for in this Section shall not
have been fulfilled as of the date indicated, this Agreement and all obligations
of the several Underwriters under this Agreement may be cancelled at, or at any
time prior to, each Closing Date by the Representative. Any such cancellation
shall be without liability of the Underwriters to the Company.
5. Conditions of the Obligations of the Company. The obligation of the
Company to sell and deliver the Units is subject to the condition that at the
Closing Dates, no stop orders suspending the effectiveness of the Registration
Statement shall have been issued under the Act or any proceedings therefor
initiated or threatened by the Commission.
If the condition to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Units on exercise of the
option provided for in Section 2(b) hereof shall be affected.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), to which
such
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<PAGE>
Underwriter or such controlling person may become subject, under the Act or
otherwise, and will reimburse, as incurred, such Underwriters and such
controlling persons for any legal or other expenses reasonably incurred in
connection with investigating, defending against or appearing as a third party
witness in connection with any losses, claims, damages or liabilities, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in (A) the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
(B) any blue sky application or other document executed by the Company
specifically for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify any or all
of the Units under the securities laws thereof (any such application, document
or information being hereinafter called a "Blue Sky Application"), or arise out
of or are based upon the omission or alleged omission to state in the
Registration Statement, any Preliminary Prospectus, Prospectus, or any amendment
or supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriters
specifically for use in the preparation of the Registration Statement or any
such amendment or supplement thereof or any such Blue Sky Application or any
such preliminary Prospectus or the Prospectus or any such amendment or
supplement thereto. This indemnity will be in addition to any liability which
the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who have signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all costs of
defense and investigation and all attorneys' fees) to which the Company or any
such director, nominee, officer or controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto (i) in reliance upon and in conformity with written
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<PAGE>
information furnished to the Company by you or by any Underwriter through you
specifically for use in the preparation thereof and (ii) relates to the
transactions effected by the Underwriters in connection with the offer and sale
of the Units contemplated hereby. This indemnity agreement will be in addition
to any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and, to the extent that
it may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Representative, it is advisable for the Representative or such Underwriters or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
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<PAGE>
7. Contribution.
In order to provide for just and equitable contribution under the Act in
any case in which (i) any Underwriter makes claim for indemnification pursuant
to Section 6 hereof but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case, notwithstanding the fact that
the express provisions of Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of any Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
any such Underwriter shall contribute to the aggregate losses, claims, damages
or liabilities to which they may be subject (which shall, for all purposes of
this Agreement, include, but not be limited to, all reasonable costs of defense
and investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that all such Underwriters are
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price appearing thereon, and the Company shall be responsible for the remaining
portion, provided, however, that (a) if such allocation is not permitted by
applicable law then the relative fault of the Company and the Underwriters and
controlling persons, in the aggregate, in connection with the statements or
omissions which resulted in such damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company, or the Underwriters and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if the respective
obligations of the Company and the Underwriters to contribute pursuant to this
Section 7 were to be determined by pro rata or per capita allocation of the
aggregate damages (even if the Underwriters in the aggregate were treated as one
entity for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in the first sentence of
this Section 7 and (b) that the contribution of each contributing Underwriter
shall not be in excess of its proportionate share (based on the ratio of the
number of Units purchased by such Underwriter to the number of Units purchased
by all contributing Underwriters) of the portion of such losses, claims, damages
or liabilities for which the Underwriters are responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the word "Company"
includes any officer, director, or person who controls the Company within the
meaning of Section 15 of the Act. If the full amount of the contribution
specified in this paragraph is not permitted by law, then any Underwriter and
each person who controls any Underwriter shall be entitled to contribution from
the
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Company, its officers, directors and controlling persons to the full extent
permitted by law. The foregoing contribution agreement shall in no way affect
the contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company and the Underwriters. No contribution shall be
requested with regard to the settlement of any matter from any party who did not
consent to the settlement; provided, however, that such consent shall not be
unreasonably withheld in light of all factors of importance to such party.
8. Costs and Expenses.
(a) Whether or not this Agreement becomes effective or the sale of the
Units to the Underwriters is consummated, the Company will pay all costs and
expenses incident to the performance of this Agreement by the Company including,
but not limited to, the fees and expenses of counsel to the Company (which fees
shall not exceed $150,000) and of the Company's accountants; the costs and
expenses incident to the preparation, printing, filing and distribution under
the Act of the Registration Statement (including the financial statements
therein and all amendments and exhibits thereto), Preliminary Prospectus and the
Prospectus, as amended or supplemented, or the Term Sheet, the fee of the NASD
in connection with the filing required by the NASD relating to the offering of
the Units contemplated hereby; all expenses, including reasonable fees and
disbursements of counsel to the Underwriters, in connection with the
qualification of the Units under the state securities or blue sky laws which the
Representative shall designate; the cost of printing and furnishing to the
several Underwriters copies of the Registration Statement, each Preliminary
Prospectus, the Prospectus, this Agreement, the Agreement Among Underwriters,
Selling Agreement, Underwriters' Questionnaire, Underwriters' Power of Attorney
and the Blue Sky Memorandum, any fees relating to the listing of the Units,
Common Stock and Warrants on the Nasdaq National Market or any other securities
exchange, the cost of printing the certificates representing the securities
comprising the Units, the fees of the transfer agent and warrant agent the cost
of publication of at least three "tombstones" of the offering (at least one of
which shall be in national business newspaper and one of which shall be in a
major New York newspaper) and the cost of preparing at least four hard cover
"bound volumes" relating to the offering, in accordance with the Underwriters'
request. The Company shall pay any and all taxes (including any transfer,
franchise, capital stock or other tax imposed by any jurisdiction) on sales to
the Underwriters hereunder. The Company will also pay all costs and expenses
incident to the furnishing of any amended Prospectus or of any supplement to be
attached to the Prospectus as called for in Section 3(a) of this Agreement
except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses the Company shall at the First
Closing Date pay to the Representative, in its individual rather than
representative capacity, a non-accountable expense allowance of $_______ of
which $_______ has been paid. In the event the overallotment option is
exercised, the Company shall pay to the Representative at the Option Closing
Date an additional amount equal to 3% of
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the gross proceeds received upon exercise of the overallotment option. In the
event the transactions contemplated hereby are not consummated by reason of any
action by the Representative (except if such prevention is based upon a breach
by the Company of any covenant, representation or warranty contained herein or
because any other condition to the Underwriters' obligations hereunder required
to be fulfilled by the Company is not fulfilled) the Company shall be liable for
the accountable expenses of the Representative, including legal fees, up to a
maximum of $_______. In the event the transactions contemplated hereby are not
consummated by reason of any action of the Company or because of a breach by the
Company of any covenant, representation or warranty herein, the Company shall be
liable for the accountable expenses of the Representative, including legal fees,
up to a maximum of $_______.
(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Representative or from any other person for services
as a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Representative and the other Underwriters,
against any losses, claims, damages or liabilities, joint or several (which
shall, for all purposes of this Agreement, include, but not be limited to, all
costs of defense and investigation and all attorneys' fees), to which the
Representative or such other Underwriter or person may become subject insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon the claim of any person (other than an employee
of the party claiming indemnity) or entity that he or it is entitled to a
finder's fee in connection with the proposed offering by reason of such person's
or entity's influence or prior contact with the indemnifying party.
9. Substitution of Underwriters.
If any Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase the First Units hereunder, or shall fail to take
up and pay for the number of First Units set forth opposite their respective
names in Schedule A hereto upon tender of such First Units in accordance with
the terms hereof, then:
(a) If the aggregate number of First Units which such Underwriter or
Underwriters agreed but failed to purchase does not exceed 10% of the total
number of First Units, the other Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the First
Units which such defaulting Underwriter or Underwriters agreed but failed to
purchase.
(b) If any Underwriter or Underwriters so default and the agreed number of
First Units with respect to which such default or defaults occurs is more than
10% of the total number of First Units, the remaining Underwriters shall have
the right to take up and pay for (in such proportion as may be agreed upon among
them) the First Units which the defaulting Underwriter or Underwriters agreed
but failed to purchase. If such remaining Underwriters do not, at the First
Closing Date, take up and pay for the First Units which the defaulting
Underwriter or Underwriters
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agreed but failed to purchase, the time for delivery of the First Units shall be
extended to the next business day to allow the several Underwriters the
privilege of substituting within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid, within
such twenty-four hour period, the time of delivery of the First Units may, at
the option of the Company, be again extended to the next following business day,
if necessary, to allow the Company the privilege of finding within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters to
purchase the First Units which the defaulting Underwriter or Underwriters agreed
but failed to purchase. If it shall be arranged for the remaining Underwriters
or substituted Underwriters to take up the First Units of the defaulting
Underwriter or Underwriters as provided in this Section, (i) the Company or the
Representative shall have the right to postpone the time of delivery for a
period of not more than seven business days, in order to effect whatever changes
may thereby be made necessary in the Registration Statement or the Prospectus,
or in any other documents or arrangements, and the Company agrees promptly to
file any amendments to the Registration Statement or supplements to the
Prospectus which may thereby be made necessary, and (ii) the respective numbers
of First Units to be purchased by the remaining Underwriters or substituted
Underwriters shall be taken at the basis of the underwriting obligation for all
purposes of this Agreement.
If in the event of a default by one or more Underwriters and the remaining
Underwriters shall not take up and pay for all the First Units agreed to be
purchased by the defaulting Underwriters or substitute another underwriter or
underwriters as aforesaid, the Company shall not find or shall not elect to seek
another underwriter or underwriters for such First Units as aforesaid, then this
Agreement shall terminate.
If, following exercise of the option provided in Section 2(b) hereof, any
Underwriter or Underwriters shall for any reason not permitted hereunder cancel
their obligations to purchase Option Units at the Option Closing Date, or shall
fail to take up and pay for the number of Option Units, which they become
obligated to purchase at the Option Closing Date upon tender of such Option
Units in accordance with the terms hereof, then the remaining Underwriters or
substituted Underwriters may take up and pay for the Option Units of the
defaulting Underwriters in the manner provided in Section 9(b) hereof. If the
remaining Underwriters or substituted Underwriters shall not take up and pay for
all such Option Units, the Underwriters shall be entitled to purchase the number
of Option Units for which there is no default or, at their election, the option
shall terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of termination,
there shall be no liability on the part of any nondefaulting Underwriter to the
Company,
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provided that the provisions of this Section 9 shall not in any event affect the
liability of any defaulting Underwriter to the Company arising out of such
default.
10. Effective Date.
The Agreement shall become effective upon its execution except that you
may, at your option, delay its effectiveness until 11:00 A.M., New York time on
the first full business day following the effective date of the Registration
Statement, or at such earlier time after the effective date of the Registration
Statement as you in your discretion shall first commence the initial public
offering by the Underwriters of any of the Units. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Units, or the time when the Units are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 13, 14, 15 and
16 shall remain in effect notwithstanding such termination.
11. Termination.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 13, 14, 15 and 16
hereof, may be terminated at any time prior to the First Closing Date, and the
option referred to in Section 2(b) hereof, if exercised, may be cancelled at any
time prior to the Option Closing Date, by you if in your judgment it is
impracticable to offer for sale or to enforce contracts made by the Underwriters
for the resale of the Units agreed to be purchased hereunder by reason of (i)
the Company having sustained a material loss, whether or not insured, by reason
of fire, earthquake, flood, accident or other calamity, or from any labor
dispute or court or government action, order or decree; (ii) trading in
securities on the New York Stock Exchange, the American Stock Exchange, the
Nasdaq SmallCap Market or the Nasdaq National Market having been suspended or
limited; (iii) material governmental restrictions having been imposed on trading
in securities generally (not in force and effect on the date hereof); (iv) a
banking moratorium having been declared by federal or New York state
authorities; (v) an outbreak of international hostilities or other national or
international calamity or crisis or change in economic or political conditions
having occurred; (vi) a pending or threatened legal or governmental proceeding
or action relating generally to the Company's business, or a notification having
been received by the Company of the threat of any such proceeding or action,
which could materially adversely affect the Company; (vii) except as
contemplated by the Prospectus, the Company is merged or consolidated into or
acquired by another company or group or there exists a binding legal commitment
for the foregoing or any other material change of ownership or control occurs;
(viii) the passage by the Congress of the United States or by any state
legislative body or federal or state agency or other authority of any act, rule
or regulation, measure, or the adoption of any orders, rules or regulations by
any governmental body or any authoritative accounting institute or board, or any
governmental executive, which is reasonably believed likely by the
32
<PAGE>
Representative to have a material impact on the business, financial condition or
financial statements of the Company or the market for the securities offered
pursuant to the Prospectus; (ix) any adverse change in the financial or
securities markets beyond normal market fluctuations having occurred since the
date of this Agreement, or (x) any material adverse change having occurred,
since the respective dates of which information is given in the Registration
Statement and Prospectus, in the earnings, business prospects or general
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 11 or in Section 10, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
12. Unit Purchase Option.
At or before the First Closing Date, the Company will sell to the
Representative (for its own account and not as Representative of the several
Underwriters), or its designees for a consideration of $__________, and upon the
terms and conditions set forth in the form of Unit Purchase Option annexed as an
exhibit to the Registration Statement, a Unit Purchase Option to purchase an
aggregate of 250,000 Units. In the event of conflict in the terms of this
Agreement and the Unit Purchase Option, the language of the Unit Purchase Option
shall control.
13. Representations, Warranties and Agreements to Survive Delivery.
The respective indemnities, agreements, representations, warranties and
other statements of the Company or its Principal Stockholders, where
appropriate, and the undertakings set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of the Underwriters, the Company or any of its officers or
directors or any controlling person and will survive delivery of and payment of
the Units and the termination of this Agreement.
14. Notice.
Any communications specifically required hereunder to be in writing, if
sent to the Underwriters, will be mailed, delivered and confirmed to them at
D.H. Blair Investment Banking Corp., 44 Wall Street, 2nd Floor, New York, New
York 10005, with a copy sent to Paul, Hastings, Janofsky & Walker LLP, 399 Park
Avenue, New York, New York 10022, or if sent to the Company, will be mailed,
delivered and confirmed to it at 2979 Pacific Drive, Suite B, Norcross, Georgia
30071.
33
<PAGE>
15. Parties in Interest.
The Agreement herein set forth is made solely for the benefit of the
several Underwriters and the Company, any person controlling the Company or any
of the several Underwriters, and directors of the Company, nominees for
directors (if any) named in the Prospectus, its officers who have signed the
Registration Statement, and their respective executors, administrators,
successors, assigns and no other person shall acquire or have any right under or
by virtue of this Agreement. The term "successors and assigns" shall not include
any purchaser, as such purchaser, from any of the several Underwriters of the
Units. All of the obligations of the Underwriters hereunder are several and not
joint.
16. Applicable Law.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of New York applicable to agreements made and to be entirely
performed within New York.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the several Underwriters in accordance with
its terms.
Very truly yours,
TEKGRAF, INC.
By:___________________________
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
D.H. BLAIR INVESTMENT BANKING
CORP.
By:________________________________
For itself and as Representative
of the several Underwriters
34
<PAGE>
SCHEDULE A
Underwriter Number of Units to be Purchased
[UNDERWRITER]
Total:__________
___________Units
35
PLAN OF MERGER
PLAN OF MERGER adopted by Crescent Computers, Inc., a business
corporation organized under the laws of the State of Georgia, by resolution of
its Board of Directors on June 19, 1997, and adopted by Tekgraf, Inc., a
corporation organized under the laws of the State of Delaware, by resolution of
its Board of Directors on June 19, 1997. The names of the corporations planning
to merge are Crescent Computers, Inc., a corporation organized under the laws of
the State of Georgia, and Tekgraf, Inc., a corporation organized under the laws
of the State of Delaware. The name of the surviving corporation into which
Crescent Computers, Inc. plans to merge is Tekgraf, Inc.
1. Crescent Computers, Inc. and Tekgraf, Inc. shall, pursuant to the
provisions of the Georgia Business Corporation Code and pursuant to the
provisions of the laws of the jurisdiction of Tekgraf, Inc. be merged with and
into a single corporation, to wit, Tekgraf, Inc., which shall be the surviving
corporation and which is sometimes hereinafter referred to as the "surviving
corporation", and which shall continue to exist as said surviving corporation
under the name Tekgraf, Inc., pursuant to the provisions of the laws of the
jurisdiction of its organization. The separate existence of Crescent Computers,
Inc., which is sometimes hereinafter referred to as the "non-surviving
corporation", shall cease when the merger takes effect in accordance with the
provisions of the Georgia Business Corporation Code.
2. The Certificate of Incorporation of the surviving corporation
when the merger takes effect in the jurisdiction of its organization shall be
the Certificate of Incorporation of said surviving corporation and said
Certificate of Incorporation shall continue in full force and effect until
amended and changed in the manner prescribed by the provisions of the laws of
the jurisdiction of organization of the surviving corporation.
3. The bylaws of the surviving corporation when the merger takes
effect in the jurisdiction of its organization shall be the bylaws of said
surviving corporation and shall continue in full force and effect until changed,
altered or amended as therein provided and in the manner prescribed by the
provisions of the laws of the jurisdiction of its organization.
4. The directors and officers in office of the surviving corporation
when the merger takes effect in the jurisdiction of its organization shall
continue to be the members of the Board of Directors and the officers of the
surviving corporation, all of whom shall hold their directorships and offices
until the election and qualification of their respective successors or until
their tenure is otherwise terminated in accordance with the provisions of the
bylaws of the surviving corporation.
5. Each issued share of the non-surviving corporation when the
merger takes effect shall be converted into Four Hundred (400) shares of the
Class B Common Stock, $.001 par value of the surviving corporation. The issued
shares of the surviving corporation shall not be converted or exchanged in any
manner or any consideration be delivered therefor, and each said share which is
issued as of the effective date of the merger shall be cancelled and returned to
the status of authorized but unissued shares of the surviving corporation.
6. The Plan of Merger herein made and approved shall be submitted to
the shareholders of the non-surviving corporation for their approval or
rejection in the manner prescribed by
<PAGE>
the provisions of the Georgia Business Corporation Code, and the merger of the
non-surviving corporation with and into the surviving corporation shall be
authorized in the manner prescribed by the laws of the jurisdiction of
organization of the surviving corporation.
7. In the event that the Plan of Merger shall have been approved by
the shareholders entitled to vote of the non-surviving corporation in the manner
prescribed by the provisions of the Georgia Business Corporation Code, and in
the event that the merger of the non-surviving corporation with and into the
surviving corporation shall have been duly authorized in compliance with the
provisions of the laws of the jurisdiction of organization of the surviving
corporation, the non-surviving corporation and the surviving corporation hereby
stipulate that they will cause to be executed and filed and/or recorded any
document or documents prescribed by the laws of the State of Georgia and by the
laws of the State of Delaware, and that they will cause to be performed all
necessary acts therein and elsewhere to effecutate the merger.
8. The Board of Directors and the proper officers of the
non-surviving corporation and of the surviving corporation, respectively, are
hereby authorized, empowered and directed to do any and all acts and things, and
to make, execute, deliver, file and/or record any and all instruments, papers
and documents which shall be or become necessary, proper or convenient to carry
out or put into effect any of the provisions of this Plan of Merger or of the
merger herein provided for.
9. The merger herein provided for shall become effective in the
State of Georgia upon the date of the filing of the Articles of Merger with the
Secretary of State of Georgia.
Executed on June 20, 1997
CRESCENT COMPUTERS, INC.
By: /s/ Phillip Aginsky
-------------------------------
Name: Phillip Aginsky
Title: Chairman
SECRETARY OF STATE TEKGRAF, INC.
JUN 26 10 47 AM'97
BSR (1)
By: /s/ Phillip Aginsky
-------------------------------
Name: Phillip Aginsky
Title: Chairman
2
Certificate of Incorporation
of
TEKGRAF, INC.
-----------------------------
The undersigned, being over the age of eighteen (18), in order to
form a corporation for the purposes hereinafter stated, under and pursuant to
the provisions of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: The name of the corporation is Tekgraf, Inc. (the
"Corporation").
SECOND: The address of the Corporation's registered office in the
State of Delaware is located at 1013 Centre Road, Wilmington, County of New
Castle. The name of its registered agent at such address is Corporation Service
Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The aggregate number of shares which the Corporation shall
have authority to issue is Forty Million (40,000,000) shares, consisting of (i)
Thirty-One Million (31,000,000) shares of Class A Common Stock, $.001 par value
per share (the "Class A Common Stock"); (ii) Four Million (4,000,000) shares of
Class B Common Stock, $.001 par value per share (the "Class B Common Stock");
and (ii) Five Million (5,000,000) shares of Preferred Stock, $.001 par value per
share (the "Preferred Stock").
A. Common Stock
(1) General. The designations, preferences, limitations and relative
rights of the Class A Common Stock and the Class B Common Stock shall be in all
respect identical, except as stated in this Certificate of Incorporation or as
otherwise required by law.
1
<PAGE>
(2) Voting Rights.
(a) At each meeting of stockholders of the Corporation and upon each
proposal presented at such meeting, every holder of Class A Common Stock shall
be entitled to one vote in person or by proxy for each share of Class A Common
Stock standing in his or her name on the stock transfer records of the
Corporation and every holder of Class B Common Stock shall be entitled to five
votes in person or by proxy for each share of Class B Common Stock standing in
his or her name on the stock transfer records of the Corporation.
(b) Except as provided in this Paragraph (2) or as may be otherwise
required by law, the holders of Class A Common Stock and Class B Common Stock
shall vote together as a single class with respect to all matters. The number of
authorized shares of Class A Common Stock or Class B Common Stock may be
increased or decreased (but not below the number of shares of such class then
outstanding) by the affirmative vote of the holders of a majority of the Class A
Common Stock and Class B Common Stock of the Corporation entitled to vote,
voting together as a single class.
(c) Except as may be otherwise required by law or stated in any
Preferred Stock Designation (as defined in Section B of this ARTICLE FOURTH),
the holders of Class A Common Stock and Class B Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes, each holder of the Class A Common Stock and Class B Common Stock being
entitled to vote as provided in this Paragraph (2).
(3) Dividends and Distributions. Subject to the rights of the holders of
Preferred Stock, and subject to any other provisions of this Certificate of
Incorporation, as it may be amended from time to time, holders of Class A Common
Stock and Class B Common Stock shall be entitled to receive such dividends and
other distributions in cash, in property or in shares of the Corporation as may
be declared thereon by the Board of Directors from time to time out of assets or
funds of the Corporation legally available therefor; provided, however, that no
cash, property or share dividend or distribution may be declared or paid on the
outstanding shares of either the Class A Common Stock or Class B Common Stock
unless an identical per share dividend or distribution is simultaneously
declared and paid on the outstanding shares of the other such class of stock;
provided further, however, that a dividend of shares may be declared and paid in
Class A Common Stock to holders of Class A Common Stock and Class B Common Stock
if the number of shares paid per share to holders of Class A Common Stock and to
holders of Class B Common Stock shall be the same. If the Corporation shall in
any manner subdivide, combine or reclassify the outstanding shares of Class A
Common Stock or Class B Common Stock, the outstanding shares of the other such
class shall be subdivided, combined or reclassified proportionally in the same
manner and on the same basis as the outstanding shares of Class A Common Stock
or Class B Common Stock, as the case may
2
<PAGE>
be, have been subdivided, combined or reclassified. A dividend in shares of
Class A Common Stock may be paid to the holders of shares of any other class of
the Corporation.
(4) Common Stock Subject to Priorities of Preferred Stock. The Class A
Common Stock and Class B Common Stock are subject to all the powers, rights,
privileges, preferences and priorities of the Preferred Stock as may be stated
in this Certificate of Incorporation and in any Preferred Stock Designation.
(5) Liquidation Rights. Upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and after the holders, if any, of
the Preferred Stock of each series shall have been paid in full the amounts to
which they respectively shall be entitled, or a sum sufficient for such payment
in full shall have been set aside, the remaining net assets of the Corporation
shall be distributed pro rata on a share for share basis to the holders of the
Class A Common Stock and Class B Common Stock, subject to any Preferred Stock
Designation.
(6) No Conversion of Class A Common Stock. The shares of Class A Common
Stock are not convertible into or exchangeable for shares of Class B Common
Stock or any other shares or securities of the Corporation.
(7) Conversion of Class B Common Stock.
(a) Optional Conversion. Each record holder of Class B Common Stock
is entitled, at any time or from time to time, to convert any or all of the
shares of such holder's Class B Common Stock into fully paid and non-assessable
shares of Class A Common Stock for no additional consideration, at the ratio of
one share of Class A Common Stock for each share of Class B Common Stock.
(b) Optional Conversion Procedures.
(i) Each conversion of shares pursuant to Paragraph (7)(a)
hereof shall be effected by the surrender of the certificate or certificates
representing the shares to be converted at the principal office of the
Corporation at any time during normal business hours, together with a written
notice by the holder stating the number of shares that such holder desires to
convert. Such conversion shall be deemed to have been effected as of the close
of business on the date on which such certificate or certificates have been
surrendered, and at such time, the rights of any such holder with respect to the
converted shares of such holder will cease and the person or persons in whose
name or names the certificate or certificates for shares are to be issued upon
such conversion will be deemed to have become the holder or holders of record of
such shares represented thereby.
(ii) Promptly after such surrender, the Corporation will issue
and deliver in accordance with the surrendering holder's instructions the
certificate or certificates for the Class A Common Stock issuable upon such
conversion and a
3
<PAGE>
conversion and a certificate representing any Class B Common Stock which was
represented by the certificate or certificates delivered to the Corporation in
connection with such conversion, but which was not converted.
(c) Automatic Conversion. Each share of Class B Common Stock shall
(subject to receipt of any and all necessary approvals) convert automatically
into one fully paid and non-assessable share of Class A Common Stock (i) upon
its sale, gift or transfer, except in the case of a transfer to a trust for
which the original holder acts as sole trustee or any other holder of Class B
Common Stock; (ii) upon the death of the original holder thereof, including in
the case of the original holder having transferred the Class B Common Stock to a
trust for which the original holder served as trustee during his or her
lifetime; or (iii) upon the conversion of an aggregate of 75% of the authorized
shares of Class B Common Stock into Class A Common Stock.
(d) Issuance Costs. The issuance of certificates upon conversion of
shares pursuant hereto will be made without charge to the holder or holders of
such shares for any issuance tax (except stock transfer tax) in respect thereof
or other costs incurred by the Corporation in connection therewith.
(e) Reservation of Shares. Solely for the purpose of issuance upon
conversion of such shares as herein provided, the Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Class A
Common Stock such number of shares of Class A Common Stock as are then issuable
upon the conversion of all outstanding shares of Class B Common Stock. The
Corporation covenants that all shares of Class A Common Stock so issuable shall,
when so issued, be duly and validly issued, fully paid and non-assessable, and
free from liens and charges with respect to such issue. The Corporation will
take all such action as may be necessary to assure that all such shares of Class
A Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirements of any national securities exchange upon
which the Class A Common Stock may be listed. The Corporation will not take any
action that results in any adjustment of the conversion ratio if the total
number of shares of Class A Common Stock issued and issuable after such action
upon conversion of the Class B Common Stock would exceed the total number of
Class A Common Stock then authorized by the Certificate of Incorporation.
(8) Reissuance of Shares. Any shares of Class B Common Stock that are
converted into shares of Class A Common Stock as provided herein shall be
retired and cancelled and shall not be reissued.
B. Preferred Stock
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is hereby expressly authorized to
provide, by resolution or resolutions duly adopted by it prior to issuance, for
the creation of each such
4
<PAGE>
series and to fix the designation and the powers, preferences, rights,
qualifications, limitations and restrictions relating to the shares of each such
series (the "Preferred Stock Designation"). The authority of the Board of
Directors with respect to each series of Preferred Stock shall include, but not
be limited to, determining the following:
(1) the designation of such series, the number of shares to constitute
such series and the stated value if different from the par value thereof;
(2) whether the shares of such series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the terms of such
voting rights, which may be general or limited;
(3) the dividends, if any, payable on such series, whether any such
dividends shall be cumulative, and, if so, from what dates, the conditions and
dates upon which such dividends shall be payable, and the preference or relation
which such dividends shall bear to the dividends payable on any shares of stock
of any other class or any other series of Preferred Stock;
(4) whether the shares of such series shall be subject to redemption by
the Corporation, and, if so, the times, prices and other conditions of such
redemption;
(5) the amount or amounts payable upon shares of such series upon, and the
rights of the holders of such series in, the voluntary or involuntary
liquidation, dissolution or winding up, or upon any distribution of the assets,
of the Corporation;
(6) whether the shares of such series shall be subject to the operation of
a retirement or sinking fund and, if so, the extent to and the manner in which
any such retirement or sinking fund shall be applied to the purchase or
redemption of the shares of such series for retirement or other corporate
purposes and the terms and provisions relating to the operation thereof;
(7) whether the shares of such series shall be convertible into, or
exchangeable for, shares of stock of any other class or any other series of
Preferred Stock or any other securities and, if so, the price or prices or the
rate or rates of conversion or exchange and the method, if any, of adjusting the
same, and any other terms and conditions of conversion or exchange;
(8) the limitations and restrictions, if any, to be effective while any
shares of such series are outstanding upon the payment of dividends or the
making of other distributions on, and upon the purchase, redemption or other
acquisition by the Corporation of, the Common Stock or shares of stock of any
other class or any other series of Preferred Stock;
5
<PAGE>
(9) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such series or of any other series of Preferred
Stock or of any other class; and
(10) any other powers, preferences and relative, participating, optional
and other special rights, and any qualifications, limitations and restrictions,
thereof.
The powers, preferences and relative, participating, optional and other
special rights of each series of Preferred Stock, and the qualifications,
limitations or restrictions thereof, if any, may differ from those of any and
all other series at any time outstanding. All shares of any one series of
Preferred Stock shall be identical in all respects with all other shares of such
series, except that shares of any one series issued at different times may
differ as to the dates from which dividends thereof shall be cumulative.
FIFTH: The name and address of the incorporator is Tina Baker, Esq.
and her mailing address is c/o Bachner, Tally, Polevoy & Misher LLP, 380 Madison
Avenue, New York, New York 10017.
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
(1) The election of directors need not be by written ballot, unless
the by-laws so provide.
(2) The Board of Directors shall have power without the assent or
vote of the stockholders to make, alter, amend, change, add to or repeal the
By-Laws of the Corporation.
SEVENTH: The Corporation shall indemnify and advance expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time, each person who is or was a director or
officer of the Corporation and the heirs, executors and administrators of such a
person.
EIGHTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware, may, on application in a summary way
of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the
6
<PAGE>
stockholders or a class of stockholders of this Corporation, as the case may be,
to be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
this Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
NINTH: The personal liability of directors of the Corporation is
hereby eliminated to the full extent permitted by Section 102(b)(7) of the
General Corporation Law of the State of Delaware as the same may be amended and
supplemented.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
IN WITNESS THEREOF, I have hereunto signed my name and affirm that
the statements made herein are true under the penalties of perjury, this 17th
day of June, 1997.
/s/ Tina Baker
------------------------------------
Tina Baker, Esq.
Incorporator
7
BY-LAWS
OF
TEKGRAF, INC.
(A Delaware Corporation)
-------------------------
ARTICLE 1
Meetings of Stockholders
Section 1. Annual Meeting. The annual meeting of the stockholders of TEKGRAF,
INC., hereinafter called the "Corporation") for the election of directors and
for the transaction of such other business as may come before the meeting shall
be held in the 5th month following the close of the Corporation's fiscal year,
at such date and time as shall be designated by the Board or Chairman of the
Board or the President, or at such other date and time as the Board shall
designate.
Section 2. Special Meeting. Special meetings of the stockholders, unless
otherwise prescribed by statute, may be called at any time by the Board or the
Chairman of the Board or the President. The Board of Directors shall call a
special meeting of the stockholders when requested in writing by stockholders
holding not less than 20% of the outstanding stock of the corporation; such
written request shall state the object of the meeting proposed to be held.
Section 3. Notice of Meetings. Notice of the place, date and time of the holding
of each annual and special meeting of the stockholders and, in the case of a
special meeting, the purpose or purposes thereof shall be given personally or by
mail in a postage prepaid envelope to each stockholder entitled to vote at such
meeting, not less than ten (10) nor more than sixty (60) days before the date of
such meeting, and, if mailed, it shall be directed to such stockholder at his
address as it appears on the records of the Corporation, unless he shall have
filed with the Secretary of the Corporation a written request that notices to
him be mailed to some other address, in which case it shall be directed to him
at some other address. If mailed, such notice shall be deemed to be delivered
when deposited in United States mail so addressed with postage thereon prepaid.
Notice of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy and shall not,
at the beginning of such meeting, object to the transaction of any business
because the meeting is not lawfully called or convened, or who shall, either
before or after the meeting, submit a signed waiver of notice, in person or by
proxy. Unless the Board shall fix after the adjournment a new record date for an
adjourned meeting, notice of such adjourned meeting need not be given if the
time and place to which the meeting shall be adjourned were announced at the
meeting at which the adjournment is taken. At the adjourned meeting the
Corporation may transact any business which might
-1-
<PAGE>
have been transacted at the original meeting. If the adjournment is for more
than thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
Section 4. Place of Meetings. Meetings of the stockholders may be held at such
place, within or without the State of Delaware, as the Board or other officer
calling the same shall specify in the notice of such meeting, or in a duly
executed waiver of notice thereof.
Section 5. Quorum. At all meetings of the stockholders the holders of a majority
of the votes of the shares of stock of the Corporation issued and outstanding
and entitled to vote shall be present in person or by proxy to constitute a
quorum for the transaction of any business, except when stockholders are
required to vote by class, in which event a majority of the issued and
outstanding shares of the appropriate class shall be present in person or by
proxy, or except as otherwise provided by statute or in the Certificate of
Incorporation. In the absence of a quorum, the holders of a majority of the
votes of the shares of stock present in person or by proxy and entitled to vote,
or if no stockholder entitled to vote is present, then any officer of the
Corporation may adjourn the meeting from time to time. At any such adjourned
meeting at which a quorum may be present any business may be transacted which
might have been transacted at the meeting as originally called.
Section 6. Organization. At each meeting of the stockholders the Chairman of the
Board, or in his absence or inability to act, the President, or in the absence
or inability to act of the Chairman of the Board and the President, a Vice
President, or in the absence of all the foregoing, any person chosen by a
majority of those stockholders present, shall act as chairman of the meeting.
The Secretary, or, in his absence or inability to act, the Assistant Secretary
or any person appointed by the chairman of the meeting, shall act as secretary
of the meeting and keep the minutes thereof.
Section 7. Order of Business. The order of business at all meetings of the
stockholders shall be as determined by the chairman of the meeting.
Section 8. Voting. Except as otherwise provided by statute, the Certificate of
Incorporation, or any certificate duly filed in the office of the Department of
State of Delaware, each holder of record of shares of stock of the Corporation
having voting power shall be entitled at each meeting of the stockholders to one
vote for every share of such stock standing in his name on the record of
stockholders of the Corporation on the date fixed by the Board as the record
date for the determination of the stockholders who shall be entitled to notice
of and to vote at such meeting; or if such record date shall not have been so
fixed, then at the close of business on the day next preceding the day on which
the meeting is held; or each stockholder entitled to vote at any meeting of
stockholders may authorize another person or persons to act for him by a proxy
signed by such stockholder or his attorney-in-fact. Any such proxy shall be
delivered to the secretary of such meeting at or prior to the time designated in
the order of business for so delivering such proxies. No proxy shall be valid
after the expiration of three years from the date thereof, unless otherwise
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provided in the proxy. Every proxy shall be revocable at the pleasure of the
stockholder executing it, except in those cases where an irrevocable proxy is
permitted by law. Except as otherwise provided by statute, these By-Laws, or the
Certificate of Incorporation, any corporate action to be taken by vote of the
stockholders shall be authorized by a majority of the total votes, or when
stockholders are required to vote by class by a majority of the votes of the
appropriate class, cast at a meeting of stockholders by the holders of shares
present in person or represented by proxy and entitled to vote on such action.
Unless required by statute, or determined by the chairman of the meeting to be
advisable, the vote on any question need not be by written ballot. On a vote by
written ballot, each ballot shall be signed by the stockholder voting, or by his
proxy, if there be such proxy, and shall state the number of shares voted.
Section 9. List of Stockholders. The officer who has charge of the stock ledger
of the Corporation, or the transfer agent of the Corporation's stock, if there
be one then acting, shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, at the place where the meeting is to be held, or at the
office of the transfer agent. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 10. Inspectors. The Board may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If the inspectors shall not be so appointed or if any of
them shall fail to appear or act, the chairman of the meeting may, and on the
request of any stockholder entitled to vote thereat shall, appoint inspectors.
Each inspector, before entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares outstanding and the voting power of each,
the number of shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or consents,
hear and determine all challenges and questions arising in connection with the
right to vote, count and tabulate all votes, ballots or consents, determine the
result, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting or any
stockholder entitled to vote thereat, the inspectors shall make a report in
writing of any challenge, request or matter determined by them and shall execute
a certificate of any fact found by them. No director or candidate for the office
of director shall act as inspector of an election of directors.
Inspectors need not be stockholders.
Section 11. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required by Subchapter
VII of the General Corporation Law, to be taken at any annual or special meeting
of such stockholders, may be
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taken without a meeting, without prior notice and without a vote, if a consent
or consents in writing, setting forth the action so taken, shall be signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in this State,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to a corporation's registered office shall be by hand or
by certified or registered mail, return receipt requested.
ARTICLE II
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation shall be
managed by the Board. The Board may exercise all such authority and powers of
the Corporation and do all such lawful acts and things as are not by statute or
the Certificate of Incorporation or by these By-Laws directed or required to be
exercised or done by the stockholders.
Section 2. Number, Qualifications, Election and Term of Office. The number of
directors of the Corporation shall be fixed from time to time by the vote of a
majority of the entire Board then in office and the number thereof may
thereafter by like vote be increased or decreased to such greater or lesser
number (not less than three) as may be so provided, subject to the provisions of
Section 11 of this Article II. All of the directors shall be of full age and
need not be stockholders. Except as otherwise provided by statute or these
By-Laws, the directors shall be elected at the annual meeting of the
stockholders for the election of directors at which a quorum is present, and the
persons receiving a plurality of the votes cast at such meeting shall be
elected. Each director shall hold office until the next annual meeting of the
stockholders and until his successor shall have been duly elected and qualified,
or until his death, or until he shall have resigned, or have been removed, as
hereinafter provided in these By-Laws, or as otherwise provided by statute or
the Certificate of Incorporation.
Section 3. Place of Meetings. Meetings of the Board may be held at such place,
within or without the State of Delaware, as the Board may from time to time
determine or as shall be specified in the notice or waiver of notice of such
meeting.
Section 4. Annual Meeting. The Board shall meet for the purpose of organization,
the election of officers and the transaction of other business, as soon as
practicable after each annual meeting of the stockholders, on the same day and
at the same place where such annual meeting shall be held. Notice of such
meeting need not be given. Such meeting may be held at any other time or place
(within or without the State of Delaware) which shall be specified in a notice
thereof given as hereinafter provided in Section 7 of this Article II.
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Section 5. Regular Meetings. Regular meetings of the Board shall be held at such
time and place as the Board may from time to time determine. If any day fixed
for a regular meeting shall be a legal holiday at the place where the meeting is
to be held, then the meeting which would otherwise be held on that day shall be
held at the same hour on the next succeeding business day. Notice of regular
meetings of the Board need not be given except as otherwise required by statute
or these By-Laws.
Section 6. Special Meetings. Special meetings of the Board may be called by two
or more directors of the Corporation or by the Chairman of the Board or the
President.
Section 7. Notice of Meetings. Notice of each special meeting of the Board (and
of each regular meeting for which notice shall be required) shall be given by
the Secretary as hereinafter provided in this Section 7, in which notice shall
be stated the time and place (within or without the State of Delaware) of the
meeting. Notice of each such meeting shall be delivered to each director either
personally or by telephone, telegraph, cable or wireless, at least twenty-four
hours before the time at which such meeting is to be held or by first-class
mail, postage prepaid, addressed to him at his residence, or usual place of
business, at least three days before the day on which such meeting is to be
held. If mailed, such notice shall be deemed to be delivered when deposited in
the United States mail. Notice of any such meeting need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of notice or who shall attend such meeting without protesting, prior to or at
its commencement, the lack of notice to him. Except as otherwise specifically
required by these By-Laws, a notice or waiver of notice of any regular or
special meeting need not state the purposes of such meeting.
Section 8. Quorum and Manner of Acting. A majority of the entire Board shall be
present in person at any meeting of the Board in order to constitute a quorum
for the transaction of business at such meeting, and, except as otherwise
expressly required by statute or the Certificate of Incorporation, the act of a
majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board. Any one or more members of the Board or any
committee thereof may participate in a meeting of the Board or such committee by
means of a conference telephone or similar communications equipment allowing all
participants in the meeting to hear each other at the same time and
participation by such means shall constitute presence in person at a meeting. In
the absence of a quorum at any meeting of the Board, a majority of the directors
present thereat, or if no director be present, the Secretary, may adjourn such
meeting to another time and place, or such meeting, unless it be the annual
meeting of the Board, need not be held. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the meeting as originally called. Except as provided in Article
III of these By-Laws, the directors shall act only as a Board and the individual
directors shall have no power as such.
Section 9. Organization. At each meeting of the Board, the Chairman of the Board
(or, in his absence or inability to act, the President, or, in his absence or
inability to act, another director chosen by a majority of the directors
present) shall act as chairman of the meeting
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and preside thereat. The Secretary (or, in his absence or inability to act, any
person appointed by the chairman) shall act as secretary of the meeting and keep
the minutes thereof.
Section 10. Resignations. Any director of the Corporation may resign at any time
by giving written notice of his resignation to the Board or Chairman of the
Board or the President or the Secretary. Any such resignation shall take effect
at the time specified therein or, if the time when it shall become effective
shall not be specified therein, immediately upon its receipt; and unless
otherwise specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 11. Vacancies. Vacancies, including newly created directorships, may be
filled by a majority of the directors then in office, including those who have
so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in this
section for the filling of other vacancies.
Section 12. Removal of Directors. Except as otherwise provided in the
Certificate of Incorporation or in these By-Laws, any director may be removed,
either with or without cause, at any time, by the affirmative vote of a majority
of the votes of the issued and outstanding shares of stock entitled to vote for
the election of the stockholders called and held for that purpose, or by a
majority vote of the Board of Directors at a meeting called for such purpose,
and the vacancy in the Board caused by any such removal may be filled by such
stockholders or directors, as the case may be, at such meeting, and if the
stockholders shall fail to fill such vacancy, such vacancy shall be filled in
the manner as provided by these By-Laws.
Section 13. Compensation. The Board shall have authority to fix the
compensation, including fees and reimbursement of expenses, of directors for
services to the Corporation in any capacity, provided no such payment shall
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 14. Action by the Board. To the extent permitted under the laws of the
State of Delaware, any action required or permitted to be taken at any meeting
of the Board or of any committee thereof may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of the
proceedings of the Board or committee.
ARTICLE III
Executive and Other Committees
Section 1. Executive and Other Committees. The Board may, by resolution passed
by a majority of the whole Board, designate one or more committees, each
committee to consist of two or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified
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member at any meeting of the Committee. Any such committee, to the extent
provided in the resolution, shall have and may exercise the powers of the Board
in the management of the business and affairs of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that in the absence or disqualification of any
member of such committee or committees, the member or members thereof present at
any meeting and not disqualified from voting, whether or not he or they
constitute a quorum, may unanimously appoint another member of the Board to act
at the meeting in the place of any such absent or disqualified member. Each
committee shall keep minutes of its proceedings and shall report such minutes to
the Board when required. All such proceedings shall be subject to revision or
alteration by the Board, provided, however, that third parties shall not be
prejudiced by such revision or alteration.
Section 2. General. A majority of any committee may determine its action and fix
the time and place of its meetings, unless the Board shall otherwise provide.
Notice of such meetings shall be given to each member of the committee in the
manner provided for in Article II, Section 7. The Board shall have the power at
any time to fill vacancies in, to change the membership of, or to dissolve any
such committee. Nothing herein shall be deemed to prevent the Board from
appointing one or more committees consisting in whole or in part of persons who
are directors of the Corporation; provided, however, that no such committee
shall have or may exercise any authority of the Board.
ARTICLE IV
Officers
Section 1. Number and Qualifications. The officers of the Corporation shall
include the Chairman of the Board, the President, one or more Vice Presidents
(one or more of whom may be designated Executive Vice President or Senior Vice
President), the Treasurer, and the Secretary. Any two or more offices may be
held by the same person. Such officers shall be elected from time to time by the
Board, each to hold office until the meeting of the Board following the next
annual meeting of the stockholders, or until his successor shall have been duly
elected and shall have qualified, or until his death, or until he shall have
resigned, or have been removed, as hereinafter provided in these By-Laws. The
Board may from time to time elect a Vice Chairman of the Board, and the Board
may from time to time elect, or the Chairman of the Board, or the President may
appoint, such other officers (including one or more Assistant Vice Presidents,
Assistant Secretaries, and Assistant Treasurers), as may be necessary or
desirable for the business of the Corporation. Such other officers and agents
shall have such duties and shall hold their offices for such terms as may be
prescribed by the Board or by the appointing authority.
Section 2. Resignation. Any officer of the Corporation may resign at any time by
giving written notice of his resignation to the Board, the Chairman of the
Board, the President or the Secretary. Any such resignation shall take effect at
the time specified therein or, if the time when it shall become effective shall
not be specified therein, immediately upon its receipt; and unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.
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Section 3. Removal. Any officer or agent of the Corporation may be removed,
either with or without cause, at any time, by the vote of the majority of the
entire Board at any meeting of the Board or, except in the case of an officer or
agent elected or appointed by the Board, by the Chairman of the Board or the
President. Such removal shall be without prejudice to the contractual rights, if
any, of the person so removed.
Section 4. Vacancies. A vacancy in any office, whether arising from death,
resignation, removal or any other cause, may be filled for the unexpired portion
of the term of the office which shall be vacant, in the manner prescribed in
these By-Laws for the regular election or appointment to such office.
Section 5. a. The Chairman of the Board. The Chairman of the Board, if one be
elected, shall, if present, preside at each meeting of the stockholders and of
the Board and shall be an ex officio member of all committees of the Board. He
shall perform all duties incident to the office of Chairman of the Board and
such other duties as may from time to time be assigned to him by the Board.
b. The Vice Chairman of the Board. The Vice Chairman of the Board,
if one be elected, shall have such powers and perform all such duties as from
time to time may be assigned to him by the Board or the Chairman of the Board
and, unless otherwise provided by the Board, shall in the case of the absence or
inability to act of the Chairman of the Board, perform the duties of the
Chairman of the Board and when so acting shall have all the powers of, and be
subject to all the restrictions upon, the Chairman of the Board.
Section 6. The President. The President shall be the chief operating and
executive officer of the Corporation and shall have general and active
supervision and direction over the business and affairs of the Corporation and
over its several officers, subject, however, to the direction of the Chairman of
the Board and the control of the Board. If no Chairman of the Board is elected,
or at the request of the Chairman of the Board, or in the case of his absence or
inability to act, unless there be a Vice Chairman of the Board so designated to
act, the President shall perform the duties of the Chairman of the Board and
when so acting shall have all the powers of, and be subject to all the
restrictions upon, the Chairman of the Board. He shall perform all duties
incident to the office of President and such other duties as from time to time
may be assigned to him by the Board or the Chairman of the Board.
Section 7. Vice Presidents. Each Executive Vice President, each Senior Vice
President and each Vice President shall have such powers and perform all such
duties as from time to time may be assigned to him by the Board, the Chairman of
the Board, or the President. They shall, in the order of their seniority, have
the power and may perform the duties of the Chairman of the Board and the
President.
Section 8. The Treasurer. The Treasurer shall be the chief financial officer of
the Corporation and shall exercise general supervision over the receipt, custody
and disbursement of Corporate funds. He shall have such further powers and
duties as may be conferred upon him from time to time by the President or the
Board of Directors. He shall perform the duties of controller if no one is
elected to that office.
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Section 9. The Secretary. The Secretary shall
(a) keep or cause to be kept in one or more books provided for the
purpose, the minutes of all meetings of the Board, the committees of
the Board and the stockholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation and
affix and attest the seal to all stock certificates of the
Corporation (unless the seal be a facsimile, as hereinafter
provided) and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and other
documents and records required by law to be kept and filed are
properly kept and filed, and
(e) in general, perform all the duties incident to the office of
Secretary and such other duties as from time to time may be assigned
to him by the Board, the Chairman of the Board, or the President.
Section 10. Officer's Bonds or Other Security. If required by the Board, any
officer of the Corporation shall give a bond or other security for the faithful
performance of his duties, in such amount and with such surety or sureties as
the Board may require.
Section 11. Compensation. The compensation of the officers of the Corporation
for their services as such officers shall be fixed from time to time by the
Board, provided, however, that the Board may delegate to the Chairman of the
Board or the President the power to fix the compensation of officers and agents
appointed by the Chairman of the Board or the President, as the case may be. An
officer of the Corporation shall not be prevented from receiving compensation by
reason of the fact that he is also a director of the Corporation, but any such
officer who shall also be a director shall not have any vote in the
determination of the amount of compensation paid to him.
ARTICLE V
Indemnification
The Corporation shall, to the fullest extent permitted by the laws
of the state of incorporation, indemnify any and all persons whom it shall have
power to indemnify against any and all of the costs, expenses, liabilities or
other matters incurred by them by reason of having been officers or directors of
the Corporation, any subsidiary of the Corporation or of any other corporation
for which he acted as officer or director at the request of the Corporation.
ARTICLE VI
Contracts, Checks, Drafts, Bank Account, etc.
Section 1. Execution of Contracts. Except as otherwise required by statute, the
Certificate of Incorporation or these By-Laws, any contracts or other
instruments may be executed and delivered in the name and on behalf of the
Corporation by such officer or
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officers (including any assistant officer) of the Corporation as the Board may
from time to time direct. Such authority may be general or confined to specific
instances as the Board may determine. Unless authorized by the Board or
expressly permitted by these By-Laws, an officer or agent or employee shall not
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it pecuniarily liable for any
purpose or to any amount.
Section 2. Loans. Unless the Board shall otherwise determine, either (a) the
Chairman of the Board, the Vice Chairman of the Board or the President, singly,
or (b) a Vice President, together with the Treasurer, may effect loans and
advances at any time for the Corporation or guarantee any loans and advances to
any subsidiary of the Corporation, from any bank, trust company or other
institution, or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
certificates or evidences of indebtedness of the Corporation, or guarantee of
indebtedness of subsidiaries of the Corporation, but no officer or officers
shall mortgage, pledge, hypothecate or transfer any securities or other property
of the Corporation, except when authorized by the Board.
Section 3. Check, Drafts, etc. All checks, drafts, bills of exchange or other
orders for the payment of money out of the funds of the Corporation, and all
notes or other evidences of indebtedness of the Corporation, shall be signed in
the name and on behalf of the Corporation by such persons and in such manner as
shall from time to time be authorized by the Board.
Section 4. Deposits. All funds of the Corporation not otherwise employed shall
be deposited from time to time to the credit of the Corporation in such banks,
trust companies or other depositories as the Board may from time to time
designate or as may be designated by any officer or officers of the Corporation
to whom such power of designation may from time to time be delegated by the
Board. For the purpose of deposit and for the purpose of collection for the
account of the Corporation, checks, drafts and other orders for the payment of
money which are payable to the order of the Corporation may be endorsed,
assigned and delivered by any officer or agent of the Corporation, or in such
manner as the Board may determine by resolution.
Section 5. General and Special Bank Accounts. The Board may from time to time
authorize the opening and keeping of general and special bank accounts with such
banks, trust companies or other depositories as the Board may designate or as
may be designated by any officer or officers of the Corporation to whom such
power of designation may from time to time be delegated by the Board. The Board
may make such special rules and regulations with respect to such bank accounts,
not inconsistent with the provisions of these By-Laws, as it may deem expedient.
Section 6. Proxies in Respect of Securities of Other Corporations. Unless
otherwise provided by resolution adopted by the Board of Directors, the Chairman
of the Board, the President, or a Vice President may from time to time appoint
an attorney or attorneys or
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agent or agents, of the Corporation, in the name and on behalf of the
Corporation to cast the votes which the Corporation may be entitled to cast as
the holder of stock or other securities in any other corporation, any of whose
stock or other securities may be held by the Corporation, at meetings of the
holders of the stock or other securities of such other corporation, or to
consent in writing, in the name of the Corporation as such holder, to any action
by such other corporation, and may instruct the person or persons so appointed
as to the manner of casting such votes or giving such consent, and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal, or otherwise, all such written proxies or other instruments
as he may deem necessary or proper in the premises.
ARTICLE VII
Shares, Etc.
Section 1. Stock Certificates. Each holder of shares of stock of the Corporation
shall be entitled to have a certificate, in such form as shall be approved by
the Board, certifying the number of shares of the Corporation owned by him. The
certificates representing shares of stock shall be signed in the name of the
Corporation by the Chairman of the Board or the President or a Vice President
and by the Secretary or an Assistant Secretary or the Treasurer or an Assistant
Treasurer and sealed with the seal of the Corporation (which seal may be a
facsimile, engraved or printed); provided, however, that where any such
certificate is countersigned by a transfer agent other than the Corporation or
its employee, or is registered by a registrar other than the Corporation or one
of its employees, the signature of the officers of the Corporation upon such
certificates may be facsimiles, engraved or printed. In case any officer who
shall have signed or whose facsimile signature has been placed upon such
certificates shall have ceased to be such officer before such certificates shall
be issued, they may nevertheless be issued by the Corporation with the same
effect as if such officer were still in office at the date of their issue.
Section 2. Books of Account and Record of Shareholders. The books and records of
the Corporation may be kept at such places within or without the state of
incorporation as the Board of Directors may from time to time determine. The
stock record books and the blank stock certificate books shall be kept by the
Secretary or by any other officer or agent designated by the Board of Directors.
Section 3. Transfer of Shares. Transfers of shares of stock of the Corporation
shall be made on the stock records of the Corporation only upon authorization by
the registered holder thereof, or by his attorney thereunto authorized by power
of attorney duly executed and filed with the Secretary or with a transfer agent
or transfer clerk, and on surrender of the certificate or certificates for such
shares properly endorsed or accompanied by a duly executed stock transfer power
and the payment of all taxes thereon. Except as otherwise provided by law, the
Corporation shall be entitled to recognize the exclusive right of a person in
whose name any share or shares stand on the record of stockholders as the owner
of such share or shares for all purposes, including, without limitation, the
rights to receive dividends or other distributions, and to vote as such owner,
and the Corporation may hold
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any such stockholder of record liable for calls and assessments and the
Corporation shall not be bound to recognize any equitable or legal claim to or
interest in any such share or shares on the part of any other person whether or
not it shall have express or other notice thereof. Whenever any transfers of
shares shall be made for collateral security and not absolutely, and both the
transferor and transferee request the Corporation to do so, such fact shall be
stated in the entry of the transfer.
Section 4. Regulations. The Board may make such additional rules and
regulations, not inconsistent with these By-Laws, as it may deem expedient
concerning the issue, transfer and registration of certificates for shares of
stock of the Corporation. It may appoint, or authorize any officer or officers
to appoint, one or more transfer agents or one or more transfer clerks and one
or more registrars and may require all certificates for shares of stock to bear
the signature or signatures of any of them.
Section 5. Lost, Destroyed or Mutilated Certificates. The holder of any
certificate representing shares of stock of the Corporation shall immediately
notify the Corporation of any loss, destruction or mutilation of such
certificate, and the Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it which the owner thereof shall
allege to have been lost, stolen, or destroyed or which shall have been
mutilated, and the Board may, in its discretion, require such owner or his legal
representative to give the Corporation a bond in such sum, limited or unlimited,
and in such form and with such surety or sureties as the Board in its absolute
discretion shall determine, to indemnify the Corporation against any claim that
may be made against it on account of the alleged loss, theft, or destruction of
any such certificate, or the issuance of a new certificate. Anything herein to
the contrary notwithstanding, the Board, in its absolute discretion, may refuse
to issue any such new certificate, except pursuant to legal proceedings under
the laws of the State of Delaware.
Section 6. Fixing of Record Date. In order that the Corporation may determine
the stockholders entitled to notice of, or to vote at, any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board may fix, in advance, a
record date, which shall not be more than sixty nor less than ten days before
the date of such meeting, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of, or to vote at, a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
ARTICLE VIII
Offices
Section 1. Principal or Registered Office. The principal registered office of
the Corporation shall be at such place as may be specified in the Certificate of
Incorporation of
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the Corporation or other certificate filed pursuant to law, or if none be so
specified, at such place as may from time to time be fixed by the Board.
Section 2. Other Offices. The Corporation also may have an office or offices
other than said principal or registered office, at such place or places either
within or without the State of Delaware.
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be determined by the Board.
ARTICLE X
Seal
The Board shall provide a corporate seal which shall contain the
name of the Corporation, the words "Corporate Seal" and the year and State of
Delaware.
ARTICLE XI
Amendments
Section 1. Shareholders. These By-Laws may be amended or repealed, or new
By-Laws may be adopted, at any annual or special meeting of the stockholders, by
a majority of the total votes of the stockholders or when stockholders are
required to vote by class by a majority of the appropriate class, in person or
represented by proxy and entitled to vote on such action; provided, however,
that the notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of these By-Laws,
or the adoption of new By-Laws, is one of the purposes of such meeting.
Section 2. Board of Directors. These By-Laws may also be amended or repealed or
new By-Laws may be adopted, by the Board at any meeting thereof; provided,
however, that notice of such meeting shall have been given as provided in these
By-Laws, which notice shall mention that amendment or repeal of the By-Laws, or
the adoption of new By-Laws, is one of the purposes of such meetings. By-Laws
adopted by the Board may be amended or repealed by the stockholders as provided
in Section 1 of this Article XI.
ARTICLE XII
Miscellaneous
Section 1. Interested Directors. No contract or other transaction between the
Corporation and any other corporation shall be affected and invalidated by the
fact that any one or more of the Directors of the Corporation is or are
interested in or is a Director or officer or are Directors or officers of such
other corporation, and any Director or Directors, individually or jointly, may
be a party or parties to or may be interested in any contract or transaction of
the
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Corporation or in which the Corporation is interested; and no contract, act or
transaction of the Corporation with any person or persons, firm or corporation
shall be affected or invalidated by the fact that any Director or Directors of
the Corporation is a party or are parties to or interested in such contract, act
or transaction, or in any way connected with such person or persons, firms or
associations, and each and every person who may become a Director of the
Corporation is hereby relieved from any liability that might otherwise exist
from contracting with the Corporation for the benefit of himself, any firm,
association or corporation in which he may be in any way interested.
Section 2. Ratification. Any transaction questioned in any stockholders'
derivative suit on the grounds of lack of authority, defective or irregular
execution, adverse interest of director, officer or stockholder, nondisclosure,
miscomputation, or the application of improper principles or practices of
accounting, may be ratified before or after judgment, by the Board of Directors
or by the stockholders in case less than a quorum of Directors are qualified,
and, if so ratified, shall have the same force and effect as if the questioned
transaction had been originally duly authorized, and said ratification shall be
binding upon the Corporation and its stockholders, and shall constitute a bar to
any claim or execution of any judgment in respect of such questioned
transaction.
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WARRANT AGREEMENT
AGREEMENT, dated as of this ____th day of ___________, 1997, by and among
TEKGRAF, INC., a Delaware corporation ("Company"), AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Warrant Agent (the "Warrant Agent"), and D.H. BLAIR INVESTMENT
BANKING CORP., a New York corporation ("Blair" or the "Underwriter").
W I T N E S S E T H
WHEREAS, in connection with a public offering of up to 2,500,000 units
("Units"), each unit consisting of one (1) share of the Company's Class A Common
Stock, $.001 par value ("Common Stock") and one (1) redeemable Warrant
("Warrants") pursuant to an underwriting agreement (the "Underwriting
Agreement") dated _______________, 1997 between the Company and the Underwriter
and the issuance to the Underwriter or its designees of Unit Purchase Options to
purchase an aggregate of 250,000 additional Units, to be dated as of __________,
1997 (the "Unit Purchase Options"), the Company may issue up to ______ Warrants;
and
WHEREAS, each Warrant initially entitles the Registered Holder thereof to
purchase one (1) share of Common Stock; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer exchange and redemption of the Warrants, the
issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the Registered Holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the certificates representing the Warrants and the
respective rights and obligations thereunder of the Company, the holders of
certificates representing the Warrants and the Warrant Agent, the parties hereto
agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have the
following meanings, unless the context shall otherwise require:
(a) "Aggregate Per Share Price" shall mean the Purchase Price per share
multiplied by the number of shares of Common Stock purchasable upon the exercise
of a Warrant.
(b) "Class A Aggregate Per Share Price" shall mean $7.00.
(c) "Common Stock" shall mean stock of the Company of any class, whether
now or hereafter authorized, which has the right to participate in the
<PAGE>
distribution of earnings and assets of the Company without limit as to amount or
percentage, which at the date hereof consists of ______ shares of Class A Common
Stock, $.001 par value and _______ shares of Class B Common Stock, $.001 par
value.
(d) "Corporate Office" shall mean the office of the Warrant Agent (or its
successor) at which at any particular time its principal business shall be
administered, which office is located at the date hereof at 40 Wall Street, New
York, New York 10005.
(e) "Exercise Date" shall mean, as to any Warrant, the date on which the
Warrant Agent shall have received both (a) the Warrant Certificate representing
such Warrant, with the exercise form thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, and (b) payment in
cash, or by official bank or certified check made payable to the Company, of an
amount in lawful money of the United States of America equal to the applicable
Purchase Price.
(f) "Initial Warrant Exercise Date" shall mean __________, 1997.
(g) "Market Price" shall mean shall mean (i) the average closing bid price
of the Common Stock, for thirty (30) consecutive business days ending on the
Calculation Date as reported by Nasdaq, if the Common Stock is traded on the
Nasdaq SmallCap Market, or (ii) the average last reported sale price of the
Common Stock, for thirty (30) consecutive business days ending on the
Calculation Date, as reported by the primary exchange on which the Common Stock
is traded, if the Common Stock is traded on a national securities exchange, or
by Nasdaq, if the Common Stock is traded on the Nasdaq National Market.
(h) "Purchase Price" shall mean the purchase price to be paid upon exercise
of each Warrant in accordance with the terms hereof, which price shall be $7.00,
subject to adjustment from time to time pursuant to the provisions of Section 9
hereof, and subject to the Company's right to reduce the Purchase Price upon
notice to all Registered Holders of Warrants.
(i) "Redemption Price" shall mean the price at which the Company may, at
its option in accordance with the terms hereof, redeem the Warrants, which price
shall be $0.05 per Warrant.
(j) "Registered Holder" shall mean as to any Warrant and as of any
particular date, the person in whose name the certificate representing the
Warrant shall be registered on that date on the books maintained by the Warrant
Agent pursuant to Section 6.
(i) "Transfer Agent" shall mean American Stock Transfer & Trust Company, as
the Company's transfer agent, or its authorized successor, as such.
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(l) "Warrant Expiration Date" shall mean 5:00 P.M. (New York time) on
_________, 2002 (subject to extension as provided herein and in Section 9(e) or,
with respect to Warrants which are outstanding as of the applicable Redemption
Date (as defined in Section 8) and specifically excluding Warrants issuable upon
exercise of Unit Purchase Options if the Unit Purchase Options have not been
exercised, the Redemption Date, whichever is earlier; provided that if such date
shall in the State of New York be a holiday or a day on which banks are
authorized or required to close, then 5:00 P.M. (New York time) on the next
following day which in the State of New York is not a holiday or a day on which
banks are authorized or required to close. Upon notice to all Registered
Holders, the Company shall have the right to extend the Warrant Expiration Date.
SECTION 2. Warrants and Issuance of Warrant Certificates.
(a) A Warrant initially shall entitle the Registered Holder of the Warrant
Certificate representing such Warrant to purchase one share of Common Stock upon
the exercise thereof, in accordance with the terms hereof, subject to
modification and adjustment as provided in Section 9.
(b) The Warrants included in the offering of Units will be detachable and
separately transferable immediately from the shares of Common Stock constituting
part of such Units.
(c) Upon execution of this Agreement, Warrant Certificates representing the
number of Warrants sold pursuant to the Underwriting Agreement shall be executed
by the Company and delivered to the Warrant Agent. Upon written order of the
Company signed by its President or Chairman or a Vice President and by its
Secretary or an Assistant Secretary, the Warrant Certificates shall be
countersigned, issued and delivered by the Warrant Agent as part of the Units.
(d) From time to time, up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole number
denominations representing up to an aggregate of __________ shares of Common
Stock, subject to adjustment as described herein, upon the exercise of Warrants
in accordance with this Agreement.
(e) From time to time, up to the Warrant Expiration Date, the Warrant Agent
shall countersign and deliver Warrant Certificates in required whole number
denominations to the persons entitled thereto in connection with any transfer or
exchange permitted under this Agreement; provided that no Warrant Certificates
shall be issued except (i) those initially issued hereunder, (ii) those issued
on or after the Initial Warrant Exercise Date, upon the exercise of fewer than
all Warrants represented by any Warrant Certificate, to evidence any unexercised
Warrants held by the exercising Registered Holder, (iii) those issued upon any
transfer or exchange pursuant to Section 6; (iv) those issued in replacement of
lost, stolen, destroyed or
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mutilated Warrant Certificates pursuant to Section 7; (v) those issued pursuant
to the Unit Purchase Option; and (vi) at the option of the Company, in such form
as may be approved by the its Board of Directors, to reflect any adjustment or
change in the Purchase Price, the number of shares of Common Stock purchasable
upon exercise of the Warrants or the Target Price(s) therefor made pursuant to
Section 8 hereof.
(f) Pursuant to the terms of the Unit Purchase Options, the Underwriter may
purchase up to ____ Units, which include up to ______ Warrants. Notwithstanding
anything to the contrary contained herein, the Warrants underlying the Unit
Purchase Option shall not be subject to redemption by the Company except under
the terms and conditions set forth in the Unit Purchase Options.
SECTION 3. Form and Execution of Warrant Certificates.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation
and such legends, summaries or endorsements printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be required to comply with any law or
with any rule or regulation made pursuant thereto or with any rule or regulation
of any stock exchange on which the Warrants may be listed, or to conform to
usage or to the requirements of Section 2(d). The Warrant Certificates shall be
dated the date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates) and issued in registered form. Warrant Certificates shall be
numbered serially with the letter W on Warrants of all denominations.
(b) Warrant Certificates shall be executed on behalf of the Company by its
Chairman of the Board, President or any Vice President and by its Secretary or
an Assistant Secretary, by manual signatures or by facsimile signatures printed
thereon, and shall have imprinted thereon a facsimile of the Company's seal.
Warrant Certificates shall be manually countersigned by the Warrant Agent and
shall not be valid for any purpose unless so countersigned. In case any officer
of the Company who shall have signed any of the Warrant Certificates shall cease
to be an officer of the Company or to hold the particular office referenced in
the Warrant Certificate before the date of issuance of the Warrant Certificates
or before countersignature by the Warrant Agent and issue and delivery thereof,
such Warrant Certificates may nevertheless be countersigned by the Warrant
Agent, issued and delivered with the same force and effect as though the person
who signed such Warrant Certificates had not ceased to be an officer of the
Company or to hold such office. After countersignature by the Warrant Agent,
Warrant Certificates shall be delivered by the Warrant Agent to the Registered
Holder without further action by the Company, except as otherwise provided by
Section 4(a) hereof.
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SECTION 4. Exercise.
(a) Each Warrant may be exercised by the Registered Holder thereof at any
time on or after the Initial Exercise Date, but not after the Warrant Expiration
Date, upon the terms and subject to the conditions set forth herein and in the
applicable Warrant Certificate. A Warrant shall be deemed to have been exercised
immediately prior to the close of business on the Exercise Date and the person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of those securities upon the exercise of
the Warrant as of the close of business on the Exercise Date. As soon as
practicable on or after the Exercise Date, the Warrant Agent shall deposit the
proceeds received from the exercise of a Warrant and shall notify the Company in
writing of the exercise of the Warrants. Promptly following, and in any event
within five days after the date of such notice from the Warrant Agent, the
Warrant Agent, on behalf of the Company, shall cause to be issued and delivered
by the Transfer Agent, to the person or persons entitled to receive the same, a
certificate or certificates for the securities deliverable upon such exercise,
(plus a Warrant Certificate for any remaining unexercised Warrants of the
Registered Holder) unless prior to the date of issuance of such certificates the
Company shall instruct the Warrant Agent to refrain from causing such issuance
of certificates pending clearance of checks received in payment of the Purchase
Price pursuant to such Warrants. Notwithstanding the foregoing, in the case of
payment made in the form of a check drawn on an account of the Underwriter or
such other investment banks and brokerage houses as the Company shall approve in
writing to the Warrant Agent, certificates shall immediately be issued without
prior notice to the Company or any delay. Upon the exercise of any Warrant and
clearance of the funds received, the Warrant Agent shall promptly remit the
payment received for the Warrant (the "Warrant Proceeds") to the Company or as
the Company may direct in writing, subject to the provisions of Sections 4(b)
and 4(c) hereof.
(b) If, at the Exercise Date in respect of the exercise of any Warrant
after __________, 1998, (i) the market price of the Company's Common Stock is
greater than the then Purchase Price of the Warrant, (ii) the exercise of the
Warrant was solicited by a member of the National Association of Securities
Dealers, Inc. ("NASD") as designated in writing on the Warrant Certificate
Subscription Form, (iii) the Warrant was not held in a discretionary account,
(iv) disclosure of compensation arrangements was made both at the time of the
original offering and at the time of exercise; and (v) the solicitation of the
exercise of the Warrant was not in violation of Regulation M (as such rule or
any successor rule may be in effect as of such time of exercise) promulgated
under the Securities Exchange Act of 1934, then the Warrant Agent,
simultaneously with the distribution of the Warrant Proceeds to the Company
shall, on behalf of the Company, pay from the Warrant Proceeds, a fee of 5% (the
"Exercise Fee") of the Purchase Price to the Underwriter (of which a portion may
be reallowed by the Underwriter to the dealer who solicited the exercise, which
may also be the Underwriter or D.H. Blair & Co., Inc.). In the event the
Exercise Fee is not received within five days of the date on which the Company
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<PAGE>
receives Warrant Proceeds, then the Exercise Fee shall begin accruing interest
at an annual rate of prime plus four percent (4%), payable by the Company to the
Underwriter at the time the Underwriter receives the Exercise Fee. Within five
days after exercise the Warrant Agent shall send to the Underwriter a copy of
the reverse side of each Warrant exercised. The Underwriter shall reimburse the
Warrant Agent, upon request, for its reasonable expenses relating to compliance
with this section 4(b). The Company shall pay all fees and expenses including
all blue sky fees and expenses and all out-of-pocket expenses of the
Underwriter, including legal fees, in connection with the solicitation,
redemption or exchange of the Warrants. In addition, the Underwriter and the
Company may at any time during business hours, examine the records of the
Warrant Agent, including its ledger of original Warrant Certificates returned to
the Warrant Agent upon exercise of Warrants. The provisions of this paragraph
may not be modified, amended or deleted without the prior written consent of the
Underwriter.
(c) In order to enforce the provisions of Section 4(b) above, in the event
there is any dispute or question as to the amount or payment of the Exercise
Fee, the Warrant Agent is hereby expressly authorized to withhold payment to the
Company of the Warrant Proceeds unless and until the Company establishes an
escrow account for the purpose of depositing the entire amount of the Exercise
Fee, which amount will be deducted from the net Warrant Proceeds to be paid to
the Company. The funds placed in the escrow account may not be released to the
Company without a written agreement from the Underwriter that the required
Exercise Fee has been received by the Underwriter.
SECTION 5. Reservation of Shares; Listing; Payment of Taxes; etc.
(a) The Company covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of issue
upon exercise of Warrants, such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of Common Stock which shall be issuable upon exercise of the
Warrants shall, at the time of delivery, be duly and validly issued, fully paid,
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, (other than those which the Company shall promptly pay or
discharge) and that upon issuance such shares shall be listed on each national
securities exchange, on which the other shares of outstanding Common Stock of
the Company are then listed or shall be eligible for inclusion in the Nasdaq
National Market or the Nasdaq SmallCap Market if the other shares of outstanding
Common Stock of the Company are so included.
(b) The Company covenants that if any securities to be reserved for the
purpose of exercise of Warrants hereunder require registration with, or approval
of, any governmental authority under any federal securities law before such
securities may be validly issued or delivered upon such exercise, then the
Company will in good faith and as expeditiously as reasonably possible, endeavor
to secure such registration
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or approval. The Company will use reasonable efforts to obtain appropriate
approvals or registrations under state "blue sky" securities laws. With respect
to any such securities, however, Warrants may not be exercised by, or shares of
Common Stock issued to, any Registered Holder in any state in which such
exercise would be unlawful.
(c) The Company shall pay all documentary, stamp or similar taxes and other
governmental charges that may be imposed with respect to the issuance of
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the Warrant
Certificate representing any Warrant being exercised, then no such delivery
shall be made unless the person requesting the same has paid to the Warrant
Agent the amount of transfer taxes or charges incident thereto, if any.
(d) The Warrant Agent is hereby irrevocably authorized to requisition the
Company's Transfer Agent from time to time for certificates representing shares
of Common Stock issuable upon exercise of the Warrants, and the Company will
authorize the Transfer Agent to comply with all such proper requisitions. The
Company will file with the Warrant Agent a statement setting forth the name and
address of the Transfer Agent of the Company for shares of Common Stock issuable
upon exercise of the Warrants.
SECTION 6. Exchange and Registration of Transfer.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may be
transferred in whole or in part. Warrant Certificates to be exchanged shall be
surrendered to the Warrant Agent at its Corporate Office, and upon satisfaction
of the terms and provisions hereof, the Company shall execute and the Warrant
Agent shall countersign, issue and deliver in exchange therefor the Warrant
Certificate or Certificates which the Registered Holder making the exchange
shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject to
such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular practice.
Upon due presentment for registration of transfer of any Warrant Certificate at
such office, the Company shall execute and the Warrant Agent shall issue and
deliver to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
(c) With respect to all Warrant Certificates presented for registration or
transfer, or for exchange or exercise, the subscription form on the reverse
thereof shall be duly endorsed, or be accompanied by a written instrument or
instruments of transfer and subscription, in form satisfactory to the Company
and the Warrant
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Agent, duly executed by the Registered Holder or his attorney-in-fact duly
authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any exchange
or registration of transfer of Warrant Certificates. In addition, the Company
may require payment by such holder of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly cancelled by the
Warrant Agent and thereafter retained by the Warrant Agent until termination of
this Agreement or resignation as Warrant Agent, or, with the prior written
consent of the Underwriter, disposed of or destroyed, at the direction of the
Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice to
the contrary. The Warrants, which are being publicly offered in Units with
shares of Common Stock pursuant to the Underwriting Agreement, will be
immediately detachable from the Common Stock and transferable separately
therefrom.
SECTION 7. Loss or Mutilation. Upon receipt by the Company and the Warrant
Agent of evidence satisfactory to them of the ownership of and loss, theft,
destruction or mutilation of any Warrant Certificate and (in case of loss, theft
or destruction) of indemnity satisfactory to them, and (in the case of
mutilation) upon surrender and cancellation thereof, the Company shall execute
and the Warrant Agent shall (in the absence of notice to the Company and/or
Warrant Agent that the Warrant Certificate has been acquired by a bona fide
purchaser) countersign and deliver to the Registered Holder in lieu thereof a
new Warrant Certificate of like tenor representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall comply with such
other reasonable regulations and pay such other reasonable charges as the
Warrant Agent may prescribe.
SECTION 8. Redemption.
(a) Subject to the provisions of paragraph 2(g) hereof, on not less than
thirty (30) days notice given at any time after __________, 1998, (the
"Redemption Notice"), to Registered Holders of the Warrants being redeemed at
any time after _____________, 1998, the Warrants may be redeemed, at the option
of the Company, at a redemption price of $0.05 per Warrant, provided the Market
Price shall exceed $9.80 (the "Target Price"), subject to adjustment as set
forth in Section 8(f), below. All Warrants must be redeemed if any are redeemed,
provided that the Warrants
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underlying the Unit Purchase Option may only be redeemed in compliance with and
subject to the terms and conditions of the Unit Purchase Option. For purposes of
this Section 8, the Calculation Date shall mean a date within 15 days of the
mailing of the Redemption Notice. The date fixed for redemption of the Warrants
is referred to herein as the "Redemption Date."
(b) If the conditions set forth in Section 8(a) are met, and the Company
desires to exercise its right to redeem the Warrants, it shall request the
Underwriter to mail a Redemption Notice to each of the Registered Holders of the
Warrants to be redeemed, first class, postage prepaid, not later than the
thirtieth day before the date fixed for redemption, at their last address as
shall appear on the records maintained pursuant to Section 6(b). Any notice
mailed in the manner provided herein shall be conclusively presumed to have been
duly given whether or not the Registered Holder receives such notice.
(c) The Redemption Notice shall specify (i) the redemption price, (ii) the
Redemption Date, (iii) the place where the Warrant Certificates shall be
delivered and the redemption price paid, (iv) that the Underwriter will assist
each Registered Holder of a Warrant in connection with the exercise thereof and
(v) that the right to exercise the Warrant shall terminate at 5:00 P.M. (New
York time) on the business day immediately preceding the Redemption Date. No
failure to mail such notice nor any defect therein or in the mailing thereof
shall affect the validity of the proceedings for such redemption except as to a
Registered Holder (a) to whom notice was not mailed or (b) whose notice was
defective. An affidavit of the Warrant Agent or of the Secretary or an Assistant
Secretary of the Underwriter or the Company that notice of redemption has been
mailed shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
(d) Any right to exercise a Warrant shall terminate at 5:00 P.M. (New York
time) on the business day immediately preceding the Redemption Date. On and
after the Redemption Date, Registered Holders of the Warrants shall have no
further rights except to receive, upon surrender of the Warrant, the Redemption
Price.
(e) From and after the Redemption Date, the Company shall, at the place
specified in the Redemption Notice, upon presentation and surrender to the
Company by or on behalf of the Registered Holder thereof of one or more Warrant
Certificates evidencing Warrants to be redeemed, deliver or cause to be
delivered to or upon the written order of such Registered Holder a sum in cash
equal to the Redemption Price of each such Warrant. From and after the
Redemption Date and upon the deposit or setting aside by the Company of a sum
sufficient to redeem all the Warrants called for redemption, such Warrants shall
expire and become void and all rights hereunder and under the Warrant
Certificates, except the right to receive payment of the Redemption Price, shall
cease.
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(f) If the shares of the Company's Common Stock are subdivided or combined
into a greater or smaller number of shares of Common Stock, the Target Price
shall be proportionally adjusted by the ratio which the total number of shares
of Common Stock outstanding immediately prior to such event bears to the total
number of shares of Common Stock to be outstanding immediately after such event.
SECTION 9. Adjustment of Exercise Price and Number of Shares of Common
Stock or Warrants.
(a) Subject to the exceptions referred to in Section 9(g) below, in the
event the Company shall, at any time or from time to time after the date hereof,
sell any shares of Common Stock for a consideration per share less than the
Market Price on the date of the sale or issue any shares of Common Stock as a
stock dividend to the holders of Common Stock, or subdivide or combine the
outstanding shares of Common Stock into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Purchase Price in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent) determined by
multiplying the Purchase Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares and the number of shares of Common Stock which the aggregate
consideration received (determined as provided in subsection 9(f)(F) below) for
the issuance of such additional shares would purchase at the Market Price and
the denominator of which shall be the sum of the number of shares of Common
Stock outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made. For
purposes of this Section 9, the Calculation Date shall mean the date of the
sale, issuance, modification or other transaction referred to in this Section 9.
Upon each adjustment of the Purchase Price pursuant to this Section 9, the
total number of shares of Common Stock purchasable upon the exercise of each
Warrant shall (subject to the provisions contained in Section 9(b) hereof) be
such number of shares (calculated to the nearest one-hundredth; provided,
however, that in no event shall the Class A Aggregate Per Share Price increase
as a result of such rounding calculation) purchasable at the Purchase Price in
effect immediately prior to such adjustment multiplied by a fraction, the
numerator of which shall be the Purchase Price in effect immediately prior to
such adjustment and the denominator of which shall be the Purchase Price in
effect immediately after such adjustment.
(b) The Company may elect, upon any adjustment of the Purchase Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding after
such adjustment shall represent the right to purchase one share of Common Stock.
Each
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Warrant held of record prior to such adjustment of the number of Warrants shall
become that number of Warrants (calculated to the nearest tenth) determined by
multiplying the number one by a fraction, the numerator of which shall be the
Purchase Price in effect immediately prior to such adjustment and the
denominator of which shall be the Purchase Price in effect immediately after
such adjustment. Upon each adjustment of the number of Warrants pursuant to this
Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10 hereof,
the number of additional Warrants to which such Holder shall be entitled as a
result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by him prior to the date of adjustment (and upon surrender
thereof, if required by the Company) new Warrant Certificates evidencing the
number of Warrants to which such Holder shall be entitled after such adjustment.
(c) In case of any reclassification, capital reorganization or other change
of outstanding shares of Common Stock, or in case of any consolidation or merger
of the Company with or into another corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock), or in case of any sale or conveyance to
another corporation of the property of the Company as, or substantially as, an
entirety (other than a sale/leaseback, mortgage or other financing transaction),
the Company shall cause effective provision to be made so that each holder of a
Warrant then outstanding shall have the right thereafter, by exercising such
Warrant, to purchase the kind and number of shares of stock or other securities
or property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that might have been purchased
upon exercise of such Warrant immediately prior to such reclassification,
capital reorganization or other change, consolidation, merger, sale or
conveyance. Any such provision shall include provision for adjustments that
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 9. The Company shall not effect any such consolidation,
merger or sale unless prior to or simultaneously with the consummation thereof
the successor (if other than the Company) resulting from such consolidation or
merger or the corporation purchasing assets or other appropriate corporation or
entity shall assume, by written instrument executed and delivered to the Warrant
Agent, the obligation to deliver to the holder of each Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holders may be entitled to purchase and the other obligations of the
Company under this Agreement. The foregoing provisions shall similarly apply to
successive reclassifications, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
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(d) Irrespective of any adjustments or changes in the Purchase Price or the
number of shares of Common Stock purchasable upon exercise of the Warrants, the
Warrant Certificates theretofore and thereafter issued shall, unless the Company
shall exercise its option to issue new Warrant Certificates pursuant to Section
2(f) hereof, continue to express the Purchase Price per share, the number of
shares purchasable thereunder and the Redemption Price therefor as the Purchase
Price per share, and the number of shares purchasable and the Redemption Price
therefor were expressed in the Warrant Certificates when the same were
originally issued.
(e) After each adjustment of the Purchase Price pursuant to this Section 9,
the Company will promptly prepare a certificate signed by the Chairman or
President, and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so
adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of
each Warrant after such adjustment and, if the Company shall have elected to
adjust the number of Warrants, the number of Warrants to which the Registered
Holder of each Warrant shall then be entitled, and the adjustment in Redemption
Price resulting therefrom, and (iii) a statement showing in detail the method of
calculation and the facts upon which such adjustment or readjustment is based,
including a statement of (a) the consideration received or to be received by the
Company for any securities issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Purchase Price in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 9) on account thereof. The
Company will promptly file such certificate with the Warrant Agent and furnish a
copy thereof to be sent no later than thirty (30) days after the adjustment by
ordinary first class mail to the Underwriter and to each Registered Holder of
Warrants at his last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. If such mailing is not made within such 30-day period the
Warrant Expiration Date shall be extended by the period of time equal to the
period commencing on the 31st day and expires on the date such mailing is
effectuated. The Company will, upon the written request at any time of the
Underwriter, furnish to the Underwriter a report by Coopers & Lybrand L.L.P., or
other independent public accountants of recognized national standing (which may
be the regular auditors of the Company) selected by the Company to verify such
computation and setting forth such adjustment or readjustment and showing in
detail the method of calculation and the facts upon which such adjustment or
readjustment is based. The Company will also keep copies of all such
certificates and reports at its principal office.
(f) For purposes of Section 9(a) and 9(b) hereof, the following provisions
(A) to (G) shall also be applicable:
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(A) The number of shares of Common Stock outstanding at any given time
shall include shares of Common Stock owned or held by or for the account of
the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change
of Shares for purposes of said sections.
(B) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $.10 in the
Purchase Price; provided that any adjustments which by reason of this
clause (B) are not required to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment
which, together with any adjustment(s) so carried forward, shall require an
increase or decrease of at least $.10 in the Purchase Price then in effect
hereunder.
(C) In case of (1) the sale by the Company for cash (or as a component
of a unit being sold for cash) of any rights or warrants to subscribe for
or purchase, or any options for the purchase of, Common Stock or any
securities convertible into or exchangeable for Common Stock without the
payment of any further consideration other than cash, if any (such
securities convertible, exercisable or exchangeable into Common Stock being
herein called "Convertible Securities"), or (2) the issuance by the
Company, without the receipt by the Company of any consideration therefor,
of any rights or warrants to subscribe for or purchase, or any options for
the purchase of, Common Stock or Convertible Securities, in each case, if
(and only if) the consideration payable to the Company upon the exercise of
such rights, warrants or options shall consist of cash, whether or not such
rights, warrants or options, or the right to convert or exchange such
Convertible Securities, are immediately exercisable, and the price per
share for which Common Stock is issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities (determined by dividing (x) the minimum aggregate consideration
payable to the Company upon the exercise of such rights, warrants or
options, plus the consideration, if any, received by the Company for the
issuance or sale of such rights, warrants or options, plus, in the case of
such Convertible Securities, the minimum aggregate amount of additional
consideration, other than such Convertible Securities, payable upon the
conversion or exchange thereof, by (y) the total maximum number of shares
of Common Stock issuable upon the exercise of such rights, warrants or
options or upon the conversion or exchange of such Convertible Securities
issuable upon the exercise of such rights, warrants or options) is less
than the Market Price on the Calculation Date, then the total maximum
number of shares of Common Stock issuable upon the exercise of such rights,
warrants or options or upon the conversion or exchange of such Convertible
Securities (as of the date of the issuance or sale of such rights, warrants
or options) shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 9(a) and
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9(b) hereof and shall be deemed to have been sold for cash in an amount
equal to such price per share.
(D) In case of the sale by the Company for cash of any Convertible
Securities, whether or not the right of conversion or exchange thereunder
is immediately exercisable, and the price per share for which Common Stock
is issuable upon the conversion or exchange of such Convertible Securities
(determined by dividing (x) the total amount of consideration received by
the Company for the sale of such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange thereof, by
(y) the total maximum number of shares of Common Stock issuable upon the
conversion or exchange of such Convertible Securities) is less than the
Market Price on the Calculation Date, then the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of such
Convertible Securities (as of the date of the sale of such Convertible
Securities) shall be deemed to be outstanding shares of Common Stock for
purposes of Sections 9(a) and 9(b) hereof and shall be deemed to have been
sold for cash in an amount equal to such price per share.
(E) In case the Company shall modify the rights of conversion,
exchange or exercise of any of the securities referred to in (C) or (D)
above or any other securities of the Company convertible, exchangeable or
exercisable for shares of Common Stock, for any reason other than an event
that would require adjustment to prevent dilution, so that the
consideration per share received by the Company after such modification is
less than the Market Price on the Calculation Date, the Purchase Price to
be in effect after such modification shall be determined by multiplying the
Purchase Price in effect immediately prior to such event by a fraction, of
which the numerator shall be the number of shares of Common Stock
outstanding on the date prior to the modification plus the number of shares
of Common Stock which the aggregate consideration receivable by the Company
for the securities affected by the modification would purchase at the
Market Price and of which the denominator shall be the number of shares of
Common Stock outstanding on such date plus the number of shares of Common
Stock to be issued upon conversion, exchange or exercise of the modified
securities at the modified rate. Such adjustment shall become effective as
of the date upon which such modification shall take effect. On the
expiration of any such right, warrant or option or the termination of any
such right to convert or exchange any such Convertible Securities referred
to in Paragraph (C) or (D) above, the Purchase Price then in effect
hereunder shall forthwith be readjusted to such Purchase Price as would
have obtained (a) had the adjustments made upon the issuance or sale of
such rights, warrants, options or Convertible Securities been made upon the
basis of the issuance of only the number of shares of Common Stock
theretofore actually delivered (and the total
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<PAGE>
consideration received therefor) upon the exercise of such rights, warrants
or options or upon the conversion or exchange of such Convertible
Securities and (b) had adjustments been made on the basis of the Purchase
Price as adjusted under clause (a) for all transactions (which would have
affected such adjusted Purchase Price) made after the issuance or sale of
such rights, warrants, options or Convertible Securities.
(F) In case of the sale for cash of any shares of Common Stock, any
Convertible Securities, any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, the consideration received by the Company therefore shall be
deemed to be the gross sales price therefor without deducting therefrom any
expense paid or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in connection
therewith.
(G) In case any event shall occur as to which the provisions of
Section 9 are not strictly applicable but the failure to make any
adjustment would not fairly protect the purchase rights represented by the
Warrants in accordance with the essential intent and principles of Section
9, then, in each such case, the Board of Directors of the Company shall in
good faith by resolution provide for the adjustment, if any, on a basis
consistent with the essential intent and principles established in Section
9, necessary to preserve, without dilution, the purchase rights represented
by the Warrants. The Company will promptly make the adjustments described
therein.
(g) No adjustment to the Purchase Price of the Warrants or to the number of
shares of Common Stock purchasable upon the exercise of each Warrant will be
made, however,
(i) upon the exercise of any of the options presently outstanding
under the Company's 1997 Stock Option Plan (the "Plan") for officers,
directors and certain other key personnel of the Company; or
(ii) upon the issuance or exercise of any other securities which may
hereafter be granted or exercised under the Plan or under any other
employee benefit plan of the Company approved by the Company's
stockholders; or
(iii) upon the sale or exercise of the Warrants, including without
limitation the sale or exercise of any of the Warrants comprising the Unit
Purchase Option or upon the sale or exercise of the Unit Purchase Option;
or
(iv) upon the sale of any shares of Common Stock and/or Convertible
Securities in a firm commitment underwritten public offering, including,
without limitation, shares sold upon the exercise of any
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<PAGE>
overallotment option granted to the underwriters in connection with such
offering; or
(v) upon the sale by the Company of any shares of Common Stock and/or
Convertible Securities in a private placement for which the Underwriter is
the Placement Agent; or
(vi) upon the issuance or sale of Common Stock or Convertible
Securities upon the exercise of any rights or warrants to subscribe for or
purchase, or any options for the purchase of, Common Stock or Convertible
Securities, whether or not such rights, warrants or options were
outstanding on the date of the original sale of the Warrants or were
thereafter issued or sold; or
(vii) upon the issuance or sale of Common Stock upon conversion or
exchange of any Convertible Securities, whether or not any adjustment in
the Purchase Price was made or required to be made upon the issuance or
sale of such Convertible Securities and whether or not such Convertible
Securities were outstanding on the date of the original sale of the
Warrants or were thereafter issued or sold.
(h) As used in this Section 9, the term "Common Stock" shall mean and
include the Company's Common Stock authorized on the date of the original issue
of the Units and shall also include any capital stock of any class of the
Company thereafter authorized which shall not be limited to a fixed sum or
percentage in respect of the rights of the holders thereof to participate in
dividends and in the distribution of assets upon the voluntary liquidation,
dissolution or winding up of the Company; provided, however, that the shares
issuable upon exercise of the Warrants shall include only shares of such class
designated in the Company's Certificate of Incorporation as Common Stock on the
date of the original issue of the Units or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 9(c) hereof, the stock, securities or property
provided for in such section or (ii), in the case of any reclassification or
change in the outstanding shares of Common Stock issuable upon exercise of the
Warrants as a result of a subdivision or combination or consisting of a change
in par value, or from par value to no par value, or from no par value to par
value, such shares of Common Stock as so reclassified or changed.
(i) Any determination as to whether an adjustment in the Purchase Price in
effect hereunder is required pursuant to Section 9, or as to the amount of any
such adjustment, if required, shall be binding upon the holders of the Warrants
and the Company if made in good faith by the Board of Directors of the Company.
(j) If and whenever the Company shall grant to the holders of Common Stock,
as such, rights or warrants to subscribe for or to purchase, or any options for
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the purchase of, Common Stock or securities convertible into or exchangeable for
or carrying a right, warrant or option to purchase Common Stock, the Company
shall concurrently therewith grant to each Registered Holder as of the record
date for such transaction of the Warrants then outstanding, the rights, warrants
or options to which each Registered Holder would have been entitled if, on the
record date used to determine the stockholders entitled to the rights, warrants
or options being granted by the Company, the Registered Holder were the holder
of record of the number of whole shares of Common Stock then issuable upon
exercise (assuming, for purposes of this Section 9(j), that exercise of Warrants
is permissible during periods prior to the Initial Warrant Exercise Date) of his
Warrants. Such grant by the Company to the holders of the Warrants shall be in
lieu of any adjustment which otherwise might be called for pursuant to this
Section 9.
SECTION 10. Fractional Warrants and Fractional Shares.
(a) If the number of shares of Common Stock purchasable upon the exercise
of each Warrant is adjusted pursuant to Section 9 hereof, the Company
nevertheless shall not be required to issue fractions of shares, upon exercise
of the Warrants or otherwise, or to distribute certificates that evidence
fractional shares. With respect to any fraction of a share called for upon the
exercise of any Warrant, the Company shall pay to the Holder an amount in cash
equal to such fraction multiplied by the current market value of such fractional
share, determined as follows:
(1) If the Common Stock is listed on a national securities exchange or
admitted to unlisted trading privileges on such exchange or is traded on
the Nasdaq National Market, the current market value shall be the last
reported sale price of the Common Stock on such exchange or market on the
last business day prior to the date of exercise of this Warrant or if no
such sale is made on such day, the average of the closing bid and asked
prices for such day on such exchange or market; or
(2) If the Common Stock is not listed or admitted to unlisted trading
privileges on a national securities exchange or is not traded on the Nasdaq
National Market, the current market value shall be the mean of the last
reported bid and asked prices reported by the Nasdaq SmallCap Market or, if
not traded thereon, by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the
current market value shall be an amount determined in such reasonable
manner as may be prescribed by the Board of Directors of the Company.
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SECTION 11. Warrant Holders Not Deemed Stockholders. No holder of Warrants
shall, as such, be entitled to vote or to receive dividends or be deemed the
holder of Common Stock that may at any time be issuable upon exercise of such
Warrants for any purpose whatsoever, nor shall anything contained herein be
construed to confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors or
upon any matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issue or reclassification of stock, change of par value or change of stock to no
par value, consolidation, merger or conveyance or otherwise), or to receive
notice of meetings, or to receive dividends or subscription rights, until such
holder shall have exercised such Warrants and been issued shares of Common Stock
in accordance with the provisions hereof.
SECTION 12. Rights of Action. All rights of action with respect to this
Agreement are vested in the respective Registered Holders of the Warrants, and
any Registered Holder of a Warrant, without consent of the Warrant Agent or of
the holder of any other Warrant, may, in his own behalf and for his own benefit,
enforce against the Company his right to exercise his Warrants for the purchase
of shares of Common Stock in the manner provided in the Warrant Certificate and
this Agreement.
SECTION 13. Agreement of Warrant Holders. Every holder of a Warrant, by his
acceptance thereof, consents and agrees with the Company, the Warrant Agent and
every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the Warrant
Agent by the Registered Holder thereof in person or by his attorney duly
authorized in writing and only if the Warrant Certificates representing such
Warrants are surrendered at the office of the Warrant Agent, duly endorsed or
accompanied by a proper instrument of transfer satisfactory to the Warrant Agent
and the Company in their sole discretion, together with payment of any
applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice or knowledge to the contrary, except as otherwise expressly provided in
Section 7 hereof.
SECTION 14. Cancellation of Warrant Certificates. If the Company shall
purchase or acquire any Warrant or Warrants, the Warrant Certificate or Warrant
Certificates evidencing the same shall thereupon be delivered to the Warrant
Agent and cancelled by it and retired. The Warrant Agent shall also cancel the
Warrant
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Certificate or Warrant Certificates following exercise of any or all of the
Warrants represented thereby or delivered to it for transfer or exchange.
SECTION 15. Concerning the Warrant Agent. The Warrant Agent acts hereunder
as agent and in a ministerial capacity for the Company, and its duties shall be
determined solely by the provisions hereof. The Warrant Agent shall not, by
issuing and delivering Warrant Certificates or by any other act hereunder be
deemed to make any representations as to the validity, value or authorization of
the Warrant Certificates or the Warrants represented thereby or of any
securities or other property delivered upon exercise of any Warrant or whether
any stock issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or responsibility
to any holder of Warrant Certificates to make or cause to be made any adjustment
of the Purchase Price or the Redemption Price provided in this Agreement, or to
determine whether any fact exists which may require any such adjustments, or
with respect to the nature or extent of any such adjustment, when made, or with
respect to the method employed in making the same. It shall not (i) be liable
for any recital or statement of facts contained herein or for any action taken,
suffered or omitted by it in reliance on any Warrant Certificate or other
document or instrument believed by it in good faith to be genuine and to have
been signed or presented by the proper party or parties, (ii) be responsible for
any failure on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or (iii)
be liable for any act or omission in connection with this Agreement except for
its own negligence or wilful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company) and shall incur no liability or
responsibility for any action taken, suffered or omitted by it in good faith in
accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand of
the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary, (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any action
taken, suffered or omitted by it in accordance with such notice, statement,
instruction, request, direction, order or demand believed by it to be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for its
services hereunder and to reimburse it for its reasonable expenses hereunder; it
further agrees to indemnify the Warrant Agent and save it harmless against any
and all losses, expenses and liabilities, including judgments, costs and counsel
fees, for anything done or omitted by the Warrant Agent in the execution of its
duties and
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powers hereunder except losses, expenses and liabilities arising as a result of
the Warrant Agent's negligence or wilful misconduct.
The Warrant Agent may resign its duties and be discharged from all further
duties and liabilities hereunder (except liabilities arising as a result of the
Warrant Agent's own negligence or wilful misconduct), after giving 30 days'
prior written notice to the Company. At least 15 days prior to the date such
resignation is to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the Registered Holder of each Warrant
Certificate at the Company's expense. Upon such resignation, or any inability of
the Warrant Agent to act as such hereunder, the Company shall appoint a new
warrant agent in writing. If the Company shall fail to make such appointment
within a period of 15 days after it has been notified in writing of such
resignation by the resigning Warrant Agent, then the Registered Holder of any
Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Any new warrant agent, whether appointed by
the Company or by such a court, shall be a bank or trust company having a
capital and surplus, as shown by its last published report to its stockholders,
of not less than $10,000,000 or a stock transfer company that is a registered
transfer agent under the Securities Exchange Act of 1934. After acceptance in
writing of such appointment by the new warrant agent is received by the Company,
such new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant Agent,
without any further assurance, conveyance, act or deed; but if for any reason it
shall be necessary or expedient to execute and deliver any further assurance,
conveyance, act or deed, the same shall be done at the expense of the Company
and shall be legally and validly executed and delivered by the resigning Warrant
Agent. Not later than the effective date of any such appointment the Company
shall file notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the Registered Holder of each
Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act, provided
that such corporation is eligible for appointment as successor to the Warrant
Agent under the provisions of the preceding paragraph. Any such successor
warrant agent shall promptly cause notice of its succession as warrant agent to
be mailed to the Company and to the Registered Holder of each Warrant
Certificate.
The Warrant Agent, its subsidiaries and affiliates, and any of its or their
officers or directors, may buy and hold or sell Warrants or other securities of
the Company and otherwise deal with the Company in the same manner and to the
same extent and with like effects as though it were not Warrant Agent. Nothing
herein
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shall preclude the Warrant Agent from acting in any other capacity for the
Company or for any other legal entity.
SECTION 16. Modification of Agreement. Subject to the provisions of
Section 4(b), the parties hereto and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained; (ii) to reflect an
increase in the number of Warrants which are to be governed by this Agreement
resulting from (a) a subsequent public offering of Company securities which
includes Warrants or (b) a subsequent private placement of Company securities
which includes Warrants, in either case having the same terms and conditions as
the Warrants, originally covered by or subsequently added to this Agreement
under this Section 16, provided, however, that in the case of a private
placement, the amendment to this Agreement will be effective only at such time
as the resale of such Warrants, as well as the securities underlying such
Warrants is covered by an effective registration statement under the Act; or
(iii) that they may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Warrant Certificates; provided, however,
that this Agreement shall not otherwise be modified, supplemented or altered in
any respect except with the consent in writing of the Registered Holders of
Warrant Certificates representing not less than 50% of the Warrants then
outstanding; and provided, further, that no change in the number or nature of
the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed or are made in
compliance with applicable law.
SECTION 17. Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made when delivered or mailed first class registered or certified mail, postage
prepaid as follows: if to the Registered Holder of a Warrant Certificate, at the
address of such holder as shown on the registry books maintained by the Warrant
Agent; if to the Company, at 2979 Pacific Drive, Suite B, Norcross, Georgia
30071, attention: Chairman, or at such other address as may have been furnished
to the Warrant Agent in writing by the Company; if to the Warrant Agent, at its
Corporate Office; if to the Underwriter, at D.H. Blair Investment Banking Corp.,
44 Wall Street, New York, New York 10005.
SECTION 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the Company and, the Warrant Agent and their respective
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successors and assigns, and the holders from time to time of Warrant
Certificates . Nothing in this Agreement is intended or shall be construed to
confer upon any other person any right, remedy or claim, in equity or at law, or
to impose upon any other person any duty, liability or obligation.
SECTION 20. Termination. This Agreement shall terminate at the close of
business on the earlier of the Warrant Expiration Date or the date upon which
all Warrants (including the warrants issuable upon exercise of the Unit Purchase
Options) have been exercised, except that the Warrant Agent shall account to the
Company for cash held by it and the provisions of Section 15 hereof shall
survive such termination.
SECTION 21. Counterparts. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
TEKGRAF, INC.
By:_________________________
Name:
Title:
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By:_________________________
Authorized Officer
D.H. BLAIR INVESTMENT BANKING
CORP.
By:_________________________
Authorized Officer
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EXHIBIT A
[FORM OF FACE OF WARRANT CERTIFICATE]
No. W ____________ Warrants
VOID AFTER ____________, 2002
WARRANT CERTIFICATE FOR PURCHASE
OF COMMON STOCK
TEKGRAF, INC.
This certifies that FOR VALUE RECEIVED __________________ or registered
assigns (the "Registered Holder") is the owner of the number of Warrants
("Warrants") specified above. Each Warrant represented hereby initially entitles
the Registered Holder to purchase, subject to the terms and conditions set forth
in this Warrant Certificate and the Warrant Agreement (as hereinafter defined),
one fully paid and nonassessable share of Class A Common Stock, $.001 par value
("Common Stock"), of Tekgraf, Inc., a Delaware corporation (the "Company") at
any time between ____________, 1997 and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of AMERICAN STOCK TRANSFER & TRUST COMPANY, as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $7.00 for each
Warrant (the "Purchase Price") in lawful money of the United States of America
in cash or by official bank or certified check made payable to
_________________.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated ______________,
1997, by and among the Company, the Warrant Agent and D.H. Blair Investment
Banking Corp.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common Stock will be issued. In
the case of the exercise of less than all the Warrants represented hereby, the
Company
<PAGE>
shall cancel this Warrant Certificate upon the surrender hereof and shall
execute and deliver a new Warrant Certificate or Warrant Certificates of like
tenor, which the Warrant Agent shall countersign, for the balance of such
Warrants.
The term "Expiration Date" shall mean 5:00 P.M. (New York time) on
_______________, 2002 or such earlier date as the Warrants shall be redeemed. If
such date shall in the State of New York be a holiday or a day on which banks
are authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York
time) the next following day which in the State of New York is not a holiday or
a day on which banks are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of the Warrants represented hereby unless a registration statement
under the Securities Act of 1933, as amended, with respect to such securities is
effective. The Company has covenanted and agreed that it will file a
registration statement and will use its best efforts to cause the same to become
effective and to keep such registration statement current while any of the
Warrants are outstanding. The Warrants represented hereby shall not be
exercisable by a Registered Holder in any state where such exercise would be
unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment with any applicable transfer fee
per certificate in addition to any tax or other governmental charge imposed in
connection therewith, for registration of transfer of this Warrant Certificate
at such office, a new Warrant Certificate or Warrant Certificates representing
an equal aggregate number of Warrants will be issued to the transferee in
exchange therefor, subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.
The Warrants represented hereby may be redeemed at the option of the
Company, at a redemption price of $0.05 per Warrant at any time after
__________, 1998, provided the Market Price (as defined in the Warrant
Agreement) for the Common Stock shall exceed $9.80 per share. Notice of
redemption shall be given not later than the thirtieth day before the date fixed
for redemption, all as provided in the Warrant Agreement. On and after the date
fixed for redemption, the Registered Holder shall have no rights with respect to
the Warrants represented hereby except to receive the $0.05 per Warrant upon
surrender of this Warrant Certificate.
2
<PAGE>
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price upon
certain conditions as specified in the Warrant Agreement upon the exercise of
the Warrants represented hereby.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York.
This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile, by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
TEKGRAF, INC.
By:________________________
Name:
Title:
Dated: _____________________
[seal]
Countersigned:
AMERICAN STOCK TRANSFER & TRUST COMPANY,
as Warrant Agent
By ___________________________
Authorized Officer
4
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
TRANSFER FEE: $_______ PER CERTIFICATE ISSUED
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
_______ Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_____________________________________
_____________________________________
_____________________________________
_____________________________________
[please print or type name and address]
and be delivered to
_____________________________________
_____________________________________
_____________________________________
_____________________________________
[please print or type name and address]
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the Warrants evidenced
hereby was solicited by a member of the National Association of Securities
Dealers,
<PAGE>
Inc. If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by D.H. Blair
Investment Banking Corp. or D.H. Blair & Co., Inc.
____________________________________
(Name of NASD Member)
Dated: _______________ ____________________________________
____________________________________
____________________________________
Address
____________________________________
Taxpayer Identification Number
____________________________________
Signature Guaranteed
____________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
2
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, __________________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
OF TRANSFEREE
_________________________
_________________________
_________________________
[please print or type name and address]
_________________ of the Warrants represented by this Warrant Certificate, and
hereby irrevocably constitutes and appoints ____________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the
premises.
Dated:________________ X______________________________
Signature Guaranteed
------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE
GUARANTEED BY A MEMBER OF THE MEDALLION STAMP PROGRAM.
Option to Purchase
_________ Units
TEKGRAF, INC.
Unit Purchase Option
Dated: ___________, 1997
No. ______
THIS CERTIFIES THAT _________________ (herein sometimes called the
"Holder") is entitled to purchase from Tekgraf, Inc., a Delaware corporation
(hereinafter called the "Company"), at the prices and during the periods as
hereinafter specified, up to __________________________ (________) Units
("Units"), each Unit consisting of one share of the Company's Class A Common
Stock, $.001 par value, as now constituted ("Common Stock") and one warrant
("Warrants"). Each Warrant is exercisable to purchase one share of Class A
Common Stock at an exercise price of $7.00 from __________, 1997 to ________,
2002.
The Units have been registered under a registration statement (the
"Registration Statement") on Form S-1, (File No. 333-_______ ) declared
effective by the Securities and Exchange Commission on __________, 1997 (the
"Effective Date"). This Option, together with options of like tenor,
constituting in the aggregate options (the "Options") to purchase 250,000 Units,
subject to adjustment in accordance with Section 8 of this Option (the "Option
Units"), was originally issued pursuant to an underwriting agreement between the
Company and D.H. Blair Investment Banking Corp., as underwriter ("Blair" or the
"Underwriter") in connection with a public offering (the "Offering") of
2,500,000 Units (the "Public Units") through the Underwriter, in consideration
of $_______ received for the Options.
Except as specifically otherwise provided herein, the Common Stock and the
Warrants issued pursuant to the option herein granted (the "Option") shall bear
the same terms and conditions as described under the caption "Description of
Securities" in the Registration Statement, and the Warrants shall be governed by
the terms of the Warrant Agreement dated as of __________, 1997 executed in
connection with such public offering (the "Warrant Agreement"), and except that
(i) the holder shall have registration rights under the Securities Act of 1933,
as amended (the "Act"), for the Option, the Common Stock and the Warrants
included in the Option Units, and the shares of Common Stock underlying the
Warrants, as more fully described in Section 6 of this Option and (ii) the
Warrants issuable upon exercise of the Option will be subject to redemption by
the Company pursuant to the Warrant Agreement at any time after the Option has
been exercised and the Warrants underlying the Option Units are outstanding. Any
such redemption shall be on the same terms and conditions
<PAGE>
as the Warrants included in the Public Units (the "Public Warrants"). The
Company will list the Common Stock underlying this Option and, at the Holder's
request the Warrants, on the Nasdaq National Market or such other exchange or
market as the Common Stock or Public Warrants may then be listed or quoted. In
the event of any extension of the expiration date or reduction of the exercise
price of the Public Warrants, the same changes to the Warrants included in the
Option Units shall be simultaneously effected.
1. The rights represented by this Option shall be exercised at the prices,
subject to adjustment in accordance with Section 8 of this Option ("the
"Exercise Price"), and during the periods as follows:
(a) During the period from _______, 1997 to _______, 1999
inclusive, the Holder shall have no right to purchase any Option Units
hereunder, except that in the event of any merger, consolidation or
sale of all or substantially all the capital stock or assets of the
Company or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection
with a merger of another corporation into the Company) subsequent to
_______, 1997, the Holder shall have the right to exercise this Option
and the Warrants included herein at such time and receive the kind and
amount of shares of stock and other securities and property (including
cash) which a holder of the number of shares of Common Stock
underlying this Option and the Warrants included in this Option would
have owned or been entitled to receive had this Option been exercised
immediately prior thereto.
(b) Between _______, 1999 and _______, 2002 inclusive, the Holder
shall have the option to purchase Option Units hereunder at a price of
$_______ per Unit. For purposes of the adjustments under Section 8
hereof, the Per Share Exercise Price shall be deemed to be $_______,
subject to further adjustment as provided in such Section 8.
(c) After _________, 2002 the Holder shall have no right to
purchase any Units hereunder.
2. (a) The rights represented by this Option may be exercised at any time
within the period above specified, in whole or in part, by (i) the surrender of
this Option (with the purchase form at the end hereof properly executed) at the
principal executive office of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the Holder at the address of
the Holder appearing on the books of the Company); and (ii) payment to the
Company of the exercise price then in effect for the number of Option Units
specified in the above-mentioned purchase form together with applicable stock
transfer taxes, if any. This Option shall be deemed to have been exercised, in
whole or in part to the extent specified, immediately prior to the close of
business on the date this Option is
2
<PAGE>
surrendered and payment is made in accordance with the foregoing provisions of
this Section 2, and the person or persons in whose name or names the
certificates for shares of Common Stock and Warrants shall be issuable upon such
exercise shall become the holder or holders of record of such Common Stock and
Warrants at that time and date. The certificates for the Common Stock and
Warrants so purchased shall be delivered to the Holder as soon as practicable
but not later than ten (10) days after the rights represented by this Option
shall have been so exercised.
(b) At any time during the period above specified, during which this Option
may be exercised, the Holder may, at its option, exchange this Option, in whole
or in part (an "Option Exchange"), into the number of Option Units determined in
accordance with this Section (b), by surrendering this Option at the principal
office of the Company or at the office of its stock transfer agent, accompanied
by a notice stating such Holder's intent to effect such exchange, the number of
Option Units into which this Option is to be exchanged and the date on which the
Holder requests that such Option Exchange occur (the "Notice of Exchange"). The
Option Exchange shall take place on the date specified in the Notice of Exchange
or, if later, the date the Notice of Exchange is received by the Company (the
"Exchange Date"). Certificates for the shares of Common Stock and Warrants
issuable upon such Option Exchange and, if applicable, a new Option of like
tenor evidencing the balance of the Option Units remaining subject to this
Option, shall be issued as of the Exchange Date and delivered to the Holder
within seven (7) days following the Exchange Date. In connection with any Option
Exchange, this Option shall represent the right to subscribe for and acquire the
number of Option Units (rounded to the next highest integer) equal to (x) the
number of Option Units specified by the Holder in its Notice of Exchange up to
the maximum number of Option Units subject to this option (the "Total Number")
less (y) the number of Option Units equal to the quotient obtained by dividing
(A) the product of the Total Number and the existing Exercise Price by (B) the
Fair Market Value. "Fair Market Value" shall mean first, if there is a trading
market as indicated in Subsection (i) below for the Units, such Fair Market
Value of the Units and if there is no such trading market in the Units, then
Fair Market Value shall have the meaning indicated in Subsections (ii) through
(v) below for the aggregate value of all shares of Common Stock and Warrants
which comprise a Unit:
(i) If the Units are listed on a national securities
exchange or listed or admitted to unlisted trading privileges on
such exchange or listed for trading on the Nasdaq National Market
or the Nasdaq Small Cap Market, the Fair Market Value shall be
the average of the last reported sale prices or the average of
the means of the last reported bid and asked prices,
respectively, of the Units on such exchange or market for the
twenty (20) business days ending on the last business day prior
to the Exchange Date; or
(ii) If the Common Stock or Warrants are listed on a
national securities exchange or admitted to unlisted trading
privileges on such
3
<PAGE>
exchange or listed for trading on the Nasdaq National Market or
the Nasdaq Small Cap Market, the Fair Market Value shall be the
average of the last reported sale prices or the average of the
means of the last reported bid and asked prices, respectively, of
Common Stock or Warrants, respectively, on such exchange or
market for the twenty (20) business days ending on the last
business day prior to the Exchange Date; or
(iii) If the Common Stock or Warrants are not so listed or
admitted to unlisted trading privileges, the Fair Market Value
shall be the average of the means of the last reported bid and
asked prices of the Common Stock or Warrants, respectively, for
the twenty (20) business days ending on the last business day
prior to the Exchange Date; or
(iv) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so
reported, the Fair Market Value shall be an amount, not less than
book value thereof as at the end of the most recent fiscal year
of the Company ending prior to the Exchange Date, determined in
such reasonable manner as may be prescribed by the Board of
Directors of the Company; or
(v) If the Warrants are not so listed or admitted to
unlisted trading privileges, and bid and asked prices are not so
reported for Warrants, then Fair Market Value for the Warrants
shall be an amount equal to the difference between (i) the Fair
Market Value of the shares of Common Stock and Warrants which may
be received upon the exercise of the Warrants, as determined
herein, and (ii) the Warrant Exercise Price.
3. Neither this Option nor the underlying securities shall be transferred,
sold, assigned, or hypothecated for a period of two years commencing on the
Effective Date except that they may be transferred or assigned, in whole or in
part to (i) any person who is an officer or partner of the Holder; (ii) any
member participating in the selling group relating to the Offering, which may be
D.H. Blair & Co., Inc. ("Blair & Co.") or any officer or partner of such selling
group member; (iii) successors of the Holder or an officer or partner of such
successor; (iv) any purchaser of substantially all the assets of the Holder; or
(v) by operation of law. Any such assignment shall be effected by the Holder (i)
executing the form of assignment at the end hereof and (ii) surrendering this
Option for cancellation at the office or agency of the Company referred to in
Section 2 hereof, accompanied by a certificate (signed by an officer of the
Holder if the Holder is a corporation), stating that each transferee is a
permitted transferee under this Section 3 hereof; whereupon the Company shall
issue, in the name or names specified by the Holder (including the Holder) a new
Option or
4
<PAGE>
Options of like tenor and representing in the aggregate rights to purchase the
same number of Option Units as are purchasable hereunder.
4. The Company covenants and agrees that all shares of Common Stock which
may be issued as part of the Option Units purchased hereunder and the Common
Stock which may be issued upon exercise of the Warrants will, upon issuance, be
duly and validly issued, fully paid and nonassessable and no personal liability
will attach to the holder thereof. The Company further covenants and agrees that
during the periods within which this Option may be exercised, the Company will
at all times have authorized and reserved a sufficient number of shares of its
Common Stock to provide for the exercise of this Option and that it will have
authorized and reserved a sufficient number of shares of Common Stock for
issuance upon exercise of the Warrants included in the Option Units.
5. This Option shall not entitle the Holder to any voting rights or any
other rights, or subject to the Holder to any liabilities, as a stockholder of
the Company.
6. (a) The Company shall advise the Holder or its transferee, whether the
Holder holds the Option or has exercised the Option and holds Option Units or
any of the securities underlying the Option Units, by written notice at least
four weeks prior to the filing of any post-effective amendment to the
Registration Statement or of any new registration statement or post-effective
amendment thereto under the Act covering any securities of the Company, for its
own account or for the account of others, and will for a period of seven years
from the Effective Date, upon the request of the Holder, include in any such
post-effective amendment or registration statement, such information as may be
required to permit a public offering of the Option, all or any of the Option
Units, the Common Stock or Warrants included in the Option Units or the Common
Stock issuable upon the exercise of the Warrants (the "Registrable
Securities");provided, however, the right of any Holder to include its
Registrable Securities in any such post-effective amendment or registration
statement may be waived by the written consent of Blair or Blair & Co.
(b) If Blair or Blair & Co. shall give notice to the Company at any time to
the effect that such holder desires to register under the Act this Option, the
Option Units or any of the underlying securities contained in the Option Units
under such circumstances that a public distribution (within the meaning of the
Act) of any such securities will be involved then the Company will promptly, but
no later than two weeks after receipt of such notice, file a post-effective
amendment to the current Registration Statement or a new registration statement
on Form S-1 or such other form as the holder requests pursuant to the Act, to
the end that the Option, the Option Units and/or any of the securities
underlying the Option Units may be publicly sold under the Act as promptly as
practicable thereafter and the Company will use its best efforts to cause such
registration to become and remain effective (including the taking of such steps
as are necessary to obtain the removal of any stop order); provided, that such
holder shall furnish the Company with appropriate information in connection
5
<PAGE>
therewith as the Company may reasonably request in writing. Either Blair or
Blair & Co. may, at its option, request the filing of a post-effective amendment
to the current Registration Statement or a new registration statement under the
Act on two occasions during the four year period beginning one year from the
Effective Date. Blair or Blair & Co. may, at its option request the registration
of the Option and/or any of the securities underlying the Option in a
registration statement made by the Company as contemplated by Section 6(a) or in
connection with a request made pursuant to this Section 6(b) prior to
acquisition of the Option Units issuable upon exercise of the Option and even
though the Holder has not given notice of exercise of the Option. Blair or Blair
& Co. may, at its option, request such post-effective amendment or new
registration statement during the described period with respect to the Option,
the Option Units as a unit, or separately as to the Common Stock and/or Warrants
included in the Option Units and/or the Common Stock issuable upon the exercise
of the Warrants, and such registration rights may be exercised by Blair or Blair
& Co. prior to or subsequent to the exercise of the Option.
Within ten days after receiving any such notice pursuant to this Section
6(b), the Company shall give notice to the other holders of the Options,
advising that the Company is proceeding with such post-effective amendment or
registration statement and offering to include therein the securities underlying
the Options of the other holders, provided that they shall furnish the Company
with such appropriate information (relating to the intentions of such holders)
in connection therewith as the Company shall reasonably request in writing. In
the event the registration statement is not filed within the period specified
herein and in the event the registration statement is not declared effective
under the Act prior to ________, 200_, then, at the holders' request, the
Company shall purchase the Options from the holder for a per option price equal
to the difference between (i) the Fair Market Value of the Common Stock on the
date of notice multiplied by the number of shares of Common Stock issuable upon
exercise of the Option and the underlying Warrants and (ii) the average per
share purchase price of the Option and each share of Common Stock underlying the
Option.] All costs and expenses of the first such post-effective amendment or
new registration statement under this paragraph 6(b) shall be borne by the
Company, except that the holders shall bear the fees of their own counsel and
any underwriting discounts or commissions applicable to any of the securities
sold by them and all costs and expenses of the second such post-effective
amendment or new registration statement shall be borne by the Holders. If the
Company determines to include securities to be sold by it in any registration
statement originally requested pursuant to this Section 6(b), such registration
shall instead be deemed to have been a registration under Section 6(a) and not
under this Section 6(b).
The Company will maintain such registration statement or post-effective
amendment current under the Act for a period of at least six months (and for up
to an additional three months if requested by the Holder) from the effective
date thereof.
6
<PAGE>
(c) Whenever pursuant to Section 6 a registration statement relating to any
Registrable Securities is filed under the Act, amended or supplemented, the
Company shall (i) supply prospectuses and such other documents as the Holder may
request in order to facilitate the public sale or other disposition of the
Registrable Securities, (ii) use its best efforts to register and qualify any of
the Registrable Securities for sale in such states as such Holder designates,
(iii) furnish indemnification in the manner provided in Section 7 hereof, (iv)
notify each Holder of Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, contains an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and, at the request of
any such Holder, prepare and furnish to such Holder a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not included an untrue statement of a material
fact or omit to state material fact required to be stated therein or necessary
to make the statements therein not misleading and (v) do any and all other acts
and things which may be necessary or desirable to enable such Holders to
consummate the public sale or other disposition of the Registrable Securities,
The Holder shall furnish appropriate information in connection therewith and
indemnification as set forth in Section 7.
(d) The Company shall not permit the inclusion of any securities other than
the Registrable Securities to be included in any registration statement filed
pursuant to Section 6(b) hereof without the prior written consent of Blair or
Blair & Co.
(e) The Company shall furnish to each Holder participating in the offering
and to each underwriter, if any, a signed counterpart, addressed to such Holder
or underwriter, of (i) an opinion of counsel to the Company, dated the effective
date of such registration statement (or, if such registration includes an
underwritten public offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) if such registration includes an underwritten
public offering, a "cold comfort" letter dated the effective date of such
registration statement and dated the date of the closing under the underwriting
agreement signed by the independent public accountants who have issued a report
on the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the case of
such accountants' letter, with respect to events subsequent to the date of such
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(f) The Company shall deliver promptly to each Holder participating in the
offering requesting the correspondence and memoranda described
7
<PAGE>
below and to the managing underwriter copies of all correspondence between the
Commission and the Company, its counsel or auditors and all memoranda relating
to discussions with the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the registration statement as it deems reasonable necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to
non-confidential books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to such
reasonable extent and at such reasonable times as any such Holder shall
reasonably request.
7. (a) Whenever pursuant to Section 6 a registration statement relating to
the Registrable Securities is filed under the Act, amended or supplemented, the
Company will indemnify and hold harmless each holder of the Registrable
Securities covered by such registration statement, amendment or supplement (such
holder being hereinafter called the "Distributing Holder"), and each person, if
any, who controls (within the meaning of the Act) the Distributing Holder, and
each underwriter (within the meaning of the Act) of such securities and each
person, if any, who controls (within the meaning of the Act) any such
underwriter, against any losses, claims, damages or liabilities, joint or
several, to which the Distributing Holder, any such controlling person or any
such underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained in any such registration statement or any preliminary
prospectus or final prospectus constituting a part thereof or any amendment or
supplement thereto, or arise out of or are based upon the omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading; and will reimburse the Distributing Holder
and each such controlling person and underwriter for any legal or other expenses
reasonably incurred by the Distributing Holder or such controlling person or
underwriter in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in said registration statement,
said preliminary prospectus, said final prospectus or said amendment or
supplement in reliance upon and in conformity with written information furnished
by such Distributing Holder specifically for use in the preparation thereof. The
foregoing indemnification shall be in addition to any liability the Company may
otherwise have.
(b) If requested by the Company prior to the filing of any registration
statement covering the Registrable Securities, each Distributing Holder will
agree, severally but not jointly, to indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject,
8
<PAGE>
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in said registration statement, said
preliminary prospectus, said final prospectus, or said amendment or supplement,
or arise out of or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to the
extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in said registration statement, said preliminary
prospectus, said final prospectus or said amendment or supplement in reliance
upon and in conformity with written information furnished by such Distributing
Holder specifically for use in the preparation thereof; except that the maximum
amount which may be recovered from the Distributing Holder pursuant to this
Section 7 or otherwise shall be limited to the amount of net proceeds received
by the Distributing Holder from the sale of the Registrable Securities.
(c) Promptly after receipt by an indemnified party under this Section 7 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party, give the
indemnifying party notice of the commencement thereof; but the omission so to
notify the indemnifying party will not relieve it from any liability which it
may have to any indemnified party otherwise than under this Section 7.
(d) In case any such action is brought against any indemnified party, and
it notifies an indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation.
(8) In addition to the provisions of Section 1(a) of this Option, the
Exercise Price in effect at any time and the number and kind of securities
purchasable upon the exercise of the Options shall be subject to adjustment from
time to time upon the happening of certain events as follows:
(a) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock payable in shares of
Common Stock, (ii) subdivide or reclassify its outstanding shares of Common
Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the
Exercise Price in effect at the time of the record date for such dividend
or distribution or on the effective date of such subdivision, combination
or
9
<PAGE>
reclassification shall be proportionally adjusted so that it shall equal
the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock
outstanding after giving effect to such action, and the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior
to such action. Such adjustment shall be made successively whenever any
event listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each Option
is adjusted pursuant to Subsection (a) above, (i) the number of shares of
Common Stock included in an Option Unit shall simultaneously be adjusted by
multiplying the number of shares of Common Stock included in Option Unit
immediately prior to such adjustment by the Exercise Price in effect
immediately prior to such adjustment and dividing the product so obtained
by the Exercise Price, as adjusted and (ii) the number of shares of Common
Stock or other securities issuable upon exercise of the Warrants included
in the Option Units and the exercise price of such Warrants shall be
adjusted in accordance with the applicable terms of the Warrant Agreement.
(c) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least five cents
($0.05) in such price; provided, however, that any adjustments which by
reason of this Subsection (c) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment required to be
made hereunder. All calculations under this Section 8 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may
be. Anything in this Section 8 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such changes in the
Exercise Price, in addition to those required by this Section 8, as it
shall determine, in its sole discretion, to be advisable in order that any
dividend or distribution in shares of Common Stock, or any subdivision,
reclassification or combination of Common Stock, hereafter made by the
Company shall not result in any Federal Income tax liability to the holders
of Common Stock or securities convertible into Common Stock (including
Warrants issuable upon exercise of this Option).
(d) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such
an adjustment by the Holder, cause a notice setting forth the adjusted
Exercise Price and adjusted number of Option Units issuable upon exercise
of each Option and, if requested, information describing the transactions
giving rise to such adjustments, to be mailed to the Holders, at the
address set forth herein, and shall cause a certified copy thereof to be
mailed to its transfer agent, if any. The Company may retain a firm of
independent certified public accountants selected by the Board of Directors
(who may be the
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<PAGE>
regular accountants employed by the Company) to make any computation
required by this Section 8, and a certificate signed by such firm shall be
conclusive evidence of the correctness of such adjustment.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (a) above, the Holder of this Option thereafter
shall become entitled to receive any shares of the Company, other than
Common Stock, thereafter the number of such other shares so receivable upon
exercise of this Option shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock contained in Subsections (a) to (d),
inclusive above.
(f) In case any event shall occur as to which the other provisions of
this Section 8 or Section 1(a) hereof are not strictly applicable but as to
which the failure to make any adjustment would not fairly protect the
purchase rights represented by this Option in accordance with the essential
intent and principles hereof then, in each such case, the Holders of
Options representing the right to purchase a majority of the Option Units
may appoint a firm of independent public accountants reasonably acceptable
to the Company, which shall give their opinion as to the adjustment, if
any, on a basis consistent with the essential intent and principles
established herein, necessary to preserve the purchase rights represented
by the Options. Upon receipt of such opinion, the Company will promptly
mail a copy thereof to the Holder of this Option and shall make the
adjustments described therein. The fees and expenses of such independent
public accountants shall be borne by the Company.
9. This Agreement shall be governed by and in accordance with the laws of
the State of New York, without giving effect to the principles of conflicts of
law thereof.
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IN WITNESS WHEREOF, ____________ has caused this Option to be signed by its
duly authorized officers under its corporate seal, and this Option to be dated
____________, 1997.
TEKGRAF, INC.
By: ____________________________
Name:
Title: President
(Corporate Seal)
Attest:
______________________________
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PURCHASE FORM
(To be signed only upon exercise of option)
The undersigned, the holder of the foregoing Option, hereby irrevocably
elects to exercise the purchase rights represented by such Option for, and to
purchase thereunder, ______ Units of Tekgraf, Inc., each Unit consisting of one
share of Class A Common Stock, $.001 Par Value and one Class A Warrant to
purchase one share of Class A Common Stock and herewith makes payment of
$_________ thereof
Dated:____________ Instructions for Registration of Stock and Warrants
_______________________________________
Print Name
_______________________________________
Address
_______________________________________
Signature
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<PAGE>
OPTION EXCHANGE
The undersigned, pursuant to the provisions of the foregoing Option, hereby
elects to exchange its Option for _________ Units of Tekgraf, Inc., each Unit
consisting of one share of Class A Common Stock, $.001 Par Value and one Class A
Warrant to purchase one share of Class A Common Stock, pursuant to the Option
Exchange provisions of the Option.
Dated:________________
_______________________________________
Print Name
_______________________________________
Address
_______________________________________
Signature
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<PAGE>
TRANSFER FORM
(To be signed only upon transfer of the Option)
For value received, the undersigned hereby sells, assigns, and transfers
unto _______________ the right to purchase Units represented by the foregoing
Option to the extent of ____ Units, and appoints _____________ attorney to
transfer such rights on the books of Tekgraf, Inc., with full power of
substitution in the premises.
Dated: _________________
[Holder]
By: _____________________________________
_______________________________________
Address
In the presence of:
15
TEKGRAF, INC.
1997 STOCK OPTION PLAN
1. Purpose.
The purpose of this plan (the "Plan") is to secure for TEKGRAF, INC. (the
"Company") and its stockholders the benefits arising from capital stock
ownership by employees, officers and directors of, and consultants or advisors
to, the Company who are expected to contribute to the Company's future growth
and success. Except where the context otherwise requires, the term "Company"
shall include all present and future subsidiaries of the Company as defined in
Sections 424(e) and 424(f) of the Internal Revenue Code of 1986, as amended or
replaced from time to time (the "Code"). Those provisions of the Plan which make
express reference to Section 422 shall apply only to Incentive Stock Options (as
that term is defined in the Plan).
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to the Plan shall be
authorized by action of the Board of Directors of the Company (or a Committee
designated by the Board of Directors) and may be either incentive stock options
("Incentive Stock Options") meeting the requirements of Section 422 of the Code
or non-statutory options which are not intended to meet the requirements of
Section 422 of the Code.
(b) Administration. The Plan will be administered by a committee (the
"Committee") appointed by the Board of Directors of the Company, whose
construction and interpretation of the terms and provisions of the Plan shall be
final and conclusive. The delegation of powers to the Committee shall be
consistent with applicable laws or regulations (including, without limitation,
applicable state law and Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"), or any successor rule ("Rule 16b-3")). The
Committee may in its sole discretion grant options to purchase shares of the
Company's Class A Common Stock, $.001 par value per share ("Common Stock") and
issue shares upon exercise of such options as provided in the Plan. The
Committee shall have authority, subject to the express provisions of the Plan,
to construe the respective option agreements and the Plan, to prescribe, amend
and rescind rules and regulations relating to the Plan, to determine the terms
and provisions of the respective option agreements, which need not be identical,
and to make all other determinations in the judgment of the Committee necessary
or desirable for the administration of the Plan. The Committee may correct any
defect or supply any omission or reconcile any inconsistency in the Plan or in
any option agreement in the manner and to the extent it shall deem expedient to
carry the Plan into effect and it shall be the sole and final judge of such
expediency. No director or person acting pursuant to authority delegated by the
Board of Directors shall be liable for any action or determination under the
Plan made in good faith.
<PAGE>
(c) Applicability of Rule 16b-3. Those provisions of the Plan which make
express reference to Rule 16b-3 shall apply to the Company only at such time as
the Company's Common Stock is registered under the Exchange Act, subject to the
last sentence of Section 3(b), and then only to such persons as are required to
file reports under Section 16(a) of the Exchange Act (a "Reporting Person").
3. Eligibility.
(a) General. Options may be granted to persons who are, at the time of
grant, employees, officers or directors of, or consultants or advisors to, the
Company provided, that Incentive Stock Options may only be granted to
individuals who are employees of the Company (within the meaning of Section
3401(c) of the Code). A person who has been granted an option may, if he or she
is otherwise eligible, be granted additional options if the Board of Directors
shall so determine.
(b) Grant of Options to Reporting Persons. From and after the registration
of the Common Stock of the Company under the Exchange Act, the selection of a
director or an officer who is a Reporting Person (as the terms "director" and
"officer" are defined for purposes of Rule 16b-3) as a recipient of an option,
the timing of the option grant, the exercise price of the option and the number
of shares subject to the option shall be determined either (i) by the Board of
Directors, of which all members shall be "disinterested persons" (as hereinafter
defined), or (ii) by a committee consisting of two or more directors having full
authority to act in the matter, each of whom shall be a "disinterested person."
For the purposes of the Plan, a director shall be deemed to be a "disinterested
person" only if such person qualifies as a "disinterested person" within the
meaning of Rule 16b-3, as such term is interpreted from time to time. If at
least two of the members of the Board of Directors do not qualify as a
"disinterested person" within the meaning of Rule 16b-3, as such term is
interpreted from time to time, then the granting of options to officers and
directors who are Reporting Persons under the Plan shall not be determined in
accordance with this Section 3(b) but shall be determined in accordance with the
other provisions of the Plan.
4. Stock Subject to Plan.
The stock subject to options granted under the Plan shall be shares of
authorized but unissued or reacquired Common Stock. Subject to adjustment as
provided in Section 15 below, the maximum number of shares of Common Stock of
the Company which may be issued and sold under the Plan is 300,000 shares. If an
option granted under the Plan shall expire, terminate or is cancelled for any
reason without having been exercised in full, the unpurchased shares subject to
such option shall again be available for subsequent option grants under the
Plan.
5. Forms of Option Agreements.
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<PAGE>
As a condition to the grant of an option under the Plan, each recipient of
an option shall execute an option agreement in such form not inconsistent with
the Plan as may be approved by the Board of Directors. Such option agreements
may differ among recipients.
6. Purchase Price.
(a) General. The purchase price per share of stock deliverable upon the
exercise of an option shall be determined by the Board of Directors at the time
of grant of such option; provided, however, that in the case of an Incentive
Stock Option, the exercise price shall not be less than 100% of the Fair Market
Value (as hereinafter defined) of such stock, at the time of grant of such
option, or less than 110% of such Fair Market Value in the case of options
described in Section 11(b). "Fair Market Value" of a share of Common Stock of
the Company as of a specified date for the purposes of the Plan shall mean the
closing price of a share of the Common Stock on the principal securities
exchange on which such shares are traded on the day immediately preceding the
date as of which Fair Market Value is being determined, or on the next preceding
date on which such shares are traded if no shares were traded on such
immediately preceding day, or if the shares are not traded on a securities
exchange, Fair Market Value shall be deemed to be the average of the high bid
and low asked prices of the shares in the over-the-counter market on the day
immediately preceding the date as of which Fair Market Value is being determined
or on the next preceding date on which such high bid and low asked prices were
recorded. If the shares are not publicly traded, Fair Market Value of a share of
Common Stock (including, in the case of any repurchase of shares, any
distributions with respect thereto which would be repurchased with the shares)
shall be determined in good faith by the Board of Directors. In no case shall
Fair Market Value be determined with regard to restrictions other than
restrictions which, by their terms, will never lapse.
(b) Payment of Purchase Price. Options granted under the Plan may provide
for the payment of the exercise price by delivery of cash or a check to the
order of the Company in an amount equal to the exercise price of such options,
or, to the extent provided in the applicable option agreement, (i) by delivery
to the Company of shares of Common Stock of the Company having a Fair Market
Value on the date of exercise equal in amount to the exercise price of the
options being exercised, (ii) by any other means which the Board of Directors
determines are consistent with the purpose of the Plan and with applicable laws
and regulations (including, without limitation, the provisions of Rule 16b-3 and
Regulation T promulgated by the Federal Reserve Board) or (iii) by any
combination of such methods of payment.
7. Option Period.
Subject to earlier termination as provided in the Plan, each option and
all rights thereunder shall expire on such date as determined by the Board of
Directors and set forth in the applicable option agreement, provided, that such
date shall not be later than (10) ten years after the date on which the option
is granted.
8. Exercise of Options.
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<PAGE>
Each option granted under the Plan shall be exercisable either in full or
in installments at such time or times and during such period as shall be set
forth in the option agreement evidencing such option, subject to the provisions
of the Plan. No option granted to a Reporting Person for purposes of the
Exchange Act, however, shall be exercisable during the first six months after
the date of grant. Subject to the requirements in the immediately preceding
sentence, if an option is not at the time of grant immediately exercisable, the
Board of Directors may (i) in the agreement evidencing such option, provide for
the acceleration of the exercise date or dates of the subject option upon the
occurrence of specified events, and/or (ii) at any time prior to the complete
termination of an option, accelerate the exercise date or dates of such option.
9. Nontransferability of Options.
No option granted under this Plan shall be assignable or otherwise
transferable by the optionee except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined in
the Code or Title I of the Employee Retirement Income Security Act, or the rules
thereunder. An option may be exercised during the lifetime of the optionee only
by the optionee. In the event an optionee dies during his employment by the
Company or any of its subsidiaries, or during the three-month period following
the date of termination of such employment, his option shall thereafter be
exercisable, during the period specified in the option agreement, by his
executors or administrators to the full extent to which such option was
exercisable by the optionee at the time of his death during the periods set
forth in Section 10 or 11(d).
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11(d) with respect to Incentive Stock
Options, and subject to the provisions of the Plan, an optionee may exercise an
option at any time within three (3) months following the termination of the
optionee's employment or other relationship with the Company or within one (1)
year if such termination was due to the death or disability of the optionee,
but, except in the case of the optionee's death, in no event later than the
expiration date of the Option. If the termination of the optionee's employment
is for cause or is otherwise attributable to a breach by the optionee of an
employment or confidentiality or non-disclosure agreement, the option shall
expire immediately upon such termination. The Board of Directors shall have the
power to determine what constitutes a termination for cause or a breach of an
employment or confidentiality or non-disclosure agreement, whether an optionee
has been terminated for cause or has breached such an agreement, and the date
upon which such termination for cause or breach occurs. Any such determinations
shall be final and conclusive and binding upon the optionee.
11. Incentive Stock Options.
Options granted under the Plan which are intended to be Incentive Stock
Options shall be subject to the following additional terms and conditions:
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(a) Express Designation. All Incentive Stock Options granted under the
Plan shall, at the time of grant, be specifically designated as such in the
option agreement covering such Incentive Stock Options.
(b) 10% Stockholder. If any employee to whom an Incentive Stock Option is
to be granted under the Plan is, at the time of the grant of such option, the
owner of stock possessing more than 10% of the total combined voting power of
all classes of stock of the Company (after taking into account the attribution
of stock ownership rules of Section 424(d) of the Code), then the following
special provisions shall be applicable to the Incentive Stock Option granted to
such individual:
(i) The purchase price per share of the Common Stock subject to such
Incentive Stock Option shall not be less than 110% of the Fair Market
Value of one share of Common Stock at the time of grant; and
(ii) the option exercise period shall not exceed five years from the
date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide, options
granted to any employee under the Plan (and any other incentive stock option
plans of the Company) which are intended to constitute Incentive Stock Options
shall not constitute Incentive Stock Options to the extent that such options, in
the aggregate, become exercisable for the first time in any one calendar year
for shares of Common Stock with an aggregate Fair Market Value, as of the
respective date or dates of grant, of more than $100,000.
(d) Termination of Employment, Death or Disability. No Incentive Stock
Option may be exercised unless, at the time of such exercise, the optionee is,
and has been continuously since the date of grant of his or her option, employed
by the Company, except that:
(i) an Incentive Stock Option may be exercised within the period of
three months after the date the optionee ceases to be an employee of the
Company (or within such lesser period as may be specified in the
applicable option agreement), provided, that the agreement with respect to
such option may designate a longer exercise period and that the exercise
after such three-month period shall be treated as the exercise of a
non-statutory option under the Plan;
(ii) if the optionee dies while in the employ of the Company, or
within three months after the optionee ceases to be such an employee, the
Incentive Stock Option may be exercised by the person to whom it is
transferred by will or the laws of descent and distribution within the
period of one year after the date of death (or within such lesser period
as may be specified in the applicable option agreement); and
(iii) if the optionee becomes disabled (within the meaning of
Section 22(e)(3) of the Code or any successor provisions thereto) while in
the
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<PAGE>
employ of the Company, the Incentive Stock Option may be exercised within
the period of one year after the date the optionee ceases to be such an
employee because of such disability (or within such lesser period as may
be specified in the applicable option agreement).
For all purposes of the Plan and any option granted hereunder, "employment"
shall be defined in accordance with the provisions of Section 1.421-7(h) of the
Income Tax Regulations (or any successor regulations). Notwithstanding the
foregoing provisions, no Incentive Stock Option may be exercised after its
expiration date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board of Directors may, in its sole
discretion, include additional provisions in option agreements covering options
granted under the Plan, including without limitation restrictions on transfer,
repurchase rights, rights of first refusal, commitments to pay cash bonuses, to
make, arrange for or guaranty loans or to transfer other property to optionees
upon exercise of options, or such other provisions as shall be determined by the
Board of Directors; provided, that such additional provisions shall not be
inconsistent with any other term or condition of the Plan and such additional
provisions shall not cause any Incentive Stock Option granted under the Plan to
fail to qualify as an Incentive Stock Option within the meaning of Section 422
of the Code.
(b) Acceleration, Extension, Etc. The Board of Directors may, in its sole
discretion, (i) accelerate the date or dates on which all or any particular
option or options granted under the Plan may be exercised or (ii) extend the
dates during which all, or any particular, option or options granted under the
Plan may be exercised; provided, however, that no such extension shall be
permitted if it would cause the Plan to fail to comply with Section 422 of the
Code or with Rule 16b-3 (if applicable).
13. General Restrictions.
(a) Investment Representations. The Company may require any person to whom
an option is granted, as a condition of exercising such option, to give written
assurances in substance and form satisfactory to the Company to the effect that
such person is acquiring the Common Stock subject to the option for his or her
own account for investment and not with any present intention of selling or
otherwise distributing the same, and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws, or with covenants or representations made by the Company in
connection with any public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to the
requirement that if, at any time, counsel to the Company shall determine that
the listing, registration or qualification of the shares subject to such option
upon any securities exchange or under any state or federal law, or the consent
or approval of any governmental or regulatory body, or that the disclosure of
non-public information or the satisfaction of any other condition is
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<PAGE>
necessary as a condition of, or in connection with the issuance or purchase of
shares thereunder, such option may not be exercised, in whole or in part, unless
such listing, registration, qualification, consent or approval, or satisfaction
of such condition shall have been effected or obtained on conditions acceptable
to the Board of Directors. Nothing herein shall be deemed to require the Company
to apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with respect
to any shares covered by the option (including, without limitation, any rights
to receive dividends or non-cash distributions with respect to such shares)
until the date of issue of a stock certificate to him or her for such shares. No
adjustment shall be made for dividends or other rights for which the record date
is prior to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations, Reorganizations and Related
Transactions.
(a) Recapitalizations and Related Transactions. If, through or as a result
of any recapitalization, reclassification, stock dividend, stock split, reverse
stock split or other similar transaction, (i) the outstanding shares of Common
Stock are increased, decreased or exchanged for a different number or kind of
shares or other securities of the Company, or (ii) additional shares or new or
different shares or other non-cash assets are distributed with respect to such
shares of Common Stock or other securities, an appropriate and proportionate
adjustment shall be made in (x) the maximum number and kind of shares reserved
for issuance under the Plan, (y) the number and kind of shares or other
securities subject to any then outstanding options under the Plan, and (z) the
price for each share subject to any then outstanding options under the Plan,
without changing the aggregate purchase price as to which such options remain
exercisable. Notwithstanding the foregoing, no adjustment shall be made pursuant
to this Section 15 if such adjustment (i) would cause the Plan to fail to comply
with Section 422 of the Code or with Rule 16b-3 or (ii) would be considered as
the adoption of a new plan requiring stockholder approval.
(b) Reorganization, Merger and Related Transactions. If the Company shall
be the surviving corporation in any reorganization, merger or consolidation of
the Company with one or more other corporations, any then outstanding option
granted pursuant to the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Common Stock subject to such options
would have been entitled immediately following such reorganization, merger, or
consolidation, with a corresponding proportionate adjustment of the purchase
price as to which such options may be exercised so that the aggregate purchase
price as to which such options may be exercised shall be the same as the
aggregate purchase price as to which such options may be exercised for the
shares remaining subject to the options immediately prior to such
reorganization, merger, or consolidation.
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<PAGE>
(c) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board of Directors, whose determination as to
what adjustments, if any, will be made and the extent thereof will be final,
binding and conclusive. No fractional shares will be issued under the Plan on
account of any such adjustments.
16. Merger, Consolidation, Asset Sale, Liquidation, etc.
(a) General. In the event of a consolidation or merger in which the
Company is not the surviving corporation, or sale of all or substantially all of
the assets of the Company in which outstanding shares of Common Stock are
exchanged for securities, cash or other property of any other corporation or
business entity or in the event of a liquidation of the Company (collectively, a
"Corporate Transaction"), the Board of Directors of the Company, or the board of
directors of any corporation assuming the obligations of the Company, may, in
its discretion, take any one or more of the following actions, as to outstanding
options: (i) provide that such options shall be assumed, or equivalent options
shall be substituted, by the acquiring or succeeding corporation (or an
affiliate thereof), provided that any such options substituted for Incentive
Stock Options shall meet the requirements of Section 424(a) of the Code, (ii)
upon written notice to the optionees, provide that all unexercised options will
terminate immediately prior to the consummation of such transaction unless
exercised by the optionee within a specified period following the date of such
notice, (iii) in the event of a Corporate Transaction under the terms of which
holders of the Common Stock of the Company will receive upon consummation
thereof a cash payment for each share surrendered in the Corporate Transaction
(the "Transaction Price"), make or provide for a cash payment to the optionees
equal to the difference between (A) the Transaction Price times the number of
shares of Common Stock subject to such outstanding options (to the extent then
exercisable at prices not in excess of the Transaction Price) and (B) the
aggregate exercise price of all such outstanding options in exchange for the
termination of such options, and (iv) provide that all or any outstanding
options shall become exercisable in full immediately prior to such event.
(b) Substitute Options. The Company may grant options under the Plan in
substitution for options held by employees of another corporation who become
employees of the Company, or a subsidiary of the Company, as the result of a
merger or consolidation of the employing corporation with the Company or a
subsidiary of the Company, or as a result of the acquisition by the Company, or
one of its subsidiaries, of property or stock of the employing corporation. The
Company may direct that substitute options be granted on such terms and
conditions as the Board of Directors considers appropriate in the circumstances.
17. No Special Employment Rights.
Nothing contained in the Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
the Company or interfere in any way with the right of the Company at any time to
terminate such employment or to increase or decrease the compensation of the
optionee.
18. Other Employee Benefits.
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Except as to plans which by their terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, without
limitation, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board of Directors.
19. Amendment of the Plan.
(a) The Board of Directors may at any time, and from time to time, modify
or amend the Plan in any respect, except that if at any time the approval of the
stockholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, or under Rule
16b-3, the Board of Directors may not effect such modification or amendment
without such approval.
(b) The modification or amendment of the Plan shall not, without the
consent of an optionee, affect his or her rights under an option previously
granted to him or her. With the consent of the optionee affected, the Board of
Directors may amend outstanding option agreements in a manner not inconsistent
with the Plan. The Board of Directors shall have the right to amend or modify
(i) the terms and provisions of the Plan and of any outstanding Incentive Stock
Options granted under the Plan to the extent necessary to qualify any or all
such options for such favorable federal income tax treatment (including deferral
of taxation upon exercise) as may be afforded incentive stock options under
Section 422 of the Code and (ii) the terms and provisions of the Plan and of any
outstanding option to the extent necessary to ensure the qualification of the
Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any kind
otherwise due to the optionee any federal, state or local taxes of any kind
required by law to be withheld with respect to any shares issued upon exercise
of options under the Plan. Subject to the prior approval of the Company, which
may be withheld by the Company in its sole discretion, the optionee may elect to
satisfy such obligations, in whole or in part, (i) by causing the Company to
withhold shares of Common Stock otherwise issuable pursuant to the exercise of
an option or (ii) by delivering to the Company shares of Common Stock already
owned by the optionee. The shares so delivered or withheld shall have a Fair
Market Value equal to such withholding obligation as of the date that the amount
of tax to be withheld is to be determined. An optionee who has made an election
pursuant to this Section 20(a) may only satisfy his or her withholding
obligation with shares of Common Stock which are not subject to any repurchase,
forfeiture, unfulfilled vesting or other similar requirements.
(b) The acceptance of shares of Common Stock upon exercise of an Incentive
Stock Option shall constitute an agreement by the optionee (i) to notify the
Company if any or all of such shares are disposed of by the optionee within two
years from the date the
-9-
<PAGE>
option was granted or within one year from the date the shares were issued to
the optionee pursuant to the exercise of the option, and (ii) if required by
law, to remit to the Company, at the time of and in the case of any such
disposition, an amount sufficient to satisfy the Company's federal, state and
local withholding tax obligations with respect to such disposition, whether or
not, as to both (i) and (ii), the optionee is in the employ of the Company at
the time of such disposition.
(c) Notwithstanding the foregoing, in the case of a Reporting Person whose
options have been granted in accordance with the provisions of Section 3(b)
herein, no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options, Etc.
The Board of Directors shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees, (i) the
cancellation of any or all outstanding options under the Plan and the grant in
substitution therefor of new options under the Plan covering the same or
different numbers of shares of Common Stock and having an option exercise price
per share which may be lower or higher than the exercise price per share of the
cancelled options or (ii) the amendment of the terms of any and all outstanding
options under the Plan to provide an option exercise price per share which is
higher or lower than the then-current exercise price per share of such
outstanding options.
22. Effective Date and Duration of the Plan.
(a) Effective Date. The Plan shall become effective when adopted by the
Board of Directors, but no Incentive Stock Option granted under the Plan shall
become exercisable unless and until the Plan shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months after the date of the Board's adoption of the Plan, no options
previously granted under the Plan shall be deemed to be Incentive Stock Options
and no Incentive Stock Options shall be granted thereafter. Amendments to the
Plan not requiring stockholder approval shall become effective when adopted by
the Board of Directors; amendments requiring stockholder approval (as provided
in Section 19) shall become effective when adopted by the Board of Directors,
but no Incentive Stock Option granted after the date of such amendment shall
become exercisable (to the extent that such amendment to the Plan was required
to enable the Company to grant such Incentive Stock Option to a particular
optionee) unless and until such amendment shall have been approved by the
Company's stockholders. If such stockholder approval is not obtained within
twelve months of the Board's adoption of such amendment, any Incentive Stock
Options granted on or after the date of such amendment shall terminate to the
extent that such amendment to the Plan was required to enable the Company to
grant such option to a particular optionee. Subject to this limitation, options
may be granted under the Plan at any time after the effective date and before
the date fixed for termination of the Plan.
-10-
<PAGE>
(b) Termination. Unless sooner terminated in accordance with Section 16,
the Plan shall terminate upon the earlier of (i) the close of business on the
day next preceding the tenth anniversary of the date of its adoption by the
Board of Directors, or (ii) the date on which all shares available for issuance
under the Plan shall have been issued pursuant to the exercise or cancellation
of options granted under the Plan. If the date of termination is determined
under (i) above, then options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the instruments evidencing
such options.
23. Provision for Foreign Participants.
The Board of Directors may, without amending the Plan, modify awards or
options granted to participants who are foreign nationals or employed outside
the United States to recognize differences in laws, rules, regulations or
customs of such foreign jurisdictions with respect to tax, securities, currency,
employee benefit or other matters.
24. Governing Law.
The provisions of this Plan shall be governed and construed in accordance
with the laws of the State of Delaware without regard to the principles of
conflicts of laws.
Adopted by the Board of Directors on August 7, 1996
-11-
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 2, 1997, between Crescent Computers, Inc., a Georgia
corporation (the "Company"), and Phillip C. Aginsky (the "Employee").
W I T N E S S E T H:
WHEREAS, Company desires to employ Employee, or to continue Employee's
employment, and Employee desires to be employed by Company on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment. The Company agrees to employ Employee for the position of
Chairman of the Board.
2. Duties and Responsibilities. Employee agrees to devote his or her full
time and attention and his or her best efforts to performing his or her duties
hereunder. While employed by the Company, Employee will not, without the
Company's prior written consent, engage in any other business activity, other
than investment of Employee's personal funds on a passive basis and without
lending assistance directly or indirectly to any competitor. In no event shall
Employee pursue outside business or personal interests that interfere with his
or her full-time responsibilities or entail any use of the Company's resources.
The services of Employee hereunder shall be performed principally at the
facility of the Company located in Atlanta, Georgia. In no event may the Company
require Employee to relocate without his consent.
3. Compensation. The Company shall pay to Employee as compensation for all
services rendered hereunder a base salary in the amount of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) per annum, payable according to the
Company's normal procedures as adopted from time to time. In addition to base
salary, the Company may, in its sole discretion, based on Employee's
performance, pay to Employee bonus compensation on such terms as the Company may
adopt from time to time for such purpose. The Company reserves the right to
modify or terminate any such program or change the terms of eligibility in its
discretion at any time, provided, however, that any such modification or
termination shall be non-discriminatory as to employees at the same or similar
grade or level of employment with the Company.
4. Reimbursable Expenses and Fringe Benefits. In addition to the
compensation provided under Section 3 above:
(a) Employee shall be reimbursed for all pre-approved out-of-pocket
expenses incurred by him while conducting Company business in accordance with
the policies adopted by the Company from time to time for such purpose; and
<PAGE>
(b) Employee shall be entitled to participate in other benefit
programs, such as group insurance policies, and medical and health benefits
plans, to the extent maintained by the Company and offered to other executive
employees under the programs adopted by the Company from time to time for such
purpose. Employee shall be entitled to initial paid vacation periods aggregating
two (2) weeks per year. The Company reserves the right to modify or terminate
any such benefit program or change the terms of eligibility at any time in its
discretion to the fullest extent permitted by applicable law.
5. Term of Employment.
(a) The term of Employee's employment shall commence on the
effective date of this Agreement and continue for an initial term of two (2)
years, unless sooner terminated as provided herein. Upon expiration of the
initial term, and annually thereafter, the term of Employee's employment shall
automatically renew on a year-to-year basis, unless and until terminated as
provided herein. In the event of any renewal of the term of such employment,
automatic or otherwise, the compensation of Employee shall be determined by the
Board of Directors of the Company effective at the time of renewal; provided
however, that if the Employee is not satisfied with the compensation determined
by the Board of Directors, he may, by written notice to the Board of Directors
within ten (10) days after receiving written notice of such compensation,
terminate this Agreement without liability except under the restrictive
covenants contained herein.
(b) Employee's employment hereunder may be terminated hereunder at
any time following the occurrence of any of the following events:
(i) the death of Employee;
(ii) the total disability of Employee, which shall be
considered to occur if Employee is unable to substantially perform his or her
normal required services hereunder for a period of 90 days within any 120-day
period by reason of Employee's mental or physical disability as so determined by
an independent licensed physician reasonably satisfactory to the Company;
(iii) a finding that Employee has committed negligence or
misconduct that materially departs from the standard of care applicable to
Employee or the duties assigned to Employee hereunder; that Employee has failed
or refused to comply with his or her duties; that Employee has been chronically
inattentive to his or her duties or habitually absent from his or her work; or
that Employee has committed any breach of this Agreement; provided that the
Company shall give Employee notice of its finding prior to terminating
Employee's employment on such grounds and, if the matter is such as to permit
cure in the reasonable judgment of the Company, Employee shall have a reasonable
period of time, not to exceed thirty (30) days, to avert termination by curing
the grounds for such termination;
-2-
<PAGE>
(iv) a finding that Employee has committed any act that casts
the Company in public disrepute; that Employee has been advised that he or she
is a target or subject of a grand jury investigation or similar proceeding or
investigation (which Employee shall promptly communicate to the Company); that
Employee has been indicted for, pleads guilty or nolo contendere to, or is
convicted of any felony; or that Employee has otherwise committed any act or
offense involving moral turpitude;
(v) the decision of either the Company or Employee to
terminate Employee's employment upon the expiration of the current term of
Employee's employment; provided that the party electing termination shall give
the other party notice of such decision at least thirty (30) days before such
expiration is to occur;
Any finding, determination or decision on the part of the company referred
to in this Section 5(b) shall be made by the Board of Directors of the Company.
(c) In the event of any termination of Employee's employment,
Employee shall immediately tender his or her resignation from all positions as
officer and director of the Company and each subsidiary and affiliate (if any)
which Employee serves in such capacity. All parties may rely on this provision
as evidence of such resignation at such time.
(d) Notwithstanding any termination of Employee's employment,
Sections 6 through 12 hereof inclusive shall continue in accordance with their
terms.
6. Ownership of Work Product.
(a) Employee shall diligently disclose to the Company as soon as it
is created or conceived by Employee, and the Company shall own, all Work Product
(as defined below). To the extent permitted by law, all Work Product shall be
considered work made for hire by Employee and owned by the Company.
(b) If any of the Work Product may not, by operation of law, be
considered work made for hire by Employee for the Company (or if ownership of
all right, title and interest of the intellectual property rights therein shall
not otherwise vest exclusively in the Company), Employee agrees to assign, and
upon creation thereof automatically assigns, without further consideration, the
ownership of all Trade Secrets (as defined below), U.S. and international
copyrights, patentable inventions, and other intellectual property rights
therein to the Company, its successors and assigns.
(c) The Company, its successors and assigns, shall have the right to
obtain and hold in its or their own name copyrights, registrations, and any
other protection available in the foregoing.
(d) Employee agrees to perform upon the reasonable request of the
Company, during or after Employee's employment, such further acts as may be
necessary or desirable to
-3-
<PAGE>
transfer, perfect and defend the Company's ownership of the Work Product. When
requested, Employee will
(i) Execute, acknowledge and deliver any requested affidavits
and documents of assignment and conveyance;
(ii) Obtain and aid in the enforcement of copyrights (and, if
applicable, patents) with respect to the Work Product in any countries;
(iii) Provide testimony in connection with any proceeding
affecting the right, title or interest of the Company in any Work Product; and
(iv) Perform any other acts deemed necessary or desirable to
carry out the purposes of this Agreement.
The Company shall reimburse all reasonable out-of-pocket expenses incurred by
Employee at the Company's request in connection with the foregoing, including
(unless Employee is otherwise being compensated at the time) a reasonable per
diem or hourly fee for services rendered following termination of Employee's
employment.
(e) For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international copyrights,
patentable inventions, discoveries and improvements, and other intellectual
property rights, in any programming, documentation, technology or other work
product that relates to the business and interests of the Company and that
Employee conceives, develops, or delivers to the Company at any time during the
term of Employee's employment. "Work Product" shall also include all
intellectual property rights in any programming, documentation, technology or
other work product that is now contained in any of the products or systems
(including development and support systems) of the Company to the extent
Employee conceived, developed or delivered such Work Product to the Company
prior to the date of this Agreement while Employee was engaged as an independent
contractor or employee of the Company. Employee hereby irrevocably relinquishes
for the benefit of the Company and its assigns any moral rights in the Work
Product recognized by applicable law.
7. Confidentiality. Employee shall maintain in strict confidence and shall
not use or disclose (except as required to perform Employee's duties under this
Agreement) all Trade Secrets of Company, its affiliates and customers. This
obligation shall apply during and after the term of this Agreement for so long
as the pertinent information remains a Trade Secret, and shall apply whether or
not the Trade Secret is in written or tangible form. As provided by Georgia
statutes, "Trade Secret" shall mean any information (including, but not limited
to, technical or non-technical data, a formula, a pattern, a compilation, a
program, a device, a method, a technique, a drawing, a process, financial data,
financial plans, product plans, or a list of actual or potential customers)
that: (i) derives economic value, actual or potential, from not being generally
known to, and not being readily ascertainable by proper means by, other persons
who
-4-
<PAGE>
can obtain economic value from its disclosure or use; and (ii) is the subject of
efforts that are reasonable under the circumstances to maintain its secrecy. In
the case of Company's business, Company's Trade Secrets include (without
limitation) information regarding names and addresses of any customers, sales
personnel, account invoices, training and educational manuals, administrative
manuals, prospective customer leads, in whatever form, whether or not computer
or electronically accessible "on-line."
8. Return of Materials. Upon the request of the Company and, in any event,
upon the termination of Employee's employment,
(a) Employee shall take such steps as Company may reasonably request
in order to transfer, disclose, and give Company the full benefit of any Work
Product remaining in Employee's possession; and
(b) Employee shall deliver to Company all memoranda, notes, records,
drawings, daily or monthly appointment calendars, manuals, disks and other
documents and media, regardless of form, that contain Work Product or Trade
Secrets or otherwise relate to the Company's business. Employee shall not retain
any such materials (whether in original or duplicated form) following such
delivery.
9. No Solicitation of Customers.
(a) For a period of two (2) years following termination of
Employee's employment, Employee shall not, either directly or indirectly, alone
or in concert with others, solicit or attempt to solicit Customers in the
Restricted Territory to acquire or obtain any product or service competitive
with any Current Product of the Company from anyone other than Company. It is
intended that this provision be limited to: (a) solicitation or attempts to
solicit; (b) Customers who meet the narrow criteria set forth in this Section
and who are located in the Restricted Territory (as defined with respect to each
such Customer); and (c) products competitive with Current Products of the
Company.
(b) For purposes of this Section, a "Customer" refers to any person
or group of persons with whom Employee had direct material contact while selling
Current Products of the Company during the period of two (2) years preceding
termination of Employee's employment; "Current Products" refers to the products
and services that Employee or any personnel under his or her supervision were
authorized to market or sell on behalf of Company during the period of two (2)
years preceding termination of Employee's employment; and "Restricted Territory"
refers to the continental United States of America, it being acknowledged that
the scope of Company's business and Employee's managerial responsibilities are
of that scope.
10. No Recruitment of Personnel. For a period of three (3) years following
termination of Employee's employment, Employee shall not, either directly or
indirectly, alone or in concert with others, induce or attempt to induce any
employee, agent, independent
-5-
<PAGE>
contractor or other personnel of Company to terminate his, her or their
relationship with Company, or recruit or attempt to recruit such persons to
accept employment or a contract with another business that would have the effect
of terminating his, her or its relationship with the Company.
11. Names and Marks. Following the termination of Employee's employment,
Employee shall not, for the benefit of his or her own or any other person or
entity's business, use or display the names, marks, logos or slogans of the
Company or its affiliates, or any name, mark, logo or slogan confusingly similar
thereto, without the prior written consent of the Company.
12. Enforcement. In the event of any breach or threatened breach by
Employee of any covenant contained in the above Sections 6 through 11, the
resulting injuries to the Company would be difficult or impossible to estimate
accurately, even though irreparable injury or damages would certainly result.
Accordingly, an award of legal damages, if without other relief, would be
inadequate to protect the Company. Employee therefore agrees that, in the event
of any such breach, the Company shall be entitled to apply to a court of
competent jurisdiction to obtain an injunction to restrain the breach or
anticipated breach of any such covenant, and to obtain any other available
legal, equitable, statutory, or contractual relief. Should the Company have
cause to seek such relief, no bond shall be required, and Employee shall pay all
attorney's fees and court costs which the Company may incur.
13. Representations. Employee represents and warrants to the Company that
he is not a party to any other agreement or arrangement containing
non-competition, non-solicitation, non-recruitment or similar obligations on the
part of Employee.
14. Miscellaneous.
(a) This Agreement shall inure to the benefit of, and be binding
upon, the Company and its subsidiaries and affiliates, together with their
successors and assigns, and Employee, together with his or her executors,
administrators, personal representatives, heirs and legatees.
(b) Any notice or request hereunder shall be in writing and shall be
given by hand delivery, mail, telecopy or similar transmission addressed as set
forth beside the name of each party at the end of this Agreement or to any such
other address as either party may specify to the other by written notice. Such
notice or request shall be deemed to have been given and received only on and
after receipt by the designated individual (specifically the President, in the
case of the Company), effective as of the date of such authorized recipient's
actual receipt of such notice or request if received during normal business
hours on a normal business day or as of the first business day after receipt if
given after normal business hours or on a day other than a normal business day.
-6-
<PAGE>
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND ENFORCED UNDER THE LAWS
OF THE STATE OF GEORGIA AS THEY APPLY TO A CONTRACT EXECUTED, DELIVERED AND
PERFORMED ENTIRELY IN SUCH STATE.
(d) This Agreement merges and supersedes all prior and
contemporaneous agreements, undertakings, covenants or conditions, whether oral
or written, express or implied, to the extent they contradict or conflict with
the provisions hereof.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(f) This Agreement may be modified only by a written instrument
signed by each of the parties hereto. No waiver shall be effective unless made
in writing and signed by the party against whom enforcement is sought.
(g) Should any aspect or provision of this Agreement prove invalid
or unenforceable for any reason, the remainder of this Agreement shall
nonetheless be fully enforced to the fullest extent permitted by law, regardless
of whether the invalid or unenforceable aspect or provision is facially
severable from the remainder of this Agreement; provided that if a court of
competent jurisdiction holds any covenant herein invalid by reason of its
duration or its geographic or business scope, then the court shall have the
power to rewrite or reform such covenant so as not to be invalid under
applicable law.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
"THE COMPANY" "EMPLOYEE"
CRESCENT COMPUTERS, INC.
- ------------------------ ----------------------------
Signature Signature
- ------------------------ ----------------------------
Title Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B Address: 2979 Pacific Drive, Suite B
Norcross, Georgia 30071 Norcross, Georgia 30071
Effective Date:_______________
-7-
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 2, 1997, between Crescent Computers, Inc., a Georgia
corporation (the "Company"), and Dan I. Bailey (the "Employee").
W I T N E S S E T H:
WHEREAS, Company desires to employ Employee, or to continue Employee's
employment, and Employee desires to be employed by Company on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment. The Company agrees to employ Employee for the position of
Co-President-Technology Division. Employee shall perform such duties as the
Board of Directors of the Company from time to time may assign to him or her
hereunder.
2. Duties and Responsibilities. Employee agrees to devote his or her full
time and attention and his or her best efforts to performing his or her duties
hereunder. While employed by the Company, Employee will not, without the
Company's prior written consent, engage in any other business activity, other
than investment of Employee's personal funds on a passive basis and without
lending assistance directly or indirectly to any competitor. In no event shall
Employee pursue outside business or personal interests that interfere with his
or her full-time responsibilities or entail any use of the Company's resources.
The services of Employee hereunder shall be performed principally at the
facility of the Company located in Atlanta, Georgia. In no event may the Company
require Employee to relocate without his consent.
3. Compensation. The Company shall pay to Employee as compensation for all
services rendered hereunder a base salary in the amount of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) per annum, payable according to the
Company's normal procedures as adopted from time to time. In addition to base
salary, the Company may, in its sole discretion, based on Employee's
performance, pay to Employee bonus compensation on such terms as the Company may
adopt from time to time for such purpose. The Company reserves the right to
modify or terminate any such program or change the terms of eligibility in its
discretion at any time, provided, however, that any such modification or
termination shall be non-discriminatory as to employees at the same or similar
grade or level of employment with the Company.
4. Reimbursable Expenses and Fringe Benefits. In addition to the
compensation provided under Section 3 above:
<PAGE>
(a) Employee shall be reimbursed for all pre-approved out-of-pocket
expenses incurred by him while conducting Company business in accordance with
the policies adopted by the Company from time to time for such purpose; and
(b) Employee shall be entitled to participate in other benefit
programs, such as group insurance policies, and medical and health benefits
plans, to the extent maintained by the Company and offered to other executive
employees under the programs adopted by the Company from time to time for such
purpose. Employee shall be entitled to initial paid vacation periods aggregating
two (2) weeks per year. The Company reserves the right to modify or terminate
any such benefit program or change the terms of eligibility at any time in its
discretion to the fullest extent permitted by applicable law.
5. Term of Employment.
(a) The term of Employee's employment shall commence on the
effective date of this Agreement and continue for an initial term of two (2)
years, unless sooner terminated as provided herein. Upon expiration of the
initial term, and annually thereafter, the term of Employee's employment shall
automatically renew on a year-to-year basis, unless and until terminated as
provided herein. In the event of any renewal of the term of such employment,
automatic or otherwise, the compensation of Employee shall be determined by the
Board of Directors of the Company effective at the time of renewal; provided
however, that if the Employee is not satisfied with the compensation determined
by the Board of Directors, he may, by written notice to the Board of Directors
within ten (10) days after receiving written notice of such compensation,
terminate this Agreement without liability except under the restrictive
covenants contained herein.
(b) Employee's employment hereunder may be terminated hereunder at
any time following the occurrence of any of the following events:
(i) the death of Employee;
(ii) the total disability of Employee, which shall be
considered to occur if Employee is unable to substantially perform his or her
normal required services hereunder for a period of 90 days within any 120-day
period by reason of Employee's mental or physical disability as so determined by
an independent licensed physician reasonably satisfactory to the Company;
(iii) a finding that Employee has committed negligence or
misconduct that materially departs from the standard of care applicable to
Employee or the duties assigned to Employee hereunder; that Employee has failed
or refused to comply with his or her duties; that Employee has been chronically
inattentive to his or her duties or habitually absent from his or her work; or
that Employee has committed any breach of this Agreement; provided that the
Company shall give Employee notice of its finding prior to terminating
Employee's employment on such grounds and, if the matter is such as to permit
cure in the reasonable judgment of the
-2-
<PAGE>
Company, Employee shall have a reasonable period of time, not to exceed thirty
(30) days, to avert termination by curing the grounds for such termination;
(iv) a finding that Employee has committed any act that casts
the Company in public disrepute; that Employee has been advised that he or she
is a target or subject of a grand jury investigation or similar proceeding or
investigation (which Employee shall promptly communicate to the Company); that
Employee has been indicted for, pleads guilty or nolo contendere to, or is
convicted of any felony; or that Employee has otherwise committed any act or
offense involving moral turpitude;
(v) the decision of either the Company or Employee to
terminate Employee's employment upon the expiration of the current term of
Employee's employment; provided that the party electing termination shall give
the other party notice of such decision at least thirty (30) days before such
expiration is to occur;
Any finding, determination or decision on the part of the company referred
to in this Section 5(b) shall be made by the Board of Directors of the Company.
(c) In the event of any termination of Employee's employment,
Employee shall immediately tender his or her resignation from all positions as
officer and director of the Company and each subsidiary and affiliate (if any)
which Employee serves in such capacity. All parties may rely on this provision
as evidence of such resignation at such time.
(d) Notwithstanding any termination of Employee's employment,
Sections 6 through 12 hereof inclusive shall continue in accordance with their
terms.
6. Ownership of Work Product.
(a) Employee shall diligently disclose to the Company as soon as it
is created or conceived by Employee, and the Company shall own, all Work Product
(as defined below). To the extent permitted by law, all Work Product shall be
considered work made for hire by Employee and owned by the Company.
(b) If any of the Work Product may not, by operation of law, be
considered work made for hire by Employee for the Company (or if ownership of
all right, title and interest of the intellectual property rights therein shall
not otherwise vest exclusively in the Company), Employee agrees to assign, and
upon creation thereof automatically assigns, without further consideration, the
ownership of all Trade Secrets (as defined below), U.S. and international
copyrights, patentable inventions, and other intellectual property rights
therein to the Company, its successors and assigns.
(c) The Company, its successors and assigns, shall have the right to
obtain and hold in its or their own name copyrights, registrations, and any
other protection available in the foregoing.
-3-
<PAGE>
(d) Employee agrees to perform upon the reasonable request of the
Company, during or after Employee's employment, such further acts as may be
necessary or desirable to transfer, perfect and defend the Company's ownership
of the Work Product. When requested, Employee will
(i) Execute, acknowledge and deliver any requested affidavits
and documents of assignment and conveyance;
(ii) Obtain and aid in the enforcement of copyrights (and, if
applicable, patents) with respect to the Work Product in any countries;
(iii) Provide testimony in connection with any proceeding
affecting the right, title or interest of the Company in any Work Product; and
(iv) Perform any other acts deemed necessary or desirable to
carry out the purposes of this Agreement.
The Company shall reimburse all reasonable out-of-pocket expenses incurred by
Employee at the Company's request in connection with the foregoing, including
(unless Employee is otherwise being compensated at the time) a reasonable per
diem or hourly fee for services rendered following termination of Employee's
employment.
(e) For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international copyrights,
patentable inventions, discoveries and improvements, and other intellectual
property rights, in any programming, documentation, technology or other work
product that relates to the business and interests of the Company and that
Employee conceives, develops, or delivers to the Company at any time during the
term of Employee's employment. "Work Product" shall also include all
intellectual property rights in any programming, documentation, technology or
other work product that is now contained in any of the products or systems
(including development and support systems) of the Company to the extent
Employee conceived, developed or delivered such Work Product to the Company
prior to the date of this Agreement while Employee was engaged as an independent
contractor or employee of the Company. Employee hereby irrevocably relinquishes
for the benefit of the Company and its assigns any moral rights in the Work
Product recognized by applicable law.
7. Confidentiality. Employee shall maintain in strict confidence and shall
not use or disclose (except as required to perform Employee's duties under this
Agreement) all Trade Secrets of Company, its affiliates and customers. This
obligation shall apply during and after the term of this Agreement for so long
as the pertinent information remains a Trade Secret, and shall apply whether or
not the Trade Secret is in written or tangible form. As provided by Georgia
statutes, "Trade Secret" shall mean any information (including, but not limited
to, technical or non-technical data, a formula, a pattern, a compilation, a
program, a device, a method, a technique, a drawing, a process, financial data,
financial plans, product plans, or a list of actual
-4-
<PAGE>
or potential customers) that: (i) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or
use; and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. In the case of Company's business,
Company's Trade Secrets include (without limitation) information regarding names
and addresses of any customers, sales personnel, account invoices, training and
educational manuals, administrative manuals, prospective customer leads, in
whatever form, whether or not computer or electronically accessible "on-line."
8. Return of Materials. Upon the request of the Company and, in any event,
upon the termination of Employee's employment,
(a) Employee shall take such steps as Company may reasonably request
in order to transfer, disclose, and give Company the full benefit of any Work
Product remaining in Employee's possession; and
(b) Employee shall deliver to Company all memoranda, notes, records,
drawings, daily or monthly appointment calendars, manuals, disks and other
documents and media, regardless of form, that contain Work Product or Trade
Secrets or otherwise relate to the Company's business. Employee shall not retain
any such materials (whether in original or duplicated form) following such
delivery.
9. No Solicitation of Customers.
(a) For a period of two (2) years following termination of
Employee's employment, Employee shall not, either directly or indirectly, alone
or in concert with others, solicit or attempt to solicit Customers in the
Restricted Territory to acquire or obtain any product or service competitive
with any Current Product of the Company from anyone other than Company. It is
intended that this provision be limited to: (a) solicitation or attempts to
solicit; (b) Customers who meet the narrow criteria set forth in this Section
and who are located in the Restricted Territory (as defined with respect to each
such Customer); and (c) products competitive with Current Products of the
Company.
(b) For purposes of this Section, a "Customer" refers to any person
or group of persons with whom Employee had direct material contact while selling
Current Products of the Company during the period of two (2) years preceding
termination of Employee's employment; "Current Products" refers to the products
and services that Employee or any personnel under his or her supervision were
authorized to market or sell on behalf of Company during the period of two (2)
years preceding termination of Employee's employment; and "Restricted Territory"
refers to the continental United States of America, it being acknowledged that
the scope of Company's business and Employee's managerial responsibilities are
of that scope.
-5-
<PAGE>
10. No Recruitment of Personnel. For a period of three (3) years following
termination of Employee's employment, Employee shall not, either directly or
indirectly, alone or in concert with others, induce or attempt to induce any
employee, agent, independent contractor or other personnel of Company to
terminate his, her or their relationship with Company, or recruit or attempt to
recruit such persons to accept employment or a contract with another business
that would have the effect of terminating his, her or its relationship with the
Company.
11. Names and Marks. Following the termination of Employee's employment,
Employee shall not, for the benefit of his or her own or any other person or
entity's business, use or display the names, marks, logos or slogans of the
Company or its affiliates, or any name, mark, logo or slogan confusingly similar
thereto, without the prior written consent of the Company.
12. Enforcement. In the event of any breach or threatened breach by
Employee of any covenant contained in the above Sections 6 through 11, the
resulting injuries to the Company would be difficult or impossible to estimate
accurately, even though irreparable injury or damages would certainly result.
Accordingly, an award of legal damages, if without other relief, would be
inadequate to protect the Company. Employee therefore agrees that, in the event
of any such breach, the Company shall be entitled to apply to a court of
competent jurisdiction to obtain an injunction to restrain the breach or
anticipated breach of any such covenant, and to obtain any other available
legal, equitable, statutory, or contractual relief. Should the Company have
cause to seek such relief, no bond shall be required, and Employee shall pay all
attorney's fees and court costs which the Company may incur.
13. Representations. Employee represents and warrants to the Company that
he is not a party to any other agreement or arrangement containing
non-competition, non-solicitation, non-recruitment or similar obligations on the
part of Employee.
14. Miscellaneous.
(a) This Agreement shall inure to the benefit of, and be binding
upon, the Company and its subsidiaries and affiliates, together with their
successors and assigns, and Employee, together with his or her executors,
administrators, personal representatives, heirs and legatees.
(b) Any notice or request hereunder shall be in writing and shall be
given by hand delivery, mail, telecopy or similar transmission addressed as set
forth beside the name of each party at the end of this Agreement or to any such
other address as either party may specify to the other by written notice. Such
notice or request shall be deemed to have been given and received only on and
after receipt by the designated individual (specifically the President, in the
case of the Company), effective as of the date of such authorized recipient's
actual receipt of such notice or request if received during normal business
hours on a normal business day or as of
-6-
<PAGE>
the first business day after receipt if given after normal business hours or on
a day other than a normal business day.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND ENFORCED UNDER THE LAWS
OF THE STATE OF GEORGIA AS THEY APPLY TO A CONTRACT EXECUTED, DELIVERED AND
PERFORMED ENTIRELY IN SUCH STATE.
(d) This Agreement merges and supersedes all prior and
contemporaneous agreements, undertakings, covenants or conditions, whether oral
or written, express or implied, to the extent they contradict or conflict with
the provisions hereof.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(f) This Agreement may be modified only by a written instrument
signed by each of the parties hereto. No waiver shall be effective unless made
in writing and signed by the party against whom enforcement is sought.
(g) Should any aspect or provision of this Agreement prove invalid
or unenforceable for any reason, the remainder of this Agreement shall
nonetheless be fully enforced to the fullest extent permitted by law, regardless
of whether the invalid or unenforceable aspect or provision is facially
severable from the remainder of this Agreement; provided that if a court of
competent jurisdiction holds any covenant herein invalid by reason of its
duration or its geographic or business scope, then the court shall have the
power to rewrite or reform such covenant so as not to be invalid under
applicable law.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
"THE COMPANY" "EMPLOYEE"
CRESCENT COMPUTERS, INC.
- ------------------------ ----------------------------
Signature Signature
- ------------------------ ----------------------------
Title Dan I. Bailey
Address: 2979 Pacific Drive, Suite B Address: 2979 Pacific Drive, Suite B
Norcross, Georgia 30071 Norcross, Georgia 30071
-7-
<PAGE>
Effective Date:_______________
-8-
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 2, 1997, between Crescent Computers, Inc., a Georgia
corporation (the "Company"), and William M. Rychel (the "Employee").
W I T N E S S E T H:
WHEREAS, Company desires to employ Employee, or to continue Employee's
employment, and Employee desires to be employed by Company on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment. The Company agrees to employ Employee for the position
of Chief Executive Officer-Graphics Sales Division. Employee shall perform such
duties as the Board of Directors of the Company from time to time may assign to
him or her hereunder, including (without limitation) responsibility for sales of
graphic technology products.
2. Duties and Responsibilities. Employee agrees to devote his or her
full time and attention and his or her best efforts to performing his or her
duties hereunder. While employed by the Company, Employee will not, without the
Company's prior written consent, engage in any other business activity, other
than investment of Employee's personal funds on a passive basis and without
lending assistance directly or indirectly to any competitor. In no event shall
Employee pursue outside business or personal interests that interfere with his
or her full-time responsibilities or entail any use of the Company's resources.
The services of Employee hereunder shall be performed principally at the
facility of the Company located in Vernon Hills, Illinois. In no event may the
Company require Employee to relocate without his consent.
3. Compensation. The Company shall pay to Employee as compensation for
all services rendered hereunder a base salary in the amount of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) per annum, payable according to the
Company's normal procedures as adopted from time to time. In addition to base
salary, the Company may, in its sole discretion, based on Employee's
performance, pay to Employee bonus compensation on such terms as the Company may
adopt from time to time for such purpose. The Company reserves the right to
modify or terminate any such program or change the terms of eligibility in its
discretion at any time, provided, however, that any such modification or
termination shall be non-discriminatory as to employees at the same or similar
grade or level of employment with the Company.
4. Reimbursable Expenses and Fringe Benefits. In addition to the
compensation provided under Section 3 above:
(a) Employee shall be reimbursed for all pre-approved out-of-pocket
expenses incurred by him while conducting Company business in accordance with
the policies adopted by the Company from time to time for such purpose; and
<PAGE>
(b) Employee shall be entitled to participate in other benefit
programs, such as group insurance policies, and medical and health benefits
plans, to the extent maintained by the Company and offered to other executive
employees under the programs adopted by the Company from time to time for such
purpose. Employee shall be entitled to initial paid vacation periods aggregating
two (2) weeks per year. The Company reserves the right to modify or terminate
any such benefit program or change the terms of eligibility at any time in its
discretion to the fullest extent permitted by applicable law.
5. Term of Employment.
(a) The term of Employee's employment shall commence on the
effective date of this Agreement and continue for an initial term of two (2)
years, unless sooner terminated as provided herein. Upon expiration of the
initial term, and annually thereafter, the term of Employee's employment shall
automatically renew on a year-to-year basis, unless and until terminated as
provided herein. In the event of any renewal of the term of such employment,
automatic or otherwise, the compensation of Employee shall be determined by the
Board of Directors of the Company effective at the time of renewal; provided
however, that if the Employee is not satisfied with the compensation determined
by the Board of Directors, he may, by written notice to the Board of Directors
within ten (10) days after receiving written notice of such compensation,
terminate this Agreement without liability except under the restrictive
covenants contained herein.
(b) Employee's employment hereunder may be terminated hereunder at
any time following the occurrence of any of the following events:
(i) the death of Employee;
(ii) the total disability of Employee, which shall be
considered to occur if Employee is unable to substantially perform his or her
normal required services hereunder for a period of 90 days within any 120-day
period by reason of Employee's mental or physical disability as so determined by
an independent licensed physician reasonably satisfactory to the Company;
(iii) a finding that Employee has committed negligence or
misconduct that materially departs from the standard of care applicable to
Employee or the duties assigned to Employee hereunder; that Employee has failed
or refused to comply with his or her duties; that Employee has been chronically
inattentive to his or her duties or habitually absent from his or her work; or
that Employee has committed any breach of this Agreement; provided that the
Company shall give Employee notice of its finding prior to terminating
Employee's employment on such grounds and, if the matter is such as to permit
cure in the reasonable judgment of the Company, Employee shall have a reasonable
period of time, not to exceed thirty (30) days, to avert termination by curing
the grounds for such termination;
2
<PAGE>
(iv) a finding that Employee has committed any act that casts
the Company in public disrepute; that Employee has been advised that he or she
is a target or subject of a grand jury investigation or similar proceeding or
investigation (which Employee shall promptly communicate to the Company); that
Employee has been indicted for, pleads guilty or nolo contendere to, or is
convicted of any felony; or that Employee has otherwise committed any act or
offense involving moral turpitude;
(v) the decision of either the Company or Employee to
terminate Employee's employment upon the expiration of the current term of
Employee's employment; provided that the party electing termination shall give
the other party notice of such decision at least thirty (30) days before such
expiration is to occur;
(vi) The exercise by the shareholders of G&R Marketing, Inc.
("G&R") of the Put Option (as defined) pursuant to Section 6.3 of the Stock
Purchase Agreement dated as of May 1, 1997 between the Company and G&R.
Any finding, determination or decision on the part of the company referred to in
this Section 5(b) shall be made by the Board of Directors of the Company.
(c) In the event of any termination of Employee's employment,
Employee shall immediately tender his or her resignation from all positions as
officer and director of the Company and each subsidiary and affiliate (if any)
which Employee serves in such capacity. All parties may rely on this provision
as evidence of such resignation at such time.
(d) Notwithstanding any termination of Employee's employment,
Sections 6 through 12 hereof inclusive shall continue in accordance with their
terms.
6. Ownership of Work Product.
(a) Employee shall diligently disclose to the Company as soon as it
is created or conceived by Employee, and the Company shall own, all Work Product
(as defined below). To the extent permitted by law, all Work Product shall be
considered work made for hire by Employee and owned by the Company.
(b) If any of the Work Product may not, by operation of law, be
considered work made for hire by Employee for the Company (or if ownership of
all right, title and interest of the intellectual property rights therein shall
not otherwise vest exclusively in the Company), Employee agrees to assign, and
upon creation thereof automatically assigns, without further consideration, the
ownership of all Trade Secrets (as defined below), U.S. and international
copyrights, patentable inventions, and other intellectual property rights
therein to the Company, its successors and assigns.
3
<PAGE>
(c) The Company, its successors and assigns, shall have the right to
obtain and hold in its or their own name copyrights, registrations, and any
other protection available in the foregoing.
(d) Employee agrees to perform upon the reasonable request of the
Company, during or after Employee's employment, such further acts as may be
necessary or desirable to transfer, perfect and defend the Company's ownership
of the Work Product. When requested, Employee will
(i) Execute, acknowledge and deliver any requested affidavits
and documents of assignment and conveyance;
(ii) Obtain and aid in the enforcement of copyrights (and, if
applicable, patents) with respect to the Work Product in any countries;
(iii) Provide testimony in connection with any proceeding
affecting the right, title or interest of the Company in any Work Product; and
(iv) Perform any other acts deemed necessary or desirable to
carry out the purposes of this Agreement.
The Company shall reimburse all reasonable out-of-pocket expenses incurred by
Employee at the Company's request in connection with the foregoing, including
(unless Employee is otherwise being compensated at the time) a reasonable per
diem or hourly fee for services rendered following termination of Employee's
employment.
(e) For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international copyrights,
patentable inventions, discoveries and improvements, and other intellectual
property rights, in any programming, documentation, technology or other work
product that relates to the business and interests of the Company and that
Employee conceives, develops, or delivers to the Company at any time during the
term of Employee's employment. "Work Product" shall also include all
intellectual property rights in any programming, documentation, technology or
other work product that is now contained in any of the products or systems
(including development and support systems) of the Company to the extent
Employee conceived, developed or delivered such Work Product to the Company
prior to the date of this Agreement while Employee was engaged as an independent
contractor or employee of the Company. Employee hereby irrevocably relinquishes
for the benefit of the Company and its assigns any moral rights in the Work
Product recognized by applicable law.
7. Confidentiality. Employee shall maintain in strict confidence and
shall not use or disclose (except as required to perform Employee's duties under
this Agreement) all Trade Secrets of Company, its affiliates and customers. This
obligation shall apply during and after the term of this Agreement for so long
as the pertinent information remains a Trade Secret, and shall
4
<PAGE>
apply whether or not the Trade Secret is in written or tangible form. As
provided by Georgia statutes, "Trade Secret" shall mean any information
(including, but not limited to, technical or non-technical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, or a list of actual or
potential customers) that: (i) derives economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or
use; and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. In the case of Company's business,
Company's Trade Secrets include (without limitation) information regarding names
and addresses of any customers, sales personnel, account invoices, training and
educational manuals, administrative manuals, prospective customer leads, in
whatever form, whether or not computer or electronically accessible "on-line."
8. Return of Materials. Upon the request of the Company and, in any
event, upon the termination of Employee's employment,
(a) Employee shall take such steps as Company may reasonably request
in order to transfer, disclose, and give Company the full benefit of any Work
Product remaining in Employee's possession; and
(b) Employee shall deliver to Company all memoranda, notes, records,
drawings, daily or monthly appointment calendars, manuals, disks and other
documents and media, regardless of form, that contain Work Product or Trade
Secrets or otherwise relate to the Company's business. Employee shall not retain
any such materials (whether in original or duplicated form) following such
delivery.
9. No Solicitation of Customers.
(a) For a period of two (2) years following termination of
Employee's employment, Employee shall not, either directly or indirectly, alone
or in concert with others, solicit or attempt to solicit Customers in the
Restricted Territory to acquire or obtain any product or service competitive
with any Current Product of the Company from anyone other than Company. It is
intended that this provision be limited to: (a) solicitation or attempts to
solicit; (b) Customers who meet the narrow criteria set forth in this Section
and who are located in the Restricted Territory (as defined with respect to each
such Customer); and (c) products competitive with Current Products of the
Company.
(b) For purposes of this Section, a "Customer" refers to any person
or group of persons with whom Employee had direct material contact while selling
Current Products of the Company during the period of two (2) years preceding
termination of Employee's employment; "Current Products" refers to the products
and services that Employee or any personnel under his or her supervision were
authorized to market or sell on behalf of Company during the period of two (2)
years preceding termination of Employee's employment; and "Restricted Territory"
refers to the continental United States of America, it being acknowledged
5
<PAGE>
that the scope of Company's business and Employee's managerial responsibilities
are of that scope.
(c) Notwithstanding the provisions of this Section 9, following
termination of Employee's employment, it shall not be a violation of this
Agreement if Employee shall solicit Customers while acting on behalf of G/B
Marketing, Inc. in the capacity of manufacturer's representative, provided that
within two (2) years following such termination neither Employee nor such
company shall engage in the business of computer systems integration, wholesale
distribution of computers or computer-peripherals, or reseller activities in
such products, including the wholesale purchase and selling or leasing of
computers and computer-peripheral equipment, data communications equipment and
software, or providing technical support or advice to end users in relation to
such products.
10. No Recruitment of Personnel. For a period of three (3) years
following termination of Employee's employment, Employee shall not, either
directly or indirectly, alone or in concert with others, induce or attempt to
induce any employee, agent, independent contractor or other personnel of Company
to terminate his, her or their relationship with Company, or recruit or attempt
to recruit such persons to accept employment or a contract with another business
that would have the effect of terminating his, her or its relationship with the
Company.
11. Names and Marks. Following the termination of Employee's employment,
Employee shall not, for the benefit of his or her own or any other person or
entity's business, use or display the names, marks, logos or slogans of the
Company or its affiliates, or any name, mark, logo or slogan confusingly similar
thereto, without the prior written consent of the Company.
12. Enforcement. In the event of any breach or threatened breach by
Employee of any covenant contained in the above Sections 6 through 11, the
resulting injuries to the Company would be difficult or impossible to estimate
accurately, even though irreparable injury or damages would certainly result.
Accordingly, an award of legal damages, if without other relief, would be
inadequate to protect the Company. Employee therefore agrees that, in the event
of any such breach, the Company shall be entitled to apply to a court of
competent jurisdiction to obtain an injunction to restrain the breach or
anticipated breach of any such covenant, and to obtain any other available
legal, equitable, statutory, or contractual relief. Should the Company have
cause to seek such relief, no bond shall be required, and Employee shall pay all
attorney's fees and court costs which the Company may incur.
6
<PAGE>
13. Representations. Employee represents and warrants to the Company
that he is not a party to any other agreement or arrangement containing
non-competition, non-solicitation, non-recruitment or similar obligations on the
part of Employee.
14. Miscellaneous.
(a) This Agreement shall inure to the benefit of, and be binding
upon, the Company and its subsidiaries and affiliates, together with their
successors and assigns, and Employee, together with his or her executors,
administrators, personal representatives, heirs and legatees.
(b) Any notice or request hereunder shall be in writing and shall be
given by hand delivery, mail, telecopy or similar transmission addressed as set
forth beside the name of each party at the end of this Agreement or to any such
other address as either party may specify to the other by written notice. Such
notice or request shall be deemed to have been given and received only on and
after receipt by the designated individual (specifically the President, in the
case of the Company), effective as of the date of such authorized recipient's
actual receipt of such notice or request if received during normal business
hours on a normal business day or as of the first business day after receipt if
given after normal business hours or on a day other than a normal business day.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND ENFORCED UNDER THE LAWS
OF THE STATE OF GEORGIA AS THEY APPLY TO A CONTRACT EXECUTED, DELIVERED AND
PERFORMED ENTIRELY IN SUCH STATE.
(d) This Agreement merges and supersedes all prior and
contemporaneous agreements, undertakings, covenants or conditions, whether oral
or written, express or implied, to the extent they contradict or conflict with
the provisions hereof.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(f) This Agreement may be modified only by a written instrument
signed by each of the parties hereto. No waiver shall be effective unless made
in writing and signed by the party against whom enforcement is sought.
(g) Should any aspect or provision of this Agreement prove invalid
or unenforceable for any reason, the remainder of this Agreement shall
nonetheless be fully enforced to the fullest extent permitted by law, regardless
of whether the invalid or unenforceable aspect or provision is facially
severable from the remainder of this Agreement; provided that if a court of
competent jurisdiction holds any covenant herein invalid by reason of its
duration or its geographic or business scope, then the court shall have the
power to rewrite or reform such covenant so as not to be invalid under
applicable law.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
"THE COMPANY" "EMPLOYEE"
CRESCENT COMPUTERS, INC.
- ------------------------------ ------------------------------
Signature Signature
- ------------------------------ ------------------------------
Title William M. Rychel
Address: 2979 Pacific Drive, Suite B Address: 2665 Oak Street
Norcross, Georgia 30071 Highland Park, Illinois 60035
Effective Date:_______________
8
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 2, 1997, between Crescent Computers, Inc., a Georgia
corporation (the "Company"), and Patrick J. McLaughlin (the "Employee").
W I T N E S S E T H:
WHEREAS, Company desires to employ Employee, or to continue Employee's
employment, and Employee desires to be employed by Company on the terms and
conditions hereinafter set forth;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment. The Company agrees to employ Employee for the position
of Regional Sales Director. Employee shall perform such duties as the Board of
Directors of the Company from time to time may assign to him or her hereunder,
including (without limitation) responsibility for sales of graphic technology
products in Employee's assigned region.
2. Duties and Responsibilities. Employee agrees to devote his or her
full time and attention and his or her best efforts to performing his or her
duties hereunder. While employed by the Company, Employee will not, without the
Company's prior written consent, engage in any other business activity, other
than investment of Employee's personal funds on a passive basis and without
lending assistance directly or indirectly to any competitor. In no event shall
Employee pursue outside business or personal interests that interfere with his
or her full-time responsibilities or entail any use of the Company's resources.
The services of Employee hereunder shall be performed principally at the
facility of the Company located in Pleasanton, California. In no event may the
Company require Employee to relocate without his consent.
3. Compensation. The Company shall pay to Employee as compensation for
all services rendered hereunder a base salary in the amount of One Hundred
Twenty-Five Thousand Dollars ($125,000.00) per annum, payable according to the
Company's normal procedures as adopted from time to time. In addition to base
salary, the Company may, in its sole discretion, based on Employee's
performance, pay to Employee bonus compensation on such terms as the Company may
adopt from time to time for such purpose. The Company reserves the right to
modify or terminate any such program or change the terms of eligibility in its
discretion at any time, provided, however, that any such modification or
termination shall be non-discriminatory as to employees at the same or similar
grade or level of employment with the Company.
4. Reimbursable Expenses and Fringe Benefits. In addition to the
compensation provided under Section 3 above:
(a) Employee shall be reimbursed for all pre-approved out-of-pocket
expenses incurred by him while conducting Company business in accordance with
the policies adopted by the Company from time to time for such purpose; and
<PAGE>
(b) Employee shall be entitled to participate in other benefit
programs, such as group insurance policies, and medical and health benefits
plans, to the extent maintained by the Company and offered to other executive
employees under the programs adopted by the Company from time to time for such
purpose. Employee shall be entitled to initial paid vacation periods aggregating
two (2) weeks per year. The Company reserves the right to modify or terminate
any such benefit program or change the terms of eligibility at any time in its
discretion to the fullest extent permitted by applicable law.
5. Term of Employment.
(a) The term of Employee's employment shall commence on the
effective date of this Agreement and continue for an initial term of two (2)
years, unless sooner terminated as provided herein. Upon expiration of the
initial term, and annually thereafter, the term of Employee's employment shall
automatically renew on a year-to-year basis, unless and until terminated as
provided herein. In the event of any renewal of the term of such employment,
automatic or otherwise, the compensation of Employee shall be determined by the
Board of Directors of the Company effective at the time of renewal; provided
however, that if the Employee is not satisfied with the compensation determined
by the Board of Directors, he may, by written notice to the Board of Directors
within ten (10) days after receiving written notice of such compensation,
terminate this Agreement without liability except under the restrictive
covenants contained herein.
(b) Employee's employment hereunder may be terminated hereunder at
any time following the occurrence of any of the following events:
(i) the death of Employee;
(ii) the total disability of Employee, which shall be
considered to occur if Employee is unable to substantially perform his or her
normal required services hereunder for a period of 90 days within any 120-day
period by reason of Employee's mental or physical disability as so determined by
an independent licensed physician reasonably satisfactory to the Company;
(iii) a finding that Employee has committed negligence or
misconduct that materially departs from the standard of care applicable to
Employee or the duties assigned to Employee hereunder; that Employee has failed
or refused to comply with his or her duties; that Employee has been chronically
inattentive to his or her duties or habitually absent from his or her work; or
that Employee has committed any breach of this Agreement; provided that the
Company shall give Employee notice of its finding prior to terminating
Employee's employment on such grounds and, if the matter is such as to permit
cure in the reasonable judgment of the Company, Employee shall have a reasonable
period of time, not to exceed thirty (30) days, to avert termination by curing
the grounds for such termination;
2
<PAGE>
(iv) a finding that Employee has committed any act that casts
the Company in public disrepute; that Employee has been advised that he or she
is a target or subject of a grand jury investigation or similar proceeding or
investigation (which Employee shall promptly communicate to the Company); that
Employee has been indicted for, pleads guilty or nolo contendere to, or is
convicted of any felony; or that Employee has otherwise committed any act or
offense involving moral turpitude;
(v) the decision of either the Company or Employee to
terminate Employee's employment upon the expiration of the current term of
Employee's employment; provided that the party electing termination shall give
the other party notice of such decision at least thirty (30) days before such
expiration is to occur;
(vi) The exercise by the shareholders of Intelligent Products
Marketing, Inc. and IG Distributing, Inc., together doing business as
Intelligent Graphics Distribution ("IGD") of the Put Option (as defined)
pursuant to Section 6.3 of the Stock Purchase Agreement dated as of May 1, 1997
between the Company and IGD.
Any finding, determination or decision on the part of the company referred to in
this Section 5(b) shall be made by the Board of Directors of the Company.
(c) In the event of any termination of Employee's employment,
Employee shall immediately tender his or her resignation from all positions as
officer and director of the Company and each subsidiary and affiliate (if any)
which Employee serves in such capacity. All parties may rely on this provision
as evidence of such resignation at such time.
(d) Notwithstanding any termination of Employee's employment,
Sections 6 through 12 hereof inclusive shall continue in accordance with their
terms.
6. Ownership of Work Product.
(a) Employee shall diligently disclose to the Company as soon as it
is created or conceived by Employee, and the Company shall own, all Work Product
(as defined below). To the extent permitted by law, all Work Product shall be
considered work made for hire by Employee and owned by the Company.
(b) If any of the Work Product may not, by operation of law, be
considered work made for hire by Employee for the Company (or if ownership of
all right, title and interest of the intellectual property rights therein shall
not otherwise vest exclusively in the Company), Employee agrees to assign, and
upon creation thereof automatically assigns, without further consideration, the
ownership of all Trade Secrets (as defined below), U.S. and international
copyrights, patentable inventions, and other intellectual property rights
therein to the Company, its successors and assigns.
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(c) The Company, its successors and assigns, shall have the right to
obtain and hold in its or their own name copyrights, registrations, and any
other protection available in the foregoing.
(d) Employee agrees to perform upon the reasonable request of the
Company, during or after Employee's employment, such further acts as may be
necessary or desirable to transfer, perfect and defend the Company's ownership
of the Work Product. When requested, Employee will
(i) Execute, acknowledge and deliver any requested affidavits
and documents of assignment and conveyance;
(ii) Obtain and aid in the enforcement of copyrights (and, if
applicable, patents) with respect to the Work Product in any countries;
(iii) Provide testimony in connection with any proceeding
affecting the right, title or interest of the Company in any Work Product; and
(iv) Perform any other acts deemed necessary or desirable to
carry out the purposes of this Agreement.
The Company shall reimburse all reasonable out-of-pocket expenses incurred by
Employee at the Company's request in connection with the foregoing, including
(unless Employee is otherwise being compensated at the time) a reasonable per
diem or hourly fee for services rendered following termination of Employee's
employment.
(e) For purposes hereof, "Work Product" shall mean all intellectual
property rights, including all Trade Secrets, U.S. and international copyrights,
patentable inventions, discoveries and improvements, and other intellectual
property rights, in any programming, documentation, technology or other work
product that relates to the business and interests of the Company and that
Employee conceives, develops, or delivers to the Company at any time during the
term of Employee's employment. "Work Product" shall also include all
intellectual property rights in any programming, documentation, technology or
other work product that is now contained in any of the products or systems
(including development and support systems) of the Company to the extent
Employee conceived, developed or delivered such Work Product to the Company
prior to the date of this Agreement while Employee was engaged as an independent
contractor or employee of the Company. Employee hereby irrevocably relinquishes
for the benefit of the Company and its assigns any moral rights in the Work
Product recognized by applicable law.
7. Confidentiality. Employee shall maintain in strict confidence and
shall not use or disclose (except as required to perform Employee's duties under
this Agreement) all Trade Secrets of Company, its affiliates and customers. This
obligation shall apply during and after the term of this Agreement for so long
as the pertinent information remains a Trade Secret, and shall
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<PAGE>
apply whether or not the Trade Secret is in written or tangible form. As
provided by Georgia statutes, "Trade Secret" shall mean any information
(including, but not limited to, technical or non-technical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, or a list of actual or
potential customers) that: (i) derives economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or
use; and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. In the case of Company's business,
Company's Trade Secrets include (without limitation) information regarding names
and addresses of any customers, sales personnel, account invoices, training and
educational manuals, administrative manuals, prospective customer leads, in
whatever form, whether or not computer or electronically accessible "on-line."
8. Return of Materials. Upon the request of the Company and, in any
event, upon the termination of Employee's employment,
(a) Employee shall take such steps as Company may reasonably request
in order to transfer, disclose, and give Company the full benefit of any Work
Product remaining in Employee's possession; and
(b) Employee shall deliver to Company all memoranda, notes, records,
drawings, daily or monthly appointment calendars, manuals, disks and other
documents and media, regardless of form, that contain Work Product or Trade
Secrets or otherwise relate to the Company's business. Employee shall not retain
any such materials (whether in original or duplicated form) following such
delivery.
9. No Solicitation of Customers.
(a) For a period of two (2) years following termination of
Employee's employment, Employee shall not, either directly or indirectly, alone
or in concert with others, solicit or attempt to solicit Customers in the
Restricted Territory to acquire or obtain any product or service competitive
with any Current Product of the Company from anyone other than Company. It is
intended that this provision be limited to: (a) solicitation or attempts to
solicit; (b) Customers who meet the narrow criteria set forth in this Section
and who are located in the Restricted Territory (as defined with respect to each
such Customer); and (c) products competitive with Current Products of the
Company.
(b) For purposes of this Section, a "Customer" refers to any person
or group of persons with whom Employee had direct material contact while selling
Current Products of the Company during the period of two (2) years preceding
termination of Employee's employment; "Current Products" refers to the products
and services that Employee or any personnel under his or her supervision were
authorized to market or sell on behalf of Company during the period of two (2)
years preceding termination of Employee's employment; and "Restricted Territory"
refers to the continental United States of America, it being acknowledged
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that the scope of Company's business and Employee's managerial responsibilities
are of that scope.
(c) Notwithstanding the provisions of this Section 9, following
termination of Employee's employment, it shall not be a violation of this
Agreement if Employee shall solicit Customers while acting on behalf of
Intelligent Products Marketing, Inc. in the capacity of manufacturer's
representative, provided that within two (2) years following such termination
neither Employee nor such company shall engage in the business of computer
systems integration, wholesale distribution of computers or
computer-peripherals, or reseller activities in such products, including the
wholesale purchase and selling or leasing of computers and computer-peripheral
equipment, data communications equipment and software, or providing technical
support or advice to end users in relation to such products.
10. No Recruitment of Personnel. For a period of three (3) years
following termination of Employee's employment, Employee shall not, either
directly or indirectly, alone or in concert with others, induce or attempt to
induce any employee, agent, independent contractor or other personnel of Company
to terminate his, her or their relationship with Company, or recruit or attempt
to recruit such persons to accept employment or a contract with another business
that would have the effect of terminating his, her or its relationship with the
Company.
11. Names and Marks. Following the termination of Employee's employment,
Employee shall not, for the benefit of his or her own or any other person or
entity's business, use or display the names, marks, logos or slogans of the
Company or its affiliates, or any name, mark, logo or slogan confusingly similar
thereto, without the prior written consent of the Company.
12. Enforcement. In the event of any breach or threatened breach by
Employee of any covenant contained in the above Sections 6 through 11, the
resulting injuries to the Company would be difficult or impossible to estimate
accurately, even though irreparable injury or damages would certainly result.
Accordingly, an award of legal damages, if without other relief, would be
inadequate to protect the Company. Employee therefore agrees that, in the event
of any such breach, the Company shall be entitled to apply to a court of
competent jurisdiction to obtain an injunction to restrain the breach or
anticipated breach of any such covenant, and to obtain any other available
legal, equitable, statutory, or contractual relief. Should the Company have
cause to seek such relief, no bond shall be required, and Employee shall pay all
attorney's fees and court costs which the Company may incur.
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13. Representations. Employee represents and warrants to the Company
that he is not a party to any other agreement or arrangement containing
non-competition, non-solicitation, non-recruitment or similar obligations on the
part of Employee.
14. Miscellaneous.
(a) This Agreement shall inure to the benefit of, and be binding
upon, the Company and its subsidiaries and affiliates, together with their
successors and assigns, and Employee, together with his or her executors,
administrators, personal representatives, heirs and legatees.
(b) Any notice or request hereunder shall be in writing and shall be
given by hand delivery, mail, telecopy or similar transmission addressed as set
forth beside the name of each party at the end of this Agreement or to any such
other address as either party may specify to the other by written notice. Such
notice or request shall be deemed to have been given and received only on and
after receipt by the designated individual (specifically the President, in the
case of the Company), effective as of the date of such authorized recipient's
actual receipt of such notice or request if received during normal business
hours on a normal business day or as of the first business day after receipt if
given after normal business hours or on a day other than a normal business day.
(c) THIS AGREEMENT SHALL BE GOVERNED BY AND ENFORCED UNDER THE LAWS
OF THE STATE OF GEORGIA AS THEY APPLY TO A CONTRACT EXECUTED, DELIVERED AND
PERFORMED ENTIRELY IN SUCH STATE.
(d) This Agreement merges and supersedes all prior and
contemporaneous agreements, undertakings, covenants or conditions, whether oral
or written, express or implied, to the extent they contradict or conflict with
the provisions hereof.
(e) This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
(f) This Agreement may be modified only by a written instrument
signed by each of the parties hereto. No waiver shall be effective unless made
in writing and signed by the party against whom enforcement is sought.
(g) Should any aspect or provision of this Agreement prove invalid
or unenforceable for any reason, the remainder of this Agreement shall
nonetheless be fully enforced to the fullest extent permitted by law, regardless
of whether the invalid or unenforceable aspect or provision is facially
severable from the remainder of this Agreement; provided that if a court of
competent jurisdiction holds any covenant herein invalid by reason of its
duration or its geographic or business scope, then the court shall have the
power to rewrite or reform such covenant so as not to be invalid under
applicable law.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
on the day and year first above written.
"THE COMPANY" "EMPLOYEE"
CRESCENT COMPUTERS, INC.
- ------------------------------ ------------------------------
Signature Signature
- ------------------------------ ------------------------------
Title Patrick McLaughlin
Address: 2979 Pacific Drive, Suite B Address:
Norcross, Georgia 30071
Effective Date:_______________
8
STOCK PURCHASE AGREEMENT
by and among
Crescent Computers, Inc., a Georgia corporation, and its shareholders
and
Microsouth, Inc., a Georgia corporation, and its shareholders
Dated as of May 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF STOCK.......................................................1
Section 1.1 Purchase and Sale...........................................1
Section 1.2 Purchase Price..............................................1
Section 1.3 Purchase Price Adjustment...................................2
Section 1.4 The Closing.................................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES..........................................4
Section 2.1 Representations and Warranties of the Companies
and the Shareholders .......................................4
Section 2.2 Representations and Warranties of Purchaser................20
Section 2.3 Survival of Representations and Warranties.................21
Section 2.4 Disclosure.................................................21
ARTICLE III
COVENANTS..............................................................21
Section 3.1 Covenants Against Disclosure...............................21
Section 3.2 Access to Information......................................22
Section 3.3 Interim Period.............................................22
Section 3.4 Special Crescent Covenants.................................23
Section 3.5 On and After Closing.......................................24
Section 3.6 Non-Competition............................................24
Section 3.7 Further Assurances.........................................25
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS....................................25
Section 4.1 Conditions to Obligations of Purchaser.....................25
Section 4.2 Conditions to Obligations of the Company and the
Selling Shareholders ......................................27
ARTICLE V
INDEMNIFICATION........................................................28
Section 5.1 Survival of Representations, Warranties, Covenants
and Agreements 28
Section 5.2 Indemnification of Purchaser...............................28
Section 5.3 Indemnification of the Selling Shareholders................29
Section 5.4 Procedure for Indemnification with Respect to
Third-Party Claims 29
Section 5.5 Procedure For Indemnification with Respect to
Non-Third Party Claims 30
Section 5.6 Escrowed Shares............................................30
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ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT..................................31
Section 6.1 Termination................................................31
Section 6.2 Effect of Termination......................................31
Section 6.3 Conditions Subsequent to Obligations.......................31
ARTICLE VII
MISCELLANEOUS PROVISIONS...............................................32
Section 7.1 Notice.....................................................32
Section 7.2 Entire Agreement...........................................32
Section 7.3 Binding Effect: Assignment.................................32
Section 7.4 Expenses of Transaction....................................32
Section 7.5 Waiver; Consent............................................32
Section 7.6 Counterparts...............................................33
Section 7.7 Severability...............................................33
Section 7.8 Remedies of the Parties....................................33
Section 7.9 Governing Law..............................................33
Section 7.10 Arbitration; Attorneys' Fees..............................33
Section 7.11 Cooperation and Records Retention.........................34
SCHEDULE 1.2...........................................................37
SCHEDULE 2.1(b)........................................................38
SCHEDULE 2.2(b)........................................................39
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 1, 1997
among, Crescent Computers, Inc., a Georgia corporation ("Purchaser"), the
shareholders of Crescent set forth on the signature page of this Agreement (the
"Crescent Shareholders") and Microsouth, Inc., a Georgia corporation
("Microsouth" or the "Company"), and the shareholders of Microsouth set forth on
the signature page of this Agreement (the "Selling Shareholders").
WHEREAS, the Company is engaged in, among other things, the business of
computer integration and wholesale distribution of computer products (such
business is referred to herein collectively as the "Business"); and
WHEREAS, Purchaser desires to purchase all the issued and outstanding
shares of capital stock of the Company held by the Selling Shareholders and the
Selling Shareholders desire to sell such shares to Purchaser, subject to the
terms and conditions hereinafter set forth (such purchase and sale of capital
stock of the Company shall be referred to herein as the "Acquisition"); and
WHEREAS, Purchaser and the Selling Shareholders desire to enter into this
Agreement with the understanding that this Agreement will supercede all prior
oral and written agreements between the parties.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase on the Closing Date (as hereinafter
defined), and the Selling Shareholders each agree to sell to Purchaser at the
Closing (as hereinafter defined), all of the issued and outstanding shares of
the capital stock of the Company, which consists of the number of shares of
common stock, and all rights existing with respect thereto, held by each of the
Selling Shareholders, as set forth on Schedule 2.1(b) attached hereto.
Section 1.2 Purchase Price. (a) In consideration for the Capital Stock (as
defined in Section 2.1(b)) and in full payment therefor Purchaser will pay the
Selling Shareholders $1,180,000 (hereinafter the "Purchase Price"), but subject
to the adjustments to the Purchase Price set out in Section 1.3, such payment to
be evidenced by the issuance to the Selling Shareholders of an aggregate of
1,586 shares of Purchaser's common stock (the "Common Stock") in the respective
amounts reflected in Schedule 1.2 attached hereto. All shares of Common Stock
issued as herein described shall have identical rights as to dividends, voting
and all other matters. Except as expressly provided in this Agreement, there
shall be no other consideration paid to or for the account of the Selling
Shareholders in connection with or relating in any way to the transactions
contemplated hereby.
<PAGE>
Section 1.3 Purchase Price Adjustment. (a) As used in this Section 1.3,
the following capitalized terms shall have the meanings set forth below:
"Actual Company Value" shall mean the aggregate of the Company's and any
subsidiary's Fixed Assets, plus their Current Assets, less their Liabilities on
the Closing Date.
"Company Shortfall" means the excess, if any, of the Warranted Company Value (as
hereinafter defined) over the Actual Company Value on the Closing Date, subject
to the limitations set forth in this Section 1.3.
"Current Assets" shall be used in all respects in accordance with generally
accepted accounting principles consistently applied ("GAAP") and comprises the
aggregate of all cash, cash equivalents, receivables and inventory, but
specifically excludes any deferred assets including without limitation deferred
tax and deferred income, and valued in accordance with GAAP, and on a basis in
all material respects consistent with that adopted for the purposes of the last
audited financial statements of the Company and the value of all receivables and
inventory has been written down to realizable market value and adequate
provision has been made therefor.
"Fixed Assets" shall be used in all respects in accordance with GAAP and shall
mean fixed assets at the values at which they were included in the latest
audited financial statements (or if acquired after the balance sheet date, their
cost), less depreciation calculated in accordance with the method adopted in the
financial statements. Fixed Assets shall specifically exclude, and no value
shall be attributable to, any intangible assets (including without limitation
goodwill, trademarks, service marks, formulas, franchise rights and patents),
and no asset shall be written up or revalued above its original cost less
applicable depreciation.
"Liabilities" shall be used in all respects in accordance with GAAP and shall
mean all liabilities, whether long-term or current, including without limitation
all actual liabilities of the Company on the Closing Date, with proper provision
in accordance with GAAP, having been made therein for all other liabilities of
the Company then outstanding whether contingent, quantified, disputed or not,
including without limitation the cost of any work or material for which payment
has been received or credit taken, any future loss which may arise in connection
with uncompleted contracts and any claims against the Company in respect of
completed contracts.
"Net Asset Value Shortfall" means the excess, if any, of the Warranted Tangible
Net Asset Value over the Actual Tangible Net Asset Value on the Closing Date,
subject to the limitations set forth in this Section 1.3.
"Actual Tangible Net Asset Value" shall mean the aggregate amount of the Current
Assets less Liabilities on the Closing Date.
"Warranted Company Value" shall mean $484,010.
"Warranted Tangible Net Asset Value" shall mean $354,010.
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(b) Each Selling Shareholder represents and warrants to the Purchaser that
the Warranted Company Value and the Warranted Tangible Net Asset Value of the
Company shall be not less than the amounts set forth above. The Purchase Price
shall be increased by the amount (if any) by which the Company's Actual Tangible
Net Asset Value exceeds its Warranted Tangible Net Asset Value on the Closing
Date. Such amount will be paid by the Purchaser to the Selling Shareholders
within ninety (90) days after the determination of Actual Company Value and
Actual Tangible Net Asset Value, in cash provided the Purchaser has net assets
of at least $8,000,000 on such date. Otherwise, such amount shall bear interest
at the rate which is three percent (3%) per annum in excess of the then prime
rate of interest of NationsBank of Georgia, N.A., to be evidenced by a six month
promissory note issued by Purchaser to the Selling Shareholders in substantially
the form of Exhibit 1.3(b) attached hereto. The Purchase Price payable by
Purchaser to the Selling Shareholders shall be reduced by one of the following,
whichever is greater:
Company Shortfall / Warranted Company Value x Purchase Price
Net Asset Value Shortfall / Warranted Tangible Net Asset Value
x Purchase Price
(c) If any receivable of the Company existing as of the Closing Date
remains uncollected by the Company or its successor the later of 90 days after
the Closing Date or 150 days after the date of invoice, or has, as of the later
of such dates, been collected at less than its full value as shown in Current
Assets on the Closing Date ("Collection Shortfall"), then (i) the Purchaser
shall have the option of assigning such receivable to the Selling Shareholders,
without representation or warranty, not more than 180 days after the Closing
Date, and demanding the amount of the Collection Shortfall, and upon such
assignment, such Selling Shareholders shall pay the Company such amount, in
cash, within sixty (60) days after demand; provided that Purchaser shall have
exercised all reasonable efforts at collecting such receivable at such full
value; and (ii) the Selling Shareholders shall have the option of causing the
Purchaser to sell such receivable to the Selling Shareholders, without
representation or warranty, not more than 180 days after the Closing Date, and
paying the amount of the Collection Shortfall, and upon such assignment, the
Selling Shareholders shall pay Purchaser such amount, in cash, within sixty (60)
days after demand. The Selling Shareholders shall thereafter be free to pursue
such collection measures as they in their sole discretion shall deem necessary
or appropriate. To the extent, if any, that the Collection Shortfall remains
unpaid after such sixty (60) day period, Purchaser shall adjust the Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding
Collection Shortfall to Company Shortfall or Net Asset Value Shortfall, as the
case may be.
(d) If any items of the Company's inventory existing as of the Closing
Date remain unsold by the Company or its successor 180 days thereafter or have
been sold at less than full value as shown in Current Assets on the Closing Date
("Inventory Shortfall"), Purchaser not more than 210 days after the Closing Date
shall deliver and transfer such unsold inventory to the Selling Shareholders
without representation or warranty and shall demand the amount of the Inventory
Shortfall, and upon such transfer and delivery, the Selling Shareholders shall
pay the Company such amount, in cash, within thirty (30) days of demand;
provided that Purchaser shall have exercised all reasonable efforts at selling
such inventory at such full value. Such Selling Shareholders shall, at any time
after Purchaser's demand of the Inventory Shortfall, be free to sell such
inventory as they in their sole discretion shall deem necessary
3
<PAGE>
or appropriate. To the extent if any that the Inventory Shortfall remains unpaid
after such thirty (30) day period, Purchaser shall adjust such Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding Inventory
Shortfall to Company Shortfall or Net Asset Value Shortfall, as the case may be.
(e) Purchaser and each Selling Shareholder shall escrow twenty percent
(20%) of the shares of Common Stock to be delivered to such Selling Shareholder
(the "Escrowed Shares"), to be subject to redistribution by Purchaser in the
circumstances described in this Section 1.3. The terms of the escrow shall be
substantially as set forth in the form of Escrow Agreement attached as Exhibit
1.3(e) hereto. Any Escrowed Shares not subject to redistribution for the
purposes of this Section shall be released to such Selling Shareholders as
follows: one-half within thirty (30) days of the determination of the
application of this Section 1.3 pursuant to the provisions of subsection (b),
(c) or (d) above, as the case may be, and one-half on the first anniversary of
the Closing Date.
(f) As an example of the application of subsections (b) and (c) above, if
on the Closing Date the Actual Company Value of Microsouth shall be $570,047,
rather than the Warranted Company Value of $595,047, being a $15,000 shortfall
in Warranted Tangible Net Asset Value and a $10,000 shortfall in Fixed Assets,
and an additional shortfall is determined under subsection (c) above in the
amount of $25,000 and such amount remains unpaid, the Purchaser shall decrease
the shares of Common Stock to be distributed to the Selling Shareholders of
Microsouth by 179 shares, computed as follows:
$50,000 / $484,010 x 1,586 = 163 Shares
$40,000 / $354,010 x 1,586 = 179 Shares
Section 1.4 The Closing. Subject to termination of this Agreement as
provided in Article VI below, the closing and consummation of the Acquisition
contemplated by this Agreement shall take place in the offices of Purchaser's
attorneys on such date that the conditions of closing set forth in Article IV
hereof have been satisfied or waived, or such other date as the parties hereto
may mutually select (the "Closing Date"), which in no event shall be later than
45 days after the date of this Agreement, unless extended by the unanimous
agreement of Purchaser and the Selling Shareholders. The "Closing" shall mean
the deliveries to be made by the parties hereto on the Closing Date in
accordance with this Agreement. The Acquisition shall be deemed to have become
effective as of 12:01 a.m. Atlanta, Georgia Time on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Companies and the
Shareholders. The Company and each of the Selling Shareholders hereby severally
represents and warrants to Purchaser that:
(a) Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of Georgia (the "State"), and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own,
4
<PAGE>
lease, and operate its assets. The Company is duly qualified or licensed to do
business as a corporation, and is in good standing in the State. The Company has
delivered to Purchaser complete and accurate copies of its Articles of
Incorporation andamendments thereto, and all minutes and actions of its Board of
Directors and shareholders. Neither the Company nor any of the Selling
Shareholders is in violation of any of the provisions of the Articles of
Incorporation or the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of the Company (including without limitation all voting
securities) (the "Capital Stock") and its par value per share, if any, is as set
forth on Schedule 2.1(b) hereto. Each person listed on Schedule 2.1(b) is the
lawful owner of that number of the issued and outstanding shares of capital
stock of the Company set forth opposite such person's name, free and clear of
any restrictions upon transfer except as indicated in Schedule 2.1(b), all of
which restrictions shall be removed no later than the Closing Date. The shares
of Capital Stock set forth on Schedule 2.1(b) constitute all of the shares of
capital stock of the Company and all such shares have been duly authorized and
are validly issued, fully paid and nonassessable, and to the best of the
knowledge and belief of the Company and the Selling Shareholders, have been
issued in compliance with all applicable federal and state securities laws.
There are no outstanding subscriptions, warrants, calls, options, conversion
rights, rights of exchange or other commitments, plans, agreements, or
arrangements of any nature under which the Company or the Selling Shareholder
may be obligated to issue, assign, exchange, purchase, redeem or transfer any
shares of capital stock of the Company, and there are no shareholders'
agreements to which the Company or the Selling Shareholders is a party, or
proxies, voting trust agreements or similar agreements or options executed by
the Company or the Selling Shareholders or to which the Capital Stock is
subject. There are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company or the Selling Shareholders to grant, extend or
enter into any subscription, option, warrant, right, convertible security or
other similar agreement or commitment. Upon issuance of shares of Common Stock
for the shares of the Company's Capital Stock, as set forth herein, Purchaser
shall acquire good and marketable title to the shares of Capital Stock of the
Company, free and clear of any liens, pledges, encumbrances, security interests,
charges, equities or restrictions of any nature. The Company has satisfied all
of its obligations to all current and past shareholders, and none of such
current or past shareholders has any claims, or any basis therefor, against the
Company arising out of or relating to obligations of the Company to such current
or past shareholders. None of the shares of the Company's Capital Stock was
issued pursuant to awards, grants, or bonuses.
(c) Subsidiaries. Except as set forth in Schedule 2.1(c), the
Company does not own, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, limited liability company, trust, joint venture or other entity.
(d) Authorization. The Company and each of the Selling Shareholders
have full power and authority to enter into this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each individual named in Section 4.2(f) has full power and authority to
enter into the Shareholders' Employment Agreements in the form
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attached hereto as Exhibit 4.2(f) (the Shareholders' Employment Agreements are
collectively referred to herein as the "Related Agreements") to which such
Selling Shareholder is a party, to perform his or her obligations thereunder and
to consummate the transactions contemplated thereby. Each corporate Selling
Shareholder is duly organized and existing under the laws of the jurisdiction of
its incorporation. The Company and/or each of the Selling Shareholders, as
appropriate, have taken all necessary and appropriate corporate action with
respect to the execution and delivery of this Agreement and the Related
Agreements. This Agreement and the Related Agreements constitute valid and
binding obligations of the Company and the Selling Shareholders (to the extent
to which each is a party), enforceable in accordance with their respective
terms; except as limited by applicable bankruptcy, insolvency, moratorium,
reorganization or other laws affecting contracts, creditors' rights and other
laws and remedies generally.
(e) Financial Information. The Company has delivered its unaudited
balance sheets and related statements of operations and cash flows at and for
the fiscal years ended 1994 and 1995, and 1996 to date, and will deliver to
Purchaser before May 31, 1997 its audited balance sheets and related statements
of operations and cash flows at and for the fiscal years ended 1994, 1995 and
1996 (the "Annual Financial Statements"), and on the Closing Date the unaudited
balance sheet and statement of operations at and for the four-month period ended
April 30, 1997 (the "Unaudited Financial Statements"). To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Annual
Financial Statements and Unaudited Financial Statements (collectively, the
"Financial Statements") have been prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") on a consistent basis throughout the periods
indicated and with each other, and the Financial Statements present accurately
the financial condition of the Company as of the respective dates thereof and
the results of operations for the periods then ended. All of the Company's
general ledgers, books, and records are located at the Company's principal place
of business in the State or at the offices of its accountant. The Company agrees
to engage, at its own cost and expense, an accounting firm selected by Purchaser
and reasonably acceptable to the Company to audit the Annual Financial
Statements.
(f) Deposit Accounts; Powers of Attorney. Schedule 2.1(f) hereto lists:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon
or have access thereto.
There are no persons, corporations, firms or other entities holding a general or
special power of attorney from the Company.
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(g) Liabilities and Obligations. Other than as set forth in the
unaudited Financial Statements at the date of this Agreement, Schedule 2.1(g)
sets forth an accurate list of all liabilities of the Company, and any
significant liabilities incurred thereafter in the ordinary course of business
or liabilities which are not reflected in the balance sheet of any kind,
character, or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, together with, in the case of those liabilities which
are not fixed, an estimate of the maximum amount which may be payable. For each
such liability for which the amount is not fixed or is contested, whether in
litigation or otherwise, the Company shall provide the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the claim,
suit, or
proceeding.
(ii) the name of each court or agency before which such claim,
suit, or proceeding is pending;
(iii) the date such claim, suit, or proceeding was instituted;
(iv) a reasonable estimate by the Company of the maximum
amount, if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the Company's best estimate shall for
purposes of this Agreement be deemed to be zero.
(h) Product and Service Warranties and Reserves. Except as set forth
in Schedule 2.1(h), there are no product warranty claims relating to sales of
the Company's products occurring on or prior to the date of this Agreement. The
only express warranties, written or oral, with respect to the products or
services sold by the Company are set forth in Schedule 2.1(h).
(i) Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1(i) hereto, to the best of the knowledge and belief of the Company
and the Selling Shareholders, since the date of the Unaudited Financial
Statements there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of the Company or the
Business, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change;
(ii) Any transaction relating to or involving the Company, the
Business, the assets of the Company or the Selling Shareholders which was
entered into or carried out by the Company or the Selling Shareholders other
than in the ordinary and usual course of business;
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(iii) Any change by the Company in its accounting or tax
practices or procedures;
(iv) Any incurrence of any liability, other than liabilities
incurred in the ordinary course of business consistent with past practices;
(v) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of its properties (whether leased or owned), or
the assets of the Company, other than sales, leases, or dispositions of goods,
materials, or equipment in the usual and ordinary course of business and
consistent with prior practice;
(vi) Any event permitting any of the assets or the properties
of the Company (whether leased or owned) to be subjected to any pledge,
encumbrance, security interest, lien, charge, or claim of any kind whatsoever
(direct or indirect) (collectively, "liens");
(vii) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit plan,
payment or arrangement to, for, or with any employee of the Company, other than
certain bonuses paid to the Selling Shareholders and disclosed in writing to the
Purchaser;
(viii) Any payment or distribution of any bonus to, or
cancellation of indebtedness owing from, or incurring of any liability relating
to any employees, consultants, directors, officers, or agents, or any persons
related thereto, other than certain bonuses paid to the Selling Shareholders and
the Participating Companies;
(ix) Any notice (written or unwritten) from any employee of
the Company that such employee has terminated, or intends to terminate, such
employee's employment with the Company;
(x) Any adverse relationship or condition with Suppliers (as
defined in Section 2.1(q)(i) hereof), vendors, or Customers (as defined in
Section 2.1(ae) hereof) that may have an adverse effect on the Company, the
Business, or the assets of the Company;
(xi) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, which has had an adverse
effect on the Company, the properties (whether leased or owned), the Business,
or the assets of the Company or any such event which could be expected to have
an adverse effect on the Company, the properties (whether leased or owned), the
Business, or the assets of the Company;
(xii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
term, condition, or provision of any contract, agreement, license, or other
instrument to which the Company or the Selling Shareholders
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are a party and relating to or affecting the Business or the assets of the
Company other than any satisfaction by performance in accordance with the terms
thereof in the usual and ordinary course of business and consistent with prior
practice;
(xiii) Any discharge or satisfaction of any Lien or payment of
any liabilities, other than in the ordinary course of business;
(xiv) Any waiver of any rights of substantial value by the
Company, other than waivers having no material adverse effect on the Company;
(xv) Any issuance of equity securities of the Company or any
issuance of warrants, calls, options or other rights calling for the issuance,
sale, or delivery of the Company's equity securities;
(xvi) Any declaration of any dividend or any distribution of
any shares of its capital stock, or redemption, purchase, or other acquisition
of any shares of its capital stock or any grant of an option, warrant, or other
right to purchase or acquire any such shares;
(xvii) Any amendment, or agreement to amend, the Company's
Articles of Incorporation or Bylaws, or any merger or consolidation with, or any
agreement to merge or consolidate with, any other corporation, partnership,
limited liability company or any other entity;
(xviii) Any reduction, or agreement to reduce, the cash or
short-term investments of the Company, other than to meet cash needs arising in
the ordinary course of business;
(xix) Any work interruptions, labor grievances or claims
filed, proposed law or regulation or any event of any character, materially
adversely affecting the Business or future prospects of the Company;
(xx) Any revaluation by the Company of any of its assets;
(xxi) Any loan by the Company to any person or entity, or any
guaranty by the Company of any loan; or
(xxii) To the best knowledge of the Company and the Selling
Shareholders, any other event or condition of any character which materially
adversely affects, or reasonably may be expected to so affect, the assets of the
Company, the Business, or the properties (whether leased or owned) of the
Company.
(j) Inventory. Schedule 2.1(j) sets forth the reasonable value of
the Company's inventory. All inventory is owned by the Company, including all
goods customarily sold and/or rented by the Company in connection with the
Business (whether located on the premises of the Company, in transit to or from
such premises, in other storage facilities, or otherwise) (collectively, the
"Inventory"), and the Company maintains appropriate records of such inventory.
The Company has continued to replenish the Inventory in a normal and customary
manner consistent with past
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practices. To actual knowledge of the Company and the Selling Shareholders, the
Company has not received written or oral notice that the Company will experience
in the future any difficulty in obtaining, in the desired quantity and quality
and upon reasonable terms and conditions, the vehicles, materials, supplies, or
equipment required for the Business.
(k) Taxes.
(i) Definitions. For purposes of this Agreement:
(a) the term "Taxes" means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, the Company has properly completed and filed on a
timely basis (including extensions) and in correct form all Returns required to
be filed on or prior to the Closing Date. As of the time of filing, the
foregoing Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of the Company or any
other information required to be shown thereon. In particular, to the best of
the knowledge of the Company and the Selling Shareholders, the foregoing Returns
are not subject to unpaid penalties under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to accuracy-related penalties
(or any corresponding provision of state, local or foreign Tax law) or any other
unpaid penalties.
(iii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, with respect to all amounts in respect of Taxes
imposed upon the Company, or for which the Company is liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods ending on or before the Closing Date and portions of periods commencing
before the Closing Date and ending after the Closing Date, all applicable tax
laws and agreements have been fully complied with, and all such amounts required
to be paid by the Company to taxing authorities or others on or before the
Closing Date have been paid, and all such amounts required to be paid by the
Company to taxing authorities or others after the Closing which have not been
paid are reflected on the Financial Statements.
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(iv) No notices raising tax issues have been received by the
Company from any taxing authority in connection with any of the Returns. No
extensions or waivers of statutes of limitations with respect to the Returns
have been given by or requested from the Company. Schedule 2.1(l)(iv) sets forth
taxable years for which examinations have been completed, those years for which
examinations are presently being conducted, and those years for which required
Returns have not yet been filed. Except to the extent indicated in Schedule
2.1(l)(iv), all deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
Financial Statements of the Company, or are being contested and an adequate
reserve therefor has been established and is fully reflected in the Financial
Statements of the Company.
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company.
(vi) The Company is not a party to or bound by (nor will the
Company become a party to or become bound by) any tax indemnity, tax sharing or
tax allocation agreement.
(vii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code.
(viii) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it.
(ix) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code.
(x) None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xi) The Company has not made and will not make a deemed
dividend election under Treas. Reg. ss. 1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code.
(xii) The Company has not agreed to make, nor is it required
to make, any adjustment under Sections 481(a) or 263A of the Code or any
comparable provision of state or foreign tax laws by reason of a change in
accounting method or otherwise.
(xiii) None of the Selling Shareholder is other than a United
States person within the meaning of the Code.
(xiv) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
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(xv) The Company's tax basis of each of its assets is
reflected in its Unaudited Financial Statements.
(xvi) All elections with respect to Taxes made during the
fiscal years ended December 31, 1995 are reflected on the Returns for such
periods, copies of which have been provided to Purchaser.
(l) Employee Payments.
(i) The hours worked by and payments made to the Company's
employees have not been in violation in any respect of the Fair Labor Standards
Act or any other applicable federal, foreign, state or local laws dealing with
such matters.
(ii) All payments due from the Company on account of employee
health and welfare insurance have been paid or accrued.
(iii) All severance, sick, or vacation payments by the
Company, which are or were due under the terms of any agreement or otherwise
have been paid or are described in Schedule 2.1(l)(iii).
(m) Compliance With Law. The Company has complied and is in
compliance with all applicable zoning decisions and, to the best of the
knowledge of the Company and the Selling Shareholders, has complied and is in
compliance with all applicable federal, state, and local laws, statutes,
licensing requirements, rules, and regulations, and judicial or administrative
decisions. To the best of the knowledge and belief of the Company and the
Selling Shareholders, the Company has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from federal, state,
and local government regulatory or zoning bodies necessary to carry on the
Business and maintain the assets of the Company, all of which are currently
valid and in full force and effect. All such licenses, permits, authorizations
and approvals shall be valid and in full force and effect upon the consummation
of the transactions contemplated by this Agreement to the same extent as if the
Company prior to the Closing Date were continuing the Business and operations of
the Company. To the best of the knowledge and belief of the Company and the
Selling Shareholders, there is no order issued, or proceeding pending or
threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule, or regulation issued by any federal state,
local, or foreign court or governmental agency or instrumentality applicable to
the Company. The Company has valid use permits for the Business and its
operations.
(n) No Disclosure Items. Except as otherwise indicated in Schedule
2.1(n), there is no adverse information with respect to the Company, the Selling
Shareholder(s) or any officer, director or employee of the Company which
information would require disclosure in connection with a filing by the Company
under the federal securities acts. Neither the Company nor any Selling
Shareholder has failed to disclose any material fact which would be required to
be disclosed for purposes of a proxy statement or other communication involved
in a public offering in accordance with the provisions of Rule 10b-5 or Rule
14a-9(a) of the U.S. Securities and Exchange Commission.
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(o) Governmental Consents. To the best of the knowledge of the
Company and the Selling Shareholders, no consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state, local, or provincial governmental authority on
the part of the Company or the Selling Shareholders is required in connection
with the consummation of the transactions contemplated hereunder.
(p) Proprietary Rights. The Company owns all rights to computer
programs, databases, logos, trade names, trademarks, service marks, intellectual
property, Customer and Supplier lists, and other trade secrets, together with
the goodwill associated therewith, necessary for the Business as now conducted
(collectively, the "Proprietary Rights") and as proposed to be conducted
without, to the knowledge of the Company or the Selling Shareholders, any
conflict with or infringement upon the rights of others.
(q) Restrictive Documents or Orders. To the best of the knowledge of
the Company and the Selling Shareholders, the Company is not a party to nor
bound under any agreement, contract, order, judgment, or decree, or any similar
restriction which adversely affects, or reasonably could be expected to
adversely affect (i) the continued operation by Purchaser (through its ownership
of the Company) of the Business and operations of the Company on and after the
Closing Date on substantially the same basis as said business was theretofore
operated or (ii) the consummation of the transactions contemplated by this
Agreement.
(r) Contracts and Commitments.
(i) Schedule 2.1(r)(i) hereto sets forth a list of all
material written agreements and contracts, contract rights, licenses, and other
executory commitments (written or unwritten) other than purchase and sale orders
and quotations (collectively, the "Contracts") including, without limitation,
those contracts with insurance companies, credit companies, governmental
agencies, rental agencies, and all others under which the Company is supplied
with materials, supplies, or equipment ("Materials") (such suppliers shall be
referred to herein as "Suppliers") to which the Company is a party or to which
any of the assets of the Company are subject. To the best of the knowledge and
belief of the Company and the Selling Shareholders, there are no oral agreements
or commitments that would have a material adverse effect on the Company.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has performed all of its obligations under the
terms of each Contract, and is not in default thereunder, except as described in
Schedule 2.1(r)(ii). No event or omission has occurred which but for the giving
of notice or lapse of time or both would constitute a default by any party
thereto under any such Contract. To the best of the knowledge and belief of the
Company and the Selling Shareholders, each such Contract is valid and binding on
all parties thereto and in full force and effect. The Company has received no
written or unwritten notice of default, cancellation, or termination in
connection with any such Contract. The Company is not now and has never been a
party to any governmental contracts subject to price redetermination or
renegotiation.
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(iii) There has not been any notice (written or unwritten)
from any Supplier that any such Supplier will not continue to supply the current
level and type of Materials currently being provided by such Supplier upon the
same terms and conditions.
(s) Debt. Schedule 2.1(s) sets forth a list of all agreements for
the incurring of indebtedness for borrowed money and all agreements relating to
industrial development bonds to which the Company is a party or guarantor. None
of the obligations pursuant to such agreements are subject to acceleration by
reason of the consummation of the transactions contemplated hereby, nor would
the execution of this Agreement or the consummation of the transactions
contemplated hereby result in any default under such agreements. The Company has
furnished Purchaser with true and correct copies of each such agreement listed
in Schedule 2.1(s). The Company is not in default under any of the agreements
listed thereon, nor is the Company aware of any event that, with the passage of
time, or notice, or both, would result in an event of default thereunder.
(t) Related Property. Schedule 2.1(t)(i) hereto lists all of the
Company's ownership interests (except for leasehold interests set forth in
Schedule 2.1(ah)) in real property, machinery, equipment, tooling, furniture,
fixtures, motor vehicles, supplies, spare parts, computer equipment, printers,
copiers, software, telecommunications equipment, miscellaneous supplies, tools,
repair and maintenance parts, chemicals, and fixed assets related to the
Business and operations of the Company (the "Related Property"). To the best
knowledge of the Company and the Selling Shareholders, all of the Related
Property is generally in good operating condition, normal wear and tear
excepted, and is adequate and suitable for the purposes for which it is
presently being used. Schedule 2.1(t)(ii) hereto lists certain property that
belongs solely to and shall be retained by the Selling Shareholders.
(u) Assets. The assets of the Company include all the assets
necessary to operate the Business in the same manner as the Business was
operated by the Company immediately prior to the Closing Date, and none of the
Selling Shareholders, nor any family member or entity affiliated with the
Selling Shareholders or any such family member, owns, or has any interest in,
any asset used in the operation of the Company.
(v) Title to the Property. The Company has good and marketable title
to the assets of the Company (including, but not limited to the Related
Property) and a valid and subsisting leasehold interest in all leased property.
Except as described in Schedule 2.1(v), the Company owns all of its assets and
property free and clear of any lien.
(w) Litigation. Except as described in Schedule 2.1(w), none of the
Company, the Selling Shareholders nor any of the Company's officers or directors
is engaged in, or has received any threat of, any litigation, arbitration,
investigation, or other proceeding relating to the Company, any of the Selling
Shareholders, or the Company's officers, directors, employees, benefit plans,
properties, Proprietary Rights, the Business, or the assets, licenses, permits,
or goodwill of the Company; or against or affecting this Agreement, the Related
Agreements or the actions taken or contemplated in connection herewith and
therewith, nor, to the best of each's knowledge, is there any reasonable basis
therefor. There is no action, suit, proceeding, or (to the best knowledge of the
Company and the Selling Shareholders) investigation pending or threatened
against the Company, or
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any of the Selling Shareholders, or the officers or directors of the Company,
that questions the validity of this Agreement, the Related Agreements, or the
right of the Company or the Selling Shareholders to enter into this Agreement,
the Related Agreements, any documents to be delivered in connection with the
Closing, or to consummate the transactions contemplated hereby or thereby, or
which might result in any adverse change in the assets of the Company, the
Business, conditions, or properties of the Company, or the financial condition
of the Selling Shareholders. There is no action, suit, proceeding, or
investigation by the Company or the Selling Shareholders currently pending or
which any of them currently intends to initiate. None of the Company, the
Selling Shareholders, nor any of the Company's officers or directors is bound by
any judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person which would or could have a material adverse
effect on the Business or the assets of the Company.
(x) No Conflict or Default. To the best of the knowledge and belief
of the Company and the Selling Shareholders, neither the execution and delivery
of this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof including, without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
the Company's Articles of Incorporation or Bylaws, as presently in effect, or of
any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which the Company or the Selling Shareholders is a
party or by which it or he or any of the assets of the Company are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(y) Consents. To the best of the knowledge and belief of the Company
and the Selling Shareholders, no consent, approval, or authorization of any
person, agency or third party or on the part of the Company or the Selling
Shareholders is required in connection with the consummation of the transactions
contemplated hereunder.
(z) Labor Relations.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, with respect to the Business and operation of the
Company, the Company has not failed to comply in any respect with Title VII of
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, all
applicable federal, state, and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees.
(ii) There are no labor controversies pending or, to the
knowledge of the Company or the Selling Shareholders, threatened between the
Company and any of its employees (the "Employees") or any labor union or other
collective bargaining unit representing any of the Employees.
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(iii) The Company has never entered into a collective
bargaining agreement or other labor union contract relating to the Business and
applicable to the Employees.
(iv) Except as set forth in Schedule 2.1(z), there are no
written employment or separation agreements, or oral employment or separation
agreements other than (1) those establishing an "at will" employment
relationship between the Company and any of the Employees and which do not
provide for any advance notice requirements to terminate an Employee's
employment or any severance or salary or benefits continuation obligations on
the part of the Company and (2) any unknown future claims for wrongful
termination based upon a theory of implied agreements arising out of course of
conduct.
(aa) Brokers' and Finders' Fees/Contractual Limitations. Neither the
Selling Shareholders nor the Company is obligated to pay any other fees or
expenses of any broker or finder in connection with the origin, negotiation, or
execution of this Agreement, the Related Agreements, or in connection with any
transactions contemplated hereby and thereby. None of the Selling Shareholders,
the Company, or any officer, director, employee, agent, or representative of the
Company (collectively, the "Representatives") is or has been subject to any
agreement, letter of intent, or understanding of any kind which prohibits,
limits, or restricts the Company, the Selling Shareholders or the
Representatives from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
(ab) Environmental and Safety Matters.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, the Company has all permits, licenses, approvals and
registrations required to be issued under applicable federal, state and local
laws, statutes and regulations relating to the protection of human health,
safety, the environment and natural resources ("Environmental Laws") and, to the
best of the knowledge of the Company and the Selling Shareholders, is in
compliance with the terms and conditions thereunder. To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Company is
in compliance with and there are no past or present conditions, activities,
actions, or plans which may prevent compliance with, any current or past law
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the release, emission, or discharge of any
hazardous substance or hazardous waste ("Hazardous Substance Issues") or any
regulations, plans, judgments, injunctions, or notices promulgated or approved
thereunder: (1) which are applicable to the operations of the Company, or the
Selling Shareholders, or the property owned or leased by the Company or the
Selling Shareholders, or the assets of the Company, or the Business or
operations of the Company, or (2) which may give rise to any liability of the
Company, or the Selling Shareholders or otherwise form the basis of any ongoing
or threatened claims, actions, demands, suits, proceedings, hearings, studies,
or investigations against or relating to the Company, the property owned or
leased by the Company or the Selling Shareholders, or the Business, or the
assets of the Company, that are based on or related to any Hazardous Substance
Issues.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, no release of a hazardous substance has come to be located
on or beneath and remain located on or
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beneath any of the real property upon which the Business is conducted or upon
which any of the property owned or leased currently or in the past by the
Company or the Selling Shareholders or any predecessor which relates to the
Business or operations of the Company are held or maintained.
(iii) Schedule 2.1(ab) sets forth all reports, studies, and
evaluations conducted by the Company or the Selling Shareholders, or received by
the Company or the Selling Shareholders with respect to such matters.
(iv) Neither the Company nor any of the Selling Shareholders
has any knowledge of the possible or actual presence, disposal, release or
threatened release of any hazardous substance or hazardous waste on or under any
adjacent properties.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not been alleged to be in violation of, or
been subject to any administrative, judicial, or regulatory proceeding pursuant
to, any applicable Environmental Laws either now or any time during the past. No
Claims (as hereinafter defined) have been or are currently asserted against the
Company based on the Company's or any of the Selling Shareholders' acts or
failures to act prior to the Closing Date with respect to hazardous substances
or hazardous wastes. As used herein, "Claim" shall mean any and all claims,
demands, orders, causes of action, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, attorneys' fees, and any other expenses incurred, assessed or sustained
by or against the Company or the Selling Shareholders.
(vi) To the best of the knowledge of the Company and the
Selling Shareholders, none of the properties owned, leased, or operated by the
Company or any predecessor thereof are now, or were in the past, listed on the
National Priorities List of Superfund Sites, the Comprehensive Environmental
Response, Compensation and Liability Information System, or any other state or
local environmental database.
(ac) Certain Payments. The Company has not, and no person directly
or indirectly on behalf of the Company has, made or received any payment that
was not legal to make or receive.
(ad) Customers. To the best of the knowledge and belief of the
Company and the Selling Shareholders, Schedule 2.1(ad) hereto lists all of the
customers of the Company for the year 1996 to date (such customers referred to
herein individually as a "Customer"). No single Customer of the Company
accounted for more than ten percent (10%) of the net sales or rentals of the
Company (calculated on a unit basis) during 1996. The Company has furnished
Purchaser with complete and accurate copies or descriptions of all current
agreements (written or unwritten) with such Customers. Neither the Company nor
any of the Selling Shareholders is aware of any event, happening, or fact which
would lead it or him to believe that any of such Customers will not continue its
current level of purchases and/or rentals after the Closing Date.
(ae) Books and Records. The books and records of the Company to
which Purchaser and its accountants and attorneys have been given access are the
true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all respects.
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(af) Complete Disclosure. To the best of the knowledge and belief of
the Company and the Selling Shareholders, no representation or warranty by the
Company or the Selling Shareholders in this Agreement, and no exhibit, schedule,
statement, certificate, or other writing furnished to Purchaser pursuant to this
Agreement or the Related Agreements or in connection with the transactions
contemplated hereby and thereby, contains or will contain any untrue statement
or omits or will omit to state any fact necessary to make the statements
contained herein and therein not materially misleading. If the Company or any of
the Selling Shareholders becomes aware of any fact or circumstance which would
change a representation or warranty of the Company or the Shareholders, the
Company and the Shareholders shall immediately give notice of such fact or
circumstance to Purchaser. However, such notification shall not relieve either
the Company or the Shareholders of their respective obligations under this
Agreement.
(ag) Leased Properties. The Financial Statements and Schedule
2.1(ag) hereto together list all personal property (including equipment leases)
and real property leased by the Company or by the Selling Shareholders in
connection with the Business (the "Leased Properties") and the aggregate annual
rent or other fees payable under all such leases. The Company has a valid
leasehold or ownership interest in all of the Leased Properties, free and clear
of any liens.
(ah) Employees and Employee Benefit Plans.
(i) Other than as set forth in Schedule 2.1(ah) hereto, the
Company is not a party to any pension, profit sharing, savings, retirement or
other deferred compensation plan, or any bonus (whether payable in cash or
stock) or incentive program, or any group health plan (whether insured or
self-funded), or any disability or group life insurance plan or other employee
welfare benefit plan, or to any collective bargaining agreement or other
agreement, written or oral, with any trade or labor union, employees'
association or similar organization. The Company is not a party to, nor has made
any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(ii) With respect to each such plan set forth in Schedule
2.1(ah) (a "Plan"), the Company has furnished to Purchaser or its counsel
complete and accurate copies of the Plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications). With
respect to each Plan subject to ERISA as either an employee pension benefit plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(l) of ERISA, the Company has prepared in good
faith and timely filed all requisite governmental reports and has properly and
timely posted, or distributed all notices and reports to employees required to
be filed, posted, or distributed with respect to each Plan. Each Plan has at all
times been properly and completely funded by the Company and has been operated
and administered in all respects in accordance with its terms and all applicable
laws, including, but not limited to, ERISA and the Code.
(iii) All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code have been determined by the Internal
Revenue Service to be so qualified,
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and copies of such determination letters are included as part of Schedule
2.1(ah) hereof. Except as disclosed on Schedule 2.1(ah), all reports and other
documents required to be filed with any governmental agency or distributed to
plan participants or beneficiaries have been timely filed and distributed, and
copies thereof are included as part of Schedule 2.1(ah) hereof. The Company
further represents that:
(a) there have been no terminations, partial
terminations, or discontinuance of contributions to any such Qualified Plan
intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(b) no such plan listed in Schedule 2.1(ah) subject to
the provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such plan listed
in Schedule 2.1(ah); and
(d) The Company has not incurred any liability under
Section 4062 of ERISA.
(iv) Neither the Company nor any of the Selling Shareholders
has made any oral or written communications to its current or former employees
that guarantee current or former employees continuation of employer-provided
benefits or retirement coverage under the Company's welfare benefit plans or
which would have any effect on the Purchaser's ability to terminate retiree or
any other benefits to all current or former employees.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 applicable to its Employees prior to the Closing Date
or any prior actions of or transactions entered into by the Company or the
Selling Shareholders.
(ai) Compensation. The Company has delivered to Purchaser an
accurate schedule, attached to this Agreement as Schedule 2.1(ai), showing all
officers, directors, and key employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation, respectively) of the directors, officers, and key employees.
(aj) Insurance. The Company maintains policies of insurance covering
the assets of the Company, properties, and Business in types and amounts as set
forth in Schedule 2.1(aj). To the best of the knowledge and belief of the
Company and the Selling Shareholders, the Company is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated and the Company has not received any written notice of
cancellation of any such policies. Schedule 2.1(aj) lists and describes all the
Company insurance policies in effect immediately prior to the time of Closing.
To the knowledge of the Company and the Selling Shareholders, such policies are
with reputable insurers and are in amounts sufficient for the prudent protection
of the properties and the Business of the Company.
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(ak) Accounts and Notes Receivable. Schedule 2.1(ak) hereto sets
forth all accounts and notes receivable of the Company ("Accounts Receivable").
Schedule 2.1(ak) shows the aging of Accounts Receivable in amounts due in
thirty-day aging categories. All Accounts Receivable represent sales or rentals
actually made or services actually performed in the ordinary and usual course of
the Company's business.
(al) Representations and Warranties on the Closing Date. The
Company's and the Selling Shareholders' representations and warranties contained
in this Article II shall be true on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
such date, except to the extent any such representations and warranties were
made as of a specified date, in which case such representations and warranties
shall continue on the Closing Date to have been true in all material respects as
of such specified date.
Section 2.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to each of the Companies and the Selling Shareholders
that immediately prior to the time of Closing:
(a) Organization and Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Georgia, and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. Purchaser has delivered to the Company complete and accurate copies of
its Certificate of Incorporation and Bylaws and all amendments thereto, and all
minutes and actions of its Board of Directors and shareholders. The Purchaser is
not in violation of any of the provisions of the Certificate of Incorporation or
the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of Purchaser and its par value per share, if any, is as set forth
on Schedule 2.2(b) hereto. Each person listed on Schedule 2.2(b) is the lawful
owner of that number of the issued and outstanding shares of capital stock of
Purchaser set forth opposite such person's name, free and clear of any
restrictions upon transfer. The shares of Common Stock set forth on Schedule
2.2(b) constitute all of the shares of capital stock of the Purchaser issued and
outstanding and have been duly authorized and validly issued, fully paid and
nonassessable, and to the best of the knowledge and belief of the Purchaser,
issued in compliance with all applicable federal and state securities laws.
Except as provided in this Agreement, there are no outstanding subscriptions,
warrants, calls, options, conversion rights, rights of exchange or other
commitments, plans, agreements, or arrangements of any nature under which the
Purchaser or its shareholders may be obligated to issue, assign, exchange,
purchase, redeem or transfer any shares of capital stock of the Purchaser, and
there are no shareholders' agreements to which the Purchaser or its shareholders
is a party, or proxies, voting trust agreements or similar agreements or options
executed by the Purchaser or to which the Common Stock is subject. There are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Purchaser obligating the
Purchaser or, to the best knowledge of Purchaser, its shareholders to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment. Upon issuance of shares of
Common Stock in exchange for the shares of the Company's Capital Stock, as set
forth herein, the Selling Shareholders shall acquire good and
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marketable title to the shares of Common Stock, free and clear of any liens,
pledges, encumbrances, security interests, charges, equities or restrictions of
any nature imposed by Purchaser except as set forth in this Agreement.
(c) Authorization. Purchaser has full corporate power and authority
to enter into this Agreement, the Related Agreements, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby, including, without limitation, the execution and delivery of this
Agreement and the Related Agreements. Purchaser has taken all necessary and
appropriate corporate action with respect to the execution and delivery of this
Agreement and the Related Agreements. This Agreement and the Related Agreements
constitute valid and binding obligations of Purchaser, enforceable in accordance
with their respective terms; except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights and remedies generally, and general principles of equity.
(d) Brokers' and Finders' Fees/Contractual Limitations. Purchaser is
not obligated to pay any fees or expenses of any broker or finder in connection
with the origin, negotiation, or execution of this Agreement, the Related
Agreements, or in connection with any transactions contemplated hereby. Neither
Purchaser nor any officer, director, employee, agent, or representative of
Purchaser (collectively, the "Purchaser Representatives") is or has been subject
to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Purchaser or the Purchaser Representatives from
negotiating, entering into, and consummating this Agreement, the Related
Agreements, and the transactions contemplated hereby and thereby.
(e) Financial Condition. Purchase has an Actual Company Value of not
less than $990,941 and an Actual Net Tangible Asset Value of not less than
$913,941.
Section 2.3 Survival of Representations and Warranties. Purchaser's and
the Selling Shareholders representations and warranties contained in this
Article II shall survive the Closing for a period of twenty-four (24) months
from the Closing Date unless earlier terminated by exercise by the Selling
Shareholders of the Put Option (as defined in Section 6.3 hereof).
Section 2.4 Disclosure. Disclosure of any item on any schedule hereto
shall be deemed adequate disclosure of such item on all other schedules.
ARTICLE III
COVENANTS
Section 3.1 Covenants Against Disclosure. (a) The terms and provisions of
this Agreement, and any information heretofore disclosed or to be disclosed in
the future in connection herewith by any party hereto to any other party, other
than information which is in the public domain or which the disclosing party
authorizes the receiving party in writing to disclose (such terms, provisions
and information herein called the "Confidential Material") shall be treated
confidentially by the parties; provided that any party may disclose Confidential
Material of another party to the receiving party's employees, accountants,
attorneys and advisors who need to know the same (it being understood that
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they shall be informed by the receiving party of the confidential nature of the
Confidential Material, and that the receiving party shall cause them to treat
the same confidentially), and otherwise to the extent required by law. The
parties acknowledge that remedies at law would be inadequate to enforce the
covenants contained in this Section 3.1 and therefore agree that a party
aggrieved hereunder may enforce such covenants through the remedy of specific
performance or other equitable relief. Should an aggrieved party have cause to
seek such relief, no bond shall be required, and the breaching party shall pay
all attorney's fees and court costs which the aggrieved party may incur in
enforcing the provisions of this Section. The covenants contained in this
Section 3.1(a) shall survive until the expiration of the Put Option described in
Section 6.3 hereof.
(b) The parties shall, by mutual agreement, draft a press release for
public dissemination. No party shall disseminate (except to the parties to this
Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Related Agreements or the parties hereto
or thereto without the prior written consent of the Company, each of the
Participating Companies and Purchaser, except as required by law.
Section 3.2 Access to Information. The Company will give Purchaser and its
accountants, legal counsel, and other representatives reasonable access, during
normal business hours, at times mutually agreeable among the parties, to all of
the properties, books, contracts, commitments, and records relating to the
Business and the assets of the Company, and the Company will furnish to
Purchaser, its accountants, legal counsel and other representatives, at the
Company's expense (which expense shall not include the costs and fees of
Purchaser accountants, legal counsel, and other representatives), all such
information concerning the Business or the assets of the Company as Purchaser
may request. Purchaser agrees to indemnify and hold the Company harmless from
and against loss or damage the Company may incur as a result of Purchaser's
activities or the activities of Purchaser's agents, representatives or designees
upon property owned or occupied by the Company and against any and all claims
for death or injury to persons or properties arising out of or connected with
Purchaser's (or its agents', representatives' or designees') going upon such
property pursuant to the provisions of this Agreement. Such indemnification
shall be provided in accordance with the provisions of Article V hereof.
Section 3.3 Interim Period. During the period from the date of execution
hereof through the expiration date of the Put Option in accordance with the
provision of Section 6.3 hereof (the "Interim Period"):
(a) The Company shall continue to operate as a separate wholly-owned
subsidiary of the Purchaser. The Purchaser and the Crescent Shareholders hereby
agree that they will not take any action during the Interim Period to effect a
change in the Board of Directors or the management of the Microsouth subsidiary
or sell, assign, hypothecate or transfer any of the Capital Stock of the CGD
subsidiary without the consent of the Microsouth Board of Directors.
(b) The number of Directors of the Purchaser shall be eight (8).
Thomas Woolsey shall be appointed to the Board of Directors of the Purchaser on
the Closing Date and may not be removed during the Interim Period except for
cause. If Mr. Woolsey shall be removed for cause or
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shall be unable or unwilling to serve as a Director, the Selling Shareholders
shall immediately appoint his successor. The parties acknowledge that after the
Interim Period, the Board of Directors of Purchaser is anticipated to expand
through the addition of independent directors and corporate acquisitions.
(c) During the Interim Period, all votes and action of the Board of
Directors of the Purchaser shall require unanimity, to the extent any such vote
or action relates to any of the following activities by the Purchaser: any
acquisition or disposition, any share issuance, any borrowing of funds, any
encumbrance to be created on property of the Purchaser, the issuance of any
guarantee and entering into any lease, agreement or other arrangement providing
for an expenditure exceeding $1,000.00. Notwithstanding the foregoing, no party
hereto shall be entitled to vote in connection with any proposed action by
Directors relating to any alleged failure by such party to observe or perform
any of his or its obligations under this Agreement.
(d) The Board of Directors shall proceed promptly to discuss and
prepare a business plan for the Purchaser in light of the markets, operations,
personnel, expertise, financial condition and prospects of the Company and each
of the Participating Companies, and such other factors as the Board may deem
relevant. The parties agree that the Purchaser shall have a Technology Division,
whereof Daniel Bailey shall be Chief Executive Officer, and a Graphics Division,
whereof William Rychel shall be Chief Executive Officer, provided such
individuals are able and willing to serve. The parties shall use all reasonable
efforts to promote the interests of the Purchaser and the development of the
business of the respective companies.
(e) The parties acknowledge that all of the Schedules hereto are not
completed as of the date of execution of this Agreement. All missing or
incomplete Schedules shall be compiled and agreed upon by the parties within 15
days after such execution.
(f) The Purchaser shall exercise its reasonable best efforts to
obtain, effective as soon as reasonably practicable after the execution hereof,
a policy of directors' and officers' liability insurance, in such amounts and
covering such risks as normally are insured for by companies of approximately
the same size as, and engaged in businesses substantially similar to, Purchaser.
(g) Each of the Purchaser and the Company represent and warrant that
during the Interim Period it shall have sufficient Actual Company Value to
enable it to conduct its respective business in an ordinary course manner
without incurring any additional indebtedness.
Section 3.4 Special Crescent Covenants. By executing this Agreement,
Phillip C. Aginsky ("Aginsky") covenants and agrees that he shall cause Alongal
Extrusions, Inc. ("Alongal") duly to perform and observe all of the covenants,
agreements, representations and warranties of Alongal contained in this
Agreement. Dan I. Bailey, Peter Goletz, Michelle L. Lightman and William J.
Parillo agree with Alongal that they shall transfer all of their shares of
capital stock of the Purchaser to Alongal prior to the Closing Date in exchange
for an aggregate 49% interest in Alongal to be prorated among them according to
the capital stock of the Purchaser outstanding. Notwithstanding anything
contained in this Agreement, the Crescent Shareholders and the Purchaser consent
that all
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shares of capital stock of the Purchaser indicated in Schedule 2.1(b) as not
owned by Alongal shall be transferred to Alongal as contemplated by this
Section.
Section 3.5 On and After Closing. Subject to the provisions of Section 6.3
hereof, on and after the Closing Date, none of the shares of stock of the
Purchaser which are subject to the escrow provisions of this Agreement shall be
transferred or pledged except pursuant to the provisions of this Agreement. The
voting rights with respect to such shares shall be exercisable by the owners of
such shares. Dividends, if any, declared on the Common Stock during the
effectiveness of such escrow provisions shall be paid to and reinvested by the
escrow agent as the parties shall agree.
Section 3.6 Non-Competition.
(a) Commencing as of the Closing Date and continuing for three (3)
years thereafter, each of the Selling Shareholders agree that he shall not
engage (except in his respective capacity as an employee of Purchaser if
applicable), directly or indirectly, whether on his own account or as a
shareholder (other than as a less than 1% shareholder of a publicly-held
company), partner, joint venturer, employee, consultant, advisor, and/or agent,
of any person, firm, corporation, or other entity, in any or all of the
following activities within a fifty (50) mile radius of the zero milepost of the
respective city in which each Company is located (the "Territory"):
(i) Enter into or engage in the businesses of computer systems
integration, wholesale distribution of computers or computer-peripherals, or
reseller activities in such products, including the wholesale purchase and
selling or leasing of computers and computer-peripheral equipment, data
communications equipment and software, or providing technical support or advice
to end users in relation to such products (such businesses are collectively
referred to herein as the "Protected Business"). As used herein, the term
Protected Business shall not, however, include the commission-based
representation of product manufacturers to facilitate sales of products by such
manufacturers directly to distributors, value-added resellers and end users
("Manufacturer Representation") or the employee placement, training and/or
consulting business of CAD TEMPS, Inc., a Georgia corporation ("CAD TEMPS").
(ii) Solicit customers, suppliers, or business patronage in
the Territory which results in competition with the Purchaser or any of its
affiliates in the Protected Business;
(iii) Encourage or solicit any Employees of or service
providers to the Business, Purchaser, or any of its affiliates to leave the
employment of or terminate their service relationship with Purchaser or any of
its affiliates for any reason; or
(iv) Promote or assist, financially or otherwise, any person,
firm, association, corporation or other entity engaged in any aspect of the
Protected Business.
(b) If, in any judicial proceeding, a court shall refuse to enforce
in such action any of the covenants included herein, then at the option of
Purchaser or its affiliates, wholly unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such a
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proceeding. The parties intend to have covenants enforceable to the fullest
extent of the law as to scope, time and geography.
(c) The parties agree that due to the unique nature of the services
and capabilities of the Company and the Selling Shareholders, there can be no
adequate remedy at law for any breach of their respective obligations hereunder,
that any such breach may allow the Selling Shareholders and/or third parties to
unfairly compete with Purchaser or its affiliates resulting in irreparable harm
to Purchaser or its affiliates, and therefore, that upon any such breach or any
threat thereof, Purchaser or its affiliates shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law.
(d) Each of the Selling Shareholders acknowledges, represents and
warrants to Purchaser that the covenants of each in this Section 3.6 are
reasonably necessary for the protection of Purchaser's interests under this
Agreement and are not unduly restrictive upon him.
(e) The parties hereto acknowledge that the Selling Shareholders are
shareholders in CAD TEMPS and that CAD TEMPS and its shareholders have been and
are currently engaged in the business of temporary and permanent personnel
placement, training and consulting outside the scope of Microsouth's Advanced
Software Learning Center. The parties (1) waive any and all claims of breach of
the non-competition provision of this Agreement with respect to the personnel
placement, training and consulting activities carried on by CAD TEMPS and its
shareholders prior to the date hereof; and (2) similarly waive any and all
claims of breach of such non-competition provision with respect to future
personnel placement, training and consulting activities engaged in by CAD TEMPS
and its shareholders.
(f) The waiver and exception contained in Section 3.6(e): (1) shall
not be construed to constitute a waiver or exception concerning any activity not
specifically described in Section 3.6(e), and (2) without limiting the
generality of the foregoing, shall not apply to any involvement by the Selling
Shareholders, whether directly or indirectly, in the ownership or management of
any entity engaged, either directly or indirectly, in systems integration, the
wholesale distribution of computers or computer-peripherals, or reseller
activities in such products, other than Manufacturer Representation or employee
placement, training and consulting services.
Section 3.7 Further Assurances. On or after the Closing Date, each party
shall prepare, execute, and deliver, at the preparer's expense, such further
instruments, and shall take or cause to be taken such other or further action,
as any party shall reasonably request of any other party at any time or from
time to time in order to consummate, in any other manner, the terms and
provisions of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 4.1 Conditions to Obligations of Purchaser. Each and every
obligation of Purchaser to be performed on the Closing Date shall be subject to
the satisfaction on or before the Closing Date
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of the following conditions (unless waived in writing by Purchaser), and the
Company and the Selling Shareholders shall exercise all reasonable efforts in
good faith to satisfy such conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Selling Shareholders and the Company set forth in
Section 2.1 of this Agreement shall have been true and correct when made and
shall be true and correct at and as of the Closing Date as if such
representations and warranties were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by the Company or each of the Selling Shareholders,
as the case may be, including Boards of Directors approval, shall have been
fully performed and complied with at or prior to the Closing Date.
(c) No Material Adverse Change. Since the date of the Unaudited
Financial Statements, there shall have occurred no material adverse change in
the financial condition, the Business, the assets of the Company, or properties
of the Company which adversely affects the conduct of the Business as presently
being conducted, the assets of the Company, or the financial condition or
properties of the Company.
(d) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser shall have completed to its
reasonable satisfaction its due diligence review of the Company and its
operations, the Business, the assets and financial condition of the Company, and
Purchaser shall have received favorable reviews from its advisors of the results
of their due diligence review of the Business.
(f) Certificate of President and Shareholders. The Company shall
have delivered to Purchaser a certificate executed by its President and the
Selling Shareholders, dated the date of the Closing Date, to the effect that the
conditions set forth in subsections (a)-(e) of this Section 4.1 have been
satisfied with respect to the Company and the Selling Shareholders.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to Purchaser under this Agreement shall be reasonably satisfactory to
Purchaser and its counsel.
(h) Execution of Related Agreements. Purchaser shall have received
fully executed copies of the Related Agreements.
(i) Licenses. Purchaser shall have received all licenses from all
appropriate governmental agencies to operate the Business in the same manner as
each of the Companies operated
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the Business prior to the Closing Date. This condition shall be deemed satisfied
in the event that the Purchaser fails to use reasonable diligence in applying
for and pursuing such licenses.
(j) Accounts Receivable; Inventory. The Company shall have delivered
to Purchaser receivables and inventory equal to at least seventy-five percent
(75%) of its Accounts Receivable (as reflected in Schedule 2.1(ak) hereto) and
Inventory (as reflected in Schedule 2.1(j) hereto) as of the date of this
Agreement.
(k) Stock Certificates. Each of the Selling Shareholders shall have
delivered the stock certificates representing his shares of Capital Stock, duly
endorsed for transfer to the Purchaser.
(l) Resignations. The officers and directors of the Company shall
have delivered to Purchaser their resignations, effective as of the expiration
of the Put Option in accordance with Section 6.3 hereof.
(m) Consents. Purchaser shall have received each and every consent,
approval and waiver (if any) required for the execution of this Agreement and
the consummation of the transactions contemplated hereby.
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders. Each and every obligation of the Company and the Selling
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by the Selling Shareholders or the Company), and the
Purchaser shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in Section 2.2 of this Agreement shall have
been true and correct when made and shall be true and correct on and as of the
Closing Date as if such representations and warranties were made as of such date
and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by Purchaser, as the case may be, including Board of
Directors and shareholder approval, as applicable, shall have been fully
performed and complied with at or prior to the Closing Date.
(c) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(d) Certificate of Officers. Purchaser shall have delivered to the
Company a certificate executed by its authorized officer, dated the date of the
Closing Date, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 4.2 have been satisfied.
27
<PAGE>
(e) Execution of Related Agreements. The Company shall have received
fully executed copies of the Related Agreements (and all other documents
required hereunder).
(f) Shareholder Employment Agreements. Purchaser shall have entered
into an employment agreement with Thomas Woolsey in substantially the form
attached hereto as Exhibit 4.2(f) and providing for the services to be performed
principally at Roswell, Georgia and for compensation of not less than $125,000
per year.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to the Selling Shareholders under this Agreement shall be reasonably
satisfactory to each of the Selling Shareholders and their counsel.
(h) Directorships. At least one individual designated by the Company
shall have been duly appointed as a Director of the Purchaser.
(i) Insurance. The Purchaser shall have exercised its reasonable
best efforts to obtain a policy of directors' and officers' liability insurance,
in such amounts and covering such risks as normally are insured for by companies
of approximately the same size as, and engaged in businesses substantially
similar to, Purchaser.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements.
(a) All representations, warranties, covenants, and agreements of
the Company, the Selling Shareholders, and Purchaser shall survive the
execution, delivery, and performance of this Agreement for two years from the
Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1(b), 2.1(i) and 2.1(y) and the obligation of indemnity
therefor, and the agreements contained in Sections 1.2 and 3.3(e) shall survive
until the applicable statutes of limitations have expired. All representations
and warranties of the Company, the Selling Shareholders, and Purchaser set forth
in this Agreement shall be deemed to have been made again by the Company, the
Selling Shareholders and Purchaser on and as of the Closing Date.
(b) As used in this Article V, except as otherwise indicated in this
Article V, any reference to a representation, warranty, agreement, or covenant
contained in any section of this Agreement shall include the schedule relating
to such section.
Section 5.2 Indemnification of Purchaser.
Each of the Selling Shareholders hereby agrees to indemnify and hold
harmless Purchaser and its affiliates, the Companies and the other Selling
Shareholders (collectively the "Indemnified Parties") against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments, causes
of action, assessments, costs, and expenses, including, without limitation,
interest,
28
<PAGE>
penalties, attorneys' fees, any and all expenses incurred in investigating,
preparing, and defending against any litigation, commenced or threatened, and
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting from, imposed
upon, or incurred or suffered by the Indemnified Parties directly or indirectly,
as a result of or arising from any inaccuracy in or breach or nonfulfillment of
any of the representations, warranties, covenants, or agreements made by the
Company or the Selling Shareholders in this Agreement or any facts or
circumstances constituting such an inaccuracy, breach, or nonfulfillment (all of
which shall be referred to as "Company Indemnifiable Claims").
Section 5.3 Indemnification of the Selling Shareholders. Purchaser hereby
agrees to indemnify and hold harmless each of the Selling Shareholders against
any and all Damages, asserted against, reasonably resulting from, imposed upon,
or incurred or suffered by such Selling Shareholders as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Purchaser in this
Agreement or the Related Agreements or any facts or circumstances constituting
such an inaccuracy, breach, or nonfulfillment or any claim for the Company or
Business liability disclosed to the Purchaser, and which are attributable to
occurrences on or after the Closing Date (all of which shall be referred to as
"Purchaser Indemnifiable Claims").
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims.
(a) If any party hereto determines to seek indemnification (the
party seeking such indemnification hereinafter referred to as the "Indemnified
Party" and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party") under this Article V with respect to
Company Indemnifiable Claims where the Indemnified Party is Purchaser or any of
its affiliates or Purchaser Indemnifiable Claims where the Indemnified Party is
any of the Selling Shareholders (such Claims shall be referred to herein as
"Indemnifiable Claims") resulting from the assertion of liability by third
parties, the Indemnified Party shall give notice to the Indemnifying Parties
within 60 days of the Indemnified Party becoming aware of any such Indemnifiable
Claim or of facts upon which any such Indemnifiable Claim will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to the Indemnified Party. In case any such liability is
asserted against the Indemnified Party or its affiliates, and the Indemnified
Party notifies the Indemnifying Parties thereof, the Indemnifying Parties will
be entitled, if such Indemnifying Parties so elect by written notice delivered
to the Indemnified Party within 20 days after receiving the Indemnified Party's
notice, to assume the defense thereof with counsel satisfactory to the
Indemnified Party. Notwithstanding the foregoing, (i) the Indemnified Party or
its affiliates shall also have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless the Indemnified Party or its affiliates shall
reasonably determine that there is a conflict of interest between or among the
Indemnified Party or its affiliates and any Indemnifying Party with respect to
such Indemnifiable Claim, in which case the fees and expenses of such counsel
will be borne by such Indemnifying Parties, (ii) the Indemnified Party shall
have no obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing, and (iii) the rights of the
Indemnified Party or its affiliates to be indemnified hereunder in respect of
Indemnifiable Claims resulting from the assertion of liability by third parties
shall not be adversely affected by their failure to give notice pursuant to the
foregoing unless, and, if
29
<PAGE>
so, only to the extent that, such Indemnifying Parties are materially prejudiced
thereby; provided, however, the Indemnifying Party shall not be liable for
attorneys fees and expenses incurred by the Indemnified Party prior to the
Indemnified Party's giving notice to the Indemnifying Party of an Indemnifiable
Claim. With respect to any assertion of liability by a third party that results
in an Indemnifiable Claim, the parties hereto shall make available to each other
all relevant information in their possession material to any such assertion.
(b) In the event that such Indemnifying Parties, within 20 days
after receipt of the aforesaid notice of an Indemnifiable Claim fail to assume
the defense of the Indemnified Party or its affiliates against such
Indemnifiable Claim, the Indemnified Party or its affiliates shall have the
right to undertake the defense, compromise, or settlement of such action on
behalf of and for the account, expense, and risk of such Indemnifying Parties.
(c) Notwithstanding anything in this Article V to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may materially
adversely affect the Indemnified Party or its affiliates, the Indemnified Party
or its affiliates shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Parties shall not, without the
Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
Section 5.5 Procedure For Indemnification with Respect to Non-Third Party
Claims. In the event that the Indemnified Party asserts the existence of a claim
giving rise to Damages (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the Indemnifying
Parties. Such written notice shall state that it is being given pursuant to this
Section 5.5, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If such Indemnifying Parties, within 30 days after the mailing
of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party announcing their intent to contest such assertion of the
Indemnified Party, such assertion shall be deemed accepted and the amount of
claim shall be deemed a valid claim. In the event, however, that such
Indemnifying Parties contest the assertion of a claim by giving such written
notice to the Indemnified Party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. If the parties hereto,
acting in good faith, cannot reach agreement with respect to such claim within
ten (10) days after notice thereof, such claim will be submitted to and settled
Section 5.6 Escrowed Shares. Each of the Selling Shareholders shall escrow
twenty percent (20%) of the Common Stock to be issued to such Selling
Shareholder to be available for distribution to Purchaser in the event of an
Indemnified Claim not paid in cash by the Indemnifying Party. Such escrow shall
expire on the date not less than two (2) years and sixty (60) days after the
Date of Closing, when there shall be no pending Indemnification Claim for which
notice has been given under Section 5.4, and upon such expiration any original
share certificates shall be delivered to the owners
30
<PAGE>
thereof. Not later than the Closing Date The parties shall enter into a Pledge,
Security and Escrow Agreement in substantially the form and substance attached
hereto as Exhibit 5.6.
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT
Section 6.1 Termination. (a) At any time prior to the time of Closing,
this Agreement may be terminated by express written consent of Purchaser and
each of the Selling Shareholders.
(b) Purchaser may terminate this Agreement in the event the
conditions set forth in Section 4.1 of this Agreement have not been satisfied or
waived prior to the time of Closing.
(c) Each of the Selling Shareholders may terminate this Agreement in
the event the conditions set forth in Section 4.2 of this Agreement have not
been satisfied or waived prior to the time of Closing.
(d) If the failure of such conditions to be fulfilled arises from
the fault or intentional act of a party hereto, such party shall be liable to
the other parties up to the amount of the documented out-of-pocket expense
incurred by such parties in negotiating, structuring and documenting the
transaction contemplated by this Agreement. No party shall be responsible for
indirect, special or expectancy damages for such nonfulfillment of conditions.
Section 6.2 Effect of Termination. In the event of termination as provided
in Section 6.1 above, Sections 3.1, 7.4 and 7.11 shall survive such termination
and continue in full force and effect.
Section 6.3 Conditions Subsequent to Obligations.
(a) In the event that the Purchaser has been unable to procure
exclusive distribution agreements with manufacturers of high end graphic
technology products to the satisfaction of the Selling Shareholders prior to
September 30, 1997 (the "Put Date"), the Selling Shareholders shall have the
right to put all, but not less than all, of the shares of the Purchaser received
by them in connection with this Agreement to the Purchaser (the "Put Option")
and the Purchaser shall be obligated to repurchase such shares from the Selling
Shareholders.
(b) The Put Option may be exercised by the Selling Shareholders at
any time prior to the Put Date by delivery of written notice of exercise to
Purchaser.
(c) Upon exercise of the Put Option in accordance with this Section
6.3, Purchaser shall return to the Selling Shareholders, in the respective
amounts set forth on Schedule 2.1(b), all of the shares of Capital Stock of the
Company delivered to Purchaser pursuant to the provisions of Article I. Delivery
of the certificates by each of the parties shall take place no more than five
business days after the date of such notice at the offices of the Purchaser.
31
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
7.1. Any party delivering notice to Purchaser shall deliver a copy to: Sheldon
E. Misher, Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York,
New York 10017. All notices and communications shall be deemed to have been
received unless otherwise set forth herein: (i) in the case of personal
delivery, on the date of such delivery; (ii) in the case of telex or facsimile
transmission, on the date on which the sender receives confirmation by telex or
facsimile transmission that such notice was received by the addressee, provided
that a copy of such transmission is additionally sent by mail as set forth in
(iv) below; (iii) in the case of overnight air courier, on the second business
day following the day sent, with receipt confirmed by the overnight courier; and
(iv) in the case of mailing by first class certified or registered mail, postage
prepaid, return receipt requested, on the fifth business day following such
mailing.
Section 7.2 Entire Agreement. This Agreement, the exhibits and schedules
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 7.3 Binding Effect: Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and the Selling Shareholders, their respective
successors and permitted assigns, and Purchaser and its successors and permitted
assigns. Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties; provided, however, that Purchaser may assign its rights hereunder in
connection with any sale of all or substantially all of Purchaser's assets or
any merger, consolidation, or conversion of Purchaser.
Section 7.4 Expenses of Transaction. The Selling Shareholders shall pay
the Selling Shareholders' professional fees and expenses incurred in connection
with the negotiation and closing of this Agreement and the Related Agreements,
including, without limitation the expenses of the preparation of Annual
Financial Statements. The Selling Shareholders shall also pay all the Selling
Shareholders' applicable sales, income, use, excise, transfer, documentary, and
any other taxes arising out of the transactions contemplated herein. The Company
shall pay 15.86%, as adjusted pursuant to Section 1.3, of all professional fees
and expenses incurred by Purchaser in connection with the negotiation and
closing of this Agreement and the Related Agreements. Upon expiration of the Put
Option unexercised, Purchaser shall reimburse the Selling Shareholders for all
Purchaser's expenses and fees paid by the Company.
Section 7.5 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a
32
<PAGE>
writing executed by the parties hereto, and no waiver of any of the provisions
or conditions of this Agreement or any of the rights of a party hereto shall be
effective or binding unless such waiver shall be in writing and signed by the
party claimed to have given or consented thereto. Except to the extent that a
party hereto may have otherwise agreed in writing, no waiver by that party of
any condition of this Agreement or breach by the other party of any of its
obligations or representations hereunder or thereunder shall be deemed to be a
waiver of any other condition or subsequent or prior breach of the same or any
other obligation or representation by the other party, nor shall any forbearance
by the first party to seek a remedy for any noncompliance or breach by the other
party be deemed to be a waiver by the first party of its rights and remedies
with respect to such noncompliance or breach.
Section 7.6 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 7.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
Section 7.8 Remedies of the Parties. The Company and the Selling
Shareholders acknowledge that, in addition to all other remedies to which
Purchaser is entitled, Purchaser shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided Purchaser is not in
material default hereunder. The parties also agree that the rights and remedies
of each party to this Agreement set forth in this Agreement and in all of the
exhibits and schedules attached hereto and documents referred to herein shall be
cumulative and share inure to the benefit of each such party.
Section 7.9 Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Georgia.
Section 7.10 Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any
dispute arising out of this Agreement, but should a dispute remain unresolved
ten (10) days following notice of the dispute to the other party (but in no
event prior to said ten (10) days, except as specifically provided otherwise
herein), such dispute shall be finally settled by binding arbitration in
Atlanta, Georgia in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") or such other
mediation or arbitration service as shall be mutually agreeable to the parties,
and judgment upon the award rendered by the arbitrator shall be final and
binding on the parties and may be entered in any court having jurisdiction
thereof; provided, however, that any party shall be entitled to appeal a
question of law or determination of law to a court of competent jurisdiction;
and provided, further, however, that the parties may first seek appropriate
injunctive relief prior to, and/or in addition to pursuing negotiation or
arbitration. Such arbitration shall be conducted by an arbitrator chosen by
mutual agreement of the parties, or failing such agreement, an arbitrator
appointed by the AAA. There shall be limited discovery prior to the arbitration
hearing as
33
<PAGE>
follows: (a) exchange of witness lists and copies of documentary evidence and
documents related to or arising out of the issues to be arbitrated, (b)
depositions of all party witnesses, and (c) such other depositions as may be
allowed by the arbitrator upon a showing of good cause. Depositions shall be
conducted in accordance with the Georgia Code of Civil Procedure and questions
of evidence in any hearings shall be resolved in accordance with the Federal
Rules of Evidence. The arbitrator shall be required to provide in writing to the
parties the basis for the award or order of such arbitrator, and a court
reporter shall record all hearings (unless otherwise agreed to by the parties),
with such record constituting the official transcript of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement or the Related Agreements,
the prevailing party will be entitled to receive from the other party all costs,
damages and expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether or not the
controversy is reduced to judgment or award. The prevailing party will be that
party who may be fairly said by the arbitrator(s) or the court to have prevailed
on the major disputed issues.
Section 7.11 Cooperation and Records Retention. Each of the Selling
Shareholders and Purchaser shall (i) provide the other with access to such
records, original or copies, or assistance as may reasonably be requested by
them in connection with the preparation of any Tax Return, in connection with
any audit or other examination by any Taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, or financial
reporting obligations, (ii) each retain and provide the other, with any records
or other information which may be relevant to any such Tax Return, audit or
examination, proceeding or determination, or financial reporting obligations,
and (iii) each provide the other with any final determination of any such audit
or examination, proceeding or determination that affects any amount required to
be shown on any Tax Return of the other for any period. All Tax Returns,
supporting work schedules and other records or information which may be relevant
to such Tax Returns for all tax periods or portions thereof ending before or
including the Closing Date shall remain with Purchaser or the Company and shall
be made available for inspection and copying by the parties hereto during normal
business hours.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CRESCENT COMPUTERS, INC.
By:/s/ Dan I. Bailey
---------------------
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC. as Attorney-in-Fact
for Anita, Ltd.
By:
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
----------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
Dan I. Bailey /s/ Dan I. Bailey
---------------------
Peter Goletz /s/ Peter Goletz
---------------------
Michelle L. Lightman /s/ Michelle L. Lightman
------------------------
William J. Parillo /s/ William J. Parillo
-----------------------
35
<PAGE>
MICROSOUTH, INC.
By: /s/ J. Thomas Woolsey
-----------------------
J. Thomas Woolsey
President
Address: 645 Hembrec Parkway, Suite J
Roswell, Georgia 30075
SHAREHOLDERS:
/s/ J. Thomas Woolsey
-----------------------
J. Thomas Woolsey
Address: 215 Birchmead Drive
Roswell, Georgia 30075
36
<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
AMENDMENT dated as of June 2, 1997 to the Stock Purchase Agreement dated
as of May 1, 1997 (the "Stock Purchase Agreement") by and among Crescent
Computers, Inc., a Georgia corporation (the "Purchaser"), the shareholders of
the Purchaser set forth on the signature page of the Stock Purchase Agreement
(the "Crescent Shareholders"), Microsouth, Inc., a Georgia corporation
("Microsouth"), and the shareholders of Microsouth set forth on the signature
page of the Stock Purchase Agreement (the "Selling Shareholders"). All terms
used in this Amendment, unless otherwise defined herein, shall have such meaning
as ascribed to them in the Stock Purchase Agreement.
WHEREAS, pursuant to the Stock Purchase Agreement, the Purchaser agreed to
purchase all of the issued and outstanding shares of capital stock of Microsouth
held by the Selling Shareholders (the "Acquisition"); and
WHEREAS, in connection with the Acquisition, the parties hereto desire to
amend certain provisions of the Stock Purchase Agreement as set forth in this
Agreement in accordance with the provisions of Section 7.5 of the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties intending to be legally bound, hereby agree
as follows:
A. Amendments to Stock Purchase Agreement. The Stock Purchase Agreement is
hereby amended as follows:
(1) Section 2.3 of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"Section 2.3 Survival of Representations and Warranties:
Purchaser's and the Selling Shareholders' representations and
warranties contained in this Article II shall survive the Closing
for a period of twenty-four (24) months from the Closing Date."
(2) The last sentence of Section 3.1(a) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The covenants contained in this Section 3.1(a) shall survive
until one hundred twenty (120) days from the Closing Date."
(3) The introductory paragraph of Section 3.3 of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
paragraph:
"Section 3.3 Interim Period. During the period from the date
of execution hereof through November 1, 1997 or prior thereto upon
the unanimous consent of the Board of Directors of the Purchaser
(the "Interim Period"):"
(4) Section 3.3(a) of the Stock Purchase Agreement is deleted in its
entirety.
<PAGE>
(5) The first sentence of Section 3.3(b) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The number of Directors of the Purchaser shall be seven (7)."
(6) Section 3.3(g) of the Stock Purchase Agreement is deleted in its
entirety.
(7) The first eight words of Section 3.5 of the Stock Purchase
Agreement are deleted in their entirety so that Section 3.5 begins with
the words "On and after."
(8) Section 4.1(1) of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"(l) Resignations: The officers and directors of the Company
shall have delivered to Purchaser their resignations, effective as
of the Closing Date."
(9) Section 6.3 of the Stock Purchase Agreement is deleted in its
entirety.
(10) The last sentence of Section 7.4 of the Stock Purchase
Agreement is deleted in its entirety.
B. Full Force and Effect. Except as provided herein, all other terms and
provisions of the Stock Purchase Agreement shall remain in full force and
effect.
C. Counterparts. This Amendment may be executed in one or more
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
-----------------------------------------
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
-2-
<PAGE>
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC.
By:
-----------------------------------------
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
--------------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
--------------------------------------------
Dan I. Bailey
--------------------------------------------
Peter Goletz
--------------------------------------------
Michelle L. Lightman
--------------------------------------------
William J. Parillo
MICROSOUTH, INC.
By:
--------------------------------------------
J. Thomas Woolsey
President
Address: 645 Hembrec Parkway, Suite J
Roswell, Georgia 30075
-3-
<PAGE>
SHAREHOLDERS:
--------------------------------------------
J. Thomas Woolsey
Address: 215 Birchmead Drive
Roswell, Georgia 30075
-4-
STOCK PURCHASE AGREEMENT
by and among
Crescent Computers, Inc., a Georgia corporation, and its shareholders
and
tekgraf, inc., a Texas corporation, and its shareholders
Dated as of May 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF STOCK........................................................1
Section 1.1 Purchase and Sale...........................................1
Section 1.2 Purchase Price..............................................1
Section 1.3 Purchase Price Adjustment...................................2
Section 1.4 The Closing.................................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES...........................................4
Section 2.1 Representations and Warranties of the Companies and the
Shareholders .............................................4
Section 2.2 Representations and Warranties of Purchaser................20
Section 2.3 Survival of Representations and Warranties.................21
Section 2.4 Disclosure.................................................21
ARTICLE III
COVENANTS...............................................................21
Section 3.1 Covenants Against Disclosure...............................21
Section 3.2 Access to Information......................................22
Section 3.3 Interim Period.............................................22
Section 3.5 On and After Closing.......................................23
Section 3.6 Non-Competition............................................23
Section 3.7 Further Assurances.........................................24
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS.....................................25
Section 4.1 Conditions to Obligations of Purchaser.....................25
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders ............................................26
ARTICLE V
INDEMNIFICATION.........................................................27
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements ...............................................27
Section 5.2 Indemnification of Purchaser...............................28
Section 5.3 Indemnification of the Selling Shareholders................28
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims ..................................................28
Section 5.5 Procedure For Indemnification with Respect to Non-Third
Party Claims ............................................29
Section 5.6 Escrowed Shares............................................30
i
<PAGE>
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT...................................30
Section 6.1 Termination................................................30
Section 6.2 Effect of Termination......................................30
Section 6.3 Conditions Subsequent to Obligations.......................30
ARTICLE VII
MISCELLANEOUS PROVISIONS................................................31
Section 7.1 Notice.....................................................31
Section 7.2 Entire Agreement...........................................31
Section 7.3 Binding Effect: Assignment.................................31
Section 7.4 Expenses of Transaction....................................31
Section 7.5 Waiver; Consent............................................32
Section 7.6 Management of Purchaser's Business.........................32
Section 7.7 Counterparts...............................................32
Section 7.8 Severability...............................................32
Section 7.9 Remedies of the Parties....................................32
Section 7.10 Governing Law..............................................32
Section 7.11 Arbitration; Attorneys' Fees...............................32
Section 7.12 Cooperation and Records Retention..........................33
SCHEDULE 1.2............................................................36
SCHEDULE 2.1(b).........................................................37
SCHEDULE 2.2(b).........................................................38
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 1, 1997
among , Crescent Computers, Inc., a Georgia corporation ("Purchaser"), the
shareholders of Crescent set forth on the signature page of this Agreement (the
"Crescent Shareholders") and tekgraf, inc., a Texas corporation ("Tekgraf" or
the "Company"), and the shareholders of Tekgraf set forth on the signature page
of this Agreement (the "Selling Shareholders").
WHEREAS, the Company is engaged in, among other things, the business of
computer integration and wholesale distribution of computer products (such
business is referred to herein collectively as the "Business"); and
WHEREAS, Purchaser desires to purchase all the issued and outstanding
shares of capital stock of the Company held by the Selling Shareholders and the
Selling Shareholders desire to sell such shares to Purchaser, subject to the
terms and conditions hereinafter set forth (such purchase and sale of capital
stock of the Company shall be referred to herein as the "Acquisition"); and
WHEREAS, Purchaser and the Selling Shareholders desire to enter into this
Agreement with the understanding that this Agreement will supercede all prior
oral and written agreements between the parties.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase on the Closing Date (as hereinafter
defined), and the Selling Shareholders each agree to sell to Purchaser at the
Closing (as hereinafter defined), all of the issued and outstanding shares of
the capital stock of the Company, which consists of the number of shares of
common stock, and all rights existing with respect thereto, held by each of the
Selling Shareholders, as set forth on Schedule 2.1(b) attached hereto.
Section 1.2 Purchase Price. (a) In consideration for the Capital Stock (as
defined in Section 2.1(b)) and in full payment therefor Purchaser will pay the
Selling Shareholders $675,000 (hereinafter the "Purchase Price"), but subject to
the adjustments to the Purchase Price set out in Section 1.3, such payment to be
evidenced by the issuance to the Selling Shareholders of an aggregate of 834
shares of Purchaser's common stock (the "Common Stock") in the respective
amounts reflected in Schedule 1.2 attached hereto (hereinafter called the
"Purchase Price"). All shares of Common Stock issued as herein described shall
have identical rights as to dividends, voting and all other matters. Except as
expressly provided in this Agreement, there shall be no other consideration paid
to or for the account of the Selling Shareholders in connection with or relating
in any way to the transactions contemplated hereby.
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Section 1.3 Purchase Price Adjustment. (a) As used in this Section 1.3,
the following capitalized terms shall have the meanings set forth below:
"Actual Company Value" shall mean the aggregate of the Company's and any
subsidiary's Fixed Assets, plus their Current Assets, less their Liabilities on
the Closing Date.
"Company Shortfall" means the excess, if any, of the Warranted Company Value (as
hereinafter defined) over the Actual Company Value on the Closing Date, subject
to the limitations set forth in this Section 1.3.
"Current Assets" shall be used in all respects in accordance with generally
accepted accounting principles consistently applied ("GAAP") and comprises the
aggregate of all cash, cash equivalents, receivables and inventory, but
specifically excludes any deferred assets including without limitation deferred
tax and deferred income, and valued in accordance with GAAP, and on a basis in
all material respects consistent with that adopted for the purposes of the last
audited financial statements of the Company and the value of all receivables and
inventory has been written down to realizable market value and adequate
provision has been made therefor.
"Fixed Assets" shall be used in all respects in accordance with GAAP and shall
mean fixed assets at the values at which they were included in the latest
audited financial statements (or if acquired after the balance sheet date, their
cost), less depreciation calculated in accordance with the method adopted in the
financial statements. Fixed Assets shall specifically exclude, and no value
shall be attributable to, any intangible assets (including without limitation
goodwill, trademarks, service marks, formulas, franchise rights and patents),
and no asset shall be written up or revalued above its original cost less
applicable depreciation.
"Liabilities" shall be used in all respects in accordance with GAAP and shall
mean all liabilities, whether long-term or current, including without limitation
all actual liabilities of the Company on the Closing Date, with proper provision
in accordance with GAAP, having been made therein for all other liabilities of
the Company then outstanding whether contingent, quantified, disputed or not,
including without limitation the cost of any work or material for which payment
has been received or credit taken, any future loss which may arise in connection
with uncompleted contracts and any claims against the Company in respect of
completed contracts.
"Net Asset Value Shortfall" means the excess, if any, of the Warranted Tangible
Net Asset Value over the Actual Tangible Net Asset Value on the Closing Date,
subject to the limitations set forth in this Section 1.3.
"Actual Tangible Net Asset Value" shall mean the aggregate amount of the Current
Assets less Liabilities on the Closing Date.
"Warranted Company Value" shall mean $254,690.
"Warranted Tangible Net Asset Value" shall mean $220,690.
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(b) Each Selling Shareholder represents and warrants to the Purchaser that
the Warranted Company Value and the Warranted Tangible Net Asset Value of the
Company shall be not less than the amounts set forth above. The Purchase Price
shall be increased by the amount (if any) by which the Company's Actual Tangible
Net Asset Value exceeds its Warranted Tangible Net Asset Value on the Closing
Date. Such amount will be paid by the Purchaser to the Selling Shareholders
within ninety (90) days after the determination of Actual Company Value and
Actual Tangible Net Asset Value, in cash provided the Purchase has net assets of
at least $8,000,000 on such date. Otherwise such amount remaining unpaid shall
bear interest at the rate which is three percent (3%) per annum in excess of the
then prime rate of interest of NationsBank of Georgia, N.A., to be evidenced by
a six month promissory note issued by Purchaser to the Selling Shareholders in
substantially the form of Exhibit 1.3(b) attached hereto. The Purchase Price
payable by Purchaser to the Selling Shareholders shall be reduced by one of the
following, whichever is greater:
Company Shortfall / Warranted Company Value x Purchase Price
Net Asset Value Shortfall / Warranted Tangible Net Asset Value x Purchase
Price
(c) If any receivable of the Company existing as of the Closing Date
remains uncollected by the Company or its successor the later of 90 days after
the Closing Date or 150 days after the date of invoice, or has, as of the later
of such dates, been collected at less than its full value as shown in Current
Assets on the Closing Date ("Collection Shortfall"), then (i) the Purchaser
shall have the option of assigning such receivable to the Selling Shareholders,
without representation or warranty, not more than 180 days after the Closing
Date, and demanding the amount of the Collection Shortfall, and upon such
assignment, such Selling Shareholders shall pay the Company such amount, in
cash, within sixty (60) days after demand; provided that Purchaser shall have
exercised all reasonable efforts at collecting such receivable at such full
value; and (ii) the Selling Shareholders shall have the option of causing the
Purchaser to sell such receivable to the Selling Shareholders, without
representation or warranty, not more than 180 days after the Closing Date, and
paying the amount of the Collection Shortfall, and upon such assignment, the
Selling Shareholders shall pay Purchaser such amount, in cash, within sixty (60)
days after demand. The Selling Shareholders shall thereafter be free to pursue
such collection measures as they in their sole discretion shall deem necessary
or appropriate. To the extent, if any, that the Collection Shortfall remains
unpaid after such sixty (60) day period, Purchaser shall adjust the Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding
Collection Shortfall to Company Shortfall or Net Asset Value Shortfall, as the
case may be.
(d) If any items of the Company's inventory existing as of the Closing
Date remain unsold by the Company or its successor 180 days thereafter or have
been sold at less than full value as shown in Current Assets on the Closing Date
("Inventory Shortfall"), Purchaser not more than 210 days after the Closing Date
shall deliver and transfer such unsold inventory to the Selling Shareholders
without representation or warranty and shall demand the amount of the Inventory
Shortfall, and upon such transfer and delivery, the Selling Shareholders shall
pay the Company such amount, in cash, within thirty (30) days of demand;
provided that Purchaser shall have exercised all reasonable efforts at selling
such inventory at such full value. Such Selling Shareholders shall, at any time
after Purchaser's demand of the Inventory Shortfall, be free to sell such
inventory as they in their sole discretion shall deem necessary or appropriate.
To the extent if any that the Inventory Shortfall remains unpaid after such
thirty (30) day
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period, Purchaser shall adjust such Selling Shareholders' shares of Common
Stock, effective as of the Closing Date, in accordance with the formulae set
forth in Section 1.3(b) above, adding Inventory Shortfall to Company Shortfall
or Net Asset Value Shortfall, as the case may be.
(e) Purchaser and each Selling Shareholder shall escrow twenty percent
(20%) of the shares of Common Stock to be delivered to such Selling Shareholder
(the "Escrowed Shares"), to be subject to redistribution by Purchaser in the
circumstances described in this Section 1.3. The terms of the escrow shall be
substantially as set forth in the form of Escrow Agreement attached as Exhibit
1.3(e) hereto. Any Escrowed Shares not subject to redistribution for the
purposes of this Section shall be released to such Selling Shareholders as
follows: one-half within thirty (30) days of the determination of the
application of this Section 1.3 pursuant to the provisions of subsection (b),
(c) or (d) above, as the case may be, and one-half on the first anniversary of
the Closing Date.
(f) As an example of the application of subsections (b) and (c) above, if
on the Closing Date the Actual Company Value of Tekgraf shall be $229,690,
rather than the Warranted Company Value of $254,690, being a $15,000 shortfall
in Warranted Tangible Net Asset Value and a $10,000 shortfall in Fixed Assets,
and an additional shortfall is determined under subsection (c) above in the
amount of $25,000 and such amount remains unpaid, the Purchaser shall decrease
the shares of Common Stock to be distributed to the Selling Shareholders of
Tekgraf by 163 shares, computed as follows:
$50,000 / $254,690 x 834 = 163 Shares
$40,000 / $220,690 x 834 = 151 Shares
Section 1.4 The Closing. Subject to termination of this Agreement as
provided in Article VI below, the closing and consummation of the Acquisition
contemplated by this Agreement shall take place in the offices of Purchaser's
attorneys on such date that the conditions of closing set forth in Article IV
hereof have been satisfied or waived, or such other date as the parties hereto
may mutually select (the "Closing Date"), which in no event shall be later than
45 days after the date of this Agreement, unless extended by the unanimous
agreement of Purchaser and the Selling Shareholders. The "Closing" shall mean
the deliveries to be made by the parties hereto on the Closing Date in
accordance with this Agreement. The Acquisition shall be deemed to have become
effective as of 12:01 a.m. Atlanta, Georgia Time on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Companies and the
Shareholders. The Company and each of the Selling Shareholders hereby severally
represents and warrants to Purchaser that:
(a) Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of Texas (the "State"), and has all
requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. The Company is duly qualified or licensed to do business as a
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corporation, and is in good standing in the State. The Company has delivered to
Purchaser complete and accurate copies of its Articles of Incorporation and
Bylaws and all amendments thereto, and all minutes and actions of its Board of
Directors and shareholders. Neither the Company nor any of the Selling
Shareholders is in violation of any of the provisions of the Articles of
Incorporation or the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of the Company (including without limitation all voting
securities) (the "Capital Stock") and its par value per share, if any, is as set
forth on Schedule 2.1(b) hereto. Each person listed on Schedule 2.1(b) is the
lawful owner of that number of the issued and outstanding shares of capital
stock of the Company set forth opposite such person's name, free and clear of
any restrictions upon transfer except as indicated in Schedule 2.1(b), all of
which restrictions shall be removed no later than the Closing Date. The shares
of Capital Stock set forth on Schedule 2.1(b) constitute all of the shares of
capital stock of the Company and all such shares have been duly authorized and
are validly issued, fully paid and nonassessable, and to the best of the
knowledge and belief of the Company and the Selling Shareholders, have been
issued in compliance with all applicable federal and state securities laws.
There are no outstanding subscriptions, warrants, calls, options, conversion
rights, rights of exchange or other commitments, plans, agreements, or
arrangements of any nature under which the Company or the Selling Shareholder
may be obligated to issue, assign, exchange, purchase, redeem or transfer any
shares of capital stock of the Company, and there are no shareholders'
agreements to which the Company or the Selling Shareholders is a party, or
proxies, voting trust agreements or similar agreements or options executed by
the Company or the Selling Shareholders or to which the Capital Stock is
subject. There are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company or the Selling Shareholders to grant, extend or
enter into any subscription, option, warrant, right, convertible security or
other similar agreement or commitment. Upon issuance of shares of Common Stock
for the shares of the Company's Capital Stock, as set forth herein, Purchaser
shall acquire good and marketable title to the shares of Capital Stock of the
Company, free and clear of any liens, pledges, encumbrances, security interests,
charges, equities or restrictions of any nature. The Company has satisfied all
of its obligations to all current and past shareholders, and none of such
current or past shareholders has any claims, or any basis therefor, against the
Company arising out of or relating to obligations of the Company to such current
or past shareholders. None of the shares of the Company's Capital Stock was
issued pursuant to awards, grants, or bonuses.
(c) Subsidiaries. Except as set forth in Schedule 2.1(c), the
Company does not own, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, limited liability company, trust, joint venture or other entity.
(d) Authorization. The Company and each of the Selling Shareholders
have full power and authority to enter into this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each individual named in Section 4.2(f) has full power and authority to
enter into the Shareholders' Employment Agreements in the form attached hereto
as Exhibit 4.2(f) (the Shareholders' Employment Agreements are collectively
referred
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to herein as the "Related Agreements") to which such Selling Shareholder is a
party, to perform his or her obligations thereunder and to consummate the
transactions contemplated thereby. Each corporate Selling Shareholder is duly
organized and existing under the laws of the jurisdiction of its incorporation.
The Company and/or each of the Selling Shareholders, as appropriate, have taken
all necessary and appropriate corporate action with respect to the execution and
delivery of this Agreement and the Related Agreements. This Agreement and the
Related Agreements constitute valid and binding obligations of the Company and
the Selling Shareholders (to the extent to which each is a party), enforceable
in accordance with their respective terms; except as limited by applicable
bankruptcy, insolvency, moratorium, reorganization or other laws affecting
contracts, creditors' rights and other laws and remedies generally.
(e) Financial Information. The Company has delivered its unaudited
balance sheets and related statements of operations and cash flows at and for
the fiscal years ended 1994 and 1995, and 1996 to date, and will deliver to
Purchaser before May 31, 1997 its audited balance sheets and related statements
of operations and cash flows at and for the fiscal year ended 1996 (the "Annual
Financial Statements"), and on the Closing Date the unaudited balance sheet and
statement of operations at and for the four-month period ended April 30, 1997
(the "Unaudited Financial Statements"). To the best of the knowledge and belief
of the Company and the Selling Shareholders, the Annual Financial Statements and
Unaudited Financial Statements (collectively, the "Financial Statements") have
been prepared in accordance with Generally Accepted Accounting Principles
("GAAP") on a consistent basis throughout the periods indicated and with each
other, and the Financial Statements present accurately the financial condition
of the Company as of the respective dates thereof and the results of operations
for the periods then ended. All of the Company's general ledgers, books, and
records are located at the Company's principal place of business in the State or
at the offices of its accountant. The Company agrees to engage, at its own cost
and expense, an accounting firm selected by Purchaser and reasonably acceptable
to the Company to audit the Annual Financial Statements.
(f) Deposit Accounts; Powers of Attorney. Schedule 2.1(f) hereto
lists:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
There are no persons, corporations, firms or other entities holding a general or
special power of attorney from the Company.
(g) Liabilities and Obligations. Other than as set forth in the
unaudited Financial Statements at the date of this Agreement, Schedule 2.1(g)
sets forth an accurate list of all liabilities of
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the Company, and any significant liabilities incurred thereafter in the ordinary
course of business or liabilities which are not reflected in the balance sheet
of any kind, character, or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, together with, in the case of those
liabilities which are not fixed, an estimate of the maximum amount which may be
payable. For each such liability for which the amount is not fixed or is
contested, whether in litigation or otherwise, the Company shall provide the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the claim,
suit, or proceeding.
(ii) the name of each court or agency before which such claim,
suit, or proceeding is pending;
(iii) the date such claim, suit, or proceeding was instituted;
(iv) a reasonable estimate by the Company of the maximum
amount, if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the Company's best estimate shall for
purposes of this Agreement be deemed to be zero.
(h) Product and Service Warranties and Reserves. Except as set forth
in Schedule 2.1(h), there are no product warranty claims relating to sales of
the Company's products occurring on or prior to the date of this Agreement. The
only express warranties, written or oral, with respect to the products or
services sold by the Company are set forth in Schedule 2.1(h).
(i) Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1(i) hereto, to the best of the knowledge and belief of the Company
and the Selling Shareholders, since the date of the Unaudited Financial
Statements there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of the Company or the
Business, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change;
(ii) Any transaction relating to or involving the Company, the
Business, the assets of the Company or the Selling Shareholders which was
entered into or carried out by the Company or the Selling Shareholders other
than in the ordinary and usual course of business;
(iii) Any change by the Company in its accounting or tax
practices or procedures;
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(iv) Any incurrence of any liability, other than liabilities
incurred in the ordinary course of business consistent with past practices;
(v) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of its properties (whether leased or owned), or
the assets of the Company, other than sales, leases, or dispositions of goods,
materials, or equipment in the usual and ordinary course of business and
consistent with prior practice;
(vi) Any event permitting any of the assets or the properties
of the Company (whether leased or owned) to be subjected to any pledge,
encumbrance, security interest, lien, charge, or claim of any kind whatsoever
(direct or indirect) (collectively, "liens");
(vii) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit plan,
payment or arrangement to, for, or with any employee of the Company, other than
certain bonuses paid to the Selling Shareholders and disclosed in writing to the
Purchaser;
(viii) Any payment or distribution of any bonus to, or
cancellation of indebtedness owing from, or incurring of any liability relating
to any employees, consultants, directors, officers, or agents, or any persons
related thereto, other than certain bonuses paid to the Selling Shareholders;
(ix) Any notice (written or unwritten) from any employee of
the Company that such employee has terminated, or intends to terminate, such
employee's employment with the Company;
(x) Any adverse relationship or condition with Suppliers (as
defined in Section 2.1(q)(i) hereof), vendors, or Customers (as defined in
Section 2.1(ae) hereof) that may have an adverse effect on the Company, the
Business, or the assets of the Company;
(xi) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, which has had an adverse
effect on the Company, the properties (whether leased or owned), the Business,
or the assets of the Company or any such event which could be expected to have
an adverse effect on the Company, the properties (whether leased or owned), the
Business, or the assets of the Company;
(xii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
term, condition, or provision of any contract, agreement, license, or other
instrument to which the Company or the Selling Shareholders are a party and
relating to or affecting the Business or the assets of the Company other than
any satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business and consistent with prior practice;
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(xiii) Any discharge or satisfaction of any Lien or payment of
any liabilities, other than in the ordinary course of business;
(xiv) Any waiver of any rights of substantial value by the
Company, other than waivers having no material adverse effect on the Company;
(xv) Any issuance of equity securities of the Company or any
issuance of warrants, calls, options or other rights calling for the issuance,
sale, or delivery of the Company's equity securities;
(xvi) Any declaration of any dividend or any distribution of
any shares of its capital stock, or redemption, purchase, or other acquisition
of any shares of its capital stock or any grant of an option, warrant, or other
right to purchase or acquire any such shares;
(xvii) Any amendment, or agreement to amend, the Company's
Articles of Incorporation or Bylaws, or any merger or consolidation with, or any
agreement to merge or consolidate with, any other corporation, partnership,
limited liability company or any other entity;
(xviii) Any reduction, or agreement to reduce, the cash or
short-term investments of the Company, other than to meet cash needs arising in
the ordinary course of business;
(xix) Any work interruptions, labor grievances or claims
filed, proposed law or regulation or any event of any character, materially
adversely affecting the Business or future prospects of the Company;
(xx) Any revaluation by the Company of any of its assets;
(xxi) Any loan by the Company to any person or entity, or any
guaranty by the Company of any loan; or
(xxii) To the best knowledge of the Company and the Selling
Shareholders, any other event or condition of any character which materially
adversely affects, or reasonably may be expected to so affect, the assets of the
Company, the Business, or the properties (whether leased or owned) of the
Company.
(j) Inventory. Schedule 2.1(j) sets forth the reasonable value of
the Company's inventory. All inventory is owned by the Company, including all
goods customarily sold and/or rented by the Company in connection with the
Business (whether located on the premises of the Company, in transit to or from
such premises, in other storage facilities, or otherwise) (collectively, the
"Inventory"), and the Company maintains appropriate records of such inventory.
The Company has continued to replenish the Inventory in a normal and customary
manner consistent with past practices. To actual knowledge of the Company and
the Selling Shareholders, the Company has not received written or oral notice
that the Company will experience in the future any difficulty in obtaining, in
the desired quantity and quality and upon reasonable terms and conditions, the
vehicles, materials, supplies, or equipment required for the Business.
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(k) Taxes.
(i) Definitions. For purposes of this Agreement:
(a) the term "Taxes" means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, the Company has properly completed and filed on a
timely basis (including extensions) and in correct form all Returns required to
be filed on or prior to the Closing Date. As of the time of filing, the
foregoing Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of the Company or any
other information required to be shown thereon. In particular, to the best of
the knowledge of the Company and the Selling Shareholders, the foregoing Returns
are not subject to unpaid penalties under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to accuracy-related penalties
(or any corresponding provision of state, local or foreign Tax law) or any other
unpaid penalties.
(iii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, with respect to all amounts in respect of Taxes
imposed upon the Company, or for which the Company is liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods ending on or before the Closing Date and portions of periods commencing
before the Closing Date and ending after the Closing Date, all applicable tax
laws and agreements have been fully complied with, and all such amounts required
to be paid by the Company to taxing authorities or others on or before the
Closing Date have been paid, and all such amounts required to be paid by the
Company to taxing authorities or others after the Closing which have not been
paid are reflected on the Financial Statements.
(iv) No notices raising tax issues have been received by the
Company from any taxing authority in connection with any of the Returns. No
extensions or waivers of statutes of limitations with respect to the Returns
have been given by or requested from the Company. Schedule 2.1(l)(iv) sets forth
taxable years for which examinations have been completed, those years for which
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examinations are presently being conducted, and those years for which required
Returns have not yet been filed. Except to the extent indicated in Schedule
2.1(l)(iv), all deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
Financial Statements of the Company, or are being contested and an adequate
reserve therefor has been established and is fully reflected in the Financial
Statements of the Company.
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company.
(vi) The Company is not a party to or bound by (nor will the
Company become a party to or become bound by) any tax indemnity, tax sharing or
tax allocation agreement.
(vii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code.
(viii) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it.
(ix) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code.
(x) None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xi) The Company has not made and will not make a deemed
dividend election under Treas. Reg. ss. 1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code.
(xii) The Company has not agreed to make, nor is it required
to make, any adjustment under Sections 481(a) or 263A of the Code or any
comparable provision of state or foreign tax laws by reason of a change in
accounting method or otherwise.
(xiii) None of the Selling Shareholder is other than a United
States person within the meaning of the Code.
(xiv) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
(xv) The Company's tax basis of each of its assets is
reflected in its Unaudited Financial Statements.
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(xvi) All elections with respect to Taxes made during the
fiscal years ended December 31, 1995 are reflected on the Returns for such
periods, copies of which have been provided to Purchaser.
(l) Employee Payments.
(i) The hours worked by and payments made to the Company's
employees have not been in violation in any respect of the Fair Labor Standards
Act or any other applicable federal, foreign, state or local laws dealing with
such matters.
(ii) All payments due from the Company on account of employee
health and welfare insurance have been paid or accrued.
(iii) All severance, sick, or vacation payments by the
Company, which are or were due under the terms of any agreement or otherwise
have been paid or are described in Schedule 2.1(l)(iii).
(m) Compliance With Law. The Company has complied and is in
compliance with all applicable zoning decisions and, to the best of the
knowledge of the Company and the Selling Shareholders, has complied and is in
compliance with all applicable federal, state, and local laws, statutes,
licensing requirements, rules, and regulations, and judicial or administrative
decisions. To the best of the knowledge and belief of the Company and the
Selling Shareholders, the Company has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from federal, state,
and local government regulatory or zoning bodies necessary to carry on the
Business and maintain the assets of the Company, all of which are currently
valid and in full force and effect. All such licenses, permits, authorizations
and approvals shall be valid and in full force and effect upon the consummation
of the transactions contemplated by this Agreement to the same extent as if the
Company prior to the Closing Date were continuing the Business and operations of
the Company. To the best of the knowledge and belief of the Company and the
Selling Shareholders, there is no order issued, or proceeding pending or
threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule, or regulation issued by any federal state,
local, or foreign court or governmental agency or instrumentality applicable to
the Company. The Company has valid use permits for the Business and its
operations.
(n) No Disclosure Items. Except as otherwise indicated in Schedule
2.1(n), there is no adverse information with respect to the Company, the Selling
Shareholder(s) or any officer, director or employee of the Company which
information would require disclosure in connection with a filing by the Company
under the federal securities acts. Neither the Company nor any Selling
Shareholder has failed to disclose any material fact which would be required to
be disclosed for purposes of a proxy statement or other communication involved
in a public offering in accordance with the provisions of Rule 10b-5 or Rule
14a-9(a) of the U.S. Securities and Exchange Commission.
(o) Governmental Consents. To the best of the knowledge of the
Company and the Selling Shareholders, no consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state, local, or provincial governmental authority
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on the part of the Company or the Selling Shareholders is required in connection
with the consummation of the transactions contemplated hereunder.
(p) Proprietary Rights. The Company owns all rights to computer
programs, databases, logos, trade names, trademarks, service marks, intellectual
property, Customer and Supplier lists, and other trade secrets, together with
the goodwill associated therewith, necessary for the Business as now conducted
(collectively, the "Proprietary Rights") and as proposed to be conducted
without, to the knowledge of the Company or the Selling Shareholders, any
conflict with or infringement upon the rights of others.
(q) Restrictive Documents or Orders. To the best of the knowledge of
the Company and the Selling Shareholders, the Company is not a party to nor
bound under any agreement, contract, order, judgment, or decree, or any similar
restriction which adversely affects, or reasonably could be expected to
adversely affect (i) the continued operation by Purchaser (through its ownership
of the Company) of the Business and operations of the Company on and after the
Closing Date on substantially the same basis as said business was theretofore
operated or (ii) the consummation of the transactions contemplated by this
Agreement.
(r) Contracts and Commitments.
(i) Schedule 2.1(r)(i) hereto sets forth a list of all
material written agreements and contracts, contract rights, licenses, and other
executory commitments (written or unwritten) other than purchase and sale orders
and quotations (collectively, the "Contracts") including, without limitation,
those contracts with insurance companies, credit companies, governmental
agencies, rental agencies, and all others under which the Company is supplied
with materials, supplies, or equipment ("Materials") (such suppliers shall be
referred to herein as "Suppliers") to which the Company is a party or to which
any of the assets of the Company are subject. To the best of the knowledge and
belief of the Company and the Selling Shareholders, there are no oral agreements
or commitments that would have a material adverse effect on the Company.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has performed all of its obligations under the
terms of each Contract, and is not in default thereunder, except as described in
Schedule 2.1(r)(ii). No event or omission has occurred which but for the giving
of notice or lapse of time or both would constitute a default by any party
thereto under any such Contract. To the best of the knowledge and belief of the
Company and the Selling Shareholders, each such Contract is valid and binding on
all parties thereto and in full force and effect.
(s) Debt. Schedule 2.1(s) sets forth a list of all agreements for
the incurring of indebtedness for borrowed money and all agreements relating to
industrial development bonds to which the Company is a party or guarantor. None
of the obligations pursuant to such agreements are subject to acceleration by
reason of the consummation of the transactions contemplated hereby, nor would
the execution of this Agreement or the consummation of the transactions
contemplated hereby result in any default under such agreements. The Company has
furnished Purchaser with true and correct copies of each such agreement listed
in Schedule 2.1(s). The Company is not in default under
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any of the agreements listed thereon, nor is the Company aware of any event
that, with the passage of time, or notice, or both, would result in an event of
default thereunder.
(t) Related Property. Schedule 2.1(t)(i) hereto lists all of the
Company's ownership interests (except for leasehold interests set forth in
Schedule 2.1(ah)) in real property, machinery, equipment, tooling, furniture,
fixtures, motor vehicles, supplies, spare parts, computer equipment, printers,
copiers, software, telecommunications equipment, miscellaneous supplies, tools,
repair and maintenance parts, chemicals, and fixed assets related to the
Business and operations of the Company (the "Related Property"). To the best
knowledge of the Company and the Selling Shareholders, all of the Related
Property is generally in good operating condition, normal wear and tear
excepted, and is adequate and suitable for the purposes for which it is
presently being used. Schedule 2.1(t)(ii) hereto lists certain property that
belongs solely to and shall be retained by the Selling Shareholders.
(u) Assets. The assets of the Company include all the assets
necessary to operate the Business in the same manner as the Business was
operated by the Company immediately prior to the Closing Date, and none of the
Selling Shareholders, nor any family member or entity affiliated with the
Selling Shareholders or any such family member, owns, or has any interest in,
any asset used in the operation of the Company.
(v) Title to the Property. The Company has good and marketable title
to the assets of the Company (including, but not limited to the Related
Property) and a valid and subsisting leasehold interest in all leased property.
Except as described in Schedule 2.1(v), the Company owns all of its assets and
property free and clear of any lien.
(w) Litigation. Except as described in Schedule 2.1(w), none of the
Company, the Selling Shareholders nor any of the Company's officers or directors
is engaged in, or has received any threat of, any litigation, arbitration,
investigation, or other proceeding relating to the Company, any of the Selling
Shareholders, or the Company's officers, directors, employees, benefit plans,
properties, Proprietary Rights, the Business, or the assets, licenses, permits,
or goodwill of the Company; or against or affecting this Agreement, the Related
Agreements or the actions taken or contemplated in connection herewith and
therewith, nor, to the best of each's knowledge, is there any reasonable basis
therefor. There is no action, suit, proceeding, or (to the best knowledge of the
Company and the Selling Shareholders) investigation pending or threatened
against the Company, or any of the Selling Shareholders, or the officers or
directors of the Company, that questions the validity of this Agreement, the
Related Agreements, or the right of the Company or the Selling Shareholders to
enter into this Agreement, the Related Agreements, any documents to be delivered
in connection with the Closing, or to consummate the transactions contemplated
hereby or thereby, or which might result in any adverse change in the assets of
the Company, the Business, conditions, or properties of the Company, or the
financial condition of the Selling Shareholders. There is no action, suit,
proceeding, or investigation by the Company or the Selling Shareholders
currently pending or which any of them currently intends to initiate. None of
the Company, the Selling Shareholders, nor any of the Company's officers or
directors is bound by any judgment, decree, injunction, ruling or order of any
court, governmental, regulatory or administrative department, commission, agency
or
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instrumentality, arbitrator or any other person which would or could have a
material adverse effect on the Business or the assets of the Company.
(x) No Conflict or Default. To the best of the knowledge and belief
of the Company and the Selling Shareholders, neither the execution and delivery
of this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof including, without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
the Company's Articles of Incorporation or Bylaws, as presently in effect, or of
any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which the Company or the Selling Shareholders is a
party or by which it or he or any of the assets of the Company are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(y) Consents. To the best of the knowledge and belief of the Company
and the Selling Shareholders, no consent, approval, or authorization of any
person, agency or third party or on the part of the Company or the Selling
Shareholders is required in connection with the consummation of the transactions
contemplated hereunder.
(z) Labor Relations.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, with respect to the Business and operation of the
Company, the Company has not failed to comply in any respect with Title VII of
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, all
applicable federal, state, and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees.
(ii) There are no labor controversies pending or, to the
knowledge of the Company or the Selling Shareholders, threatened between the
Company and any of its employees (the "Employees") or any labor union or other
collective bargaining unit representing any of the Employees.
(iii) The Company has never entered into a collective
bargaining agreement or other labor union contract relating to the Business and
applicable to the Employees.
(iv) Except as set forth in Schedule 2.1(z), there are no
written employment or separation agreements, or oral employment or separation
agreements other than (1) those establishing an "at will" employment
relationship between the Company and any of the Employees and which do not
provide for any advance notice requirements to terminate an Employee's
employment or any severance or salary or benefits continuation obligations on
the part of the
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Company and (2) any unknown future claims for wrongful termination based upon a
theory of implied agreements arising out of course of conduct.
(aa) Brokers' and Finders' Fees/Contractual Limitations. Neither the
Selling Shareholders nor the Company is obligated to pay any other fees or
expenses of any broker or finder in connection with the origin, negotiation, or
execution of this Agreement, the Related Agreements, or in connection with any
transactions contemplated hereby and thereby. None of the Selling Shareholders,
the Company, or any officer, director, employee, agent, or representative of the
Company (collectively, the "Representatives") is or has been subject to any
agreement, letter of intent, or understanding of any kind which prohibits,
limits, or restricts the Company, the Selling Shareholders or the
Representatives from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
(ab) Environmental and Safety Matters.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, the Company has all permits, licenses, approvals and
registrations required to be issued under applicable federal, state and local
laws, statutes and regulations relating to the protection of human health,
safety, the environment and natural resources ("Environmental Laws") and, to the
best of the knowledge of the Company and the Selling Shareholders, is in
compliance with the terms and conditions thereunder. To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Company is
in compliance with and there are no past or present conditions, activities,
actions, or plans which may prevent compliance with, any current or past law
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the release, emission, or discharge of any
hazardous substance or hazardous waste ("Hazardous Substance Issues") or any
regulations, plans, judgments, injunctions, or notices promulgated or approved
thereunder: (1) which are applicable to the operations of the Company, or the
Selling Shareholders, or the property owned or leased by the Company or the
Selling Shareholders, or the assets of the Company, or the Business or
operations of the Company, or (2) which may give rise to any liability of the
Company, or the Selling Shareholders or otherwise form the basis of any ongoing
or threatened claims, actions, demands, suits, proceedings, hearings, studies,
or investigations against or relating to the Company, the property owned or
leased by the Company or the Selling Shareholders, or the Business, or the
assets of the Company, that are based on or related to any Hazardous Substance
Issues.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, no release of a hazardous substance has come to be located
on or beneath and remain located on or beneath any of the real property upon
which the Business is conducted or upon which any of the property owned or
leased currently or in the past by the Company or the Selling Shareholders or
any predecessor which relates to the Business or operations of the Company are
held or maintained.
(iii) Schedule 2.1(ab) sets forth all reports, studies, and
evaluations conducted by the Company or the Selling Shareholders, or received by
the Company or the Selling Shareholders with respect to such matters.
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(iv) Neither the Company nor any of the Selling Shareholders
has any knowledge of the possible or actual presence, disposal, release or
threatened release of any hazardous substance or hazardous waste on or under any
adjacent properties.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not been alleged to be in violation of, or
been subject to any administrative, judicial, or regulatory proceeding pursuant
to, any applicable Environmental Laws either now or any time during the past. No
Claims (as hereinafter defined) have been or are currently asserted against the
Company based on the Company's or any of the Selling Shareholders' acts or
failures to act prior to the Closing Date with respect to hazardous substances
or hazardous wastes. As used herein, "Claim" shall mean any and all claims,
demands, orders, causes of action, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, attorneys' fees, and any other expenses incurred, assessed or sustained
by or against the Company or the Selling Shareholders.
(vi) To the best of the knowledge of the Company and the
Selling Shareholders, none of the properties owned, leased, or operated by the
Company or any predecessor thereof are now, or were in the past, listed on the
National Priorities List of Superfund Sites, the Comprehensive Environmental
Response, Compensation and Liability Information System, or any other state or
local environmental database.
(ac) Certain Payments. The Company has not, and no person directly
or indirectly on behalf of the Company has, made or received any payment that
was not legal to make or receive.
(ad) Customers. To the best of the knowledge and belief of the
Company and the Selling Shareholders, Schedule 2.1(ad) hereto lists all of the
customers of the Company for the year 1996 to date (such customers referred to
herein individually as a "Customer"). No single Customer of the Company
accounted for more than ten percent (10%) of the net sales or rentals of the
Company (calculated on a unit basis) during 1996. The Company has furnished
Purchaser with complete and accurate copies or descriptions of all current
agreements (written or unwritten) with such Customers. Neither the Company nor
any of the Selling Shareholders is aware of any event, happening, or fact which
would lead it or him to believe that any of such Customers will not continue its
current level of purchases and/or rentals after the Closing Date.
(ae) Books and Records. The books and records of the Company to
which Purchaser and its accountants and attorneys have been given access are the
true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all respects.
(af) Complete Disclosure. To the best of the knowledge and belief of
the Company and the Selling Shareholders, no representation or warranty by the
Company or the Selling Shareholders in this Agreement, and no exhibit, schedule,
statement, certificate, or other writing furnished to Purchaser pursuant to this
Agreement or the Related Agreements or in connection with the transactions
contemplated hereby and thereby, contains or will contain any untrue statement
or omits or will omit to state any fact necessary to make the statements
contained herein and therein not materially misleading. If the Company or any of
the Selling Shareholders becomes aware of any fact
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or circumstance which would change a representation or warranty of the Company
or the Shareholders, the Company and the Shareholders shall immediately give
notice of such fact or circumstance to Purchaser. However, such notification
shall not relieve either the Company or the Shareholders of their respective
obligations under this Agreement.
(ag) Leased Properties. The Financial Statements and Schedule
2.1(ag) hereto together list all personal property (including equipment leases)
and real property leased by the Company or by the Selling Shareholders in
connection with the Business (the "Leased Properties") and the aggregate annual
rent or other fees payable under all such leases. The Company has a valid
leasehold or ownership interest in all of the Leased Properties, free and clear
of any liens.
(ah) Employees and Employee Benefit Plans.
(i) Other than as set forth in Schedule 2.1(ah) hereto, the
Company is not a party to any pension, profit sharing, savings, retirement or
other deferred compensation plan, or any bonus (whether payable in cash or
stock) or incentive program, or any group health plan (whether insured or
self-funded), or any disability or group life insurance plan or other employee
welfare benefit plan, or to any collective bargaining agreement or other
agreement, written or oral, with any trade or labor union, employees'
association or similar organization. The Company is not a party to, nor has made
any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(ii) With respect to each such plan set forth in Schedule
2.1(ah) (a "Plan"), the Company has furnished to Purchaser or its counsel
complete and accurate copies of the Plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications). With
respect to each Plan subject to ERISA as either an employee pension benefit plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(l) of ERISA, the Company has prepared in good
faith and timely filed all requisite governmental reports and has properly and
timely posted, or distributed all notices and reports to employees required to
be filed, posted, or distributed with respect to each Plan. Each Plan has at all
times been properly and completely funded by the Company and has been operated
and administered in all respects in accordance with its terms and all applicable
laws, including, but not limited to, ERISA and the Code.
(iii) All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
included as part of Schedule 2.1(ah) hereof. Except as disclosed on Schedule
2.1(ah), all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries have
been timely filed and distributed, and copies thereof are included as part of
Schedule 2.1(ah) hereof. The Company further represents that:
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(a) there have been no terminations, partial
terminations, or discontinuance of contributions to any such Qualified Plan
intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(b) no such plan listed in Schedule 2.1(ah) subject to
the provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such plan listed
in Schedule 2.1(ah); and
(d) The Company has not incurred any liability under
Section 4062 of ERISA.
(iv) Neither the Company nor any of the Selling Shareholders
has made any oral or written communications to its current or former employees
that guarantee current or former employees continuation of employer-provided
benefits or retirement coverage under the Company's welfare benefit plans or
which would have any effect on the Purchaser's ability to terminate retiree or
any other benefits to all current or former employees.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 applicable to its Employees prior to the Closing Date
or any prior actions of or transactions entered into by the Company or the
Selling Shareholders.
(ai) Compensation. The Company has delivered to Purchaser an
accurate schedule, attached to this Agreement as Schedule 2.1(ai), showing all
officers, directors, and key employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation, respectively) of the directors, officers, and key employees.
(aj) Insurance. The Company maintains policies of insurance covering
the assets of the Company, properties, and Business in types and amounts as set
forth in Schedule 2.1(aj). To the best of the knowledge and belief of the
Company and the Selling Shareholders, the Company is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated and the Company has not received any written notice of
cancellation of any such policies. Schedule 2.1(aj) lists and describes all the
Company insurance policies in effect immediately prior to the time of Closing.
To the knowledge of the Company and the Selling Shareholders, such policies are
with reputable insurers and are in amounts sufficient for the prudent protection
of the properties and the Business of the Company.
(ak) Accounts and Notes Receivable. Schedule 2.1(ak) hereto sets
forth all accounts and notes receivable of the Company ("Accounts Receivable").
Schedule 2.1(ak) shows the aging of Accounts Receivable in amounts due in
thirty-day aging categories. All Accounts Receivable represent sales or rentals
actually made or services actually performed in the ordinary and usual course of
the Company's business.
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(al) Representations and Warranties on the Closing Date. The
Company's and the Selling Shareholders' representations and warranties contained
in this Article II shall be true on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
such date, except to the extent any such representations and warranties were
made as of a specified date, in which case such representations and warranties
shall continue on the Closing Date to have been true in all material respects as
of such specified date.
Section 2.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to each of the Companies and the Selling Shareholders
that immediately prior to the time of Closing:
(a) Organization and Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Georgia, and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. Purchaser has delivered to the Company complete and accurate copies of
its Certificate of Incorporation and Bylaws and all amendments thereto, and all
minutes and actions of its Board of Directors and shareholders. The Purchaser is
not in violation of any of the provisions of the Certificate of Incorporation or
the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of Purchaser and its par value per share, if any, is as set forth
on Schedule 2.2(b) hereto. Each person listed on Schedule 2.2(b) is the lawful
owner of that number of the issued and outstanding shares of capital stock of
Purchaser set forth opposite such person's name, free and clear of any
restrictions upon transfer. The shares of Common Stock set forth on Schedule
2.2(b) constitute all of the shares of capital stock of the Purchaser issued and
outstanding and have been duly authorized and validly issued, fully paid and
nonassessable, and to the best of the knowledge and belief of the Purchaser,
issued in compliance with all applicable federal and state securities laws.
Except as provided in this Agreement, there are no outstanding subscriptions,
warrants, calls, options, conversion rights, rights of exchange or other
commitments, plans, agreements, or arrangements of any nature under which the
Purchaser or its shareholders may be obligated to issue, assign, exchange,
purchase, redeem or transfer any shares of capital stock of the Purchaser, and
there are no shareholders' agreements to which the Purchaser or its shareholders
is a party, or proxies, voting trust agreements or similar agreements or options
executed by the Purchaser or to which the Common Stock is subject. There are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Purchaser obligating the
Purchaser or, to the best knowledge of Purchaser, its shareholders to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment. Upon issuance of shares of
Common Stock in exchange for the shares of the Company's Capital Stock, as set
forth herein, the Selling Shareholders shall acquire good and marketable title
to the shares of Common Stock, free and clear of any liens, pledges,
encumbrances, security interests, charges, equities or restrictions of any
nature imposed by Purchaser except as set forth in this Agreement.
(c) Authorization. Purchaser has full corporate power and authority
to enter into this Agreement, the Related Agreements, to perform its obligations
hereunder and thereunder, and to
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consummate the transactions contemplated hereby and thereby, including, without
limitation, the execution and delivery of this Agreement and the Related
Agreements. Purchaser has taken all necessary and appropriate corporate action
with respect to the execution and delivery of this Agreement and the Related
Agreements. This Agreement and the Related Agreements constitute valid and
binding obligations of Purchaser, enforceable in accordance with their
respective terms; except as limited by applicable bankruptcy, insolvency,
moratorium, reorganization, or other laws affecting creditors' rights and
remedies generally, and general principles of equity.
(d) Brokers' and Finders' Fees/Contractual Limitations. Purchaser is
not obligated to pay any fees or expenses of any broker or finder in connection
with the origin, negotiation, or execution of this Agreement, the Related
Agreements, or in connection with any transactions contemplated hereby. Neither
Purchaser nor any officer, director, employee, agent, or representative of
Purchaser (collectively, the "Purchaser Representatives") is or has been subject
to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Purchaser or the Purchaser Representatives from
negotiating, entering into, and consummating this Agreement, the Related
Agreements, and the transactions contemplated hereby and thereby.
(e) Financial . Purchase has an Actual Company Value of not less
than $990,941 and an Actual Net Tangible Asset Value of not less than $913,941.
Section 2.3 Survival of Representations and Warranties. Purchaser's and
the Selling Shareholders representations and warranties contained in this
Article II shall survive the Closing for a period of twenty-four (24) months
from the Closing Date unless earlier terminated by exercise by the Selling
Shareholders of the Put Option (as defined in Section 6.3 hereof).
Section 2.4 Disclosure. Disclosure of any item on any schedule hereto
shall be deemed adequate disclosure of such item on all other schedules.
ARTICLE III
COVENANTS
Section 3.1 Covenants Against Disclosure. (a) The terms and provisions of
this Agreement, and any information heretofore disclosed or to be disclosed in
the future in connection herewith by any party hereto to any other party, other
than information which is in the public domain or which the disclosing party
authorizes the receiving party in writing to disclose (such terms, provisions
and information herein called the "Confidential Material") shall be treated
confidentially by the parties; provided that any party may disclose Confidential
Material of another party to the receiving party's employees, accountants,
attorneys and advisors who need to know the same (it being understood that they
shall be informed by the receiving party of the confidential nature of the
Confidential Material, and that the receiving party shall cause them to treat
the same confidentially), and otherwise to the extent required by law. The
parties acknowledge that remedies at law would be inadequate to enforce the
covenants contained in this Section 3.1 and therefore agree that a party
aggrieved hereunder may enforce such covenants through the remedy of specific
performance or other equitable relief. Should an aggrieved party have cause to
seek such relief, no bond shall be required, and the breaching party
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shall pay all attorney's fees and court costs which the aggrieved party may
incur in enforcing the provisions of this Section. The covenants contained in
this Section 3.1(a) shall survive until expiration of the Put Option described
in Section 6.3 hereof.
(b) The parties shall, by mutual agreement, draft a press release for
public dissemination. No party shall disseminate (except to the parties to this
Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Related Agreements or the parties hereto
or thereto without the prior written consent of the Company and Purchaser,
except as required by law.
Section 3.2 Access to Information. The Company will give Purchaser and its
accountants, legal counsel, and other representatives reasonable access, during
normal business hours, at times mutually agreeable among the parties, to all of
the properties, books, contracts, commitments, and records relating to the
Business and the assets of the Company, and the Company will furnish to
Purchaser, its accountants, legal counsel and other representatives, at the
Company's expense (which expense shall not include the costs and fees of
Purchaser accountants, legal counsel, and other representatives), all such
information concerning the Business or the assets of the Company as Purchaser
may request. Purchaser agrees to indemnify and hold the Company harmless from
and against loss or damage the Company may incur as a result of Purchaser's
activities or the activities of Purchaser's agents, representatives or designees
upon property owned or occupied by the Company and against any and all claims
for death or injury to persons or properties arising out of or connected with
Purchaser's (or its agents', representatives' or designees') going upon such
property pursuant to the provisions of this Agreement. Such indemnification
shall be provided in accordance with the provisions of Article V hereof.
Section 3.3 Interim Period. During the period from the date of execution
hereof through the expiration date of the Put Option in accordance with the
provision of Section 6.3 hereof (the "Interim Period"):
(a) The Company shall continue to operate as a separate wholly-owned
subsidiary of the Purchaser. The Purchaser and the Crescent Shareholders hereby
agree that they will not take any action during the Interim Period to effect a
change in the Board of Directors or the management of the Tekgraf subsidiary or
sell, assign, hypothecate or transfer any of the Capital Stock of the TEKGRAF
subsidiary without the consent of the Tekgraf Board of Directors.
(b) The number of Directors of the Purchaser shall be eight (8).
Martyn Cooper shall be appointed to the Board of Directors of the Purchaser on
the Closing Date and may not be removed during the Interim Period except for
cause. If Mr. Cooper shall be removed for cause or shall be unable or unwilling
to serve as a Director, the Selling Shareholders shall immediately appoint his
successor. The parties acknowledge that after the Interim Period, the Board of
Directors of Purchaser is anticipated to expand through the addition of
independent directors and corporate acquisitions.
(c) During the Interim Period, all votes and action of the Board of
Directors of the Purchaser shall require unanimity, to the extent any such vote
or action relates to any of the following activities by the Purchaser: any
acquisition or disposition, any share issuance, any borrowing of
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funds, any encumbrance to be created on property of the Purchaser, the issuance
of any guarantee and entering into any lease, agreement or other arrangement
providing for an expenditure exceeding $1,000.00. Notwithstanding the foregoing,
that no party hereto shall be entitled to vote in connection with any proposed
action by Directors relating to any alleged failure by such party to observe or
perform any of his or its obligations under this Agreement.
(d) The Board of Directors shall proceed promptly to discuss and
prepare a business plan for the Purchaser in light of the markets, operations,
personnel, expertise, financial condition and prospects of the Company, and such
other factors as the Board may deem relevant. The parties agree that the
Purchaser shall have a Technology Division, whereof Dan Bailey shall be Chief
Executive Officer, and a Graphics Division, whereof William Rychel shall be
Chief Executive Officer, provided such individuals are able and willing to
serve. The parties shall use all reasonable efforts to promote the interests of
the Purchaser and the development of the business of the respective companies.
(e) The parties acknowledge that all of the Schedules hereto are not
completed as of the date of execution of this Agreement. All missing or
incomplete Schedules shall be compiled and agreed upon by the parties within 15
days after such execution.
(f) The Purchaser shall exercise its reasonable best efforts to
obtain, effective as soon as reasonably practicable after the execution hereof,
a policy of directors' and officers' liability insurance, in such amounts and
covering such risks as normally are insured for by companies of approximately
the same size as, and engaged in businesses substantially similar to, Purchaser.
(g) Each of the Purchaser and the Company represent and warrant that
during the Interim Period it shall have sufficient Actual Company Value to
enable it to conduct its respective business in an ordinary course manner
without incurring any additional indebtedness.
Section 3.4 Special Crescent Covenants. By executing this Agreement,
Phillip C. Aginsky ("Aginsky") covenants and agrees that he shall cause Alongal
Extrusions, Inc. ("Alongal") duly to perform and observe all of the covenants,
agreements, representations and warranties of Alongal contained in this
Agreement. Dan I. Bailey, Peter Goletz, Michelle L. Lightman and William J.
Parillo agree with Alongal that they shall transfer all of their shares of
capital stock of the Purchaser to Alongal prior to the Closing Date in exchange
for an aggregate 49% interest in Alongal to be prorated among them according to
the capital stock of the Purchaser outstanding. Notwithstanding anything
contained in this Agreement, the Crescent Shareholders and the Purchaser consent
that all shares of capital stock of the Purchaser indicated in Schedule 2.1(b)
as not owned by Alongal shall be transferred to Alongal as contemplated by this
Section.
Section 3.5 On and After Closing. Subject to the provisions of Section 6.3
hereof, on and after the Closing Date, none of the shares of stock of the
Purchaser which are subject to the escrow provisions of this Agreement shall be
transferred or pledged except pursuant to the provisions of this Agreement. The
voting rights with respect to such shares shall be exercisable by the owners of
such shares. Dividends, if any, declared on the Common Stock during the
effectiveness of such escrow provisions shall be paid to and reinvested by the
escrow agent as the parties shall agree.
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Section 3.6 Non-Competition.
(a) Commencing as of the Closing Date and continuing for three (3)
years thereafter, each of the Selling Shareholders agree that he shall not
engage (except in his respective capacity as an employee of Purchaser if
applicable), directly or indirectly, whether on his own account or as a
shareholder (other than as a less than 1% shareholder of a publicly-held
company), partner, joint venturer, employee, consultant, advisor, and/or agent,
of any person, firm, corporation, or other entity, in any or all of the
following activities within a fifty (50) mile radius of the zero milepost of the
respective city in which each Company is located (the "Territory"):
(i) Enter into or engage in the businesses of computer systems
integration, wholesale distribution of computers or computer-peripherals, or
reseller activities in such products, including the wholesale purchase and
selling or leasing of computers and computer-peripheral equipment, data
communications equipment and software, or providing technical support or advice
to end users in relation to such products (such businesses are collectively
referred to herein as the "Protected Business"). As used herein, the term
Protected Business shall not, however, include the commission-based
representation of product manufacturers to facilitate sales of products by such
manufacturers directly to distributors, value-added resellers and end users
("Manufacturer Representation").
(ii) Solicit customers, suppliers, or business patronage in
the Territory which results in competition with the Purchaser or any of its
affiliates in the Protected Business;
(iii) Encourage or solicit any Employees of or service
providers to the Business, Purchaser, or any of its affiliates to leave the
employment of or terminate their service relationship with Purchaser or any of
its affiliates for any reason; or
(iv) Promote or assist, financially or otherwise, any person,
firm, association, corporation or other entity engaged in any aspect of the
Protected Business.
(b) If, in any judicial proceeding, a court shall refuse to enforce
in such action any of the covenants included herein, then at the option of
Purchaser or its affiliates, wholly unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such a proceeding. The parties intend to have covenants enforceable to the
fullest extent of the law as to scope, time and geography.
(c) The parties agree that due to the unique nature of the services
and capabilities of the Company and the Selling Shareholders, there can be no
adequate remedy at law for any breach of their respective obligations hereunder,
that any such breach may allow the Selling Shareholders and/or third parties to
unfairly compete with Purchaser or its affiliates resulting in irreparable harm
to Purchaser or its affiliates, and therefore, that upon any such breach or any
threat thereof, Purchaser or its affiliates shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law.
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(d) Each of the Selling Shareholders acknowledges, represents and
warrants to Purchaser that the covenants of each in this Section 3.6 are
reasonably necessary for the protection of Purchaser's interests under this
Agreement and are not unduly restrictive upon him.
Section 3.7 Further Assurances. On or after the Closing Date, each party
shall prepare, execute, and deliver, at the preparer's expense, such further
instruments, and shall take or cause to be taken such other or further action,
as any party shall reasonably request of any other party at any time or from
time to time in order to consummate, in any other manner, the terms and
provisions of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 4.1 Conditions to Obligations of Purchaser. Each and every
obligation of Purchaser to be performed on the Closing Date shall be subject to
the satisfaction on or before the Closing Date of the following conditions
(unless waived in writing by Purchaser), and the Company and the Selling
Shareholders shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Selling Shareholders and the Company set forth in
Section 2.1 of this Agreement shall have been true and correct when made and
shall be true and correct at and as of the Closing Date as if such
representations and warranties were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by the Company or each of the Selling Shareholders,
as the case may be, including Boards of Directors approval, shall have been
fully performed and complied with at or prior to the Closing Date.
(c) No Material Adverse Change. Since the date of the Unaudited
Financial Statements, there shall have occurred no material adverse change in
the financial condition, the Business, the assets of the Company, or properties
of the Company which adversely affects the conduct of the Business as presently
being conducted, the assets of the Company, or the financial condition or
properties of the Company.
(d) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser shall have completed to its
reasonable satisfaction its due diligence review of the Company and its
operations, the Business, the assets and financial condition of the Company, and
Purchaser shall have received favorable reviews from its advisors of the results
of their due diligence review of the Business.
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(f) Certificate of President and Shareholders. The Company shall
have delivered to Purchaser a certificate executed by its President and the
Selling Shareholders, dated the date of the Closing Date, to the effect that the
conditions set forth in subsections (a)-(e) of this Section 4.1 have been
satisfied with respect to the Company and the Selling Shareholders.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to Purchaser under this Agreement shall be reasonably satisfactory to
Purchaser and its counsel.
(h) Execution of Related Agreements. Purchaser shall have received
fully executed copies of the Related Agreements.
(i) Licenses. Purchaser shall have received all licenses from all
appropriate governmental agencies to operate the Business in the same manner as
each of the Companies operated the Business prior to the Closing Date. This
condition shall be deemed satisfied in the event that the Purchaser fails to use
reasonable diligence in applying for and pursuing such licenses.
(j) Accounts Receivable; Inventory. The Company shall have delivered
to Purchaser receivables and inventory equal to at least seventy-five percent
(75%) of its Accounts Receivable (as reflected in Schedule 2.1(ak) hereto) and
Inventory (as reflected in Schedule 2.1(j) hereto) as of the date of this
Agreement.
(k) Stock Certificates. Each of the Selling Shareholders shall have
delivered the stock certificates representing his shares of Capital Stock, duly
endorsed for transfer to the Purchaser.
(l) Resignations. The officers and directors of the Company shall
have delivered to Purchaser their resignations, effective as of the expiration
of the Put Option in accordance with Section 6.3 hereof.
(m) Consents. Purchaser shall have received each and every consent,
approval and waiver (if any) required for the execution of this Agreement and
the consummation of the transactions contemplated hereby.
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders. Each and every obligation of the Company and the Selling
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by the Selling Shareholders or the Company), and the
Purchaser shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in Section 2.2 of this Agreement shall have
been true and correct when made and shall be true and correct on and as of the
Closing Date as if such representations and warranties were made as of such date
and time.
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(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by Purchaser, as the case may be, including Board of
Directors and shareholder approval, as applicable, shall have been fully
performed and complied with at or prior to the Closing Date.
(c) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(d) Certificate of Officers. Purchaser shall have delivered to the
Company a certificate executed by its authorized officer, dated the date of the
Closing Date, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 4.2 have been satisfied.
(e) Execution of Related Agreements. The Company shall have received
fully executed copies of the Related Agreements (and all other documents
required hereunder).
(f) Shareholder Employment Agreements. Purchaser shall have entered
into an employment agreement with Martyn Cooper in substantially the form
attached hereto as Exhibit 4.2(f) and providing for the services to be performed
principally at Houston, Texas and for compensation of not less than $125,000 per
year.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to the Selling Shareholders under this Agreement shall be reasonably
satisfactory to each of the Selling Shareholders and their counsel.
(h) Directorships. At least one individual designated by the Company
shall have been duly appointed as a Director of the Purchaser.
(i) Insurance. The Purchaser shall have exercised its reasonable
best efforts to obtain a policy of directors' and officers' liability insurance,
in such amounts and covering such risks as normally are insured for by companies
of approximately the same size as, and engaged in businesses substantially
similar to, Purchaser.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements.
(a) All representations, warranties, covenants, and agreements of
the Company, the Selling Shareholders, and Purchaser shall survive the
execution, delivery, and performance of this Agreement for two years from the
Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1(b), 2.1(i) and 2.1(y) and the obligation of indemnity
therefor, and
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the agreements contained in Sections 1.2 and 3.3(e) shall survive until the
applicable statutes of limitations have expired. All representations and
warranties of the Company, the Selling Shareholders, and Purchaser set forth in
this Agreement shall be deemed to have been made again by the Company, the
Selling Shareholders and Purchaser on and as of the Closing Date.
(b) As used in this Article V, except as otherwise indicated in this
Article V, any reference to a representation, warranty, agreement, or covenant
contained in any section of this Agreement shall include the schedule relating
to such section.
Section 5.2 Indemnification of Purchaser.
Each of the Selling Shareholders hereby agrees to indemnify and hold
harmless Purchaser and its affiliates, the Companies and the other Selling
Shareholders (collectively the "Indemnified Parties") against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments, causes
of action, assessments, costs, and expenses, including, without limitation,
interest, penalties, attorneys' fees, any and all expenses incurred in
investigating, preparing, and defending against any litigation, commenced or
threatened, and any claim whatsoever, and any and all amounts paid in settlement
of any claim or litigation (collectively, "Damages"), asserted against,
resulting from, imposed upon, or incurred or suffered by the Indemnified Parties
directly or indirectly, as a result of or arising from any inaccuracy in or
breach or nonfulfillment of any of the representations, warranties, covenants,
or agreements made by the Company or the Selling Shareholders in this Agreement
or any facts or circumstances constituting such an inaccuracy, breach, or
nonfulfillment (all of which shall be referred to as "Company Indemnifiable
Claims").
Section 5.3 Indemnification of the Selling Shareholders. Purchaser hereby
agrees to indemnify and hold harmless each of the Selling Shareholders against
any and all Damages, asserted against, reasonably resulting from, imposed upon,
or incurred or suffered by such Selling Shareholders as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Purchaser in this
Agreement or the Related Agreements or any facts or circumstances constituting
such an inaccuracy, breach, or nonfulfillment or any claim for the Company or
Business liability disclosed to the Purchaser, and which are attributable to
occurrences on or after the Closing Date (all of which shall be referred to as
"Purchaser Indemnifiable Claims").
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims.
(a) If any party hereto determines to seek indemnification (the
party seeking such indemnification hereinafter referred to as the "Indemnified
Party" and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party") under this Article V with respect to
Company Indemnifiable Claims where the Indemnified Party is Purchaser or any of
its affiliates or Purchaser Indemnifiable Claims where the Indemnified Party is
any of the Selling Shareholders (such Claims shall be referred to herein as
"Indemnifiable Claims") resulting from the assertion of liability by third
parties, the Indemnified Party shall give notice to the Indemnifying Parties
within 60 days of the Indemnified Party becoming aware of any such Indemnifiable
Claim or of facts upon which any such Indemnifiable Claim will be based; the
notice shall set forth such
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material information with respect thereto as is then reasonably available to the
Indemnified Party. In case any such liability is asserted against the
Indemnified Party or its affiliates, and the Indemnified Party notifies the
Indemnifying Parties thereof, the Indemnifying Parties will be entitled, if such
Indemnifying Parties so elect by written notice delivered to the Indemnified
Party within 20 days after receiving the Indemnified Party's notice, to assume
the defense thereof with counsel satisfactory to the Indemnified Party.
Notwithstanding the foregoing, (i) the Indemnified Party or its affiliates shall
also have the right to employ its own counsel in any such case, but the fees and
expenses of such counsel shall be at the expense of the Indemnified Party unless
the Indemnified Party or its affiliates shall reasonably determine that there is
a conflict of interest between or among the Indemnified Party or its affiliates
and any Indemnifying Party with respect to such Indemnifiable Claim, in which
case the fees and expenses of such counsel will be borne by such Indemnifying
Parties, (ii) the Indemnified Party shall have no obligation to give any notice
of any assertion of liability by a third party unless such assertion is in
writing, and (iii) the rights of the Indemnified Party or its affiliates to be
indemnified hereunder in respect of Indemnifiable Claims resulting from the
assertion of liability by third parties shall not be adversely affected by their
failure to give notice pursuant to the foregoing unless, and, if so, only to the
extent that, such Indemnifying Parties are materially prejudiced thereby;
provided, however, the Indemnifying Party shall not be liable for attorneys fees
and expenses incurred by the Indemnified Party prior to the Indemnified Party's
giving notice to the Indemnifying Party of an Indemnifiable Claim. With respect
to any assertion of liability by a third party that results in an Indemnifiable
Claim, the parties hereto shall make available to each other all relevant
information in their possession material to any such assertion.
(b) In the event that such Indemnifying Parties, within 20 days
after receipt of the aforesaid notice of an Indemnifiable Claim fail to assume
the defense of the Indemnified Party or its affiliates against such
Indemnifiable Claim, the Indemnified Party or its affiliates shall have the
right to undertake the defense, compromise, or settlement of such action on
behalf of and for the account, expense, and risk of such Indemnifying Parties.
(c) Notwithstanding anything in this Article V to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may materially
adversely affect the Indemnified Party or its affiliates, the Indemnified Party
or its affiliates shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Parties shall not, without the
Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
Section 5.5 Procedure For Indemnification with Respect to Non-Third Party
Claims. In the event that the Indemnified Party asserts the existence of a claim
giving rise to Damages (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the Indemnifying
Parties. Such written notice shall state that it is being given pursuant to this
Section 5.5, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If such Indemnifying Parties, within 30 days after the mailing
of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party
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announcing their intent to contest such assertion of the Indemnified Party, such
assertion shall be deemed accepted and the amount of claim shall be deemed a
valid claim. In the event, however, that such Indemnifying Parties contest the
assertion of a claim by giving such written notice to the Indemnified Party
within said period, then the parties shall act in good faith to reach agreement
regarding such claim. If the parties hereto, acting in good faith, cannot reach
agreement with respect to such claim within ten (10) days after notice thereof,
such claim will be submitted to and settled by arbitration pursuant to Section
7.11 hereof.
Section 5.6 Escrowed Shares. Each of the Selling Shareholders shall escrow
twenty percent (20%) of the Common Stock to be issued to such Selling
Shareholder to be available for distribution to Purchaser in the event of an
Indemnified Claim not paid in cash by the Indemnifying Party. Such escrow shall
expire on the date not less than two (2) years and sixty (60) days after the
Date of Closing, when there shall be no pending Indemnification Claim for which
notice has been given under Section 5.4, and upon such expiration any original
share certificates shall be delivered to the owners thereof. Not later than the
Closing Date The parties shall enter into a Pledge, Security and Escrow
Agreement in substantially the form and substance attached hereto as Exhibit
5.6.
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT
Section 6.1 Termination. (a) At any time prior to the time of Closing,
this Agreement may be terminated by express written consent of Purchaser and
each of the Selling Shareholders.
(b) Purchaser may terminate this Agreement in the event the
conditions set forth in Section 4.1 of this Agreement have not been satisfied or
waived prior to the time of Closing.
(c) Each of the Selling Shareholders may terminate this Agreement in
the event the conditions set forth in Section 4.2 of this Agreement have not
been satisfied or waived prior to the time of Closing.
(d) If the failure of such conditions to be fulfilled arises from
the fault or intentional act of a party hereto, such party shall be liable to
the other parties up to the amount of the documented out-of-pocket expense
incurred by such parties in negotiating, structuring and documenting the
transaction contemplated by this Agreement. No party shall be responsible for
indirect, special or expectancy damages for such nonfulfillment of conditions.
Section 6.2 Effect of Termination. In the event of termination as provided
in Section 6.1 above, Sections 3.1, 7.4 and 7.11 shall survive such termination
and continue in full force and effect.
Section 6.3 Conditions Subsequent to Obligations.
(a) In the event that the Purchaser has been unable to procure
exclusive distribution agreements with manufacturers of high end graphic
technology products to the satisfaction of the Selling Shareholders prior to
September 30, 1997 (the "Put Date"), the Selling Shareholders shall
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have the right to put all, but not less than all, of the shares of the Purchaser
received by them in connection with this Agreement to the Purchaser (the "Put
Option") and the Purchaser shall be obligated to repurchase such shares from the
Selling Shareholders.
(b) The Put Option may be exercised by the Selling Shareholders at
any time prior to the Put Date by delivery of written notice of exercise to
Purchaser.
(c) Upon exercise of the Put Option in accordance with this Section
6.3, Purchaser shall return to the Selling Shareholders, in the respective
amounts set forth on Schedule 2.1(b), all of the shares of Capital Stock of the
Company delivered to Purchaser pursuant to the provisions of Article I. Delivery
of the certificates by each of the parties shall take place no more than five
business days after the date of such notice at the offices of the Purchaser.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
7.1. Any party delivering notice to Purchaser shall deliver a copy to: Sheldon
E. Misher, Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York,
New York 10017. All notices and communications shall be deemed to have been
received unless otherwise set forth herein: (i) in the case of personal
delivery, on the date of such delivery; (ii) in the case of telex or facsimile
transmission, on the date on which the sender receives confirmation by telex or
facsimile transmission that such notice was received by the addressee, provided
that a copy of such transmission is additionally sent by mail as set forth in
(iv) below; (iii) in the case of overnight air courier, on the second business
day following the day sent, with receipt confirmed by the overnight courier; and
(iv) in the case of mailing by first class certified or registered mail, postage
prepaid, return receipt requested, on the fifth business day following such
mailing.
Section 7.2 Entire Agreement. This Agreement, the exhibits and schedules
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 7.3 Binding Effect: Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and the Selling Shareholders, their respective
successors and permitted assigns, and Purchaser and its successors and permitted
assigns. Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties; provided, however, that Purchaser may assign its rights hereunder in
connection with any sale of all or substantially all of Purchaser's assets or
any merger, consolidation, or conversion of Purchaser.
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Section 7.4 Expenses of Transaction. The Selling Shareholders shall pay
the Selling Shareholders' professional fees and expenses incurred in connection
with the negotiation and closing of this Agreement and the Related Agreements,
including, without limitation the expenses of the preparation of Annual
Financial Statements. The Selling Shareholders shall also pay all the Selling
Shareholders' applicable sales, income, use, excise, transfer, documentary, and
any other taxes arising out of the transactions contemplated herein. The Company
shall pay 8.34%, as adjusted pursuant to Section 1.3, of all professional fees
and expenses incurred by Purchaser in connection with the negotiation and
closing of this Agreement and the Related Agreements. Upon expiration of the Put
Option unexercised, Purchaser shall reimburse the Selling Shareholders for all
Purchaser's expenses and fees paid by the Company.
Section 7.5 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Agreement or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto. Except to the extent that a party hereto may have otherwise agreed in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations or representations hereunder or
thereunder shall be deemed to be a waiver of any other condition or subsequent
or prior breach of the same or any other obligation or representation by the
other party, nor shall any forbearance by the first party to seek a remedy for
any noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance or
breach.
Section 7.6 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 7.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
Section 7.8 Remedies of the Parties. The Company and the Selling
Shareholders acknowledge that, in addition to all other remedies to which
Purchaser is entitled, Purchaser shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided Purchaser is not in
material default hereunder. The parties also agree that the rights and remedies
of each party to this Agreement set forth in this Agreement and in all of the
exhibits and schedules attached hereto and documents referred to herein shall be
cumulative and share inure to the benefit of each such party.
Section 7.9 Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Georgia.
32
<PAGE>
Section 7.10 Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any
dispute arising out of this Agreement, but should a dispute remain unresolved
ten (10) days following notice of the dispute to the other party (but in no
event prior to said ten (10) days, except as specifically provided otherwise
herein), such dispute shall be finally settled by binding arbitration in
Atlanta, Georgia in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") or such other
mediation or arbitration service as shall be mutually agreeable to the parties,
and judgment upon the award rendered by the arbitrator shall be final and
binding on the parties and may be entered in any court having jurisdiction
thereof; provided, however, that any party shall be entitled to appeal a
question of law or determination of law to a court of competent jurisdiction;
and provided, further, however, that the parties may first seek appropriate
injunctive relief prior to, and/or in addition to pursuing negotiation or
arbitration. Such arbitration shall be conducted by an arbitrator chosen by
mutual agreement of the parties, or failing such agreement, an arbitrator
appointed by the AAA. There shall be limited discovery prior to the arbitration
hearing as follows: (a) exchange of witness lists and copies of documentary
evidence and documents related to or arising out of the issues to be arbitrated,
(b) depositions of all party witnesses, and (c) such other depositions as may be
allowed by the arbitrator upon a showing of good cause. Depositions shall be
conducted in accordance with the Georgia Code of Civil Procedure and questions
of evidence in any hearings shall be resolved in accordance with the Federal
Rules of Evidence. The arbitrator shall be required to provide in writing to the
parties the basis for the award or order of such arbitrator, and a court
reporter shall record all hearings (unless otherwise agreed to by the parties),
with such record constituting the official transcript of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement or the Related Agreements,
the prevailing party will be entitled to receive from the other party all costs,
damages and expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether or not the
controversy is reduced to judgment or award. The prevailing party will be that
party who may be fairly said by the arbitrator(s) or the court to have prevailed
on the major disputed issues.
Section 7.11 Cooperation and Records Retention. Each of the Selling
Shareholders and Purchaser shall (i) provide the other with access to such
records, original or copies, or assistance as may reasonably be requested by
them in connection with the preparation of any Tax Return, in connection with
any audit or other examination by any Taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, or financial
reporting obligations, (ii) each retain and provide the other, with any records
or other information which may be relevant to any such Tax Return, audit or
examination, proceeding or determination, or financial reporting obligations,
and (iii) each provide the other with any final determination of any such audit
or examination, proceeding or determination that affects any amount required to
be shown on any Tax Return of the other for any period. All Tax Returns,
supporting work schedules and other records or information which may be relevant
to such Tax Returns for all tax periods or portions thereof ending before or
including the Closing Date shall remain with Purchaser or the Company and shall
be made available for inspection and copying by the parties hereto during normal
business hours.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
---------------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
Dan I. Bailey /s/ Dan I. Bailey
Peter Goletz /s/ Peter Goletz
Michelle L. Lightman /s/ Michelle L. Lightman
William J. Parillo /s/ William J. Parillo
34
<PAGE>
TEKGRAF, INC.
By: /s/ Martyn L. Cooper
-----------------------------------------
Martyn L. Cooper
President
Address: 6721 Portwest, Suite 100
Houston, Texas 77024
SHAREHOLDERS:
/s/ Martyn L. Cooper
---------------------------------------------
Martyn L. Cooper
Address: 6227 Haskell
Houston, Texas 77007
35
<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
AMENDMENT dated as of June 2, 1997 to the Stock Purchase Agreement dated
as of May 1, 1997 (the "Stock Purchase Agreement") by and among Crescent
Computers, Inc., a Georgia corporation (the "Purchaser"), the shareholders of
the Purchaser set forth on the signature page of the Stock Purchase Agreement
(the "Crescent Shareholders"), tekgraf, inc., a Texas corporation ("Tekgraf"),
and the shareholders of Tekgraf set forth on the signature page of the Stock
Purchase Agreement (the "Selling Shareholders"). All terms used in this
Amendment, unless otherwise defined herein, shall have such meaning as ascribed
to them in the Stock Purchase Agreement.
WHEREAS, pursuant to the Stock Purchase Agreement, the Purchaser agreed to
purchase all of the issued and outstanding shares of capital stock of Tekgraf
held by the Selling Shareholders (the "Acquisition"); and
WHEREAS, in connection with the Acquisition, the parties hereto desire to
amend certain provisions of the Stock Purchase Agreement as set forth in this
Agreement in accordance with the provisions of Section 7.5 of the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties intending to be legally bound, hereby agree
as follows:
A. Amendments to Stock Purchase Agreement. The Stock Purchase Agreement is
hereby amended as follows:
(1) Section 2.3 of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"Section 2.3 Survival of Representations and Warranties:
Purchaser's and the Selling Shareholders' representations and
warranties contained in this Article II shall survive the Closing
for a period of twenty-four (24) months from the Closing Date."
(2) The last sentence of Section 3.1(a) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The covenants contained in this Section 3.1(a) shall survive
until one hundred twenty (120) days from the Closing Date."
(3) The introductory paragraph of Section 3.3 of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
paragraph:
"Section 3.3 Interim Period. During the period from the date
of execution hereof through November 1, 1997 or prior thereto upon
the unanimous consent of the Board of Directors of the Purchaser
(the "Interim Period"):"
(4) Section 3.3(a) of the Stock Purchase Agreement is deleted in its
entirety.
<PAGE>
(5) The first sentence of Section 3.3(b) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The number of Directors of the Purchaser shall be seven (7)."
(6) Section 3.3(g) of the Stock Purchase Agreement is deleted in its
entirety.
(7) The first eight words of Section 3.5 of the Stock Purchase
Agreement are deleted in their entirety so that Section 3.5 begins with
the words "On and after."
(8) Section 4.1(1) of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"(l) Resignations: The officers and directors of the Company
shall have delivered to Purchaser their resignations, effective as
of the Closing Date."
(9) Section 6.3 of the Stock Purchase Agreement is deleted in its
entirety.
(10) The last sentence of Section 7.4 of the Stock Purchase
Agreement is deleted in its entirety.
B. Full Force and Effect. Except as provided herein, all other terms and
provisions of the Stock Purchase Agreement shall remain in full force and
effect.
C. Counterparts. This Amendment may be executed in one or more
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
------------------------
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
-2-
<PAGE>
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
-----------------------------------------
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
---------------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
/s/ Dan I. Bailey
---------------------------------------------
Dan I. Bailey
/s/ Peter Goletz
---------------------------------------------
Peter Goletz
/s/ Michelle L. Lightman
---------------------------------------------
Michelle L. Lightman
/s/ William J. Parillo
---------------------------------------------
William J. Parillo
TEKGRAF, INC.
By: /s/ Martyn L. Cooper
-----------------------------------------
Martyn L. Cooper
President
Address: 6721 Portwest, Suite 100
Houston, Texas 77024
-3-
<PAGE>
SHAREHOLDERS:
/s/ Martyn L. Cooper
---------------------------------------------
Martyn L. Cooper
Address: 6227 Haskell
Houston, Texas 77007
-4-
STOCK PURCHASE AGREEMENT
by and among
Crescent Computers, Inc., a Georgia corporation, and its shareholders
and
G&R Marketing, Inc., an Illinois corporation, and its shareholders
Dated as of May 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF STOCK .................................................... 1
Section 1.1 Purchase and Sale ........................................ 1
Section 1.2 Purchase Price ........................................... 1
Section 1.3 Purchase Price Adjustment ................................ 2
Section 1.4 The Closing .............................................. 4
ARTICLE II
REPRESENTATIONS AND WARRANTIES ....................................... 4
Section 2.1 Representations and Warranties of the Companies and the
Shareholders ........................................... 4
Section 2.2 Representations and Warranties of Purchaser .............. 20
Section 2.3 Survival of Representations and Warranties ............... 21
Section 2.4 Disclosure ............................................... 21
ARTICLE III
COVENANTS ............................................................ 21
Section 3.1 Covenants Against Disclosure ............................. 21
Section 3.2 Access to Information .................................... 22
Section 3.3 Interim Period ........................................... 22
Section 3.4 Special Crescent Covenants ............................... 23
Section 3.5 On and After Closing ..................................... 24
Section 3.6 Non-Competition .......................................... 24
Section 3.7 Further Assurances ....................................... 25
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS .................................. 25
Section 4.1 Conditions to Obligations of Purchaser .................. 25
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders .......................................... 27
ARTICLE V
INDEMNIFICATION ...................................................... 28
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements ............................................. 28
Section 5.2 Indemnification of Purchaser ............................. 28
Section 5.3 Indemnification of the Selling Shareholders .............. 29
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims ................................................. 29
Section 5.5 Procedure For Indemnification with Respect to Non-Third
Party Claims ........................................... 30
Section 5.6 Escrowed Shares .......................................... 30
<PAGE>
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT ............................... 31
Section 6.1 Termination ............................................ 31
Section 6.2 Effect of Termination .................................. 31
Section 6.3 Conditions Subsequent to Obligations ................... 31
ARTICLE VII
MISCELLANEOUS PROVISIONS ............................................ 32
Section 7.1 Notice ................................................. 32
Section 7.2 Entire Agreement ....................................... 32
Section 7.3 Binding Effect: Assignment ............................. 32
Section 7.4 Expenses of Transaction ................................ 32
Section 7.5 Waiver; Consent ........................................ 32
Section 7.6 Counterparts ........................................... 33
Section 7.7 Severability ........................................... 33
Section 7.8 Remedies of the Parties ................................ 33
Section 7.9 Governing Law .......................................... 33
Section 7.10 Arbitration; Attorneys' Fees ........................... 33
Section 7.11 Cooperation and Records Retention ...................... 34
SCHEDULE 1.2 ........................................................ 37
SCHEDULE 2.1(b) ..................................................... 38
SCHEDULE 2.2(b) ..................................................... 39
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 1, 1997
among, Crescent Computers, Inc., a Georgia corporation ("Purchaser"), the
shareholders of Crescent set forth on the signature page of this Agreement (the
"Crescent Shareholders") and G&R Marketing, Inc., an Illinois corporation ("G&R"
or the "Company"), and the shareholders of G&R set forth on the signature page
of this Agreement (the "Selling Shareholders").
WHEREAS, the Company is engaged in, among other things, the business of
computer integration and wholesale distribution of computer products (such
business is referred to herein collectively as the "Business"); and
WHEREAS, Purchaser desires to purchase all the issued and outstanding
shares of capital stock of the Company held by the Selling Shareholders and the
Selling Shareholders desire to sell such shares to Purchaser, subject to the
terms and conditions hereinafter set forth (such purchase and sale of capital
stock of the Company shall be referred to herein as the "Acquisition"); and
WHEREAS, Purchaser and the Selling Shareholders desire to enter into this
Agreement with the understanding that this Agreement will supercede all prior
oral and written agreements between the parties.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase on the Closing Date (as hereinafter
defined), and the Selling Shareholders each agree to sell to Purchaser at the
Closing (as hereinafter defined), all of the issued and outstanding shares of
the capital stock of the Company, which consists of the number of shares of
common stock, and all rights existing with respect thereto, held by each of the
Selling Shareholders, as set forth on Schedule 2.1(b) attached hereto.
Section 1.2 Purchase Price. (a) In consideration for the Capital Stock (as
defined in Section 2.1(b)) and in full payment therefor Purchaser will pay the
Selling Shareholders $1,856,000 (hereinafter the "Purchase Price"), but subject
to the adjustments to the Purchase Price set out in Section 1.3, such payment to
be evidenced by the issuance to the Selling Shareholders of an aggregate of
2,505 shares of Purchaser's common stock (the "Common Stock") in the respective
amounts reflected in Schedule 1.2 attached hereto (hereinafter called the
"Purchase Price"). All shares of Common Stock issued as herein described shall
have identical rights as to dividends, voting and all other matters. Except as
expressly provided in this Agreement, there shall be no other consideration paid
to or for the account of the Selling Shareholders in connection with or relating
in any way to the transactions contemplated hereby.
<PAGE>
Section 1.3 Purchase Price Adjustment. (a) As used in this Section 1.3,
the following capitalized terms shall have the meanings set forth below:
"Actual Company Value" shall mean the aggregate of the Company's and any
subsidiary's Fixed Assets, plus their Current Assets, less their Liabilities on
the Closing Date.
"Company Shortfall" means the excess, if any, of the Warranted Company Value (as
hereinafter defined) over the Actual Company Value on the Closing Date, subject
to the limitations set forth in this Section 1.3.
"Current Assets" shall be used in all respects in accordance with generally
accepted accounting principles consistently applied ("GAAP") and comprises the
aggregate of all cash, cash equivalents, receivables and inventory, but
specifically excludes any deferred assets including without limitation deferred
tax and deferred income, and valued in accordance with GAAP, and on a basis in
all material respects consistent with that adopted for the purposes of the last
audited financial statements of the Company and the value of all receivables and
inventory has been written down to realizable market value and adequate
provision has been made therefor.
"Fixed Assets" shall be used in all respects in accordance with GAAP and shall
mean fixed assets at the values at which they were included in the latest
audited financial statements (or if acquired after the balance sheet date, their
cost), less depreciation calculated in accordance with the method adopted in the
financial statements. Fixed Assets shall specifically exclude, and no value
shall be attributable to, any intangible assets (including without limitation
goodwill, trademarks, service marks, formulas, franchise rights and patents),
and no asset shall be written up or revalued above its original cost less
applicable depreciation.
"Liabilities" shall be used in all respects in accordance with GAAP and shall
mean all liabilities, whether long-term or current, including without limitation
all actual liabilities of the Company on the Closing Date, with proper provision
in accordance with GAAP, having been made therein for all other liabilities of
the Company then outstanding whether contingent, quantified, disputed or not,
including without limitation the cost of any work or material for which payment
has been received or credit taken, any future loss which may arise in connection
with uncompleted contracts and any claims against the Company in respect of
completed contracts.
"Net Asset Value Shortfall" means the excess, if any, of the Warranted Tangible
Net Asset Value over the Actual Tangible Net Asset Value on the Closing Date,
subject to the limitations set forth in this Section 1.3.
"Actual Tangible Net Asset Value" shall mean the aggregate amount of the Current
Assets less Liabilities on the Closing Date.
"Warranted Company Value" shall mean $525,425.
"Warranted Tangible Net Asset Value" shall mean $411,425.
2
<PAGE>
(b) Each Selling Shareholder represents and warrants to the Purchaser that
the Warranted Company Value and the Warranted Tangible Net Asset Value of the
Company shall be not less than the amounts set forth above. The Purchase Price
shall be increased by the amount (if any) by which the Company's Actual
Tangible Net Asset Value exceeds its Warranted Tangible Net Asset Value on the
Closing Date. Such amount will be paid by the Purchaser to the Selling
Shareholders within ninety (90) days after the determination of Actual Company
Value and Actual Tangible Net Asset Value, in cash provided the Purchaser has
net assets of at least $8,000,000 on such date. Otherwise such amount shall bear
interest at the rate which is three percent (3%) per annum in excess of the then
prime rate of interest of NationsBank of Georgia, N.A., to be evidenced by a six
month promissory note issued by Purchaser to the Selling Shareholders in
substantially the form of Exhibit 1.3(b) attached hereto. The Purchase Price
payable by Purchaser to the Selling Shareholders shall be reduced by one of the
following, whichever is greater:
Company Shortfall / Warranted Company Value x Purchase Price
Net Asset Value Shortfall / Warranted Tangible Net Asset Value x Purchase
Price
(c) If any receivable of the Company existing as of the Closing Date
remains uncollected by the Company or its successor the later of 90 days after
the Closing Date or 150 days after the date of invoice, or has, as of the later
of such dates, been collected at less than its full value as shown in Current
Assets on the Closing Date ("Collection Shortfall"), then (i) the Purchaser
shall have the option of assigning such receivable to the Selling Shareholders,
without representation or warranty, not more than 180 days after the Closing
Date, and demanding the amount of the Collection Shortfall, and upon such
assignment, such Selling Shareholders shall pay the Company such amount, in
cash, within sixty (60) days after demand; provided that Purchaser shall have
exercised all reasonable efforts at collecting such receivable at such full
value; and (ii) the Selling Shareholders shall have the option of causing the
Purchaser to sell such receivable to the Selling Shareholders, without
representation or warranty, not more than 180 days after the Closing Date, and
paying the amount of the Collection Shortfall, and upon such assignment, the
Selling Shareholders shall pay Purchaser such amount, in cash, within sixty (60)
days after demand. The Selling Shareholders shall thereafter be free to pursue
such collection measures as they in their sole discretion shall deem necessary
or appropriate. To the extent, if any, that the Collection Shortfall remains
unpaid after such sixty (60) day period, Purchaser shall adjust the Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding
Collection Shortfall to Company Shortfall or Net Asset Value Shortfall, as the
case may be.
(d) If any items of the Company's inventory existing as of the Closing
Date remain unsold by the Company or its successor 180 days thereafter or have
been sold at less than full value as shown in Current Assets on the Closing Date
("Inventory Shortfall"), Purchaser not more than 210 days after the Closing Date
shall deliver and transfer such unsold inventory to the Selling Shareholders
without representation or warranty and shall demand the amount of the Inventory
Shortfall, and upon such transfer and delivery, the Selling Shareholders shall
pay the Company such amount, in cash, within thirty (30) days of demand;
provided that Purchaser shall have exercised all reasonable efforts at selling
such inventory at such full value. Such Selling Shareholders shall, at any time
after Purchaser's demand of the Inventory Shortfall, be free to sell such
inventory as they in their sole discretion shall deem necessary or appropriate.
To the extent if any that the Inventory Shortfall remains unpaid after such
thirty (30) day
3
<PAGE>
period, Purchaser shall adjust such Selling Shareholders' shares of Common
Stock, effective as of the Closing Date, in accordance with the formulae set
forth in Section 1.3(b) above, adding Inventory Shortfall to Company Shortfall
or Net Asset Value Shortfall, as the case may be.
(e) Purchaser and each Selling Shareholder shall escrow twenty percent
(20%) of the shares of Common Stock to be delivered to such Selling Shareholder
(the "Escrowed Shares"), to be subject to redistribution by Purchaser in the
circumstances described in this Section 1.3. The terms of the escrow shall be
substantially as set forth in the form of Escrow Agreement attached as Exhibit
1.3(e) hereto. Any Escrowed Shares not subject to redistribution for the
purposes of this Section shall be released to such Selling Shareholders as
follows: one-half within thirty (30) days of the determination of the
application of this Section 1.3 pursuant to the provisions of subsection (b),
(c) or (d) above, as the case may be, and one-half on the first anniversary of
the Closing Date.
(f) As an example of the application of subsections (b) and (c) above, if
on the Closing Date the Actual Company Value of G&R shall be $500,425, rather
than the Warranted Company Value of $525,425, being a $15,000 shortfall in
Warranted Tangible Net Asset Value and a $10,000 shortfall in Fixed Assets, and
an additional shortfall is determined under subsection (c) above in the amount
of $50,000 and such amount remains unpaid, the Purchaser shall decrease the
shares of Common Stock to be distributed to the Selling Shareholders of G&R by
243 shares, computed as follows:
$50,000 / $525,425 x 2,505 = 238 Shares
$40,000 / $411,425 x 2,505 = 243 Shares
Section 1.4 The Closing. Subject to termination of this Agreement as
provided in Article VI below, the closing and consummation of the Acquisition
contemplated by this Agreement shall take place in the offices of Purchaser's
attorneys on such date that the conditions of closing set forth in Article IV
hereof have been satisfied or waived, or such other date as the parties hereto
may mutually select (the "Closing Date"), which in no event shall be later than
45 days after the date of this Agreement, unless extended by the unanimous
agreement of Purchaser and the Selling Shareholders. The "Closing" shall mean
the deliveries to be made by the parties hereto on the Closing Date in
accordance with this Agreement. The Acquisition shall be deemed to have become
effective as of 12:01 a.m. Atlanta, Georgia Time on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Companies and the
Shareholders. The Company and each of the Selling Shareholders hereby severally
represents and warrants to Purchaser that:
(a) Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of Illinois (the "State"), and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. The Company is duly qualified or licensed to do business as a
4
<PAGE>
corporation, and is in good standing in the State. The Company has delivered to
Purchaser complete and accurate copies of its Articles of Incorporation and
Bylaws and all amendments thereto, and all minutes and actions of its Board of
Directors and shareholders. Neither the Company nor any of the Selling
Shareholders is in violation of any of the provisions of the Articles of
Incorporation or the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of the Company (including without limitation all voting
securities) (the "Capital Stock") and its par value per share, if any, is as set
forth on Schedule 2.1(b) hereto. Each person listed on Schedule 2.1(b) is the
lawful owner of that number of the issued and outstanding shares of capital
stock of the Company set forth opposite such person's name, free and clear of
any restrictions upon transfer except as indicated in Schedule 2.1(b), all of
which restrictions shall be removed no later than the Closing Date. The shares
of Capital Stock set forth on Schedule 2.1(b) constitute all of the shares of
capital stock of the Company and all such shares have been duly authorized and
are validly issued, fully paid and nonassessable, and to the best of the
knowledge and belief of the Company and the Selling Shareholders, have been
issued in compliance with all applicable federal and state securities laws.
There are no outstanding subscriptions, warrants, calls, options, conversion
rights, rights of exchange or other commitments, plans, agreements, or
arrangements of any nature under which the Company or the Selling Shareholder
may be obligated to issue, assign, exchange, purchase, redeem or transfer any
shares of capital stock of the Company, and there are no shareholders'
agreements to which the Company or the Selling Shareholders is a party, or
proxies, voting trust agreements or similar agreements or options executed by
the Company or the Selling Shareholders or to which the Capital Stock is
subject. There are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company or the Selling Shareholders to grant, extend or
enter into any subscription, option, warrant, right, convertible security or
other similar agreement or commitment. Upon issuance of shares of Common Stock
for the shares of the Company's Capital Stock, as set forth herein, Purchaser
shall acquire good and marketable title to the shares of Capital Stock of the
Company, free and clear of any liens, pledges, encumbrances, security interests,
charges, equities or restrictions of any nature. The Company has satisfied all
of its obligations to all current and past shareholders, and none of such
current or past shareholders has any claims, or any basis therefor, against the
Company arising out of or relating to obligations of the Company to such current
or past shareholders. None of the shares of the Company's Capital Stock was
issued pursuant to awards, grants, or bonuses.
(c) Subsidiaries. Except as set forth in Schedule 2.1(c), the
Company does not own, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, limited liability company, trust, joint venture or other entity.
(d) Authorization. The Company and each of the Selling Shareholders
have full power and authority to enter into this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each individual named in Section 4.2(f) has full power and authority to
enter into the Shareholders' Employment Agreements in the form attached hereto
as Exhibit 4.2(f) (the Shareholders' Employment Agreements are collectively
referred
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to herein as the "Related Agreements") to which such Selling Shareholder is a
party, to perform his or her obligations thereunder and to consummate the
transactions contemplated thereby. Each corporate Selling Shareholder is duly
organized and existing under the laws of the jurisdiction of its incorporation.
The Company and/or each of the Selling Shareholders, as appropriate, have taken
all necessary and appropriate corporate action with respect to the execution and
delivery of this Agreement and the Related Agreements. This Agreement and the
Related Agreements constitute valid and binding obligations of the Company and
the Selling Shareholders (to the extent to which each is a party), enforceable
in accordance with their respective terms; except as limited by applicable
bankruptcy, insolvency, moratorium, reorganization or other laws affecting
contracts, creditors' rights and other laws and remedies generally.
(e) Financial Information. The Company has delivered its unaudited
balance sheets and related statements of operations and cash flows at and for
the fiscal years ended 1994 and 1995, and 1996 to date, and will deliver to
Purchaser before May 31, 1997 its audited balance sheets and related statements
of operations and cash flows at and for the fiscal years ended 1994, 1995 and
1996 (the "Annual Financial Statements"), and on the Closing Date the unaudited
balance sheet and statement of operations at and for the four-month period ended
April 30, 1997 (the "Unaudited Financial Statements"). To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Annual
Financial Statements and Unaudited Financial Statements (collectively, the
"Financial Statements") have been prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") on a consistent basis throughout the periods
indicated and with each other, and the Financial Statements present accurately
the financial condition of the Company as of the respective dates thereof and
the results of operations for the periods then ended. All of the Company's
general ledgers, books, and records are located at the Company's principal place
of business in the State or at the offices of its accountant. The Company agrees
to engage, at its own cost and expense, an accounting firm selected by Purchaser
and reasonably acceptable to the Company to audit the Annual Financial
Statements.
(f) Deposit Accounts; Powers of Attorney. Schedule 2.1(f) hereto
lists:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
There are no persons, corporations, firms or other entities holding a general or
special power of attorney from the Company.
(g) Liabilities and Obligations. Other than as set forth in
the unaudited Financial Statements at the date of this Agreement, Schedule
2.1(g) sets forth an accurate list of all liabilities of
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the Company, and any significant liabilities incurred thereafter in the ordinary
course of business or liabilities which are not reflected in the balance sheet
of any kind, character, or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, together with, in the case of those
liabilities which are not fixed, an estimate of the maximum amount which may be
payable. For each such liability for which the amount is not fixed or is
contested, whether in litigation or otherwise, the Company shall provide the
following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the claim,
suit, or proceeding.
(ii) the name of each court or agency before which such claim,
suit, or proceeding is pending;
(iii) the date such claim, suit, or proceeding was instituted;
(iv) a reasonable estimate by the Company of the maximum
amount, if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the Company's best estimate shall for
purposes of this Agreement be deemed to be zero.
(h) Product and Service Warranties and Reserves. Except as set forth
in Schedule 2.1(h), there are no product warranty claims relating to sales of
the Company's products occurring on or prior to the date of this Agreement. The
only express warranties, written or oral, with respect to the products or
services sold by the Company are set forth in Schedule 2.1(h).
(i) Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1(i) hereto, to the best of the knowledge and belief of the Company
and the Selling Shareholders, since the date of the Unaudited Financial
Statements there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of the Company or the
Business, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change;
(ii) Any transaction relating to or involving the Company, the
Business, the assets of the Company or the Selling Shareholders which was
entered into or carried out by the Company or the Selling Shareholders other
than in the ordinary and usual course of business;
(iii) Any change by the Company in its accounting or tax
practices or procedures;
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(iv) Any incurrence of any liability, other than liabilities
incurred in the ordinary course of business consistent with past practices;
(v) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of its properties (whether leased or owned), or
the assets of the Company, other than sales, leases, or dispositions of goods,
materials, or equipment in the usual and ordinary course of business and
consistent with prior practice;
(vi) Any event permitting any of the assets or the properties
of the Company (whether leased or owned) to be subjected to any pledge,
encumbrance, security interest, lien, charge, or claim of any kind whatsoever
(direct or indirect) (collectively, "liens");
(vii) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit plan,
payment or arrangement to, for, or with any employee of the Company, other than
certain bonuses paid to the Selling Shareholders and disclosed in writing to the
Purchaser;
(viii) Any payment or distribution of any bonus to, or
cancellation of indebtedness owing from, or incurring of any liability relating
to any employees, consultants, directors, officers, or agents, or any persons
related thereto, other than certain bonuses paid to the Selling Shareholders;
(ix) Any notice (written or unwritten) from any employee of
the Company that such employee has terminated, or intends to terminate, such
employee's employment with the Company;
(x) Any adverse relationship or condition with Suppliers (as
defined in Section 2.1 (q)(i) hereof), vendors, or Customers (as defined in
Section 2.1(ae) hereof) that may have an adverse effect on the Company, the
Business, or the assets of the Company;
(xi) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, which has had an adverse
effect on the Company, the properties (whether leased or owned), the Business,
or the assets of the Company or any such event which could be expected to have
an adverse effect on the Company, the properties (whether leased or owned), the
Business, or the assets of the Company;
(xii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
term, condition, or provision of any contract, agreement, license, or other
instrument to which the Company or the Selling Shareholders are a party and
relating to or affecting the Business or the assets of the Company other than
any satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business and consistent with prior practice;
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(xiii) Any discharge or satisfaction of any Lien or payment
of any liabilities, other than in the ordinary course of business;
(xiv) Any waiver of any rights of substantial value by the
Company, other than waivers having no material adverse effect on the Company;
(xv) Any issuance of equity securities of the Company or any
issuance of warrants, calls, options or other rights calling for the issuance,
sale, or delivery of the Company's equity securities;
(xvi) Any declaration of any dividend or any distribution of
any shares of its capital stock, or redemption, purchase, or other acquisition
of any shares of its capital stock or any grant of an option, warrant, or other
right to purchase or acquire any such shares;
(xvii) Any amendment, or agreement to amend, the Company's
Articles of Incorporation or Bylaws, or any merger or consolidation with, or any
agreement to merge or consolidate with, any other corporation, partnership,
limited liability company or any other entity;
(xviii) Any reduction, or agreement to reduce, the cash or
short-term investments of the Company, other than to meet cash needs arising in
the ordinary course of business;
(xix) Any work interruptions, labor grievances or claims
filed, proposed law or regulation or any event of any character, materially
adversely affecting the Business or future prospects of the Company;
(xx) Any revaluation by the Company of any of its assets;
(xxi) Any loan by the Company to any person or entity, or any
guaranty by the Company of any loan; or
(xxii) To the best knowledge of the Company and the Selling
Shareholders, any other event or condition of any character which materially
adversely affects, or reasonably may be expected to so affect, the assets of the
Company, the Business, or the properties (whether leased or owned) of the
Company.
(j) Inventory. Schedule 2.1(j) sets forth the reasonable value of
the Company's inventory. All inventory is owned by the Company, including all
goods customarily sold and/or rented by the Company in connection with the
Business (whether located on the premises of the Company, in transit to or from
such premises, in other storage facilities, or otherwise) (collectively, the
"Inventory"), and the Company maintains appropriate records of such inventory.
The Company has continued to replenish the Inventory in a normal and customary
manner consistent with past practices. To actual knowledge of the Company and
the Selling Shareholders, the Company has not received written or oral notice
that the Company will experience in the future any difficulty in obtaining, in
the desired quantity and quality and upon reasonable terms and conditions, the
vehicles, materials, supplies, or equipment required for the Business.
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(k) Taxes.
(i) Definitions. For purposes of this Agreement:
(a) the term "Taxes" means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, the Company has properly completed and filed on a
timely basis (including extensions) and in correct form all Returns required to
be filed on or prior to the Closing Date. As of the time of filing, the
foregoing Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of the Company or any
other information required to be shown thereon. In particular, to the best of
the knowledge of the Company and the Selling Shareholders, the foregoing Returns
are not subject to unpaid penalties under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to accuracy-related penalties
(or any corresponding provision of state, local or foreign Tax law) or any other
unpaid penalties.
(iii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, with respect to all amounts in respect of Taxes
imposed upon the Company, or for which the Company is liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods ending on or before the Closing Date and portions of periods commencing
before the Closing Date and ending after the Closing Date, all applicable tax
laws and agreements have been fully complied with, and all such amounts required
to be paid by the Company to taxing authorities or others on or before the
Closing Date have been paid, and all such amounts required to be paid by the
Company to taxing authorities or others after the Closing which have not been
paid are reflected on the Financial Statements.
(iv) No notices raising tax issues have been received by the
Company from any taxing authority in connection with any of the Returns. No
extensions or waivers of statutes of limitations with respect to the Returns
have been given by or requested from the Company. Schedule 2.1(l)(iv) sets
forth taxable years for which examinations have been completed, those years for
which
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examinations are presently being conducted, and those years for which required
Returns have not yet been filed. Except to the extent indicated in Schedule 2.1
(l)(iv), all deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
Financial Statements of the Company, or are being contested and an adequate
reserve therefor has been established and is fully reflected in the Financial
Statements of the Company.
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company.
(vi) The Company is not a party to or bound by (nor will the
Company become a party to or become bound by) any tax indemnity, tax sharing or
tax allocation agreement.
(vii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code.
(viii) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it.
(ix) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code.
(x) None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xi) The Company has not made and will not make a deemed
dividend election under Treas. Reg. ss.1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code.
(xii) The Company has not agreed to make, nor is it required
to make, any adjustment under Sections 481(a) or 263A of the Code or any
comparable provision of state or foreign tax laws by reason of a change in
accounting method or otherwise.
(xiii) None of the Selling Shareholder is other than a United
States person within the meaning of the Code.
(xiv) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
(xv) The Company's tax basis of each of its assets is
reflected in its Unaudited Financial Statements.
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(xvi) All elections with respect to Taxes made during the
fiscal years ended December 31, 1995 are reflected on the Returns for such
periods, copies of which have been provided to Purchaser.
(l) Employee Payments.
(i) The hours worked by and payments made to the Company's
employees have not been in violation in any respect of the Fair Labor Standards
Act or any other applicable federal, foreign, state or local laws dealing with
such matters.
(ii) All payments due from the Company on account of employee
health and welfare insurance have been paid or accrued.
(iii) All severance, sick, or vacation payments by the
Company, which are or were due under the terms of any agreement or otherwise
have been paid or are described in Schedule 2.1(l)(iii).
(m) Compliance With Law. The Company has complied and is in
compliance with all applicable zoning decisions and, to the best of the
knowledge of the Company and the Selling Shareholders, has complied and is in
compliance with all applicable federal, state, and local laws, statutes,
licensing requirements, rules, and regulations, and judicial or administrative
decisions. To the best of the knowledge and belief of the Company and the
Selling Shareholders, the Company has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from federal, state,
and local government regulatory or zoning bodies necessary to carry on the
Business and maintain the assets of the Company, all of which are currently
valid and in full force and effect. All such licenses, permits, authorizations
and approvals shall be valid and in full force and effect upon the consummation
of the transactions contemplated by this Agreement to the same extent as if the
Company prior to the Closing Date were continuing the Business and operations of
the Company. To the best of the knowledge and belief of the Company and the
Selling Shareholders, there is no order issued, or proceeding pending or
threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule, or regulation issued by any federal state,
local, or foreign court or governmental agency or instrumentality applicable to
the Company. The Company has valid use permits for the Business and its
operations.
(n) No Disclosure Items. Except as otherwise indicated in Schedule
2.1(n), there is no adverse information with respect to the Company, the Selling
Shareholder(s) or any officer, director or employee of the Company which
information would require disclosure in connection with a filing by the Company
under the federal securities acts. Neither the Company nor any Selling
Shareholder has failed to disclose any material fact which would be required to
be disclosed for purposes of a proxy statement or other communication involved
in a public offering in accordance with the provisions of Rule 10b-5 or Rule
14a-9(a) of the U.S. Securities and Exchange Commission.
(o) Governmental Consents. To the best of the knowledge of the
Company and the Selling Shareholders, no consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state, local, or provincial governmental authority
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on the part of the Company or the Selling Shareholders is required in connection
with the consummation of the transactions contemplated hereunder.
(p) Proprietary Rights. The Company owns all rights to computer
programs, databases, logos, trade names, trademarks, service marks, intellectual
property, Customer and Supplier lists, and other trade secrets, together with
the goodwill associated therewith, necessary for the Business as now conducted
(collectively, the "Proprietary Rights") and as proposed to be conducted
without, to the knowledge of the Company or the Selling Shareholders, any
conflict with or infringement upon the rights of others.
(q) Restrictive Documents or Orders. To the best of the knowledge of
the Company and the Selling Shareholders, the Company is not a party to nor
bound under any agreement, contract, order, judgment, or decree, or any similar
restriction which adversely affects, or reasonably could be expected to
adversely affect (i) the continued operation by Purchaser (through its ownership
of the Company) of the Business and operations of the Company on and after the
Closing Date on substantially the same basis as said business was theretofore
operated or (ii) the consummation of the transactions contemplated by this
Agreement.
(r) Contracts and Commitments
(i) Schedule 2.1(r)(i) hereto sets forth a list of all
material written agreements and contracts, contract rights, licenses, and other
executory commitments (written or unwritten) other than purchase and sale orders
and quotations (collectively, the "Contracts") including, without limitation,
those contracts with insurance companies, credit companies, governmental
agencies, rental agencies, and all others under which the Company is supplied
with materials, supplies, or equipment ("Materials") (such suppliers shall be
referred to herein as "Suppliers") to which the Company is a party or to which
any of the assets of the Company are subject. To the best of the knowledge and
belief of the Company and the Selling Shareholders, there are no oral agreements
or commitments that would have a material adverse effect on the Company.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has performed all of its obligations under the
terms of each Contract, and is not in default thereunder, except as described in
Schedule 2.1(r)(ii). No event or omission has occurred which but for the giving
of notice or lapse of time or both would constitute a default by any party
thereto under any such Contract. To the best of the knowledge and belief of the
Company and the Selling Shareholders, each such Contract is valid and binding on
all parties thereto and in full force and effect. The Company has received no
written or unwritten notice of default, cancellation, or termination in
connection with any such Contract. The Company is not now and has never been a
party to any governmental contracts subject to price redetermination or
renegotiation.
(iii) There has not been any notice (written or unwritten)
from any Supplier that any such Supplier will not continue to supply the current
level and type of Materials currently being provided by such Supplier upon the
same terms and conditions.
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(s) Debt. Schedule 2.1(s) sets forth a list of all agreements for
the incurring of indebtedness for borrowed money and all agreements relating to
industrial development bonds to which the Company is a party or guarantor. None
of the obligations pursuant to such agreements are subject to acceleration by
reason of the consummation of the transactions contemplated hereby, nor would
the execution of this Agreement or the consummation of the transactions
contemplated hereby result in any default under such agreements. The Company has
furnished Purchaser with true and correct copies of each such agreement listed
in Schedule 2.1(s). The Company is not in default under any of the agreements
listed thereon, nor is the Company aware of any event that, with the passage of
time, or notice, or both, would result in an event of default thereunder.
(t) Related Property. Schedule 2.1(t)(i) hereto lists all of the
Company's ownership interests (except for leasehold interests set forth in
Schedule 2.1(ah)) in real property, machinery, equipment, tooling, furniture,
fixtures, motor vehicles, supplies, spare parts, computer equipment, printers,
copiers, software, telecommunications equipment, miscellaneous supplies, tools,
repair and maintenance parts, chemicals, and fixed assets related to the
Business and operations of the Company (the "Related Property"). To the best
knowledge of the Company and the Selling Shareholders, all of the Related
Property is generally in good operating condition, normal wear and tear
excepted, and is adequate and suitable for the purposes for which it is
presently being used. Schedule 2.1(t)(ii) hereto lists certain property that
belongs solely to and shall be retained by the Selling Shareholders.
(u) Assets. The assets of the Company include all the assets
necessary to operate the Business in the same manner as the Business was
operated by the Company immediately prior to the Closing Date, and none of the
Selling Shareholders, nor any family member or entity affiliated with the
Selling Shareholders or any such family member, owns, or has any interest in,
any asset used in the operation of the Company.
(v) Title to the Property. The Company has good and marketable title
to the assets of the Company (including, but not limited to the Related
Property) and a valid and subsisting leasehold interest in all leased property.
Except as described in Schedule 2.1(v), the Company owns all of its assets and
property free and clear of any lien.
(w) Litigation. Except as described in Schedule 2.1(w), none of the
Company, the Selling Shareholders nor any of the Company's officers or directors
is engaged in, or has received any threat of, any litigation, arbitration,
investigation, or other proceeding relating to the Company, any of the Selling
Shareholders, or the Company's officers, directors, employees, benefit plans,
properties, Proprietary Rights, the Business, or the assets, licenses, permits,
or goodwill of the Company; or against or affecting this Agreement, the Related
Agreements or the actions taken or contemplated in connection herewith and
therewith, nor, to the best of each's knowledge, is there any reasonable basis
therefor. There is no action, suit, proceeding, or (to the best knowledge of the
Company and the Selling Shareholders) investigation pending or threatened
against the Company, or any of the Selling Shareholders, or the officers or
directors of the Company, that questions the validity of this Agreement, the
Related Agreements, or the right of the Company or the Selling Shareholders to
enter into this Agreement, the Related Agreements, any documents to be delivered
in connection with the Closing, or to consummate the transactions contemplated
hereby or thereby, or
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which might result in any adverse change in the assets of the Company, the
Business, conditions, or properties of the Company, or the financial condition
of the Selling Shareholders. There is no action, suit, proceeding, or
investigation by the Company or the Selling Shareholders currently pending or
which any of them currently intends to initiate. None of the Company, the
Selling Shareholders, nor any of the Company's officers or directors is bound by
any judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person which would or could have a material adverse
effect on the Business or the assets of the Company.
(x) No Conflict or Default. To the best of the knowledge and belief
of the Company and the Selling Shareholders, neither the execution and delivery
of this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof including, without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
the Company's Articles of Incorporation or Bylaws, as presently in effect, or of
any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which the Company or the Selling Shareholders is a
party or by which it or he or any of the assets of the Company are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(y) Consents. To the best of the knowledge and belief of the Company
and the Selling Shareholders, no consent, approval, or authorization of any
person, agency or third party or on the part of the Company or the Selling
Shareholders is required in connection with the consummation of the transactions
contemplated hereunder.
(z) Labor Relations.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, with respect to the Business and operation of the
Company, the Company has not failed to comply in any respect with Title VII of
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, all
applicable federal, state, and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees.
(ii) There are no labor controversies pending or, to the
knowledge of the Company or the Selling Shareholders, threatened between the
Company and any of its employees (the "Employees") or any labor union or other
collective bargaining unit representing any of the Employees.
(iii) The Company has never entered into a collective
bargaining agreement or other labor union contract relating to the Business and
applicable to the Employees.
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(iv) Except as set forth in Schedule 2.1(z), there are no
written employment or separation agreements, or oral employment or separation
agreements other than (1) those establishing an "at will" employment
relationship between the Company and any of the Employees and which do not
provide for any advance notice requirements to terminate an Employee's
employment or any severance or salary or benefits continuation obligations on
the part of the Company and (2) any unknown future claims for wrongful
termination based upon a theory of implied agreements arising out of course of
conduct.
(aa) Brokers' and Finders' Fees/Contractual Limitations. Neither the
Selling Shareholders nor the Company is obligated to pay any other fees or
expenses of any broker or finder in connection with the origin, negotiation, or
execution of this Agreement, the Related Agreements, or in connection with any
transactions contemplated hereby and thereby. None of the Selling Shareholders,
the Company, or any officer, director, employee, agent, or representative of the
Company (collectively, the "Representatives") is or has been subject to any
agreement, letter of intent, or understanding of any kind which prohibits,
limits, or restricts the Company, the Selling Shareholders or the
Representatives from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
(ab) Environmental and Safety Matters.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, the Company has all permits, licenses, approvals and
registrations required to be issued under applicable federal, state and local
laws, statutes and regulations relating to the protection of human health,
safety, the environment and natural resources ("Environmental Laws") and, to the
best of the knowledge of the Company and the Selling Shareholders, is in
compliance with the terms and conditions thereunder. To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Company is
in compliance with and there are no past or present conditions, activities,
actions, or plans which may prevent compliance with, any current or past law
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the release, emission, or discharge of any
hazardous substance or hazardous waste ("Hazardous Substance Issues") or any
regulations, plans, judgments, injunctions, or notices promulgated or approved
thereunder: (1) which are applicable to the operations of the Company, or the
Selling Shareholders, or the property owned or leased by the Company or the
Selling Shareholders, or the assets of the Company, or the Business or
operations of the Company, or (2) which may give rise to any liability of the
Company, or the Selling Shareholders or otherwise form the basis of any ongoing
or threatened claims, actions, demands, suits, proceedings, hearings, studies,
or investigations against or relating to the Company, the property owned or
leased by the Company or the Selling Shareholders, or the Business, or the
assets of the Company, that are based on or related to any Hazardous Substance
Issues.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, no release of a hazardous substance has come to be located
on or beneath and remain located on or beneath any of the real property upon
which the Business is conducted or upon which any of the property owned or
leased currently or in the past by the Company or the Selling Shareholders or
any predecessor which relates to the Business or operations of the Company are
held or maintained.
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(iii) Schedule 2.1(ab) sets forth all reports, studies, and
evaluations conducted by the Company or the Selling Shareholders, or received by
the Company or the Selling Shareholders with respect to such matters.
(iv) Neither the Company nor any of the Selling Shareholders
has any knowledge of the possible or actual presence, disposal, release or
threatened release of any hazardous substance or hazardous waste on or under any
adjacent properties.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not been alleged to be in violation of, or
been subject to any administrative, judicial, or regulatory proceeding pursuant
to, any applicable Environmental Laws either now or any time during the past. No
Claims (as hereinafter defined) have been or are currently asserted against the
Company based on the Company's or any of the Selling Shareholders' acts or
failures to act prior to the Closing Date with respect to hazardous substances
or hazardous wastes. As used herein, "Claim" shall mean any and all claims,
demands, orders, causes of action, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, attorneys' fees, and any other expenses incurred, assessed or sustained
by or against the Company or the Selling Shareholders.
(vi) To the best of the knowledge of the Company and the
Selling Shareholders, none of the properties owned, leased, or operated by the
Company or any predecessor thereof are now, or were in the past, listed on the
National Priorities List of Superfund Sites, the Comprehensive Environmental
Response, Compensation and Liability Information System, or any other state or
local environmental database.
(ac) Certain Payments. The Company has not, and no person directly
or indirectly on behalf of the Company has, made or received any payment that
was not legal to make or receive.
(ad) Customers. To the best of the knowledge and belief of the
Company and the Selling Shareholders, Schedule 2.1(ad) hereto lists all of the
customers of the Company for the year 1996 to date (such customers referred to
herein individually as a "Customer"). No single Customer of the Company
accounted for more than ten percent (10%) of the net sales or rentals of the
Company (calculated on a unit basis) during 1996. The Company has furnished
Purchaser with complete and accurate copies or descriptions of all current
agreements (written or unwritten) with such Customers. Neither the Company nor
any of the Selling Shareholders is aware of any event, happening, or fact which
would lead it or him to believe that any of such Customers will not continue its
current level of purchases and/or rentals after the Closing Date.
(ae) Books and Records. The books and records of the Company to
which Purchaser and its accountants and attorneys have been given access are the
true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all respects.
(af) Complete Disclosure. To the best of the knowledge and belief of
the Company and the Selling Shareholders, no representation or warranty by the
Company or the Selling Shareholders in this Agreement, and no exhibit, schedule,
statement, certificate, or other writing
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furnished to Purchaser pursuant to this Agreement or the Related Agreements or
in connection with the transactions contemplated hereby and thereby, contains or
will contain any untrue statement or omits or will omit to state any fact
necessary to make the statements contained herein and therein not materially
misleading. If the Company or any of the Selling Shareholders becomes aware of
any fact or circumstance which would change a representation or warranty of the
Company or the Shareholders, the Company and the Shareholders shall immediately
give notice of such fact or circumstance to Purchaser. However, such
notification shall not relieve either the Company or the Shareholders of their
respective obligations under this Agreement.
(ag) Leased Properties. The Financial Statements and Schedule
2.1(ag) hereto together list all personal property (including equipment leases)
and real property leased by the Company or by the Selling Shareholders in
connection with the Business (the "Leased Properties") and the aggregate annual
rent or other fees payable under all such leases. The Company has a valid
leasehold or ownership interest in all of the Leased Properties, free and clear
of any liens.
(ah) Employees and Employee Benefit Plans.
(i) Other than as set forth in Schedule 2.1(ah) hereto, the
Company is not a party to any pension, profit sharing, savings, retirement or
other deferred compensation plan, or any bonus (whether payable in cash or
stock) or incentive program, or any group health plan (whether insured or
self-funded), or any disability or group life insurance plan or other employee
welfare benefit plan, or to any collective bargaining agreement or other
agreement, written or oral, with any trade or labor union, employees'
association or similar organization. The Company is not a party to, nor has made
any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(ii) With respect to each such plan set forth in Schedule
2.1(ah) (a "Plan"), the Company has furnished to Purchaser or its counsel
complete and accurate copies of the Plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications). With
respect to each Plan subject to ERISA as either an employee pension benefit plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(1) of ERISA, the Company has prepared in good
faith and timely filed all requisite governmental reports and has properly and
timely posted, or distributed all notices and reports to employees required to
be filed, posted, or distributed with respect to each Plan. Each Plan has at all
times been properly and completely funded by the Company and has been operated
and administered in all respects in accordance with its terms and all applicable
laws, including, but not limited to, ERISA and the Code.
(iii) All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
included as part of Schedule 2.1(ah) hereof. Except as disclosed on Schedule
2.1 (ah), all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries have
been timely filed and
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distributed, and copies thereof are included as part of Schedule 2.1(ah) hereof.
The Company further represents that:
(a) there have been no terminations, partial
terminations, or discontinuance of contributions to any such Qualified Plan
intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(b) no such plan listed in Schedule 2.1(ah) subject to
the provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such plan listed
in Schedule 2.1(ah); and
(d) The Company has not incurred any liability under
Section 4062 of ERISA.
(iv) Neither the Company nor any of the Selling Shareholders
has made any oral or written communications to its current or former employees
that guarantee current or former employees continuation of employer-provided
benefits or retirement coverage under the Company's welfare benefit plans or
which would have any effect on the Purchaser's ability to terminate retiree or
any other benefits to all current or former employees.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 applicable to its Employees prior to the Closing Date
or any prior actions of or transactions entered into by the Company or the
Selling Shareholders.
(ai) Compensation. The Company has delivered to Purchaser an
accurate schedule, attached to this Agreement as Schedule 2.1 (ai), showing all
officers, directors, and key employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation, respectively) of the directors, officers, and key employees.
(aj) Insurance. The Company maintains policies of insurance covering
the assets of the Company, properties, and Business in types and amounts as set
forth in Schedule 2.1(aj). To the best of the knowledge and belief of the
Company and the Selling Shareholders, the Company is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated and the Company has not received any written notice of
cancellation of any such policies. Schedule 2.1(aj) lists and describes all the
Company insurance policies in effect immediately prior to the time of Closing.
To the knowledge of the Company and the Selling Shareholders, such policies are
with reputable insurers and are in amounts sufficient for the prudent protection
of the properties and the Business of the Company.
(ak) Accounts and Notes Receivable. Schedule 2.1(ak) hereto sets
forth all accounts and notes receivable of the Company ("Accounts Receivable").
Schedule 2.1(ak) shows the aging of
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Accounts Receivable in amounts due in thirty-day aging categories. All Accounts
Receivable represent sales or rentals actually made or services actually
performed in the ordinary and usual course of the Company's business.
(al) Representations and Warranties on the Closing Date. The
Company's and the Selling Shareholders' representations and warranties contained
in this Article II shall be true on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
such date, except to the extent any such representations and warranties were
made as of a specified date, in which case such representations and warranties
shall continue on the Closing Date to have been true in all material respects as
of such specified date.
Section 2.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to each of the Companies and the Selling Shareholders
that immediately prior to the time of Closing:
(a) Organization and Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Georgia, and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. Purchaser has delivered to the Company complete and accurate copies of
its Certificate of Incorporation and Bylaws and all amendments thereto, and all
minutes and actions of its Board of Directors and shareholders. The Purchaser is
not in violation of any of the provisions of the Certificate of Incorporation or
the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of Purchaser and its par value per share, if any, is as set forth
on Schedule 2.2(b) hereto. Each person listed on Schedule 2.2(b) is the lawful
owner of that number of the issued and outstanding shares of capital stock of
Purchaser set forth opposite such person's name, free and clear of any
restrictions upon transfer. The shares of Common Stock set forth on Schedule
2.2(b) constitute all of the shares of capital stock of the Purchaser issued and
outstanding and have been duly authorized and validly issued, fully paid and
nonassessable, and to the best of the knowledge and belief of the Purchaser,
issued in compliance with all applicable federal and state securities laws.
Except as provided in this Agreement, there are no outstanding subscriptions,
warrants, calls, options, conversion rights, rights of exchange or other
commitments, plans, agreements, or arrangements of any nature under which the
Purchaser or its shareholders may be obligated to issue, assign, exchange,
purchase, redeem or transfer any shares of capital stock of the Purchaser, and
there are no shareholders' agreements to which the Purchaser or its shareholders
is a party, or proxies, voting trust agreements or similar agreements or options
executed by the Purchaser or to which the Common Stock is subject. There are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Purchaser obligating the
Purchaser or, to the best knowledge of Purchaser, its shareholders to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment. Upon issuance of shares of
Common Stock in exchange for the shares of the Company's Capital Stock, as set
forth herein, the Selling Shareholders shall acquire good and marketable title
to the shares of Common Stock, free and clear of any liens, pledges,
encumbrances,
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security interests, charges, equities or restrictions of any nature imposed by
Purchaser except as set forth in this Agreement.
(c) Authorization. Purchaser has full corporate power and authority
to enter into this Agreement, the Related Agreements, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby, including, without limitation, the execution and delivery of this
Agreement and the Related Agreements. Purchaser has taken all necessary and
appropriate corporate action with respect to the execution and delivery of this
Agreement and the Related Agreements. This Agreement and the Related Agreements
constitute valid and binding obligations of Purchaser, enforceable in accordance
with their respective terms; except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights and remedies generally, and general principles of equity.
(d) Brokers' and Finders' Fees/Contractual Limitations. Purchaser is
not obligated to pay any fees or expenses of any broker or finder in connection
with the origin, negotiation, or execution of this Agreement, the Related
Agreements, or in connection with any transactions contemplated hereby. Neither
Purchaser nor any officer, director, employee, agent, or representative of
Purchaser (collectively, the "Purchaser Representatives") is or has been subject
to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Purchaser or the Purchaser Representatives from
negotiating, entering into, and consummating this Agreement, the Related
Agreements, and the transactions contemplated hereby and thereby.
(e) Financial Condition. Purchase has an Actual Company Value of not
less than $990,941 and an Actual Net Tangible Asset Value of not less than
$913,941.
Section 2.3 Survival of Representations and Warranties. Purchaser's and
the Selling Shareholders representations and warranties contained in this
Article II shall survive the Closing for a period of twenty-four (24) months
from the Closing Date unless earlier terminated by exercise by the Selling
Shareholders of the Put Option (as defined in Section 6.3 hereof).
Section 2.4 Disclosure. Disclosure of any item on any schedule hereto
shall be deemed adequate disclosure of such item on all other schedules.
ARTICLE III
COVENANTS
Section 3.1 Covenants Against Disclosure. (a) The terms and provisions of
this Agreement, and any information heretofore disclosed or to be disclosed in
the future in connection herewith by any party hereto to any other party, other
than information which is in the public domain or which the disclosing party
authorizes the receiving party in writing to disclose (such terms, provisions
and information herein called the "Confidential Material") shall be treated
confidentially by the parties; provided that any party may disclose Confidential
Material of another party to the receiving party's employees, accountants,
attorneys and advisors who need to know the same (it being understood that they
shall be informed by the receiving party of the confidential nature of the
Confidential Material,
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and that the receiving party shall cause them to treat the same confidentially),
and otherwise to the extent required by law. The parties acknowledge that
remedies at law would be inadequate to enforce the covenants contained in this
Section 3.1 and therefore agree that a party aggrieved hereunder may enforce
such covenants through the remedy of specific performance or other equitable
relief. Should an aggrieved party have cause to seek such relief, no bond shall
be required, and the breaching party shall pay all attorney's fees and court
costs which the aggrieved party may incur in enforcing the provisions of this
Section. The covenants contained in this Section 3.1(a) shall survive until the
expiration of the Put Option described in Section 6.3 hereof.
(b) The parties shall, by mutual agreement, draft a press release for
public dissemination. No party shall disseminate (except to the parties to this
Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Related Agreements or the parties hereto
or thereto without the prior written consent of the Company and Purchaser,
except as required by law.
Section 3.2 Access to Information. The Company will give Purchaser and its
accountants, legal counsel, and other representatives reasonable access, during
normal business hours, at times mutually agreeable among the parties, to all of
the properties, books, contracts, commitments, and records relating to the
Business and the assets of the Company, and the Company will furnish to
Purchaser, its accountants, legal counsel and other representatives, at the
Company's expense (which expense shall not include the costs and fees of
Purchaser accountants, legal counsel, and other representatives), all such
information concerning the Business or the assets of the Company as Purchaser
may request. Purchaser agrees to indemnify and hold the Company harmless from
and against loss or damage the Company may incur as a result of Purchaser's
activities or the activities of Purchaser's agents, representatives or designees
upon property owned or occupied by the Company and against any and all claims
for death or injury to persons or properties arising out of or connected with
Purchaser's (or its agents', representatives' or designees') going upon such
property pursuant to the provisions of this Agreement. Such indemnification
shall be provided in accordance with the provisions of Article V hereof.
Section 3.3 Interim Period. During the period from the date of execution
hereof through the expiration date of the Put Option in accordance with the
provision of Section 6.3 hereof (the "Interim Period"):
(a) The Company shall continue to operate as a separate wholly-owned
subsidiary of the Purchaser. The Purchaser and the Crescent Shareholders hereby
agree that they will not take any action during the Interim Period to effect a
change in the Board of Directors or the management of the G&R subsidiary or
sell, assign, hypothecate or transfer any of the Capital Stock of the CGD
subsidiary without the consent of the G&R Board of Directors.
(b) The number of Directors of the Purchaser shall be eight (8).
Thomas Gust and William Rychel shall be appointed to the Board of Directors of
the Purchaser on the Closing Date and may not be removed during the Interim
Period except for cause. If either of such individuals shall be removed for
cause or shall be unable or unwilling to serve as a Director, the Selling
Shareholders shall immediately appoint his successor. The parties acknowledge
that after the Interim Period, the
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Board of Directors of Purchaser is anticipated to expand through the addition
of independent directors and corporate acquisitions.
(c) During the Interim Period, all votes and action of the Board of
Directors of the Purchaser shall require unanimity, to the extent any such vote
or action relates to any of the following activities by the Purchaser: any
acquisition or disposition, any share issuance, any borrowing of funds, any
encumbrance to be created on property of the Purchaser, the issuance of any
guarantee and entering into any lease, agreement or other arrangement providing
for an expenditure exceeding $1,000.00. Notwithstanding the foregoing, that no
party hereto shall be entitled to vote in connection with any proposed action by
Directors relating to any alleged failure by such party to observe or perform
any of his or its obligations under this Agreement.
(d) The Board of Directors shall proceed promptly to discuss and
prepare a business plan for the Purchaser in light of the markets, operations,
personnel, expertise, financial condition and prospects of the Company, and such
other factors as the Board may deem relevant. The parties agree that the
Purchaser shall have a Technology Division, whereof Daniel Bailey shall be Chief
Executive Officer, and a Graphics Division, whereof William Rychel shall be
Chief Executive Officer, provided such individuals are able and willing to
serve. The parties shall use all reasonable efforts to promote the interests of
the Purchaser, including without limitation the diligent pursuit of all
activities relating to a public offering and the development of the business of
the respective companies.
(e) The parties acknowledge that all of the Schedules hereto are not
completed as of the date of execution of this Agreement. All missing or
incomplete Schedules shall be compiled and agreed upon by the parties within 15
days after such execution.
(f) The Purchaser shall exercise its reasonable best efforts to
obtain, effective as soon as reasonably practicable after the execution hereof,
a policy of directors' and officers' liability insurance, in such amounts and
covering such risks as normally are insured for by companies of approximately
the same size as, and engaged in businesses substantially similar to, Purchaser.
(g) Each of the Purchaser and the Company represent and warrant that
during the Interim Period it shall have sufficient Actual Company Value to
enable it to conduct its respective business in an ordinary course manner
without incurring any additional indebtedness.
Section 3.4 Special Crescent Covenants. By executing this Agreement,
Phillip C. Aginsky ("Aginsky") covenants and agrees that he shall cause Alongal
Extrusions, Inc. ("Alongal") duly to perform and observe all of the covenants,
agreements, representations and warranties of Alongal contained in this
Agreement. Dan I. Bailey, Peter Goletz, Michelle L. Lightman and William J.
Parillo agree with Alongal that they shall transfer all of their shares of
capital stock of the Purchaser to Alongal prior to the Closing Date in exchange
for an aggregate 49% interest in Alongal to be prorated among them according to
the capital stock of the Purchaser outstanding. Notwithstanding anything
contained in this Agreement, the Crescent Shareholders and the Purchaser consent
that all shares of capital stock of the Purchaser indicated in Schedule 2.1(b)
as not owned by Alongal shall be transferred to Alongal as contemplated by this
Section.
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Section 3.5 On and After Closing. Subject to the provisions of Section 6.3
hereof, on and after the Closing Date, none of the shares of stock of the
Purchaser which are subject to the escrow provisions of this Agreement shall be
transferred or pledged except pursuant to the provisions of this Agreement. The
voting rights with respect to such shares shall be exercisable by the owners of
such shares. Dividends, if any, declared on the Common Stock during the
effectiveness of such escrow provisions shall be paid to and reinvested by the
escrow agent as the parties shall agree.
Section 3.6 Non-Competition.
(a) Commencing as of the Closing Date and continuing for three (3)
years thereafter, each of the Selling Shareholders agree that he shall not
engage (except in his respective capacity as an employee of Purchaser if
applicable), directly or indirectly, whether on his own account or as a
shareholder (other than as a less than 1 % shareholder of a publicly-held
company), partner, joint venturer, employee, consultant, advisor, and/or agent,
of any person, firm, corporation, or other entity, in any or all of the
following activities within a fifty (50) mile radius of the zero milepost of the
respective city in which each Company is located (the "Territory"):
(i) Enter into or engage in the businesses of computer systems
integration, wholesale distribution of computers or computer-peripherals, or
reseller activities in such products, including the wholesale purchase and
selling or leasing of computers and computer-peripheral equipment, data
communications equipment and software, or providing technical support or advice
to end users in relation to such products (such businesses are collectively
referred to herein as the "Protected Business"). As used herein, the term
Protected Business shall not, however, include the commission-based
representation of product manufacturers to facilitate sales of products by such
manufacturers directly to distributors, value-added resellers and end users
("Manufacturer Representation").
(ii) Solicit customers, suppliers, or business patronage in
the Territory which results in competition with the Purchaser or any of its
affiliates in the Protected Business;
(iii) Encourage or solicit any Employees of or service
providers to the Business, Purchaser, or any of its affiliates to leave the
employment of or terminate their service relationship with Purchaser or any of
its affiliates for any reason; or
(iv) Promote or assist, financially or otherwise, any person,
firm, association, corporation or other entity engaged in any aspect of the
Protected Business.
(b) If, in any judicial proceeding, a court shall refuse to enforce
in such action any of the covenants included herein, then at the option of
Purchaser or its affiliates, wholly unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such a proceeding. The parties intend to have covenants enforceable to the
fullest extent of the law as to scope, time and geography.
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(c) The parties agree that due to the unique nature of the services
and capabilities of the Company and the Selling Shareholders, there can be no
adequate remedy at law for any breach of their respective obligations hereunder,
that any such breach may allow the Selling Shareholders and/or third parties to
unfairly compete with Purchaser or its affiliates resulting in irreparable harm
to Purchaser or its affiliates, and therefore, that upon any such breach or any
threat thereof, Purchaser or its affiliates shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law.
(d) Each of the Selling Shareholders acknowledges, represents and
warrants to Purchaser that the covenants of each in this Section 3.6 are
reasonably necessary for the protection of Purchaser's interests under this
Agreement and are not unduly restrictive upon him.
(e) The parties hereto acknowledge that the Selling Shareholders are
shareholders in G/B Marketing, Inc. ("GBM") and that GBM and its shareholders
have been and are currently engaged as manufacturer's representatives in
connection with computer products, some of which products may be similar to or
competitive with products in which the Purchaser will be involved. The parties
acknowledge that the activities of GBM and its shareholders involve Manufacturer
Representation. Because the Protected Business does not include Manufacturer
Representation, the parties deem that the role of GBM and its shareholders in
the product market is materially different from that of the Purchaser.
Accordingly, the parties (1) waive any and all claims of breach of the
non-competition provision of this Agreement with respect to Manufacturer
Representation activities carried on by GBM and its shareholders prior to the
date hereof; and (2) similarly waive any and all claims of breach of such
non-competition provision with respect to future Manufacturer Representation
engaged in by GBM and its shareholders.
(f) The waiver and exception contained in Section 3.6(e): (1) shall
not be construed to constitute a waiver or exception concerning any activity not
specifically described in Section 3.6(e), and (2) without limiting the
generality of the foregoing, shall not apply to any involvement by the Selling
Shareholders, whether directly or indirectly, in the ownership or management of
any entity engaged, either directly or indirectly, in systems integration, the
wholesale distribution of computers or computer-peripherals, or reseller
activities in such products, other than Manufacturer Representation.
Section 3.7 Further Assurances. On or after the Closing Date, each party
shall prepare, execute, and deliver, at the preparer's expense, such further
instruments, and shall take or cause to be taken such other or further action,
as any party shall reasonably request of any other party at any time or from
time to time in order to consummate, in any other manner, the terms and
provisions of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 4.1 Conditions to Obligations of Purchaser. Each and every
obligation of Purchaser to be performed on the Closing Date shall be subject to
the satisfaction on or before the Closing Date
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of the following conditions (unless waived in writing by Purchaser), and the
Company and the Selling Shareholders shall exercise all reasonable efforts in
good faith to satisfy such conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Selling Shareholders and the Company set forth in
Section 2.1 of this Agreement shall have been true and correct when made and
shall be true and correct at and as of the Closing Date as if such
representations and warranties were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by the Company or each of the Selling Shareholders,
as the case may be, including Boards of Directors approval, shall have been
fully performed and complied with at or prior to the Closing Date.
(c) No Material Adverse Change. Since the date of the Unaudited
Financial Statements, there shall have occurred no material adverse change in
the financial condition, the Business, the assets of the Company, or properties
of the Company which adversely affects the conduct of the Business as presently
being conducted, the assets of the Company, or the financial condition or
properties of the Company.
(d) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser shall have completed to its
reasonable satisfaction its due diligence review of the Company and its
operations, the Business, the assets and financial condition of the Company, and
Purchaser shall have received favorable reviews from its advisors of the results
of their due diligence review of the Business.
(f) Certificate of President and Shareholders. The Company shall
have delivered to Purchaser a certificate executed by its President and the
Selling Shareholders, dated the date of the Closing Date, to the effect that the
conditions set forth in subsections (a)-(e) of this Section 4.1 have been
satisfied with respect to the Company and the Selling Shareholders.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to Purchaser under this Agreement shall be reasonably satisfactory to
Purchaser and its counsel.
(h) Execution of Related Agreements. Purchaser shall have received
fully executed copies of the Related Agreements.
(i) Licenses. Purchaser shall have received all licenses from all
appropriate governmental agencies to operate the Business in the same manner as
each of the Companies operated
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the Business prior to the Closing Date. This condition shall be deemed satisfied
in the event that the Purchaser fails to use reasonable diligence in applying
for and pursuing such licenses.
(j) [Intentionally left blank.]
(k) Stock Certificates. Each of the Selling Shareholders shall have
delivered the stock certificates representing his shares of Capital Stock, duly
endorsed for transfer to the Purchaser.
(l) Resignations. The officers and directors of the Company shall
have delivered to Purchaser their resignations, effective as of the expiration
of the Put Option in accordance with Section 6.3 hereof.
(m) Consents. Purchaser shall have received each and every consent,
approval and waiver (if any) required for the execution of this Agreement and
the consummation of the transactions contemplated hereby.
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders. Each and every obligation of the Company and the Selling
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by the Selling Shareholders or the Company), and the
Purchaser shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in Section 2.2 of this Agreement shall have
been true and correct when made and shall be true and correct on and as of the
Closing Date as if such representations and warranties were made as of such date
and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by Purchaser, as the case may be, including Board of
Directors and shareholder approval, as applicable, shall have been fully
performed and complied with at or prior to the Closing Date.
(c) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(d) Certificate of Officers. Purchaser shall have delivered to the
Company a certificate executed by its authorized officer, dated the date of the
Closing Date, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 4.2 have been satisfied.
27
<PAGE>
(e) Execution of Related Agreements. The Company shall have received
fully executed copies of the Related Agreements (and all other documents
required hereunder).
(f) Shareholder Employment Agreements. Purchaser shall have entered
into an employment agreement with William Rychel in substantially the form
attached hereto as Exhibit 4.2(f) and providing for the services to be performed
principally at Vernon Hills, Illinois and for compensation of not less than
$125,000 per year.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to the Selling Shareholders under this Agreement shall be reasonably
satisfactory to each of the Selling Shareholders and their counsel.
(h) Directorships. At least one individual designated by the Company
shall have been duly appointed as a Director of the Purchaser.
(i) Insurance. The Purchaser shall have exercised its reasonable
best efforts to obtain a policy of directors' and officers' liability insurance,
in such amounts and covering such risks as normally are insured for by companies
of approximately the same size as, and engaged in businesses substantially
similar to, Purchaser.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements.
(a) All representations, warranties, covenants, and agreements of
the Company, the Selling Shareholders, and Purchaser shall survive the
execution, delivery, and performance of this Agreement for two years from the
Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1(b), 2.1(i) and 2.1(y) and the obligation of indemnity
therefor, and the agreements contained in Sections 1.2 and 3.3(e) shall survive
until the applicable statutes of limitations have expired. All representations
and warranties of the Company, the Selling Shareholders, and Purchaser set forth
in this Agreement shall be deemed to have been made again by the Company, the
Selling Shareholders and Purchaser on and as of the Closing Date.
(b) As used in this Article V, except as otherwise indicated in this
Article V, any reference to a representation, warranty, agreement, or covenant
contained in any section of this Agreement shall include the schedule relating
to such section.
Section 5.2 Indemnification of Purchaser.
Each of the Selling Shareholders hereby agrees to indemnify and hold
harmless Purchaser and its affiliates, the Companies and the other Selling
Shareholders (collectively the "Indemnified Parties") against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments, causes
of action, assessments, costs, and expenses, including, without limitation,
interest,
28
<PAGE>
penalties, attorneys' fees, any and all expenses incurred in investigating,
preparing, and defending against any litigation, commenced or threatened, and
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting from, imposed
upon, or incurred or suffered by the Indemnified Parties directly or indirectly,
as a result of or arising from any inaccuracy in or breach or nonfulfillment of
any of the representations, warranties, covenants, or agreements made by the
Company or the Selling Shareholders in this Agreement or any facts or
circumstances constituting such an inaccuracy, breach, or nonfulfillment (all of
which shall be referred to as "Company Indemnifiable Claims").
Section 5.3 Indemnification of the Selling Shareholders. Purchaser hereby
agrees to indemnify and hold harmless each of the Selling Shareholders against
any and all Damages, asserted against, reasonably resulting from, imposed upon,
or incurred or suffered by such Selling Shareholders as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Purchaser in this
Agreement or the Related Agreements or any facts or circumstances constituting
such an inaccuracy, breach, or nonfulfillment or any claim for the Company or
Business liability disclosed to the Purchaser, and which are attributable to
occurrences on or after the Closing Date (all of which shall be referred to as
"Purchaser Indemnifiable Claims").
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims.
(a) If any party hereto determines to seek indemnification (the
party seeking such indemnification hereinafter referred to as the "Indemnified
Party" and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party") under this Article V with respect to
Company Indemnifiable Claims where the Indemnified Party is Purchaser or any of
its affiliates or Purchaser Indemnifiable Claims where the Indemnified Party is
any of the Selling Shareholders (such Claims shall be referred to herein as
"Indemnifiable Claims") resulting from the assertion of liability by third
parties, the Indemnified Party shall give notice to the Indemnifying Parties
within 60 days of the Indemnified Party becoming aware of any such Indemnifiable
Claim or of facts upon which any such Indemnifiable Claim will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to the Indemnified Party. In case any such liability is
asserted against the Indemnified Party or its affiliates, and the Indemnified
Party notifies the Indemnifying Parties thereof, the Indemnifying Parties will
be entitled, if such Indemnifying Parties so elect by written notice delivered
to the Indemnified Party within 20 days after receiving the Indemnified Party's
notice, to assume the defense thereof with counsel satisfactory to the
Indemnified Party. Notwithstanding the foregoing, (i) the Indemnified Party or
its affiliates shall also have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless the Indemnified Party or its affiliates shall
reasonably determine that there is a conflict of interest between or among the
Indemnified Party or its affiliates and any Indemnifying Party with respect to
such Indemnifiable Claim, in which case the fees and expenses of such counsel
will be borne by such Indemnifying Parties, (ii) the Indemnified Party shall
have no obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing, and (iii) the rights of the
Indemnified Party or its affiliates to be indemnified hereunder in respect of
Indemnifiable Claims resulting from the assertion of liability by third parties
shall not be adversely affected by their failure to give notice pursuant to the
foregoing unless, and, if
29
<PAGE>
so, only to the extent that, such Indemnifying Parties are materially prejudiced
thereby; provided, however, the Indemnifying Party shall not be liable for
attorneys fees and expenses incurred by the Indemnified Party prior to the
Indemnified Party's giving notice to the Indemnifying Party of an Indemnifiable
Claim. With respect to any assertion of liability by a third party that results
in an Indemnifiable Claim, the parties hereto shall make available to each other
all relevant information in their possession material to any such assertion.
(b) In the event that such Indemnifying Parties, within 20 days
after receipt of the aforesaid notice of an Indemnifiable Claim fail to assume
the defense of the Indemnified Party or its affiliates against such
Indemnifiable Claim, the Indemnified Party or its affiliates shall have the
right to undertake the defense, compromise, or settlement of such action on
behalf of and for the account, expense, and risk of such Indemnifying Parties.
(c) Notwithstanding anything in this Article V to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may materially
adversely affect the Indemnified Party or its affiliates, the Indemnified Party
or its affiliates shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Parties shall not, without the
Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
Section 5.5 Procedure For Indemnification with Respect to Non-Third Party
Claims. In the event that the Indemnified Party asserts the existence of a claim
giving rise to Damages (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the Indemnifying
Parties. Such written notice shall state that it is being given pursuant to this
Section 5.5, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If such Indemnifying Parties, within 30 days after the mailing
of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party announcing their intent to contest such assertion of the
Indemnified Party, such assertion shall be deemed accepted and the amount of
claim shall be deemed a valid claim. In the event, however, that such
Indemnifying Parties contest the assertion of a claim by giving such written
notice to the Indemnified Party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. If the parties hereto,
acting in good faith, cannot reach agreement with respect to such claim within
ten (10) days after notice thereof, such claim will be submitted to and settled
by arbitration pursuant to Section 7.11 hereof.
Section 5.6 Escrowed Shares. Each of the Selling Shareholders shall escrow
twenty percent (20%) of the Common Stock to be issued to such Selling
Shareholder to be available for distribution to Purchaser in the event of an
Indemnified Claim not paid in cash by the Indemnifying Party. Such escrow shall
expire on the date not less than two (2) years and sixty (60) days after the
Date of Closing, when there shall be no pending Indemnification Claim for which
notice has been given under Section 5.4, and upon such expiration any original
share certificates shall be delivered to the owners
30
<PAGE>
thereof. Not later than the Closing Date The parties shall enter into a Pledge,
Security and Escrow Agreement in substantially the form and substance attached
hereto as Exhibit 5.6.
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT
Section 6.1 Termination. (a) At any time prior to the time of Closing,
this Agreement may be terminated by express written consent of Purchaser and
each of the Selling Shareholders.
(b) Purchaser may terminate this Agreement in the event the
conditions set forth in Section 4.1 of this Agreement have not been satisfied or
waived prior to the time of Closing.
(c) Each of the Selling Shareholders may terminate this Agreement in
the event the conditions set forth in Section 4.2 of this Agreement have not
been satisfied or waived prior to the time of Closing.
(d) If the failure of such conditions to be fulfilled arises from
the fault or intentional act of a party hereto, such party shall be liable to
the other parties up to the amount of the documented out-of-pocket expense
incurred by such parties in negotiating, structuring and documenting the
transaction contemplated by this Agreement. No party shall be responsible for
indirect, special or expectancy damages for such nonfulfillment of conditions.
Section 6.2 Effect of Termination. In the event of termination as provided
in Section 6.1 above; Sections 3.1, 7.4 and 7.11 shall survive such termination
and continue in full force and effect.
Section 6.3 Conditions Subsequent to Obligations.
(a) In the event that the Purchaser has been unable to procure
exclusive distribution agreements with manufacturers of high end graphic
technology products to the satisfaction of the Selling Shareholders prior to
September 30, 1997 (the "Put Date"), the Selling Shareholders shall have the
right to put all, but not less than all, of the shares of the Purchaser received
by them in connection with this Agreement to the Purchaser (the "Put Option")
and the Purchaser shall be obligated to repurchase such shares from the Selling
Shareholders.
(b) The Put Option may be exercised by the Selling Shareholders at
any time prior to the Put Date by delivery of written notice of exercise to
Purchaser.
(c) Upon exercise of the Put Option in accordance with this Section
6.3, Purchaser shall return to the Selling Shareholders, in the respective
amounts set forth on Schedule 2.1(b), all of the shares of Capital Stock of the
Company delivered to Purchaser pursuant to the provisions of Article I. Delivery
of the certificates by each of the parties shall take place no more than five
business days after the date of such notice at the offices of the Purchaser.
31
<PAGE>
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
7.1. Any party delivering notice to Purchaser shall deliver a copy to: Sheldon
E. Misher, Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York,
New York 10017. All notices and communications shall be deemed to have been
received unless otherwise set forth herein: (i) in the case of personal
delivery, on the date of such delivery; (ii) in the case of telex or facsimile
transmission, on the date on which the sender receives confirmation by telex or
facsimile transmission that such notice was received by the addressee, provided
that a copy of such transmission is additionally sent by mail as set forth in
(iv) below; (iii) in the case of overnight air courier, on the second business
day following the day sent, with receipt confirmed by the overnight courier; and
(iv) in the case of mailing by first class certified or registered mail, postage
prepaid, return receipt requested, on the fifth business day following such
mailing.
Section 7.2 Entire Agreement. This Agreement, the exhibits and schedules
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 7.3 Binding Effect: Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and the Selling Shareholders, their respective
successors and permitted assigns, and Purchaser and its successors and permitted
assigns. Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties; provided, however, that Purchaser may assign its rights hereunder in
connection with any sale of all or substantially all of Purchaser's assets or
any merger, consolidation, or conversion of Purchaser.
Section 7.4 Expenses of Transaction. The Selling Shareholders shall pay
the Selling Shareholders' professional fees and expenses incurred in connection
with the negotiation and closing of this Agreement and the Related Agreements,
including, without limitation the expenses of the preparation of Annual
Financial Statements. The Selling Shareholders shall also pay all the Selling
Shareholders' applicable sales, income, use, excise, transfer, documentary, and
any other taxes arising out of the transactions contemplated herein. The Company
shall pay 25.05%, as adjusted pursuant to Section 1.3, of all professional fees
and expenses incurred by Purchaser in connection with the negotiation and
closing of this Agreement and the Related Agreements. Upon expiration of the Put
Option unexercised, Purchaser shall reimburse the Selling Shareholders for all
Purchaser's expenses and fees paid by the Company.
Section 7.5 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a
32
<PAGE>
writing executed by the parties hereto, and no waiver of any of the provisions
or conditions of this Agreement or any of the rights of a party hereto shall be
effective or binding unless such waiver shall be in writing and signed by the
party claimed to have given or consented thereto. Except to the extent that a
party hereto may have otherwise agreed in writing, no waiver by that party of
any condition of this Agreement or breach by the other party of any of its
obligations or representations hereunder or thereunder shall be deemed to be a
waiver of any other condition or subsequent or prior breach of the same or any
other obligation or representation by the other party, nor shall any forbearance
by the first party to seek a remedy for any noncompliance or breach by the other
party be deemed to be a waiver by the first party of its rights and remedies
with respect to such noncompliance or breach.
Section 7.6 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 7.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
Section 7.8 Remedies of the Parties. The Company and the Selling
Shareholders acknowledge that, in addition to all other remedies to which
Purchaser is entitled, Purchaser shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided Purchaser is not in
material default hereunder. The parties also agree that the rights and remedies
of each party to this Agreement set forth in this Agreement and in all of the
exhibits and schedules attached hereto and documents referred to herein shall be
cumulative and share inure to the benefit of each such party.
Section 7.9 Governing law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Georgia.
Section 7.10 Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any
dispute arising out of this Agreement, but should a dispute remain unresolved
ten (10) days following notice of the dispute to the other party (but in no
event prior to said ten (10) days, except as specifically provided otherwise
herein), such dispute shall be finally settled by binding arbitration in
Atlanta, Georgia in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") or such other
mediation or arbitration service as shall be mutually agreeable to the parties,
and judgment upon the award rendered by the arbitrator shall be final and
binding on the parties and may be entered in any court having jurisdiction
thereof; provided, however, that any party shall be entitled to appeal a
question of law or determination of law to a court of competent jurisdiction;
and provided, further, however, that the parties may first seek appropriate
injunctive relief prior to, and/or in addition to pursuing negotiation or
arbitration. Such arbitration shall be conducted by an arbitrator chosen by
mutual agreement of the parties, or failing such agreement, an arbitrator
appointed by the AAA. There shall be limited discovery prior to the arbitration
hearing as
33
<PAGE>
follows: (a) exchange of witness lists and copies of documentary evidence and
documents related to or arising out of the issues to be arbitrated, (b)
depositions of all party witnesses, and (c) such other depositions as may be
allowed by the arbitrator upon a showing of good cause. Depositions shall be
conducted in accordance with the Georgia Code of Civil Procedure and questions
of evidence in any hearings shall be resolved in accordance with the Federal
Rules of Evidence. The arbitrator shall be required to provide in writing to the
parties the basis for the award or order of such arbitrator, and a court
reporter shall record all hearings (unless otherwise agreed to by the parties),
with such record constituting the official transcript of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement or the Related Agreements,
the prevailing party will be entitled to receive from the other party all costs,
damages and expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether or not the
controversy is reduced to judgment or award. The prevailing party will be that
party who may be fairly said by the arbitrator(s) or the court to have prevailed
on the major disputed issues.
Section 7.11 Cooperation and Records Retention. Each of the Selling
Shareholders and Purchaser shall (i) provide the other with access to such
records, original or copies, or assistance as may reasonably be requested by
them in connection with the preparation of any Tax Return, in connection with
any audit or other examination by any Taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, or financial
reporting obligations, (ii) each retain and provide the other, with any records
or other information which may be relevant to any such Tax Return, audit or
examination, proceeding or determination, or financial reporting obligations,
and (iii) each provide the other with any final determination of any such audit
or examination, proceeding or determination that affects any amount required to
be shown on any Tax Return of the other for any period. All Tax Returns,
supporting work schedules and other records or information which may be relevant
to such Tax Returns for all tax periods or portions thereof ending before or
including the Closing Date shall remain with Purchaser or the Company and shall
be made available for inspection and copying by the parties hereto during normal
business hours.
34
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
---------------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
Dan I. Bailey /s/ Dan I. Bailey
Peter Goletz /s/ Peter Goletz
Michelle L. Lightman /s/ Michelle L. Lightman
William J. Parillo /s/ William J. Parillo
35
<PAGE>
G&R MARKETING, INC.
By: /s/ Thomas A. Gust
-----------------------------------------
Thomas A. Gust
President
Address: 980 Corporate Woods Parkway
Vernon Hills, Illinois 60061
SHAREHOLDERS:
/s/ William M. Rychel
---------------------------------------------
William M. Rychel
Address: 2665 Oak Street
Highland Park, Illinois 60035
/s/ Thomas A. Gust
---------------------------------------------
Thomas A. Gust
Address: 12 Windstone Way
North Barrington, Illinois 60010
36
<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
AMENDMENT dated as of June 2, 1997 to the Stock Purchase Agreement dated
as of May 1, 1997 (the "Stock Purchase Agreement") by and among Crescent
Computers, Inc., a Georgia corporation (the "Purchaser"), the shareholders of
the Purchaser set forth on the signature page of the Stock Purchase Agreement
(the "Crescent Shareholders"), G&R Marketing, Inc., an Illinois corporation
("G&R"), and the shareholders of G&R set forth on the signature page of the
Stock Purchase Agreement (the "Selling Shareholders"). All terms used in this
Amendment, unless otherwise defined herein, shall have such meaning as ascribed
to them in the Stock Purchase Agreement.
WHEREAS, pursuant to the Stock Purchase Agreement, the Purchaser agreed to
purchase all of the issued and outstanding shares of capital stock of G&R held
by the Selling Shareholders (the "Acquisition"); and
WHEREAS, in connection with the Acquisition, the parties hereto desire to
amend certain provisions of the Stock Purchase Agreement as set forth in this
Agreement in accordance with the provisions of Section 7.5 of the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties intending to be legally bound, hereby agree
as follows:
A. Amendments to Stock Purchase Agreement. The Stock Purchase Agreement is
hereby amended as follows:
(1) Section 2.3 of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following paragraph:
"Section 2.3 Survival of Representations and Warranties:
Purchaser's and the Selling Shareholders' representations and
warranties contained in this Article II shall survive the Closing
for a period of twenty-four (24) months from the Closing Date."
(2) The last sentence of Section 3.1(a) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The covenants contained in this Section 3.1(a) shall survive
until one hundred twenty (120) days from the Closing Date."
(3) The introductory paragraph of Section 3.3 of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following new
paragraph:
"Section 3.3 Interim Period. During the period from the date
of execution hereof through November 1, 1997 or prior thereto upon
the unanimous consent of the Board of Directors of the Purchaser
(the "Interim Period"):"
(4) Section 3.3(a) of the Stock Purchase Agreement is deleted in its
entirety.
-1-
<PAGE>
(5) Section 3.3(b) of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following paragraph:
"(b) The number of Directors of the Purchaser shall be seven
(7). William Rychel shall be appointed to the Board of Directors of the
Purchaser on the Closing Date and may not be removed during the Interim
Period except for cause. If such individual shall be removed for cause or
shall be unable or unwilling to serve as a Director, the Selling
Shareholders shall immediately appoint his successor. The parties
acknowledge that after the Interim Period, the Board of Directors of the
Purchaser is anticipated to expand through the addition of independent
directors and corporate acquisitions."
(6) Section 3.3(g) of the Stock Purchase Agreement is deleted in its
entirety.
(7) The first eight words of Section 3.5 of the Stock Purchase
Agreement are deleted in their entirety so that Section 3.5 begins with
the words "On and after."
(8) Section 4.1(1) of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"(l) Resignations: The officers and directors of the Company
shall have delivered to Purchaser their resignations, effective as
of the Closing Date."
(9) Section 6.3 of the Stock Purchase Agreement is deleted in its
entirety.
(10) The last sentence of Section 7.4 of the Stock Purchase
Agreement is deleted in its entirety.
B. Full Force and Effect. Except as provided herein, all other terms and
provisions of the Stock Purchase Agreement shall remain in full force and
effect.
C. Counterparts. This Amendment may be executed in one or more
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
---------------------
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
-2-
<PAGE>
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
-----------------------------------------
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
---------------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
/s/ Dan I. Bailey
---------------------------------------------
Dan I. Bailey
/s/ Peter Goletz
---------------------------------------------
Peter Goletz
/s/ Michelle L. Lightman
---------------------------------------------
Michelle L. Lightman
/s/ William J. Parillo
---------------------------------------------
William J. Parillo
G&R MARKETING, INC.
By: /s/ Thomas A. Gust
-----------------------------------------
Thomas A. Gust
President
Address: 980 Corporate Woods Parkway
Vernon Hills, Illinois 60061
-3-
<PAGE>
SHAREHOLDERS:
/s/ William M. Rychel
---------------------------------------------
William M. Rychel
Address: 2665 Oak Street
Highland Park, Illinois 60035
/s/ Thomas A. Gust
---------------------------------------------
Thomas A. Gust
Address: 12 Windstone Way
North Barrington, Illinois 60010
-4-
STOCK PURCHASE AGREEMENT
by and among
Crescent Computers, Inc., a Georgia corporation, and its shareholders
and
Computer Graphics Distributing Company, a Maryland corporation,
and its shareholders
Dated as of May 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF STOCK........................................................1
Section 1.1 Purchase and Sale............................................1
Section 1.2 Purchase Price...............................................1
Section 1.3 Purchase Price Adjustment....................................2
Section 1.4 The Closing..................................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES...........................................4
Section 2.1 Representations and Warranties of the Companies and
the Shareholders.............................................4
Section 2.2 Representations and Warranties of Purchaser.................19
Section 2.3 Survival of Representations and Warranties..................21
Section 2.4 Disclosure..................................................21
ARTICLE III
COVENANTS...............................................................21
Section 3.1 Covenants Against Disclosure................................21
Section 3.2 Access to Information.......................................21
Section 3.3 Interim Period..............................................22
Section 3.4 Special Crescent Covenants..................................23
Section 3.5 On and After Closing........................................23
Section 3.6 Non-Competition.............................................23
Section 3.7 Further Assurances..........................................24
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS.....................................25
Section 4.1 Conditions to Obligations of Purchaser......................25
Section 4.2 Conditions to Obligations of the Company and the
Selling Shareholders........................................26
ARTICLE V
INDEMNIFICATION.........................................................27
Section 5.1 Survival of Representations, Warranties, Covenants
and Agreements..............................................27
Section 5.2 Indemnification of Purchaser................................27
Section 5.3 Indemnification of the Selling Shareholders.................28
Section 5.4 Procedure for Indemnification with Respect to
Third-Party Claims..........................................28
Section 5.5 Procedure For Indemnification with Respect to Non-Third
Party Claims................................................29
Section 5.6 Escrowed Shares.............................................29
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ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT...................................30
Section 6.1 Termination.................................................30
Section 6.2 Effect of Termination.......................................30
Section 6.3 Conditions Subsequent to Obligations........................30
ARTICLE VII
MISCELLANEOUS PROVISIONS................................................31
Section 7.1 Notice......................................................31
Section 7.2 Entire Agreement............................................31
Section 7.3 Binding Effect: Assignment..................................31
Section 7.4 Expenses of Transaction.....................................31
Section 7.5 Waiver; Consent.............................................31
Section 7.6 Counterparts................................................32
Section 7.7 Severability................................................32
Section 7.8 Remedies of the Parties.....................................32
Section 7.9 Governing Law...............................................32
Section 7.10Arbitration; Attorneys' Fees................................32
Section 7.11Cooperation and Records Retention...........................33
SCHEDULE 1.2............................................................36
SCHEDULE 2.1(b).........................................................37
SCHEDULE 2.2(b).........................................................38
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 1, 1997
among Crescent Computers, Inc., a Georgia corporation ("Purchaser"), the
shareholders of Crescent set forth on the signature page of this Agreement (the
"Crescent Shareholders") and Computer Graphics Distributing Company, a Maryland
corporation ("CGD" or the "Company"), and the shareholders of CGD set forth on
the signature page of this Agreement (the "Selling Shareholders").
WHEREAS, the Company is engaged in, among other things, the business of
computer integration and wholesale distribution of computer products (such
business is referred to herein collectively as the "Business"); and
WHEREAS, Purchaser desires to purchase all the issued and outstanding
shares of capital stock of the Company held by the Selling Shareholders and the
Selling Shareholders desire to sell such shares to Purchaser, subject to the
terms and conditions hereinafter set forth (such purchase and sale of capital
stock of the Company shall be referred to herein as the "Acquisition"); and
WHEREAS, Purchaser and the Selling Shareholders desire to enter into this
Agreement with the understanding that this Agreement will supercede all prior
oral and written agreement between the parties.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase on the Closing Date (as hereinafter
defined), and the Selling Shareholders each agree to sell to Purchaser at the
Closing (as hereinafter defined), all of the issued and outstanding shares of
the capital stock of the Company, which consists of the number of shares of
common stock, and all rights existing with respect thereto, held by each of the
Selling Shareholders, as set forth on Schedule 2.1(b) attached hereto.
Section 1.2 Purchase Price. (a) In consideration for the Capital Stock (as
defined in Section 2.1(b)) and in full payment therefor Purchaser will pay the
Selling Shareholders $638,535 (hereinafter the "Purchase Price"), but subject to
the adjustments to the Purchase Price set out in Section 1.3, such payment to be
evidenced by the issuance to the Selling Shareholders of an aggregate of 751
shares of Purchaser's common stock (the "Common Stock") in the respective
amounts reflected in Schedule 1.2 attached hereto (hereinafter called the
"Purchase Price"). All shares of Common Stock issued as herein described shall
have identical rights as to dividends, voting and all other matters. Except as
expressly provided in this Agreement, there shall be no other consideration paid
to or for the account of the Selling Shareholders in connection with or relating
in any way to the transactions contemplated hereby.
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Section 1.3 Purchase Price Adjustment. (a) As used in this Section 1.3,
the following capitalized terms shall have the meanings set forth below:
"Actual Company Value" shall mean the aggregate of the Company's and any
subsidiary's Fixed Assets, plus their Current Assets, less their Liabilities on
the Closing Date.
"Company Shortfall" means the excess, if any, of the Warranted Company Value (as
hereinafter defined) over the Actual Company Value on the Closing Date, subject
to the limitations set forth in this Section 1.3.
"Current Assets" shall be used in all respects in accordance with generally
accepted accounting principles consistently applied ("GAAP") and comprises the
aggregate of all cash, cash equivalents, receivables and inventory, but
specifically excludes any deferred assets including without limitation deferred
tax and deferred income, and valued in accordance with GAAP, and on a basis in
all material respects consistent with that adopted for the purposes of the last
audited financial statements of the Company and the value of all receivables and
inventory has been written down to realizable market value and adequate
provision has been made therefor.
"Fixed Assets" shall be used in all respects in accordance with GAAP and shall
mean fixed assets at the values at which they were included in the latest
audited financial statements (or if acquired after the balance sheet date, their
cost), less depreciation calculated in accordance with the method adopted in the
financial statements. Fixed Assets shall specifically exclude, and no value
shall be attributable to, any intangible assets (including without limitation
goodwill, trademarks, service marks, formulas, franchise rights and patents),
and no asset shall be written up or revalued above its original cost less
applicable depreciation.
"Liabilities" shall be used in all respects in accordance with GAAP and shall
mean all liabilities, whether long-term or current, including without limitation
all actual liabilities of the Company on the Closing Date, with proper provision
in accordance with GAAP, having been made therein for all other liabilities of
the Company then outstanding whether contingent, quantified, disputed or not,
including without limitation the cost of any work or material for which payment
has been received or credit taken, any future loss which may arise in connection
with uncompleted contracts and any claims against the Company in respect of
completed contracts.
"Net Asset Value Shortfall" means the excess, if any, of the Warranted Tangible
Net Asset Value over the Actual Tangible Net Asset Value on the Closing Date,
subject to the limitations set forth in this Section 1.3.
"Actual Tangible Net Asset Value" shall mean the aggregate amount of the Current
Assets less Liabilities on the Closing Date.
"Warranted Company Value" shall mean $638,535.
"Warranted Tangible Net Asset Value" shall mean $538,535.
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(b) Each Selling Shareholder represents and warrants to the Purchaser that
the Warranted Company Value and the Warranted Tangible Net Asset Value of the
Company shall be not less than the amounts set forth above. The Purchase Price
shall be increased by the amount (if any) by which the Company's Actual Tangible
Net Asset Value exceeds its Warranted Tangible Net Asset Value on the Closing
Date. Such amount will be paid by the Purchaser to the Selling Shareholders
within ninety (90) days after the determination of Actual Company Value and
Actual Tangible Net Asset Value, in cash provided the Purchaser has net assets
of at least $8,000,000 on such date. Otherwise, such amount shall bear interest
at the rate which is three percent (3%) per annum in excess of the then prime
rate of interest of NationsBank of Georgia, N.A., to be evidenced by a six month
promissory note issued by Purchaser to the Selling Shareholders in substantially
the form of Exhibit 1.3(b) attached hereto. The Purchase Price payable by
Purchaser to the Selling Shareholders shall be reduced by one of the following,
whichever is greater:
Company Shortfall / Warranted Company Value x Purchase Price
Net Asset Value Shortfall / Warranted Tangible Net Asset Value
x Purchase Price
(c) If any receivable of the Company existing as of the Closing Date
remains uncollected by the Company or its successor the later of 90 days after
the Closing Date or 150 days after the date of invoice, or has, as of the later
of such dates, been collected at less than its full value as shown in Current
Assets on the Closing Date ("Collection Shortfall"), then (i) the Purchaser
shall have the option of assigning such receivable to the Selling Shareholders,
without representation or warranty, not more than 180 days after the Closing
Date, and demanding the amount of the Collection Shortfall, and upon such
assignment, such Selling Shareholders shall pay the Company such amount, in
cash, within sixty (60) days after demand; provided that Purchaser shall have
exercised all reasonable efforts at collecting such receivable at such full
value; and (ii) the Selling Shareholders shall have the option of causing the
Purchaser to sell such receivable to the Selling Shareholders, without
representation or warranty, not more than 180 days after the Closing Date, and
paying the amount of the Collection Shortfall, and upon such assignment, the
Selling Shareholders shall pay Purchaser such amount, in cash, within sixty (60)
days after demand. The Selling Shareholders shall thereafter be free to pursue
such collection measures as they in their sole discretion shall deem necessary
or appropriate. To the extent, if any, that the Collection Shortfall remains
unpaid after such sixty (60) day period, Purchaser shall adjust the Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding
Collection Shortfall to Company Shortfall or Net Asset Value Shortfall, as the
case may be.
(d) If any items of the Company's inventory existing as of the Closing
Date remain unsold by the Company or its successor 180 days thereafter or have
been sold at less than full value as shown in Current Assets on the Closing Date
("Inventory Shortfall"), Purchaser not more than 210 days after the Closing Date
shall deliver and transfer such unsold inventory to the Selling Shareholders
without representation or warranty and shall demand the amount of the Inventory
Shortfall, and upon such transfer and delivery, the Selling Shareholders shall
pay the Company such amount, in cash, within thirty (30) days of demand;
provided that Purchaser shall have exercised all reasonable efforts at selling
such inventory at such full value. Such Selling Shareholders shall, at any time
after Purchaser's demand of the Inventory Shortfall, be free to sell such
inventory as they in their sole discretion shall deem necessary or appropriate.
To the extent if any that the Inventory Shortfall remains unpaid after such
thirty (30) day
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period, Purchaser shall adjust such Selling Shareholders' shares of Common
Stock, effective as of the Closing Date, in accordance with the formulae set
forth in Section 1.3(b) above, adding Inventory Shortfall to Company Shortfall
or Net Asset Value Shortfall, as the case may be.
(e) Purchaser and each Selling Shareholder shall escrow twenty percent
(20%) of the shares of Common Stock to be delivered to such Selling Shareholder
(the "Escrowed Shares"), to be subject to redistribution by Purchaser in the
circumstances described in this Section 1.3. The terms of the escrow shall be
substantially as set forth in the form of Escrow Agreement attached as Exhibit
1.3(e) hereto. Any Escrowed Shares not subject to redistribution for the
purposes of this Section shall be released to such Selling Shareholders as
follows: one-half within thirty (30) days of the determination of the
application of this Section 1.3 pursuant to the provisions of subsection (b),
(c) or (d) above, as the case may be, and one-half on the first anniversary of
the Closing Date.
(f) As an example of the application of subsections (b) and (c) above, if
on the Closing Date the Actual Company Value of CGD shall be $613,535, rather
than the Warranted Company Value of $638,535, being a $15,000 shortfall in
Warranted Tangible Net Asset Value and a $10,000 shortfall in Fixed Assets, and
an additional shortfall is determined under subsection (c) above in the amount
of $25,000 and such amount remains unpaid, the Purchaser shall decrease the
shares of Common Stock to be distributed to the Selling Shareholders of CGD by
58 shares, computed as follows:
$50,000 / $638,535 x 751 = 58 Shares
$40,000 / $538,535 x 751 = 56 Shares
Section 1.4 The Closing. Subject to termination of this Agreement as
provided in Article VI below, the closing and consummation of the Acquisition
contemplated by this Agreement shall take place in the offices of Purchaser's
attorneys on such date that the conditions of closing set forth in Article IV
hereof have been satisfied or waived, or such other date as the parties hereto
may mutually select (the "Closing Date"), which in no event shall be later than
45 days after the date of this Agreement, unless extended by the unanimous
agreement of Purchaser and the Selling Shareholders. The "Closing" shall mean
the deliveries to be made by the parties hereto on the Closing Date in
accordance with this Agreement. The Acquisition shall be deemed to have become
effective as of 12:01 a.m. Atlanta, Georgia Time on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Companies and the
Shareholders. The Company and each of the Selling Shareholders hereby severally
represents and warrants to Purchaser that:
(a) Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of Maryland (the "State"), and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. The Company is duly qualified or licensed to do business
4
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as a corporation, and is in good standing in the State. The Company has
delivered to Purchaser complete and accurate copies of its Articles of
Incorporation and Bylaws and all amendments thereto, and all minutes and actions
of its Board of Directors and shareholders. Neither the Company nor any of the
Selling Shareholders is in violation of any of the provisions of the Articles of
Incorporation or the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of the Company (including without limitation all voting
securities) (the "Capital Stock") and its par value per share, if any, is as set
forth on Schedule 2.1(b) hereto. Each person listed on Schedule 2.1(b) is the
lawful owner of that number of the issued and outstanding shares of capital
stock of the Company set forth opposite such person's name, free and clear of
any restrictions upon transfer except as indicated in Schedule 2.1(b), all of
which restrictions shall be removed no later than the Closing Date. The shares
of Capital Stock set forth on Schedule 2.1(b) constitute all of the shares of
capital stock of the Company and all such shares have been duly authorized and
are validly issued, fully paid and nonassessable, and to the best of the
knowledge and belief of the Company and the Selling Shareholders, have been
issued in compliance with all applicable federal and state securities laws.
There are no outstanding subscriptions, warrants, calls, options, conversion
rights, rights of exchange or other commitments, plans, agreements, or
arrangements of any nature under which the Company or the Selling Shareholder
may be obligated to issue, assign, exchange, purchase, redeem or transfer any
shares of capital stock of the Company, and there are no shareholders'
agreements to which the Company or the Selling Shareholders is a party, or
proxies, voting trust agreements or similar agreements or options executed by
the Company or the Selling Shareholders or to which the Capital Stock is
subject. There are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company or the Selling Shareholders to grant, extend or
enter into any subscription, option, warrant, right, convertible security or
other similar agreement or commitment. Upon issuance of shares of Common Stock
for the shares of the Company's Capital Stock, as set forth herein, Purchaser
shall acquire good and marketable title to the shares of Capital Stock of the
Company, free and clear of any liens, pledges, encumbrances, security interests,
charges, equities or restrictions of any nature. The Company has satisfied all
of its obligations to all current and past shareholders, and none of such
current or past shareholders has any claims, or any basis therefor, against the
Company arising out of or relating to obligations of the Company to such current
or past shareholders. None of the shares of the Company's Capital Stock was
issued pursuant to awards, grants, or bonuses.
(c) Subsidiaries. Except as set forth in Schedule 2.1(c), the
Company does not own, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, limited liability company, trust, joint venture or other entity.
(d) Authorization. The Company and each of the Selling Shareholders
have full power and authority to enter into this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each individual named in Section 4.2(f) has full power and authority to
enter into the Shareholders' Employment Agreements in the form attached hereto
as Exhibit 4.2(f) (the Shareholders' Employment Agreements are collectively
referred to herein as the "Related Agreements") to which such Selling
Shareholder is a party, to perform his or
5
<PAGE>
her obligations thereunder and to consummate the transactions contemplated
thereby. Each corporate Selling Shareholder is duly organized and existing under
the laws of the jurisdiction of its incorporation. The Company and/or each of
the Selling Shareholders, as appropriate, have taken all necessary and
appropriate corporate action with respect to the execution and delivery of this
Agreement and the Related Agreements. This Agreement and the Related Agreements
constitute valid and binding obligations of the Company and the Selling
Shareholders (to the extent to which each is a party), enforceable in accordance
with their respective terms; except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization or other laws affecting contracts,
creditors' rights and other laws and remedies generally.
(e) Financial Information. The Company has delivered its unaudited
balance sheets and related statements of operations and cash flows at and for
the fiscal years ended 1994 and 1995, and 1996 to date, and will deliver to
Purchaser before May 31, 1997 its audited balance sheets and related statements
of operations and cash flows at and for the fiscal years ended 1994, 1995 and
1996 (the "Annual Financial Statements"), and on the Closing Date the unaudited
balance sheet and statement of operations at and for the four-month period ended
April 30, 1997 (the "Unaudited Financial Statements"). To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Annual
Financial Statements and Unaudited Financial Statements (collectively, the
"Financial Statements") have been prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") on a consistent basis throughout the periods
indicated and with each other, and the Financial Statements present accurately
the financial condition of the Company as of the respective dates thereof and
the results of operations for the periods then ended. All of the Company's
general ledgers, books, and records are located at the Company's principal place
of business in the State or at the offices of its accountant. The Company agrees
to engage, at its own cost and expense, an accounting firm selected by Purchaser
and reasonably acceptable to the Company to audit the Annual Financial
Statements.
(f) Deposit Accounts; Powers of Attorney. Schedule 2.1(f) hereto
lists:
(i) the name of each financial institution in which the Company
has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
There are no persons, corporations, firms or other entities holding a general or
special power of attorney from the Company.
(g) Liabilities and Obligations. Other than as set forth in the
unaudited Financial Statements at the date of this Agreement, Schedule 2.1(g)
sets forth an accurate list of all liabilities of the Company, and any
significant liabilities incurred thereafter in the ordinary course of business
or liabilities which are not reflected in the balance sheet of any kind,
character, or description, whether
6
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accrued, absolute, secured or unsecured, contingent or otherwise, together with,
in the case of those liabilities which are not fixed, an estimate of the maximum
amount which may be payable. For each such liability for which the amount is not
fixed or is contested, whether in litigation or otherwise, the Company shall
provide the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating thereto;
(b) amounts claimed and any other action or relief sought;
and
(c) name of claimant and all other parties to the claim,
suit, or proceeding.
(ii) the name of each court or agency before which such claim,
suit, or proceeding is pending;
(iii) the date such claim, suit, or proceeding was instituted;
(iv) a reasonable estimate by the Company of the maximum amount,
if any, which is likely to become payable with respect to each such liability.
If no estimate is provided, the Company's best estimate shall for purposes of
this Agreement be deemed to be zero.
(h) Product and Service Warranties and Reserves. Except as set
forth in Schedule 2.1(h), there are no product warranty claims relating to sales
of the Company's products occurring on or prior to the date of this Agreement.
The only express warranties, written or oral, with respect to the products or
services sold by the Company are set forth in Schedule 2.1(h).
(i) Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1(i) hereto, to the best of the knowledge and belief of the Company
and the Selling Shareholders, since the date of the Unaudited Financial
Statements there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of the Company or the
Business, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change;
(ii) Any transaction relating to or involving the Company, the
Business, the assets of the Company or the Selling Shareholders which was
entered into or carried out by the Company or the Selling Shareholders other
than in the ordinary and usual course of business;
(iii) Any change by the Company in its accounting or tax
practices or procedures;
(iv) Any incurrence of any liability, other than liabilities
incurred in the ordinary course of business consistent with past practices;
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(v) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of its properties (whether leased or owned), or
the assets of the Company, other than sales, leases, or dispositions of goods,
materials, or equipment in the usual and ordinary course of business and
consistent with prior practice;
(vi) Any event permitting any of the assets or the properties of
the Company (whether leased or owned) to be subjected to any pledge,
encumbrance, security interest, lien, charge, or claim of any kind whatsoever
(direct or indirect) (collectively, "liens");
(vii) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit plan,
payment or arrangement to, for, or with any employee of the Company, other than
certain bonuses paid to the Selling Shareholders and disclosed in writing to the
Purchaser and the Participating Companies;
(viii) Any payment or distribution of any bonus to, or
cancellation of indebtedness owing from, or incurring of any liability relating
to any employees, consultants, directors, officers, or agents, or any persons
related thereto, other than certain bonuses paid to the Selling Shareholders;
(ix) Any notice (written or unwritten) from any employee of the
Company that such employee has terminated, or intends to terminate, such
employee's employment with the Company;
(x) Any adverse relationship or condition with Suppliers (as
defined in Section 2.1(q)(i) hereof), vendors, or Customers (as defined in
Section 2.1(ae) hereof) that may have an adverse effect on the Company, the
Business, or the assets of the Company;
(xi) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, which has had an adverse
effect on the Company, the properties (whether leased or owned), the Business,
or the assets of the Company or any such event which could be expected to have
an adverse effect on the Company, the properties (whether leased or owned), the
Business, or the assets of the Company;
(xii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
term, condition, or provision of any contract, agreement, license, or other
instrument to which the Company or the Selling Shareholders are a party and
relating to or affecting the Business or the assets of the Company other than
any satisfaction by performance in accordance with the terms thereof in the
usual and ordinary course of business and consistent with prior practice;
(xiii) Any discharge or satisfaction of any Lien or payment of
any liabilities, other than in the ordinary course of business;
8
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(xiv) Any waiver of any rights of substantial value by the
Company, other than waivers having no material adverse effect on the Company;
(xv) Any issuance of equity securities of the Company or any
issuance of warrants, calls, options or other rights calling for the issuance,
sale, or delivery of the Company's equity securities;
(xvi) Any declaration of any dividend or any distribution of any
shares of its capital stock, or redemption, purchase, or other acquisition of
any shares of its capital stock or any grant of an option, warrant, or other
right to purchase or acquire any such shares;
(xvii) Any amendment, or agreement to amend, the Company's
Articles of Incorporation or Bylaws, or any merger or consolidation with, or any
agreement to merge or consolidate with, any other corporation, partnership,
limited liability company or any other entity;
(xviii) Any reduction, or agreement to reduce, the cash or
short-term investments of the Company, other than to meet cash needs arising in
the ordinary course of business;
(xix) Any work interruptions, labor grievances or claims filed,
proposed law or regulation or any event of any character, materially adversely
affecting the Business or future prospects of the Company;
(xx) Any revaluation by the Company of any of its assets;
(xxi) Any loan by the Company to any person or entity, or any
guaranty by the Company of any loan; or
(xxii)To the best knowledge of the Company and the Selling
Shareholders, any other event or condition of any character which materially
adversely affects, or reasonably may be expected to so affect, the assets of the
Company, the Business, or the properties (whether leased or owned) of the
Company.
(j) Inventory. Schedule 2.1(j) sets forth the reasonable value of
the Company's inventory. All inventory is owned by the Company, including all
goods customarily sold and/or rented by the Company in connection with the
Business (whether located on the premises of the Company, in transit to or from
such premises, in other storage facilities, or otherwise) (collectively, the
"Inventory"), and the Company maintains appropriate records of such inventory.
The Company has continued to replenish the Inventory in a normal and customary
manner consistent with past practices. To actual knowledge of the Company and
the Selling Shareholders, the Company has not received written or oral notice
that the Company will experience in the future any difficulty in obtaining, in
the desired quantity and quality and upon reasonable terms and conditions, the
vehicles, materials, supplies, or equipment required for the Business.
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(k) Taxes.
(i) Definitions. For purposes of this Agreement:
(a) the term "Taxes" means (A) all federal, state, local,
foreign and other net income, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) To the best of the knowledge and belief of the Company and
the Selling Shareholders, the Company has properly completed and filed on a
timely basis (including extensions) and in correct form all Returns required to
be filed on or prior to the Closing Date. As of the time of filing, the
foregoing Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of the Company or any
other information required to be shown thereon. In particular, to the best of
the knowledge of the Company and the Selling Shareholders, the foregoing Returns
are not subject to unpaid penalties under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to accuracy-related penalties
(or any corresponding provision of state, local or foreign Tax law) or any other
unpaid penalties.
(iii) To the best of the knowledge and belief of the Company and
the Selling Shareholders, with respect to all amounts in respect of Taxes
imposed upon the Company, or for which the Company is liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods ending on or before the Closing Date and portions of periods commencing
before the Closing Date and ending after the Closing Date, all applicable tax
laws and agreements have been fully complied with, and all such amounts required
to be paid by the Company to taxing authorities or others on or before the
Closing Date have been paid, and all such amounts required to be paid by the
Company to taxing authorities or others after the Closing which have not been
paid are reflected on the Financial Statements.
(iv) No notices raising tax issues have been received by the
Company from any taxing authority in connection with any of the Returns. No
extensions or waivers of statutes of limitations with respect to the Returns
have been given by or requested from the Company. Schedule 2.1(l)(iv) sets forth
taxable years for which examinations have been completed, those years for which
examinations are presently being conducted, and those years for which required
Returns have not yet
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been filed. Except to the extent indicated in Schedule 2.1(l)(iv), all
deficiencies asserted or assessments made as a result of any examinations have
been fully paid, or are fully reflected as a liability in the Financial
Statements of the Company, or are being contested and an adequate reserve
therefor has been established and is fully reflected in the Financial Statements
of the Company.
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company.
(vi) The Company is not a party to or bound by (nor will the
Company become a party to or become bound by) any tax indemnity, tax sharing or
tax allocation agreement.
(vii) The Company has never been a member of an affiliated group
of corporations within the meaning of Section 1504 of the Code.
(viii) The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it.
(ix) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code.
(x) None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xi) The Company has not made and will not make a deemed
dividend election under Treas. Reg. ss. 1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code.
(xii) The Company has not agreed to make, nor is it required to
make, any adjustment under Sections 481(a) or 263A of the Code or any comparable
provision of state or foreign tax laws by reason of a change in accounting
method or otherwise.
(xiii) None of the Selling Shareholder is other than a United
States person within the meaning of the Code.
(xiv) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
(xv) The Company's tax basis of each of its assets is reflected
in its Unaudited Financial Statements.
(xvi) All elections with respect to Taxes made during the fiscal
years ended December 31, 1995 are reflected on the Returns for such periods,
copies of which have been provided to Purchaser.
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(l) Employee Payments.
(i) The hours worked by and payments made to the Company's
employees have not been in violation in any respect of the Fair Labor Standards
Act or any other applicable federal, foreign, state or local laws dealing with
such matters.
(ii) All payments due from the Company on account of employee
health and welfare insurance have been paid or accrued.
(iii) All severance, sick, or vacation payments by the Company,
which are or were due under the terms of any agreement or otherwise have been
paid or are described in Schedule 2.1(l)(iii).
(m) Compliance With Law. The Company has complied and is in
compliance with all applicable zoning decisions and, to the best of the
knowledge of the Company and the Selling Shareholders, has complied and is in
compliance with all applicable federal, state, and local laws, statutes,
licensing requirements, rules, and regulations, and judicial or administrative
decisions. To the best of the knowledge and belief of the Company and the
Selling Shareholders, the Company has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from federal, state,
and local government regulatory or zoning bodies necessary to carry on the
Business and maintain the assets of the Company, all of which are currently
valid and in full force and effect. All such licenses, permits, authorizations
and approvals shall be valid and in full force and effect upon the consummation
of the transactions contemplated by this Agreement to the same extent as if the
Company prior to the Closing Date were continuing the Business and operations of
the Company. To the best of the knowledge and belief of the Company and the
Selling Shareholders, there is no order issued, or proceeding pending or
threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule, or regulation issued by any federal state,
local, or foreign court or governmental agency or instrumentality applicable to
the Company. The Company has valid use permits for the Business and its
operations.
(n) No Disclosure Items. Except as otherwise indicated in Schedule
2.1(n), there is no adverse information with respect to the Company, the Selling
Shareholder(s) or any officer, director or employee of the Company which
information would require disclosure in connection with a filing by the Company
under the federal securities acts. Neither the Company nor any Selling
Shareholder has failed to disclose any material fact which would be required to
be disclosed for purposes of a proxy statement or other communication involved
in a public offering in accordance with the provisions of Rule 10b-5 or Rule
14a-9(a) of the U.S. Securities and Exchange Commission.
(o) Governmental Consents. To the best of the knowledge of the
Company and the Selling Shareholders, no consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state, local, or provincial governmental authority on
the part of the Company or the Selling Shareholders is required in connection
with the consummation of the transactions contemplated hereunder.
(p) Proprietary Rights. The Company owns all rights to computer
programs, databases, logos, trade names, trademarks, service marks, intellectual
property, Customer and
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Supplier lists, and other trade secrets, together with the goodwill associated
therewith, necessary for the Business as now conducted (collectively, the
"Proprietary Rights") and as proposed to be conducted without, to the knowledge
of the Company or the Selling Shareholders, any conflict with or infringement
upon the rights of others.
(q) Restrictive Documents or Orders. To the best of the knowledge
of the Company and the Selling Shareholders, the Company is not a party to nor
bound under any agreement, contract, order, judgment, or decree, or any similar
restriction which adversely affects, or reasonably could be expected to
adversely affect (i) the continued operation by Purchaser (through its ownership
of the Company) of the Business and operations of the Company on and after the
Closing Date on substantially the same basis as said business was theretofore
operated or (ii) the consummation of the transactions contemplated by this
Agreement.
(r) Contracts and Commitments.
(i) Schedule 2.1(r)(i) hereto sets forth a list of all material
written agreements and contracts, contract rights, licenses, and other executory
commitments (written or unwritten) other than purchase and sale orders and
quotations (collectively, the "Contracts") including, without limitation, those
contracts with insurance companies, credit companies, governmental agencies,
rental agencies, and all others under which the Company is supplied with
materials, supplies, or equipment ("Materials") (such suppliers shall be
referred to herein as "Suppliers") to which the Company is a party or to which
any of the assets of the Company are subject. To the best of the knowledge and
belief of the Company and the Selling Shareholders, there are no oral agreements
or commitments that would have a material adverse effect on the Company.
(ii) To the best of the knowledge of the Company and the Selling
Shareholders, the Company has performed all of its obligations under the terms
of each Contract, and is not in default thereunder, except as described in
Schedule 2.1(r)(ii). No event or omission has occurred which but for the giving
of notice or lapse of time or both would constitute a default by any party
thereto under any such Contract. To the best of the knowledge and belief of the
Company and the Selling Shareholders, each such Contract is valid and binding on
all parties thereto and in full force and effect. The Company has received no
written or unwritten notice of default, cancellation, or termination in
connection with any such Contract. The Company is not now and has never been a
party to any governmental contracts subject to price redetermination or
renegotiation.
(iii) There has not been any notice (written or unwritten) from
any Supplier that any such Supplier will not continue to supply the current
level and type of Materials currently being provided by such Supplier upon the
same terms and conditions.
(s) Debt. Schedule 2.1(s) sets forth a list of all agreements for
the incurring of indebtedness for borrowed money and all agreements relating to
industrial development bonds to which the Company is a party or guarantor. None
of the obligations pursuant to such agreements are subject to acceleration by
reason of the consummation of the transactions contemplated hereby, nor would
the execution of this Agreement or the consummation of the transactions
contemplated hereby result in any default under such agreements. The Company has
furnished Purchaser with true and correct copies of each such agreement listed
in Schedule 2.1(s). The Company is not in default under
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any of the agreements listed thereon, nor is the Company aware of any event
that, with the passage of time, or notice, or both, would result in an event of
default thereunder.
(t) Related Property. Schedule 2.1(t)(i) hereto lists all of the
Company's ownership interests (except for leasehold interests set forth in
Schedule 2.1(ah)) in real property, machinery, equipment, tooling, furniture,
fixtures, motor vehicles, supplies, spare parts, computer equipment, printers,
copiers, software, telecommunications equipment, miscellaneous supplies, tools,
repair and maintenance parts, chemicals, and fixed assets related to the
Business and operations of the Company (the "Related Property"). To the best
knowledge of the Company and the Selling Shareholders, all of the Related
Property is generally in good operating condition, normal wear and tear
excepted, and is adequate and suitable for the purposes for which it is
presently being used. Schedule 2.1(t)(ii) hereto lists certain property that
belongs solely to and shall be retained by the Selling Shareholders.
(u) Assets. The assets of the Company include all the assets
necessary to operate the Business in the same manner as the Business was
operated by the Company immediately prior to the Closing Date, and none of the
Selling Shareholders, nor any family member or entity affiliated with the
Selling Shareholders or any such family member, owns, or has any interest in,
any asset used in the operation of the Company.
(v) Title to the Property. The Company has good and marketable
title to the assets of the Company (including, but not limited to the Related
Property) and a valid and subsisting leasehold interest in all leased property.
Except as described in Schedule 2.1(v), the Company owns all of its assets and
property free and clear of any lien.
(w) Litigation. Except as described in Schedule 2.1(w), none of the
Company, the Selling Shareholders nor any of the Company's officers or directors
is engaged in, or has received any threat of, any litigation, arbitration,
investigation, or other proceeding relating to the Company, any of the Selling
Shareholders, or the Company's officers, directors, employees, benefit plans,
properties, Proprietary Rights, the Business, or the assets, licenses, permits,
or goodwill of the Company; or against or affecting this Agreement, the Related
Agreements or the actions taken or contemplated in connection herewith and
therewith, nor, to the best of each's knowledge, is there any reasonable basis
therefor. There is no action, suit, proceeding, or (to the best knowledge of the
Company and the Selling Shareholders) investigation pending or threatened
against the Company, or any of the Selling Shareholders, or the officers or
directors of the Company, that questions the validity of this Agreement, the
Related Agreements, or the right of the Company or the Selling Shareholders to
enter into this Agreement, the Related Agreements, any documents to be delivered
in connection with the Closing, or to consummate the transactions contemplated
hereby or thereby, or which might result in any adverse change in the assets of
the Company, the Business, conditions, or properties of the Company, or the
financial condition of the Selling Shareholders. There is no action, suit,
proceeding, or investigation by the Company or the Selling Shareholders
currently pending or which any of them currently intends to initiate. None of
the Company, the Selling Shareholders, nor any of the Company's officers or
directors is bound by any judgment, decree, injunction, ruling or order of any
court, governmental, regulatory or administrative department, commission, agency
or instrumentality, arbitrator or any other person which would or could have a
material adverse effect on the Business or the assets of the Company.
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<PAGE>
(x) No Conflict or Default. To the best of the knowledge and belief
of the Company and the Selling Shareholders, neither the execution and delivery
of this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof including, without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
the Company's Articles of Incorporation or Bylaws, as presently in effect, or of
any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which the Company or the Selling Shareholders is a
party or by which it or he or any of the assets of the Company are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(y) Consents. To the best of the knowledge and belief of the
Company and the Selling Shareholders, no consent, approval, or authorization of
any person, agency or third party or on the part of the Company or the Selling
Shareholders is required in connection with the consummation of the transactions
contemplated hereunder.
(z) Labor Relations.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, with respect to the Business and operation of the
Company, the Company has not failed to comply in any respect with Title VII of
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, all
applicable federal, state, and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees.
(ii) There are no labor controversies pending or, to the
knowledge of the Company or the Selling Shareholders, threatened between the
Company and any of its employees (the "Employees") or any labor union or other
collective bargaining unit representing any of the Employees.
(iii) The Company has never entered into a collective bargaining
agreement or other labor union contract relating to the Business and applicable
to the Employees.
(iv) Except as set forth in Schedule 2.1(z), there are no
written employment or separation agreements, or oral employment or separation
agreements other than (1) those establishing an "at will" employment
relationship between the Company and any of the Employees and which do not
provide for any advance notice requirements to terminate an Employee's
employment or any severance or salary or benefits continuation obligations on
the part of the Company and (2) any unknown future claims for wrongful
termination based upon a theory of implied agreements arising out of course of
conduct.
(aa) Brokers' and Finders' Fees/Contractual Limitations. Neither the
Selling Shareholders nor the Company is obligated to pay any other fees or
expenses of any broker or finder
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in connection with the origin, negotiation, or execution of this Agreement, the
Related Agreements, or in connection with any transactions contemplated hereby
and thereby. None of the Selling Shareholders, the Company, or any officer,
director, employee, agent, or representative of the Company (collectively, the
"Representatives") is or has been subject to any agreement, letter of intent, or
understanding of any kind which prohibits, limits, or restricts the Company, the
Selling Shareholders or the Representatives from negotiating, entering into, and
consummating this Agreement, the Related Agreements, and the transactions
contemplated hereby and thereby.
(ab) Environmental and Safety Matters.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, the Company has all permits, licenses, approvals and
registrations required to be issued under applicable federal, state and local
laws, statutes and regulations relating to the protection of human health,
safety, the environment and natural resources ("Environmental Laws") and, to the
best of the knowledge of the Company and the Selling Shareholders, is in
compliance with the terms and conditions thereunder. To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Company is
in compliance with and there are no past or present conditions, activities,
actions, or plans which may prevent compliance with, any current or past law
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the release, emission, or discharge of any
hazardous substance or hazardous waste ("Hazardous Substance Issues") or any
regulations, plans, judgments, injunctions, or notices promulgated or approved
thereunder: (1) which are applicable to the operations of the Company, or the
Selling Shareholders, or the property owned or leased by the Company or the
Selling Shareholders, or the assets of the Company, or the Business or
operations of the Company, or (2) which may give rise to any liability of the
Company, or the Selling Shareholders or otherwise form the basis of any ongoing
or threatened claims, actions, demands, suits, proceedings, hearings, studies,
or investigations against or relating to the Company, the property owned or
leased by the Company or the Selling Shareholders, or the Business, or the
assets of the Company, that are based on or related to any Hazardous Substance
Issues.
(ii) To the best of the knowledge of the Company and the Selling
Shareholders, no release of a hazardous substance has come to be located on or
beneath and remain located on or beneath any of the real property upon which the
Business is conducted or upon which any of the property owned or leased
currently or in the past by the Company or the Selling Shareholders or any
predecessor which relates to the Business or operations of the Company are held
or maintained.
(iii) Schedule 2.1(ab) sets forth all reports, studies, and
evaluations conducted by the Company or the Selling Shareholders, or received by
the Company or the Selling Shareholders with respect to such matters.
(iv) Neither the Company nor any of the Selling Shareholders has
any knowledge of the possible or actual presence, disposal, release or
threatened release of any hazardous substance or hazardous waste on or under any
adjacent properties.
(v) To the best of the knowledge of the Company and the Selling
Shareholders, the Company has not been alleged to be in violation of, or been
subject to any
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administrative, judicial, or regulatory proceeding pursuant to, any applicable
Environmental Laws either now or any time during the past. No Claims (as
hereinafter defined) have been or are currently asserted against the Company
based on the Company's or any of the Selling Shareholders' acts or failures to
act prior to the Closing Date with respect to hazardous substances or hazardous
wastes. As used herein, "Claim" shall mean any and all claims, demands, orders,
causes of action, suits, proceedings, administrative proceedings, losses,
judgments, decrees, debts, damages, liabilities, court costs, attorneys' fees,
and any other expenses incurred, assessed or sustained by or against the Company
or the Selling Shareholders.
(vi) To the best of the knowledge of the Company and the Selling
Shareholders, none of the properties owned, leased, or operated by the Company
or any predecessor thereof are now, or were in the past, listed on the National
Priorities List of Superfund Sites, the Comprehensive Environmental Response,
Compensation and Liability Information System, or any other state or local
environmental database.
(ac) Certain Payments. The Company has not, and no person directly
or indirectly on behalf of the Company has, made or received any payment that
was not legal to make or receive.
(ad) Customers. To the best of the knowledge and belief of the
Company and the Selling Shareholders, Schedule 2.1(ad) hereto lists all of the
customers of the Company for the year 1996 to date (such customers referred to
herein individually as a "Customer"). No single Customer of the Company
accounted for more than ten percent (10%) of the net sales or rentals of the
Company (calculated on a unit basis) during 1996. The Company has furnished
Purchaser with complete and accurate copies or descriptions of all current
agreements (written or unwritten) with such Customers. Neither the Company nor
any of the Selling Shareholders is aware of any event, happening, or fact which
would lead it or him to believe that any of such Customers will not continue its
current level of purchases and/or rentals after the Closing Date.
(ae) Books and Records. The books and records of the Company to
which Purchaser and its accountants and attorneys have been given access are the
true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all respects.
(af) Complete Disclosure. To the best of the knowledge and belief of
the Company and the Selling Shareholders, no representation or warranty by the
Company or the Selling Shareholders in this Agreement, and no exhibit, schedule,
statement, certificate, or other writing furnished to Purchaser pursuant to this
Agreement or the Related Agreements or in connection with the transactions
contemplated hereby and thereby, contains or will contain any untrue statement
or omits or will omit to state any fact necessary to make the statements
contained herein and therein not materially misleading. If the Company or any of
the Selling Shareholders becomes aware of any fact or circumstance which would
change a representation or warranty of the Company or the Shareholders, the
Company and the Shareholders shall immediately give notice of such fact or
circumstance to Purchaser. However, such notification shall not relieve either
the Company or the Shareholders of their respective obligations under this
Agreement.
(ag) Leased Properties. The Financial Statements and Schedule
2.1(ag) hereto together list all personal property (including equipment leases)
and real property leased by the
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Company or by the Selling Shareholders in connection with the Business (the
"Leased Properties") and the aggregate annual rent or other fees payable under
all such leases. The Company has a valid leasehold or ownership interest in all
of the Leased Properties, free and clear of any liens.
(ah) Employees and Employee Benefit Plans.
(i) Other than as set forth in Schedule 2.1(ah) hereto, the
Company is not a party to any pension, profit sharing, savings, retirement or
other deferred compensation plan, or any bonus (whether payable in cash or
stock) or incentive program, or any group health plan (whether insured or
self-funded), or any disability or group life insurance plan or other employee
welfare benefit plan, or to any collective bargaining agreement or other
agreement, written or oral, with any trade or labor union, employees'
association or similar organization. The Company is not a party to, nor has made
any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(ii) With respect to each such plan set forth in Schedule
2.1(ah) (a "Plan"), the Company has furnished to Purchaser or its counsel
complete and accurate copies of the Plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications). With
respect to each Plan subject to ERISA as either an employee pension benefit plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(l) of ERISA, the Company has prepared in good
faith and timely filed all requisite governmental reports and has properly and
timely posted, or distributed all notices and reports to employees required to
be filed, posted, or distributed with respect to each Plan. Each Plan has at all
times been properly and completely funded by the Company and has been operated
and administered in all respects in accordance with its terms and all applicable
laws, including, but not limited to, ERISA and the Code.
(iii) All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code have been determined by the Internal
Revenue Service to be so qualified, and copies of such determination letters are
included as part of Schedule 2.1(ah) hereof. Except as disclosed on Schedule
2.1(ah), all reports and other documents required to be filed with any
governmental agency or distributed to plan participants or beneficiaries have
been timely filed and distributed, and copies thereof are included as part of
Schedule 2.1(ah) hereof. The Company further represents that:
(a) there have been no terminations, partial terminations,
or discontinuance of contributions to any such Qualified Plan intended to
qualify under Section 401(a) of the Code without notice to and approval by the
Internal Revenue Service;
(b) no such plan listed in Schedule 2.1(ah) subject to the
provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that phrase
is defined in Section 4043 of ERISA) with respect to any such plan listed in
Schedule 2.1(ah); and
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(d) The Company has not incurred any liability under Section
4062 of ERISA.
(iv) Neither the Company nor any of the Selling Shareholders has
made any oral or written communications to its current or former employees that
guarantee current or former employees continuation of employer-provided benefits
or retirement coverage under the Company's welfare benefit plans or which would
have any effect on the Purchaser's ability to terminate retiree or any other
benefits to all current or former employees.
(v) To the best of the knowledge of the Company and the Selling
Shareholders, the Company has not violated any of the health care continuation
coverage requirements of the Consolidated Omnibus Budget Reconciliation Act of
1985 applicable to its Employees prior to the Closing Date or any prior actions
of or transactions entered into by the Company or the Selling Shareholders.
(ai) Compensation. The Company has delivered to Purchaser an
accurate schedule, attached to this Agreement as Schedule 2.1(ai), showing all
officers, directors, and key employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation, respectively) of the directors, officers, and key employees.
(aj) Insurance. The Company maintains policies of insurance covering
the assets of the Company, properties, and Business in types and amounts as set
forth in Schedule 2.1(aj). To the best of the knowledge and belief of the
Company and the Selling Shareholders, the Company is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated and the Company has not received any written notice of
cancellation of any such policies. Schedule 2.1(aj) lists and describes all the
Company insurance policies in effect immediately prior to the time of Closing.
To the knowledge of the Company and the Selling Shareholders, such policies are
with reputable insurers and are in amounts sufficient for the prudent protection
of the properties and the Business of the Company.
(ak) Accounts and Notes Receivable. Schedule 2.1(ak) hereto sets
forth all accounts and notes receivable of the Company ("Accounts Receivable").
Schedule 2.1(ak) shows the aging of Accounts Receivable in amounts due in
thirty-day aging categories. All Accounts Receivable represent sales or rentals
actually made or services actually performed in the ordinary and usual course of
the Company's business.
(al) Representations and Warranties on the Closing Date. The
Company's and the Selling Shareholders' representations and warranties contained
in this Article II shall be true on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
such date, except to the extent any such representations and warranties were
made as of a specified date, in which case such representations and warranties
shall continue on the Closing Date to have been true in all material respects as
of such specified date.
Section 2.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to each of the Companies and the Selling Shareholders
that immediately prior to the time of Closing:
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(a) Organization and Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Georgia, and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. Purchaser has delivered to the Company complete and accurate copies of
its Certificate of Incorporation and Bylaws and all amendments thereto, and all
minutes and actions of its Board of Directors and shareholders. The Purchaser is
not in violation of any of the provisions of the Certificate of Incorporation or
the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of Purchaser and its par value per share, if any, is as set forth
on Schedule 2.2(b) hereto. Each person listed on Schedule 2.2(b) is the lawful
owner of that number of the issued and outstanding shares of capital stock of
Purchaser set forth opposite such person's name, free and clear of any
restrictions upon transfer. The shares of Common Stock set forth on Schedule
2.2(b) constitute all of the shares of capital stock of the Purchaser issued and
outstanding and have been duly authorized and validly issued, fully paid and
nonassessable, and to the best of the knowledge and belief of the Purchaser,
issued in compliance with all applicable federal and state securities laws.
Except as provided in this Agreement, there are no outstanding subscriptions,
warrants, calls, options, conversion rights, rights of exchange or other
commitments, plans, agreements, or arrangements of any nature under which the
Purchaser or its shareholders may be obligated to issue, assign, exchange,
purchase, redeem or transfer any shares of capital stock of the Purchaser, and
there are no shareholders' agreements to which the Purchaser or its shareholders
is a party, or proxies, voting trust agreements or similar agreements or options
executed by the Purchaser or to which the Common Stock is subject. There are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Purchaser obligating the
Purchaser or, to the best knowledge of Purchaser, its shareholders to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment. Upon issuance of shares of
Common Stock in exchange for the shares of the Company's Capital Stock, as set
forth herein, the Selling Shareholders shall acquire good and marketable title
to the shares of Common Stock, free and clear of any liens, pledges,
encumbrances, security interests, charges, equities or restrictions of any
nature imposed by Purchaser except as set forth in this Agreement.
(c) Authorization. Purchaser has full corporate power and authority
to enter into this Agreement, the Related Agreements, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby, including, without limitation, the execution and delivery of this
Agreement and the Related Agreements. Purchaser has taken all necessary and
appropriate corporate action with respect to the execution and delivery of this
Agreement and the Related Agreements. This Agreement and the Related Agreements
constitute valid and binding obligations of Purchaser, enforceable in accordance
with their respective terms; except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights and remedies generally, and general principles of equity.
(d) Brokers' and Finders' Fees/Contractual Limitations. Purchaser is
not obligated to pay any fees or expenses of any broker or finder in connection
with the origin, negotiation, or execution of this Agreement, the Related
Agreements, or in connection with any transactions contemplated hereby. Neither
Purchaser nor any officer, director, employee, agent, or representative
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of Purchaser (collectively, the "Purchaser Representatives") is or has been
subject to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Purchaser or the Purchaser Representatives from
negotiating, entering into, and consummating this Agreement, the Related
Agreements, and the transactions contemplated hereby and thereby.
(e) Financial Condition. Purchaser has an Actual Company Value of
not less than $990,941 and an Actual Net Tangible Asset Value of not less than
$913,941.
Section 2.3 Survival of Representations and Warranties. Purchaser's and
the Selling Shareholders representations and warranties contained in this
Article II shall survive the Closing for a period of twenty-four (24) months
from the Closing Date unless earlier terminated by exercise by the Selling
Shareholders of the Put Option (as defined in Section 6.3 hereof).
Section 2.4 Disclosure. Disclosure of any item on any schedule hereto
shall be deemed adequate disclosure of such item on all other schedules.
ARTICLE III
COVENANTS
Section 3.1 Covenants Against Disclosure. (a) The terms and provisions of
this Agreement, and any information heretofore disclosed or to be disclosed in
the future in connection herewith by any party hereto to any other party, other
than information which is in the public domain or which the disclosing party
authorizes the receiving party in writing to disclose (such terms, provisions
and information herein called the "Confidential Material") shall be treated
confidentially by the parties; provided that any party may disclose Confidential
Material of another party to the receiving party's employees, accountants,
attorneys and advisors who need to know the same (it being understood that they
shall be informed by the receiving party of the confidential nature of the
Confidential Material, and that the receiving party shall cause them to treat
the same confidentially), and otherwise to the extent required by law. The
parties acknowledge that remedies at law would be inadequate to enforce the
covenants contained in this Section 3.1 and therefore agree that a party
aggrieved hereunder may enforce such covenants through the remedy of specific
performance or other equitable relief. Should an aggrieved party have cause to
seek such relief, no bond shall be required, and the breaching party shall pay
all attorney's fees and court costs which the aggrieved party may incur in
enforcing the provisions of this Section. The covenants contained in this
Section 3.1(a) shall survive until the expiration of the Put Option described in
Section 6.3 hereof.
(b) The parties shall, by mutual agreement, draft a press release for
public dissemination. No party shall disseminate (except to the parties to this
Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Related Agreements or the parties hereto
or thereto without the prior written consent of the Company and Purchaser,
except as required by law.
Section 3.2 Access to Information. The Company will give Purchaser and its
accountants, legal counsel, and other representatives reasonable access, during
normal business hours, at times mutually agreeable among the parties, to all of
the properties, books, contracts, commitments, and
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records relating to the Business and the assets of the Company, and the Company
will furnish to Purchaser, its accountants, legal counsel and other
representatives, at the Company's expense (which expense shall not include the
costs and fees of Purchaser accountants, legal counsel, and other
representatives), all such information concerning the Business or the assets of
the Company as Purchaser may request. Purchaser agrees to indemnify and hold the
Company harmless from and against loss or damage the Company may incur as a
result of Purchaser's activities or the activities of Purchaser's agents,
representatives or designees upon property owned or occupied by the Company and
against any and all claims for death or injury to persons or properties arising
out of or connected with Purchaser's (or its agents', representatives' or
designees') going upon such property pursuant to the provisions of this
Agreement. Such indemnification shall be provided in accordance with the
provisions of Article V hereof.
Section 3.3 Interim Period. During the period from the date of execution
hereof through the expiration date of the Put Option in accordance with the
provision of Section 6.3 hereof (the "Interim Period"):
(a) The Company shall continue to operate as a separate wholly-owned
subsidiary of the Purchaser. The Purchaser and the Crescent Shareholders hereby
agree that they will not take any action during the Interim Period to effect a
change in the Board of Directors or the management of the CGD subsidiary or
sell, assign, hypothecate or transfer any of the Capital Stock of the CGD
subsidiary without the consent of the CGD Board of Directors.
(b) The number of Directors of the Purchaser shall be eight (8).
Lowell Nerenberg shall be appointed to the Board of Directors of the Purchaser
on the Closing Date and may not be removed during the Interim Period except for
cause. If Mr. Nerenberg shall be removed for cause or shall be unable or
unwilling to serve as a Director, the Selling Shareholders shall immediately
appoint as his successor, Mrs. Beverly Nerenberg, provided she is able and
willing to serve. Otherwise, the Selling Shareholders shall immediately appoint
his successor. The parties acknowledge that after the Interim Period, the Board
of Directors of Purchaser is anticipated to expand through the addition of
independent directors and corporate acquisitions.
(c) During the Interim Period, all votes and action of the Board of
Directors of the Purchaser shall require unanimity, to the extent any such vote
or action relates to any of the following activities by the Purchaser: any
acquisition or disposition, any share issuance, any borrowing of funds, any
encumbrance to be created on property of the Purchaser, the issuance of any
guarantee and entering into any lease, agreement or other arrangement providing
for an expenditure exceeding $1,000.00. Notwithstanding the foregoing, no party
hereto shall be entitled to vote in connection with any proposed action by
Directors relating to any alleged failure by such party to observe or perform
any of his or its obligations under this Agreement.
(d) The Board of Directors shall proceed promptly to discuss and
prepare a business plan for the Purchaser in light of the markets, operations,
personnel, expertise, financial condition and prospects of the Company, and such
other factors as the Board may deem relevant. The parties agree that the
Purchaser shall have a Technology Division, whereof Daniel Bailey shall be Chief
Executive Officer, and a Graphics Division, whereof William Rychel shall be
Chief Executive Officer, provided
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such individuals are able and willing to serve. The parties shall use all
reasonable efforts to promote the interests of the Purchaser and the development
of the business of the respective companies.
(e) The parties acknowledge that all of the Schedules hereto are not
completed as of the date of execution of this Agreement. All missing or
incomplete Schedules shall be compiled and agreed upon by the parties within 15
days after such execution.
(f) The Purchaser shall exercise its reasonable best efforts to
obtain, effective as soon as reasonably practicable after the execution hereof,
a policy of directors' and officers' liability insurance, in such amounts and
covering such risks as normally are insured for by companies of approximately
the same size as, and engaged in businesses substantially similar to, Purchaser.
(g) Each of the Purchaser and the Company represent and warrant that
during the Interim Period it shall have sufficient Actual Company Value to
enable it to conduct its respective business in an ordinary course manner
without incurring any additional indebtedness.
Section 3.4 Special Crescent Covenants. By executing this Agreement,
Phillip C. Aginsky ("Aginsky") covenants and agrees that he shall cause Alongal
Extrusions, Inc. ("Alongal") duly to perform and observe all of the covenants,
agreements, representations and warranties of Alongal contained in this
Agreement. Dan I. Bailey, Peter Goletz, Michelle L. Lightman and William J.
Parillo agree with Alongal that they shall transfer all of their shares of
capital stock of the Purchaser to Alongal prior to the Closing Date in exchange
for an aggregate 49% interest in Alongal to be prorated among them according to
the capital stock of the Purchaser outstanding. Notwithstanding anything
contained in this Agreement, the Crescent Shareholders and the Purchaser consent
that all shares of capital stock of the Purchaser indicated in Schedule 2.1(b)
as not owned by Alongal shall be transferred to Alongal as contemplated by this
Section.
Section 3.5 On and After Closing. Subject to the provisions of Section 6.3
hereof, on and after the Closing Date, none of the shares of stock of the
Purchaser which are subject to the escrow provisions of this Agreement shall be
transferred or pledged except pursuant to the provisions of this Agreement. The
voting rights with respect to such shares shall be exercisable by the owners of
such shares. Dividends, if any, declared on the Common Stock during the
effectiveness of such escrow provisions shall be paid to and reinvested by the
escrow agent as the parties shall agree.
Section 3.6 Non-Competition.
(a) Commencing as of the Closing Date and continuing for three (3)
years thereafter, each of the Selling Shareholders agree that he shall not
engage (except in his respective capacity as an employee of Purchaser if
applicable), directly or indirectly, whether on his own account or as a
shareholder (other than as a less than 1% shareholder of a publicly-held
company), partner, joint venturer, employee, consultant, advisor, and/or agent,
of any person, firm, corporation, or other entity, in any or all of the
following activities within a fifty (50) mile radius of the zero milepost of the
respective city in which each Company is located (the "Territory"):
(i) Enter into or engage in the businesses of computer systems
integration, wholesale distribution of computers or computer-peripherals, or
reseller activities in such products,
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including the wholesale purchase and selling or leasing of computers and
computer-peripheral equipment, data communications equipment and software, or
providing technical support or advice to end users in relation to such products
(such businesses are collectively referred to herein as the "Protected
Business"). As used herein, the term Protected Business shall not, however,
include the commission-based representation of product manufacturers to
facilitate sales of products by such manufacturers directly to distributors,
value-added resellers and end users ("Manufacturer Representation").
(ii) Solicit customers, suppliers, or business patronage in the
Territory which results in competition with the Purchaser or any of its
affiliates in the Protected Business;
(iii) Encourage or solicit any Employees of or service providers
to the Business, Purchaser, or any of its affiliates to leave the employment of
or terminate their service relationship with Purchaser or any of its affiliates
for any reason; or
(iv) Promote or assist, financially or otherwise, any person,
firm, association, corporation or other entity engaged in any aspect of the
Protected Business.
(b) If, in any judicial proceeding, a court shall refuse to enforce
in such action any of the covenants included herein, then at the option of
Purchaser or its affiliates, wholly unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such a proceeding. The parties intend to have covenants enforceable to the
fullest extent of the law as to scope, time and geography.
(c) The parties agree that due to the unique nature of the services
and capabilities of the Company and the Selling Shareholders, there can be no
adequate remedy at law for any breach of their respective obligations hereunder,
that any such breach may allow the Selling Shareholders and/or third parties to
unfairly compete with Purchaser or its affiliates resulting in irreparable harm
to Purchaser or its affiliates, and therefore, that upon any such breach or any
threat thereof, Purchaser or its affiliates shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law.
(d) Each of the Selling Shareholders acknowledges, represents and
warrants to Purchaser that the covenants of each in this Section 3.6 are
reasonably necessary for the protection of Purchaser's interests under this
Agreement and are not unduly restrictive upon him.
Section 3.7 Further Assurances. On or after the Closing Date, each party
shall prepare, execute, and deliver, at the preparer's expense, such further
instruments, and shall take or cause to be taken such other or further action,
as any party shall reasonably request of any other party at any time or from
time to time in order to consummate, in any other manner, the terms and
provisions of this Agreement.
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ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 4.1 Conditions to Obligations of Purchaser. Each and every
obligation of Purchaser to be performed on the Closing Date shall be subject to
the satisfaction on or before the Closing Date of the following conditions
(unless waived in writing by Purchaser), and the Company and the Selling
Shareholders shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Selling Shareholders and the Company set forth in
Section 2.1 of this Agreement shall have been true and correct when made and
shall be true and correct at and as of the Closing Date as if such
representations and warranties were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by the Company or each of the Selling Shareholders,
as the case may be, including Boards of Directors approval, shall have been
fully performed and complied with at or prior to the Closing Date.
(c) No Material Adverse Change. Since the date of the Unaudited
Financial Statements, there shall have occurred no material adverse change in
the financial condition, the Business, the assets of the Company, or properties
of the Company which adversely affects the conduct of the Business as presently
being conducted, the assets of the Company, or the financial condition or
properties of the Company.
(d) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser shall have completed to its
reasonable satisfaction its due diligence review of the Company and its
operations, the Business, the assets and financial condition of the Company, and
Purchaser shall have received favorable reviews from its advisors of the results
of their due diligence review of the Business.
(f) Certificate of President and Shareholders. The Company shall
have delivered to Purchaser a certificate executed by its President and the
Selling Shareholders, dated the date of the Closing Date, to the effect that the
conditions set forth in subsections (a)-(e) of this Section 4.1 have been
satisfied with respect to the Company and the Selling Shareholders.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to Purchaser under this Agreement shall be reasonably satisfactory to
Purchaser and its counsel.
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(h) Execution of Related Agreements. Purchaser shall have received
fully executed copies of the Related Agreements.
(i) Licenses. Purchaser shall have received all licenses from all
appropriate governmental agencies to operate the Business in the same manner as
each of the Companies operated the Business prior to the Closing Date. This
condition shall be deemed satisfied in the event that the Purchaser fails to use
reasonable diligence in applying for and pursuing such licenses.
(j) Intentionally left blank.
(k) Stock Certificates. Each of the Selling Shareholders shall have
delivered the stock certificates representing his shares of Capital Stock, duly
endorsed for transfer to the Purchaser.
(l) Resignations. The officers and directors of the Company shall
have delivered to Purchaser their resignations, effective as of the expiration
of the Put Option in accordance with Section 6.3 hereof.
(m) Consents. Purchaser shall have received each and every consent,
approval and waiver (if any) required for the execution of this Agreement and
the consummation of the transactions contemplated hereby.
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders. Each and every obligation of the Company and the Selling
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by the Selling Shareholders or the Company), and the
Purchaser shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in Section 2.2 of this Agreement shall have
been true and correct when made and shall be true and correct on and as of the
Closing Date as if such representations and warranties were made as of such date
and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by Purchaser, as the case may be, including Board of
Directors and shareholder approval, as applicable, shall have been fully
performed and complied with at or prior to the Closing Date.
(c) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(d) Certificate of Officers. Purchaser shall have delivered to the
Company a certificate executed by its authorized officer, dated the date of the
Closing Date, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 4.2 have been satisfied.
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(e) Execution of Related Agreements. The Company shall have received
fully executed copies of the Related Agreements (and all other documents
required hereunder).
(f) Shareholder Employment Agreements. Purchaser shall have entered
into an employment agreement with Lowell Nerenberg in substantially the form
attached hereto as Exhibit 4.2(f) and providing for the services to be performed
principally at Gaithersburg, Maryland and for compensation of not less than
$125,000 per year.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to the Selling Shareholders under this Agreement shall be reasonably
satisfactory to each of the Selling Shareholders and their counsel.
(h) Directorships. At least one individual designated by the Company
shall have been duly appointed as a Director of the Purchaser.
(i) Insurance. The Purchaser shall have exercised its reasonable
best efforts to obtain a policy of directors' and officers' liability insurance,
in such amounts and covering such risks as normally are insured for by companies
of approximately the same size as, and engaged in businesses substantially
similar to, Purchaser.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements.
(a) All representations, warranties, covenants, and agreements of
the Company, the Selling Shareholders, and Purchaser shall survive the
execution, delivery, and performance of this Agreement for two years from the
Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1(b), 2.1(i) and 2.1(y) and the obligation of indemnity
therefor, and the agreements contained in Sections 1.2 and 3.3(e) shall survive
until the applicable statutes of limitations have expired. All representations
and warranties of the Company, the Selling Shareholders, and Purchaser set forth
in this Agreement shall be deemed to have been made again by the Company, the
Selling Shareholders and Purchaser on and as of the Closing Date.
(b) As used in this Article V, except as otherwise indicated in this
Article V, any reference to a representation, warranty, agreement, or covenant
contained in any section of this Agreement shall include the schedule relating
to such section.
Section 5.2 Indemnification of Purchaser.
Each of the Selling Shareholders hereby agrees to indemnify and hold
harmless Purchaser and its affiliates, the Companies and the other Selling
Shareholders (collectively the "Indemnified Parties") against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments, causes
of action, assessments, costs, and expenses, including, without limitation,
interest, penalties, attorneys' fees, any and all expenses incurred in
investigating, preparing, and defending
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against any litigation, commenced or threatened, and any claim whatsoever, and
any and all amounts paid in settlement of any claim or litigation (collectively,
"Damages"), asserted against, resulting from, imposed upon, or incurred or
suffered by the Indemnified Parties directly or indirectly, as a result of or
arising from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by the Company or the
Selling Shareholders in this Agreement or any facts or circumstances
constituting such an inaccuracy, breach, or nonfulfillment (all of which shall
be referred to as "Company Indemnifiable Claims").
Section 5.3 Indemnification of the Selling Shareholders. Purchaser hereby
agrees to indemnify and hold harmless each of the Selling Shareholders against
any and all Damages, asserted against, reasonably resulting from, imposed upon,
or incurred or suffered by such Selling Shareholders as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Purchaser in this
Agreement or the Related Agreements or any facts or circumstances constituting
such an inaccuracy, breach, or nonfulfillment or any claim for the Company or
Business liability disclosed to the Purchaser, and which are attributable to
occurrences on or after the Closing Date (all of which shall be referred to as
"Purchaser Indemnifiable Claims").
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims.
(a) If any party hereto determines to seek indemnification (the
party seeking such indemnification hereinafter referred to as the "Indemnified
Party" and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party") under this Article V with respect to
Company Indemnifiable Claims where the Indemnified Party is Purchaser or any of
its affiliates or Purchaser Indemnifiable Claims where the Indemnified Party is
any of the Selling Shareholders (such Claims shall be referred to herein as
"Indemnifiable Claims") resulting from the assertion of liability by third
parties, the Indemnified Party shall give notice to the Indemnifying Parties
within 60 days of the Indemnified Party becoming aware of any such Indemnifiable
Claim or of facts upon which any such Indemnifiable Claim will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to the Indemnified Party. In case any such liability is
asserted against the Indemnified Party or its affiliates, and the Indemnified
Party notifies the Indemnifying Parties thereof, the Indemnifying Parties will
be entitled, if such Indemnifying Parties so elect by written notice delivered
to the Indemnified Party within 20 days after receiving the Indemnified Party's
notice, to assume the defense thereof with counsel satisfactory to the
Indemnified Party. Notwithstanding the foregoing, (i) the Indemnified Party or
its affiliates shall also have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless the Indemnified Party or its affiliates shall
reasonably determine that there is a conflict of interest between or among the
Indemnified Party or its affiliates and any Indemnifying Party with respect to
such Indemnifiable Claim, in which case the fees and expenses of such counsel
will be borne by such Indemnifying Parties, (ii) the Indemnified Party shall
have no obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing, and (iii) the rights of the
Indemnified Party or its affiliates to be indemnified hereunder in respect of
Indemnifiable Claims resulting from the assertion of liability by third parties
shall not be adversely affected by their failure to give notice pursuant to the
foregoing unless, and, if so, only to the extent that, such Indemnifying Parties
are materially prejudiced thereby; provided, however, the Indemnifying Party
shall not be liable for attorneys fees and expenses incurred by the
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Indemnified Party prior to the Indemnified Party's giving notice to the
Indemnifying Party of an Indemnifiable Claim. With respect to any assertion of
liability by a third party that results in an Indemnifiable Claim, the parties
hereto shall make available to each other all relevant information in their
possession material to any such assertion.
(b) In the event that such Indemnifying Parties, within 20 days
after receipt of the aforesaid notice of an Indemnifiable Claim fail to assume
the defense of the Indemnified Party or its affiliates against such
Indemnifiable Claim, the Indemnified Party or its affiliates shall have the
right to undertake the defense, compromise, or settlement of such action on
behalf of and for the account, expense, and risk of such Indemnifying Parties.
(c) Notwithstanding anything in this Article V to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may materially
adversely affect the Indemnified Party or its affiliates, the Indemnified Party
or its affiliates shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Parties shall not, without the
Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
Section 5.5 Procedure For Indemnification with Respect to Non-Third Party
Claims. In the event that the Indemnified Party asserts the existence of a claim
giving rise to Damages (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the Indemnifying
Parties. Such written notice shall state that it is being given pursuant to this
Section 5.5, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If such Indemnifying Parties, within 30 days after the mailing
of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party announcing their intent to contest such assertion of the
Indemnified Party, such assertion shall be deemed accepted and the amount of
claim shall be deemed a valid claim. In the event, however, that such
Indemnifying Parties contest the assertion of a claim by giving such written
notice to the Indemnified Party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. If the parties hereto,
acting in good faith, cannot reach agreement with respect to such claim within
ten (10) days after notice thereof, such claim will be submitted to and settled
by arbitration pursuant to Section 7.11 hereof.
Section 5.6 Escrowed Shares. Each of the Selling Shareholders shall escrow
twenty percent (20%) of the Common Stock to be issued to such Selling
Shareholder to be available for distribution to Purchaser in the event of an
Indemnified Claim not paid in cash by the Indemnifying Party. Such escrow shall
expire on the date not less than two (2) years and sixty (60) days after the
Date of Closing, when there shall be no pending Indemnification Claim for which
notice has been given under Section 5.4, and upon such expiration any original
share certificates shall be delivered to the owners
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thereof. Not later than the Closing Date The parties shall enter into a Pledge,
Security and Escrow Agreement in substantially the form and substance attached
hereto as Exhibit 5.6.
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT
Section 6.1 Termination. (a) At any time prior to the time of Closing,
this Agreement may be terminated by express written consent of Purchaser and
each of the Selling Shareholders.
(b) Purchaser may terminate this Agreement in the event the
conditions set forth in Section 4.1 of this Agreement have not been satisfied or
waived prior to the time of Closing.
(c) Each of the Selling Shareholders may terminate this Agreement in
the event the conditions set forth in Section 4.2 of this Agreement have not
been satisfied or waived prior to the time of Closing.
(d) If the failure of such conditions to be fulfilled arises from
the fault or intentional act of a party hereto, such party shall be liable to
the other parties up to the amount of the documented out-of-pocket expense
incurred by such parties in negotiating, structuring and documenting the
transaction contemplated by this Agreement. No party shall be responsible for
indirect, special or expectancy damages for such nonfulfillment of conditions.
Section 6.2 Effect of Termination. In the event of termination as provided
in Section 6.1 above, Sections 3.1, 7.4 and 7.11 shall survive such termination
and continue in full force and effect.
Section 6.3 Conditions Subsequent to Obligations.
(a) In the event that the Purchaser has been unable to procure
exclusive distribution agreements with manufacturers of high end graphic
technology products to the satisfaction of the Selling Shareholders prior to
September 30, 1997 (the "Put Date"), the Selling Shareholders shall have the
right to put all, but not less than all, of the shares of the Purchaser received
by them in connection with this Agreement to the Purchaser (the "Put Option")
and the Purchaser shall be obligated to repurchase such shares from the Selling
Shareholders.
(b) The Put Option may be exercised by the Selling Shareholders at
any time prior to the Put Date by delivery of written notice of exercise to
Purchaser.
(c) Upon exercise of the Put Option in accordance with this Section
6.3, Purchaser shall return to the Selling Shareholders, in the respective
amounts set forth on Schedule 2.1(b), all of the shares of Capital Stock of the
Company delivered to Purchaser pursuant to the provisions of Article I. Delivery
of the certificates by each of the parties shall take place no more than five
business days after the date of such notice at the offices of the Purchaser.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
7.1. Any party delivering notice to Purchaser shall deliver a copy to: Sheldon
E. Misher, Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York,
New York 10017. All notices and communications shall be deemed to have been
received unless otherwise set forth herein: (i) in the case of personal
delivery, on the date of such delivery; (ii) in the case of telex or facsimile
transmission, on the date on which the sender receives confirmation by telex or
facsimile transmission that such notice was received by the addressee, provided
that a copy of such transmission is additionally sent by mail as set forth in
(iv) below; (iii) in the case of overnight air courier, on the second business
day following the day sent, with receipt confirmed by the overnight courier; and
(iv) in the case of mailing by first class certified or registered mail, postage
prepaid, return receipt requested, on the fifth business day following such
mailing.
Section 7.2 Entire Agreement. This Agreement, the exhibits and schedules
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 7.3 Binding Effect: Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and the Selling Shareholders, their respective
successors and permitted assigns, and Purchaser and its successors and permitted
assigns. Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties; provided, however, that Purchaser may assign its rights hereunder in
connection with any sale of all or substantially all of Purchaser's assets or
any merger, consolidation, or conversion of Purchaser.
Section 7.4 Expenses of Transaction. The Selling Shareholders shall pay
the Selling Shareholders' professional fees and expenses incurred in connection
with the negotiation and closing of this Agreement and the Related Agreements,
including, without limitation the expenses of the preparation of Annual
Financial Statements. The Selling Shareholders shall also pay all the Selling
Shareholders' applicable sales, income, use, excise, transfer, documentary, and
any other taxes arising out of the transactions contemplated herein. The Company
shall pay 7.51%, as adjusted pursuant to Section 1.3, of all professional fees
and expenses incurred by Purchaser in connection with the negotiation and
closing of this Agreement and the Related Agreements. Upon expiration of the Put
Option unexercised, Purchaser shall reimburse the Selling Shareholders for all
Purchaser's expenses and fees paid by the Company.
Section 7.5 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this
31
<PAGE>
Agreement or any of the rights of a party hereto shall be effective or binding
unless such waiver shall be in writing and signed by the party claimed to have
given or consented thereto. Except to the extent that a party hereto may have
otherwise agreed in writing, no waiver by that party of any condition of this
Agreement or breach by the other party of any of its obligations or
representations hereunder or thereunder shall be deemed to be a waiver of any
other condition or subsequent or prior breach of the same or any other
obligation or representation by the other party, nor shall any forbearance by
the first party to seek a remedy for any noncompliance or breach by the other
party be deemed to be a waiver by the first party of its rights and remedies
with respect to such noncompliance or breach.
Section 7.6 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 7.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
Section 7.8 Remedies of the Parties. The Company and the Selling
Shareholders acknowledge that, in addition to all other remedies to which
Purchaser is entitled, Purchaser shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided Purchaser is not in
material default hereunder. The parties also agree that the rights and remedies
of each party to this Agreement set forth in this Agreement and in all of the
exhibits and schedules attached hereto and documents referred to herein shall be
cumulative and share inure to the benefit of each such party.
Section 7.9 Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Georgia.
Section 7.10 Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any
dispute arising out of this Agreement, but should a dispute remain unresolved
ten (10) days following notice of the dispute to the other party (but in no
event prior to said ten (10) days, except as specifically provided otherwise
herein), such dispute shall be finally settled by binding arbitration in
Atlanta, Georgia in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") or such other
mediation or arbitration service as shall be mutually agreeable to the parties,
and judgment upon the award rendered by the arbitrator shall be final and
binding on the parties and may be entered in any court having jurisdiction
thereof; provided, however, that any party shall be entitled to appeal a
question of law or determination of law to a court of competent jurisdiction;
and provided, further, however, that the parties may first seek appropriate
injunctive relief prior to, and/or in addition to pursuing negotiation or
arbitration. Such arbitration shall be conducted by an arbitrator chosen by
mutual agreement of the parties, or failing such agreement, an arbitrator
appointed by the AAA. There shall be limited discovery prior to the arbitration
hearing as follows: (a) exchange of witness lists and copies of documentary
evidence and documents related to or arising out of the issues to be arbitrated,
(b) depositions of all party witnesses, and (c) such other
32
<PAGE>
depositions as may be allowed by the arbitrator upon a showing of good cause.
Depositions shall be conducted in accordance with the Georgia Code of Civil
Procedure and questions of evidence in any hearings shall be resolved in
accordance with the Federal Rules of Evidence. The arbitrator shall be required
to provide in writing to the parties the basis for the award or order of such
arbitrator, and a court reporter shall record all hearings (unless otherwise
agreed to by the parties), with such record constituting the official transcript
of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement or the Related Agreements,
the prevailing party will be entitled to receive from the other party all costs,
damages and expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether or not the
controversy is reduced to judgment or award. The prevailing party will be that
party who may be fairly said by the arbitrator(s) or the court to have prevailed
on the major disputed issues.
Section 7.11 Cooperation and Records Retention. Each of the Selling
Shareholders and Purchaser shall (i) provide the other with access to such
records, original or copies, or assistance as may reasonably be requested by
them in connection with the preparation of any Tax Return, in connection with
any audit or other examination by any Taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, or financial
reporting obligations, (ii) each retain and provide the other, with any records
or other information which may be relevant to any such Tax Return, audit or
examination, proceeding or determination, or financial reporting obligations,
and (iii) each provide the other with any final determination of any such audit
or examination, proceeding or determination that affects any amount required to
be shown on any Tax Return of the other for any period. All Tax Returns,
supporting work schedules and other records or information which may be relevant
to such Tax Returns for all tax periods or portions thereof ending before or
including the Closing Date shall remain with Purchaser or the Company and shall
be made available for inspection and copying by the parties hereto during normal
business hours.
33
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
-------------------------------
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC. as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
---------------------------
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
-------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
Dan I. Bailey /s/ Dan I. Bailey
------------------
Peter Goletz /s/ Peter Goletz
----------------
Michelle L. Lightman /s/ Michelle L. Lightman
------------------------
William J. Parillo /s/ William J. Parillo
----------------------
34
<PAGE>
COMPUTER GRAPHICS DISTRIBUTING COMPANY
/s/ A. Lowell Nerenberg
-------------------------------
President
Address: 620 E. Diamond Avenue, Suite J
Gaithersburg, Maryland 20877
SHAREHOLDERS:
/s/ A. Lowell Nerenberg
-------------------------------
A. Lowell Nerenberg
Address: 17513 Sir Galahad Way
Ashton, MD 20861
/s/ Beverly Nerenberg
-------------------------------
Beverly Nerenberg
Address: 17513 Sir Galahad Way
Ashton, MD 20861
/s/ Rosa Sabato
-------------------------------
Rosa Sabato
Address: 7 Fernwood Ct.
E. Brunswick, NJ 08816
/s/ David B. Thompson
-------------------------------
David B. Thompson
Address: 781 Quince Orchard Blvd. Apt. 34
Gaithersburg, Maryland 20878
/s/ Eric H. Nerenberg
-------------------------------
Eric H. Nerenberg
Address: 2217 Carter Mill Way
Brookeville, MD 20833
/s/ Michael G. Watkins
-------------------------------
Michael G. Watkins
Address: 18606 Mustard Seed Ct.
Germantown, MD 20874
35
<PAGE>
AMENDMENT TO STOCK PURCHASE AGREEMENT
AMENDMENT dated as of June 2, 1997 to the Stock Purchase Agreement dated
as of May 1, 1997 (the "Stock Purchase Agreement") by and among Crescent
Computers, Inc., a Georgia corporation (the "Purchaser"), the shareholders of
the Purchaser set forth on the signature page of the Stock Purchase Agreement
(the "Crescent Shareholders"), Computer Graphics Distributing Company, a
Maryland corporation ("CGD"), and the shareholders of CGD set forth on the
signature page of the Stock Purchase Agreement (the "Selling Shareholders"). All
terms used in this Amendment, unless otherwise defined herein, shall have such
meaning as ascribed to them in the Stock Purchase Agreement.
WHEREAS, pursuant to the Stock Purchase Agreement, the Purchaser agreed to
purchase all of the issued and outstanding shares of capital stock of CGD held
by the Selling Shareholders (the "Acquisition"); and
WHEREAS, in connection with the Acquisition, the parties hereto desire to
amend certain provisions of the Stock Purchase Agreement as set forth in this
Agreement in accordance with the provisions of Section 7.5 of the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties intending to be legally bound, hereby agree
as follows:
A. Amendments to Stock Purchase Agreement. The Stock Purchase Agreement is
hereby amended as follows:
(1) Section 2.3 of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"Section 2.3 Survival of Representations and Warranties:
Purchaser's and the Selling Shareholders' representations and
warranties contained in this Article II shall survive the Closing
for a period of twenty-four (24) months from the Closing Date."
(2) The last sentence of Section 3.1(a) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The covenants contained in this Section 3.1(a) shall survive
until one hundred twenty (120) days from the Closing Date."
(3) The introductory paragraph of Section 3.3 of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
paragraph:
"Section 3.3 Interim Period. During the period from the date
of execution hereof through November 1, 1997 or prior thereto upon
the unanimous consent of the Board of Directors of the Purchaser
(the "Interim Period"):"
(4) Section 3.3(a) of the Stock Purchase Agreement is deleted in its
entirety.
<PAGE>
(5) The first sentence of Section 3.3(b) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The number of Directors of the Purchaser shall be seven (7)."
(6) Section 3.3(g) of the Stock Purchase Agreement is deleted in its
entirety.
(7) The first eight words of Section 3.5 of the Stock Purchase
Agreement are deleted in their entirety so that Section 3.5 begins with
the words "On and after."
(8) Section 4.1(1) of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"(l) Resignations: The officers and directors of the Company
shall have delivered to Purchaser their resignations, effective as
of the Closing Date."
(9) Section 6.3 of the Stock Purchase Agreement is deleted in its
entirety.
(10) The last sentence of Section 7.4 of the Stock Purchase
Agreement is deleted in its entirety.
B. Full Force and Effect. Except as provided herein, all other terms and
provisions of the Stock Purchase Agreement shall remain in full force and
effect.
C. Counterparts. This Amendment may be executed in one or more
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
---------------------
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
-2-
<PAGE>
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
-----------------------------------------
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
---------------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
/s/ Dan I. Bailey
---------------------------------------------
Dan I. Bailey
/s/ Peter Goletz
---------------------------------------------
Peter Goletz
/s/ Michelle L. Lightman
---------------------------------------------
Michelle L. Lightman
/s/ William J. Parillo
---------------------------------------------
William J. Parillo
COMPUTER GRAPHICS DISTRIBUTING
COMPANY
/s/ A. Lowell Nerenberg
---------------------------------------------
A. Lowell Nerenberg
President
Address: 620 E. Diamond Avenue, Suite J
Gaithersburg, Maryland 20877
-3-
<PAGE>
SHAREHOLDERS:
/s/ A. Lowell Nerenberg
---------------------------------------------
A. Lowell Nerenberg
Address: 17513 Sir Galahad Way
Ashton, MD 20861
/s/ Beverly Nerenberg
---------------------------------------------
Beverly Nerenberg
Address: 17513 Sir Galahad Way
Ashton, MD 20861
/s/ Rosa Sabato
---------------------------------------------
Rosa Sabato
Address: 7 Fernwood Court
E. Brunswick, NJ 08816
/s/ David B. Thompson
---------------------------------------------
David B. Thompson
Address: 781 Quince Orchard Blvd., Apt. 34
Gaithersburg, MD 20878
/s/ Eric H. Nerenberg
---------------------------------------------
Eric H. Nerenberg
Address: 2217 Carter Mill Way
Brookeville, MD 20833
/s/ Michael G. Watkins
---------------------------------------------
Michael G. Watkins
Address: 18606 Mustard Seed Court
Germantown, MD 20874
-4-
STOCK PURCHASE AGREEMENT
by and among
Crescent Computers, Inc., a Georgia corporation, and its shareholders
and
Intelligent Products Marketing, Inc., a California corporation, and its
shareholders
and
IG Distributing, Inc., a California corporation, and its shareholders
Dated as of May 1, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF STOCK........................................................1
Section 1.1 Purchase and Sale............................................1
Section 1.2 Purchase Price...............................................1
Section 1.3 Purchase Price Adjustment....................................2
Section 1.4 The Closing..................................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES...........................................4
Section 2.1 Representations and Warranties of the Companies and the
Shareholders...............................................4
Section 2.2 Representations and Warranties of Purchaser.................20
Section 2.3 Survival of Representations and Warranties..................21
Section 2.4 Disclosure..................................................21
ARTICLE III
COVENANTS...............................................................21
Section 3.1 Covenants Against Disclosure................................21
Section 3.2 Access to Information.......................................22
Section 3.3 Interim Period..............................................22
Section 3.4 Special Crescent Covenants..................................23
Section 3.5 On and After Closing........................................24
Section 3.6 Non-Competition.............................................24
Section 3.7 Further Assurances..........................................25
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS.....................................25
Section 4.1 Conditions to Obligations of Purchaser......................25
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders..............................................27
ARTICLE V
INDEMNIFICATION.........................................................28
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements................................................28
Section 5.2 Indemnification of Purchaser................................28
Section 5.3 Indemnification of the Selling Shareholders.................29
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims....................................................29
Section 5.5 Procedure For Indemnification with Respect to Non-Third
Party Claims..............................................30
Section 5.6 Escrowed Shares.............................................30
i
<PAGE>
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT...................................31
Section 6.1 Termination.................................................31
Section 6.2 Effect of Termination.......................................31
Section 6.3 Conditions Subsequent to Obligations........................31
ARTICLE VII
MISCELLANEOUS PROVISIONS................................................32
Section 7.1 Notice......................................................32
Section 7.2 Entire Agreement............................................32
Section 7.3 Binding Effect: Assignment..................................32
Section 7.4 Expenses of Transaction.....................................32
Section 7.5 Waiver; Consent.............................................32
Section 7.6 Counterparts................................................33
Section 7.7 Severability................................................33
Section 7.8 Remedies of the Parties.....................................33
Section 7.9 Governing Law...............................................33
Section 7.10 Arbitration; Attorneys' Fees...............................33
Section 7.11 Cooperation and Records Retention..........................34
SCHEDULE 1.2............................................................37
SCHEDULE 2.1(b).........................................................38
SCHEDULE 2.2(b).........................................................39
ii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is dated as of May 1, 1997
among , Crescent Computers, Inc., a Georgia corporation ("Purchaser"), the
shareholders of Crescent set forth on the signature page of this Agreement (the
"Crescent Shareholders"), Intelligent Products Marketing, Inc., a California
corporation and IG Distributing, Inc., a California corporation, together doing
business as Intelligent Graphics Distribution (collectively, "IGD" or the
"Company"), and the shareholders of IGD set forth on the signature page of this
Agreement (the "Selling Shareholders").
WHEREAS, the Company is engaged in, among other things, the business of
computer integration and wholesale distribution of computer products (such
business is referred to herein collectively as the "Business"); and
WHEREAS, Purchaser desires to purchase all the issued and outstanding
shares of capital stock of the Company held by the Selling Shareholders and the
Selling Shareholders desire to sell such shares to Purchaser, subject to the
terms and conditions hereinafter set forth (such purchase and sale of capital
stock of the Company shall be referred to herein as the "Acquisition"); and
WHEREAS, Purchaser and the Selling Shareholders desire to enter into this
Agreement with the understanding that this Agreement will supercede all prior
oral and written agreements between the parties.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto hereby agree as follows:
ARTICLE I
PURCHASE OF STOCK
Section 1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, Purchaser agrees to purchase on the Closing Date (as hereinafter
defined), and the Selling Shareholders each agree to sell to Purchaser at the
Closing (as hereinafter defined), all of the issued and outstanding shares of
the capital stock of the Company, which consists of the number of shares of
common stock, and all rights existing with respect thereto, held by each of the
Selling Shareholders, as set forth on Schedule 2.1(b) attached hereto.
Section 1.2 Purchase Price. (a) In consideration for the Capital Stock (as
defined in Section 2.1(b)) and in full payment therefor Purchaser will pay the
Selling Shareholders $700,000 (hereinafter the "Purchase Price"), but subject to
the adjustments to the Purchase Price set out in Section 1.3, such payment to be
evidenced by the issuance to the Selling Shareholders of an aggregate of 900
shares of Purchaser's common stock (the "Common Stock") in the respective
amounts reflected in Schedule 1.2 attached hereto (hereinafter called the
"Purchase Price"). All shares of Common Stock issued as herein described shall
have identical rights as to dividends, voting and all other matters. Except as
expressly provided in this Agreement, there shall be no other consideration paid
to or for the account of the Selling Shareholders in connection with or relating
in any way to the transactions contemplated hereby.
1
<PAGE>
Section 1.3 Purchase Price Adjustment. (a) As used in this Section 1.3,
the following capitalized terms shall have the meanings set forth below:
"Actual Company Value" shall mean the aggregate of the Company's and any
subsidiary's Fixed Assets, plus their Current Assets, less their Liabilities on
the Closing Date.
"Company Shortfall" means the excess, if any, of the Warranted Company Value (as
hereinafter defined) over the Actual Company Value on the Closing Date, subject
to the limitations set forth in this Section 1.3.
"Current Assets" shall be used in all respects in accordance with generally
accepted accounting principles consistently applied ("GAAP") and comprises the
aggregate of all cash, cash equivalents, receivables and inventory, but
specifically excludes any deferred assets including without limitation deferred
tax and deferred income, and valued in accordance with GAAP, and on a basis in
all material respects consistent with that adopted for the purposes of the last
audited financial statements of the Company and the value of all receivables and
inventory has been written down to realizable market value and adequate
provision has been made therefor.
"Fixed Assets" shall be used in all respects in accordance with GAAP and shall
mean fixed assets at the values at which they were included in the latest
audited financial statements (or if acquired after the balance sheet date, their
cost), less depreciation calculated in accordance with the method adopted in the
financial statements. Fixed Assets shall specifically exclude, and no value
shall be attributable to, any intangible assets (including without limitation
goodwill, trademarks, service marks, formulas, franchise rights and patents),
and no asset shall be written up or revalued above its original cost less
applicable depreciation.
"Liabilities" shall be used in all respects in accordance with GAAP and shall
mean all liabilities, whether long-term or current, including without limitation
all actual liabilities of the Company on the Closing Date, with proper provision
in accordance with GAAP, having been made therein for all other liabilities of
the Company then outstanding whether contingent, quantified, disputed or not,
including without limitation the cost of any work or material for which payment
has been received or credit taken, any future loss which may arise in connection
with uncompleted contracts and any claims against the Company in respect of
completed contracts.
"Net Asset Value Shortfall" means the excess, if any, of the Warranted Tangible
Net Asset Value over the Actual Tangible Net Asset Value on the Closing Date,
subject to the limitations set forth in this Section 1.3.
"Actual Tangible Net Asset Value" shall mean the aggregate amount of the Current
Assets less Liabilities on the Closing Date.
"Warranted Company Value" shall mean $406,500.
"Warranted Tangible Net Asset Value" shall mean $356,500.
2
<PAGE>
(b) Each Selling Shareholder represents and warrants to the Purchaser that
the Warranted Company Value and the Warranted Tangible Net Asset Value of the
Company shall be not less than the amounts set forth above. The Purchase Price
shall be increased by the amount (if any) by which the Company's Actual Tangible
Net Asset Value exceeds its Warranted Tangible Net Asset Value on the Closing
Date. Such amount will be paid by the Purchaser to the Selling Shareholders
within ninety (90) days after the determination of Actual Company Value and
Actual Tangible Net Asset Value, in cash provided the Purchaser has net assets
of at least $8,000,000 on such date. Otherwise such amount shall bear interest
at the rate which is three percent (3%) per annum in excess of the then prime
rate of interest of NationsBank of Georgia, N.A., to be evidenced by a six month
promissory note issued by Purchaser to the Selling Shareholders in substantially
the form of Exhibit 1.3(b) attached hereto. The Purchase Price payable by
Purchaser to the Selling Shareholders shall be reduced by one of the following,
whichever is greater:
Company Shortfall / Warranted Company Value x Purchase Price
Net Asset Value Shortfall / Warranted Tangible Net Asset Value x Purchase
Price
(c) If any receivable of the Company existing as of the Closing Date
remains uncollected by the Company or its successor the later of 90 days after
the Closing Date or 150 days after the date of invoice, or has, as of the later
of such dates, been collected at less than its full value as shown in Current
Assets on the Closing Date ("Collection Shortfall"), then (i) the Purchaser
shall have the option of assigning such receivable to the Selling Shareholders,
without representation or warranty, not more than 180 days after the Closing
Date, and demanding the amount of the Collection Shortfall, and upon such
assignment, such Selling Shareholders shall pay the Company such amount, in
cash, within sixty (60) days after demand; provided that Purchaser shall have
exercised all reasonable efforts at collecting such receivable at such full
value; and (ii) the Selling Shareholders shall have the option of causing the
Purchaser to sell such receivable to the Selling Shareholders, without
representation or warranty, not more than 180 days after the Closing Date, and
paying the amount of the Collection Shortfall, and upon such assignment, the
Selling Shareholders shall pay Purchaser such amount, in cash, within sixty (60)
days after demand. The Selling Shareholders shall thereafter be free to pursue
such collection measures as they in their sole discretion shall deem necessary
or appropriate. To the extent, if any, that the Collection Shortfall remains
unpaid after such sixty (60) day period, Purchaser shall adjust the Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding
Collection Shortfall to Company Shortfall or Net Asset Value Shortfall, as the
case may be.
(d) If any items of the Company's inventory existing as of the Closing
Date remain unsold by the Company or its successor 180 days thereafter or have
been sold at less than full value as shown in Current Assets on the Closing Date
("Inventory Shortfall"), Purchaser not more than 210 days after the Closing Date
shall deliver and transfer such unsold inventory to the Selling Shareholders
without representation or warranty and shall demand the amount of the Inventory
Shortfall, and upon such transfer and delivery, the Selling Shareholders shall
pay the Company such amount, in cash, within thirty (30) days of demand;
provided that Purchaser shall have exercised all reasonable efforts at selling
such inventory at such full value. Such Selling Shareholders shall, at any time
after Purchaser's demand of the Inventory Shortfall, be free to sell such
inventory as they in their sole discretion shall deem necessary
3
<PAGE>
or appropriate. To the extent if any that the Inventory Shortfall remains unpaid
after such thirty (30) day period, Purchaser shall adjust such Selling
Shareholders' shares of Common Stock, effective as of the Closing Date, in
accordance with the formulae set forth in Section 1.3(b) above, adding Inventory
Shortfall to Company Shortfall or Net Asset Value Shortfall, as the case may be.
(e) Purchaser and each Selling Shareholder shall escrow twenty percent
(20%) of the shares of Common Stock to be delivered to such Selling Shareholder
(the "Escrowed Shares"), to be subject to redistribution by Purchaser in the
circumstances described in this Section 1.3. The terms of the escrow shall be
substantially as set forth in the form of Escrow Agreement attached as Exhibit
1.3(e) hereto. Any Escrowed Shares not subject to redistribution for the
purposes of this Section shall be released to such Selling Shareholders as
follows: one-half within thirty (30) days of the determination of the
application of this Section 1.3 pursuant to the provisions of subsection (b),
(c) or (d) above, as the case may be, and one-half on the first anniversary of
the Closing Date.
(f) As an example of the application of subsections (b) and (c) above, if
on the Closing Date the Actual Company Value of IGD shall be $381,500, rather
than the Warranted Company Value of $406,500, being a $15,000 shortfall in
Warranted Tangible Net Asset Value and a $10,000 shortfall in Fixed Assets, and
an additional shortfall is determined under subsection (c) above in the amount
of $50,000 and such amount remains unpaid, the Purchaser shall decrease the
shares of Common Stock to be distributed to the Selling Shareholders of IGD by
110 shares, computed as follows:
$50,000 / $406,500 x 900 = 110 Shares
$40,000 / $356,500 x 900 = 100 Shares
Section 1.4 The Closing. Subject to termination of this Agreement as
provided in Article VI below, the closing and consummation of the Acquisition
contemplated by this Agreement shall take place in the offices of Purchaser's
attorneys on such date that the conditions of closing set forth in Article IV
hereof have been satisfied or waived, or such other date as the parties hereto
may mutually select (the "Closing Date"), which in no event shall be later than
45 days after the date of this Agreement, unless extended by the unanimous
agreement of Purchaser and the Selling Shareholders. The "Closing" shall mean
the deliveries to be made by the parties hereto on the Closing Date in
accordance with this Agreement. The Acquisition shall be deemed to have become
effective as of 12:01 a.m. Atlanta, Georgia Time on the Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of the Companies and the
Shareholders. The Company and each of the Selling Shareholders hereby severally
represents and warrants to Purchaser that:
(a) Organization. The Company is a corporation duly organized and
validly existing under the laws of the State of Illinois (the "State"), and has
all requisite power and authority
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to lease, own, and operate its properties and carry on the Business and
operations and to directly own, lease, and operate its assets. The Company is
duly qualified or licensed to do business as a corporation, and is in good
standing in the State. The Company has delivered to Purchaser complete and
accurate copies of its Articles of Incorporation and Bylaws and all amendments
thereto, and all minutes and actions of its Board of Directors and shareholders.
Neither the Company nor any of the Selling Shareholders is in violation of any
of the provisions of the Articles of Incorporation or the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of the Company (including without limitation all voting
securities) (the "Capital Stock") and its par value per share, if any, is as set
forth on Schedule 2.1(b) hereto. Each person listed on Schedule 2.1(b) is the
lawful owner of that number of the issued and outstanding shares of capital
stock of the Company set forth opposite such person's name, free and clear of
any restrictions upon transfer except as indicated in Schedule 2.1(b), all of
which restrictions shall be removed no later than the Closing Date. The shares
of Capital Stock set forth on Schedule 2.1(b) constitute all of the shares of
capital stock of the Company and all such shares have been duly authorized and
are validly issued, fully paid and nonassessable, and to the best of the
knowledge and belief of the Company and the Selling Shareholders, have been
issued in compliance with all applicable federal and state securities laws.
There are no outstanding subscriptions, warrants, calls, options, conversion
rights, rights of exchange or other commitments, plans, agreements, or
arrangements of any nature under which the Company or the Selling Shareholder
may be obligated to issue, assign, exchange, purchase, redeem or transfer any
shares of capital stock of the Company, and there are no shareholders'
agreements to which the Company or the Selling Shareholders is a party, or
proxies, voting trust agreements or similar agreements or options executed by
the Company or the Selling Shareholders or to which the Capital Stock is
subject. There are no outstanding subscriptions, options, warrants, rights,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company obligating the Company or the Selling Shareholders to grant, extend or
enter into any subscription, option, warrant, right, convertible security or
other similar agreement or commitment. Upon issuance of shares of Common Stock
for the shares of the Company's Capital Stock, as set forth herein, Purchaser
shall acquire good and marketable title to the shares of Capital Stock of the
Company, free and clear of any liens, pledges, encumbrances, security interests,
charges, equities or restrictions of any nature. The Company has satisfied all
of its obligations to all current and past shareholders, and none of such
current or past shareholders has any claims, or any basis therefor, against the
Company arising out of or relating to obligations of the Company to such current
or past shareholders. None of the shares of the Company's Capital Stock was
issued pursuant to awards, grants, or bonuses.
(c) Subsidiaries. Except as set forth in Schedule 2.1(c), the
Company does not own, directly or indirectly, any capital stock or other equity
or ownership or proprietary interest in any corporation, partnership,
association, limited liability company, trust, joint venture or other entity.
(d) Authorization. The Company and each of the Selling Shareholders
have full power and authority to enter into this Agreement, to perform their
respective obligations hereunder and to consummate the transactions contemplated
hereby. Each individual named in Section 4.2(f)
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has full power and authority to enter into the Shareholders' Employment
Agreements in the form attached hereto as Exhibit 4.2(f) (the Shareholders'
Employment Agreements are collectively referred to herein as the "Related
Agreements") to which such Selling Shareholder is a party, to perform his or her
obligations thereunder and to consummate the transactions contemplated thereby.
Each corporate Selling Shareholder is duly organized and existing under the laws
of the jurisdiction of its incorporation. The Company and/or each of the Selling
Shareholders, as appropriate, have taken all necessary and appropriate corporate
action with respect to the execution and delivery of this Agreement and the
Related Agreements. This Agreement and the Related Agreements constitute valid
and binding obligations of the Company and the Selling Shareholders (to the
extent to which each is a party), enforceable in accordance with their
respective terms; except as limited by applicable bankruptcy, insolvency,
moratorium, reorganization or other laws affecting contracts, creditors' rights
and other laws and remedies generally.
(e) Financial Information. The Company has delivered its unaudited
balance sheets and related statements of operations and cash flows at and for
the fiscal years ended 1994 and 1995, and 1996 to date, and will deliver to
Purchaser before May 31, 1997 its audited balance sheets and related statements
of operations and cash flows at and for the fiscal years ended 1994, 1995 and
1996 (the "Annual Financial Statements"), and on the Closing Date the unaudited
balance sheet and statement of operations at and for the four-month period ended
April 30, 1997 (the "Unaudited Financial Statements"). To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Annual
Financial Statements and Unaudited Financial Statements (collectively, the
"Financial Statements") have been prepared in accordance with Generally Accepted
Accounting Principles ("GAAP") on a consistent basis throughout the periods
indicated and with each other, and the Financial Statements present accurately
the financial condition of the Company as of the respective dates thereof and
the results of operations for the periods then ended. All of the Company's
general ledgers, books, and records are located at the Company's principal place
of business in the State or at the offices of its accountant. The Company agrees
to engage, at its own cost and expense, an accounting firm selected by Purchaser
and reasonably acceptable to the Company to audit the Annual Financial
Statements.
(f) Deposit Accounts; Powers of Attorney. Schedule 2.1(f) hereto
lists:
(i) the name of each financial institution in which the
Company has accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or
have access thereto.
There are no persons, corporations, firms or other entities holding a general or
special power of attorney from the Company.
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(g) Liabilities and Obligations. Other than as set forth in the
unaudited Financial Statements at the date of this Agreement, Schedule 2.1(g)
sets forth an accurate list of all liabilities of the Company, and any
significant liabilities incurred thereafter in the ordinary course of business
or liabilities which are not reflected in the balance sheet of any kind,
character, or description, whether accrued, absolute, secured or unsecured,
contingent or otherwise, together with, in the case of those liabilities which
are not fixed, an estimate of the maximum amount which may be payable. For each
such liability for which the amount is not fixed or is contested, whether in
litigation or otherwise, the Company shall provide the following information:
(i) a summary description of the liability together with the
following:
(a) copies of all relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief
sought; and
(c) name of claimant and all other parties to the claim,
suit, or proceeding.
(ii) the name of each court or agency before which such claim,
suit, or proceeding is pending;
(iii) the date such claim, suit, or proceeding was instituted;
(iv) a reasonable estimate by the Company of the maximum
amount, if any, which is likely to become payable with respect to each such
liability. If no estimate is provided, the Company's best estimate shall for
purposes of this Agreement be deemed to be zero.
(h) Product and Service Warranties and Reserves. Except as set forth
in Schedule 2.1(h), there are no product warranty claims relating to sales of
the Company's products occurring on or prior to the date of this Agreement. The
only express warranties, written or oral, with respect to the products or
services sold by the Company are set forth in Schedule 2.1(h).
(i) Absence of Certain Changes and Events. Except as set forth in
Schedule 2.1(i) hereto, to the best of the knowledge and belief of the Company
and the Selling Shareholders, since the date of the Unaudited Financial
Statements there has not been:
(i) Any material adverse change in the financial condition,
results of operation, assets, liabilities or prospects of the Company or the
Business, or any occurrence, circumstance, or combination thereof which
reasonably could be expected to result in any such material adverse change;
(ii) Any transaction relating to or involving the Company, the
Business, the assets of the Company or the Selling Shareholders which was
entered into or carried out by the Company or the Selling Shareholders other
than in the ordinary and usual course of business;
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(iii) Any change by the Company in its accounting or tax
practices or procedures;
(iv) Any incurrence of any liability, other than liabilities
incurred in the ordinary course of business consistent with past practices;
(v) Any sale, lease, or disposition of, or any agreement to
sell, lease, or dispose of any of its properties (whether leased or owned), or
the assets of the Company, other than sales, leases, or dispositions of goods,
materials, or equipment in the usual and ordinary course of business and
consistent with prior practice;
(vi) Any event permitting any of the assets or the properties
of the Company (whether leased or owned) to be subjected to any pledge,
encumbrance, security interest, lien, charge, or claim of any kind whatsoever
(direct or indirect) (collectively, "liens");
(vii) Any increase in compensation or any adoption of, or
increase in, any bonus, incentive compensation, pension, profit sharing,
retirement, insurance, medical reimbursement or other employee benefit plan,
payment or arrangement to, for, or with any employee of the Company, other than
certain bonuses paid to the Selling Shareholders and disclosed in writing to the
Purchaser;
(viii)Any payment or distribution of any bonus to, or
cancellation of indebtedness owing from, or incurring of any liability relating
to any employees, consultants, directors, officers, or agents, or any persons
related thereto, other than certain bonuses paid to the Selling Shareholders;
(ix) Any notice (written or unwritten) from any employee of
the Company that such employee has terminated, or intends to terminate, such
employee's employment with the Company;
(x) Any adverse relationship or condition with Suppliers (as
defined in Section 2.1(q)(i) hereof), vendors, or Customers (as defined in
Section 2.1(ae) hereof) that may have an adverse effect on the Company, the
Business, or the assets of the Company;
(xi) Any event, including, without limitation, shortage of
materials or supplies, fire, explosion, accident, requisition or taking of
property by any governmental agency, flood, drought, earthquake, or other
natural event, riot, act of God or a public enemy, or damage, destruction, or
other casualty, whether covered by insurance or not, which has had an adverse
effect on the Company, the properties (whether leased or owned), the Business,
or the assets of the Company or any such event which could be expected to have
an adverse effect on the Company, the properties (whether leased or owned), the
Business, or the assets of the Company;
(xii) Any modification, waiver, change, amendment, release,
rescission, accord and satisfaction, or termination of, or with respect to, any
term, condition, or provision of any contract, agreement, license, or other
instrument to which the Company or the Selling Shareholders
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are a party and relating to or affecting the Business or the assets of the
Company other than any satisfaction by performance in accordance with the terms
thereof in the usual and ordinary course of business and consistent with prior
practice;
(xiii) Any discharge or satisfaction of any Lien or payment of
any liabilities, other than in the ordinary course of business;
(xiv) Any waiver of any rights of substantial value by the
Company, other than waivers having no material adverse effect on the Company;
(xv) Any issuance of equity securities of the Company or any
issuance of warrants, calls, options or other rights calling for the issuance,
sale, or delivery of the Company's equity securities;
(xvi) Any declaration of any dividend or any distribution of
any shares of its capital stock, or redemption, purchase, or other acquisition
of any shares of its capital stock or any grant of an option, warrant, or other
right to purchase or acquire any such shares;
(xvii)Any amendment, or agreement to amend, the Company's
Articles of Incorporation or Bylaws, or any merger or consolidation with, or any
agreement to merge or consolidate with, any other corporation, partnership,
limited liability company or any other entity;
(xviii) Any reduction, or agreement to reduce, the cash or
short-term investments of the Company, other than to meet cash needs arising in
the ordinary course of business;
(xix) Any work interruptions, labor grievances or claims
filed, proposed law or regulation or any event of any character, materially
adversely affecting the Business or future prospects of the Company;
(xx) Any revaluation by the Company of any of its assets;
(xxi) Any loan by the Company to any person or entity, or any
guaranty by the Company of any loan; or
(xxii)To the best knowledge of the Company and the Selling
Shareholders, any other event or condition of any character which materially
adversely affects, or reasonably may be expected to so affect, the assets of the
Company, the Business, or the properties (whether leased or owned) of the
Company.
(j) Inventory. Schedule 2.1(j) sets forth the reasonable value of
the Company's inventory. All inventory is owned by the Company, including all
goods customarily sold and/or rented by the Company in connection with the
Business (whether located on the premises of the Company, in transit to or from
such premises, in other storage facilities, or otherwise) (collectively, the
"Inventory"), and the Company maintains appropriate records of such inventory.
The Company has continued to replenish the Inventory in a normal and customary
manner consistent with past
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practices. To actual knowledge of the Company and the Selling Shareholders, the
Company has not received written or oral notice that the Company will experience
in the future any difficulty in obtaining, in the desired quantity and quality
and upon reasonable terms and conditions, the vehicles, materials, supplies, or
equipment required for the Business.
(k) Taxes.
(i) Definitions. For purposes of this Agreement:
(a) the term "Taxes" means (A) all federal, state,
local, foreign and other net income, gross income, gross receipts, sales, use,
ad valorem, transfer, franchise, profits, license, lease, service, service use,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto, (B) any liability
for payment of amounts described in clause (A) whether as a result of transferee
liability, of being a member of an affiliated, consolidated, combined or unitary
group for any period, or otherwise through operation of law, and (C) any
liability for the payment of amounts described in clauses (A) or (B) as a result
of any tax sharing, tax indemnity or tax allocation agreement or any other
express or implied agreement to indemnify any other person; and the term "Tax"
means any one of the foregoing Taxes; and
(b) the term "Returns" means all returns, declarations,
reports, statements and other documents required to be filed in respect of
Taxes, and the term "Return" means any one of the foregoing Returns.
(ii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, the Company has properly completed and filed on a
timely basis (including extensions) and in correct form all Returns required to
be filed on or prior to the Closing Date. As of the time of filing, the
foregoing Returns correctly reflected the facts regarding the income, business,
assets, operations, activities, status or other matters of the Company or any
other information required to be shown thereon. In particular, to the best of
the knowledge of the Company and the Selling Shareholders, the foregoing Returns
are not subject to unpaid penalties under Section 6662 of the Internal Revenue
Code of 1986, as amended (the "Code"), relating to accuracy-related penalties
(or any corresponding provision of state, local or foreign Tax law) or any other
unpaid penalties.
(iii) To the best of the knowledge and belief of the Company
and the Selling Shareholders, with respect to all amounts in respect of Taxes
imposed upon the Company, or for which the Company is liable, whether to taxing
authorities (as, for example, under law) or to other persons or entities (as,
for example, under tax allocation agreements), with respect to all taxable
periods ending on or before the Closing Date and portions of periods commencing
before the Closing Date and ending after the Closing Date, all applicable tax
laws and agreements have been fully complied with, and all such amounts required
to be paid by the Company to taxing authorities or others on or before the
Closing Date have been paid, and all such amounts required to be paid by the
Company to taxing authorities or others after the Closing which have not been
paid are reflected on the Financial Statements.
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(iv) No notices raising tax issues have been received by the
Company from any taxing authority in connection with any of the Returns. No
extensions or waivers of statutes of limitations with respect to the Returns
have been given by or requested from the Company. Schedule 2.1(l)(iv) sets forth
taxable years for which examinations have been completed, those years for which
examinations are presently being conducted, and those years for which required
Returns have not yet been filed. Except to the extent indicated in Schedule
2.1(l)(iv), all deficiencies asserted or assessments made as a result of any
examinations have been fully paid, or are fully reflected as a liability in the
Financial Statements of the Company, or are being contested and an adequate
reserve therefor has been established and is fully reflected in the Financial
Statements of the Company.
(v) There are no liens for Taxes (other than for current Taxes
not yet due and payable) upon the assets of the Company.
(vi) The Company is not a party to or bound by (nor will the
Company become a party to or become bound by) any tax indemnity, tax sharing or
tax allocation agreement.
(vii) The Company has never been a member of an affiliated
group of corporations within the meaning of Section 1504 of the Code.
(viii)The Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income Tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income Tax law) apply to any disposition of any asset owned by
it.
(ix) None of the assets of the Company directly or indirectly
secures any debt the interest on which is tax exempt under Section 103(a) of the
Code.
(x) None of the assets of the Company is "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(xi) The Company has not made and will not make a deemed
dividend election under Treas. Reg. ss. 1.1502-32(f)(2) or a consent dividend
election under Section 565 of the Code.
(xii) The Company has not agreed to make, nor is it required
to make, any adjustment under Sections 481(a) or 263A of the Code or any
comparable provision of state or foreign tax laws by reason of a change in
accounting method or otherwise.
(xiii)None of the Selling Shareholder is other than a United
States person within the meaning of the Code.
(xiv) The Company is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partnership for federal income tax purposes.
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(xv) The Company's tax basis of each of its assets is
reflected in its Unaudited Financial Statements.
(xvi) All elections with respect to Taxes made during the
fiscal years ended December 31, 1995 are reflected on the Returns for such
periods, copies of which have been provided to Purchaser.
(l) Employee Payments.
(i) The hours worked by and payments made to the Company's
employees have not been in violation in any respect of the Fair Labor Standards
Act or any other applicable federal, foreign, state or local laws dealing with
such matters.
(ii) All payments due from the Company on account of employee
health and welfare insurance have been paid or accrued.
(iii) All severance, sick, or vacation payments by the
Company, which are or were due under the terms of any agreement or otherwise
have been paid or are described in Schedule 2.1(l)(iii).
(m) Compliance With Law. The Company has complied and is in
compliance with all applicable zoning decisions and, to the best of the
knowledge of the Company and the Selling Shareholders, has complied and is in
compliance with all applicable federal, state, and local laws, statutes,
licensing requirements, rules, and regulations, and judicial or administrative
decisions. To the best of the knowledge and belief of the Company and the
Selling Shareholders, the Company has been granted all licenses, permits
(temporary and otherwise), authorizations, and approvals from federal, state,
and local government regulatory or zoning bodies necessary to carry on the
Business and maintain the assets of the Company, all of which are currently
valid and in full force and effect. All such licenses, permits, authorizations
and approvals shall be valid and in full force and effect upon the consummation
of the transactions contemplated by this Agreement to the same extent as if the
Company prior to the Closing Date were continuing the Business and operations of
the Company. To the best of the knowledge and belief of the Company and the
Selling Shareholders, there is no order issued, or proceeding pending or
threatened, or notice served with respect to any violation of any law,
ordinance, order, writ, decree, rule, or regulation issued by any federal state,
local, or foreign court or governmental agency or instrumentality applicable to
the Company. The Company has valid use permits for the Business and its
operations.
(n) No Disclosure Items. Except as otherwise indicated in Schedule
2.1(n), there is no adverse information with respect to the Company, the Selling
Shareholder(s) or any officer, director or employee of the Company which
information would require disclosure in connection with a filing by the Company
under the federal securities acts. Neither the Company nor any Selling
Shareholder has failed to disclose any material fact which would be required to
be disclosed for purposes of a proxy statement or other communication involved
in a public offering in accordance with the provisions of Rule 10b-5 or Rule
14a-9(a) of the U.S. Securities and Exchange Commission.
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(o) Governmental Consents. To the best of the knowledge of the
Company and the Selling Shareholders, no consent, approval, order, or
authorization of, or registration, qualification, designation, declaration, or
filing with, any federal, state, local, or provincial governmental authority on
the part of the Company or the Selling Shareholders is required in connection
with the consummation of the transactions contemplated hereunder.
(p) Proprietary Rights. The Company owns all rights to computer
programs, databases, logos, trade names, trademarks, service marks, intellectual
property, Customer and Supplier lists, and other trade secrets, together with
the goodwill associated therewith, necessary for the Business as now conducted
(collectively, the "Proprietary Rights") and as proposed to be conducted
without, to the knowledge of the Company or the Selling Shareholders, any
conflict with or infringement upon the rights of others.
(q) Restrictive Documents or Orders. To the best of the knowledge of
the Company and the Selling Shareholders, the Company is not a party to nor
bound under any agreement, contract, order, judgment, or decree, or any similar
restriction which adversely affects, or reasonably could be expected to
adversely affect (i) the continued operation by Purchaser (through its ownership
of the Company) of the Business and operations of the Company on and after the
Closing Date on substantially the same basis as said business was theretofore
operated or (ii) the consummation of the transactions contemplated by this
Agreement.
(r) Contracts and Commitments.
(i) Schedule 2.1(r)(i) hereto sets forth a list of all
material written agreements and contracts, contract rights, licenses, and other
executory commitments (written or unwritten) other than purchase and sale orders
and quotations (collectively, the "Contracts") including, without limitation,
those contracts with insurance companies, credit companies, governmental
agencies, rental agencies, and all others under which the Company is supplied
with materials, supplies, or equipment ("Materials") (such suppliers shall be
referred to herein as "Suppliers") to which the Company is a party or to which
any of the assets of the Company are subject. To the best of the knowledge and
belief of the Company and the Selling Shareholders, there are no oral agreements
or commitments that would have a material adverse effect on the Company.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has performed all of its obligations under the
terms of each Contract, and is not in default thereunder, except as described in
Schedule 2.1(r)(ii). No event or omission has occurred which but for the giving
of notice or lapse of time or both would constitute a default by any party
thereto under any such Contract. To the best of the knowledge and belief of the
Company and the Selling Shareholders, each such Contract is valid and binding on
all parties thereto and in full force and effect. The Company has received no
written or unwritten notice of default, cancellation, or termination in
connection with any such Contract. The Company is not now and has never been a
party to any governmental contracts subject to price redetermination or
renegotiation.
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(iii) There has not been any notice (written or unwritten)
from any Supplier that any such Supplier will not continue to supply the current
level and type of Materials currently being provided by such Supplier upon the
same terms and conditions.
(s) Debt. Schedule 2.1(s) sets forth a list of all agreements for
the incurring of indebtedness for borrowed money and all agreements relating to
industrial development bonds to which the Company is a party or guarantor. None
of the obligations pursuant to such agreements are subject to acceleration by
reason of the consummation of the transactions contemplated hereby, nor would
the execution of this Agreement or the consummation of the transactions
contemplated hereby result in any default under such agreements. The Company has
furnished Purchaser with true and correct copies of each such agreement listed
in Schedule 2.1(s). The Company is not in default under any of the agreements
listed thereon, nor is the Company aware of any event that, with the passage of
time, or notice, or both, would result in an event of default thereunder.
(t) Related Property. Schedule 2.1(t)(i) hereto lists all of the
Company's ownership interests (except for leasehold interests set forth in
Schedule 2.1(ah)) in real property, machinery, equipment, tooling, furniture,
fixtures, motor vehicles, supplies, spare parts, computer equipment, printers,
copiers, software, telecommunications equipment, miscellaneous supplies, tools,
repair and maintenance parts, chemicals, and fixed assets related to the
Business and operations of the Company (the "Related Property"). To the best
knowledge of the Company and the Selling Shareholders, all of the Related
Property is generally in good operating condition, normal wear and tear
excepted, and is adequate and suitable for the purposes for which it is
presently being used. Schedule 2.1(t)(ii) hereto lists certain property that
belongs solely to and shall be retained by the Selling Shareholders.
(u) Assets. The assets of the Company include all the assets
necessary to operate the Business in the same manner as the Business was
operated by the Company immediately prior to the Closing Date, and none of the
Selling Shareholders, nor any family member or entity affiliated with the
Selling Shareholders or any such family member, owns, or has any interest in,
any asset used in the operation of the Company.
(v) Title to the Property. The Company has good and marketable title
to the assets of the Company (including, but not limited to the Related
Property) and a valid and subsisting leasehold interest in all leased property.
Except as described in Schedule 2.1(v), the Company owns all of its assets and
property free and clear of any lien.
(w) Litigation. Except as described in Schedule 2.1(w), none of the
Company, the Selling Shareholders nor any of the Company's officers or directors
is engaged in, or has received any threat of, any litigation, arbitration,
investigation, or other proceeding relating to the Company, any of the Selling
Shareholders, or the Company's officers, directors, employees, benefit plans,
properties, Proprietary Rights, the Business, or the assets, licenses, permits,
or goodwill of the Company; or against or affecting this Agreement, the Related
Agreements or the actions taken or contemplated in connection herewith and
therewith, nor, to the best of each's knowledge, is there any reasonable basis
therefor. There is no action, suit, proceeding, or (to the best knowledge of the
Company and the Selling Shareholders) investigation pending or threatened
against the Company, or
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any of the Selling Shareholders, or the officers or directors of the Company,
that questions the validity of this Agreement, the Related Agreements, or the
right of the Company or the Selling Shareholders to enter into this Agreement,
the Related Agreements, any documents to be delivered in connection with the
Closing, or to consummate the transactions contemplated hereby or thereby, or
which might result in any adverse change in the assets of the Company, the
Business, conditions, or properties of the Company, or the financial condition
of the Selling Shareholders. There is no action, suit, proceeding, or
investigation by the Company or the Selling Shareholders currently pending or
which any of them currently intends to initiate. None of the Company, the
Selling Shareholders, nor any of the Company's officers or directors is bound by
any judgment, decree, injunction, ruling or order of any court, governmental,
regulatory or administrative department, commission, agency or instrumentality,
arbitrator or any other person which would or could have a material adverse
effect on the Business or the assets of the Company.
(x) No Conflict or Default. To the best of the knowledge and belief
of the Company and the Selling Shareholders, neither the execution and delivery
of this Agreement or the Related Agreements, nor compliance with the terms and
provisions hereof and thereof including, without limitation, the consummation of
the transactions contemplated hereby and thereby, will violate any statute,
regulation, or ordinance of any governmental or administrative authority, or
conflict with or result in the breach of any term, condition, or provision of
the Company's Articles of Incorporation or Bylaws, as presently in effect, or of
any agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation, or instrument to which the Company or the Selling Shareholders is a
party or by which it or he or any of the assets of the Company are or may be
bound, or constitute a default (or an event which, with the lapse of time or the
giving of notice, or both, would constitute a default) thereunder.
(y) Consents. To the best of the knowledge and belief of the Company
and the Selling Shareholders, no consent, approval, or authorization of any
person, agency or third party or on the part of the Company or the Selling
Shareholders is required in connection with the consummation of the transactions
contemplated hereunder.
(z) Labor Relations.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, with respect to the Business and operation of the
Company, the Company has not failed to comply in any respect with Title VII of
the Civil Rights Act of 1964, as amended, the Fair Labor Standards Act, as
amended, the Occupational Safety and Health Act of 1970, as amended, all
applicable federal, state, and local laws, rules, and regulations relating to
employment, and all applicable laws, rules and regulations governing payment of
minimum wages and overtime rates, and the withholding and payment of taxes from
compensation of employees.
(ii) There are no labor controversies pending or, to the
knowledge of the Company or the Selling Shareholders, threatened between the
Company and any of its employees (the "Employees") or any labor union or other
collective bargaining unit representing any of the Employees.
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(iii) The Company has never entered into a collective
bargaining agreement or other labor union contract relating to the Business and
applicable to the Employees.
(iv) Except as set forth in Schedule 2.1(z), there are no
written employment or separation agreements, or oral employment or separation
agreements other than (1) those establishing an "at will" employment
relationship between the Company and any of the Employees and which do not
provide for any advance notice requirements to terminate an Employee's
employment or any severance or salary or benefits continuation obligations on
the part of the Company and (2) any unknown future claims for wrongful
termination based upon a theory of implied agreements arising out of course of
conduct.
(aa) Brokers' and Finders' Fees/Contractual Limitations. Neither the
Selling Shareholders nor the Company is obligated to pay any other fees or
expenses of any broker or finder in connection with the origin, negotiation, or
execution of this Agreement, the Related Agreements, or in connection with any
transactions contemplated hereby and thereby. None of the Selling Shareholders,
the Company, or any officer, director, employee, agent, or representative of the
Company (collectively, the "Representatives") is or has been subject to any
agreement, letter of intent, or understanding of any kind which prohibits,
limits, or restricts the Company, the Selling Shareholders or the
Representatives from negotiating, entering into, and consummating this
Agreement, the Related Agreements, and the transactions contemplated hereby and
thereby.
(ab) Environmental and Safety Matters.
(i) To the best of the knowledge and belief of the Company and
the Selling Shareholders, the Company has all permits, licenses, approvals and
registrations required to be issued under applicable federal, state and local
laws, statutes and regulations relating to the protection of human health,
safety, the environment and natural resources ("Environmental Laws") and, to the
best of the knowledge of the Company and the Selling Shareholders, is in
compliance with the terms and conditions thereunder. To the best of the
knowledge and belief of the Company and the Selling Shareholders, the Company is
in compliance with and there are no past or present conditions, activities,
actions, or plans which may prevent compliance with, any current or past law
related to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling, or the release, emission, or discharge of any
hazardous substance or hazardous waste ("Hazardous Substance Issues") or any
regulations, plans, judgments, injunctions, or notices promulgated or approved
thereunder: (1) which are applicable to the operations of the Company, or the
Selling Shareholders, or the property owned or leased by the Company or the
Selling Shareholders, or the assets of the Company, or the Business or
operations of the Company, or (2) which may give rise to any liability of the
Company, or the Selling Shareholders or otherwise form the basis of any ongoing
or threatened claims, actions, demands, suits, proceedings, hearings, studies,
or investigations against or relating to the Company, the property owned or
leased by the Company or the Selling Shareholders, or the Business, or the
assets of the Company, that are based on or related to any Hazardous Substance
Issues.
(ii) To the best of the knowledge of the Company and the
Selling Shareholders, no release of a hazardous substance has come to be located
on or beneath and remain located on or
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beneath any of the real property upon which the Business is conducted or upon
which any of the property owned or leased currently or in the past by the
Company or the Selling Shareholders or any predecessor which relates to the
Business or operations of the Company are held or maintained.
(iii) Schedule 2.1(ab) sets forth all reports, studies, and
evaluations conducted by the Company or the Selling Shareholders, or received by
the Company or the Selling Shareholders with respect to such matters.
(iv) Neither the Company nor any of the Selling Shareholders
has any knowledge of the possible or actual presence, disposal, release or
threatened release of any hazardous substance or hazardous waste on or under any
adjacent properties.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not been alleged to be in violation of, or
been subject to any administrative, judicial, or regulatory proceeding pursuant
to, any applicable Environmental Laws either now or any time during the past. No
Claims (as hereinafter defined) have been or are currently asserted against the
Company based on the Company's or any of the Selling Shareholders' acts or
failures to act prior to the Closing Date with respect to hazardous substances
or hazardous wastes. As used herein, "Claim" shall mean any and all claims,
demands, orders, causes of action, suits, proceedings, administrative
proceedings, losses, judgments, decrees, debts, damages, liabilities, court
costs, attorneys' fees, and any other expenses incurred, assessed or sustained
by or against the Company or the Selling Shareholders.
(vi) To the best of the knowledge of the Company and the
Selling Shareholders, none of the properties owned, leased, or operated by the
Company or any predecessor thereof are now, or were in the past, listed on the
National Priorities List of Superfund Sites, the Comprehensive Environmental
Response, Compensation and Liability Information System, or any other state or
local environmental database.
(ac) Certain Payments. The Company has not, and no person directly
or indirectly on behalf of the Company has, made or received any payment that
was not legal to make or receive.
(ad) Customers. To the best of the knowledge and belief of the
Company and the Selling Shareholders, Schedule 2.1(ad) hereto lists all of the
customers of the Company for the year 1996 to date (such customers referred to
herein individually as a "Customer"). No single Customer of the Company
accounted for more than ten percent (10%) of the net sales or rentals of the
Company (calculated on a unit basis) during 1996. The Company has furnished
Purchaser with complete and accurate copies or descriptions of all current
agreements (written or unwritten) with such Customers. Neither the Company nor
any of the Selling Shareholders is aware of any event, happening, or fact which
would lead it or him to believe that any of such Customers will not continue its
current level of purchases and/or rentals after the Closing Date.
(ae) Books and Records. The books and records of the Company to
which Purchaser and its accountants and attorneys have been given access are the
true books and records of the Company and truly and fairly reflect the
underlying facts and transactions in all respects.
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(af) Complete Disclosure. To the best of the knowledge and belief of
the Company and the Selling Shareholders, no representation or warranty by the
Company or the Selling Shareholders in this Agreement, and no exhibit, schedule,
statement, certificate, or other writing furnished to Purchaser pursuant to this
Agreement or the Related Agreements or in connection with the transactions
contemplated hereby and thereby, contains or will contain any untrue statement
or omits or will omit to state any fact necessary to make the statements
contained herein and therein not materially misleading. If the Company or any of
the Selling Shareholders becomes aware of any fact or circumstance which would
change a representation or warranty of the Company or the Shareholders, the
Company and the Shareholders shall immediately give notice of such fact or
circumstance to Purchaser. However, such notification shall not relieve either
the Company or the Shareholders of their respective obligations under this
Agreement.
(ag) Leased Properties. The Financial Statements and Schedule
2.1(ag) hereto together list all personal property (including equipment leases)
and real property leased by the Company or by the Selling Shareholders in
connection with the Business (the "Leased Properties") and the aggregate annual
rent or other fees payable under all such leases. The Company has a valid
leasehold or ownership interest in all of the Leased Properties, free and clear
of any liens.
(ah) Employees and Employee Benefit Plans.
(i) Other than as set forth in Schedule 2.1(ah) hereto, the
Company is not a party to any pension, profit sharing, savings, retirement or
other deferred compensation plan, or any bonus (whether payable in cash or
stock) or incentive program, or any group health plan (whether insured or
self-funded), or any disability or group life insurance plan or other employee
welfare benefit plan, or to any collective bargaining agreement or other
agreement, written or oral, with any trade or labor union, employees'
association or similar organization. The Company is not a party to, nor has made
any contribution to or otherwise incurred any obligation under, any
"multi-employer plan" as defined in Section 3(37) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(ii) With respect to each such plan set forth in Schedule
2.1(ah) (a "Plan"), the Company has furnished to Purchaser or its counsel
complete and accurate copies of the Plan documents (including trust documents,
insurance policies or contracts, employee booklets, summary plan descriptions
and other authorizing documents, and any material employee communications). With
respect to each Plan subject to ERISA as either an employee pension benefit plan
within the meaning of Section 3(2) of ERISA or an employee welfare benefit plan
within the meaning of Section 3(l) of ERISA, the Company has prepared in good
faith and timely filed all requisite governmental reports and has properly and
timely posted, or distributed all notices and reports to employees required to
be filed, posted, or distributed with respect to each Plan. Each Plan has at all
times been properly and completely funded by the Company and has been operated
and administered in all respects in accordance with its terms and all applicable
laws, including, but not limited to, ERISA and the Code.
(iii) All Plans that are intended to qualify (the "Qualified
Plans") under Section 401(a) of the Code have been determined by the Internal
Revenue Service to be so qualified,
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and copies of such determination letters are included as part of Schedule
2.1(ah) hereof. Except as disclosed on Schedule 2.1(ah), all reports and other
documents required to be filed with any governmental agency or distributed to
plan participants or beneficiaries have been timely filed and distributed, and
copies thereof are included as part of Schedule 2.1(ah) hereof. The Company
further represents that:
(a) there have been no terminations, partial
terminations, or discontinuance of contributions to any such Qualified Plan
intended to qualify under Section 401(a) of the Code without notice to and
approval by the Internal Revenue Service;
(b) no such plan listed in Schedule 2.1(ah) subject to
the provisions of Title IV of ERISA has been terminated;
(c) there have been no "reportable events" (as that
phrase is defined in Section 4043 of ERISA) with respect to any such plan listed
in Schedule 2.1(ah); and
(d) The Company has not incurred any liability under
Section 4062 of ERISA.
(iv) Neither the Company nor any of the Selling Shareholders
has made any oral or written communications to its current or former employees
that guarantee current or former employees continuation of employer-provided
benefits or retirement coverage under the Company's welfare benefit plans or
which would have any effect on the Purchaser's ability to terminate retiree or
any other benefits to all current or former employees.
(v) To the best of the knowledge of the Company and the
Selling Shareholders, the Company has not violated any of the health care
continuation coverage requirements of the Consolidated Omnibus Budget
Reconciliation Act of 1985 applicable to its Employees prior to the Closing Date
or any prior actions of or transactions entered into by the Company or the
Selling Shareholders.
(ai) Compensation. The Company has delivered to Purchaser an
accurate schedule, attached to this Agreement as Schedule 2.1(ai), showing all
officers, directors, and key employees of the Company and the rate of
compensation (and the portions thereof attributable to salary, bonus, and other
compensation, respectively) of the directors, officers, and key employees.
(aj) Insurance. The Company maintains policies of insurance covering
the assets of the Company, properties, and Business in types and amounts as set
forth in Schedule 2.1(aj). To the best of the knowledge and belief of the
Company and the Selling Shareholders, the Company is in compliance with each of
such policies such that none of the coverage provided under such policies has
been invalidated and the Company has not received any written notice of
cancellation of any such policies. Schedule 2.1(aj) lists and describes all the
Company insurance policies in effect immediately prior to the time of Closing.
To the knowledge of the Company and the Selling Shareholders, such policies are
with reputable insurers and are in amounts sufficient for the prudent protection
of the properties and the Business of the Company.
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(ak) Accounts and Notes Receivable. Schedule 2.1(ak) hereto sets
forth all accounts and notes receivable of the Company ("Accounts Receivable").
Schedule 2.1(ak) shows the aging of Accounts Receivable in amounts due in
thirty-day aging categories. All Accounts Receivable represent sales or rentals
actually made or services actually performed in the ordinary and usual course of
the Company's business.
(al) Representations and Warranties on the Closing Date. The
Company's and the Selling Shareholders' representations and warranties contained
in this Article II shall be true on and as of the Closing Date with the same
force and effect as though such representations and warranties had been made on
such date, except to the extent any such representations and warranties were
made as of a specified date, in which case such representations and warranties
shall continue on the Closing Date to have been true in all material respects as
of such specified date.
Section 2.2 Representations and Warranties of Purchaser. Purchaser hereby
represents and warrants to each of the Companies and the Selling Shareholders
that immediately prior to the time of Closing:
(a) Organization and Standing. Purchaser is a corporation duly
organized and validly existing under the laws of the State of Georgia, and has
all requisite power and authority to lease, own, and operate its properties and
carry on the Business and operations and to directly own, lease, and operate its
assets. Purchaser has delivered to the Company complete and accurate copies of
its Certificate of Incorporation and Bylaws and all amendments thereto, and all
minutes and actions of its Board of Directors and shareholders. The Purchaser is
not in violation of any of the provisions of the Certificate of Incorporation or
the Bylaws.
(b) Capitalization and Ownership. The authorized and outstanding
capital stock of Purchaser and its par value per share, if any, is as set forth
on Schedule 2.2(b) hereto. Each person listed on Schedule 2.2(b) is the lawful
owner of that number of the issued and outstanding shares of capital stock of
Purchaser set forth opposite such person's name, free and clear of any
restrictions upon. The shares of Common Stock set forth on Schedule 2.2(b)
constitute all of the shares of capital stock of the Purchaser issued and
outstanding and have been duly authorized and validly issued, fully paid and
nonassessable, and to the best of the knowledge and belief of the Purchaser,
issued in compliance with all applicable federal and state securities laws.
Except as provided in this Agreement, there are no outstanding subscriptions,
warrants, calls, options, conversion rights, rights of exchange or other
commitments, plans, agreements, or arrangements of any nature under which the
Purchaser or its shareholders may be obligated to issue, assign, exchange,
purchase, redeem or transfer any shares of capital stock of the Purchaser, and
there are no shareholders' agreements to which the Purchaser or its shareholders
is a party, or proxies, voting trust agreements or similar agreements or options
executed by the Purchaser or to which the Common Stock is subject. There are no
outstanding subscriptions, options, warrants, rights, convertible securities or
other agreements or commitments of any character relating to the issued or
unissued capital stock or other securities of the Purchaser obligating the
Purchaser or, to the best knowledge of Purchaser, its shareholders to grant,
extend or enter into any subscription, option, warrant, right, convertible
security or other similar agreement or commitment. Upon issuance of shares of
Common Stock in exchange for the shares of the Company's Capital Stock, as set
forth herein, the Selling Shareholders shall acquire good and
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marketable title to the shares of Common Stock, free and clear of any liens,
pledges, encumbrances, security interests, charges, equities or restrictions of
any nature imposed by Purchaser except as set forth in this Agreement.
(c) Authorization. Purchaser has full corporate power and authority
to enter into this Agreement, the Related Agreements, to perform its obligations
hereunder and thereunder, and to consummate the transactions contemplated hereby
and thereby, including, without limitation, the execution and delivery of this
Agreement and the Related Agreements. Purchaser has taken all necessary and
appropriate corporate action with respect to the execution and delivery of this
Agreement and the Related Agreements. This Agreement and the Related Agreements
constitute valid and binding obligations of Purchaser, enforceable in accordance
with their respective terms; except as limited by applicable bankruptcy,
insolvency, moratorium, reorganization, or other laws affecting creditors'
rights and remedies generally, and general principles of equity.
(d) Brokers' and Finders' Fees/Contractual Limitations. Purchaser is
not obligated to pay any fees or expenses of any broker or finder in connection
with the origin, negotiation, or execution of this Agreement, the Related
Agreements, or in connection with any transactions contemplated hereby. Neither
Purchaser nor any officer, director, employee, agent, or representative of
Purchaser (collectively, the "Purchaser Representatives") is or has been subject
to any agreement, letter of intent, or understanding of any kind which
prohibits, limits, or restricts Purchaser or the Purchaser Representatives from
negotiating, entering into, and consummating this Agreement, the Related
Agreements, and the transactions contemplated hereby and thereby.
(e) Financial Condition. Purchase has an Actual Company Value of not
less than $990,941 and an Actual Net Tangible Asset Value of not less than
$913,941.
Section 2.3 Survival of Representations and Warranties. Purchaser's and
the Selling Shareholders representations and warranties contained in this
Article II shall survive the Closing for a period of twenty-four (24) months
from the Closing Date unless earlier terminated by exercise by the Selling
Shareholders of the Put Option (as defined in Section 6.3 hereof).
Section 2.4 Disclosure. Disclosure of any item on any schedule hereto
shall be deemed adequate disclosure of such item on all other schedules.
ARTICLE III
COVENANTS
Section 3.1 Covenants Against Disclosure. (a) The terms and provisions of
this Agreement, and any information heretofore disclosed or to be disclosed in
the future in connection herewith by any party hereto to any other party, other
than information which is in the public domain or which the disclosing party
authorizes the receiving party in writing to disclose (such terms, provisions
and information herein called the "Confidential Material") shall be treated
confidentially by the parties; provided that any party may disclose Confidential
Material of another party to the receiving party's employees, accountants,
attorneys and advisors who need to know the same (it being understood that
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they shall be informed by the receiving party of the confidential nature of the
Confidential Material, and that the receiving party shall cause them to treat
the same confidentially), and otherwise to the extent required by law. The
parties acknowledge that remedies at law would be inadequate to enforce the
covenants contained in this Section 3.1 and therefore agree that a party
aggrieved hereunder may enforce such covenants through the remedy of specific
performance or other equitable relief. Should an aggrieved party have cause to
seek such relief, no bond shall be required, and the breaching party shall pay
all attorney's fees and court costs which the aggrieved party may incur in
enforcing the provisions of this Section. The covenants contained in this
Section 3.1(a) shall survive until the expiration of the Put Option described in
Section 6.3 hereof.
(b) The parties shall, by mutual agreement, draft a press release for
public dissemination. No party shall disseminate (except to the parties to this
Agreement) any press release or announcement concerning the transactions
contemplated by this Agreement or the Related Agreements or the parties hereto
or thereto without the prior written consent of the Company and Purchaser,
except as required by law.
Section 3.2 Access to Information. The Company will give Purchaser and its
accountants, legal counsel, and other representatives reasonable access, during
normal business hours, at times mutually agreeable among the parties, to all of
the properties, books, contracts, commitments, and records relating to the
Business and the assets of the Company, and the Company will furnish to
Purchaser, its accountants, legal counsel and other representatives, at the
Company's expense (which expense shall not include the costs and fees of
Purchaser accountants, legal counsel, and other representatives), all such
information concerning the Business or the assets of the Company as Purchaser
may request. Purchaser agrees to indemnify and hold the Company harmless from
and against loss or damage the Company may incur as a result of Purchaser's
activities or the activities of Purchaser's agents, representatives or designees
upon property owned or occupied by the Company and against any and all claims
for death or injury to persons or properties arising out of or connected with
Purchaser's (or its agents', representatives' or designees') going upon such
property pursuant to the provisions of this Agreement. Such indemnification
shall be provided in accordance with the provisions of Article V hereof.
Section 3.3 Interim Period. During the period from the date of execution
hereof through the expiration date of the Put Option in accordance with the
provision of Section 6.3 hereof (the "Interim Period"):
(a) The Company shall continue to operate as a separate wholly-owned
subsidiary of the Purchaser. The Purchaser and the Crescent Shareholders hereby
agree that they will not take any action during the Interim Period to effect a
change in the Board of Directors or the management of the IGD subsidiary or
sell, assign, hypothecate or transfer any of the Capital Stock of the CGD
subsidiary without the consent of the IGD Board of Directors.
(b) The number of Directors of the Purchaser shall be eight (8).
Edward H. L. Mason shall be appointed to the Board of Directors of the Purchaser
on the Closing Date and may not be removed during the Interim Period except for
cause. If Mr. Mason shall be removed for cause or shall be unable or unwilling
to serve as a Director, the Selling Shareholders shall immediately appoint his
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successor. The parties acknowledge that after the Interim Period, the Board of
Directors of Purchaser is anticipated to expand through the addition of
independent directors and corporate acquisitions.
(c) During the Interim Period, all votes and action of the Board of
Directors of the Purchaser shall require unanimity, to the extent any such vote
or action relates to any of the following activities by the Purchaser: any
acquisition or disposition, any share issuance, any borrowing of funds, any
encumbrance to be created on property of the Purchaser, the issuance of any
guarantee and entering into any lease, agreement or other arrangement providing
for an expenditure exceeding $1,000.00. Notwithstanding the foregoing, that no
party hereto shall be entitled to vote in connection with any proposed action by
Directors relating to any alleged failure by such party to observe or perform
any of his or its obligations under this Agreement.
(d) The Board of Directors shall proceed promptly to discuss and
prepare a business plan for the Purchaser in light of the markets, operations,
personnel, expertise, financial condition and prospects of the Company, and such
other factors as the Board may deem relevant. The parties agree that the
Purchaser shall have a Technology Division, whereof Daniel Bailey shall be Chief
Executive Officer, and a Graphics Division, whereof William Rychel shall be
Chief Executive Officer, provided such individuals are able and willing to
serve. The parties shall use all reasonable efforts to promote the interests of
the Purchaser, including without limitation the diligent pursuit of all
activities relating to a public offering and the development of the business of
the respective companies.
(e) The parties acknowledge that all of the Schedules hereto are not
completed as of the date of execution of this Agreement. All missing or
incomplete Schedules shall be compiled and agreed upon by the parties within 15
days after such execution.
(f) The Purchaser shall exercise its reasonable best efforts to
obtain, effective as soon as reasonably practicable after the execution hereof,
a policy of directors' and officers' liability insurance, in such amounts and
covering such risks as normally are insured for by companies of approximately
the same size as, and engaged in businesses substantially similar to, Purchaser.
(g) Each of the Purchaser and the Company represent and warrant that
during the Interim Period it shall have sufficient Actual Company Value to
enable it to conduct its respective business in an ordinary course manner
without incurring any additional indebtedness.
Section 3.4 Special Crescent Covenants. By executing this Agreement,
Phillip C. Aginsky ("Aginsky") covenants and agrees that he shall cause Alongal
Extrusions, Inc. ("Alongal") duly to perform and observe all of the covenants,
agreements, representations and warranties of Alongal contained in this
Agreement. Dan I. Bailey, Peter Goletz, Michelle L. Lightman and William J.
Parillo agree with Alongal that they shall transfer all of their shares of
capital stock of the Purchaser to Alongal prior to the Closing Date in exchange
for an aggregate 49% interest in Alongal to be prorated among them according to
the capital stock of the Purchaser outstanding. Notwithstanding anything
contained in this Agreement, the Crescent Shareholders and the Purchaser consent
that all shares of capital stock of the Purchaser indicated in Schedule 2.1(b)
as not owned by Alongal shall be transferred to Alongal as contemplated by this
Section.
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Section 3.5 On and After Closing. Subject to the provisions of Section 6.3
hereof, on and after the Closing Date, none of the shares of stock of the
Purchaser which are subject to the escrow provisions of this Agreement shall be
transferred or pledged except pursuant to the provisions of this Agreement. The
voting rights with respect to such shares shall be exercisable by the owners of
such shares. Dividends, if any, declared on the Common Stock during the
effectiveness of such escrow provisions shall be paid to and reinvested by the
escrow agent as the parties shall agree.
Section 3.6 Non-Competition.
(a) Commencing as of the Closing Date and continuing for three (3)
years thereafter, each of the Selling Shareholders agree that he shall not
engage (except in his respective capacity as an employee of Purchaser if
applicable), directly or indirectly, whether on his own account or as a
shareholder (other than as a less than 1% shareholder of a publicly-held
company), partner, joint venturer, employee, consultant, advisor, and/or agent,
of any person, firm, corporation, or other entity, in any or all of the
following activities within a fifty (50) mile radius of the zero milepost of the
respective city in which each Company is located (the "Territory"):
(i) Enter into or engage in the businesses of computer systems
integration, wholesale distribution of computers or computer-peripherals, or
reseller activities in such products, including the wholesale purchase and
selling or leasing of computers and computer-peripheral equipment, data
communications equipment and software, or providing technical support or advice
to end users in relation to such products (such businesses are collectively
referred to herein as the "Protected Business"). As used herein, the term
Protected Business shall not, however, include the commission-based
representation of product manufacturers to facilitate sales of products by such
manufacturers directly to distributors, value-added resellers and end users
("Manufacturer Representation").
(ii) Solicit customers, suppliers, or business patronage in
the Territory which results in competition with the Purchaser or any of its
affiliates in the Protected Business;
(iii) Encourage or solicit any Employees of or service
providers to the Business, Purchaser, or any of its affiliates to leave the
employment of or terminate their service relationship with Purchaser or any of
its affiliates for any reason; or
(iv) Promote or assist, financially or otherwise, any person,
firm, association, corporation or other entity engaged in any aspect of the
Protected Business.
(b) If, in any judicial proceeding, a court shall refuse to enforce
in such action any of the covenants included herein, then at the option of
Purchaser or its affiliates, wholly unenforceable covenants shall be deemed
eliminated from the provisions hereof for the purpose of such proceeding to the
extent necessary to permit the remaining separate covenants to be enforced in
such a proceeding. The parties intend to have covenants enforceable to the
fullest extent of the law as to scope, time and geography.
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(c) The parties agree that due to the unique nature of the services
and capabilities of the Company and the Selling Shareholders, there can be no
adequate remedy at law for any breach of their respective obligations hereunder,
that any such breach may allow the Selling Shareholders and/or third parties to
unfairly compete with Purchaser or its affiliates resulting in irreparable harm
to Purchaser or its affiliates, and therefore, that upon any such breach or any
threat thereof, Purchaser or its affiliates shall be entitled to appropriate
equitable relief in addition to whatever remedies it might have at law.
(d) Each of the Selling Shareholders acknowledges, represents and
warrants to Purchaser that the covenants of each in this Section 3.6 are
reasonably necessary for the protection of Purchaser's interests under this
Agreement and are not unduly restrictive upon him.
(e) The parties hereto acknowledge that certain of the Selling
Shareholders are shareholders in IP Marketing, Inc., to be renamed Intelligent
Products Marketing, Inc. ("IPM") and that IPM and its shareholders have been and
are currently engaged as manufacturer's representatives in connection with
computer products, some of which products may be similar to or competitive with
products in which the Purchaser will be involved. The parties acknowledge that
the activities of IPM and its shareholders involve Manufacturer Representation.
Because the Protected Business does not include Manufacturer Representation, the
parties deem that the role of IPM and its shareholders in the product market is
materially different from that of the Purchaser. Accordingly, the parties (1)
waive any and all claims of breach of the non-competition provision of this
Agreement with respect to Manufacturer Representation activities carried on by
IPM and its shareholders prior to the date hereof; and (2) similarly waive any
and all claims of breach of such non-competition provision with respect to
future Manufacturer Representation engaged in by IPM and its shareholders.
(f) The waiver and exception contained in Section 3.6(e): (1) shall
not be construed to constitute a waiver or exception concerning any activity not
specifically described in Section 3.6(e), and (2) without limiting the
generality of the foregoing, shall not apply to any involvement by the Selling
Shareholders, whether directly or indirectly, in the ownership or management of
any entity engaged, either directly or indirectly, in systems integration, the
wholesale distribution of computers or computer-peripherals, or reseller
activities in such products, other than Manufacturer Representation.
Section 3.7 Further Assurances. On or after the Closing Date, each party
shall prepare, execute, and deliver, at the preparer's expense, such further
instruments, and shall take or cause to be taken such other or further action,
as any party shall reasonably request of any other party at any time or from
time to time in order to consummate, in any other manner, the terms and
provisions of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS
Section 4.1 Conditions to Obligations of Purchaser. Each and every
obligation of Purchaser to be performed on the Closing Date shall be subject to
the satisfaction on or before the Closing Date
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of the following conditions (unless waived in writing by Purchaser), and the
Company and the Selling Shareholders shall exercise all reasonable efforts in
good faith to satisfy such conditions:
(a) Representations and Warranties. The representations and
warranties of each of the Selling Shareholders and the Company set forth in
Section 2.1 of this Agreement shall have been true and correct when made and
shall be true and correct at and as of the Closing Date as if such
representations and warranties were made as of such date and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by the Company or each of the Selling Shareholders,
as the case may be, including Boards of Directors approval, shall have been
fully performed and complied with at or prior to the Closing Date.
(c) No Material Adverse Change. Since the date of the Unaudited
Financial Statements, there shall have occurred no material adverse change in
the financial condition, the Business, the assets of the Company, or properties
of the Company which adversely affects the conduct of the Business as presently
being conducted, the assets of the Company, or the financial condition or
properties of the Company.
(d) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(e) Due Diligence Review. Purchaser shall have completed to its
reasonable satisfaction its due diligence review of the Company and its
operations, the Business, the assets and financial condition of the Company, and
Purchaser shall have received favorable reviews from its advisors of the results
of their due diligence review of the Business.
(f) Certificate of President and Shareholders. The Company shall
have delivered to Purchaser a certificate executed by its President and the
Selling Shareholders, dated the date of the Closing Date, to the effect that the
conditions set forth in subsections (a)-(e) of this Section 4.1 have been
satisfied with respect to the Company and the Selling Shareholders.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to Purchaser under this Agreement shall be reasonably satisfactory to
Purchaser and its counsel.
(h) Execution of Related Agreements. Purchaser shall have received
fully executed copies of the Related Agreements.
(i) Licenses. Purchaser shall have received all licenses from all
appropriate governmental agencies to operate the Business in the same manner as
each of the Companies operated
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the Business prior to the Closing Date. This condition shall be deemed satisfied
in the event that the Purchaser fails to use reasonable diligence in applying
for and pursuing such licenses.
(j) Accounts Receivable; Inventory. The Company shall have delivered
to Purchaser receivables and inventory equal to at least seventy-five percent
(75%) of its Accounts Receivable (as reflected in Schedule 2.1(ak) hereto) and
Inventory (as reflected in Schedule 2.1(j) hereto) as of the date of this
Agreement.
(k) Stock Certificates. Each of the Selling Shareholders shall have
delivered the stock certificates representing his shares of Capital Stock, duly
endorsed for transfer to the Purchaser.
(l) Resignations. The officers and directors of the Company shall
have delivered to Purchaser their resignations, effective as of the expiration
of the Put Option in accordance with Section 6.3 hereof.
(m) Consents. Purchaser shall have received each and every consent,
approval and waiver (if any) required for the execution of this Agreement and
the consummation of the transactions contemplated hereby.
Section 4.2 Conditions to Obligations of the Company and the Selling
Shareholders. Each and every obligation of the Company and the Selling
Shareholders to be performed on the Closing Date shall be subject to the
satisfaction as of or before the Closing Date of the following conditions
(unless waived in writing by the Selling Shareholders or the Company), and the
Purchaser shall exercise all reasonable efforts in good faith to satisfy such
conditions:
(a) Representations and Warranties. The representations and
warranties of Purchaser set forth in Section 2.2 of this Agreement shall have
been true and correct when made and shall be true and correct on and as of the
Closing Date as if such representations and warranties were made as of such date
and time.
(b) Performance of Agreement. All covenants, conditions, and other
obligations under this Agreement and the Related Agreements which are to be
performed or complied with by Purchaser, as the case may be, including Board of
Directors and shareholder approval, as applicable, shall have been fully
performed and complied with at or prior to the Closing Date.
(c) Absence of Governmental or Other Objection. There shall be no
pending or threatened lawsuit challenging the transaction by any body or agency
of the federal, state, or local government or by any third party, and the
consummation of the transaction shall not have been enjoined by a court of
competent jurisdiction as of the Closing Date and any applicable waiting period
under any applicable federal law shall have expired.
(d) Certificate of Officers. Purchaser shall have delivered to the
Company a certificate executed by its authorized officer, dated the date of the
Closing Date, to the effect that the conditions set forth in subsections (a)-(c)
of this Section 4.2 have been satisfied.
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(e) Execution of Related Agreements. The Company shall have received
fully executed copies of the Related Agreements (and all other documents
required hereunder).
(f) Shareholder Employment Agreements. Purchaser shall have entered
into an employment agreement with Patrick McLaughlin in substantially the form
attached hereto as Exhibit 4.2(f) and providing for the services to be performed
principally at Pleasonton, California and for compensation of not less than
$125,000 per year.
(g) Approval of Documents. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to the Selling Shareholders under this Agreement shall be reasonably
satisfactory to each of the Selling Shareholders and their counsel.
(h) Directorships. At least one individual designated by the Company
shall have been duly appointed as a Director of the Purchaser.
(i) Insurance. The Purchaser shall have exercised its reasonable
best efforts to obtain a policy of directors' and officers' liability insurance,
in such amounts and covering such risks as normally are insured for by companies
of approximately the same size as, and engaged in businesses substantially
similar to, Purchaser.
ARTICLE V
INDEMNIFICATION
Section 5.1 Survival of Representations, Warranties, Covenants and
Agreements.
(a) All representations, warranties, covenants, and agreements of
the Company, the Selling Shareholders, and Purchaser shall survive the
execution, delivery, and performance of this Agreement for two years from the
Closing Date; provided, however, that the representations and warranties set
forth in Sections 2.1(b), 2.1(i) and 2.1(y) and the obligation of indemnity
therefor, and the agreements contained in Sections 1.2 and 3.3(e) shall survive
until the applicable statutes of limitations have expired. All representations
and warranties of the Company, the Selling Shareholders, and Purchaser set forth
in this Agreement shall be deemed to have been made again by the Company, the
Selling Shareholders and Purchaser on and as of the Closing Date.
(b) As used in this Article V, except as otherwise indicated in this
Article V, any reference to a representation, warranty, agreement, or covenant
contained in any section of this Agreement shall include the schedule relating
to such section.
Section 5.2 Indemnification of Purchaser.
Each of the Selling Shareholders hereby agrees to indemnify and hold
harmless Purchaser and its affiliates, the Companies and the other Selling
Shareholders (collectively the "Indemnified Parties") against any and all
losses, liabilities, damages, demands, claims, suits, actions, judgments, causes
of action, assessments, costs, and expenses, including, without limitation,
interest,
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<PAGE>
penalties, attorneys' fees, any and all expenses incurred in investigating,
preparing, and defending against any litigation, commenced or threatened, and
any claim whatsoever, and any and all amounts paid in settlement of any claim or
litigation (collectively, "Damages"), asserted against, resulting from, imposed
upon, or incurred or suffered by the Indemnified Parties directly or indirectly,
as a result of or arising from any inaccuracy in or breach or nonfulfillment of
any of the representations, warranties, covenants, or agreements made by the
Company or the Selling Shareholders in this Agreement or any facts or
circumstances constituting such an inaccuracy, breach, or nonfulfillment (all of
which shall be referred to as "Company Indemnifiable Claims").
Section 5.3 Indemnification of the Selling Shareholders. Purchaser hereby
agrees to indemnify and hold harmless each of the Selling Shareholders against
any and all Damages, asserted against, reasonably resulting from, imposed upon,
or incurred or suffered by such Selling Shareholders as a result of or arising
from any inaccuracy in or breach or nonfulfillment of any of the
representations, warranties, covenants, or agreements made by Purchaser in this
Agreement or the Related Agreements or any facts or circumstances constituting
such an inaccuracy, breach, or nonfulfillment or any claim for the Company or
Business liability disclosed to the Purchaser, and which are attributable to
occurrences on or after the Closing Date (all of which shall be referred to as
"Purchaser Indemnifiable Claims").
Section 5.4 Procedure for Indemnification with Respect to Third-Party
Claims.
(a) If any party hereto determines to seek indemnification (the
party seeking such indemnification hereinafter referred to as the "Indemnified
Party" and the party against whom such indemnification is sought is hereinafter
referred to as the "Indemnifying Party") under this Article V with respect to
Company Indemnifiable Claims where the Indemnified Party is Purchaser or any of
its affiliates or Purchaser Indemnifiable Claims where the Indemnified Party is
any of the Selling Shareholders (such Claims shall be referred to herein as
"Indemnifiable Claims") resulting from the assertion of liability by third
parties, the Indemnified Party shall give notice to the Indemnifying Parties
within 60 days of the Indemnified Party becoming aware of any such Indemnifiable
Claim or of facts upon which any such Indemnifiable Claim will be based; the
notice shall set forth such material information with respect thereto as is then
reasonably available to the Indemnified Party. In case any such liability is
asserted against the Indemnified Party or its affiliates, and the Indemnified
Party notifies the Indemnifying Parties thereof, the Indemnifying Parties will
be entitled, if such Indemnifying Parties so elect by written notice delivered
to the Indemnified Party within 20 days after receiving the Indemnified Party's
notice, to assume the defense thereof with counsel satisfactory to the
Indemnified Party. Notwithstanding the foregoing, (i) the Indemnified Party or
its affiliates shall also have the right to employ its own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of the
Indemnified Party unless the Indemnified Party or its affiliates shall
reasonably determine that there is a conflict of interest between or among the
Indemnified Party or its affiliates and any Indemnifying Party with respect to
such Indemnifiable Claim, in which case the fees and expenses of such counsel
will be borne by such Indemnifying Parties, (ii) the Indemnified Party shall
have no obligation to give any notice of any assertion of liability by a third
party unless such assertion is in writing, and (iii) the rights of the
Indemnified Party or its affiliates to be indemnified hereunder in respect of
Indemnifiable Claims resulting from the assertion of liability by third parties
shall not be adversely affected by their failure to give notice pursuant to the
foregoing unless, and, if
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<PAGE>
so, only to the extent that, such Indemnifying Parties are materially prejudiced
thereby; provided, however, the Indemnifying Party shall not be liable for
attorneys fees and expenses incurred by the Indemnified Party prior to the
Indemnified Party's giving notice to the Indemnifying Party of an Indemnifiable
Claim. With respect to any assertion of liability by a third party that results
in an Indemnifiable Claim, the parties hereto shall make available to each other
all relevant information in their possession material to any such assertion.
(b) In the event that such Indemnifying Parties, within 20 days
after receipt of the aforesaid notice of an Indemnifiable Claim fail to assume
the defense of the Indemnified Party or its affiliates against such
Indemnifiable Claim, the Indemnified Party or its affiliates shall have the
right to undertake the defense, compromise, or settlement of such action on
behalf of and for the account, expense, and risk of such Indemnifying Parties.
(c) Notwithstanding anything in this Article V to the contrary, (i)
if there is a reasonable probability that an Indemnifiable Claim may materially
adversely affect the Indemnified Party or its affiliates, the Indemnified Party
or its affiliates shall have the right to participate in such defense,
compromise, or settlement and such Indemnifying Parties shall not, without the
Indemnified Party's written consent (which consent shall not be unreasonably
withheld), settle or compromise any Indemnifiable Claim or consent to entry of
any judgment in respect thereof unless such settlement, compromise, or consent
includes as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party a release from all liability in respect of
such Indemnifiable Claim.
Section 5.5 Procedure For Indemnification with Respect to Non-Third Party
Claims. In the event that the Indemnified Party asserts the existence of a claim
giving rise to Damages (but excluding claims resulting from the assertion of
liability by third parties), it shall give written notice to the Indemnifying
Parties. Such written notice shall state that it is being given pursuant to this
Section 5.5, specify the nature and amount of the claim asserted and indicate
the date on which such assertion shall be deemed accepted and the amount of the
claim deemed a valid claim (such date to be established in accordance with the
next sentence). If such Indemnifying Parties, within 30 days after the mailing
of notice by the Indemnified Party, shall not give written notice to the
Indemnified Party announcing their intent to contest such assertion of the
Indemnified Party, such assertion shall be deemed accepted and the amount of
claim shall be deemed a valid claim. In the event, however, that such
Indemnifying Parties contest the assertion of a claim by giving such written
notice to the Indemnified Party within said period, then the parties shall act
in good faith to reach agreement regarding such claim. If the parties hereto,
acting in good faith, cannot reach agreement with respect to such claim within
ten (10) days after notice thereof, such claim will be submitted to and settled
by arbitration pursuant to Section 7.11 hereof.
Section 5.6 Escrowed Shares. Each of the Selling Shareholders shall escrow
twenty percent (20%) of the Common Stock to be issued to such Selling
Shareholder to be available for distribution to Purchaser in the event of an
Indemnified Claim not paid in cash by the Indemnifying Party. Such escrow shall
expire on the date not less than two (2) years and sixty (60) days after the
Date of Closing, when there shall be no pending Indemnification Claim for which
notice has been given under Section 5.4, and upon such expiration any original
share certificates shall be delivered to the owners
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thereof. Not later than the Closing Date The parties shall enter into a Pledge,
Security and Escrow Agreement in substantially the form and substance attached
hereto as Exhibit 5.6.
ARTICLE VI
TERMINATION AND CONDITIONS SUBSEQUENT
Section 6.1 Termination. (a) At any time prior to the time of Closing,
this Agreement may be terminated by express written consent of Purchaser and
each of the Selling Shareholders.
(b) Purchaser may terminate this Agreement in the event the
conditions set forth in Section 4.1 of this Agreement have not been satisfied or
waived prior to the time of Closing.
(c) Each of the Selling Shareholders may terminate this Agreement in
the event the conditions set forth in Section 4.2 of this Agreement have not
been satisfied or waived prior to the time of Closing.
(d) If the failure of such conditions to be fulfilled arises from
the fault or intentional act of a party hereto, such party shall be liable to
the other parties up to the amount of the documented out-of-pocket expense
incurred by such parties in negotiating, structuring and documenting the
transaction contemplated by this Agreement. No party shall be responsible for
indirect, special or expectancy damages for such nonfulfillment of conditions.
Section 6.2 Effect of Termination. In the event of termination as provided
in Section 6.1 above, Sections 3.1, 7.4 and 7.11 shall survive such termination
and continue in full force and effect.
Section 6.3 Conditions Subsequent to Obligations.
(a) In the event that the Purchaser has been unable to procure
exclusive distribution agreements with manufacturers of high end graphic
technology products to the satisfaction of the Selling Shareholders prior to
September 30, 1997 (the "Put Date"), the Selling Shareholders shall have the
right to put all, but not less than all, of the shares of the Purchaser received
by them in connection with this Agreement to the Purchaser (the "Put Option")
and the Purchaser shall be obligated to repurchase such shares from the Selling
Shareholders.
(b) The Put Option may be exercised by the Selling Shareholders at
any time prior to the Put Date by delivery of written notice of exercise to
Purchaser.
(c) Upon exercise of the Put Option in accordance with this Section
6.3, Purchaser shall return to the Selling Shareholders, in the respective
amounts set forth on Schedule 2.1(b), all of the shares of Capital Stock of the
Company delivered to Purchaser pursuant to the provisions of Article I. Delivery
of the certificates by each of the parties shall take place no more than five
business days after the date of such notice at the offices of the Purchaser.
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ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 7.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
7.1. Any party delivering notice to Purchaser shall deliver a copy to: Sheldon
E. Misher, Bachner, Tally, Polevoy & Misher LLP, 380 Madison Avenue, New York,
New York 10017. All notices and communications shall be deemed to have been
received unless otherwise set forth herein: (i) in the case of personal
delivery, on the date of such delivery; (ii) in the case of telex or facsimile
transmission, on the date on which the sender receives confirmation by telex or
facsimile transmission that such notice was received by the addressee, provided
that a copy of such transmission is additionally sent by mail as set forth in
(iv) below; (iii) in the case of overnight air courier, on the second business
day following the day sent, with receipt confirmed by the overnight courier; and
(iv) in the case of mailing by first class certified or registered mail, postage
prepaid, return receipt requested, on the fifth business day following such
mailing.
Section 7.2 Entire Agreement. This Agreement, the exhibits and schedules
hereto, and the documents referred to herein embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to said subject matter.
Section 7.3 Binding Effect: Assignment. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon the Company and the Selling Shareholders, their respective
successors and permitted assigns, and Purchaser and its successors and permitted
assigns. Neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be transferred or assigned (by operation of law or otherwise) by
any of the parties hereto without the prior written consent of the other
parties; provided, however, that Purchaser may assign its rights hereunder in
connection with any sale of all or substantially all of Purchaser's assets or
any merger, consolidation, or conversion of Purchaser.
Section 7.4 Expenses of Transaction. The Selling Shareholders shall pay
the Selling Shareholders' professional fees and expenses incurred in connection
with the negotiation and closing of this Agreement and the Related Agreements,
including, without limitation the expenses of the preparation of Annual
Financial Statements. The Selling Shareholders shall also pay all the Selling
Shareholders' applicable sales, income, use, excise, transfer, documentary, and
any other taxes arising out of the transactions contemplated herein. The Company
shall pay 9%, as adjusted pursuant to Section 1.3, of all professional fees and
expenses incurred by Purchaser in connection with the negotiation and closing of
this Agreement and the Related Agreements. Upon expiration of the Put Option
unexercised, Purchaser shall reimburse the Selling Shareholders for all
Purchaser's expenses and fees paid by the Company.
Section 7.5 Waiver; Consent. This Agreement may not be changed, amended,
terminated, augmented, rescinded, or discharged (other than by performance), in
whole or in part, except by a
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writing executed by the parties hereto, and no waiver of any of the provisions
or conditions of this Agreement or any of the rights of a party hereto shall be
effective or binding unless such waiver shall be in writing and signed by the
party claimed to have given or consented thereto. Except to the extent that a
party hereto may have otherwise agreed in writing, no waiver by that party of
any condition of this Agreement or breach by the other party of any of its
obligations or representations hereunder or thereunder shall be deemed to be a
waiver of any other condition or subsequent or prior breach of the same or any
other obligation or representation by the other party, nor shall any forbearance
by the first party to seek a remedy for any noncompliance or breach by the other
party be deemed to be a waiver by the first party of its rights and remedies
with respect to such noncompliance or breach.
Section 7.6 Counterparts. This Agreement may be executed simultaneously in
multiple counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
Section 7.7 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
Section 7.8 Remedies of the Parties. The Company and the Selling
Shareholders acknowledge that, in addition to all other remedies to which
Purchaser is entitled, Purchaser shall have the right to enforce the terms of
this Agreement by a decree of specific performance, provided Purchaser is not in
material default hereunder. The parties also agree that the rights and remedies
of each party to this Agreement set forth in this Agreement and in all of the
exhibits and schedules attached hereto and documents referred to herein shall be
cumulative and share inure to the benefit of each such party.
Section 7.9 Governing Law. This Agreement shall in all respects be
construed in accordance with and governed by the laws of the State of Georgia.
Section 7.10 Arbitration; Attorneys' Fees.
(a) The parties agree to use reasonable efforts to resolve any
dispute arising out of this Agreement, but should a dispute remain unresolved
ten (10) days following notice of the dispute to the other party (but in no
event prior to said ten (10) days, except as specifically provided otherwise
herein), such dispute shall be finally settled by binding arbitration in
Atlanta, Georgia in accordance with the then current Commercial Arbitration
Rules of the American Arbitration Association (the "AAA") or such other
mediation or arbitration service as shall be mutually agreeable to the parties,
and judgment upon the award rendered by the arbitrator shall be final and
binding on the parties and may be entered in any court having jurisdiction
thereof; provided, however, that any party shall be entitled to appeal a
question of law or determination of law to a court of competent jurisdiction;
and provided, further, however, that the parties may first seek appropriate
injunctive relief prior to, and/or in addition to pursuing negotiation or
arbitration. Such arbitration shall be conducted by an arbitrator chosen by
mutual agreement of the parties, or failing such agreement, an arbitrator
appointed by the AAA. There shall be limited discovery prior to the arbitration
hearing as
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follows: (a) exchange of witness lists and copies of documentary evidence and
documents related to or arising out of the issues to be arbitrated, (b)
depositions of all party witnesses, and (c) such other depositions as may be
allowed by the arbitrator upon a showing of good cause. Depositions shall be
conducted in accordance with the Georgia Code of Civil Procedure and questions
of evidence in any hearings shall be resolved in accordance with the Federal
Rules of Evidence. The arbitrator shall be required to provide in writing to the
parties the basis for the award or order of such arbitrator, and a court
reporter shall record all hearings (unless otherwise agreed to by the parties),
with such record constituting the official transcript of such proceedings.
(b) In the event of arbitration or litigation filed or instituted
between the parties with respect to this Agreement or the Related Agreements,
the prevailing party will be entitled to receive from the other party all costs,
damages and expenses, including reasonable attorney's fees, incurred by the
prevailing party in connection with that action or proceeding whether or not the
controversy is reduced to judgment or award. The prevailing party will be that
party who may be fairly said by the arbitrator(s) or the court to have prevailed
on the major disputed issues.
Section 7.11 Cooperation and Records Retention. Each of the Selling
Shareholders and Purchaser shall (i) provide the other with access to such
records, original or copies, or assistance as may reasonably be requested by
them in connection with the preparation of any Tax Return, in connection with
any audit or other examination by any Taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, or financial
reporting obligations, (ii) each retain and provide the other, with any records
or other information which may be relevant to any such Tax Return, audit or
examination, proceeding or determination, or financial reporting obligations,
and (iii) each provide the other with any final determination of any such audit
or examination, proceeding or determination that affects any amount required to
be shown on any Tax Return of the other for any period. All Tax Returns,
supporting work schedules and other records or information which may be relevant
to such Tax Returns for all tax periods or portions thereof ending before or
including the Closing Date shall remain with Purchaser or the Company and shall
be made available for inspection and copying by the parties hereto during normal
business hours.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC. as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
Dan I. Bailey /s/ Dan I. Bailey
Peter Goletz /s/ Peter Goletz
Michelle L. Lightman /s/ Michelle L. Lightman
William J. Parillo /s/ William J. Parillo
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INTELLIGENT PRODUCTS MARKETING, INC.
AND IG DISTRIBUTION, INC., d/b/a Intelligent
Graphics Distribution
By: /s/ Edward H. L. Mason
-----------------------------------
Name: EDWARD H. L. MASON
Title: PRESIDENT (BOTH COMPANIES)
Address: 7020 Koll Center Parkway
Suite 100
Pleasanton, CA 94566
SHAREHOLDERS:
/s/ Edward H.L. Mason
Edward H. L.Mason and Margaret M. Mason or
Any Successor Trustee(s) Under Trust Agreement Dated
12/15/77, as Amended
Address: 90 St. Andrews Lane
Alamo, CA 94507
/s/ Margaret Mason
-----------------------------
Margaret Mason
Address: 90 St. Andrews Lane
Alamo, CA 94507
/s/ E. Jeffrey Mason
-----------------------------
E. Jeffery Mason and Diana Mason, as
Community Property
Address: 353 Canterbury Ct.
Alamo, CA 94507
/s/ Christopher B. Mason
-----------------------------
Christopher B. Mason and Jerri Mason as Trustees of the
C&J Mason Trust Dated February 29, 1996
Address: 436 Red Wing Drive
Danville, CA 94526
/s/ Patrick J. McLaughlin
-----------------------------
Patrick J. McLaughlin and Jennifer Mason-
McLaughlin, as Community Property
Address: 437 Coventing Place
Danville, CA 94506
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AMENDMENT TO STOCK PURCHASE AGREEMENT
AMENDMENT dated as of June 2, 1997 to the Stock Purchase Agreement dated
as of May 1, 1997 (the "Stock Purchase Agreement") by and among Crescent
Computers, Inc., a Georgia corporation (the "Purchaser"), the shareholders of
the Purchaser set forth on the signature page of the Stock Purchase Agreement
(the "Crescent Shareholders"), Intelligent Products Marketing, Inc., a
California corporation and IG Distributing, Inc., a California corporation,
together doing business as Intelligent Graphics Distribution (collectively,
"IGD"), and the shareholders of IGD set forth on the signature page of the Stock
Purchase Agreement (the "Selling Shareholders"). All terms used in this
Amendment, unless otherwise defined herein, shall have such meaning as ascribed
to them in the Stock Purchase Agreement.
WHEREAS, pursuant to the Stock Purchase Agreement, the Purchaser agreed to
purchase all of the issued and outstanding shares of capital stock of IGD held
by the Selling Shareholders (the "Acquisition"); and
WHEREAS, in connection with the Acquisition, the parties hereto desire to
amend certain provisions of the Stock Purchase Agreement as set forth in this
Agreement in accordance with the provisions of Section 7.5 of the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties intending to be legally bound, hereby agree
as follows:
A. Amendments to Stock Purchase Agreement. The Stock Purchase Agreement is
hereby amended as follows:
(1) Section 2.3 of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"Section 2.3 Survival of Representations and Warranties:
Purchaser's and the Selling Shareholders' representations and
warranties contained in this Article II shall survive the Closing
for a period of twenty-four (24) months from the Closing Date."
(2) The last sentence of Section 3.1(a) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The covenants contained in this Section 3.1(a) shall survive
until one hundred twenty (120) days from the Closing Date."
(3) The introductory paragraph of Section 3.3 of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
paragraph:
"Section 3.3Interim Period. During the period from the date of
execution hereof through November 1, 1997 or prior thereto upon the
unanimous consent of the Board of Directors of the Purchaser (the
"Interim Period"):"
-1-
<PAGE>
(4) Section 3.3(a) of the Stock Purchase Agreement is deleted in its
entirety.
(5) The first sentence of Section 3.3(b) of the Stock Purchase
Agreement is deleted in its entirety and replaced with the following
sentence:
"The number of Directors of the Purchaser shall be seven (7)."
(6) Section 3.3(g) of the Stock Purchase Agreement is deleted in its
entirety.
(7) The first eight words of Section 3.5 of the Stock Purchase
Agreement are deleted in their entirety so that Section 3.5 begins with
the words "On and after."
(8) Section 4.1(1) of the Stock Purchase Agreement is deleted in its
entirety and replaced with the following new paragraph:
"(1) Resignations: The officers and directors of the Company
shall have delivered to Purchaser their resignations, effective as
of the Closing Date."
(9) Section 6.3 of the Stock Purchase Agreement is deleted in its
entirety.
(10) The last sentence of Section 7.4 of the Stock Purchase
Agreement is deleted in its entirety.
B. Full Force and Effect. Except as provided herein, all other terms and
provisions of the Stock Purchase Agreement shall remain in full force and
effect.
C. Counterparts. This Amendment may be executed in one or more
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the date first above written.
CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
---------------------
Dan I. Bailey
President
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
-2-
<PAGE>
SHAREHOLDERS:
ALONGAL EXTRUSIONS, INC., as Attorney-in-Fact
for Anita, Ltd.
By: /s/ Phillip C. Aginsky
-----------------------------------------
Phillip C. Aginsky, President
Address: 1100 S. Tower 225 Peachtree St. N.E.
Atlanta, GA 30303
/s/ Phillip C. Aginsky
---------------------------------------------
Phillip C. Aginsky
Address: 2979 Pacific Drive, Suite B
Norcross, GA 30071
/s/ Dan I. Bailey
---------------------------------------------
Dan I. Bailey
/s/ Peter Goletz
---------------------------------------------
Peter Goletz
/s/ Michelle L. Lightman
---------------------------------------------
Michelle L. Lightman
/s/ William J. Parillo
---------------------------------------------
William J. Parillo
INTELLIGENT PRODUCTS MARKETING, INC.
AND IG DISTRIBUTION, INC., d/b/a Intelligent
Graphics Distribution
By: /s/ Edward H.L. Mason
-----------------------------------------
Name: Edward H.L. Mason
Title: President
Address: 7020 Koll Center Parkway
Suite 100
Pleasanton, CA 94566
-3-
<PAGE>
SHAREHOLDERS:
/s/ Edward H. L. Mason Margaret M. Mason
-----------------------------------------------------
Edward H. L. Mason and Margaret M. Mason or
Any Successor Trustee(s) Under Trust Agreement Dated
12/15/77, as Amended
Address:
/s/ E. Jeffery Mason Diana Mason
-----------------------------------------------------
E. Jeffery Mason and Diana Mason, as
Community Property
Address:
/s/ Christopher B. Mason Jerri Mason
-----------------------------------------------------
Christopher B. Mason and Jerri Mason as Trustees of the
C&J Mason Trust Dated February 29, 1996
Address:
/s/ Patrick J. McLaughlin Jennifer Mason-McLaughlin
-----------------------------------------------------
Patrick J. McLaughlin and Jennifer Mason-
McLaughlin, as Community Property
Address:
-4-
ESCROW AGREEMENT
AGREEMENT, dated as of the th day of August, 1997 and effective as
of the Effective Date, as defined herein, by and among American Stock Transfer &
Trust Company, a New York corporation (hereinafter referred to as the "Escrow
Agent"), Tekgraf, Inc., a Delaware corporation (the "Company"), and the
stockholders of the Company who have executed this agreement (hereinafter
collectively called the "Stockholders").
WHEREAS, the Company contemplates a public offering ("Public
Offering") of units ("Units"), each Unit consisting of one share of its Class A
Common Stock, par value $.001 per share (the "Class A Common Stock"), and one
redeemable Class A Warrant (the "Class A Warrant") through D. H. Blair
Investment Banking Corp., as managing underwriter (the "Underwriter") pursuant
to a Registration Statement (the "Registration Statement") on Form S-1 filed
with the Securities and Exchange Commission ("SEC"); and
WHEREAS, the Stockholders have agreed to deposit in escrow an
aggregate of 200,000 shares of Class B Common Stock (hereinafter referred to
collectively with the Class A Common Stock, as "Common Stock), upon the terms
and conditions set forth herein.
In consideration of the mutual covenants and promises herein
contained, the parties hereto agree as follows:
1. The Stockholders and the Company hereby appoint American Stock
Transfer & Trust Company as Escrow Agent and agree that the Stockholders will,
prior to the filing of the Registration Statement relating to the Public
Offering, deliver to the Escrow Agent to hold in accordance with the provisions
hereof, certificates representing an aggregate of 200,000 shares of Common Stock
owned of record by the Stockholders in the respective amounts set forth on
Exhibit A hereto (the "Escrow Shares"), together with stock powers executed in
blank. The Escrow Agent, by its execution and delivery of this Agreement, hereby
acknowledges receipt of the Escrow Shares and accepts its appointment as Escrow
Agent to hold the Escrow Shares in escrow, upon the terms, provisions and
conditions hereof.
2. This Agreement shall become effective upon the date on which the
Securities and Exchange Commission declares effective the Registration Statement
("Effective Date") and shall continue in effect until the earlier of (i) the
date specified in paragraph 4(e) hereof or (ii) the distribution by the Escrow
Agent of all of the Escrow Shares in accordance with the terms hereof (the
"Termination Date"). The period of time from the Effective Date until the
Termination Date is referred to herein as the "Escrow Period."
3. During the Escrow Period, the Escrow Agent shall receive all of
the money, securities, rights or property distributed in respect of the Escrow
Shares then held in escrow, including any such property distributed as dividends
or pursuant to any stock split,
<PAGE>
merger, recapitalization, dissolution, or total or partial liquidation of the
Company, such property to be held and distributed as herein provided and
hereinafter referred to collectively as the "Escrow Property."
4. (a) The Escrow Shares are subject to release to the Stockholders
only in the event the conditions set forth herein are met. The Escrow Agent,
upon notice to such effect from the Company as provided in paragraph 5 hereof,
shall deliver the Escrow Shares, together with stock powers executed in blank,
and the Escrow Property deposited in escrow with respect to such Escrow Shares,
to the respective Stockholders, if, and only if, one of the following conditions
is met:
(i) the Company's net income before provision for Federal, state
and local income taxes (the "Minimum Pretax Income") equals or
exceeds $8,700,000 for the fiscal year ending December
31,1998; or
(ii) the Minimum Pretax Income equals or exceeds $17,900,000 for
the fiscal year ending December 31,1999; or
(iii) The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $13.50 per share for any 30
consecutive business days during the period commencing on the
Effective Date and ending 18 months from the Effective Date;
or
(iv) The Closing Price (as defined herein) of the Company's Common
Stock shall average in excess of $16.75 per share for any 30
consecutive business days during the period commencing on the
19 month after the Effective Date and ending 36 months from
the Effective Date.
(b) As used in this Section 4, the term "Closing Price" shall be subject
to adjustments in the event of any stock dividend, stock distribution, stock
split or other similar event and shall mean:
(i) If the principal market for the Common Stock is a national
securities exchange or the Nasdaq National Market, the closing
sales price of the Common Stock as reported by such exchange
or market, or on a consolidated tape reflecting transactions
on such exchange or market; or
(ii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the
Common Stock is quoted on the Nasdaq SmallCap Market, the
closing bid price of the Common Stock as quoted on the Nasdaq
SmallCap Market; or
(iii) if the principal market for the Common Stock is not a national
securities exchange or the Nasdaq National Market and the
Common Stock is not
-2-
<PAGE>
quoted on the Nasdaq SmallCap Market, the closing bid for the
Common Stock as reported by the National Quotation Bureau,
Inc. ("NQB") or at least two market makers in the Common Stock
if quotations are not available from NQB but are available
from market makers.
(c) The determination of Minimum Pretax Income shall be determined by the
Company's independent public accountants in accordance with U.S. generally
accepted accounting principles provided that such determination is calculated
exclusive of any extraordinary earnings or charges (including any charges
incurred by the Company in connection with the release from escrow of the Escrow
Shares and any Escrow Property in respect thereof pursuant to the provisions of
this paragraph 4).
(d) In the event of any issuance (such issuance being herein called a
"Change of Shares") of additional shares of Common Stock (or securities
convertible into or exchangeable for Common Stock without the payment of
additional consideration, referred to as "Convertible Securities") after the
Effective Date, then each of the Minimum Pretax Income amounts set forth in
subparagraph (a) above shall be increased to an amount (the "Adjusted Minimum
Pretax Income") calculated in accordance with the formula set forth in
subparagraph (ii) below.
(i) For purposes of the foregoing paragraph, a Change of Shares
shall exclude shares of Common Stock sold in the Public
Offering or Common Stock or Convertible Securities issued in
connection with a stock split or stock dividend or
distribution but shall include any shares of Common Stock or
Convertible Securities that are issued upon the exercise of
the Class A Warrants, the Class B Warrants or any other
options or warrants outstanding as of the Effective Date or
granted after the Effective Date by the Company (excluding
options granted under the Company's 1997 Stock Option Plan
which, in the aggregate, do not exceed 10% of the then
outstanding shares of Common Stock and Convertible Securities,
including Escrow Shares).
(ii) Each Adjusted Minimum Pretax Income amount shall be calculated
by multiplying the applicable Minimum Pretax Income amount
prior to the Change of Shares by a fraction, the numerator of
which shall be the weighted average number of shares of Common
Stock outstanding during the fiscal year for which the
determination is being made (including the Escrow Shares and
any shares of Common Stock issuable upon conversion of any
Convertible Securities, but excluding treasury stock), and the
denominator of which shall be the sum of (x) the number of
shares of Common Stock outstanding on the Effective Date
(including the Escrow Shares and any shares of Common Stock
issuable upon conversion of Convertible Securities outstanding
immediately prior to the Effective Date) plus (y) the number
of shares of Common Stock sold by the Company pursuant to the
Prospectus included in the Registration
-3-
<PAGE>
Statement, after adjustment for any stock dividends, stock
splits or similar events. The Adjusted Minimum Pretax Income
amounts shall be calculated successively whenever such a
Change of Shares occurs.
(e) After each adjustment of the Minimum Pretax Income amounts pursuant to
this Section 4, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Minimum Pretax Income amounts as so adjusted, and (ii) a statement showing in
detail the calculation of the adjustment in the Minimum Pretax Income amounts
and the facts upon which such adjustment is based. The Company will promptly
file such certificate with the Escrow Agent and furnish a copy thereof to be
sent no later than thirty (30) days after the adjustment by ordinary first class
mail to the Underwriter and to the Stockholders at their respective addresses
set forth on Exhibit A hereto. The Company will, upon the written request at any
time of the Underwriter, furnish to the Underwriter a report by Coopers &
Lybrand LLP, or other independent public accountants of recognized national
standing (which may be the regular auditors of the Company) selected by the
Company to verify such computation and setting forth such adjustment and showing
in detail the method of calculation and the facts upon which such adjustment is
based. The Company will also keep copies of all such certificates and reports at
its principal office.
(f) If the Escrow Agent has not received the notice provided for in
Paragraph 5 hereof and delivered all of the Escrow Shares and related Escrow
Property in accordance with the provisions of this Paragraph 4 on or prior to
March 31, 2001, the Escrow Agent shall deliver the certificates representing all
Escrow Shares, together with stock powers executed in blank, and any related
Escrow Property to the Company to be placed in the Company's treasury for
cancellation thereof as a contribution to capital. After such date, the
Stockholders shall have no further rights as a stockholder of the Company with
respect to any of the cancelled Escrow Shares.
5. Upon the occurrence or satisfaction of any of the events or
conditions specified in Paragraph 4 hereof, the Company shall promptly give
appropriate notice to the Escrow Agent, the Underwriter (and if the transfer
agent of the Company's Common Stock is different from the Escrow Agent, such
transfer agent) and present such documentation as is reasonably required by the
Escrow Agent to evidence the satisfaction of such conditions.
6. It is understood and agreed by the parties to this Agreement as
follows:
(a) The Escrow Agent is not and shall not be deemed to be a
trustee for any party for any purpose and is merely acting as a depository and
in a ministerial capacity hereunder with the limited duties herein prescribed.
(b) The Escrow Agent does not have and shall not be deemed to
have any responsibility in respect of any instruction, certificate or notice
delivered to it or of the Escrow Shares or any related Escrow Property other
than faithfully to carry out the obligations
-4-
<PAGE>
undertaken in this Agreement and to follow the directions in such instruction or
notice provided in accordance with the terms hereof.
(c) The Escrow Agent is not and shall not be deemed to be
liable for any action taken or omitted by it in good faith and may rely upon,
and act in accordance with, the advice of its counsel without liability on its
part for any action taken or omitted in accordance with such advice. In any
event, its liability hereunder shall be limited to liability for gross
negligence, willful misconduct or bad faith on its part.
(d) The Escrow Agent may conclusively rely upon and act in
accordance with any certificate, instruction, notice, letter, telegram,
cablegram or other written instrument believed by it to be genuine and to have
been signed by the proper party or parties.
(e) The Company agrees (i) to pay the Escrow Agent's
reasonable fees and to reimburse it for its reasonable expenses including
attorney's fees incurred in connection with duties hereunder and (ii) to save
harmless, indemnify and defend the Escrow Agent for, from and against any loss,
damage, liability, judgment, cost and expense whatsoever, including counsel
fees, suffered or incurred by it by reason of, or on account of, any
misrepresentation made to it or its status or activities as Escrow Agent under
this Agreement except for any loss, damage, liability, judgment, cost or expense
resulting from gross negligence, willful misconduct or bad faith on the part of
the Escrow Agent. The obligation of the Escrow Agent to deliver the Escrow
Shares to either the Stockholders or the Company shall be subject to the prior
satisfaction upon demand from the Escrow Agent, of the Company's obligations to
so save harmless, indemnify and defend the Escrow Agent and to reimburse the
Escrow Agent or otherwise pay its fees and expenses hereunder.
(f) The Escrow Agent shall not be required to defend any legal
proceeding which may be instituted against it in respect of the subject matter
of this Agreement unless requested to do so by the Stockholders and indemnified
to the Escrow Agent's satisfaction against the cost and expense of such defense
by the party requesting such defense. If any such legal proceeding is instituted
against it, the Escrow Agent agrees promptly to given notice of such proceeding
to the Stockholders and the Company. The Escrow Agent shall not be required to
institute legal proceedings of any kind.
(g) The Escrow Agent shall not, by act, delay, omission or
otherwise, be deemed to have waived any right or remedy it may have either under
this Agreement or generally, unless such waiver be in writing, and no waiver
shall be valid unless it is in writing, signed by the Escrow Agent, and only to
the extent expressly therein set forth. A waiver by the Escrow Agent under the
term of this Agreement shall not be construed as a bar to, or waiver of, the
same or any other such right or remedy which it would otherwise have on any
other occasion.
(h) The Escrow Agent may resign as such hereunder by giving 30
days written notice thereof to the Stockholders and the Company. Within 20 days
after receipt of such notice, the Stockholders and the Company shall furnish to
the Escrow Agent written instructions
-5-
<PAGE>
for the release of the Escrow Shares and any related Escrow Property (if such
shares and property, if any, have not yet been released pursuant to Paragraph 4
hereof) to a substitute Escrow Agent which (whether designated by written
instructions from the Stockholders and the Company jointly or in the absence
thereof by instructions from a court of competent jurisdiction to the Escrow
Agent) shall be a bank or trust company organized and doing business under the
laws of the United States or any state thereof. Such substitute Escrow Agent
shall thereafter hold any Escrow Shares and any related Escrow Property received
by it pursuant to the terms of this Agreement and otherwise act hereunder as if
it were the Escrow Agent originally named herein. The Escrow Agent's duties and
responsibilities hereunder shall terminate upon the release of all shares then
held in escrow according to such written instruction or upon such delivery as
herein provided. This Agreement shall not otherwise be assignable by the Escrow
Agent without the prior written consent of the Company.
7. The Stockholders shall have the sole power to vote the Escrow
Shares and any securities deposited in escrow under this Agreement while they
are being held pursuant to this Agreement.
8. (a) Each of the Stockholders agrees that during the term of this
Agreement he will not sell, transfer, hypothecate, negotiate, pledge, assign,
encumber or otherwise dispose of any or all of the Escrow Shares set forth
opposite his name on Exhibit A hereto, unless and until the Company shall have
given the notice as provided in Paragraph 5. This restriction shall not be
applicable to transfers upon death, by operation of law, to the Company, to
family members of the Stockholders or to any trust for the benefit of the
Stockholders, provided that such transferees agree to be bound by the provisions
of this Agreement.
(b) The Stockholders will take any action necessary or
appropriate, including the execution of any further documents or agreements, in
order to effectuate the transfer of the Escrow Shares to the Company if required
pursuant to the provisions of this Agreement.
9. Each of the certificates representing the Escrow Shares will bear
legends to the following effect, as well as any other legends required by
applicable law:
(a) "The sale, transfer, hypothecation, negotiation, pledge,
assignment, encumbrance or other disposition of the shares
evidenced by this certificate are restricted by and are
subject to all of the terms, conditions and provisions of a
certain Escrow Agreement entered into among [UNDERWRITER],
[Company] and its Stockholders, dated as of _________, 199_, a
copy of which may be obtained from the [Company]. No transfer,
sale or other disposition of these shares may be made unless
specific conditions of such agreement are satisfied.
-6-
<PAGE>
(b) "The shares evidenced by this certificate have not been
registered under the Securities Act of 1933, as amended. No
transfer, sale or other disposition of these shares may be
made unless a registration statement with respect to these
shares has become effective under said act, or the Company is
furnished with an opinion of counsel satisfactory in form and
substance to it that such registration is not required."
Upon execution of this Agreement, the Company shall direct the
transfer agent for the Company to place stop transfer orders with respect to the
Escrow Shares and to maintain such orders in effect until the transfer agent and
the Underwriter shall have received written notice from the Company as provided
in Paragraph 5.
10. Each notice, instruction or other certificate required or
permitted by the terms hereof shall be in writing and shall be communicated by
personal delivery, fax or registered or certified mail, return receipt
requested, to the parties hereto at the addresses set forth below, or at such
other address as any of them may designate by notice to each of the others:
(i) If to the Company, to:
Tekgraf, Inc.
2979 Pacific Drive, Suite B
Norcross, Georgia 30071
(ii) If to the Stockholders to their respective addresses as set
forth on Exhibit A hereto.
(iii) If to the Escrow Agent, to:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
(iv) If to the Underwriter, to:
D.H. Blair Investment Banking Corp.
44 Wall Street
New York, New York 10005
Att: Martin A. Bell, Esq.
Fax: 212-514-7837
All notices, instructions or certificates given hereunder to the Escrow Agent
shall be effective upon receipt by the Escrow Agent. All notices given hereunder
by the Escrow Agent shall be effective and deemed received upon personal
delivery or transmission by fax or, if mailed, five (5) calendar days after
mailing by the Escrow Agent.
-7-
<PAGE>
A copy of all communications sent to the Company, the Stockholders
or the Escrow Agent shall be sent by ordinary mail to Bachner, Tally, Polevoy &
Misher LLP, 380 Madison Avenue, New York, NY 10017, Attention: Fran Stoller,
Esq.
11. Except as set forth in paragraph 12 hereof, this Agreement may
not be modified, altered or amended in any material respect or cancelled or
terminated except with the prior consent of the holders of all of the
outstanding shares of Common Stock of the Company.
12. In the event that (i) the Registration Statement is not declared
effective by the SEC within one year from the date of the filing of the
Registration Statement with the SEC or (ii) the Public Offering is not
consummated within twenty-five (25) days of the Effective Date of the
Registration Statement, this Agreement shall terminate and be of no further
force and effect and the Escrow Agent, upon written notice from both the Company
and the Underwriter in accordance with paragraph 10 hereof of such termination,
will return the Escrow Shares and any Escrow Property in respect thereof to the
Stockholders.
13. This Agreement shall be governed by and construed in accordance
with the laws of New York and shall be binding upon and inure to the benefit of
all parties hereto and their respective successors in interest and assigns.
14. This Agreement may be executed in several counterparts, which
taken together shall constitute a single instrument.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers on the day and year first above
written.
TEKGRAF, INC.
By:
-------------------------------
Phillip Aginsky, President
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By:
-------------------------------
STOCKHOLDERS:
Anita, Ltd.
By:
------------------------------- -----------------------------------
Martyn L. Cooper
- ----------------------------------- -----------------------------------
Dan Bailey A. Lowell Nerenberg
- ----------------------------------- -----------------------------------
Peter Goletz Beverly Nerenberg
- ----------------------------------- -----------------------------------
Michelle L. Lightman Rose Sabato
- ----------------------------------- -----------------------------------
William J. Parillo David B. Thompson
- ----------------------------------- -----------------------------------
J. Thomas Woolsey Eric H. Nerenberg
- ----------------------------------- -----------------------------------
William M. Rychel Michael G. Watkins
- ----------------------------------- -----------------------------------
Thomas A. Gust Edward H.L. Mason
-9-
<PAGE>
- -----------------------------------
Margaret Mason
- -----------------------------------
E. Jeffery Mason
- -----------------------------------
Christopher B. Mason
- -----------------------------------
Patrick J. McLaughlin
-10-
<PAGE>
EXHIBIT A
STOCKHOLDERS' LIST
Name and Address
Stock
of Stockholder (1) Certificate
No. Number of Escrow Shares
[Tier 1] [Tier 2]
-11-
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, made and entered into this ___
day of , 1997 ("Agreement"), by and between Tekgraf, Inc., a Delaware
corporation (the "Corporation"), and ("Indemnitee").
WHEREAS, in recent years, highly competent persons have become
more reluctant to serve both privately and publicly-held corporations as
directors, officers, or in other capacities, unless they are provided with
better protection from the risk of claims and actions against them arising out
of their service to and activities on behalf of such corporations; and
WHEREAS, the current impracticability of obtaining adequate
insurance and the uncertainties related to indemnification have increased the
difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Corporation (the
"Board") has determined that the ability to attract and retain such persons is
in the best interests of the Corporation's shareholders and that such persons
should be assured that they will have better protection in the future; and
WHEREAS, it is reasonable, prudent and necessary for the
Corporation to obligate itself contractually to indemnify such persons to the
fullest extent permitted by applicable law, so that such persons will serve or
continue to serve the Corporation free from undue concern that they will not be
adequately indemnified; and
WHEREAS, this Agreement is a supplement to and in furtherance
of any rights granted under the Certificate of Incorporation of the Corporation
or the By-Laws of the Corporation and any resolutions adopted pursuant thereto
shall not be deemed to be a substitute therefor nor to diminish or abrogate any
rights of Indemnitee thereunder; and
WHEREAS, Indemnitee is willing to serve, continue to serve and
to take on additional service for or on behalf of the Corporation on the
condition that he be indemnified according to the terms of this Agreement;
NOW, THEREFORE, in consideration of the premises and the
covenants contained herein, the Corporation and Indemnitee do hereby covenant
and agree as follows:
Section 1. Definitions. For purposes of this Agreement:
(a) "Change in Control" means a change in control of the
Corporation of a nature that would be required to be reported in response to
Item 6(e) of Schedule l4A of Regulation l4A (or in response to any similar item
on any similar schedule or form) promulgated under the
-1-
<PAGE>
Securities Exchange Act of 1934 (the "Act"), whether or not the Corporation is
then subject to such reporting requirement; provided, however, that, without
limitation, such a Change in Control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or
becomes the "beneficial owner" (as defined in Rule l3d-3 under the Act),
directly or indirectly, of securities of the Corporation representing 20% or
more of the combined voting power of the Corporation's then outstanding
securities without the prior approval of at least two-thirds of the members of
the Board in office immediately prior to such person attaining such percentage
interest; (ii) the Corporation is a party to a merger, consolidation, sale of
assets or other reorganization, or a proxy contest, as a consequence of which
members of the Board in office immediately prior to such transaction or event
constitute less than a majority of the Board thereafter; or (iii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board (including for this purpose any new director whose
election or nomination for election by the Corporation's shareholders was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of such period) cease for any reason to
constitute at least a majority of the Board.
(b) "Corporate Status" means the status of a person who is or
was a director, officer, employee, agent or fiduciary of the Corporation or of
any other corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which such person is or was serving at the request of the
Corporation.
(c) "Disinterested Director" means a director of the
Corporation who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(d) "Expenses" means all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, or being or preparing to be a witness in
a Proceeding.
(e) "Independent Counsel" means a law firm, or a member of a
law firm, that is experienced in matters of corporation law and neither
presently is, nor in the past five years has been, retained to represent: (i)
the Corporation or Indemnitee in any other matter material to either such party,
or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Corporation or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
(f) "Proceeding" means any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative hearing or
any other proceeding, whether civil,
-2-
<PAGE>
criminal, administrative or investigative, except one initiated by an Indemnitee
pursuant to Section 11 of this Agreement to enforce his rights under this
Agreement.
Section 2. Services by Indemnitee. Indemnitee agrees to serve
as a [director][officer] of the Corporation, and, at its request, as a director,
officer, employee, agent or fiduciary of certain other corporations and
entities. Indemnitee may at any time and for any reason resign from any such
position (subject to any other contractual obligation or any obligation imposed
by operation of law).
Section 3. Indemnification - General. The Corporation shall
indemnify, and advance Expenses to, Indemnitee as provided in this Agreement to
the fullest extent permitted by applicable law in effect on the date hereof and
to such greater extent as applicable law may thereafter from time to time
permit. The rights of Indemnitee provided under the preceding sentence shall
include, but shall not be limited to, the rights set forth in the other Sections
of this Agreement.
Section 4. Proceedings Other Than Proceedings by or in the
Right of the Corporation. Indemnitee shall be entitled to the rights of
indemnification provided in this Section if, by reason of his Corporate Status,
he is, or is threatened to be made, a party to any threatened, pending, or
completed Proceeding, other than a Proceeding by or in the right of the
Corporation. Pursuant to this Section, Indemnitee shall be indemnified against
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf in connection with any such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
Section 5. Proceedings by or in the Right of the Corporation.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section if, by reason of his Corporate Status, he is, or is threatened to be
made, a party to any threatened, pending, or completed Proceeding brought by or
in the right of the Corporation to procure a judgment in its favor. Pursuant to
this Section, Indemnitee shall be indemnified against Expenses, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by him or on his behalf in connection with any such Proceeding if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation. Notwithstanding the foregoing, no
indemnification against such Expenses shall be made in respect of any claim,
issue or matter in any such Proceeding as to which Indemnitee shall have been
adjudged to be liable to the Corporation if applicable law prohibits such
indemnification.
Section 6. Indemnification for Expenses of a Party Who is
Wholly or Partly Successful. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate Status,
a party to and is successful, on the merits or otherwise, in any Proceeding, he
shall be indemnified against all Expenses actually and reasonably incurred by
him or
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on his behalf in connection therewith. If Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify Indemnitee against all Expenses actually and reasonably incurred
by him or on his behalf in connection with each successfully resolved claim,
issue or matter. For the purposes of this Section and without limiting the
foregoing, the termination of any claim, issue or matter in any such Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
Section 7. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is, by reason of his Corporate Status, a witness in any Proceeding,
he shall be indemnified against all Expenses actually and reasonably incurred by
him or on his behalf in connection therewith.
Section 8. Advancement of Expenses. The Corporation shall
advance all Expenses incurred by or on behalf of Indemnitee in connection with
any Proceeding within twenty days after the receipt by the Corporation of a
statement or statements from Indemnitee requesting such advance or advances from
time to time, whether prior to or after final disposition of such Proceeding.
Such statement or statements shall reasonably evidence the Expenses incurred by
Indemnitee and shall include or be preceded or accompanied by an undertaking by
or on behalf of Indemnitee to repay any Expenses advanced if it shall ultimately
be determined that Indemnitee is not entitled to be indemnified against such
Expenses.
Section 9. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Agreement in
connection with any Proceeding, and for the duration thereof, Indemnitee shall
submit to the Corporation a written request, including therein or therewith such
documentation and information as is reasonably available to Indemnitee and is
reasonably necessary to determine whether and to what extent Indemnitee is
entitled to indemnification. The Secretary of the Corporation shall, promptly
upon receipt of any such request for indemnification, advise the Board in
writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to Section 9(a) hereof, a determination, if required by applicable law,
with respect to Indemnitee's entitlement thereto shall be made in such case: (i)
if a Change in Control shall have occurred, by Independent Counsel (unless
Indemnitee shall request that such determination be made by the Board or the
shareholders, in which case in the manner provided for in clauses (ii) or (iii)
of this Section 9(b)) in a written opinion to the Board, a copy of which shall
be delivered to Indemnitee; (ii) if a Change of Control shall not have occurred,
(A) by the Board by a majority vote of a quorum consisting of Disinterested
Directors, or (B) if a quorum of the Board consisting of Disinterested Directors
is not obtainable, or even if such quorum is obtainable, if such quorum of
Disinterested Directors so directs, either (x) by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to Indemnitee,
or (y) by the shareholders of the Corporation, as determined
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by such quorum of Disinterested Directors, or a quorum of the Board, as the case
may be; or (iii) as provided in Section 10(b) of this Agreement. If it is so
determined that Indemnitee is entitled to indemnification, payment to Indemnitee
shall be made within ten (10) days after such determination. Indemnitee shall
cooperate with the person, persons or entity making such determination with
respect to Indemnitee's entitlement to indemnification, including providing to
such person, persons or entity upon reasonable advance request any documentation
or information which is not privileged or otherwise protected from disclosure
and which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Corporation
(irrespective of the determination as to Indemnitee's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold
Indemnitee harmless therefrom.
(c) If required, Independent Counsel shall be selected as
follows: (i) if a Change of Control shall not have occurred, Independent Counsel
shall be selected by the Board, and the Corporation shall give written notice to
Indemnitee advising him of the identity of Independent Counsel so selected; or
(ii) if a Change of Control shall have occurred, Independent Counsel shall be
selected by Indemnitee (unless Indemnitee shall request that such selection be
made by the Board, in which event (i) shall apply), and Indemnitee shall give
written notice to the Corporation advising it of the identity of Independent
Counsel so selected. In either event, Indemnitee or the Corporation, as the case
may be, may within 7 days after such written notice of selection shall have been
given, deliver to the Corporation or to Indemnitee, as the case may be, a
written objection to such selection. Such objection may be asserted only on the
grounds that Independent Counsel so selected does not meet the requirements of
"Independent Counsel" as defined in Section 1 of this Agreement, and the
objection shall set forth with particularity the factual basis of such
assertion. If such written objection is made, Independent Counsel so selected
may not serve as Independent Counsel unless and until a court has determined
that such objection is without merit. If, within 20 days after submission by
Indemnitee of a written request for indemnification pursuant to Section 9(a)
hereof, no Independent Counsel shall have been selected and not objected to,
either the Corporation or Indemnitee may petition a court of competent
jurisdiction for resolution of any objection which shall have been made by the
Corporation or Indemnitee to the other's selection of Independent Counsel and/or
for the appointment as Independent Counsel of a person selected by such court or
by such other person as such court shall designate, and the person with respect
to whom an objection is so resolved or the person so appointed shall act as
Independent Counsel under Section 9(b) hereof. The Corporation shall pay any and
all reasonable fees and expenses of Independent Counsel incurred by such
Independent Counsel in connection with its actions pursuant to this Agreement,
and the Corporation shall pay all reasonable fees and expenses incident to the
procedures of this Section 9(c), regardless of the manner in which such
Independent Counsel was selected or appointed. Upon the due commencement date of
any judicial proceeding or arbitration pursuant to Section 11(a)(iii) of this
Agreement, Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards of
professional conduct then prevailing).
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<PAGE>
Section 10. Presumption and Effects of Certain Proceedings.
(a) If a Change of Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder, the
person or persons or entity making such determination shall presume that
Indemnitee is entitled to indemnification under this Agreement if Indemnitee has
submitted a request for indemnification in accordance with Section 9(a) of this
Agreement, and the Corporation shall have the burden of proof to overcome that
presumption in connection with the making by any person, persons or entity of
any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected
under Section 9 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within 60 days after receipt
by the Corporation of the request therefor, the requisite determination of
entitlement to indemnification shall be deemed to have been made and Indemnitee
shall be entitled to such indemnification, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) prohibition of such indemnification under
applicable law; provided, however, that such 60-day period may be extended for a
reasonable time, not to exceed an additional 30 days, if the person, persons or
entity making the determination with respect to entitlement to indemnification
in good faith require(s) such additional time for the obtaining or evaluating of
documentation and/or information relating thereto; and provided, further, that
the foregoing provisions of this Section 10(b) shall not apply (i) if the
determination of entitlement to indemnification is to be made by the
shareholders pursuant to Section 9(b) of this Agreement and if (A) within 15
days after receipt by the Corporation of the request for such determination the
Board has resolved to submit such determination to the shareholders for their
consideration at an annual meeting thereof to be held within 75 days after such
receipt and such determination is made thereat, or (B) a special meeting of
shareholders is called within 15 days after such receipt for the purpose of
making such determination, such meeting is held for such purpose within 60 days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 9(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue
or matter therein, by judgment, order, settlement or conviction, or upon a plea
of nolo contendere or its equivalent, shall not (except as otherwise expressly
provided in this Agreement) of itself adversely affect the right of Indemnitee
to indemnification or create a presumption that Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation or, with respect to any criminal
Proceeding, that Indemnitee had reasonable cause to believe that his conduct was
unlawful.
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<PAGE>
Section 11. Remedies of Indemnitee.
(a) In the event that (i) a determination is made pursuant to
Section 9 of this Agreement, (ii) advancement of Expenses is not timely made
pursuant to Section 8 of this Agreement, (iii) the determination of entitlement
to indemnification is to be made by Independent Counsel pursuant to Section 9(b)
of this Agreement and such determination shall not have been made and delivered
in a written opinion within 90 days after receipt by the Corporation of the
request for indemnification, (iv) payment of indemnification is not made
pursuant to Section 7 of this Agreement within ten (10) days after receipt by
the Corporation of a written request therefor, or (v) payment of indemnification
is not made within ten (10) days after a determination has been made that
Indemnitee is entitled to indemnification or such determination is deemed to
have been made pursuant to Section 9 or 10 of this Agreement, Indemnitee shall
be entitled to an adjudication in the Chancery Court of the State of Delaware,
or in any other court of competent jurisdiction, of his entitlement to such
indemnification or advancement of Expenses. Alternatively, Indemnitee, at his
option, may seek an award in arbitration to be conducted by a single arbitrator
in Delaware. Indemnitee shall commence such proceeding seeking an adjudication
or an award in arbitration within 180 days following the date on which
Indemnitee first has the right to commence such proceeding pursuant to this
Section 11(a). The Corporation shall not oppose Indemnitee's right to seek any
such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 9 of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section shall be conducted in all respects as a de novo trial or
arbitration on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. If a Change of Control shall have occurred in any
judicial proceeding or arbitration commenced pursuant to this Section, the
Corporation shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
(c) If a determination shall have been made or deemed to have
been made pursuant to Section 9 or 10 of this Agreement that Indemnitee is
entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration commenced pursuant to
this Section, absent (i) a misstatement by Indemnitee of a material fact, or an
omission of a material fact necessary to make Indemnitee's statement not
materially misleading, in connection with the request for indemnification, or
(ii) prohibition of such indemnification under applicable law.
(d) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Corporation is bound by all the provisions of this Agreement.
(e) In the event that Indemnitee, pursuant to this Section,
seeks a judicial adjudication of, or an award in arbitration to enforce, his
rights under, or to recover damages for
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<PAGE>
breach of, this Agreement, Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
expenses (of the kinds described in the definition of Expenses) actually and
reasonably incurred by him in such judicial adjudication or arbitration, but
only if he prevails therein. If it shall be determined in such judicial
adjudication or arbitration that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
Section 12. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification and to receive advancement
of Expenses as provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may at any time be entitled under applicable
law, the Certificate of Incorporation or the By-Laws of the Corporation, any
agreement, a vote of shareholders for a resolution of directors, or otherwise.
No amendment, alteration or repeal of this Agreement or any provision hereof
shall be effective as to any Indemnitee with respect to any action taken or
omitted by such Indemnitee in his Corporate Status prior to such amendment,
alteration or repeal.
(b) To the extent that the Corporation maintains an insurance
policy or policies providing liability insurance for directors, officers,
employees, agents or fiduciaries of the Corporation or of any other corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
which such person serves at the request of the Corporation, Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such director, officer,
employee, agent or fiduciary under such policy or policies.
(c) In the event of any payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all papers required and take
all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
(d) The Corporation shall not be liable under this Agreement
to make any payment of amounts otherwise indemnifiable hereunder if and to the
extent that Indemnitee has otherwise actually received such payment under any
insurance policy, contract, agreement or otherwise.
Section 13. Duration of Agreement. This Agreement shall
continue until and terminate upon the later of: (a) 10 years after the date that
Indemnitee shall have ceased to serve as a director, officer, employee, agent or
fiduciary of the Corporation or of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which Indemnitee
served at the request of the Corporation; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of Expenses hereunder
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<PAGE>
and of any proceeding commenced by Indemnitee pursuant to Section 11 of this
Agreement. This Agreement shall be binding upon the Corporation and its
successors and assigns and shall inure to the benefit of Indemnitee and his
heirs, executors and administrators.
Section 14. Severability. If any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Agreement (including,
without limitation, each portion of any Section of this Agreement containing any
such provision held to be invalid, illegal or unenforceable, that is not itself
invalid, illegal or unenforceable shall be construed so as to give effect to the
intent manifested by the provision held invalid, illegal or unenforceable.
Section 15. Exception to Right of Indemnification or
Advancement of Expenses. Except as provided in Section 11(e), Indemnitee shall
not be entitled to indemnification or advancement of Expenses under this
Agreement with respect to any Proceeding, or any claim therein, brought or made
by him against the Corporation.
Section 16. Identical Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 17. Headings. The headings of the paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 18. Modification and Waiver. No supplement,
modification or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
Section 19. Notice by Indemnitee. Indemnitee agrees promptly
to notify the Corporation in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any Proceeding or matter which may be subject to indemnification or
advancement of Expenses covered hereunder.
Section 20. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i)
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<PAGE>
delivered by hand and receipted for by the party to whom such notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
(b) If to the Corporation, to:
Tekgraf, Inc.
2979 Pacific Drive
Norcross, Georgia 30071
or to such other address as may have been furnished to Indemnitee by the
Corporation or to the Corporation by Indemnitee, as the case may be.
Section 21. Governing Law. The parties agree that this
Agreement shall be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware.
Section 22. Miscellaneous. Use of the masculine pronoun shall
be deemed to include usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
CORPORATION
TEKGRAF, INC.
By:
------------------------------
Phillip Aginsky, Chairman
INDEMNITEE
------------------------------
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GREATER ATLANTA COMMERCIAL BOARD OF REALTORS, INC.
COMMERCIAL LEASE AGREEMENT
MAY, 1994
THIS LEASE, is made this 17th day of Oct, 1996 by and among PDP, INC.,
(hereinafter called "Landlord"), and CRESCENT COMPUTERS INC., (hereinafter
called "Tenant");
WITNESSETH:
PREMISES
1. Landlord, for and in consideration of the rents, covenants, agreements and
stipulations hereinafter mentioned, provided for and contained to be paid, kept
and performed by Tenant, leases and rents unto Tenant, and Tenant hereby leases
and takes upon the terms and conditions which hereinafter appear, the following
described property (hereinafter called the "Premises"), to wit:
and being known as 2964 Northeast Parkway, Doraville, GA 30360. No easement for
light or air is included in the Premises.
TERM
2. The Tenant shall have and hold the Premises for a term of See Exhibit
A beginning on the _____ day of _______ , 19____ and ending on the ___ day of
_________, 19_____ at midnight, unless sooner terminated as hereinafter
provided.
RENTAL
3. Tenant agrees to pay to ( ) Landlord or ( ) Broker at the address of ( )
Landlord or ( ) Broker as stated in this Lease, without demand, deduction or
set off, an annual rental of $ See Exhibit A payable in equal monthly
installments of $ See Exhibit A in advance on the first day of each calendar
month during the term hereof. Upon execution of this Lease, Tenant shall pay to
Landlord the first full month's rent due hereunder. Rental for any period during
the term hereof which is for less than one month shall be a prorated portion of
the monthly rental due.
LATE CHARGES
4. If ( ) Landlord or ( ) Broker fails to receive all or any portion of a rent
payment within ten (10) days after it becomes due, Tenant shall pay Landlord, as
additional rental, a late charge equal to ten percent (10%) of the overdue
amount. The parties agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of such late payment.
SECURITY DEPOSIT
5. Tenant shall deposit with Landlord upon execution of this Lease $ 0 as
a security deposit which shall be held by Landlord, without liability to Tenant
for any interest thereon, as security for the full and faithful performance by
Tenant of each and every term, covenant and condition of this Lease of Tenant.
If any of the rents or other charges or sums payable by Tenant to Landlord shall
be overdue and unpaid or should Landlord make payments on behalf of Tenant, or
should Tenant fail to perform any of the terms of this Lease, then Landlord may,
at its option, appropriate and apply the security deposit, or so much thereof as
may be necessary to compensate Landlord toward the payment of the rents, charges
or other sums due from Tenant, or towards any loss, damage or expense sustained
by Landlord resulting from such default on the part of Tenant; and in such event
Tenant shall upon demand restore the security deposit to the original sum
deposited. In the event Tenant furnishes Landlord with proof that all utility
bills have been paid through the date of Lease termination, and performs all of
Tenant's other obligations under this Lease, the security deposit shall be
returned in full to Tenant within thirty (30) days after the date of the
expiration or sooner termination of the term of this Lease and the surrender of
the Premises by Tenant in compliance with the provisions of this Lease.
UTILITY BILLS
6. Tenant shall pay all utility bills, including, but not limited to water,
sewer, gas, electricity, fuel, light, and heat bills for the Premises, and
Tenant shall pay all charges for garbage collection or other sanitary services.
COMMON AREA COSTS; RULES AND REGULATIONS
7. If the Premises are part of a larger building or group of buildings, Tenant
shall pay as additional rental monthly, in advance, its pro rata share of common
area maintenance costs as hereinafter more particularly set forth in the Special
Stipulations. The Rules and Regulations attached hereto are made a part of this
lease. Tenant agrees to perform and abide by those Rules and Regulations and
such other Rules and Regulations as may be made from time to time by Landlord.
<PAGE>
USE OF PREMISES
8. Premises shall be used for computer distribution purposes only and no other.
The Premises shall not be used for any illegal purposes, nor in any manner to
create any nuisance or trespass, nor in any manner to vitiate the insurance or
increase the rate of insurance on the Premises.
ABANDONMENT OF THE PREMISES
9. Tenant agrees not to abandon or vacate the Premises during the term of this
Lease and agrees to use the Premises for the purposes herein leased until the
expiration hereof.
TAX AND INSURANCE ESCALATION
10. Tenant shall pay upon demand as additional rental during the term of this
Lease, and any extension or renewal thereof, the amount by which all taxes
(including but not limited to, ad valorem taxes, special assessments and any
other governmental charges) on the Premises for each tax year exceed all taxes
on the Premises for the tax year 1996. In the event the Premises are less than
the entire property assessed for such taxes for any such tax year, then the tax
for any such year applicable to the Premises shall be determined by proration on
the basis that the rentable floor area of the Premises bears to the rentable
floor area of the entire property assessed. If the final year of the Lease term
fails to coincide with the tax year, then any excess for the tax year during
which the term ends shall be reduced by the pro rata part of such tax year
beyond the Lease term. If such taxes for the year in which the Lease terminates
are not ascertainable before payment of the last month's rental, then the amount
of such taxes assessed against the property for the previous tax year shall be
used as a basis for determining the pro rata share, if any, to be paid by Tenant
for that portion of the last Lease year. Tenant shall further pay, upon demand,
its pro rata share of the excess costs of fire and extended coverage insurance
including any and all public liability insurance on the building over the cost
for the first year of the Lease term for each subsequent year during the term of
this Lease. Tenant's pro rata portion of increased taxes or share of excess cost
of fire and extended coverage and liability insurance, as provided herein, shall
be payable within fifteen (15) days after receipt of notice from Landlord or
Agent as to the amount due.
INDEMNITY; INSURANCE
11. Tenant agrees to and hereby does indemnify and save Landlord harmless
against all claims for damages to persons or property by reason of Tenant's use
or occupancy of the Premises, and all expenses incurred by Landlord because
thereof, including attorney's fees and court costs. Supplementing the foregoing
and in addition thereto, Tenant shall during the term of this Lease and any
extension or renewal thereof, and at Tenant's expense, maintain in full force
and effect comprehensive general liability insurance with limits of $500,000.00
per person and $1,000,000.00 per incident, and property damage limits of
$100,000.00, which insurance shall contain a special endorsement recognizing and
insuring any liability accruing to Tenant under the first sentence of this
Paragraph 11, and naming Landlord as additional insured. Tenant shall provide
evidence of such insurance to Landlord prior to the commencement of the term of
this Lease. Landlord and Tenant each hereby release and relieve the other, and
waive its right of recovery, for loss or damage arising out of or incident to
the perils insured against which perils occur in, on or about the Premises,
whether due to the negligence of Landlord or Tenant or their Brokers, employees,
contractors and/or invitees, to the extent that such loss or damage is within
the policy limits of said comprehensive general liability insurance. Landlord
and Tenant shall, upon obtaining the policies of insurance required, give notice
to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
REPAIRS BY LANDLORD
12. Landlord agrees to keep in good repair the roof, foundations and exterior
walls of the Premises (exclusive of all glass and exclusive of all exterior
doors) and underground utility and sewer pipes outside the exterior walls of the
building, except repairs rendered necessary by the negligence or intentional
wrongful acts of Tenant, its Brokers, employees or invitees. If the Premises are
part of a larger building or group of buildings, then to the extent that the
grounds are common areas, Landlord shall maintain the grounds surrounding the
building, including paving, the mowing of grass, care of shrubs and general
landscaping. Tenant shall promptly report in writing to Landlord any defective
condition known to it which Landlord is required to repair and failure so to
report such conditions shall make Tenant responsible to Landlord for any
liability incurred by Landlord by reason of such conditions.
REPAIRS BY TENANT
13. Tenant accepts the Premises in their present condition and as suited for the
uses intended by Tenant. Tenant shall, throughout the initial term of this
Lease, and any extension or renewal thereof, at its expense, maintain in good
order and repair the Premises, including the building, heating and air
conditioning equipment (including but not limited to replacement of parts,
compressors, air handling units and heating units) and other improvements
located thereon, except those repairs expressly required to be made by Landlord
hereunder. Unless the grounds are common areas of a building(s) larger than the
Premises, Tenant further agrees to care for the grounds around the building,
including paving, the mowing of grass, care of shrubs and general landscaping.
Tenant agrees to return the Premises to Landlord at the expiration, or prior to
termination of this Lease, in as good condition and repair as when first
received, natural wear and tear, damage by storm, fire, lightning, earthquake or
other casualty alone excepted.
ALTERATIONS
14. Tenant shall not make any alterations, additions, or improvements to the
Premises without Landlord's prior written consent. Tenant shall promptly remove
any alterations, additions, or improvements constructed in violation of this
Paragraph 14 upon Landlord's written request. All approved alterations,
additions, and improvements will be accomplished in a good and workmanlike
manner, in conformity with all applicable laws and regulations, and by a
contractor approved by Landlord, free of any liens or encumbrances. Landlord may
require Tenant to remove any
<PAGE>
alterations, additions or improvements (whether or not made with Landlord's
consent) at the termination of this Lease and to restore the Premises to its
prior condition, all at Tenant's expense. All alterations, additions and
improvements which Landlord has not required Tenant to remove shall become
Landlord's property and shall be surrendered to Landlord upon the termination of
this Lease, except that Tenant may remove any of Tenant's machinery or equipment
which can be removed without material damage to the Premises. Tenant shall
repair, at Tenant's expense, any damage to the Premises caused by the removal of
any such machinery or equipment.
REMOVAL OF FIXTURES
15. Tenant may (if not in default hereunder) prior to the expiration of this
Lease, or any extension or renewal thereof, remove all fixtures and equipment
which it has placed in the Premises, provided Tenant repairs all damage to the
Premises caused by such removal.
DESTRUCTION OF OR DAMAGE TO PREMISES
16. If the Premises are totally destroyed by storm, fire, lightning, earthquake
or other casualty, this Lease shall terminate as of the date of such destruction
and rental shall be accounted for as between Landlord and Tenant as of that
date. If the Premises are damaged but not wholly destroyed by any such
casualties, rental shall abate in such proportion as use of the Premises has
been destroyed and Landlord shall restore Premises to substantially the same
condition as before damage as speedily as is practicable, whereupon full rental
shall recommence.
GOVERNMENTAL ORDERS
17. Tenant agrees, at his own expense, to comply promptly with all requirements
of any legally constituted public authority made necessary by reason of Tenant's
occupancy of the Premises. Landlord agrees to comply promptly with any such
requirements if not made necessary by reason of Tenant's occupancy. It is
mutually agreed, however, between Landlord and Tenant, that if in order to
comply with such requirements, the cost to Landlord or Tenant, as the case may
be, shall exceed a sum equal to one year's rent, then Landlord or Tenant who is
obligated to comply with such requirements may terminate this Lease by giving
written notice of termination to the other party by certified mail, which
termination shall become effective sixty (60) days after receipt of such notice
and which notice shall eliminate the necessity of compliance with such
requirements by giving such notice unless the party given such notice of
termination shall, before termination becomes effective, pay to the party giving
notice all cost of compliance in excess of one year's rent, or secure payment of
said sum in manner satisfactory to the party giving notice.
CONDEMNATION
18. If the whole of the Premises, or such portion thereof as will make the
Premises unusable for the purposes herein leased, are condemned by any legally
constituted authority for any public use or purpose, then in either of said
events the term hereby granted shall cease from the date when possession thereof
is taken by public authorities, and rental shall be accounted for as between
Landlord and Tenant as of said date. Such termination, however, shall be without
prejudice to the rights of either Landlord or Tenant to recover compensation and
damage caused by condemnation from the condemnor. It is further understood and
agreed that neither the Tenant nor Landlord shall have any rights in any award
made to the other by any condemnation authority notwithstanding the termination
of the Lease as herein provided. Broker may become a party to the condemnation
proceeding for the purpose of enforcing his rights under this paragraph.
ASSIGNMENT AND SUBLETTING
19. Tenant shall not, without the prior written consent of Landlord, which shall
not be unreasonably withheld, assign this Lease or any interest hereunder, or
sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than the Tenant. Consent to any assignment or sublease shall not
impair this provision and all later assignments or subleases shall be made
likewise only on the prior written consent of Landlord. The Assignee of Tenant,
at option of Landlord, shall become directly liable to Landlord for all
obligations of Tenant hereunder, but no sublease or assignment by Tenant shall
relieve Tenant of any liability hereunder.
EVENTS OF DEFAULT
20. The happening of any one or more of the following events (hereinafter any
one of which may be referred to as an "Event of Default") during the term of
this Lease, or any renewal or extension thereof, shall constitute a breach of
this Lease on the part of the Tenant: (A) Tenant fails to pay the rental as
provided for herein; (B) Tenant abandons or vacates the Premises; (C) Tenant
fails to comply with or abide by and perform any other obligation imposed upon
Tenant under this Lease; (D) Tenant is adjudicated bankrupt; (E) a permanent
receiver is appointed for Tenant's property and such receiver is not removed
within sixty (60) days after written notice from Landlord to Tenant to obtain
such removal; (F) Tenant, either voluntarily or involuntarily, takes advantage
of any debt or relief proceedings under the present or future law, whereby the
rent or any part thereof is, or is proposed to be, reduced or payment thereof
deferred; (G) Tenant makes an assignment for benefit of creditors; or (H)
Tenant's effects are levied upon or attached under process against Tenant, which
is not satisfied or dissolved within thirty (30) days after written notice from
Landlord to Tenant to obtain satisfaction thereof.
REMEDIES UPON DEFAULT
21. Upon the occurrence of an Event of Default, Landlord, in addition to any and
all other rights or remedies it may have at law or in equity, shall have the
option of pursuing any one or more of the following remedies:
(A) Landlord may terminate this Lease by giving notice of termination, in
which event this Lease shall expire and terminate on the date specified in such
notice of termination, with the same force and effect as though the date so
specified were the date herein originally fixed as the termination date of the
term of this Lease, and all rights of Tenant under this Lease and in and to the
Premises shall expire and terminate, and Tenant shall remain liable for
<PAGE>
all obligations under this Lease arising up to the date of such termination and
Tenant shall surrender the Premises to Landlord on the date specified in such
notice;
(B) Landlord may terminate this Lease as provided in paragraph 21(A) hereof
and recover from Tenant all damages Landlord may incur by reason of Tenant's
default, including, without limitation, a sum which, at the date of such
termination, represents the then value of the excess, if any, of (i) the monthly
rental and additional rent for the period commencing with the day following the
date of such termination and ending with the date hereinbefore set for the
expiration of the full term hereby granted, or (ii) the aggregate reasonable
rental value of the Premises (less reasonable brokerage commissions, attorneys'
fees and other costs relating to the relating of the Premises) for the same
period, all of which excess sum shall be deemed immediately due and payable;
(C) Landlord may, without terminating this Lease, declare immediately due
and payable all monthly rental and additional rent due and coming due under this
Lease for the entire remaining term hereof, together with all other amounts
previously due, at once; provided, however, that such payment shall not be
deemed a penalty or liquidated damages but shall merely constitute payment in
advance of rent for the remainder of said term; upon making such payment, Tenant
shall be entitled to receive from Landlord all rents received by Landlord from
other assignees, tenants and subtenants on account of the Premises during the
term of this Lease, provided that the monies to which Tenant shall so become
entitled shall in no event exceed the entire amount actually paid by Tenant to
Landlord pursuant to this clause (C) less all costs, expenses and attorneys'
fees of Landlord incurred in connection with the reletting of the Premises; or
(D) Landlord may, from time to time without terminating this Lease, and
without releasing Tenant in whole or in part from Tenant's obligation to pay
monthly rental and additional rent and perform all of the covenants, conditions
and agreements to be performed by Tenant as provided in this Lease, make such
alterations and repairs as may be necessary in order to relet the Premises, and
after making such alterations and repairs, Landlord may, but shall not be
obligated to, relet the Premises or any part thereof for such term or terms
(which may be for a term extending beyond the term of this Lease) at such rental
or rentals and upon such other terms and conditions as Landlord in its sole
discretion may deem advisable or acceptable; upon each reletting, all rentals
received by Landlord from such reletting shall be applied first, to the payment
of any indebtedness other than rent due hereunder from Tenant to Landlord,
second, to the payment of any costs and expenses of such reletting, including
brokerage fees and attorneys' fees, and of costs of such alterations and
repairs, third, to the payment of the monthly rental and additional rent due and
unpaid hereunder, and the residue, if any, shall be held by Landlord and applied
against payments of future monthly rental and additional rent as the same may
become due and payable hereunder, in no event shall Tenant be entitled to any
excess rental received by Landlord over and above charges that Tenant is
obligated to pay hereunder, including monthly rental and additional rent; if
such rentals received from such reletting during any month are less that those
to be paid during the month by Tenant hereunder, including monthly rental and
additional rent, Tenant shall pay any such deficiency to Landlord, which
deficiency shall be calculated and paid monthly; Tenant shall also pay Landlord
as soon as ascertained and upon demand all costs and expenses incurred by
Landlord in connection with such reletting and in making any alterations and
repairs which are not covered by the rentals received from such reletting;
notwithstanding any such reletting without termination, Landlord may at any time
thereafter elect to terminate this Lease for such previous breach.
Tenant acknowledges that the Premises are to be used for commercial purposes,
and Tenant expressly waives the protections and rights set forth in Official
Code of Georgia Annotated Section 44-7-52.
EXTERIOR SIGNS
22. Tenant shall place no signs upon the outside walls or roof of the Premises
except with the written consent of the Landlord. Any and all signs placed on the
Premises by Tenant shall be maintained in compliance with governmental rules and
regulations governing such signs and Tenant shall be responsible to Landlord for
any damage caused by installation, use or maintenance of said signs, and all
damage incident to such removal.
LANDLORD'S ENTRY OF PREMISES
23. Landlord may card the Premises "For Rent" or "For Sale" ninety (90) days
before the termination of this Lease. Landlord may enter the Premises at
reasonable hours to exhibit the Premises to prospective purchasers or tenants,
to inspect the Premises to see that Tenant is complying with all of its
obligations hereunder, and to make repairs required of Landlord under the terms
hereof or to make repairs to Landlord's adjoining property, if any.
EFFECT OF TERMINATION OF LEASE
24. No termination of this Lease prior to the normal ending thereof, by lapse of
time or otherwise, shall affect Landlord's right to collect rent for the period
prior to termination thereof.
SUBORDINATION
25. At the option of Landlord, Tenant agrees that this Lease shall remain
subject and subordinate to all present and future mortgages, deeds to secure
debt or other security instruments (the "Security Deeds") affecting the Building
or the Premises, and Tenant shall promptly execute and deliver to Landlord such
certificate or certificates in writing as Landlord may request, showing the
subordination of the Lease to such Security Deeds, and in default of Tenant so
doing, Landlord shall be and is hereby authorized and empowered to execute such
certificate in the name of and as the act and deed of Tenant, this authority
being hereby declared to be coupled with in interest and to be irrevocable.
Tenant shall upon request from Landlord at any time and from time to time
execute, acknowledge and deliver to Landlord a written statement certifying as
follows: (A) that this Lease is unmodified and in full force and effect (or if
there has been modification thereof, that the same is in full force and effect
as modified and stating the nature thereof); (B) that to the best of its
knowledge there are no uncured defaults on the part of Landlord (or if any such
default exists, the specific nature and extent thereof); (C) the date to which
any rent and other charges have been paid in advance, if any; and (D) such other
matters as Landlord may reasonably request. Tenant irrevocably appoints Landlord
as its attorney-in-fact, coupled with an interest, to execute and deliver, for
and in the name of Tenant, any document or instrument provided for in this
paragraph.
<PAGE>
QUIET ENJOYMENT
26. So long as Tenant observes and performs the covenants and agreements
contained herein, it shall at all times during the Lease term peacefully and
quietly have and enjoy possession of the Premises, but always subject to the
terms hereof.
NO ESTATE IN LAND
27. This Lease shall create the relationship of Landlord and Tenant between the
parties hereto. No estate shall pass out of Landlord. Tenant has only a usufruct
not subject to levy and sale, and not assignable by Tenant except by Landlord's
consent.
HOLDING OVER
28. If Tenant remains in possession of the Premises after expiration of the term
hereof, with Landlord's acquiescence and without any express agreement of the
parties, Tenant shall be a tenant at will at the rental rate which is in effect
at end of this Lease and there shall be no renewal of this Lease by operation of
law. If Tenant remains in possession of the Premises after expiration of the
term hereof without Landlord's acquiescence, then Tenant shall be a tenant at
sufferance and commencing on the date following the date of such expiration, the
monthly rental payable under Paragraph 3 hereof shall for each month, or
fraction thereof during which Tenant so remains in possession of the Premises,
be twice the monthly rental otherwise payable under Paragraph 3 above.
ATTORNEY'S FEES
29. In the event that any action or proceeding is brought to enforce any term,
covenant or condition of this Lease on the part of Landlord or Tenant, the
prevailing party in such litigation shall be entitled to recover reasonable
attorney's fees to be fixed by the court in such action or proceeding, in an
amount at least equal to fifteen percent of any damages due from the
non-prevailing party. Furthermore, Landlord and Tenant agree to pay the
attorney's fees and expenses of (A) the other party to this Lease (either
Landlord or Tenant) if it is made a party to litigation because of its being a
party to this Lease and when it has not engaged in any wrongful conduct itself,
and (B) of Broker if Broker is made a party to litigation because of its being a
party to this Lease and when Broker has not engaged in any wrongful conduct
itself.
RIGHTS CUMULATIVE
30. All rights, powers and privileges conferred hereunder upon parties hereto
shall be cumulative and not restrictive of those given by law.
WAIVER OF RIGHTS
31. No failure of Landlord to exercise any power given Landlord hereunder or to
insist upon strict compliance by Tenant of its obligations hereunder and no
custom or practice of the parties at variance with the terms hereof shall
constitute a waiver of Landlord's right to demand exact compliance with the
terms hereof.
<PAGE>
AGENCY DISCLOSURE
32. [STRICKEN]
BROKER'S COMMISSION
33. [STRICKEN]
Broker's commission shall not apply to any "additional rental" as that
term is used in this Lease. Any separate commission agreement is hereby
incorporated as part of this Lease by reference and any third party assuming the
rights and obligations of Landlord under this Lease shall be obligated to
perform all of Landlord's obligations to Broker under said separate commission
agreement. If the Tenant becomes a tenant at will or at sufferance pursuant to
Paragraph 28 above, or if the term of this Lease is extended or if this Lease is
renewed or if a new Lease is entered into between Landlord and Tenant covering
either the Premises, or any part thereof, or covering any other premises as
an expansion of, addition to, or substitution for the Premises, regardless of
whether such premises are located adjacent to or in the vicinity of the
Premises, Landlord, in consideration of Broker's having assisted in the creation
of the Landlord-Tenant relationship, agrees to pay Broker additional commissions
as set forth below, it being the intention of the parties that Broker shall
continue to be compensated so long as the parties hereto, their successors
and/or assigns continue the relationship of Landlord and Tenant which initially
resulted from the efforts of Broker, whether relative to the Premises or any
expansion thereof, or relative to any other premises leased by Landlord to
Tenant from time to time, whether the rental therefore is paid under this Lease
or otherwise. Broker agrees that, in the event that Landlord sells the Premises,
and upon Landlord's furnishing Broker with an agreement signed by purchaser
assuming Landlord's obligations to Broker under this Lease, Broker will release
the original Landlord from any further obligations to Broker hereunder. If the
Purchaser of the Premises does not agree in writing to assume Landlord's
obligation to Broker under this Lease.
LIMITATION OF BROKER'S SERVICES AND DISCLAIMER
34. [STRICKEN]
PURCHASE OF PROPERTY BY TENANT
35. In the event that Tenant acquires title to the Premises or any part thereof,
or any premises as an expansion of, addition to or substitution for the Premises
at any time during the term of this Lease, any renewals thereof, or within six
(6) months after the expiration of the term hereof or the extended term hereof,
Landlord shall pay Broker a commission on the sale of the Premises in lieu of
any further commissions which otherwise would have been due under this Lease.
Such commission, as negotiated between the parties, shall be _________ percent
(___________%) of the gross sales price, payable in full at closing.
ENVIRONMENTAL LAWS
36. Landlord represents to the best of its knowledge and belief, (A) the
Premises are in compliance with all applicable environmental laws, and (B) there
are not excessive levels (as defined by the Environmental Protection Agency) of
radon, toxic waste or hazardous substances on the Premises. Tenant represents
and warrants that Tenant shall comply with all applicable environmental laws
and that Tenant shall not permit any of his employees, brokers, contractors or
subcontractors, or any person present on the Premises to generate, manufacture,
store, dispose or release on, about, or under the Premises any toxic waste or
hazardous substances which would result in the Premises not complying with any
applicable environmental Laws.
TIME OF ESSENCE
37. Time is of the essence of this Lease.
DEFINITIONS
38. "Landlord" as used in this Lease shall include the undersigned, its heirs,
representatives, assigns and successors in title to the Premises. "Tenant" shall
include the undersigned and its heirs, representatives, assigns and successors,
and if this Lease shall be validly assigned or sublet, shall include also
Tenant's assignees or subtenants as to the Premises covered by such assignment
or sublease. "Broker" shall include the undersigned, its successors, assigns,
heirs and representatives. "Landlord", "Tenant" and "Broker" include male and
female, singular and plural, corporation, partnership or individual, as may fit
the particular parties.
NOTICES
39. All notices required or permitted under this Lease shall be in writing and
shall be personally delivered or sent by U.S. Certified Mail, return receipt
requested, postage prepaid. Broker shall be copied with all required or
permitted notices. Notices to Tenant shall be delivered or sent to the address
shown below, except that upon Tenant's taking possession of the Premises, then
the Premises shall be Tenant's address for notice purposes. Notices to Landlord
and Broker shall be delivered or sent to the address hereinafter stated, to wit:
Landlord: PDP, Inc. c/o Dan Bailey 5036 Sherifield Dr. Marietta, GA 30068
Tenant: Crescent Computers c/o Phillip Aginsky 2979 Pacific Drive Ste B
Norcross, GA 30071
Broker:
All notices shall be effective upon delivery. Any party may change his notice
address upon written notice to the other parties.
<PAGE>
ENTIRE AGREEMENT
40. This Lease contains the entire agreement of the parties hereto, and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties, not embodied herein, shall be of any force or effect. No subsequent
alteration, amendment, change or addition to this Lease, except as to the
changes or additions to the Rules and Regulations described in paragraph 7,
shall be binding upon Landlord or Tenant unless reduced to writing and signed by
Landlord and Tenant.
SPECIAL STIPULATIONS
41. Any special stipulations are set forth in the attached Exhibit "B". Insofar
as said Special Stipulations conflict with any of the foregoing provisions, said
Special Stipulations shall control:
Tenant acknowledges that Tenant has read and understands the terms of this Lease
and has received a copy of it.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals,
in triplicate.
Signed, sealed and delivered as LANDLORD:
to Landlord, in the presence of:
/s/ Dan I. Bailey, Pres.
- -------------------------------- -------------------------------- (SEAL)
Date and time executed by
- -------------------------------- LANDLORD:
Notary Public
10/17/96 2:30PM
---------------------------
-------------------------------- (SEAL)
Date and time executed by
LANDLORD:
---------------------------
Signed, sealed and delivered as TENANT:
to Tenant, in the presence of:
/s/ Dan I. Bailey, Pres.
- -------------------------------- -------------------------------- (SEAL)
Date and time executed by
- -------------------------------- TENANT:
Notary Public
10/17/96 2:30PM
---------------------------
-------------------------------- (SEAL)
Date and time executed by
TENANT:
---------------------------
<PAGE>
EXHIBIT "A"
Term
The Premises is currently occupied by Sidell, Inc and will continue to be so
occupied while Sidell's new building is being constructed. Sidell has an option
to remain in the Premises until February, 1998, but is expected to vacate in
early 1997. The Tenant has been made aware of these conditions to the beginning
date of the Term.
The Tenant shall have and hold the Premises for a term of forty-eight (48)
months, beginning the first day of the month following the vacating of the
Premises by Sidell and ending at midnight on the last day of the forty-eighth
month, unless sooner terminated as provided for in the Lease.
Rental - Rental rates during the term of the Lease will be as follows, plus
any adjustments provided for elsewhere in the Lease:
Months Rate per Month
1-12 $ 7560.00
13-24 $ 7862.40
25-36 $ 8176.89
37-48 $ 8503.96
Tenant Improvements
The Landlord will give an allowance for Tenant Improvements; said allowance
shall not exceed $15,000 for such improvements. Tenant is responsible for all
costs exceeding said allowance.
STANDARD WAREHOUSE LEASE AGREEMENT 2979-B Pacific Drive
Atlanta Business Services Division/86 Norcross, Georgia 30071
7,560 SF
LEASE AGREEMENT
This LEASE AGREEMENT, made and entered into this 4th day of September, 1993, by
and between TCW REALTY FUND II, a California corporation hereinafter referred to
as "Landlord", and CRESCENT COMPUTERS, INC. hereinafter referred to as "Tenant";
WITNESSETH:
1. Premises and Term. In consideration of the obligation of Tenant to pay
rent as herein provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby accepts and leases from Landlord certain premises situated within the
County of Gwinnett State of Georgia, more particularly described on Exhibit "A"
attached hereto and incorporated herein by reference, together with all rights,
privileges, easements, appurtenances, and immunities belonging to or in any way
pertaining to the premises and together with the buildings and other
improvements situated or to be situated upon said premises (said real property,
building and improvements being hereinafter referred to as the "premises").
TO HAVE AND TO HOLD the same for a term commencing on the "commencement
date," as hereinafter defined, and ending on the last day of the month that is
Sixty (60) months after the commencement date.
A. The "commencement date" shall be November 1, 1993 and ending October
31, 1998, Tenant acknowledges that it has inspected and accepts the premises,
and specifically the buildings and improvements comprising the same, in their
present condition, as suitable for the purpose for which the premises are
leased. Taking of possession by Tenant shall be deemed conclusively to establish
that said buildings and other improvements are in good and satisfactory
condition as of when possession was taken. Tenant further acknowledges that no
representations as to the repair of the premises, nor promises to alter, remodel
or improve the premises have been made by Landlord, unless such are expressly
set forth in this lease. If this lease is executed before the premises become
vacant or otherwise available and ready for occupancy, or if any present tenant
or occupant of the premises holds over, the Landlord cannot acquire possession
of the premises prior to said "commencement date," Landlord shall not be deemed
to be in default hereunder, and Tenant agrees to accept possession of the
premises at such time as Landlord is able to tender the same, which date shall
thenceforth be deemed the "commencement date", and Landlord hereby waives
payment of rent covering any period prior to the tendering of possession to
Tenant hereunder. After the commencement date the Tenant shall, upon demand,
execute and deliver to Landlord a letter of acceptance of delivery of the
premises.
B. In the event this lease pertains to a building or building interior
finish to be constructed, the provisions of this subparagraph B shall apply in
lieu of the provisions of subparagraph A above and the "commencement date" shall
be the date upon which the buildings and other improvements erected and to be
erected upon the premises shall have been substantially completed in accordance
with the plans and specifications described on Exhibit "A" attached hereto and
incorporated herein by reference, provided however, that if Landlord shall be
delayed in such substantial completion as a result of: (i) Tenant's failure to
agree to plans, specifications, and cost estimates, within a reasonable period
of time; (ii) Tenant's request for materials, finishes, or installations other
than Landlord's standard; (iii) Tenant's changes in plans; or (iv) the
performance or completion of a party employed by Tenant, the commencement date
and the payment of rent hereunder shall be accelerated by the number of days of
such delay, and provided further that if Landlord cannot substantially complete
the premises as result of any of events (i) through (iv) above, Landlord may at
its election complete so much of Landlord's work as may be practical under the
circumstances and, by written notice to Tenant, establish the commencement date
as the date of such partial completion, subject to any applicable accelerations
due to delays resulting from events (i) through (iv) above. Taking of possession
by Tenant shall be deemed conclusively to establish that said buildings and
other improvements have been completed in accordance with the plans and
specifications and that the premises are in good and satisfactory condition, as
of when possession was so taken. Tenant acknowledges that no representations as
to the repair of the premises have been made by Landlord, unless such are
expressly set forth in this lease. After such "commencement date" Tenant shall,
upon demand, execute and deliver to Landlord a letter of acceptance of delivery
of the premises. In the event of any dispute as to substantial completion of
work performed or required to be performed by Landlord, the certificate of
Landlord's architect or general contractor shall be conclusive.
2. Base Rent and Security Deposit.
A. Tenant agrees to pay to Landlord rent for the premises, in advance,
without demand, deduction or set off, for the entire term hereof at the rate of
Two Thousand Two Hundred, Sixty-Eight and No/100 Dollars ($2,268.00) per month.
One such monthly installment shall be due and payable on the date hereof and
like monthly installment shall be due and payable on or before the first day of
each calendar month succeeding the commencement date recited above during the
hereby demised term, except that the rental payment for any fractional calendar
month at the commencement or and of the lease period shall be prorated. The
rental payment is subject to adjustment as provided below.
See Additional Provisions Exhibit "B"
B. In addition, Tenant agrees to deposit with Landlord on the date hereof
the sum of Two Thousand, Two Hundred Sixty-Eight and No/100 Dollars ($2,268.00),
which sum shall be held by Landlord, without obligation for interest, as
security for the performance of Tenant's covenants and obligations under this
lease, it being expressly understood and agreed that such deposit is not an
advance rental deposit or a measure of Landlord's damages in case of Tenant's
default. Upon the occurrence of any event of default by Tenant, Landlord may,
from time to time, without prejudice to any other remedy provided herein or
provided by law, use such fund to the extent necessary to make good any arrears
of rent or other payments due Landlord hereunder, and any other damage, injury,
expense or liability caused by such event of default; and Tenant shall pay to
Landlord on demand the amount so applied in order to restore the security
deposit to its original amount. Although the security deposit shall be deemed
the property of Landlord, and remaining balance of such deposit shall be
returned by Landlord to Tenant at such time after termination of the lease that
all of tenant's obligations under this lease have been fulfilled.
If, during the term of this lease, Landlord, in Landlord's sole opinion,
judgement and discretion, deems itself insecure as to the performance or
prospect of performance by Tenant as to any of Tenant's obligations pursuant to
this lease, Tenant shall be required to provide Landlord with an additional
security deposit, in an amount and form acceptable to Landlord.
C. Use. The demised premises shall be used only for the purpose of general
office, receiving, storing, shipping and selling (other than retail) products,
materials and merchandise made and/or distributed by Tenant and for such other
lawful purposes as may be incidental thereto, and subject to any building or
building complex rules and regulations. Outside storage, including without
limitation, trucks and other vehicles, is prohibited without Landlord's prior
written consent. Tenant shall at its own cost and expense obtain any and all
licenses and permits necessary for any such use. Tenant shall comply with all
governmental laws, ordianances and regulations applicable to the use of the
premises, and shall promptly comply with all government orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the premises, all at Tenant's sole expense. Tenant shall not
permit any objectionable or unpleasant odors, smoke, dust, gas, noise or
vibrations to emanate from the premises, nor take any other action which would
constitute a nuisance or would disturb or endanger any other tenants of the
building in which their premises are situated or unreasonably interfere with
their use of their respective premises. Without Landlord's prior written
consent, Tenant shall not receive, store or otherwise handle any product,
material or merchandise which is explosive or highly flammable. Tenant will not
permit the premises to be used for any purpose or in any manner (including
without limitation any method of storage) which would render the insurance
thereon void or the insurance risk more hazardous or cause the State Board of
Insurance or other insurance authority to disallow any
1
<PAGE>
sprinkler credits. If any increase in the fire and extended coverage insurance
premiums paid by Landlord or other Tenants for the building in which Tenant
occupies space is caused by Tenant's use and occupancy of the premises, or if
Tenant vacates the premises and causes an increase in such premiums, then Tenant
shall pay as additional rental the amount of such increase to Landlord.
Tenant agrees that the point pressure resulting from Tenant's racking
system, inventory, forklift and equipment pertaining to Tenant's use of the
premises shall not exceed allowable design floor loading for floor slabs
on grade. Tenant shall hold harmless Landlord from any loss, liability, and
expenses, both real and alleged, arising out of such damage or repair caused by
Tenant's negligence or failure to comply with this paragraph.
4. Taxes.
A. Landlord agrees to pay before they become delinquent all taxes,
easements and governmental charges of any kind and nature whatsoever
(hereinafter collectively referred to as "taxes") lawfully levied or assessed
against the building and the grounds, parking areas, driveways and alleys around
the building; provided however, that the maximum amount of taxes to be paid by
Landlord hereunder during any one real estate tax year shall be equal to the
amount of taxes in the 1993 tax year ($XXXXXXXX). If in any real estate tax year
during the term hereof or any renewal or extension the taxes levied or assessed
against the building and the grounds, parking areas, driveways and alleys around
the building during such tax year shall exceed the sum set forth in the
preceding sentence, Tenant shall pay to Landlord as additional rental, upon
demand, the amount of such excess. In the event any such amount is not paid
within twenty (20) days after the date of Landlord's invoice to Tenant, the
unpaid amount shall bear interest at the rate of twenty (20%) percent per annum
from the date of such invoice until payment by Tenant. In the event the premises
constitute a portion of a multiple occupancy building, Tenant agrees to pay to
Landlord, as additional rental, upon demand, the amount of Tenant's
"proportionate share" (as defined in subparagraph 27.B.) of the excess taxes
referred to in this subparagraph above. Landlord reserves the right to require
Tenant during each month of the lease term to pay an escrow deposit to Landlord
equal to one-twelfth of its proportionate share of the estimated taxes. If
the Tenant's total tax escrow payments of Tenant are more than Tenant's actual
proportionate share of such taxes, Tenant shall pay to Landlord upon demand the
tax payment shortage; if the total tax escrow payments of Tenant are more than
Tenant's actual proportionate share of such taxes, Landlord shall retain such
excess and credit it to Tenant's next accruing tax escrow payment.
B. If at any time during the term of this lease, the present method of
taxation shall be changed so that in lieu of the whole or any part of any taxes,
assessments or governmental charges levied, assessed or imposed on real estate
and the improvements thereon, there shall be levied, assessed or imposed on
Landlord a capital levy or other tax directly on the rents received therefrom
and/or a franchise tax, assessment, levy or charge measured by or based, in
whole or in part, upon such rents for the present or any future building or
buildings on the premises, then all such taxes, assessments, levies or charges,
or the part thereof so measured or based, shall be deemed to be included within
the term "taxes" for the purposes hereof.
C. The Landlord shall have the right to employ a tax consulting firm to
attempt to assure a fair tax burden on the building and grounds within the
applicable taxing jurisdiction. Tenant shall pay to Landlord upon demand from
time to time, as additional rent, the amount of Tenant's proportionate share of
the cost of such service.
D. Any payment to be made pursuant to this Paragraph 4 with respect to the
real estate tax year in which this lease commences or terminates shall be
prorated.
5. Landlord's Repairs and Obligations. Landlord shall at his expense
maintain only the roof, foundation and the structural soundness of the exterior
walls of the building good repair, reasonable wear and tear excepted. Tenant
shall repair and pay for any damage caused by the negligence of Tenant, or
Tenant's employees, agents or invitees, or caused by Tenant's default hereunder.
The term "walls" as used herein shall not include windows, glass or plate glass,
doors, store fronts or office entries. Tenant shall immediately give landlord
written notice of defect or need for repairs, after which Landlord is
responsible under any the provisions of this lease shall be limited to the cost
of such repairs or maintenance or the curing of such defect.
6. Tenant's Repairs and Obligations.
A. Tenant shall at its own cost and expense keep and maintain all parts of
the premises (except those for which Landlord is expressly responsible under the
terms of this lease) in good condition, promptly making all necessary repairs,
repainting, and replacements, including but not limited to, windows, glass and
plate glass, doors, any office entries, interior walls and finish work, floors
and floor covering downspouts, gutters, heating and air conditioning systems,
dock boards, truck doors, dock bumpers, paving, plumbing work and fixtures,
termites and pest extermination, regular removal of trash and debris, grounds
maintenance, common sewege line plumbing, common exterior lighting (if
applicable), common dumpster removal (if applicable) and other obligations of
the building, including but not limited to rail spur areas, keeping the parking
areas, driveways, alleys and the whole of the premises in a clean and sanitary
condition, and maintaining any spur track serving the premises (Tenant agrees to
sign a joint maintenance agreement with the railroad company servicing the
premises, if requested by the railroad company). Tenant shall not be obligated
to repair any damage caused by fire, tornado or other casualty covered by the
Insurance to be maintained by Landlord pursuant to subparagraph 12.A below,
except that Tenant shall be obligated to repair all wind damage to glass except
with respect to tornado or hurricane damage.
B. The cost of maintenance and repair of any common party walls (any wall,
divider, partition or any other structure separating the premises from any
adjacent premises) shall be shared equally by Tenant and the tenant or tenants
occupying adjacent premises. Tenant shall not damage any demising wall or
disturb the integrity and support provided by any demising wall and shall, at
its sole cost and expense, promptly repair any damage or injury to any demising
wall caused by Tenant or Its employees, agents or invitees.
C. In the event the premises constitute a portion of a multiple occupancy
building, Tenant and its employees, customers and licensees shall have the
exclusive right to use the parking areas, if any, as may be designated by
Landlord in writing, subject to such reasonable rules and regulations as
Landlord may from time to time prescribe and subject to rights of ingress and
egress of other tenants. Landlord shall not be responsible for enforcing
Tenant's exclusive parking rights against any third parties. Parking spaces have
been provided in accordance with applicable local building codes and anticipated
needs of tenants. Tenant agrees not to use more than its proportionate share as
so provided.
D. Landlord reserves the right to perform and provide all of Tenant's
repairs and obligations under subparagraph 6.A. above, and Tenant shall, in lieu
of the obligations set forth under subparagraph 6.A. above with respect to such
items, pay monthly as additional rent due under Paragraph 2.A. for its
proportionate share of the cost and expense, including overhead, for those
items; provided however that Landlord shall have the right to require Tenant to
pay such other reasonable proportions of said repairs and obligations as may be
determined by Landlord in its sole discretion; and further provided that if
Tenant or any other particular tenant of the building can be clearly identified
as being responsible for obstructions or stoppage of the common sanitary sewage
line, then Tenant, if Tenant is responsible, shall pay the entire cost thereof,
upon demand, as additional rent.
E. In the event the premises constitute a portion of a multiple occupancy
building, Landlord shall have the right to coordinate any repairs and other
maintenance of any rail tracks serving or to serve the building and if Tenant
uses such rail tracks, Tenant shall reimburse Landlord from time to time upon
demand, as additional rent, for a share of the costs of such repairs and
maintenance and any other sums specified in any agreement to which Landlord is a
party respecting such tracks, such share to be a fraction, the numerator of
which is the space contained in the premises, and the denominator of which is
the entire space occupied by rail users in the building.
F. Tenant shall, at its own cost and expense, enter into a regularly
scheduled preventive maintenance/service contract with a maintenance contractor
for servicing all hot water, heating and air conditioning systems and equipment
within the premises. The maintenance contractor and the contract must be
approved by Landlord. The service contract must include all services suggested
by the equipment manufacturer within the operation/maintenance manual and must
become effective (and a copy thereof delivered to the Landlord) within thirty
(30) days of the date Tenant takes possession of the premises.
7. Alterations. Tenant shall not make any alterations, additions or
improvements to the premises (including but not limited to roof and wall
penetrations) without the prior written consent of Landlord. In the event
Landlord consents to the making of any such alterations, additions or
improvements by Tenant, the same shall be made by Tenant, at Tenant's sole cost
and expense in accordance with all applicable laws, ordinances and regulations,
and all requirements of Landlord's and Tenant's insurance policies and only in
accordance with plans and specifications approved by Landlord; and any
contractor or person selected by Tenant to make the same and all subcontractors
must first be approved in writing by Landlord, or, at Landlord's sole option and
discretion, the alterations, additions, or improvements shall be made by
Landlord for Tenant's account and Tenant shall fully reimburse Landlord for the
entire cost thereof within (20) days after written notification of Tenant
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by Landlord providing Tenant with an invoice or other request (or statement).
Tenant may, without the consent of Landlord, but at its own cost and expense and
in a good workmanlike manner erect such shelves, bins, machinery and trade
fixtures as it may deem advisable, without altering the basic character of the
building or improvements and without overloading or damaging such building or
improvements, and in each case complying with all applicable governmental laws,
ordinances, regulations and other requirements. All alterations, additions,
improvements and partitions erected by Tenant shall be and remain the property
of Tenant during the term of this lease and Tenant shall, unless Landlord
otherwise elects as hereinafter provided, remove all alterations, additions,
improvements and partitions erected by Tenant and restore the premises to their
original condition by the date of termination of this lease or upon earlier
vacating of the premises; provided, however, that if Landlord so elects prior to
termination of this lease or upon earlier vacating of the premises, such
alterations, additions, improvements and partitions shall become the property of
Landlord as of the date of termination of this lease or upon earlier vacating of
the premises and shall be delivered up to the Landlord with the premises. All
shelves, binds, machinery and trade fixtures installed by Tenant may be removed
by Tenant prior to the termination of this lease if Tenant so elects, and shall
be removed by the date of termination of this lease or upon earlier vacating of
the premises if required by Landlord; upon any such removal Tenant shall restore
the premises to their original condition. All such removals and restoration
shall be accomplished in a good workmanlike manner so as not to damage the
primary structure or structural qualities of the building and other improvements
situated on the premises.
8. Signs. Tenant agrees to conform to Landlord's signage program for the
building; however, all costs and expenses for the sign, sign installation,
removal and repair shall be paid by Tenant. Tenant shall only have the right to
install standard signs upon the premises where first approved in writing by
Landlord and subject to any applicable governmental laws, ordinances,
regulations and other requirements. Tenant shall remove all signs prior to the
termination of this lease. Such installations and removals shall be made in such
a manner as to avoid injury or defacement of the building and other
improvements, and Tenant shall repair any injury or defacement, including within
limitation, discoloration caused by installation and/or removal.
9. Inspection and Right of Entry. Landlord and Landlord's agents and
representatives shall have the right to enter the premises at any time in the
event of an emergency and to enter and inspect the premises at any reasonable
time during business hours, for the purpose of ascertaining the condition of the
premises in order to make such repairs as may be required or permitted to be
made by Landlord under the terms of this lease. During the period that is six
(6) months prior to the end of the term hereof, Landlord and Landlord's agents
and representatives shall have the right to enter the premises at any reasonable
time during business hours for the purpose of showing the premises and shall
have the right to erect on the premises a suitable sign indicating the premises
are available. Tenant shall give written notice to Landlord at least (30) days
prior to vacating the premises and shall arrange to meet with landlord for a
joint inspection of the premises prior to vacating. In the event of Tenant's
failure to give such notice or arrange such joint inspection, Landlord's
inspection at or after Tenant's vacating the premises shall be conclusively
deemed correct for purposes of determining Tenant's responsibility for repairs
and restoration.
10. Utilities. Landlord agrees to provide at its cost water, electricity
and gas (when applicable) service connections into the premises; but Tenant
shall pay for all water, gas, heat, light, power, telephone, sewer, sprinkler
charges and other utilities and services used on or from the premises, together
with any taxes, penalties, surcharges or the like pertaining thereto and any
maintenance charges for utilities and shall furnish all electric light bulbs and
tubes. If any such services are not separately metered to Tenant, Tenant shall
pay a reasonable proportion as determined by Landlord of all charges jointly
metered with other premises, provided however, Landlord shall have the right to
require Tenant to pay such other reasonable proportion of said jointly metered
charges as may be determined by Landlord in its sole discretion. Landlord shall
in no event be liable for any interruption or failure of utility services on the
premises.
11. Assignment and Subletting.
A. Tenant shall not have the right to assign, sublet, transfer or encumber
this lease, or any interest therein, without the prior written consent of
Landlord. Any attempted assignment, subletting, transfer or encumbrance by
Tenant in violation of the terms and covenants of this Paragraph shall be void.
All cash or other proceeds of any assignment, such proceeds as exceed the
rentals called for hereunder in the case of subletting and all cash or other
proceeds of any other transfer of Tenant's interest in this lease shall be paid
to Landlord, whether such assignment, subletting or other transfer is consented
to by Landlord or not, unless Landlord agrees to the contrary in writing, and
Tenant hereby assigns all rights it might have or ever acquire in any such
proceeds to Landlord. Any assignment, subletting or other transfer of Tenant's
interest in this lease shall be for an amount equal to the then fair market
value of such interest. These covenants shall run with the land and shall bind
Tenant and Tenant's heirs, executors, administrators, personal representatives,
representatives in any bankruptcy proceeding, successors and assigns. Any
assignee, sublessee or transferee of Tenant's interest in this lease (all such
assignees, sublessees and transferees being hereinafter referred to as
"successors"), by assuming Tenant's obligations hereunder shall assume liability
to Landlord for all amounts paid to persons other than Landlord by such
successors in contravention of this Paragraph. No assignments, subletting or
other transfer, whether consented to by Landlord or not, shall relieve Tenant of
its liability hereunder. Upon the occurrence of an "event of default" as
hereinafter defined, if the premises or any part thereof are then assigned or
sublet, Landlord, in addition to any other remedies herein provided, or provided
by law, may at its option collect directly from such assignee or subtenant all
rents becoming due to Tenant under such assignment or sublease and apply such
rent against any sums due to Landlord from Tenant hereunder, and no such
collection shall be construed to constitute a novation of a release of Tenant
from the further performance of Tenant's obligation hereunder.
B. If this lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code 11 U.S.C. ss. 101 et seq., (the "Bankruptcy
Code"), any and all monies or other considerations payable or otherwise to be
delivered in connection with such assignment shall be paid or delivered to
Landlord, shall be and remain the exclusive property of Landlord and shall not
constitute property of Tenant or of the estate of Tenant within the meaning of
the Bankruptcy Code. Any and all monies or other considerations constituting
Landlord's property under the preceding sentence not paid or delivered to
Landlord shall be held in trust for the benefit of the Landlord and be promptly
paid or delivered to Landlord.
C. Any person or entity to which this lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or deed,
to have assumed all of the obligations arising under this lease on and after the
date of such assignment. Any such assignee shall upon demand execute and deliver
to Landlord an instrument confirming such assumption.
12. Fire and Casualty Damage.
A. Landlord agrees to maintain insurance covering the building of which
the premises are a part in an amount not less than eighty percent (80%) (or such
greater percentage as may be necessary to comply with the provisions of any
co-insurance clauses of the policy) of the replacement cost thereof, insuring
against the perils of Fire, Lightning, Extended Coverage, Vandalism and
Malicious Mischief, extended by Special Extended Coverage Endorsement to insure
against all other Risks of Direct Physical Loss, such coverage and endorsements
to be as defined, provided and limited in the standard bureau forms prescribed
by the insurance regulatory authority for the state in which the premises are
situated by use by insurance companies admitted in such state for the writing of
such insurance on risks located within such state. Subject to the provisions of
subparagraphs 12.C., 12.D. and 12.E. below, such insurance shall be for the sole
benefit of Landlord and under its sole control. If during the second calendar
year after the commencement date of this lease, or during any subsequent
calendar year of the primary term or any renewal or extension, Landlord's cost
of maintaining such insurance shall exceed Landlord's cost of maintaining such
insurance for the first calendar year of the term hereof, Tenant agrees to pay
to Landlord, as additional rental, the amount of such excess (or in the event
the premises constitute a portion of a multiple occupancy building, Tenant's
full proportionate share of such excess). The first calendar year shall be the
year in which the lease commences. Said payments shall be made to Landlord
within ten (10) days after presentation to Tenant of Landlord's statement
setting forth the amount due. Any payment to be made pursuant to this
subparagraph A with respect to the year in which this lease commences or
terminates shall bear the same ratio to the payment which would be required to
be made for the full year as the part of such year covered by the term of this
lease bears to a full year.
B. If the buildings situated upon the premises should be damaged or
destroyed by fire, tornado or other casualty, Tenant shall give immediate
written notice thereof to landlord.
C. If the buildings situated upon the premises should be totally damaged
or destroyed by fire, tornado or other casualty, or if they should be so damaged
thereby that rebuilding or repairs cannot in Landlord's estimation be completed
with two hundred (200) days after the date upon which Landlord is notified by
Tenant of such damage, this lease shall terminate and the rent shall be abated
during the unexpired portion of this lease, effective upon the date of the
occurrence of such damage.
D. If the buildings situated upon the premises should be damaged
by any peril covered by the insurance to be provided by Landlord under
subparagraph 12.A. above, but only to such extent that rebuilding or repairs can
in Landlord's estimation be completed within two hundred (200) days after the
date upon which Landlord is notified by Tenant of such damage, this lease
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shall not terminate, and Landlord shall at its sole cost and expense thereupon
proceed with reasonable diligence to rebuild and repair such building to
substantially the condition in which they existed prior to such damage, except
that Landlord shall not be required to rebuild, repair or replace any part of
the partitions, fixtures, additions and other improvements which may have been
placed in, an or about the premises by Tenant and except that Tenant shall pay
to Landlord upon demand any amount by which Landlord's cost of such rebuilding,
repair and/or replacement exceeds not insurance proceeds paid to Landlord in
connection with such damage and except that Landlord may elect not to rebuild if
such damage occurs during the last year of the term of the lease exclusive of
any option which is unexercised at the time of such damage. If the premises are
untenantable in whole or in part following such damage, the rent payable
hereunder during the period in which they are untenantable shall be reduced to
such extent as may be fair and reasonable under all of the circumstances. In the
event that Landlord should fail to complete such repairs and rebuilding within
two hundred (200) days after the date upon which Landlord is notified by Tenant
of such damage, Tenant may at its options terminate this lease by delivering
written notice of termination to Landlord as tenant's exclusive remedy,
whereupon all rights and obligations hereunder shall cease and terminate.
E. notwithstanding anything herein to the contrary, in the event the
holder of any indebtedness secured by a mortgage or deed of trust covering the
premises requires that the insurance proceeds so applied to such indebtedness,
then the Landlord shall have the right to terminate this lease by delivering
written notice of termination to Tenant within fifteen (15) days after such
requirement is made by any such holder, whereupon all rights and obligations
hereunder shall cease and terminate.
F. Each of Landlord and Tenants hereby releases the other from any loss or
damage to property caused by fire or any other perils insured in policies of
insurance covering such property, even if such loss or damage shall have been
caused by the fault or negligence of the other party, or anyone for whom such
party may be responsible; provided, however, that this release shall be
applicable and in force and effect only with respect to loss or damage occurring
during such times as the releasor's policies shall contain a clause or
endorsement to the effect that any such release shall not adversely affect or
impair said policies or prejudice the right of the releasor to recover
thereunder and then only to the extend of the insurance proceeds payable under
such policies. Each of the Landlord and Tenant agrees that it will request its
insurance carriers to include in its policies a clause or endorsement. If extra
cost shall be charged therefore, each party shall advise the other thereof and
of the amount of the extra cost, and the other party, at its election, may pay
the same, but it shall not be obligated to do as.
13. Liability. Landlord shall not be liable to Tenant or Tenant's
employees, agents, patrons or visitors, or to any other person whomsoever, for
any injury to person or damage to property on or about the premises, resulting
from and/or caused in part or whole by the neglegence or misconduct of Tenant,
its agents, servants or employee of any other person entering upon the premises,
or caused by the buildings and improvements located on the premises becoming out
of repair, or caused by leakage of gas, oil, water or steam, or by electricity
emanating from the premises, or due to any cause whatsoever, the Tenant hereby
covenants and agrees that it will at all times indemnify and hold safe and
harmless the property, the Landlord (including without limitation the trustee
and benefeciaries if Landlord is a trust), Landlord's agents and employees from
any loss, liability, claims, suits, costs, expenses, including without
limitation attorney's fees and damages, both real and alleged, arising out of
any such damage or injury, except injury to persons or damage to property the
sole cause of which is the neglegence of Landlord or the failure of Landlord to
repair any part of the premises which Landlord is obligated to repair and
maintain hereunder within a reasonable time after the receipt of written notice
from Tenant of needed repairs. Tenant shall procure and maintain throughout the
term of this lease a policy or policies of insurance, at its sole cost and
expense, insuring both Landlord and Tenant against all claims, demands or
motions arising out of or in connection with: (i) the premises; (ii) the
condition of the premises; (iii) Tenant's operations in and maintainence and use
of the premises; and (iv) Tenant's liability assumed under this lease, the
limits of such policy or policies to be in the amount of not less than $500,000
per occurrence in respect to injury to patrons (including death), and in the
amount of not less than $100,000 per occurrence in respect to property damage or
destruction, including loss of use thereof. All such policies shall be procured
by Tenent from responsible insurance companies satisfactory to Landlord.
Certified copies of such policies, together with receipt evidencing payment of
premium(s) therefor, shall be delivered to Landlord prior to the commencement
date of this lease. Not less than fifteen (15) days prior to the expiration date
of any such policies, certified copies of the renewals thereof (bearing
notations evidencing the payment of renewal premiums) shall be delivered to
Landlord, such policies shall further provide that not less than thirty (30)
days written notice shall be given to landlord before such policy may be
canceled or changed to reduce insurance provided thereby.
14. Condemnation
A. If the whole or any substantial part of the premises should be taken for
any public or quasi-public use under governmental law, ordinance or regulation,
or by right of eminent domain, or private purchase in lieu thereof and the
taking would prevent or materially interfere with the use of the premises for
the purpose for which they are being used, this lease shall terminate and the
rent shall be abated during the unexpired portion of the elapse, effective when
the physical taking of said premises shall occur.
B. If part of the premises shall be taken for any public or quasi-public
use under governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof and this lease is not terminated
as provided in the subparagraph above, this lease shall not terminate by the
rent payable hereunder during the unexpired portion of this lease shall be
reduces to such extent as may be fair and reasonable under all of the
circumstances.
C. All compensation awarded for any taking (or the proceeds of private
sale in lieu thereof) of the premises, buildings or other improvements, or any
part thereof, shall be the property of Landlord and Tenant hereby assigns its
interest in any such award to Landlord; provided, however, Landlord shall have
no interest in any award made to Tenant for loss of business or for the taking
of Tenant's fixtures and improvements if a separate award for such items is made
to Tenant.
15. Holding Over. Tenant will, at the termination of this lease by lapse of
time or otherwise, yield up immediate possession to Landlord with all repairs
and maintenance required herein to be performed by Tenant completed. If Landlord
agrees in writing that Tenant may hold over after the expiration or termination
of the lease, unless the parties hereto otherwise agree in writing on the terms
of such holding over, the hold over tenancy shall be subject to termination by
Landlord at any time upon not less than five (5) days advance written notice, or
by Tenant at any time upon not less than thirty (30) days advance written
notice, and all of the other terms and provisions of this lease shall be
applicable during that period, except that the Tenant shall pay Landlord from
time to time upon demand, as rental for the period of any hold over, an amount
equal to double the rent in effect on the termination of the date, computed on a
daily basis for each day of the hold over period. No holding over by Tenant,
whether with or without consent of Landlord, shall operate to extend this lease
except as otherwise expressly provided. The preceding provisions of this
paragraph 15 shall not be construed as consent for Tenant to hold over.
16. Quiet Enjoyment. Landlord covenants that it now has, or will acquire
before Tenant takes possession of the premises, good title to the premises, free
and clear of all liens and encumbrances, excepting only the lien for current
taxes not yet due, such mortgage or mortgages as are permitted by the terms of
the lease, zoning ordinances and other building and fire ordinances and
governmental regulations relating to the use of such property, and amusements,
restrictions and other conditions of record. In the event this lease is a
sublease, then Tenant agrees to take the premises subject to the provisions of
the prior leases. Landlord represents and warrants that it has full right and
authority to enter into the lease and that Tenant, upon paying the rental herein
set forth and performing its other covenants and agreements herein set forth,
shall peaceably and quietly have, hold and enjoy the premises for the term
hereof without hindrance or molestation from Landlord, subject to the terms and
provisions of this lease.
17. Events of Default. The following events shall be deemed to be events
of default by Tenant under this lease:
A. Tenant shall fall to pay any installments of the rent required herein
when due, or any other payment or reimbursement to Landlord required herein when
due, and such failure shall continue for a period of five (5) days from the date
such payment was due.
B. Tenant or any guarantor of Tenant's obligations hereunder shall
generally not pay its debts as they become due or shall admit in writing its
inability to pay it debts or shall make a general assignment for the benefit of
creditors; or Tenant or any such guarantor shall commence any case, proceeding
or other action seeking to have an order for relief entered on its behalf as a
debtor or to adjudicate it as bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, liquidations, dissolution, or composition of its debts
under any law relating to bankruptcy, insolvency, reorganization or relief of
debtors or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all of or any substantial part of its property or
Tenant or any such guarantor shall take any action to authorize or in
contemplation of any of the actions act forth above in this paragraph; or
C. Any case, proceeding or other action against Tenant or any guarantor of
Tenant's obligations hereunder shall be commenced seeking to have an order for
relief entered against it as debtor or to adjudicate it as bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, liquidations,
dissolution or composition or its debts under any law
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relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property.
D. A receiver or trustee shall be appointed for all or substantially all
of the assets of the Tenant.
E. Tenant shall desert or vacate any substantial portion of the premises.
F. Tenant shall fail to discharge any lien placed upon the premises in
violation of Paragraph 22 hereof within twenty (20) days after any such lien or
encumbrance is filed against the premises.
G. Tenant shall fail to comply with any term, provisions or covenant of
the lease (other than the forgoing in this Paragraph 17), and shall not cure
such failure within twenty (20) days after written notice thereof to Tenant.
H. Tenant shall fail to continuously operate its business at the premises
for the permitted use set forth in Paragraph 2 whether or not Tenant is in
default of the rental payments due under this lease.
18. Remedies.
A. Upon the occurrence of any of such events of default described in
Paragraph 17 hereof, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever:
(1) Terminate this lease, in which event Tenant shall immediately
surrender the premises to Landlord, and if Tenant fails so to do, Landlord may,
without prejudice to any other remedy which it may have for possession or
arrearage in rent, enter upon and take possession of the premises and expel or
remove Tenant and any other person who may be occupying such promises or any
part thereof, by force if necessary, without being liable for prosecution or any
claim of damages therefore.
(2) Enter upon and take possession of the premises and expel or remove
Tenant and any other person who may be occupying such premises or any part
thereof, by force if necessary, without being liable for prosecution or any
claim for damages therefore, and relet the premises and receive the rent
therefore.
(3) Enter upon the premises, by force if necessary, without being liable
for prosecution or any claim for damages therefore, and do whatever Tenant is
obligated to do under the terms of this lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action, whether caused by the negligence of Landlord or otherwise.
(4) Alter all locks and other security devices at the premises without
terminating this lease.
B. In the event Landlord may elect to regain possession of the premises by
a forcible detainer proceeding, Tenant hereby specifically waives any
statutory notice which may be required prior to such proceeding, and agrees that
Landlord's execution of this lease is, in part, consideration for this waiver.
C. In the event Tenant fails to pay any installment of rent hereunder as
and when such installment is due, to help defray the additional cost to Landlord
for processing such late payments Tenant shall pay to Landlord on demand a late
charge in an amount equal to five (5%) percent of such installments and the
failure to pay such amount within five (5) days after demand therefore shall be
an event of default hereunder. The provision for such late charge shall be in
addition to all of Landlord's other rights and remedies hereunder or at law and
shall not be construed as liquidated damages or as limiting Landlord's remedies
in any manner.
D. In the event Tenant's check, given to landlord in payment, is returned
by the bank for non-payment, Tenant agrees to pay all expenses incurred by
Landlord as a result thereof.
E. Exercise by Landlord of any one or more remedies hereunder granted or
otherwise available shall not be deemed to be an acceptance of surrender of the
premises by Tenant, whether by agreement or by operation of law, it being
understood that such surrender can be effected only by the written agreement of
Landlord and Tenant. No such alteration of locks or other security devices and
no removal or other exercise of dominion by Landlord over the property of Tenant
or others at the premises shall be deemed unauthorized or constitute a
conversion. Tenant hereby consenting, after any event of default, to the
aforesaid exercise of dominion over Tenant's property within the premises. All
claims for damages by reason of such re-entry and/or repossession and/or
alteration of locks or other security devices are hereby waived, as are all
claims for damages by reason of any distress warrant, forcible detainer
proceeding, sequestration proceedings or other legal process. Tenant agrees that
any re-entry by Landlord may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings or without the necessity for any
legal proceedings, as Landlord may elect, and Landlord shall not be liable for
trespass or otherwise.
F. In the event Landlord elects to terminate the lease by reason of an
event of default, then notwithstanding such termination, Tenent shall be liable
for and shall pay to Landlord, at the address specified for notice to Landlord
herein, the sum of all rental and other indebtedness accrued to date of such
termination, plus, as damages, an amount equal to the greater of (i) the total
rental hereunder for the remaining portion of the lease term (had such term not
been terminated by Landlord prior to the date of expiration stated in Paragraph
1), and (ii) the then present value of the then fair rental value of the
premises for such period.
G. In the event that Landlord elects to repossess the premises without
terminating the lease, or in the event Landlord elects to terminate the lease,
then Tenant, at Landlord's option, shall be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, all rental and
other indebtedness accrued to the date of such repossession, plus rental
required to be paid by Tenant to Landlord during the remainder of the lease term
until the date of expiration of the term as stated in Paragraph 1 diminished by
any net sums thereafter received by Landlord through reletting the premises
during said period (after deducting expenses incurred by Landlord as provided in
subparagraph 18H below). In no event shall Tenant be entitled to any excess of
any rental obtained by reletting over and above the rental herein reserved.
Actions to collect amounts due by Tenant to Landlord under this subparagraph may
be brought from time to time, on one or more occasion, without the necessity of
Landlord's waiting until expiration of the lease term.
H. In case of any event of default or breach by Tenant, or threatened or
anticipatory breach or default, Tenant shall also be liable for and shall pay to
Landlord, at the address specified for notice to Landlord herein, in addition to
any sum provided to be paid above, brokers' fees incurred by Landlord in
connection with reletting the whole or any part of the premises; the costs of
removing and storing Tenant's or other occupant's property; the costs of
repairing, altering, remodeling or otherwise putting the premises into condition
acceptable to a new tenant or tenants, and all reasonable expenses incurred by
Landlord enforcing or defending Landlord's rights and/or remedies including
reasonable attorney's fees.
I. In the event of termination or repossession of the premises for an
event of default, Landlord shall not have any obligation to relet or to attempt
to relet the premises, or any portion thereof, or to collect rental after
reletting; and in the event of reletting, Landlord may relet the whole or any
portion of the premises for any period to any tenant and for any use and
purpose.
J. If Tenant should fail to make any payment or cure any default hereunder
within the time herein permitted, Landlord, without being under any obligation
to do so and without thereby waiving such default, may make such payment and/or
remedy such other default for the account of Tenant (and enter the premises for
such purpose), and thereupon Tenant shall be obligated to, and hereby agrees, to
pay Landlord upon demand, all costs, expenses and disbursements (including
reasonable attorney's fees) incurred by Landlord in taking such remedial action.
K. In the event that Landlord shall have taken possession of the premises
pursuant to the authority herein granted then Landlord shall have the right to
keep in place and use all of the furniture, fixtures and equipment at the
premises, including that which is owned by or leased to Tenant at all times
prior to any foreclosure thereon by Landlord or repossession thereof by any
lessor thereof or third party having a lien thereon, Landlord shall also have
the right to remove from the premises (without the necessity of obtaining a
distress warrant, writ of sequestration or other legal process) all or any
portion of such furniture, fixtures, equipment and other property located
thereon and to place same in storage at any premises within the County in which
the premises is located; and in such event, Tenant shall be liable to Landlord
for costs incurred by Landlord in connection with such removal and storage,
Landlord shall also have the right to relinquish possession of all or any
portion of such furniture, fixtures, equipment and other property to any person
("Claimant") claiming to be entitled to possession thereof who presents to
Landlord a copy of any instrument represented to Landlord by Claimant to have
been executed by Tenant (or any predecessor Tenant) granting Claimant the right
under various circumstances to take possession of such furniture, fixtures,
equipment or other property, without the necessity on the part of Landlord to
inquire into the authenticity of said instrument's copy of Tenant's or Tenant's
predecessor's signature(s) thereon and without the necessity of Landlord making
any nature of
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investigation or inquiry as to the validity of the factual or legal basis upon
which Claimant purports to act; and Tenant agrees to indemnify and hold Landlord
harmless from all cost, expense, loss, damage and liability incident to
Landlord's relinquishment of possession of all or any portion of such furniture,
fixtures, equipment or other property to Claimant. The rights of Landlord herein
stated shall be in addition to any and all other rights which landlord has or
may hereafter have at law or in equity; and Tenant stipulates and agrees that
the rights herein granted landlord are commercially reasonable.
L. Notwithstanding anything in this lease to the contrary, all amounts
payable by Tenant to or on behalf of Landlord under this lease, whether or not
expressly denominated as rent, shall constitute rent for the purposes of the
Bankruptcy Code, 11 U.S.C. ss. 502(b)(7).
M. This is a contract under which applicable law excuses Landlord from
accepting performance from (or rendering performance to) any person or entity
other than Tenant within the meaning of the Bankruptcy Code, 11 U.S.C. ss.
385(o), 385(v)(2).
N. If this Lease is assigned to any person or entity pursuant to the
provisions of the Bankruptcy Code, and all monies or other considerations
payable or otherwise to be delivered in connection with such assignment shall be
paid or delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of Tenant
within the meaning of the Bankruptcy Code. Any and all monies or other
considerations constituting Landlord's property under the preceding sentence not
paid or delivered to Landlord shall be held in trust for the benefit of Landlord
and be promptly paid or delivered to Landlord.
O. Any person or entity to which this lease is assigned pursuant to the
provisions of the Bankruptcy Code, shall be deemed, without further act or deed,
to have assumed all of the obligation arising under this lease on and after the
date of such assignment. Any such assignee shall upon demand execute and
deliver to Landlord an instrument confirming such assumption.
19. Landlord's Lien. In addition to any statutory lien for rent in
landlord's favor, Landlord shall have and tenant hereby grants to Landlord a
continuing security interest for all rentals and other sums of money becoming
due hereunder from Tenant, upon all goods, wares, equipment, fixtures,
furniture, inventory, accounts, contract rights, chattel paper and other
personal property of Tenant situated on the premises subject to this Lease as
described in Exhibit "A," and such property shall not be removed therefrom
without the consent of Landlord until all arrearage in rent as well as any and
all other sums of money then due to Landlord hereunder shall first have been
paid and discharged. Products of collateral are also covered. In the event of a
default under this lease, Landlord shall have, in addition to any other remedies
provided herein or by law, all rights and remedies under the Uniform Commercial
Code, including without limitation the right to sell the property described in
this paragraph at public or private sale upon five (5) days notice to Tenant.
Tenant hereby agrees to execute such financing statements and other instruments
necessary or desirable in Landlord's discretion to perfect the security interest
hereby created. Any statutory lien for rent is not hereby waived, the express
contractual lien a copy or photographic or other reproduction of this portion of
this lease may be filed of record by Landlord and have the same force and effect
as the original. This security agreement and financing statement also covers
fixtures located at the premises subject to this lease and legally described in
Exhibit "A," attached hereto and incorporated herein by this reference, and is
to be filed for record in the real estate records. The record owner of this
property is the Tenant unless otherwise designated in writing to Landlord.
Tenant warrants that the collateral subject to the security interest granted
herein is not purchased or used by Tenant for personal, family or household
purposes.
20. Mortgages. Tenant accepts this lease subject and subordinate to any
mortgage(s) and/or deed(s) of trust now or at any time hereafter constituting a
lien or charge upon the premises or the improvements situated thereon, provided
however, that if the mortgagee, trustee, or holder of any such mortgage or deed
of trust elects to have Tenant's interest in this lease superior to any such
instrument, then by notice to Tenant from such mortgagee, trustee or holder,
this lease shall be deemed superior to such lien, whether this lease was
executed before or after said mortgage or deed of trust. Tenant shall at any
time hereafter on demand execute any instruments, releases or other documents
which may be required by any mortgagee for the purpose of subjecting and
subordinating this lease to the lien of any such mortgage.
21. Landlord's Default. In the event Landlord should become in default in
any payments due on any such mortgage described in Paragraph 20 hereof or in the
payment of taxes or any other items which might become a lien upon the premises
and which Tenant is not obligated to pay under the terms and provisions of this
lease, Tenant is authorized and empowered after giving Landlord five (5) days
prior written notice of such default and landlord's failure to cure such
default, to pay any such items for and on behalf of Landlord, and the amount of
any item so paid by Tenant for or on behalf of Landlord, together with any
interest or penalty required to be paid in connection therewith, shall be
payable on demand by Landlord to Tenant; provided however, that Tenant shall not
be authorized and empowered to make any payment under the terms of this
Paragraph 21 unless the item paid shall be superior to Tenant's interest
hereunder. In the event Tenant pays any mortgage debt in full, in accordance
with this paragraph, it shall, at its election, be entitled to the mortgage
security by assignment or subrogation.
22. Mechanics Liens and Other Taxes.
A. Tenant shall have no authority, express or implied, to create or place
any lien or encumbrance of any kind or nature whatsoever upon, or in any manner
to bind the interests of Landlord in the premises or to charge the rentals
payable hereunder for any claim in favor of any person dealing with Tenant,
including those who bind the interests of Landlord in the premises or to charge
the rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs, and each such claim shall affect and each such lien
shall attach to, if at all, only the leasehold interest granted to Tenant by
this instrument. Tenant covenants and agrees that it will pay or cause to be
paid all sums legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed on the premises on
which any lien is or can be validly and legally asserted against its a leasehold
interest in the premises or the improvements thereon and that it will save and
hold Landlord harmless from any and all loss, cost or expense based on or arise
in out of assorted claims or liens against the leasehold estate or against the
right, title and interest of the Landlord in the premises or under the terms of
this lease. Tenant agrees to give Landlord immediate written notice of any lien
or encumbrance is placed on the premises.
B. Tenant shall be liable for all taxes levied or assessed against
personal property, furniture or fixtures placed by Tenant in the premises. If
any such taxes for which Tenant is liable are levied or assessed against
Landlord or Landlord's property and if Landlord elects to pay the same or if the
assessed value of Landlord's property is increased by inclusion of personal
property, furniture or fixtures placed by Tenant in the premises, and Landlord
elects to pay the taxes based on such increase, Tenant shall pay to Landlord
upon demand that part of such taxes.
23. Substitution of Premises. At any time after the date of execution of
this lease, Landlord may substitute for the premises, other premises in the
building (the "new" premises), in which event the new premises shall be deemed
to be the premises for all purposes under this lease, provided: (i) the new
premises shall be similar to the premises in area and appropriateness for the
use of Tenant's purposes; (ii) said substitution shall be made in order to put
into the premises a major tenant of the building who then occupies, or as a
result of such move will occupy all or a substantial part of the floor in which
the premises is located; (iii) if Tenant is then occupying the premises,
Landlord shall pay the expenses of moving Tenant, its property and equipment to
the new premises and such moving shall be done at such time and in such manner
so as to cause the least inconvenience to Tenant; (iv) Landlord shall give to
Tenant not less than thirty (30) days' prior written notice of such
substitution; and (v) Landlord shall, at its sole cost, improve the new premises
with improvements substantially similar to those in the premises.
24. Certain Rights Reserved to Landlord. Landlord reserves and may
exercise the following rights without affecting Tenant's obligations hereunder:
(a) to change the name, street address, or suite numbers of the building,
(b) to install or maintain a sign or signs on the exterior of the
building.
25. Notices. Each provision of this instrument or of any applicable
governmental laws, ordinances, regulations and other requirements with reference
to the sending, mailing or delivery of any notice or the making of any payment
by Landlord to Tenant or with reference to the sending, mailing or delivery of
any notice or the making of any payment by Tenant to Landlord shall be deemed to
be complied with when and if the following steps are taken:
A. All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address hereinbelow set forth or
at such other address as Landlord may specify from time to time by written
notice delivered in accordance herewith. Tenants's obligations to pay rent and
any other amounts to Landlord under the terms of this lease shall not be deemed
satisfied until such rent and other amounts have been actually received by
Landlord.
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B. All payments required to be made by Landlord to Tenant hereunder shall
be payable to Tenant at the address hereinbelow set forth, or at such other
address within the continental United States as Tenant may specify from time to
time by written notice delivered in accordance herewith.
C. Any notice or document required or permitted to be delivered hereunder
shall be deemed to be delivered whether actually received or not when deposited
in the United Stated Mail, postage prepaid, Certified or Registered Mail,
addressed to the parties hereto at the respective addresses set out below, or at
such other address as they have thereto fore specified by written notice
delivered in accordance herewith:
LANDLORD: TENANT:
TCW Realty Fund II Crescent Computers, Inc.
c/o Lancaster-Brown Real Estate, Inc. 2979-B Pacific Drive
2000 Riveredge Parkway, Suite 580 Norcross, GA 30071
Atlanta, GA 30328 Attn: Dan I. Bailey
If and when included within the term "Landlord," as used in this instrument,
there are more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address from the receipt of notices and payments to
Landlord; when included within the term "Tenant," as used in this instrument,
there are more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address within the continental United States for the
receipt of notices and payments to Tenant. All parties included within the terms
"Landlord" and "Tenant," respectively, shall be bound by notices given in
accordance with the provisions of this paragraph to the same effect as if each
had received such notice.
26. Hazardous Waste. The term "Hazardous Substances," as used in this
lease shall mean pollutants, contaminants, toxic or hazardous wastes, or any
other substances, the removal of which is required or the use of which is
restricted, prohibited or penalized by any "Environmental Law," which term shall
mean any federal, state or local law or ordinance relating to pollution or
protection of the environment. Tenant hereby agrees that (i) no activity will be
conducted on the premises that will produce any Hazardous Substances, except for
such activities that are part of the ordinary course of Tenant's business
activities that are part of the ordinary course of Tenant's business (the
"permitted Activities") provided said Permitted Activities are conducted in
accordance with all Environment Laws and have been approved in advance in
writing by Landlord; (ii) the premises will not be used in any manner for the
storage of any Hazardous Substances except for the temporary storage of such
materials that are used in the ordinary course of Tenant's business (the
"Permitted Materials") provided such Permitted Materials are properly stored in
a manner and location meeting all Environment Laws and approved in advance in
writing by Landlord; (iii) no portion of the premises will be used as a landfill
or a dump; (iv) Tenant will not install any underground tanks of any type; (v)
Tenant will not allow any surface or subsurface conditions to exist or come onto
existence that constitute, or with the passage of time may constitute, a public
or private nuisance; (vi) Tenant will not permit any Hazardous Substances to be
brought onto the premise, except for the Permitted Materials described below,
and if so brought or found located thereon, the same shall be immediately
removed, with proper disposal, and all required cleanup procedures shall be
diligently undertaken pursuant to all Environment Laws. If, at any time during
or after the term of the lease, the premises is found to be so contaminated or
subject to said conditions, Tenant agrees to Indemnity and hold Landlord
harmless from all claims, demands, actions, liabilities, costs, expenses,
damages and obligations of any nature arising from or as a result of the use of
the premises by Tenant. The foregoing indemnification shall survive the
termination or expiration of this lease. "See Exhibit "D".
27. Miscellaneous.
A. Words of any gender used in this lease shall be held and construed to
include any other gender; and words in the singular number shall be used to
include the plural, unless the context otherwise requires.
B. In the event the premises constitutes a portion of a multiple occupancy
building or building complex, Tenant's "proportionate share," as used in this
lease, shall mean a fraction, the numerator of which is the space contained in
the premises and the denominator of which is the entire space contained in the
building or building complex.
C. The terms, provisions and covenants and conditions contained in this
lease shall apply to, inure to the benefit of, and be binding upon the parties
hereto and upon their respective heirs, legal representatives, successors and
permitted assigns, except as otherwise herein expressly provide. Landlord shall
have the right to assign any of its rights and obligation under this lease. Each
party agrees to furnish to the other, promptly upon demand, a corporate
resolution, proof of due authorization by partners, or other appropriate
documentation evidencing the due authorization of such party to enter into this
lease.
D. The captions inserted in this lease are for convenience only and in no
way define, limit or otherwise describe the scope or intent of this lease, or
any provision hereof, or in any way affect the interpretation of this lease.
E. Tenant agrees from time to time within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee a certificate of
occupancy (if applicable) and an estoppel certificate stating that this lease is
in full force and effort, the date to which rent has been paid, the unexpired
term of this lease and such other matters pertaining to this lease as may be
requested by Landlord. It is understood and agreed that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material
inducement for Landlord's execution of this lease.
F. This lease may not be altered, changed or amended except by an
instrument in writing signed by both parties hereto.
G. All obligations of Tenant hereunder not fully performed as of the
expiration or earlier termination of the term of this lease shall survive the
expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to taxes and insurance and all
obligations concerning the condition of the premises. Upon the expiration or
earlier termination of the term hereof, and prior to Tenant vacating the
premises, Tenant shall pay to landlord any amount reasonably estimated by
Landlord as necessary to put the premises, including without limitation all
heating and air conditioning systems and equipment therein, in good condition
and repair. Tenant shall also, prior to vacating the premises, pay to Landlord
the amount, as estimated by Landlord, of Tenant's obligation hereunder for real
estate taxes and insurance premiums for the year in which the lease expires or
terminates. All such amounts shall be used and held by Landlord for payment of
such obligations of Tenant hereunder, with Tenant being liable for any
additional cost therefore upon demand by Landlord, or with any excess to be
returned to Tenant after all such obligations have been determined and
satisfied, as this case may be. Any security deposit held by Landlord shall be
credited against the amount payable by Tenant under this Subparagraph 27G.
H. If any clause or provision of this lease is illegal, invalid or
unenforceable under present or future laws effective during the term of this
lease, then and in that event, it is the intention of the parties hereto that
the reminder of the lease shall not be affected thereby, and it is also the
intention of the parties to this lease that in lieu of each clause or provision
of this lease that is illegal, invalid or unenforceable, there be added as a
part of this lease contract a clause or provision as similar in terms to such
illegal, invalid or unenforceable clause or provision as may be possible and be
legal, valid and enforceable.
I. Because the premises are on the open market and are presently being
shown, this lease shall be treated as an offer with the premises being subject
to prior lease and such offer subject to withdrawal or non-acceptance by
Landlord or to other use of the premises without notice, and this lease shall
not be valid or binding unless and until accepted by Landlord in writing and a
fully executed copy delivered to both parties hereto.
J. All references in this lease to "the date thereof" or similar
references shall be deemed to refer to the last date, in point of time, on which
all parties hereto have executed this lease.
K. Time is of the essence of this lease and all of its provisions. This
lease in all respect shall be governed by the laws of the State of Georgia.
L. No animals shall be brought into or kept in or about the building.
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M. Tenant agrees to comply with subdivision regulations, protective
covenants, or other restrictions of record that are applicable to the building
or building complex.
N. The duties and obligations of Tenant herein shall be binding upon all
or any of them. The duties and obligations of Tenant shall run and extend not
only to the benefit of the Landlord, as named herein, but to the following, at
the option of the following or any of them (i) any person by, through or under
which Landlord derives the right to lease the premises: (ii) the owner of the
premises; and (iii) holders of mortgage or rent assignment interests in the
premises, as their respective interests may appear; provided, however, nothing
contained herein shall be construed to obligate Tenant to pay rent to any person
other than the Landlord until such time as Tenant has been given written notice
of either an exercise of a rent assignment or the succession of some other party
to the Interests of Landlord.
28. Additional Provisions. See Additional Provisions Paragraphs 29 through
46 attached hereto and made a part hereof as if fully incorporated herein and
when in conflict with the printed portion of this lease, said Additional
Provisions shall prevail.
EXECUTED BY LANDLORD, this 20 day of Sept, 1993
TCW REALTY FUND II, a California corporation
Attest/Witness
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- --------------------------- ---------------------------
Title: Title:
- --------------------------- ------------------------
By: /s/ [ILLEGIBLE]
---------------------------
Title:
------------------------
EXECUTED BY TENANT, this 10 day of Sept, 1993
Attest/Witness CRESCENT COMPUTERS, INC.
By: /s/ Dan I. Bailey
- --------------------------- ---------------------------
DAN I. BAILEY
Title: Title: PRES.
--------------------- ------------------------
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
EXHIBIT "B"
Additional Provisions
29. Notwithstanding the provisions of Paragraph 11 herein above, Landlord
agrees to allow Tenant the right to assign or transfer this lease to a
subsidiary or affiliate of Tenant without necessity of securing Landlord's
consent therefore, but still must give written notice to Landlord of such
assignment of transfer. A subsidiary or affiliate shall be defined as an
entity with respect to which has a use similar to Tenant. This consent
shall not relieve Tenant of any liability under said Lease, nor shall this
consent be deemed a waiver by the undersigned of the Tenant's obligation
to obtain the Landlord's consent as to any subsequent transfer of said
Lease.
30. Tenant shall have the right of ingress to and egress from the demised
Premises and the right to use the loading areas, driveways and parking
areas of the demised Premises for the purpose of delivering and removing
goods to and from building.
31. Each party shall indemnify and hold the other harmless from and against
all claims, liability, costs and expenses (including attorney's fees)
incurred by the other on account of personal injury (including death) to
any person or persons caused by or arising out of the acts or negligent
omissions of the indemnitor, its employees or agents in the building in
which the demised Premises are situated or on the real property on which
said building is situated.
32. In the event of any legal action or proceeding between the parties hereto,
the prevailing party in any such action or proceeding shall be entitled to
recover from the other party reasonable attorney's fees and expenses.
33. Landlord warrants for ninety (90) days that the heating and air
conditioning, fixtures and all other similar equipment servicing the
Premises are in working order upon occupancy. This is also to include all
bathroom fixtures and warehouse doors. In addition, the Tenant will be
responsible for a maximum of $500.00 per year for repairs to the HVAC unit
during the lease, provided that the Tenant has maintained and documented
an HVAC maintenance agreement with a Landlord approved contractor for the
term of this lease.
34. Disclosure Statement: Pursuant to Georgia Real Estate Commission
Regulation 520-1-.08, Lancaster-Brown Real Estate, Inc. discloses that it
represents the Landlord exclusively in this transaction and shall receive
their compensation from the Landlord.
35. Each full year during the term of this Lease (hereinafter referred to as
"Lease Year") beginning with the Lease Year which begins on the first
anniversary of the commencement date of this Lease, the rental rate will
be adjusted as follows:
Rental Rate
- -----------
Year 1 Nov. 1, 1993 - Oct. 31, 1994 at $2,268.00/month
Year 2 Nov. 1, 1994 - Oct. 31, 1995 at $2,358.72/month
Year 3 Nov. 1, 1995 - Oct. 31, 1996 at $2,453.07/month
Year 4 Nov. 1, 1996 - Oct. 31, 1997 at $2,551.19/month
Year 5 Nov. 1, 1997 - Oct. 31, 1998 at $2,653.24/month
36. Rental Payments: All rental payments are to be made payable to TCW REALTY
FUND II and mailed to the following address:
JIMMY CARTER INDUSTRIAL
TCW ATF TCW REALTY FUND II
PO BOX 905386
CHARLOTTE NC 28290-5386
37. Landlord will provide a drawing describing all improvement as shown on the
attached floor plan marked Exhibit "A" for Tenant's and Landlord's final
signature and approval. The Landlord will give an allowance for Tenant
Improvements; said allowance shall not exceed $15,000.00 for such
improvements. Tenant is responsible for all costs exceeding said
allowance.
38. Detrimental Conduct: The Tenant agrees that his occupancy and use of the
property shall at all times not be detrimental to other tenants in the
building by reason of odor, smoke, dust, gas, noise or vibration.
39. Signage: Landlord will allow Tenant to erect a sign on the front of the
building, above the tenant space, provided Tenant conforms to Landlord's
sign criteria as described in Exhibit "C". Landlord will pay half the cost
associated with signage.
40. Tenant agrees to conform with all local and state zoning government
regulations.
<PAGE>
EXHIBIT "B" - continued
41. Common Area Maintenance: Tenant shall pay to the Landlord "Tenant's share
of common area maintenance cost," which shall mean the total common area
maintenance cost (as hereinafter defined) of the property of which the
Premises are a part, divided by the total number of rentable square feet
of the building in which the Premises are located, multiplied by the
number of square feet of said building which constitutes the Premises
"Common Area Maintenance Cost" shall meet all actual cost paid by the
Landlord or on its behalf in connection with the maintenance, operation,
repair, cleaning, water and sewer cost, and security of the common areas
of the property, as determined by the Landlord to be necessary or
appropriate. The Tenant's Common Area Maintenance charge shall not
increase above $.32 per square foot for the first year of this Lease.
42. This Lease is subject to the Landlord's approval.
43. This Lease is contingent upon the termination of an existing Lease dated
June 25, 1991, by and between TCW Realty Fund II, a California
corporation, as trustee of TCW Realty Fund II, as Landlord and National
Micro Systems, as Tenant.
44. Time is of the essence regarding this Lease Agreement. In the event this
Lease has not been executed by a duty authorized representative of
Crescent Computer, Inc. (Tenant) within five (5) business days from the
date of receipt of this Lease or September 13, 1993, whichever first
occurs, then Landlord reserves the right to withdraw this Lease.
45. Tenant shall have a one-time option to cancel the Lease prior to the
Expiration Date, effective on October 31, 1996; provided that Tenant is
not then in default under any of the terms or conditions of the Lease. In
order to exercise the early termination option contained herein, Tenant
must notify Landlord, in writing, on or before May 1, 1996 of its intent
to terminate this Lease as of October 31, 1996. Such notice must also
contain payment in the amount of $15,000 reflecting the consideration for
such early termination.
46. Tenant reserves the right to select the contractor for Tenant
Improvements. Contractor must conform to all applicable codes.
<PAGE>
EXHIBIT "C"
SIGN CRITERIA
Sign Criteria
This criteria establishes the uniform policies for all Tenant sign
identification within the Carter-Pacific Office Park. This criteria has been
established for the purpose of maintaining the overall appearance of the center.
Conformance will be strictly enforced. Any sign installed that does not conform
to the sign criteria will be brought into conformity at the expense of the
Tenant.
A. General Requirements
1. A drawing of the size and shape of the approved sign is shown
below. Lettering and installation and sign board shall be paid
for by the Tenant.
2. Landlord shall approve all copy and/or logo design prior to
the installation of the sign.
3. Landlord shall direct the placement of all Tenant signs and
the method of attachment to the building.
4. Tenant shall be responsible for the fulfillment of all
requirement for this criteria.
B. General Specifications
1. The sign's dimensions shall be 3' high by 10' wide.
2. Tenant shall be allowed one sign regardless of size of
occupancy.
3. Upon the removal of any sign, any damage to the building will
be repaired by Tenant.
4. Except as provided herein, no advertising placards, banners,
pennants, names, insignia, trademarks, or other descriptive
material shall be affixed or maintained upon any automated
machine, glass panes of the building, landscaped areas,
streets, or parking areas.
{GRAPHIC OMITTED}
1) Point Cpn #460
2) Face #289 White Letters (Pan Face)
3/4) Vinyl For Suite # Saphire Blue Reversed
Out 10 high R.C.
Cabinet
.080 Aluminum, Alum Angle Frame Cabinet
Illuminate
3 9' High Output Florescent Lamps
NOTE: DRAWING NOT TO SCALE
<PAGE>
EXHIBIT "D"
ENVIRONMENTAL PROVISIONS
For Industrial Leases
Hazardous Materials
(a) Definition. As used in this Lease, the term "Hazardous Material" means
any flammable items, explosives, radioactive materials, hazardous or toxic
substances, material or waste or related materials, including any substances
defined as or included in the definition of "hazardous substances", "hazardous
wastes", "infectious wastes", "hazardous materials" or "toxic substances" now or
subsequently regulated under any federal, state or local laws, regulations or
ordinances including, without limitation, oil, petroleum-based products, paints
solvents, lead, cyanide, DDT, printing inks, acids, pesticides, ammonia
compounds and other chemical products, asbestos, PCBs and similar compounds, and
including any different products and materials which are subsequently found to
have adverse effects on the environment or the health and safety of persons.
(b) General Prohibition. Lessee shall not cause or permit any Hazardous
Material to be generated, produced, brought upon, used, stored, treated,
discharged, released, spilled or disposed of on, in, under or about the Premises
or the Property by Lessee, its affiliates, agents, employees, contractors,
sublessees, assignees or invitees without the prior written consent of Lessor.
Lessor shall be entitled to take into account such factors or facts as Lessor
may in its good faith business judgement determine to be relevant in determining
whether to grant, condition or withhold consent to Lessee's proposed activity
with respect to Hazardous Material and Lessee shall indemnify, defend and hold
Lessor harmless from and against any and all actions (including, without
limitation, remedial or enforcement actions of any kind, administrative or
judicial proceedings, and orders or judgements arising out of or resulting
therefrom), costs, claims, damages (including, without limitation, punitive
damages), expenses (including, without limitation, attorneys', consultants' and
experts' fees, court costs and amounts paid in settlement of any claims or
actions), fines, forfeitures or other civil, administrative or criminal
penalties, injunctive or other relief (whether or not based upon personal
injury, property damage, or contamination, of or adverse effects upon, the
environment, water tables or natural resources), liabilities or losses arising
from a breach of this prohibition by Lessees, its affiliates, agents, employees,
contractors, sublessees, assignees, or invitees. Lessor shall indemnify, defend
and hold Lessee harmless from and against any and all actions (including,
without limitation, remedial or enforcement actions of any kind, administrative
or judicial proceedings, and orders or judgements arising out of or resulting
therefrom), costs, claims, damages (including, without limitation, punitive
damages), expenses (including, without limitation, attorneys', consultants' and
experts' fees, court costs and amounts paid in settlement of any claims or
actions), fines, forfeitures or other civil, administrative or criminal
penalties, injunction or other relief (whether or not based upon personal
injury, property damage, or contamination of, or adverse effects upon, the
environment, water tables or natural resources), liabilities or losses arising
from or in connection with any Hazardous Material generated, produced, brought
upon, used, stored, treated, discharged, released, spilled or disposed of on,
in, under, or about the Premises or the Property by Lessor or its employees, in
no event, however, shall Lessor be required to consent to the installation or
use of any storage tanks in, on, or under the Premises or the Property. If
Lessor consents to the generation, production, use, storage treatment or
disposal of Hazardous Materials in or about the Premises by Lessee, its agents,
employees, contractors, sublessees or invitees (but not by its predecessors),
then, in addition to any other requirements or conditions that Lessor may impose
in connection with such consent, (1) Lessee promptly shall deliver to Lessor
copies of all permits, approvals, filings, and reports reflecting the legal and
proper generation, production, use, storage, treatment or disposal of all
Hazardous Materials generated, used, store, treated or removed from the Premises
and the Property, and, upon Lessor's request, copies of all hazardous waste
manifest relating thereto, and (2) upon expiration or earlier termination of
this Lease, Lessee shall cause all Hazardous Materials arising out of or related
to the use or occupancy of the Premises by Lessee or its affiliates, agents,
employees, contractors, sublessees, assignees or invitees (but not by its
predecessors) to be removed from the Premises and the Property and transported
for use, storage or disposal in accordance with all applicable laws, regulations
and ordinances and Lessee shall provide Lessor with evidence reasonable
satisfactory to Lessor of the same.
(c) In the event that Hazardous Materials are discovered upon, in, or
under the Property, and any governmental agency or entity having jurisdiction
over the Property requires the removal of such Hazardous Materials, Lessee shall
be responsible for removing these Hazardous Materials arising out of or related
to the use or occupancy of the Premises by Lessee or its affiliates, agents,
employees, contractors, sublessee, assignees or invitees but not those of its
predecessors. Notwithstanding the foregoing, Lessee shall not take any remedial
action in or about the Premises or the Property without first notifying Lessor
of Lessee's intention to do so and affording Lessor the opportunity to appear,
intervene or otherwise appropriately assert and protect Lessor's interest with
respect thereto. Lessee immediately shall notify Lessor in writing of: (i) any
spill, release, discharge or disposal of any Hazardous Material in, on or under
the Premises, the Property or any portion thereof, (ii) any enforcement,
cleanup, removal or other governmental or regulatory action instituted,
contemplated, or threatened (if Lessee has notice thereof) pursuant to any
Hazardous Materials Law; (iii) any claim made or threatened by any person
against Lessee, the Premises, or the Property relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from or claimed to result
from any Hazardous Materials; and (iv) any reports made to governmental agency
or entity arising out of or in connection with any Hazardous Materials in, on,
under or about or removed from the Premises or the Property, including any
complaints, notices, warnings, reports, or asserted violations in connection
therewith. Lessor also shall supply to Lessor as promptly as possible, and in
any event within five (5) business days after Lessee first receives or sends the
same, copies of all claims, reports, complaints, notices, warnings or asserted
violations relating in way to the Premises, the Property or Lessee's use or
occupancy thereof.
(d) The respective rights and obligations of Lessor and Lessee under this
Exhibit "D" shall survive the expiration or earlier termination of this Lease.
BUSINESS CENTER LEASE
1. BASIC LEASE TERMS
a. DATE OF LEASE EXECUTION: February 12, 1996
b. TENANT: Intelligent Products Marketing, Inc.
Trade Name: Same
Address (Leased Premises): 7026 Koll Center Parkway, Suite 214
Pleasanton, California 94566 Building/Unit
Address (For Notices): same
C. LANDLORD: BERNAL AVENUE ASSOCIATES
Address (For Notices): 7011 Koll Center Parkway, Suite 210
Pleasanton, California 94566
d. TENANT'S USE OF PREMISES: Storage
e. PREMISES AREA: 550 rentable square feet
f. PROJECT AREA: 133,920 square feet
g. PREMISES PERCENT OF PROJECT: .4106%
h. TERM OF LEASE: Commencement: April 1, 1996 Expiration: December
8, 2001
Number of Months: 69
BASE MONTHLY RENT: $ 385.00
j. RENT ADJUSTMENT:
(1) Step Increase. The provisions of section 4.b.(l) apply as
follows:
Effective Date of New Base
Rent Increase Monthly Rent
N/A , 19__ $_________
---------
_________, 19__ $_________
_________, 19__ $_________
_________ 19__ $_________
k. ANNUAL EXPENSE BASE:
Expense Rate $3.10 or Actual Expenses for 1997
whichever is greater.
Premises Area Square Feet X 550
Annual Expense Base $1,705.00
l. PREPAID RENT: $0.00
m. TOTAL SECURITY DEPOSIT $385.00, Including a $0.00 non-refundable
cleaning fee.
n. BROKER(S): N/A
o. GUARANTORS: N/A
p. ADDITIONAL SECTIONS:
Additional sections of this lease numbered 28 through 32 are
attached hereto and made a part hereof. If none, so state in the
following space _____XXX_____.
q. ADDITIONAL EXHIBITS:
Additional exhibits lettered D through D-I are attached hereto
and made a part hereof. If none, so state in the following space
_____XXX_____.
<PAGE>
2. PREMISES. Landlord leases to Tenant the Premises described in Section 1 and
in Exhibit A (the "Premises"), located in this Project described on Exhibit B
(the "Project"). Landlord reserves the right to modify Tenant's percentage of
the Project as set forth in Section 1 if the Project size is increased through
the development of additional property. By entry on the Premises, Tenant
acknowledges that it has examined the Premises and accepts the Premises in their
present condition, subject to any additional work Landlord has agreed to do.
3. TERM. The term of this Lease is for the period set forth in Section 1,
commencing on the date in Section 1. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant upon commencement of the term, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant for any
loss or damage resulting from such delay. In that event, however, there shall be
a rent abatement covering the period between the commencement of the term and
the time when Landlord delivers possession to Tenant, and all other terms and
conditions of this Lease shall remain in full force and effect, provided,
however, that if Landlord cannot deliver possession of the Premises to Tenant,
this Lease shall be void. If a delay in possession is caused by Tenant's failure
to perform any obligation in accordance with this Lease, the term shall commence
as set forth in Section 1 and there shall be no reduction of rent between the
commencement of the term and the time Tenant takes possession.
4. RENT.
a. Base Rent. Tenant shall pay to Landlord monthly base rent in the
initial amount in Section 1 which shall be payable monthly in advance on
the first day of each and every calendar month ("Base Monthly Rent")
provided, however, the first month's rent is due and payable upon
execution of this Lease. If the term of this Lease contains any rental
abatement period, Tenant hereby agrees that if Tenant breaches the Lease
and/or abandons the Premises before the end of the Lease term, or if
Tenant's right to possessions is terminated by Landlord because of
Tenant's breach of the Lease, Landlord shall, at its option, (1) void the
rental abatement period; and (2) recover from Tenant, in addition to any
damages due Landlord under the terms and conditions of the Lease, rent
prorated for the duration of the rental abatement period at a rental rate
equivalent to the effective Base Monthly Rent.
For purposes of Section 467 of the Internal Revenue Code, the parties to
this Lease hereby agree to allocate the stated rents, provided herein, to
the periods which correspond to the actual rent payments as provided under
the terms and conditions of this agreement.
b. Rent Adjustment.
1) Step Increase. Base Monthly Rent shall be increased periodically
to the amounts and at the times set forth in Section 1.j.
c. Expenses. The purpose of this Section 4.c. is to ensure that Tenant
bears a share of all Expenses related to the use, maintenance, ownership,
repair or replacement, and insurance of the Project. Accordingly,
beginning on the date Tenant takes possession of the Premises, Tenant
shall pay to Landlord that portion of Tenant's share of Expenses related
to the Project which is in excess of the Annual Expense Base shown in
Section 1, or the Actual Expenses incurred in 1997, whichever is greater.
1) Expenses Defined. The term "Expenses" shall mean all costs and
expenses of the ownership, operation maintenance, repair or
replacement, and insurance of the Project, including without
limitation, the following costs:
(a) All supplies, materials, labor, equipment, and utilities
used in or related to the operation and maintenance of the
Project;
(b) All maintenance, management, janitorial, legal,
accounting, insurance, and service agreement costs related to
the Project;
(c) All maintenance, replacement and repair costs relating to
the areas within or around the Project, including, without
limitation, air conditioning systems, sidewalks, landscaping,
service areas, driveways, parking areas (including resurfacing
and restriping parking areas), walkways, building exteriors
(including painting), signs and directories, repairing and
replacing roofs, walls, etc. These costs may be included
either based on actual expenditures or the use of an
accounting reserve based on past cost experience for the
Project.
(d) Amortization (along with reasonable financing charges) of
capital improvements made to the Project which may be required
by any government authority or which will improve the
operating efficiency of the Project (provided, however, that
the amount of such amortization for improvements not mandated
by government authority shall not exceed in any year the
amount of costs reasonably determined by Landlord in its sole
discretion to have been saved by the expenditure either
through the reduction or minimizations of increases which
would have otherwise occurred).
<PAGE>
(e) Real Property Taxes including all taxes, assessments
(general and special) and other impositions or charges which
may be taxed, charged, levied, assessed or imposed upon all or
any portion of or in relation to the Project or any portion
thereof, any leasehold estate in the Premises or measured by
rent from the Premises, including any increase caused by the
transfer, sale or encumbrance of the Project or any portion
thereof. "Real Property Taxes" shall also include any form of
assessment, levy, penalty, charge or tax (other than estate,
inheritance, net income, or franchise taxes) imposed by any
authority having a direct or indirect power to tax or charge,
including, without limitation, any city, county, state,
federal or any improvement or other district, whether such tax
is (1) determined by the area of the Project or the rent or
other sums payable under this Lease; (2) upon or with respect
to any legal or equitable interest of Landlord in the Project
or any part thereof; (3) upon this transaction or any document
to which Tenant is a party creating a transfer in any interest
in the Project; (4) in lieu of or as a direct substitute in
whole or in part of or in addition to any real property taxes
on the Project; (5) based on any parking spaces or parking
facilities provided in the Project; or (6) in consideration
for services, such as police protection, fire protection,
street, sidewalk and roadway maintenance, refuse removal or
other services that may be provided by any governmental or
quasi-governmental agency from time to time which were
formerly provided without charge or with less charge to
property owners or occupants.
2) Annual Estimate of Expenses. When Tenant takes possession of the
Premises, Landlord shall estimate Tenant's portion of Expenses for the
remainder of the calendar year based on the Tenant's portion of the
Project Area set forth in Section 1. At the commencement of each calendar
year thereafter, Landlord shall estimate Tenant's portion of Expenses for
the coming year based on the Tenant's portion of the Project Area set
forth in Section 1.
3) Monthly Payment of Expenses. If Tenant's portion of said estimate of
Expenses shows an increase for the remainder of the calendar year over the
Annual Expense Base, as set forth in Section 1, Tenant shall pay to
Landlord, as additional rent, such estimated increase in monthly
installments of one-twelfth (1/12) beginning on the date Tenant takes
possession of the Premises. If Tenant's portion of said estimate of
Expenses shows an increase for subsequent calendar years over the Annual
Expense Base, as set forth in Section 1, Tenant shall pay Landlord, as
additional rent, such estimated increase in monthly installments of
one-twelfth (1/12) beginning on January 1 of the forthcoming calendar
year, and one-twelfth (1/12) on the first day of each succeeding calendar
month. As soon as practical following each calendar year, Landlord shall
prepare an accounting of actual Expenses incurred during the prior
calendar year and such accounting shall reflect Tenant's share of
Expenses. If the additional rent paid by Tenant under this Section 4.c.3
during the preceding calendar year was less than the actual amount of
Tenant's share of Expenses, Landlord shall so notify Tenant and Tenant
shall pay such amount to Landlord within thirty (30) days of receipt of
such notice. Such amount shall be deemed to have accrued during the prior
calendar year and shall be due and payable from Tenant even though the
term of this Lease has expired or this Lease has been terminated prior to
Tenant's receipt of this notice. Tenant shall have thirty (30) days from
receipt of such notice to contest the amount due; failure to so notify
Landlord shall represent final determination of Tenant's share of
expenses. If Tenant's payments were greater than the actual amount, then
such overpayment shall be credited by Landlord to all present rent due
under this Section 4.c.3.
d. Rent Without Offset and Late Charge. All rent shall be paid by Tenant to
Landlord monthly in advance on the first day of every calendar month, at the
address shown in Section 1, or such other place as Landlord may designate in
writing from time to time. All rent shall be paid without prior demand or notice
without any deduction or offset whatsoever. All rent shall be paid in lawful
currency of the United States of America. All rent due for any partial month
shall be prorated at the rate calculated by dividing the number of days for
which rent is due by the actual number of days in the month and multiplied by
the applicable monthly rate. Tenant acknowledges that late payment by Tenant to
Landlord or any rent or other sums due under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such cost being
extremely difficult and impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges and late charges that may be
imposed on Landlord by the terms of any encumbrance or note secured by the
Premises. Therefore, if any rent or other sum due from Tenant is not received by
the eleventh of each month, Tenant shall pay to Landlord an additional sum equal
to 10% of such overdue payment. Landlord and Tenant hereby agree that such late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of any such late payment and that the late charge is in addition
to any and all remedies available to the Landlord and that the assessment and/or
collection of the late charge shall not be deemed a waiver of any other default.
Additionally, all such delinquent rent or other sums, plus this late charge,
shall bear interest at the then maximum lawful rate permitted to be charged by
Landlord. Any payments of any kind returned for insufficient funds will be
subject to an additional handling charge of $25.00, and thereafter, Landlord may
require Tenant to pay all future payments of rent or other sums due by money
order or cashier's check.
<PAGE>
5. PREPAID RENT. Upon the execution of this Lease, Tenant shall pay to
Landlord the prepaid rent set forth in Section 1, and if Tenant is not in
default of any provisions of this Lease, such prepaid rent shall be
applied toward the rent due to the last month of the term. Landlord's
obligations with respect to the prepaid rent are those of a debtor and not
of a trustee, and Landlord can commingle the prepaid rent with Landlord's
general funds. Landlord shall not be required to pay Tenant interest on
the prepaid rent. Landlord shall be entitled to immediately endorse and
cash Tenant's prepaid rent; however, such endorsement and cashing shall
not constitute Landlord's acceptance of this Lease. In the event Landlord
does not accept this Lease, Landlord shall return said prepaid rent.
6. DEPOSIT. Upon execution of this Lease, Tenant shall deposit the security
deposit set forth in Section 1 with Landlord, in part as security for the
performance by Tenant of the provisions of this Lease and in part as a
cleaning fee. If Tenant is in default, Landlord can use the security
deposit or any portion of it to cure the default or to compensate Landlord
for any damages sustained by Landlord resulting from Tenant's default.
Upon demand, Tenant shall immediately pay to Landlord a sum equal to the
portion of the security deposit expended or applied by Landlord to
maintain the security deposit in the amount initially deposited with
Landlord. In no event with Tenant have the right to apply any part of the
security deposit to any rent or other sums due under this Lease. If Tenant
is not in default at the expiration or termination of this Lease, Landlord
shall return the entire security deposit to Tenant, except for 10% of
first month's rent or $125, whichever is greater, which Landlord shall
retain as a non-refundable cleaning fee. Landlord's obligations with
respect to the deposit are those of a debtor and not of a trustee, and
Landlord can commingle the security deposit with Landlord's general funds.
Landlord shall not be required to pay Tenant interest on the deposit.
Landlord shall be entitled to immediately endorse and cash Tenant's
prepaid deposit; however, such endorsement and cashing shall not
constitute Landlord's acceptance of this Lease. In the event Landlord does
not accept this Lease, Landlord shall return said prepaid deposit.
7. USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises
solely for the purposes set forth in Section 1 and for no other purpose
without obtaining the prior written consent of Landlord. Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Premises or with respect to
the suitability of the Premises or the Project for the conduct of Tenant's
business, nor has Landlord agreed to undertake any modification,
alteration or improvement to the Premises or the Project, except as
provided in writing in this Lease. Tenant acknowledges that Landlord may
from time to time, at its sole discretion, make such modifications,
alterations, deletions or improvements to the Project as Landlord may deem
necessary or desirable, without compensation or notice to Tenant. Tenant
shall promptly comply with all laws, ordinances, orders and regulations
affecting the Premises and the Project, including, without limitation, any
rules and regulations that may be attached to this Lease and to any
reasonable modifications to these rules and regulations as Landlord may
adopt from time to time. Tenant shall not do or permit anything to be done
in or about the Premises or bring or keep anything in the Premises that
will in any way increase the premiums paid by Landlord on its insurance
related to the Project or which will in any way increase the premiums for
fire or casualty insurance carried by other tenants in the Project. Tenant
will not perform any act or carry on any practices that may injure the
Premises or the Project; that may be a nuisance or menace to other tenants
in the Project; or that shall in any way interfere with the quiet
enjoyment of such other tenants. Tenant shall not use the Premises for,
sleeping, washing clothes, cooking or the preparation, manufacture or
mixing of anything that might emit any objectionable odor, noises,
vibrations or lights onto such other tenants. If sound insulation is
required to muffle noise produced by Tenant on the Premises, Tenant at its
own cost shall provide all necessary insulation. Tenant shall not do
anything on the Premises which will overload any existing parking or
service to the Premises. Pets and/or animals of any type shall not be kept
on the Premises.
8. SIGNAGE. All signing shall comply with rules and regulations set forth by
Landlord as may be modified from time to time. Current rules and
regulations relating to signs are described on Exhibit C. Tenant shall
place no window covering (e.g., shades, blinds, curtains, drapes, screens,
or tinting materials), stickers, signs, lettering, banners or advertising
or display material on or near exterior windows or doors if such materials
are visible for the exterior of the Premises, without Landlord's prior
written consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without
Landlord's prior written consent. Any material violating this provision
may be destroyed by Landlord without compensation to Tenant.
9. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed
upon its business operations as well as upon all trade fixtures, leasehold
improvements merchandise and other personal property in or about the
Premises.
10. PARKING. Landlord grants to Tenant and Tenant's customers, suppliers,
employees and invitees, a non-exclusive license to use the designated
parking areas in the Project for the use of motor vehicles during the term
of this Lease. Landlord reserves the right at any time to grant similar
non-exclusive use to other tenants, to promulgate rules and regulations
relating to the use of such parking areas, including reasonable
restrictions on parking by tenants and employees to designate specific
spaces for the use of any tenant, to make changes in the parking layout
from time to time, and to establish reasonable time limits on parking.
Overnight parking is prohibited for automobiles only, and any automobile
violating this or any other vehicle regulation adopted by Landlord is
subject to removal at the owner's expense.
<PAGE>
11. UTILITIES. Tenant shall pay for all water, gas, heat, light, power, sewer,
electricity, telephone or other service metered, chargeable or provided to
the Premises. Landlord reserves the right to install separate meters for
any such utility and charge tenant for the cost of such installation.
12. MAINTENANCE. Landlord shall maintain, in good condition, the structural
parts of the Premises, which shall include only the foundations, bearing
and exterior walls (excluding glass), subflooring and roof (excluding
skylights), the unexposed electrical, plumbing and sewerage systems,
including without limitation, those portions of the systems lying outside
the Premises, exterior doors (excluding glass), window frames, gutters and
downspouts on the Building and the heating, ventilating and air
conditioning systems servicing the Premises; provided, however, the cost
of all such maintenance shall be considered "Expenses" for purposes of
Section 4.c. Except as provided above, Tenant shall maintain and repair
the Premises in good condition, including, without limitation, maintaining
and repairing all walls, floors, ceilings, interior doors, exterior and
interior windows and fixtures as well as damage caused by Tenant, its
agents, employees or invitees. Upon expiration or termination of this
Lease, Tenant shall surrender the Premises to Landlord in the same
condition as existed at the commencement of the term, except for
reasonable wear and tear or damage caused by fire or other casualty for
which Landlord has received all funds necessary for restoration of the
Premises from insurance proceeds.
13. ALTERATIONS. Tenant shall not make any alteration to the Premises, or to
the Project, including any changes to the existing landscaping, without
Landlord's prior written consent. If Landlord gives its consent to such
alterations, Landlord may post notices in accordance with the laws of the
state in which the Premises are located. Any alterations made shall remain
on and be surrendered with the Premises upon expiration or termination of
this Lease, except that Landlord may, within 30 days before or 30 days
after expiration of the term, elect to require Tenant to remove any
alterations which Tenant may have made to the Premises. If Landlord so
elects, at its own cost Tenant shall restore the Premises to the condition
designated by Landlord in its election, before the last day of the term or
within 30 days after notice of its election is given, which ever is later.
Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate
governmental approvals, and permits, and shall complete such alterations
with due diligence in compliance with plans and specifications approved by
Landlord. All such construction shall be performed in a manner which will
not interfere with the quiet enjoyment of other tenants of the Project.
Tenant shall pay all costs for such construction and shall keep the
Premises and the project free and clear of all mechanics' liens which may
result from construction by Tenant.
14. RELEASE AND INDEMNITY. As material consideration to Landlord, Tenant
agrees that Landlord shall not be liable to Tenant for any damage to
Tenant or Tenant's property from any cause, and Tenant waives all claims
against Landlord for damage to persons or property arising for any reason,
except for damage resulting from Landlord's breach it its express
obligations under this Lease which Landlord has not cured within a
reasonable time after receipt of written notice of such breach from
Tenant. Tenant shall indemnify and hold Landlord harmless from all damages
arising out of any damage to any person or property occurring in, on or
about the Premises or Tenant's use of the premises or Tenant's breach of
any term of this Lease.
15. INSURANCE. Tenant, at its cost, shall maintain public liability and
property damage insurance and product liability insurance with a single
combined liability limit of $1,000,000, insuring against all liability of
Tenant and its authorized representatives arising out of or in connection
with Tenant's use or occupancy of the Premises. Public liability
insurance, products liability insurance and property damage insurance
shall insure performance by Tenant of the indemnity provisions of Section
14. Landlord shall be named as additional insured and the policy shall
contain cross-liability endorsements. On all its personal property, at its
cost, Tenant shall maintain a policy of standard fire and extended
coverage insurance with vandalism and malicious mischief endorsements and
"all risk" coverage on all Tenant's improvements and alterations in or
about the Premises, to the extent of at least 90% of their full
replacement value. The proceeds from any such policy shall be used by
Tenant for the replacement of personal property and the restoration of
Tenant's improvements or alterations. All insurance required to be
provided by Tenant under this Lease shall release Landlord from any claims
for damage to any person or the Premises and the Project, and to Tenant's
fixtures, personal property, improvements and alterations in or on the
Premises or the Project, caused by or resulting from risks insured against
under any insurance policy carried by Tenant in force at the time of such
damage. All insurance required to be provided by Tenant under this Lease:
(a) shall be issued by insurance companies authorized to do business in
the state in which the premises are located with a financial rating of at
least an A+XII status as rated in the most recent edition of Best's
Insurance Reports; (b) shall be issued as a primary policy; and (c) shall
contain an endorsement requiring at least 30 days prior written notice of
cancellation to Landlord and Landlord's lender, before cancellation or
change in coverage, scope or amount of any policy. Tenant shall deliver a
certificate or copy of such policy together with evidence of payment of
all current premiums to Landlord within 30 days of execution of this
Lease. Tenant's failure to provide evidence of such coverage to Landlord
may, in Landlord's sole discretion, constitute a default under this Lease.
<PAGE>
16. DESTRUCTION. If during the term, the Premises or Project are more than 10%
destroyed from any cause, or rendered inaccessible or unusable from any
cause, Landlord may, in its sole discretion, terminate this Lease by
delivery of notice to Tenant within 30 days of such event without
compensation to Tenant. If in Landlord's estimation, the Premises cannot
be restored within 90 days following such destruction, the Landlord shall
immediately notify Tenant and Tenant may terminate this Lease by delivery
of notice to Landlord within 30 days of receipt of Landlord's notice, If
Landlord does not terminate this Lease and if in Landlord's estimation the
Premises can be restored within 90 days, then Landlord shall commence to
restore the Premises in compliance with then existing laws and shall
complete such restoration with due diligence. In such event, this Lease
shall remain in full force and effect, but there shall be an abatement of
rent between the date of destruction and the date of completion or
restoration, based on the extent to which destruction interferes with
Tenant's use of the Premises.
17. CONDEMNATION.
a. DEFINITIONS. The following definitions shall apply. (1)
"Condemnation" means (a) the exercise of any governmental power of
eminent domain, whether by legal proceedings or otherwise by
condemnor and (b) the voluntary sale or transfer by Landlord to any
condemnor either under threat of condemnation or while legal
proceedings for condemnation are proceeding; (2) "Date of Taking"
means the date the condemnor has right to possession of the property
being condemned; (3) "Award" means all compensation, sums or
anything of value awarded, paid or received on a total or partial
condemnation; and (4) "Condemnor" means any public or quasi-public
authority or private corporation or individual, having power of
condemnation.
b. OBLIGATIONS TO BE GOVERNED BY LEASE. If during the term of the Lease
there is any taking of all or any part of the Premises or the
Project, the rights and obligations of the parties shall be
determined pursuant to this Lease
c. TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking. If
any portion of the Premises is taken by condemnation, this Lease
shall remain in effect, except that Tenant can elect to terminate
this Lease if the remaining portion of the Premises is rendered
unsuitable for Tenant's continued use of Premises. If Tenant elects
to terminate this Lease, Tenant must exercise its right to terminate
by giving notice to Landlord within thirty (30) days after the
nature and extent of the taking have been finally determined. If
Tenant elects to terminate this Lease, Tenant shall also notify
Landlord of the date of termination which date shall not be earlier
than thirty (30) days nor later than ninety (90) days after Tenant
has notified Landlord of its election to terminate; except that this
Lease shall terminate on the date of taking if the date of taking
falls on a date before the date of termination as designated by
Tenant. If any portion of the Premises is taken by condemnation and
this Lease remains in full force and effect, on the date of taking
the rent shall be reduced by an amount in the same ratio as the
total number of square feet in the Premises taken bears to the total
number of square feet in the Premises immediately before the date of
taking.
18. ASSIGNMENT OR SUBLEASE. Tenant shall not assign or encumber its interest
in this Lease or the Premises or sublease all or any part of the Premises
or allow any other person or entity (except Tenant's authorized
representatives, employees, invitees, or guests) to occupy or use all or
any part of the Premises without first obtaining Landlord's consent, which
Landlord may withhold in its sole discretion. Any assignment, encumbrance
or sublease without Landlord's written consent shall be voidable and at
Landlord's election, shall constitute a default. If Tenant is a
partnership, a withdrawal or change, voluntary, involuntary or by
operation of law of any partner, or the dissolution of the partnership,
shall be deemed a voluntary assignment. If Tenant consists of more than
one person, a purported assignment, voluntary or involuntary or by
operation of law from one person to the other shall be deemed a voluntary
assignment. If Tenant is a corporation, any dissolution, merger,
consolidation or other reorganization of Tenant, or sale or other transfer
of a controlling percentage of the capital stock of Tenant, or the sale of
at least 25% of the value of the assets of Tenant shall be deemed a
voluntary assignment. The phrase "controlling percentage" means ownership
of and right to vote stock possessing at least 25% of the total combined
voting power of all classes of Tenant's capital stock issued, outstanding
and entitled to vote for election of directors. This Section 18 shall not
apply to corporations the stock of which is traded through an exchange or
over the counter. Fifty percent of all rent received by Tenant from its
subtenants, if they occupy all of the space, in excess of the rent payable
by Tenant to Landlord under this Lease shall be paid to Landlord, or any
(fifty percent of) sums to be paid by an assignee to Tenant in
consideration of the assignment of this Lease shall be paid to Landlord.
If Tenant requests Landlord to consent to a proposed assignment or
subletting, Tenant shall pay to Landlord, whether or not consent is
ultimately given, $100 or Landlord's reasonable attorney's fees incurred
in connection with such request, whichever is greater.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including without limitation the
transfer of this Lease by testacy or intestacy). Each of the following
acts shall be considered an involuntary assignment: (a) If Tenant is or
becomes bankrupt or insolvent, makes an assignment for the benefit of
creditors, or institutes proceedings under the Bankruptcy Act in which
Tenant is the bankrupt; or if Tenant is a partnership or consists of more
than one person or entity, if any partner of the partnership or other
person or entity is or becomes Bankrupt or insolvent, or makes an
assignment for the benefit of creditors; or (b) If a writ of attachment or
execution is levied oil this Lease; or (c) If in any proceeding or action
to which Tenant is a party, a receiver is appointed with authority to take
possession of the premises. An involuntary assignment shall constitute a
default by Tenant and Landlord shall have the right to elect to terminate
this Lease, in which case this Lease shall not be treated as an asset of
Tenant.
<PAGE>
19. DEFAULT. The occurrence of any of the following shall constitute a default
by Tenant. (a) A failure to pay rent or other charge when due; (b)
Abandonment and vacation of the Premises (failure to occupy and operate
the Premises for ten (10) consecutive days shall be deemed an abandonment
and vacation); or (c) Failure to perform any other provision of this
Lease.
20. LANDLORD'S REMEDIES. Landlord shall have the following remedies if Tenant
is in default. (These remedies are not exclusive; they are cumulative and
in addition to any remedies now or later allowed by law): Landlord may
terminate Tenant's right to possession of the Premises at any time. No act
by Landlord other than giving notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises, or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under
this Lease shall not constitute a termination of Tenant's right to
possession. Upon termination of Tenant's right to possession, Landlord has
the right to recover from Tenant: (1) The worth of the unpaid rent that
had been earned at the time of termination of Tenant's right to
possession; (2) The worth or the amount of the unpaid rent that would have
been earned after the date of termination of Tenant's right to possession;
(3) Any other amount, including court, attorney, and collection costs,
necessary to compensate Landlord for all detriment proximately caused by
Tenant's default. "The worth," as used for Item 20(1) in this Paragraph 20
is to be computed by allowing interest at the maximum rate an individual
is permitted to charge by law or 12%, whichever is greater. "The worth at
the time of the award" as used for Item 20(2) in this Paragraph 20 is to
be computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of termination of Tenant's right
of possession.
21. ENTRY ON PREMISES. Landlord and its authorized representatives shall have
the right to enter the Premises at all reasonable times for any of the
following purposes: (a) To determine whether the Premises are in good
condition and whether Tenant is complying with its obligations under this
Lease; (b) To do any necessary maintenance and to make any restoration to
the Premises or the Project that Landlord has the right or obligation to
perform; (c) To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last ninety (90) days of the
term, or during any period while Tenant is in default; (d) To show the
Premises to prospective brokers, agents, buyers, tenants, or persons
interested in leasing or purchasing the Premises, at any time during the
term; or (e) To repair, maintain or improve the Project and to erect
scaffolding and protective barricades around and about the premises but
not so as to prevent entry to the Premises and to do any other act or
thing necessary for the safety or preservation of the Premises or the
Project. Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance, or other damage arising out of
Landlord's entry onto the Premises as provided in this Section 21. Tenant
shall not be entitled to an abatement or reduction of rent if Landlord
exercises any rights reserved in this Section 21. Landlord shall conduct
its activities on the Premises as provided herein in a manner that will
cause the least inconvenience, annoyance or disturbance to Tenant. For
each of these purposes, Landlord shall at all times have and retain a key
with which to unlock all the doors in, upon and about the Premises.
excluding Tenant's vaults and safes. Tenant shall not alter any lock or
install a new or additional lock or bolt on any door of the Premises
without prior written consent of Landlord. If Landlord gives its consent,
Tenant shall furnish Landlord with a key for any such lock.
22. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at
the election of Landlord or any mortgagee or any beneficiary of a Deed of
Trust with a lien on the Project or any ground lessor with respect to the
Project, this Lease shall be subject and subordinate at all times to (a)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Project, and (b) the lien of any mortgage or Deed
of Trust which may now exist or hereafter be executed in any amount for
which the Project, ground leases or underlying leases, or Landlord's
interest or estate in any of said items is specified as security. In the
event that any ground lease or underlying lease terminates for any reason
or any mortgage or Deed of Trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in
interest to Landlord, at the option of such successor in interest. Tenant
covenants and agrees to execute and deliver, upon demand by Landlord and
in the form requested by Landlord, any additional documents evidencing the
priority or subordination of this Lease with respect to any such ground
leases or underlying leases or the lien of any such mortgage or Deed of
Trust. Tenant hereby irrevocably appoints Landlord as attorney-in-fact of
Tenant to execute, deliver and record any such document in the name and on
behalf of Tenant.
Tenant, within ten (10) days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this
Lease is not in default, is unmodified and in full force and effect, or
in full force and effect as modified, and stating the modifications. This
certificate should also state the amount of current monthly rent, the
dates to which rent has been paid in advance, and the amount of any
security deposit and prepaid rent. Failure to deliver this certificate to
Landlord within ten (10) days shall be conclusive upon Tenant that this
Lease is in full force and effect and has not been modified except as may
be represented by Landlord.
23. NOTICE. Any notice, demand, request, consent, approval, or communication
desired by either party or required to be given, shall be in writing and
served either personally or sent by prepaid certified first class mail,
addressed as set forth in Section 1. Either party may change its address
by notification to the other party. Notice shall be deemed to be
communicated forty-eight (48) hours from the time of mailing, or from the
time of service as provided in this Section 23.
<PAGE>
24. WAIVER. No delay or omission in the exercise or any right or remedy by
Landlord shall impair such right or remedy or be construed as a waiver. No
act or conduct or Landlord, including without limitation, acceptance of
the keys to the Premises, shall constitute an acceptance of the surrender
of the Premises by Tenant before the expiration of the term. Only written
notice from Landlord to Tenant shall constitute acceptance or the
surrender of the Premises and accomplish termination of the Lease.
Landlord's consent to or approval of any act by Tenant requiring the
Landlord's consent or approval shall not be deemed to waive or render
unnecessary Landlord's consent to or approval of any subsequent act by
Tenant. Any waiver by Landlord of any default must be in writing and
shall not be a waiver of any other default concerning the same of any
other provision of the Lease.
25. SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the term, Tenant
shall surrender to Landlord the Premises and all Tenant Improvements and
alterations in good condition, except for ordinary wear and tear and
alterations Tenant has the right or is obligated to remove under the
provisions of Section 13 herein. Tenant shall remove all personal property
including, without limitation, all wallpaper, paneling and other
decorative improvements or fixtures and shall perform all restoration made
necessary by the removal of any alterations of Tenant's personal property
before the expiration of the term, including for example, restoring all
wall surfaces to their condition prior to the commencement of this Lease.
Landlord can elect to retain or dispose of in any manner Tenant's personal
property not removed from the Premises by Tenant prior to the expiration
of the term. Tenant waives all claims against Landlord for any damage to
Tenant resulting from Landlord's retention or disposition of Tenant's
personal property. Tenant shall be liable to Landlord for Landlord's cost
for storage, removal, or disposal if Tenant's personal property.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration or termination of the term, or after the date in any
notice given by Landlord to Tenant terminating this Lease, such possession
by Tenant shall be deemed to be a month-to-month tenancy terminable on
written 30-day notice at any time, by either party. All provisions of this
Lease, except those pertaining to term and rent, shall apply to the
month-to-month tenancy. Tenant shall pay monthly rent in an amount equal
to 125% of Rent for the last full calendar month during the regular term
plus 100% of said last month's estimate of Tenant's share of Expenses
pursuant to Section 4.c.3.
26. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant agrees that, in the event of any actual or alleged
failure, breach or default of this Lease by Landlord, if Landlord is a
partnership:
a. The sole and exclusive remedy shall be against the partnership and its
partnership assets;
b. No partner of Landlord shall be sued or named as a party in any suit or
action (except as may be necessary to secure jurisdiction of the
partnership);
c. No service of process shall be made against any partner of Landlord
(except as may be necessary to secure secure jurisdiction of the
partnership);
d. No partner of Landlord shall be required to answer or otherwise plead
to any service or process;
e. No judgment may be taken against any partner of Landlord;
f. Any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
g. No writ of execution will ever be levied against the assets of any
partner of Landlord;
h. These covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing provisions shall be applicable to
any covenant or agreement either expressly contained in this Lease or
imposed by statute or at common law.
27. MISCELLANEOUS PROVISIONS.
a. TIME OF ESSENCE. Time is of the essence of each provision of this
Lease.
b. SUCCESSOR. This Lease shall be binding on and inure to the benefit of
the parties and their successors as provided in Section 18 herein.
c. LANDLORD'S CONSENT. Any consent required by Landlord under this Lease
must be granted in writing and may be withheld by Landlord in its sole and
absolute discretion.
d. COMMISSIONS. Each party represents that it has not had dealings with
any real estate broker, finder, or other person with respect to this Lease
in any manner, except for the broker identified in Section 1, who shall be
compensated by Landlord.
<PAGE>
e. OTHER CHARGES. If Landlord becomes a party to any litigation concerning
this Lease, the Premises, or the Project, by reason of any act or omission
of Tenant or Tenant's authorized representatives, Tenant shall be liable
to Landlord for reasonable attorney's fees and court costs incurred by
Landlord in the litigation whether or not such litigation leads to actual
court action. Should the court render a decision which is thereafter
appealed by any party thereto, Tenant shall be liable to Landlord for
reasonable attorney's fees and court costs incurred by Landlord in
connection with such appeal.
If either party commences any litigation against the other party or
files an appeal of a decision arising out of or in connection with the
Lease, the prevailing party shall be entitled to recover from the other
party reasonable attorney's fees and costs of suit. If Landlord employs a
collection agency to recover delinquent charges, Tenant agrees to pay all
collection agency and attorneys' fees charged to Landlord in addition to
rent, late charges, interest, and other sums payable under this Lease.
Tenant shall pay a charge of $75 to Landlord for preparation of a demand
for delinquent rent.
f. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by Landlord
of the project, the same shall operate to release Landlord from any
liability under this Lease, and in such event Landlord's successor in
interest shall be solely responsible for all obligations of Landlord under
this Lease.
g. INTERPRETATION. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the Premises are located.
This Lease constitutes the entire agreement between the parties with
respect to the Premises and the Project, except for such guarantees or
modifications as may be executed in writing by the parties from time to
time. When required by the context of this Lease, the singular shall
include the plural, and the masculine shall include the feminine and/or
neuter. "Party" shall mean Landlord or Tenant. If more than one person or
entity constitutes Landlord or Tenant, the obligations imposed upon that
party shall be joint and several. The enforceability, invalidity, or
illegality of any provision shall not render the other provisions
unenforceable, invalid or illegal.
28. ASSESSMENTS.
A. Definition of Assessments. Tenant acknowledges that the "assessments"
described in Section 4.c.1(e) of the lease may include assessment
districts or other funding mechanisms, including but not limited to,
improvements districts, maintenance districts, special service zones or
districts, or any combination thereof (collectively hereafter called
"Assessments Districts") for the construction, alteration, expansion,
improvements, completion, repair, operation, or maintenance, as the case
may be, of on-site or off-site improvements, or services, or any
combination thereof, as required by the City of Pleasanton (the "City") as
a condition of approving the development of Bernal Corporate Park, of
which Premises are a part. These Assessment Districts may provide, among
other things, the following improvements or services: streets, curbs,
interchanges, highways, traffic noise studies and mitigation measures,
traffic control systems and expansion of city facilities to operate same,
landscaping and lighting maintenance services, maintenance of flood
control facilities, water storage and distribution facilities, fire
apparatus, manpower, and other fire safety facilities, and sports
facilities.
B. Consent to Formation. Tenant hereby consents to the formation of any
and all of the Assessment Districts and waives any and all rights of
notice and any and all rights of protest in connection with formation of
the Assessment Districts and agrees to execute all documents including,
but not limited to, formal waivers of notice mitt protest, evidencing such
consent and waiver upon request of Landlord of the City.
C. Net Increases in Assessment Expense. Notwithstanding the Provisions for
payment of increases or new Assessment as expenses in Section 4.c.,
Landlord agrees that, during the term of this Lease, Tenant shall not be
liable for any increases in Bernal Corporate Park Assessments, or
Assessments imposed or levied after the execution date of the lease set
forth in Section 1.a.
<PAGE>
29. COVENANTS, CONDITIONS AND RESTRICTIONS. Reference is hereby made to that
certain Declaration of Covenants, Conditions and Restrictions for Bernal
Corporate Park recorded February 18, 1987, Series No. 87-046032 of
Official Records, Chicago Title Insurance Company. Landlord and Tenant
agree that they are fully bound by the above-named Declaration.
30. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
30.1 Emissions. Tenant shall not:
a. Permit any vehicles on the premises to emit exhaust which is in
violation of any governmental law, rule, regulation or requirement;
b. Discharge, emit or permit to be discharged or emitted, any liquid,
solid or gaseous matter, or any combination thereof, into the atmosphere,
the ground or any body of water, which matter, as reasonably determined by
Lessor or any governmental entity, does, or may, pollute or contaminate
the same, or is, or may become, radioactive or does, or may, adversely
effect the (1) health or safety of persons, wherever located, whether on
the premises or anywhere else (2) condition, use or enjoyment of the
premises of any other real or personal property, whether on the premises
or anywhere else, or (3) premises or any of the improvements thereto or
thereon including buildings, foundations, pipes, utility lines,
landscaping or parking areas;
c. Produce, or permit to be produced, any intense glare, light or heat
except within an enclosed or screened area and then only in such manner
that the glare, light or heat shall not be discernible from outside the
premises;
d. Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of any real property outside the
premises, or which will create a nuisance or violate any governmental law,
rule, regulation or requirement;
e. Create, or permit to be created, any ground vibration that is
discernible outside the premises;
f. Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation in which is harmful or
hazardous to any person or property in, or about the premises, or anywhere
else.
30.2 Storage and Use.
a. Storage. Subject to the uses permitted and prohibited to Tenant under
this Lease, Tenant shall store in appropriate leak proof containers all
solid, liquid, or gaseous matter, or any combination thereof, which
matter, if discharged or emitted into the atmosphere, the ground or any
body of water, does or may (1) pollute or contaminate the same, (2)
adversely affect the (i) health or safety of persons, whether on the
premises or anywhere else, (ii) condition, use or employment of the
premises or any real or personal property, whether on the premises or
anywhere else, or (iii) premises or any of the improvements thereto or
thereon.
b. In addition, without Landlord's prior written consent, Tenant shall not
use, store or permit to remain on the premises any solid, liquid, or
gaseous matter which is, or may become, radioactive. If Landlord does give
its consent, Tenant shall store the materials in such a manner that no
radioactivity will be detectable outside a designated storage area and
Tenant shall use the materials in such a manner that (1) no real or
personal property outside the designated storage area shall become
contaminated thereby or (2) there are and shall be no adverse effects on
the (i) health or safety of persons, whether on the premises or anywhere
else, (ii) condition, use or enjoyment of the premises or any real or
personal property thereon or therein, (iii) premises or any of the
improvements thereto and thereon.
30.3 Disposal of Waste.
a. Refuse Disposal. Tenant shall not keep any trash, garbage, waste or
other refuse on the premises except in sanitary containers and shall
regularly and frequently remove same from the premises. Tenant shall keep
all incinerators, containers or other equipment used for the storage or
disposal of such materials in a clean and sanitary condition.
b. Sewage Disposal. Tenant shall properly dispose of all sanitary sewage
and shall not use the sewage disposal system (1) for the disposal of
anything except sanitary sewage or (2) excess of the lesser of the amount
(a) reasonably contemplated by the uses permitted under this Lease or (b)
permitted by any governmental entity. Tenant shall keep the sewage
disposal system free of all obstructions and in good operating condition.
<PAGE>
c. Disposal of Other Waste. Tenant shall properly dispose of all other
waste or other matter delivered to, stored upon, located upon or within,
used on, or removed from, the premises in such a manner that it does not,
and will not, adversely affect the (1) health or safety of persons,
wherever located, whether on the premises or the Project, (2) condition,
use or enjoyment of the premises or any other real or personal property,
wherever located, whether on the premises or the Project, or (3) premises
or any of the improvements thereto or thereon including buildings,
foundations, pipes, utility lines, landscaping or parking areas.
30.4 Compliance with Law. Notwithstanding any other provision in the Lease to
the contrary, Tenant shall comply with all laws, statutes, ordinances,
regulations, rules and other governmental requirements in complying with
its obligations under this lease, and in particular, relating to the
storage, use and disposal of hazardous or toxic matter. In particular,
tenant shall comply at all times with the City of Pleasanton's
Transportation Systems Management Ordinance (TSM Ordinance, Chapter 17.24,
Pleasanton Municipal Code), as said Ordinance may be amended from time to
time."
30.5 Indemnification. Tenant shall defend, indemnify and hold Landlord harmless
from any loss, claim, liability or expense, including attorney's fees and
costs, arising out of or in connection with its failure to observe or
comply with the provisions of this Lease.
30.6 Storage Requirements: Tenant warrants that it shall not store, shelve,
rack, or in any manner keep combustible or flammable objects higher than
twelve (12) feet from the finished floor, and any object containing
plastic material higher than five (5) feet from the finished floor, with
no storage or shelves, or other obstructions above the plastic storage.
31. Project Planning
If Landlord requires the Premises for use in conjunction with another
suite or for other reasons connected with the Project planning program,
upon notifying Tenant in writing, Landlord shall have the right to
relocate Tenant to other space in the Project, at Landlord's sole cost and
expense, and the terms and conditions of the original Lease shall remain
in full force and effect, except that a revised EXHIBIT A reflecting the
location of the new space shall be attached to and become a part of this
Lease. However, if the new space does not meet with Tenant's approval,
Tenant shall have the right to terminate this Lease effective thirty (30)
days after written notice to Landlord, which notice shall be given within
ten (10) days after receipt of Landlord's notification.
32. Tenant Relocation within Bernal Corporate Park
If Landlord and Tenant agree to relocate Tenant within Bernal Corporate
Park, Landlord will extend the $.70/square foot rental rate on the first
1,517 rentable square feet of new space occupied through December 8, 2001.
LANDLORD: BERNAL AVENUE ASSOCIATES, a joint venture
BY: Patrician Associates, Inc., a California corporation, and Koll
Bernal Avenue Associates, a California general partnership doing
business as Bernal Avenue Associates
PATRICIAN ASSOCIATES. INC., a California corporation
BY: /s/ Kurt D. Schaeffer
-----------------------
KURT D. SCHAEFFER
ITS: VICE PRESIDENT
BY:
ITS:
TENANT: Intelligent Products Marketing, Inc.
BY: /s/ [ILLEGIBLE]
-----------------------
ITS: [ILLEGIBLE]
BY:
ITS:
<PAGE>
BUSINESS CENTER LEASE
1. BASIC LEASE TERMS
a. DATE OF LEASE EXECUTION: October 31, 1991
b. TENANT: Intelligent Products Marketing. Inc.
Trade Name: same
Address (Leased Premises): 7026 Koll Center Parkway, Suite 217
Pleasanton, California 94566 Building/Unit 02/217
Address (For Notices): same
c. LANDLORD: BERNAL AVENUE ASSOCIATES
Address (For Notices): 7011 Koll Center Parkway, Suite 210
Pleasanton, California 94566
d. TENANT'S USE OF PREMISES: Warehousing of electronic equipment
e. PREMISES AREA: 967 rentable square feet
f. PROJECT AREA: 133,920 square feet
g. PREMISES PERCENT OF PROJECT: .722%
h. TERM OF LEASE: Commencement: 12/09/91 Expiration: 12/08/96
Number of Months: 60
i. BASE MONTHLY RENT: $ 0.00
RENT ADJUSTMENT:
(1)Step Increase. The provisions of section 4.b.(1) apply as follows:
Effective Date of New Base
Rent Increase Monthly Rent
12/01, 1992 $ 193.40
12/01, 1993 $ 386.80
12/01, 1994 $ 580.20
_____, 19 $_________
_____, 19 $_________
k. ANNUAL EXPENSE BASE:
Expense Rate $ 3.10
Premises Area Square Feet X 967
Annual Expense Base $2997.70
l. PREPAID RENT: $ 0.00
m. TOTAL SECURITY DEPOSIT: $ 0.00, Including a $ 0.00 non-refundable
cleaning fee.
n. BROKER(S): Marty Douglas/Douglas & Associates
o. GUARANTORS: N/A
p. ADDITIONAL SECTIONS:
Additional sections of this lease numbered 28 through 31 are
attached hereto and made a part hereof. If none, so state in the
following space __X__.
q. ADDITIONAL EXHIBITS:
Additional exhibits lettered D through None are attached hereto and
made a part hereof. If none, so state in the following space 0.
<PAGE>
2. PREMISES. Landlord leases to Tenant the Premises described in Section 1 and
in Exhibit A (the "Premises") located in this Project described on Exhibit B
(the "Project"). Landlord reserves the right to modify Tenant's percentage of
the Project as set forth in Section 1 if the Project size is increased through
the development of additional property. By entry on the Premises, Tenant
acknowledges that it has examined the Premises and accepts the Premises in their
present condition, subject to any additional work Landlord has agreed to do.
3. TERM. The term of this Lease is for the period set forth in Section 1,
commencing on the date in Section 1. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant upon commencement of the term, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant for any
loss or damage resulting from such delay. In that event, however, there shall be
a rent abatement covering the period between the commencement of the term and
the time when Landlord delivers possession to Tenant, and all other terms and
conditions of this Lease shall remain in full force and effect, provided,
however, that if Landlord cannot deliver possession of the Promises to Tenant,
this Lease shall be void. If a delay in possession is caused by Tenant's failure
to perform any obligation in accordance with this Lease, the term shall commence
as set forth in Section 1 and there shall be no reduction of rent between the
commencement of the term and the time Tenant takes possession.
4. RENT.
a. Base Rent. Tenant shall pay to Landlord monthly base rent in the
initial amount in Section 1 which shall be payable monthly in advance on
the first day of each and every calendar month ("Base Monthly Rent")
provided, however, the first month's rent is due and payable upon
execution of this Lease. If the term of this Lease contains any rental
abatement period, Tenant hereby agrees that if Tenant breaches the Lease
and/or abandons the Premises before the end of the Lease term, or if
Tenant's right to possessions is terminated by Landlord because of
Tenant's breach of the Lease, Landlord shall, at its option, (1) void the
rental abatement period; and (2) recover from Tenant, in addition to any
damages due Landlord under the terms and conditions of the Lease, rent
prorated for the duration of the rental abatement period at a rental rate
equivalent to two (2) times the effective Base Monthly Rent.
For purposes of Section 467 of the Internal Revenue Code, the parties to
this Lease hereby agree to allocate the stated rents, provided herein, to
the periods which correspond to the actual rent payments as provided under
the terms and conditions of this agreement.
b. Rent Adjustment.
1) Step Increase. Base Monthly Rent shall be increased periodically to
the amounts and at the times set forth in Section 1.j.
c. Expenses. The purpose of this Section 4.c. is to ensure that Tenant
bears a share of all Expenses related to the use, maintenance, ownership,
repair or replacement, and insurance of the Project. Accordingly, beginning
on the date Tenant takes possession of the Premises, Tenant shall pay to
Landlord that portion of Tenant's share of Expenses related to the Project
which is in excess of the Annual Expense Base shown in Section 1.
1) Expenses Defined. The term "Expenses" shall mean all costs and
expenses of the ownership, operation maintenance, repair or
replacement, and insurance of the Project, including without
limitation, the following costs:
(a) All supplies, materials, labor, equipment, and utilities used
in or related to the operation and maintenance of the Project;
(b) All maintenance, management, janitorial, legal, accounting,
insurance, and service agreement costs related to the Project;
(c) All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without
limitation, air conditioning systems, sidewalks, landscaping,
service areas, driveways, parking areas (including resurfacing
and restriping parking areas), walkways, building exteriors
(including painting), signs and directories, repairing and
replacing roofs, walls, etc. These costs may be included either
based on actual expenditures or the use of an accounting reserve
based on past cost experience for the Project.
(d) Amortization (along with reasonable financing charges) of
capital improvements made to the Project which may be required by
any government authority or which will improve the operating
efficiency of the Project (provided, however, that the amount of
such amortization for improvements not mandated by government
authority shall not exceed in any year the amount of costs
reasonably determined by Landlord in its sole discretion to have
been saved by the expenditure either through the reduction or
minimizations of increases which would have otherwise occurred).
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(e) Real Property Taxes including all taxes, assessments (general
and special) and other impositions or charges which may be taxed,
charged, levied, assessed or imposed upon all or any portion of
or in relation to the Project or any portion thereof, any
leasehold estate in the Premises or measured by rent from the
Premises, including any increase caused by the transfer, sale or
encumbrance of the Project or any portion thereof. "Real Property
Taxes" shall also include any form of assessment, levy, penalty,
charge or tax (other than estate, inheritance, net income, or
franchise taxes) imposed by any authority having a direct or
indirect power to tax or charge, including, without limitation,
any city, county, state, federal or any improvement or other
district, whether such tax is (1) determined by the area of the
Project or the rent or other sums payable under this Lease; (2)
upon or with respect to any legal or equitable interest of
Landlord in the Project or any part thereof; (3) upon this
transaction or any document to which Tenant is a party creating a
transfer in any interest in the Project; (4) in lieu of or as a
direct substitute in whole or in part of or in addition to any
real property taxes on the Project; (5) based on any parking
spaces or parking facilities provided in the Project; or (6) in
consideration for services, such as police protection, fire
protection, street, sidewalk and roadway maintenance, refuse
removal or other services that may be provided by any
governmental or quasi-governmental agency from time to time which
were formerly provided without charge or with less charge to
property owners or occupants.
2) Annual Estimate of Expenses. When Tenant takes possession of the Premises,
Landlord shall estimate Tenant's portion of Expenses for the remainder of the
calendar year based on the Tenant's portion of the Project Area set forth in
Section 1. At the commencement of each calendar year thereafter, Landlord shall
estimate Tenant's portion of Expenses for the coming year based on the Tenant's
portion of the Project Area set forth in Section 1.
3) Monthly Payment of Expenses. If Tenant's portion of said estimate of Expenses
shows an increase for the remainder of the calendar year over the Annual Expense
Base, as set forth in Section 1, Tenant shall pay to Landlord, as additional
rent, such estimated increase in monthly installments of one-twelfth (1/12)
beginning on the date Tenant takes possession of the Premises. If Tenant's
portion of said estimate of Expenses shows an increase for subsequent calendar
years over the Annual Expense Base, as set forth in Section 1, Tenant shall pay
Landlord, as additional rent, such estimated increase in monthly installments of
one-twelfth (1/12) beginning on January 1 of the forthcoming calendar year, and
one-twelfth (1/12) on the first day of each succeeding calendar month. As soon
as practical following each calendar year, Landlord shall prepare an accounting
of actual Expenses incurred during the prior calendar year and such accounting
shall reflect Tenant's share of Expenses. If the additional rent paid by Tenant
under this Section 4.c.3 during the preceding calendar year was less than the
actual amount of Tenant's share of Expenses, Landlord shall so notify Tenant and
Tenant shall pay such amount to Landlord within thirty (30) days of receipt of
such notice. Such amount shall be deemed to have accrued during the prior
calendar year and shall be due and payable from Tenant even though the term of
this Lease has expired or this Lease has been terminated prior to Tenant's
receipt of this notice. Tenant shall have thirty (30) days from receipt of such
notice to contest the amount due; failure to so notify Landlord shall represent
final determination of Tenant's share of expenses. If Tenant's payments were
greater than the actual amount, then such overpayment shall be credited by
Landlord to all present rent due under this Section 4.c.3.
4) Rent Without Offset and Late Charge. All rent shall be paid by Tenant to
Landlord monthly in advance on the first day of every calendar month, at the
address shown in Section 1, or such other place as Landlord may designate in
writing from time to time. All rent shall be paid without prior demand or notice
without any deduction or offset whatsoever. All rent shall be paid in lawful
currency of the United States of America. All rent due for any partial month
shall be prorated at the rate calculated by dividing the number of days for
which rent is due by the actual number of days in the month and multiplied by
the applicable monthly rate. Tenant acknowledges that late payment by Tenant to
Landlord of any rent or other sums due under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such cost being
extremely difficult and impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges and late charges that may be
imposed on Landlord by the terms of any encumbrance or note secured by the
Premises. Therefore, if any rent or other sum due from Tenant is not received by
the eleventh of each month, Tenant shall pay to Landlord an additional sum equal
to 10% of such overdue payment. Landlord and Tenant hereby agree that such late
charge represents a fair and reasonable estimate of the costs that Landlord will
incur by reason of any such late payment and that the late charge is in addition
to any and all remedies available to the Landlord and that the assessment
and/or collection of the late charge shall not be deemed a waiver of any other
default. Additionally, all such delinquent rent or other sums, plus this late
charge, shall bear interest at the then maximum lawful rate permitted to be
charged by Landlord. Any payments of any kind returned for insufficient funds
will be subject to an additional handling charge of $25.00, and thereafter,
Landlord may require Tenant to pay all future payments of rent or other sums due
by money order or cashier's check.
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5. PREPAID RENT
[STRICKEN]
6. DEPOSIT
[STRICKEN]
7. USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises
solely for the purposes set forth in Section 1 and for no other purpose
without obtaining the prior written consent of Landlord. Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Premises or with respect to
the suitability of the Premises or the Project for the conduct of Tenant's
business, nor has Landlord agreed to undertake any modification, alteration
or improvement to the Premises or the Project, except as provided in
writing in this Lease. Tenant acknowledges that Landlord may from time to
time, at its sole discretion, make such modifications, alterations,
deletions or improvements to the Project as Landlord may deem necessary or
desirable, without compensation or notice to Tenant. Tenant shall promptly
comply with all laws, ordinances, orders and regulations affecting the
Premises and the Project, including, without limitation, any rules and
regulations that may be attached to this Lease and to any reasonable
modifications to these rules and regulations as Landlord may adopt from
time to time. Tenant shall not do or permit anything to be done in or about
the Premises or bring or keep anything in the Premises that will in any way
increase the premiums paid by Landlord on its insurance related to the
Project or which will in any way increase the premiums for fire or casualty
insurance carried by other tenants in the Project. Tenant will not perform
any act or carry on any practices that may injure the Premises or the
Project; that may be a nuisance or menace to other tenants in the Project;
or that shall in any way interfere with the quiet enjoyment of such other
tenants. Tenant shall not use the Premises for, sleeping, washing clothes,
cooking or the preparation, manufacture or mixing of anything that might
emit any objectionable odor, noises, vibrations or lights onto such other
tenants. If sound insulation is required to muffle noise produced by Tenant
on the Premises, Tenant at its own cost shall provide all necessary
insulation. Tenant shall not do anything on the Premises which will
overload any existing parking or service to the Premises. Pets and/or
animals of any type shall not be kept on the Premises.
8. SIGNAGE. All signing shall comply with rules and regulations set forth by
Landlord as may be modified from time to time. Current rules and
regulations relating to signs are described on Exhibit C. Tenant shall
place no window covering (e.g., shades, blinds, curtains, drapes, screens,
or tinting materials), stickers, signs, lettering, banners or advertising
or display material on or near exterior windows or doors if such materials
are visible for the exterior of the Premises, without Landlord's prior
written consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without
Landlord's prior written consent. Any material violating this provision may
be destroyed by Landlord without compensation to Tenant.
9. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed
upon its business operations as well as upon all trade fixtures, leasehold
improvements merchandise and other personal property in or about the
Premises.
10. PARKING. Landlord grants to Tenant and Tenant's customers, suppliers,
employees and invitees, a non-exclusive license to use the designated
parking areas in the Project for the use of motor vehicles during the term
of this Lease. Landlord reserves the right at any time to grant similar
non-exclusive use to other tenants, to promulgate rules and regulations
relating to the use of such parking areas, including reasonable
restrictions on parking by tenants and employees, to designate specific
spaces for the use of any tenant, to make changes in the parking layout
from time to time, and to establish reasonable time limits on parking.
Overnight parking is prohibited for automobiles only, and any automobile
violating this or any other vehicle regulation adopted by Landlord is
subject to removal at the owner's expense.
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11. UTILITIES. (Strike and Initial clause which does not apply)
a. Office Space.
[STRICKEN]
b. Industrial Space. Tenant shall pay for all water, gas, heat, light,
power, sewer, electricity, telephone or other service metered,
chargeable or provided to the Premises. Landlord reserves the right to
install separate meters for any such utility and charge tenant for the
cost of such installation.
12. MAINTENANCE. Landlord shall maintain, in good condition, the structural
parts of the Premises, which shall include only the foundations, bearing
and exterior walls (excluding glass), subflooring and roof (excluding
skylights), the unexposed electrical, plumbing and sewerage systems,
including without limitation, those portions of the systems lying outside
the Premises, exterior doors (excluding glass), window frames, gutters and
downspouts on the Building and the heating, ventilating and air
conditioning systems servicing the Premises; provided, however, the cost of
all such maintenance shall be considered "Expenses" for purposes of Section
4.c. Except as provided above, Tenant shall maintain and repair the
Premises in good condition, including, without limitation, maintaining and
repairing all walls, floors, ceilings, interior doors, exterior and
interior windows and fixtures as well as damage caused by Tenant, its
agents, employees or invitees. Upon expiration or termination of this
Lease, Tenant shall surrender the Premises to Landlord in the same
condition as existed at the commencement of the term, except for reasonable
wear and tear or damage caused by fire or other casualty for which Landlord
has received all funds necessary for restoration of the Premises from
insurance proceeds.
13. ALTERATIONS. Tenant shall not make any alteration to the Premises, or to
the Project, including any changes to the existing landscaping, without
Landlord's prior written consent. If Landlord gives its consent to such
alterations, Landlord may post notices in accordance with the laws of the
State in which the Premises are located. Any alterations made shall remain
on and be surrendered with the Premises upon expiration or termination of
this Lease, except that Landlord may, within 30 days before or 30 days
after expiration of the term, elect to require Tenant to remove any
alterations which Tenant my have made to the Premises. If Landlord so
elects, at its own cost Tenant shall restore the Premises to the condition
designated by Landlord in its election, before the last day of the term or
within 30 days after notice of its election is given, which ever is later.
Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate governmental
approvals, and permits, and shall complete such alterations with due
diligence in compliance with plans and specifications approved by Landlord.
All such construction shall be performed in a manner which will not
interfere with the quiet enjoyment of other tenants of the Project. Tenant
shall pay all costs for such construction and shall keep the Premises and
the Project free and clear of all mechanics' liens which may result from
construction by Tenant.
14. RELEASE AND INDEMNITY. As material consideration to Landlord, Tenant agrees
that Landlord shall not be liable to Tenant for any damage to Tenant or
Tenant's property from any cause, and Tenant waives all claims against
Landlord for damage to persons or property arising for any reason, except
for damage resulting from Landlord's breach it its express obligations
under this Lease which Landlord has not cured within a reasonable time
after receipt of written notice of such breach from Tenant. Tenant shall
indemnify and hold Landlord harmless from all damages arising out of any
damage to any person or property occurring in, on or about the Premises or
Tenant's use of the Premises or Tenant's breach of any term of this Lease.
15. INSURANCE. Tenant, at its cost, shall maintain public liability and
property damage insurance and product liability insurance with a single
combined liability limit of $1,000,000, insuring against all liability of
Tenant and its authorized representatives arising out of or in connection
with Tenant's use or occupancy of the Premises. Public liability insurance,
products liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions of Section 14. Landlord
shall be named as additional insured and the policy shall contain
cross-liability endorsements. On all its personal property, at its cost,
Tenant shall maintain a policy of standard fire and extended coverage
insurance with vandalism and malicious mischief endorsements and "all risk"
coverage on all Tenant's improvements and alterations in or about the
Premises, to the extent of at least 90% of their full replacement value.
The proceeds from any such policy shall be used by Tenant for the
replacement of personal property and the restoration of Tenant's
improvements or alterations. All insurance required to be provided by
Tenant under this Lease shall release Landlord from any claims for damage
to any person or the Premises and the Project, and to Tenant's fixtures,
personal property, improvements and alterations in or on the Premises or
the Project, caused by or resulting from risks insured against under any
insurance policy carried by Tenant in force at the time of such damage. All
insurance required to be provided by Tenant under this Lease: (a) shall be
issued by insurance companies authorized to do business in the state in
which the premises are located with a financial rating or at least an A +
XII status as rated in the most recent edition of Best's Insurance Reports;
(b) shall be issued as a primary policy; and (c) shall contain an
endorsement requiring at least 30 days prior written notice of
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by insurance companies authorized to do business in the state in which the
premises are located with a financial rating of at least an A + XII status
as rated in the most recent edition of Best's Insurance Reports; (b) shall
be issued as a primary policy; and (c) shall contain an endorsement
requiring at least 30 days prior written notice of cancellation to Landlord
and Landlord's lender, before cancellation or change in coverage, scope or
amount of any policy. Tenant shall deliver a certificate or copy of such
policy together with evidence of payment of all current premiums to
Landlord within 30 days of execution of this Lease. Tenant's failure to
provide evidence of such coverage to Landlord may, in Landlord's sole
discretion, constitute a default under this Lease.
16. DESTRUCTION. If during the term, the Premises or Project are more than 10%
destroyed from any cause, or rendered inaccessible or unusable from any
cause, Landlord may, in its sole discretion, terminate this Lease by
delivery of notice to Tenant within 30 days of such event without
compensation to Tenant. If in Landlord's estimation, the Premises cannot be
restored within 90 days following such destruction, the Landlord shall
immediately notify Tenant and Tenant may terminate this Lease by delivery
of notice to Landlord within 30 days of receipt of Landlord's notice. If
Landlord does not terminate this Lease and if in Landlord's estimation the
Premises can be restored within 90 days, then Landlord shall commence to
restore the Premises in compliance with then existing laws and shall
complete such restoration with due diligence. In such event, this Lease
shall remain in full force and effect, but there shall be an abatement of
rent between the date of destruction and the date of completion or
restoration, based on the extent to which destruction interferes with
Tenant's use of the Premises.
17. CONDEMNATION.
a. DEFINITIONS. The following definitions shall apply. (1) "Condemnation"
means (a) the exercise of any governmental power of eminent domain,
whether by legal proceedings or otherwise by condemnor and (b) the
voluntary sale or transfer by Landlord to any condemnor either under
threat of condemnation or while legal proceedings for condemnation are
proceeding; (2) "Date of Taking" means the date the condemnor has
right to possession of the property being condemned; (3) "Award" means
all compensation, sums or anything of value awarded, paid or received
on a total or partial condemnation; and (4) "Condemnor" means any
public or quasi-public authority or private corporation or individual,
having power of condemnation.
b. OBLIGATIONS TO BE GOVERNED BY LEASE. If during the term of the Lease
there is any taking of all or any part of the Premises or the Project,
the rights and obligations of the parties shall be determined pursuant
to this Lease.
c. TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking. If any
portion of the Premises is taken by condemnation, this Lease shall
remain in effect, except that Tenant can elect to terminate this Lease
if the remaining portion of the Premises is rendered unsuitable for
Tenant's continued use of Premises. If Tenant elects to terminate this
Lease, Tenant must exercise its right to terminate by giving notice to
Landlord within thirty (30) days after the nature and extent of the
taking have been finally determined. If Tenant elects to terminate
this Lease, Tenant shall also notify Landlord of the date of
termination which date shall not be earlier than thirty (30) days nor
later than ninety (90) days after Tenant has notified Landlord of its
election to terminate; except that this Lease shall terminate on the
date of taking if the date of taking falls on a date before the date
of termination as designated by Tenant. If any portion of the Premises
is taken by condemnation and this Lease remains in full force and
effect, on the date of taking the rent shall be reduced by an amount
in the same ratio as the total number of square feet in the Premises
taken bears to the total number of square feet in the Premises
immediately before the date of taking.
18. ASSIGNMENT OR SUBLEASE. Tenant shall not assign or encumber its interest in
this Lease or the Premises or sublease all or any part of the Premises or
allow any other person or entity (except Tenant's authorized
representatives, employees, invitees, or guests) to occupy or use all or
any part of the Premises without first obtaining Landlord's consent, which
Landlord may withhold in its sole discretion. Any assignment, encumbrance
or sublease without Landlord's written consent shall be voidable and at
Landlord's election, shall constitute a default. If Tenant is a
partnership, a withdrawal or change, voluntary, involuntary or by operation
of law of any partner, or the dissolution of the partnership, shall be
deemed a voluntary assignment. If Tenant consists of more than one person,
a purported assignment, voluntary or involuntary or by operation of law
from one person to the other shall be deemed a voluntary assignment. If
Tenant is a corporation, any dissolution, merger, consolidation or other
reorganization of Tenant, or sale or other transfer of a controlling
percentage of the capital stock of Tenant, or the sale of at least 25% of
the value of the assets of Tenant shall be deemed a voluntary assignment.
The phrase "controlling percentage" means ownership of and right to vote
stock possessing at least 25% of the total combined voting power of all
classes of Tenant's capital stock issued, outstanding and entitled to vote
for election of directors. This Section 18 shall not apply to corporations
the stock of which is traded through an exchange or over the counter. Fifty
percent of all rent received by Tenant from its subtenants if they occupy
all of the space in excess of the rent payable by Tenant to Landlord under
this Lease shall be paid to Landlord, or fifty percent of any sums be paid
by an assignee to Tenant in consideration of the assignment of this Lease
shall be paid to Landlord. If Tenant requests Landlord to consent to a
proposed assignment or subletting, Tenant shall pay to Landlord, whether or
not consent is ultimately given, $100 or Landlord's reasonable attorney's
fees incurred in connection with such request, whichever is greater.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including
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without limitation the transfer of this Lease by testacy or intestacy).
Each of the following acts shall be considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes an assignment for
the benefit of creditors, or institutes proceedings under the Bankruptcy
Act in which Tenant is the bankrupt; or if Tenant is a partnership or
consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent,
or makes an assignment for the benefit of creditors; or (b) If a writ of
attachment or execution is levied on this Lease; or (c) If in any
proceeding or action to which Tenant is a party, a receiver is appointed
with authority to take possession of the Premises. An involuntary
assignment shall constitute a default by Tenant and Landlord shall have the
right to elect to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant.
19. DEFAULT. The occurrence of any of the following shall constitute a default
by Tenant. (a) A failure to pay rent or other charge when due; (b)
Abandonment and vacation of the Premises (failure to occupy and operate the
Premises for ten (10) consecutive days shall be deemed an abandonment and
vacation); or (c) Failure to perform any other provision of this Lease.
20. LANDLORD'S REMEDIES. Landlord shall have the following remedies if Tenant
is in default. (These remedies are not exclusive; they are cumulative and
in addition to any remedies now or later allowed by law): Landlord may
terminate Tenant's right to possession of the Premises at any time. No act
by Landlord other than giving notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises, or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession.
Upon termination of Tenant's right to possession, Landlord has the right to
recover from Tenant: (1) The worth of the unpaid rent that had been earned
at the time of termination of Tenant's right to possession; (2) The worth
of the amount of the unpaid rent that would have been earned after the date
of termination of Tenant's right to possession; (3) Any other amount,
including court, attorney, and collection costs, necessary to compensate
Landlord for all detriment proximately caused by Tenant's default. "The
worth," as used for Item 20(1) in this Paragraph 20 is to be computed by
allowing interest at the maximum rate an individual is permitted to charge
by law or 12%, whichever is greater. "The worth at the time of the award"
as used for Item 20(2) in this Paragraph 20 is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of termination of Tenant's right of possession.
21. ENTRY ON PREMISES. Landlord and its authorized representatives shall have
the right to enter the Premises at all reasonable times for any of the
following purposes: (a) To determine whether the Premises are in good
condition and whether Tenant is complying with its obligations under this
Lease; (b) To do any necessary maintenance and to make any restoration to
the Premises or the Project that Landlord has the right or obligation to
perform; (c) To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last ninety (90) days of the
term, or during any period while Tenant is in default; (d) To show the
Premises to prospective brokers, agents, buyers, tenants, or persons
interested in leasing or purchasing the Premises, at any time during the
term; or (e) To repair, maintain or improve the Project and to erect
scaffolding and protective barricades around and about the Premises but not
so as to prevent entry to the Premises and to do any other act or thing
necessary for the safety or preservation of the Premises, or the Project.
Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance, or other damage arising out of
Landlord's entry onto the Premises as provided in this Section 21. Tenant
shall not be entitled to an abatement or reduction of rent if Landlord
exercises any rights reserved in this Section 21. Landlord shall conduct
its activities on the Premises as provided herein in a manner that will
cause the least inconvenience, annoyance or disturbance to Tenant. For each
of these purposes, Landlord shall at all times have and retain a key with
which to unlock all the doors in, upon and about the Premises, excluding
Tenant's vaults and safes. Tenant shall not alter any lock or install a new
or additional lock or bolt on any door of the Premises without prior
written consent of Landlord. If Landlord gives its consent, Tenant shall
furnish Landlord with a key for any such lock.
22. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or any beneficiary of a Deed of Trust
with a lien on the Project or any ground lessor with respect to the
Project, this Lease shall be subject and subordinate at all times to (a)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Project, and (b) the lien of any mortgage or Deed of
Trust which may now exist or hereafter be executed in any amount for which
the Project, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. In the event that any
ground lease or underlying lease terminates for any reason or any mortgage
or Deed of Trust is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in interest to Landlord,
at the option of such successor in interest. Tenant covenants and agrees to
execute and deliver, upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground leases or underlying leases
or the lien of any such mortgage or Deed of Trust. Tenant hereby
irrevocably appoints Landlord as attorney-in-fact of Tenant to execute,
deliver and record any such document in the name and on behalf of Tenant.
Tenant, within ten (10) days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this
Lease is not in default, is unmodified and in full force and effect, or in
full force and effect as modified, and stating the modifications. This
certificate should also state the amount of current monthly rent, the dates
to which rent has been paid in advance, and the amount of any security
deposit and prepaid rent. Failure to deliver this certificate to Landlord
within ten (10) days shall be conclusive upon Tenant that this Lease
7
<PAGE>
is in full force and effect and has not been modified except as may be
represented by Landlord.
23. NOTICE. Any notice, demand, request, consent, approval, or communication
desired by either party or required to be given, shall be in writing and
served either personally or sent by prepaid certified first class mail,
addressed as set forth in Section 1. Either party may change its address by
notification to the other party. Notice shall be deemed to be communicated
forty-eight (48) hours from the time of mailing, or from the time of
service as provided in this Section 23.
24. WAIVER. No delay or omission in the exercise of any right or remedy by
Landlord shall impair such right or remedy or be construed as a waiver. No
act or conduct of Landlord, including without limitation, acceptance of the
keys to the Premises, shall constitute an acceptance of the surrender of
the Premises by Tenant before the expiration of the term. Only written
notice from Landlord to Tenant shall constitute acceptance of the surrender
of the Premises and accomplish termination of the Lease. Landlord's consent
to or approval of any act by Tenant requiring the Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's
consent to or approval of any subsequent act by Tenant. Any waiver by
Landlord of any default must be in writing and shall not be a waiver of any
other default concerning the same of any other provision of the Lease.
25. SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the term, Tenant
shall surrender to Landlord the Premises and all Tenant Improvements and
alterations in good condition, except for ordinary wear and tear and
alterations Tenant has the right or is obligated to remove under the
provisions of Section 13 herein. Tenant shall remove all personal property
including, without limitation, all wallpaper, paneling and other decorative
improvements or fixtures and shall perform all restoration made necessary
by the removal of any alterations of Tenant's personal property before the
expiration of the term, including for example, restoring all wall surfaces
to their condition prior to the commencement of this Lease. Landlord can
elect to retain or dispose of in any manner Tenant's personal property not
removed from the Premises by Tenant prior to the expiration of the term.
Tenant waives all claims against Landlord for any damage to Tenant
resulting from Landlord's retention or disposition of Tenant's personal
property. Tenant shall be liable to Landlord for Landlord's cost for
storage, removal, or disposal of Tenant's personal property.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration or termination of the term, or after the date in any
notice given by Landlord to Tenant terminating this Lease, such possession
by Tenant shall be deemed to be a month-to-month tenancy terminable on
written 30-day notice at any time, by either party. All provisions of this
Lease, except those pertaining to term and rent, shall apply to the
month-to-month tenancy. Tenant shall pay monthly rent in an amount equal to
125% of Rent for the last full calendar month during the regular term plus
100% of said last month's estimate of Tenant's share of expenses pursuant
to Section 4.c.3.
26. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant agrees that, in the event of any actual or alleged
failure, breach or default of this Lease by Landlord, if Landlord is a
partnership:
a. The sole and exclusive remedy shall be against the partnership and its
partnership assets;
b. No partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
c. No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership);
d. No partner of Landlord shall be required to answer or otherwise plead
to any service or process;
e. No judgment may be taken against any partner of Landlord;
f. Any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
g. No writ of execution will ever be levied against the assets of any
partner of Landlord;
h. These covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing provisions shall be applicable to
any covenant or agreement either expressly contained in this Lease or
imposed by statute or at common law.
27. MISCELLANEOUS PROVISIONS.
a. TIME OF ESSENCE. Time is of the essence of each provision of this
Lease.
b. SUCCESSOR. This Lease shall be binding on and inure to the benefit of
the parties and their successors, except as provided in Section 18
herein.
8
<PAGE>
d. COMMISSIONS. Each party represents that it has not had dealings with
any real estate broker, finder, or other person with respect to this
Lease in any manner, except for the broker identified in Section 1,
who shall be compensated by Landlord.
e. OTHER CHARGES. If Landlord becomes a party to any litigation
concerning this Lease, the Premises, or the Project, by reason of any
act or omission of Tenant or Tenant's authorized representatives,
Tenant shall be liable to Landlord for reasonable attorney's fees and
court costs incurred by Landlord in the litigation whether or not such
litigation leads to actual court action. Should the court render a
decision which is thereafter appealed by any party thereto, Tenant
shall be liable to Landlord for reasonable attorney's fees and court
costs incurred by Landlord in connection with such appeal.
If either party commences any litigation against the other party or
files in appeal of a decision arising out of or in connection with the
Lease, the prevailing party shall be entitled to recover from the
other party reasonable attorney's fees and costs of suit. If Landlord
employs a collection agency to recover delinquent charges, Tenant
agrees to pay all collection agency and attorneys' fees charged to
Landlord in addition to rent, late charges, interest, and other sums
payable under this Lease. Tenant shall pay a charge of $75 to Landlord
for preparation of a demand for delinquent rent.
f. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
Landlord of the project, the same shall operate to release Landlord
from any liability under this Lease, and in such event Landlord's
successor in interest shall be solely responsible for all obligations
of Landlord under this Lease.
g. INTERPRETATION. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the Premises are
located. This Lease constitutes the entire agreement between the
parties with respect to the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the context of this Lease,
the singular shall include the plural, and the masculine shall include
the feminine and/or neuter. "Party" shall mean Landlord or Tenant. If
more than one person or entity constitutes Landlord or Tenant, the
obligations imposed upon that party shall be joint and several. The
enforceability, invalidity, or illegality of any provision shall not
render the other provisions unenforceable, invalid or illegal.
LANDLORD:
Patrician Associates, Inc., a California corporation,
and Koll Bernal Avenue Associates, a California general
partnership doing business as Bernal Avenue Associates
PATRICIAN ASSOCIATES, INC., a California corporation
BY: /s/ Rod Vogel
-------------------------------------------------
ITS: Senior Regional Equity Administrator Commercial
Estate Equities
-------------------------------------------------
BY:
-------------------------------------------------
ITS:
-------------------------------------------------
TENANT: INTELLIGENT PRODUCTS MARKETING, INC.
BY: /s/ Edward [ILLEGIBLE]
-------------------------------------------------
ITS: President
-------------------------------------------------
BY:
-------------------------------------------------
ITS:
-------------------------------------------------
9
<PAGE>
FIRST ADDENDUM TO LEASE AGREEMENT
This First Addendum to Lease Agreement is entered into as of October 31, 1991 by
and between Patrician Associates, Inc., a California corporation, and Koll
Bernal Avenue Associates, a California general partnership, tenants-in-common
operating as a joint venture under the name Bernal Avenue Associates
("Landlord") and Intelligent Products Marketing, Inc. for that certain Premises
commonly known as:
7026 Koll Center Parwkay, Suite 215, Pleasanton, Ca 94566
as further described in Exhibit "A" attached to the Bernal Business Center Lease
("the Lease").
28. ASSESSMENTS.
A. Definition or Assessments. Tenant acknowledges that the "assessments"
described in Section 4.c.1(e) of the Lease may include assessment
districts or other funding mechanisms, including but not limited to,
improvements districts, maintenance districts, special service zones
or districts, or any combination thereof (collectively hereafter
called "Assessments Districts") for the construction, alteration,
expansion, improvements, completion, repair, operation, or
maintenance, as the case may be, of on-site or off-site improvements,
or services, or any combination thereof, as required by the City of
Pleasanton (the "City") as a condition of approving the development of
Bernal Corporate Park, of which Premises are a part. These Assessment
Districts may provide, among other things, the following improvements
or services: streets, curbs, interchanges, highways, traffic noise
studies and mitigation measures, traffic control systems and expansion
of city facilities to operate same, landscaping and lighting
maintenance services, maintenance of flood control facilities, water
storage and distribution facilities, fire apparatus, manpower, and
other fire safety facilities, and sports facilities.
B. Consent to Formation. Tenant hereby consents to the formation of any
and all of the Assessment Districts and waives any and all rights of
notice and any and all rights of protest in connection with formation
of the Assessment Districts and agrees to execute all documents
including, but not limited to, formal waivers of notice and protest,
evidencing such consent and waiver upon request of Landlord of the
City.
C. No Increases in Assessment Expense. Notwithstanding the Provisions for
payment of increases or new Assessment as expenses in Section 4.c.,
Landlord agrees that, during the term of this Lease, Tenant shall not
be liable for any increases in Bernal Corporate Park Assessments, or
Assessments imposed or levied after the execution date of the lease
set forth in Section 1.a.
29. COVENANTS, CONDITIONS AND RESTRICTIONS. Reference is hereby made to that
certain Declaration of Covenants, Conditions and Restrictions for Bernal
Corporate Park recorded February 18, 1987, Series No.87-046032 of Official
Records, Chicago Title Insurance Company. Landlord and Tenant agree that
they are fully bound by the above-named Declaration.
30. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
30.1 Emissions. Tenant shall not:
a. Permit any vehicles on the premises to emit exhaust which is in
violation of any governmental law, rule, regulation or requirement;
b. Discharge, emit or permit to be discharged or emitted, any liquid, solid
or gaseous matter, or any combination thereof, into the atmosphere, the
ground or any body of water, which matter, as reasonably determined by
Lessor or any governmental entity, does, or may, pollute or contaminate the
same, or is, or may become, radioactive or does, or may, adversely effect
the (1) health or safety of persons, wherever located, whether on the
premises or anywhere else (2) condition, use or enjoyment of the premises
of any other real or personal property, whether on the premises or anywhere
else, or (3) premises or any of the improvements thereto or thereon
including buildings, foundations, pipes, utility lines, landscaping or
parking areas;
c. Produce, or permit to be produced, any intense glare, light or heat
except within an enclosed or screened area and then only in such manner
that the glare, light or heat shall not be discernible from outside the
premises;
d. Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of any real property outside the
premises, or which will create a nuisance or violate any governmental law,
rule, regulation or requirement;
e. Create, or permit to be created, any ground vibration that is
discernible outside the premises;
f. Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation in which is harmful or
hazardous to any person or property in, or about the premises, or anywhere
else.
10
<PAGE>
30.2 Storage and Use.
a. Storage. Subject to the uses permitted and prohibited to Tenant under
this Lease, Tenant shall store in appropriate leak proof containers all
solid, liquid, or gaseous matter, or any combination thereof, which matter,
if discharged or emitted into the atmosphere, the ground or any body of
water, does or may (1) pollute or contaminate the same, (2) adversely
affect the (i) health or safety of persons, whether on the premises or
anywhere else, (ii) condition, use or enjoyment of the premises or any real
or personal property, whether on the premises or anywhere else, or (iii)
premises or any of the improvements thereto or thereon.
b. Use. In addition, without Landlord's prior written consent, Tenant shall
not use, store or permit to remain on the premises any solid, liquid, or
gaseous matter which is, or may become, radioactive. If Landlord does give
its consent, Tenant shall store the materials in such a manner that no
radioactivity will be detectable outside a designated storage area and
Tenant shall use the materials in such a manner that (1) no real or
personal property outside the designated storage area shall become
contaminated thereby or (2) there are and shall be no adverse effects on
the (i) health or safety of persons, whether on the premises or anywhere
else, (ii) condition, use or enjoyment of the premises or any real or
personal property thereon or therein, (iii) premises or any of the
improvements thereto and thereon.
30.3 Disposal of Waste.
a. Refuse Disposal. Tenant shall not keep any trash, garbage, waste or
other refuse on the premises except in sanitary containers and shall
regularly and frequently remove same from the premises. Tenant shall keep
all incinerators, containers or other equipment used for the storage or
disposal of such materials in a clean and sanitary condition.
b. Sewage Disposal. Tenant shall properly dispose of all sanitary sewage
and shall not use the sewage disposal system (1) for the disposal of
anything except sanitary sewage or (2) excess of the lesser of the amount
(a) reasonably contemplated by the uses permitted under this Lease or (b)
permitted by any governmental entity. Tenant shall keep the sewage disposal
system free of all obstructions and in good operating condition.
c. Disposal of Other Waste. Tenant shall properly dispose of all other
waste or other matter delivered to, stored upon, located upon or within,
used on, or removed from, the premises in such a manner that it does not,
and will not, adversely affect the (1) health or safety of persons,
wherever located, whether on the premises or the Project, (2) condition,
use or enjoyment of the premises or any other real or personal property,
wherever located, whether on the premises or the Project, or (3) premises
or any of the improvements thereto or thereon including buildings,
foundations, pipes, utility lines, landscaping or parking areas.
30.4 Compliance with Law. Notwithstanding any other provision in the Lease to
the contrary, Tenant shall comply with all laws, statutes, ordinances,
regulations, rules and other governmental requirements in complying with
its obligations under this lease, and in particular, relating to the
storage, use and disposal of hazardous or toxic matter.
30.5 Indemnification. Tenant shall defend, indemnify and hold Landlord harmless
from any loss, claim, liability or expense, including attorney's fees and
costs, arising out of or in connection with its failure to observe or
comply with the provisions of this Lease.
30.6 Storage Requirements: Tenant warrants that it shall not store, shelve,
rack, or in any manner keep combustible or flammable objects higher than
twelve (12) feet from the finished floor, and any object containing plastic
material higher than five (5) feet from the finished floor, with no storage
or shelves, or other obstructions above the plastic storage.
31. If during the term of this Lease Tenant occupies a larger warehouse
facility, the rental rate will be determined using the rent schedule above
for 967 square feet of the space and a market rate for the balance.
INITIAL
Lessor RV
------
Lessee [Illegible]
------
11
<PAGE>
BERNAL CORPORATE PARK LEASE
FIRST AMENDMENT TO LEASE
That certain Lease dated October 31, 1991, by and between PATRICIAN
ASSOCIATES, INC., a California corporation, and KOLL BERNAL AVENUE ASSOCIATES, a
California partnership as tenants in common operating as a joint venture under
the name BERNAL AVENUE ASSOCIATES, Landlord, and INTELLIGENT PRODUCTS MARKETING,
INC., Tenant, for the premises located at 7026 Koll Center Parkway, Suite 217,
is amended this 12th day of February, 1996 by amending (or adding as the case
may be) the clauses below with the like numbered clauses in the Lease.
BASIC LEASE TERMS
1.h. Term of Lease:
Commencement Date: December 9, 1991
Expiration Date: December 8, 2001
Amount of Extension: Five (5) Years
1.i. Base Monthly Rent:
Effective Date of Rental Adjustment Base Monthly Rent
December 9, 1996 to December 8, 2001 $676.90
4. Rent
c. Expenses (add to the end of paragraph).... "the Annual Expense Base as
shown in Section 1 shall be $3.10 per square foot on an annual basis or the
actual Annual Expense for 1997, whichever is greater."
32. Tenant Relocation within Bernal Corporate Park
If Landlord and Tenant agree to relocate Tenant within Bernal Corporate
Park, Landlord will extend the $.70/square foot rental rate on the first
1,517 rentable square feet of new space occupied through December 8, 2001.
All other terms and conditions of the above described Lease shall remain in full
force and effect.
LANDLORD: BERNAL AVENUE ASSOCIATES, a joint venture
Patrician Associates, Inc., a California Corporation, and Koll Bernal
Avenue Associates, a California general partnership doing business as
Bernal Avenue Associates
PATRICIAN ASSOCIATES, INC., a California Corporation
BY: /s/ Kurt D. Schaeffer
------------------------------------------------
ITS: Vice President
------------------------------------------------
TENANT: INTELLIGENT PRODUCTS MARKETING, INC.
BY: /s/ Edward [ILLEGIBLE]
------------------------------------------------
ITS: President
------------------------------------------------
<PAGE>
BUSINESS CENTER LEASE
1. BASIC LEASE TERMS
a. DATE OF LEASE EXECUTION: October 31, 1991
b. TENANT: Intelligent Products Marketing, Inc.
Trade Name: same
Address (Leased Premises): 7020 Koll Center Parkway, Suite 100
Pleasanton, California 94566
Building/Unit 01/100
Address (For Notices): same
c. LANDLORD: BERNAL AVENUE ASSOCIATES
Address (For Notices): 7011 Koll Center Parkway, Suite 210
Pleasanton, California 94566
d. TENANT'S USE OF PREMISES: Administrative Offices
e. PREMISES AREA: 6,375 rentable square feet
f. PROJECT AREA: 133,920 square feet
g. PREMISES PERCENT OF PROJECT: 4.76%
h. TERM OF LEASE: Commencement: 12/09/91 Expiration: 12/08/96
Number of Months: 60
i. BASE MONTHLY RENT: $0.00
j. RENT ADJUSTMENT:
(1) Step Increase. The provisions of section 4.b.(1) apply as
follows:
Effective Date of New Base
Rent Increase Monthly Rent
06/01 , 1992 $ 3,973.00
------ -- ---------
07/01 , 1992 $ 5,418.00
------ -- ---------
12/01 , 1992 $ 6,056.00
------ -- ---------
12/01 , 1993 $ 6,375.00
------ -- ---------
12/01 , 1994 $ 7,012.00
------ -- ---------
k. ANNUAL EXPENSE BASE:
Expense Rate $ 3.10
Premises Area Square Feet X 6,375
Annual Expense Base $ 19,762.50
l. PREPAID RENT: $ 0.00
m. TOTAL SECURITY DEPOSIT: $5,418.00, Including a $ 638.00
non-refundable cleaning fee.
n. BROKER(S): Marty Douglas/Douglas & Associates
o. GUARANTORS: N/A
p. ADDITIONAL SECTIONS:
Additional sections of this lease numbered 28 through 30.6 are
attached hereto and made a part hereof. If none, so state in the
following space ___X___.
q. ADDITIONAL EXHIBITS:
Additional exhibits lettered D through ________ are attached hereto
and made a part hereof. If none, so state in the following space
none.
<PAGE>
2. PREMISES. Landlord leases to Tenant the Premises described in Section 1 and
in Exhibit A (the "Premises"), located in this Project described on Exhibit B
(the "Project"). Landlord reserves the right to modify Tenant's percentage of
the Project as set forth in Section 1 if the Project size is increased through
the development of additional property. By entry on the Premises, Tenant
acknowledges that it has examined the Premises and accepts the Premises in their
present condition, subject to any additional work Landlord has agreed to do.
3. TERM. The term of this Lease is for the period set forth in Section 1,
commencing on the date in Section 1. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant upon commencement of the term, this Lease
shall not be void or voidable, nor shall Landlord be liable to Tenant for any
loss or damage resulting from such delay. In that event, however, there shall be
a rent abatement covering the period between the commencement of the term and
the time when Landlord delivers possession to Tenant, and all other terms and
conditions of this Lease shall remain in full force and effect, provided,
however, that if Landlord cannot deliver possession of the Premises to Tenant,
this Lease shall be void. If delay in possession is caused by Tenant's failure
to perform any obligation in accordance with this Lease, the term shall commence
as set forth in Section 1 and there shall be no reduction of rent between the
commencement of the term and the time Tenant takes possession.
4. RENT.
a. Base Rent. Tenant shall pay to Landlord monthly base rent in the initial
amount in Section 1 which shall be payable monthly in advance on the first
day of each and every calendar month ("Base Monthly Rent") provided,
however, the first month's rent is due and payable upon execution of this
Lease. If the term of this Lease contains any rental abatement period,
Tenant hereby agrees that if Tenant breaches the Lease and/or abandons the
Premises before the end of the Lease term, or if Tenant's right to
possessions is terminated by Landlord because of Tenant's breach of the
Lease, Landlord shall, at its option, (1) void the rental abatement period;
and (2) recover from Tenant, in addition to any damages due Landlord under
the terms and conditions of the Lease, rent prorated for the duration of
the rental abatement period at a rental rate equivalent to two (2) times
the effective Base Monthly Rent.
For purposes of Section 467 of the Internal Revenue Code, the parties to
this Lease hereby agree to allocate the stated rents, provided herein, to
the periods which correspond to the actual rent payments as provided under
the terms and conditions of this agreement.
h. Rent Adjustment.
1) Step Increase. Base Monthly Rent shall be increased periodically to
the amounts and at the times set forth in Section 1.j.
c. Expenses. The purpose of this Section 4.c. is to ensure that Tenant
bears a share of all Expenses related to the use, maintenance, ownership,
repair or replacement, and insurance of the Project. Accordingly, beginning
on the date Tenant takes possession of the Premises, Tenant shall pay to
Landlord that portion of Tenant's share of Expenses related to the Project
which is in excess of the Annual Expense Base shown in Section 1.
1) Expenses Defined. The term "Expenses" shall mean all costs and
expenses of the ownership, operation maintenance, repair or
replacement, and insurance of the Project, including without
limitation, the following costs:
(a) All supplies, materials, labor, equipment, and utilities used
in or related to the operation and maintenance of the Project;
(b) All maintenance, management, janitorial, legal, accounting,
insurance, and service agreement costs related to the Project;
(c) All maintenance, replacement and repair costs relating to the
areas within or around the Project, including, without
limitation, air conditioning systems, sidewalks, landscaping,
service areas, driveways, parking areas, (including resurfacing
and restriping parking areas), walkways, building exteriors
(including painting), signs and directories, repairing and
replacing roofs, walls, etc. These costs may be included either
based on actual expenditures or the use of an accounting reserve
based on past cost experience for the Project.
(d) Amortization (along with reasonable financing charges) of
capital improvements made to the Project which may be required by
any government authority or which will improve the operating
efficiency of the Project (provided, however, that the amount of
such amortization for improvements not mandated by government
authority shall not exceed in any year the amount of costs
reasonably determined by Landlord in its sole discretion to have
been saved by the expenditure either through the reduction or
minimizations of increases which would have otherwise occurred).
2
<PAGE>
(e) Real Property Taxes including all taxes, assessments (general
and special) and other impositions or charges which may be taxed,
charged, levied, assessed or imposed upon all or any portion of
or in relation to the Project or any portion thereof, any
leasehold estate in the Premises or measured by rent from the
Premises, including any increase caused by the transfer, sale or
encumbrance of the Project or any portion thereof. "Real Property
Taxes" shall also include any form of assessment, levy, penalty,
charge or tax (other than estate, inheritance, net income, or
franchise taxes) imposed by any authority having a direct or
indirect power to tax or charge, including, without limitation,
any city, county, state, federal or any improvement or other
district, whether such tax is (1) determined by the area of the
Project or the rent or other sums payable under this Lease; (2)
upon or with respect to any legal or equitable interest of
Landlord in the Project or any part thereof; (3) upon this
transaction or any document to which Tenant is a party creating a
transfer in any interest in the Project; (4) in lieu of or as a
direct substitute in whole or in part of or in addition to any
real property taxes on the Project; (5) based on any parking
spaces or parking facilities provided in the Project; or (6) in
consideration for services, such as police protection, fire
protection, street, sidewalk and roadway maintenance, refuse
removal or other services that may be provided by any
governmental or quasi-governmental agency from time to time which
were formerly provided without charge or with less charge to
property owners or occupants.
2) Annual Estimate of Expenses. When Tenant takes possession of the
Premises, Landlord shall estimate Tenant's portion of Expenses for the
remainder of the calendar year based on the Tenant's portion of the Project
Area set forth in Section 1. At the commencement of each calendar year
thereafter, Landlord shall estimate Tenant's portion of Expenses for the
coming year based on the Tenant's portion of the Project Area set forth in
Section 1.
3) Monthly Payment of Expenses. If Tenant's portion of said estimate of
Expenses shows an increase for the remainder of the calendar year over the
Annual Expense Base, as set forth in Section 1, Tenant shall pay to
Landlord, as additional rent, such estimated increase in monthly
installments of one-twelfth (1/12) beginning on the date Tenant takes
possession of the Premises. If Tenant's portion of said estimate of
Expenses shows an increase for subsequent calendar years over the Annual
Expense Base, as set forth in Section 1, Tenant shall pay Landlord, as
additional rent, such estimated increase in monthly installments of
one-twelfth (1/12) beginning on January 1 of the forthcoming calendar year,
and one-twelfth (1/12) on the first day of each succeeding calendar month.
As soon as practical following each calendar year, Landlord shall prepare
an accounting of actual Expenses incurred during the prior calendar year
and such accounting shall reflect Tenant's share of Expenses. If the
additional rent paid by Tenant under this Section 4.c.3 during the
preceding calendar year was less than the actual amount of Tenant's share
of Expenses. Landlord shall so notify Tenant and Tenant shall pay such
amount to Landlord within thirty (30) days of receipt of such notice. Such
amount shall be deemed to have accrued during the prior calendar year and
shall be due and payable from Tenant even though the term of this Lease has
expired or this Lease has been terminated prior to Tenant's receipt of this
notice. Tenant shall have thirty (30) days from receipt of such notice to
contest the amount due; failure to so notify Landlord shall represent final
determination of Tenant's share of expenses. If Tenant's payments were
greater than the actual amount, then such overpayment shall be credited by
Landlord to all present rent due under this Section 4.c.3.
4) Rent Without Offset and Late Charge. All rent shall be paid by Tenant to
Landlord monthly in advance on the first day of every calendar month, at
the address shown in Section 1, or such other place as Landlord may
designate in writing from time to time. All rent shall be paid without
prior demand or notice without any deduction or offset whatsoever. All rent
shall be paid in lawful currency of the United States of America. All rent
due for any partial month shall be prorated at the rate calculated by
dividing the number of days for which rent is due by the actual number of
days in the month and multiplied by the applicable monthly rate. Tenant
acknowledges that late payment by Tenant to Landlord of any rent or other
sums due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of such cost being extremely
difficult and impracticable to ascertain. Such costs include, without
limitation, processing and accounting charges and late charges that may be
imposed on Landlord by the terms of any encumbrance or note secured by the
Premises. Therefore, if any rent or other sum due from Tenant is not
received by the eleventh of each month, Tenant shall pay to Landlord an
additional sum equal to 10% of such overdue payment. Landlord and Tenant
hereby agree that such late charge represents a fair and reasonable
estimate of the costs that Landlord will incur by reason of any such late
payment and that the late charge is in addition to any and all remedies
available to the Landlord and that the assessment and/or collection of the
late charge shall not be deemed a waiver of any other default.
Additionally, all such delinquent rent or other sums, plus this late
charge, shall bear interest at the then maximum lawful rate permitted to be
charged by Landlord. Any payments of any kind returned for insufficient
hands will be subject to an additional handling charge of $25.00, and
thereafter, Landlord may require Tenant to pay all future payments of rent
or other sums due by money order or cashier's check.
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5. PREPAID RENT. Upon the execution of this Lease, Tenant shall pay to
Landlord the prepaid rent set forth in Section 1, and if Tenant is not in
default of any provisions of this Lease, such prepaid rent shall be applied
toward the rent due to the last month of the term. Landlord's obligations
with respect to the prepaid rent are those of a debtor and not of a
trustee, and Landlord can commingle the prepaid rent with Landlord's
general funds. Landlord shall not be required to pay Tenant interest on the
prepaid rent. Landlord shall be entitled to immediately endorse and cash
Tenant's prepaid rent; however, such endorsement and cashing shall not
constitute Landlord's acceptance of this Lease. In the event Landlord does
not accept this Lease, Landlord shall return said prepaid rent.
6. DEPOSIT. Upon execution of this lease, Tenant shall deposit the security
deposit set forth in Section 1 with Landlord, in part as security for the
performance by Tenant of the provisions of this Lease and in part as a
cleaning fee. If Tenant is in default, Landlord can use the security
deposit or any portion of it to cure the default or to compensate Landlord
for any damages sustained by Landlord resulting from Tenant's default. Upon
demand, Tenant shall immediately pay to Landlord a sum equal to the portion
of the security deposit expended or applied by Landlord to maintain the
security deposit in the amount initially deposited with Landlord. In no
event with Tenant have the right to apply any part of the security deposit
to any rent or other sums due under this Lease. If Tenant is not in default
at the expiration or termination of this Lease, Landlord shall return the
entire security deposit to Tenant, except for 10% of first month's rent or
$125, whichever is greater. which Landlord shall retain as a non-refundable
cleaning fee. Landlord's obligations with respect to the deposit are those
of a debtor and not of a trustee, and Landlord can commingle the security
deposit with Landlord's general funds. Landlord shall not be required to
pay Tenant interest on the deposit. Landlord shall be entitled to
immediately endorse and cash Tenant's prepaid deposit; however, such
endorsement and cashing shall not constitute Landlord's acceptance of this
Lease. In the event Landlord does not accept this Lease, Landlord shall
return said prepaid deposit.
7. USE OF PREMISES AND PROJECT FACILITIES. Tenant shall use the Premises
solely for the purposes set forth in Section 1 and for no other purpose
without obtaining the prior written consent of Landlord. Tenant
acknowledges that neither Landlord nor any agent of Landlord has made any
representation or warranty with respect to the Premises or with respect to
the suitability of the Premises or the Project for the conduct of Tenant's
business, nor has Landlord agreed to undertake any modification, alteration
or improvement to the Premises or the Project, except as provided in
writing in this Lease. Tenant acknowledges that Landlord may from time to
time, at its sole discretion, make such modifications, alterations,
deletions or improvements to the Project as Landlord may deem necessary or
desirable, without compensation or notice to Tenant. Tenant shall promptly
comply with all laws, ordinances, orders and regulations affecting the
Premises and the Project, including, without limitation, any rules and
regulations that may be attached to this Lease and to any reasonable
modifications to these rules and regulations as Landlord may adopt from
time to time. Tenant shall not do or permit anything to be done in or about
the Premises or bring or keep anything in the Premises that will in any way
increase the premiums paid by Landlord on its insurance related to the
Project or which will in any way increase the premiums for fire or casualty
insurance carried by other tenants in the Project. Tenant will not perform
any act or carry on any practices that may injure the Premises or the
Project; that may be a nuisance or menace to other tenants in the Project;
or that shall in any way interfere with the quiet enjoyment of such other
tenants. Tenant shall not use the Premises for, sleeping, washing clothes,
cooking or the preparation, manufacture or mixing of anything that might
emit any objectionable odor, noises, vibrations or lights onto such other
tenants. If sound insulation is required to muffle noise produced by Tenant
on the Premises, Tenant at its own cost shall provide all necessary
insulation. Tenant shall not do anything on the Premises which will
overload any existing parking or service to the Premises. Pets and/or
animals of any type shall not be kept on the Premises.
8. SIGNAGE. All signing shall comply with rules and regulations set forth by
Landlord as may be modified from time to time. Current rules and
regulations relating to signs are described on Exhibit C. Tenant shall
place no window covering (e.g., shades, blinds, curtains, drapes, screens,
or tinting materials), stickers, signs, lettering, banners or advertising
or display material on or near exterior windows or doors if such materials
are visible for the exterior of the Premises, without Landlord's prior
written consent. Similarly, Tenant may not install any alarm boxes, foil
protection tape or other security equipment on the Premises without
Landlord's prior written consent. Any material violating this provision may
be destroyed by Landlord without compensation to Tenant.
9. PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all taxes,
assessments, license fees and public charges levied, assessed or imposed
upon its business operations as well as upon all trade fixtures, leasehold
improvements merchandise and other personal property in or about the
Premises.
10. PARKING. Landlord grants to Tenant and Tenant's customers, suppliers,
employees and invitees, a non-exclusive license to use the designated
parking areas in the Project for the use of motor vehicles during the term
of this Lease. Landlord reserves the right at any time to grant similar
non-exclusive use to other tenants, to promulgate rules and regulations
relating to the use of such parking areas, including reasonable
restrictions on parking by tenants and employees, to designate specific
spaces for the use of any tenant, to make changes in the parking layout
from time to time, and to establish reasonable time limits on parking.
Overnight parking is prohibited for automobiles only, and any automobile
violating this or any other vehicle regulation adopted by Landlord is
subject to removal at the owner's expense.
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11. UTILITIES. (Strike and initial clause which does not apply)
a. Office Space
[STRICKEN]
b. Industrial Space. Tenant shall pay for all water, gas, heat, light,
power, sewer, electricity, telephone or other service metered,
chargeable or provided to the Premises. Landlord reserves the right to
install separate meters for any such utility and charge tenant for the
cost of such installation.
12. MAINTENANCE. Landlord shall maintain, in good condition, the structural
parts of the Premises, which shall include only the foundations, bearing
and exterior walls (excluding glass), subflooring and roof (excluding
skylights), the unexposed electrical, plumbing and sewerage systems,
including without limitation, those portions of the systems lying outside
the Premises, exterior doors (excluding glass), window frames, gutters and
downspouts on the Building and the heating, ventilating and air
conditioning systems servicing the Premises; provided, however, the cost of
all such maintenance shall be considered "Expenses" for purposes of Section
4.c. Except as provided above, Tenant shall maintain and repair the
Premises in good condition, including, without limitation, maintaining and
repairing all walls, floors, ceilings, interior doors, exterior and
interior windows and fixtures as well as damage caused by Tenant, its
agents, employees or invitees. Upon expiration or termination of this
Lease, Tenant shall surrender the Premises to Landlord in the same
condition as existed at the commencement of the term, except for reasonable
wear and tear or damage caused by fire or other casualty for which Landlord
has received all funds necessary for restoration of the Premises from
insurance proceeds.
13. ALTERATIONS. Tenant shall not make any alteration to the Premises, or to
the Project, including any changes to the existing landscaping, without
Landlord's prior written consent. If Landlord gives its consent to such
alterations, Landlord may post notices in accordance with the laws of the
state in which the Premises are located. Any alterations made shall remain
on and be surrendered with the Premises upon expiration or termination of
this Lease, except that Landlord may, within 30 days before or 30 days
after expiration of the term, elect to require Tenant to remove any
alterations which Tenant my have made to the Premises. If Landlord so
elects, at its own cost Tenant shall restore the Premises to the condition
designated by Landlord in its election, before the last day of the term or
within 30 days after notice of its election is given, which ever is later.
Should Landlord consent in writing to Tenant's alteration of the Premises,
Tenant shall contract with a contractor approved by Landlord for the
construction of such alterations, shall secure all appropriate governmental
approvals, and permits, and shall complete such alterations with due
diligence in compliance with plans and specifications approved by Landlord.
All such construction shall be performed in a manner which will not
interfere with the quiet enjoyment of other tenants of the Project. Tenant
shall pay all costs for such construction and shall keep the Premises and
the Project free and clear of all mechanics' liens which may result from
construction by Tenant.
14. RELEASE AND INDEMNITY. As material consideration to Landlord, Tenant agrees
that Landlord shall not be liable to Tenant for any damage to Tenant or
Tenant's property from any cause, and Tenant waives all claims against
Landlord for damage to persons or property arising for any reason, except
for damage resulting from Landlord's breach it its express obligations
under this Lease which Landlord has not cured within a reasonable time
after receipt of written notice of such breach from Tenant. Tenant shall
indemnify and hold Landlord harmless from all damages arising out of any
damage to any person or property occurring in, on or about the Premises or
Tenant's use of the Premises or Tenant's breach of any term of this Lease.
15. INSURANCE. Tenant, at its cost, shall maintain public liability and
property damage insurance and product liability insurance with a single
combined liability limit of $1,000,000, insuring against all liability of
Tenant and its authorized representatives arising out of or in connection
with Tenant's use or occupancy of the Premises. Public liability insurance,
products liability insurance and property damage insurance shall insure
performance by Tenant of the indemnity provisions of Section 14. Landlord
shall be named as additional insured and the policy shall contain
cross-liability endorsements. On all its personal property, at its cost,
Tenant shall maintain a policy of standard fire and extended coverage
insurance with vandalism and malicious mischief endorsements and "all risk"
coverage on all Tenant's improvements and alterations in or about the
Premises, to the extent of at least 90% of their full replacement value.
The proceeds from any such policy shall be used by Tenant for the
replacement of personal property and the restoration of Tenant's
improvements or alterations. All insurance required to be provided by
Tenant under this Lease shall release Landlord from any claims for damage
to any person or the Premises and the Project, and to Tenant's fixtures,
personal property, improvements and alterations in or on the Premises or
the Project, caused by or resulting from risks incurred against under any
insurance policy carried by Tenant in force at the time of such damage. All
insurance required to be provided by Tenant under this Lease: (a) shall be
issued by insurance companies authorized to do business in the state in
which the premises are located with a financial rating of at least an A +
XII status as rated in the most recent edition of Best's Insurance Reports;
(b) shall be issued
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by insurance companies authorized to do business in the state in which the
premises are located with a financial rating or at least an A + XII status
as rated in the most recent edition of Best's Insurance Reports; (b) shall
be issued as a primary policy; and (c) shall contain an endorsement
requiring at least 30 days prior written notice of cancellation to Landlord
and Landlord's lender, before cancellation or change in coverage, scope or
amount of any policy. Tenant shall deliver a certificate or copy of such
policy together with evidence of payment of all current premiums to
Landlord within 30 days of execution of this Lease. Tenant's failure to
provide evidence of such coverage to Landlord may, in Landlord's sole
discretion, constitute a default under this Lease.
16. DESTRUCTION. If during the term, the Premises or Project are more than 10%
destroyed from any cause, or rendered inaccessible or unusable from any
cause, Landlord may, in its sole discretion, terminate this Lease by
delivery of notice to Tenant within 30 days of such event without
compensation to Tenant. If in Landlord's estimation, the Premises cannot be
restored within 90 days following such destruction, the Landlord shall
immediately notify Tenant and Tenant may terminate this Lease by delivery
of notice to Landlord within 30 days of receipt of Landlord's notice. If
Landlord does not terminate this Lease and if in Landlord's estimation the
Premises can be restored within 90 days, then Landlord shall commence to
restore the Premises in compliance with then existing laws and shall
complete such restoration with due diligence. In such event, this Lease
shall remain in full force and effect, but there shall be an abatement of
rent between the date of destruction and the date of completion or
restoration, based on the extent to which destruction interferes with
Tenant's use of the Premises.
17. CONDEMNATION.
a. DEFINITIONS. The following definitions shall apply. (1) "Condemnation"
means (a) the exercise of any governmental power of eminent domain,
whether by legal proceedings or otherwise by condemnor and (b) the
voluntary sale or transfer by Landlord to any condemnor either under
threat of condemnation or while legal proceedings for condemnation are
proceeding; (2) "Date of Taking" means the date the condemnor has
right to possession of the property being condemned; (3) "Award" means
all compensation, sums or anything of value awarded, paid or received
on a total or partial condemnation; and (4) "Condemnor" means any
public or quasi-public authority or private corporation or individual,
having power of condemnation.
b. OBLIGATIONS TO BE GOVERNED BY LEASE. If during the term of the Lease
there is any taking of all or any part of the Premises or the Project,
the rights and obligations of the parties shall be determined pursuant
to this Lease.
c. TOTAL OR PARTIAL TAKING. If the Premises are totally taken by
condemnation, this Lease shall terminate on the date of taking. If any
portion of the Premises is taken by condemnation, this Lease shall
remain in effect, except that Tenant can elect to terminate this Lease
if the remaining portion of the Premises is rendered unsuitable for
Tenant's continued use of Premises. If Tenant elects to terminate this
Lease, Tenant must exercise its right to terminate by giving notice to
Landlord within thirty (30) days after the nature and extent of the
taking have been finally determined. If Tenant elects to terminate
this Lease, Tenant shall also notify Landlord of the date of
termination which date shall not be earlier than thirty (30) days nor
later than ninety (90) days after Tenant has notified Landlord of its
election to terminate; except that this Lease shall terminate on the
date of taking if the date of taking falls on a date before the date
of termination as designated by Tenant. If any portion of the Premises
is taken by condemnation and this Lease remains in full force and
effect, on the date of taking the rent shall be reduced by an amount
in the same ratio as the total number of square feet in the Premises
taken bears to the total number of square feet in the Premises
immediately before the date of taking.
18. ASSIGNMENT OR SUBLEASE. Tenant shall not assign or encumber its interest in
this Lease or the Premises or sublease all or any part of the Premises or
allow any other person or entity (except Tenant's authorized
representatives, employees, invitees, or guests) to occupy or use all or
any part of the Premises without first obtaining Landlord's consent, which
Landlord may withhold in its sole discretion. Any assignment, encumbrance
or sublease without Landlord's written consent shall be voidable and at
Landlord's election, shall constitute a default. If Tenant is a
partnership, a withdrawal or change, voluntary, involuntary or by operation
of law of any partner, or the dissolution of the partnership, shall be
deemed a voluntary assignment. If Tenant consists of more than one person,
a purported assignment, voluntary or involuntary or by operation of law
from one person to the other shall be deemed a voluntary assignment. If
Tenant is a corporation, any dissolution, merger, consolidation or other
reorganization of Tenant, or sale or other transfer of a controlling
percentage of the capital stock of Tenant, or the sale of at least 25% of
the value of the assets of Tenant shall be deemed a voluntary assignment.
The phrase "controlling percentage" means ownership of and right to vote
stock possessing at least 25% of the total combined voting power of all
classes of Tenant's capital stock issued, outstanding and entitled to vote
for election of directors. This Section 18 shall not apply to corporations
fifty percent of the stock of which is traded through an exchange or over
the counter. Fifty percent of all rent received by Tenant from its
subtenants if they occupy all of the space in excess of the rent payable by
Tenant to Landlord under this Lease shall be paid to Landlord, or fifty
percent of any sums be paid by an assignee to Tenant in consideration of
the assignment of this Lease shall be paid to Landlord. If Tenant requests
Landlord to consent to a proposed assignment or subletting, Tenant shall
pay to Landlord, whether or not consent is ultimately given, $100 or
Landlord's reasonable attorney's fees incurred in connection with such
request, whichever is greater.
No interest of Tenant in this Lease shall be assignable by involuntary
assignment through operation of law (including
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without limitation the transfer of this Lease by testacy or intestacy).
Each of the following acts shall be considered an involuntary assignment:
(a) If Tenant is or becomes bankrupt or insolvent, makes an assignment for
the benefit of creditors, or institutes proceedings under the Bankruptcy
Act in which Tenant is the bankrupt; or if Tenant is a partnership or
consists of more than one person or entity, if any partner of the
partnership or other person or entity is or becomes bankrupt or insolvent,
or makes an assignment for the benefit of creditors; or (b) If a writ of
attachment or execution is levied on this Lease; or (c) If in any
proceeding or action to which Tenant is a party, a receiver is appointed
with authority to take possession of the Premises. An involuntary
assignment shall constitute a default by Tenant and Landlord shall have the
right to elect to terminate this Lease, in which case this Lease shall not
be treated as an asset of Tenant.
19. DEFAULT. The occurrence of any of the following shall constitute a default
by Tenant. (a) A failure to pay rent or other charge when due; (b)
Abandonment and vacation of the Premises (failure to occupy and operate the
Premises for ten (10) consecutive days shall be deemed an abandonment and
vacation); or (c) Failure to perform any other provision of this Lease.
20. LANDLORD'S REMEDIES. Landlord shall have the following remedies if Tenant
is in default. (These remedies are not exclusive; they are cumulative and in
addition to any remedies now or later allowed by law): Landlord may terminate
Tenant's right to possession of the Premises at any time. No act by Landlord
other than giving notice to Tenant shall terminate this Lease. Acts of
maintenance, efforts to relet the Premises, or the appointment of a receiver on
Landlord's initiative to protect Landlord's interest under this Lease shall not
constitute a termination of Tenant's right to possession. Upon termination of
Tenant's right to possession, Landlord has the right to recover from Tenant: (1)
The worth of the unpaid rent that had been earned at the time of termination of
Tenant's right to possession; (2) The worth of the amount of the unpaid rent
that would have been earned after the date of termination of Tenant's right to
possession; (3) Any other amount, including court, attorney, and collection
costs, necessary to compensate Landlord for all detriment proximately caused by
Tenant's default. "The worth," as used for Item 20(1) in this Paragraph 20 is to
be computed by allowing interest at the maximum rate an individual is permitted
to charge by law or 12%, whichever is greater. "The worth at the time of the
award" as used for Item 20(2) in this Paragraph 20 is to be computed by
discounting the amount at the discount rate of the Federal Reserve Bank of San
Francisco at the time of termination of Tenant's right of possession.
21. ENTRY ON PREMISES. Landlord and its authorized representatives shall have
the right to enter the Premises at all reasonable times for any of the
following purposes: (a) To determine whether the Premises are in good
condition and whether Tenant is complying with its obligations under this
Lease; (b) To do any necessary maintenance and to make any restoration to
the Premises or the Project that Landlord has the right or obligation to
perform; (c) To post "for sale" signs at any time during the term, to post
"for rent" or "for lease" signs during the last ninety (90) days of the
term, or during any period while Tenant is in default; (d) To show the
Premises to prospective brokers, agents, buyers, tenants, or persons
interested in leasing or purchasing the Premises, at any time during the
term; or (e) To repair, maintain or improve the Project and to erect
scaffolding and protective barricades around and about the Premises but not
so as to prevent entry to the Premises and to do any other act or thing
necessary for the safety or preservation of the Premises or the Project.
Landlord shall not be liable in any manner for any inconvenience,
disturbance, loss of business, nuisance, or other damage arising out of
Landlord's entry onto the Premises as provided in this Section 21. Tenant
shall not be entitled to an abatement or reduction of rent if Landlord
exercises any rights reserved in this Section 21. Landlord shall conduct
its activities on the Premises as provided herein in a manner that will
cause the least inconvenience, annoyance or disturbance to Tenant. For each
of these purposes, Landlord shall at all times have and retain a key with
which to unlock all the doors in, upon and about the Premises, excluding
Tenant's vaults and safes. Tenant shall not alter any lock or install a new
or additional lock or bolt on any door of the Premises without prior
written consent of Landlord. If Landlord gives its consent, Tenant shall
furnish Landlord with a key for any such lock.
22. SUBORDINATION. Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any mortgagee or any beneficiary of a Deed of Trust
with a lien on the Project or any ground lessor with respect to the
Project, this Lease shall be subject and subordinate at all times to (a)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Project, and (b) the lien of any mortgage or Deed of
Trust which may now exist or hereafter be executed in any amount for which
the Project, ground leases or underlying leases, or Landlord's interest or
estate in any of said items is specified as security. In the event that any
ground lease or underlying lease terminates for any reason or any mortgage
or Deed of Trust is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall, notwithstanding any subordination,
attorn to and become the Tenant of the successor in interest to Landlord,
at the option of such successor in interest. Tenant covenants and agrees to
execute and deliver, upon demand by Landlord and in the form requested by
Landlord, any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground leases or underlying leases
or the lien of any such mortgage or Deed of Trust. Tenant hereby
irrevocably appoints Landlord as attorney-in-fact of Tenant to execute,
deliver and record any such document in the name and on behalf of Tenant.
Tenant, within ten (10) days from notice from Landlord, shall execute and
deliver to Landlord, in recordable form, certificates stating that this
Lease is not in default, is unmodified and in full force and effect, or in
full force and effect as modified, and stating the modifications. This
certificate should also state the amount of current monthly rent, the dates
to which rent has been paid in advance, and the amount of any security
deposit and prepaid rent. Failure to deliver this certificate to Landlord
within ten (10) days shall be conclusive upon Tenant that this Lease
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is in full force and effect and has not been modified except as may be
represented by Landlord.
23. NOTICE. Any notice, demand, request, consent, approval, or communication
desired by either party or required to be given, shall be in writing and
served either personally or sent by prepaid certified first class mail,
addressed as set forth in Section 1. Either party may change its address by
notification to the other party. Notice shall be deemed to be communicated
forty-eight (48) hours from the time of mailing, or from the time of
service as provided in this Section 23.
24. WAIVER. No delay or omission in the exercise of any right or remedy by
Landlord shall impair such right or remedy or be construed as a waiver. No
act or conduct of Landlord, including without limitation, acceptance of the
keys to the Premises, shall constitute an acceptance of the surrender of
the Premises by Tenant before the expiration of the term. Only written
notice from Landlord to Tenant shall constitute acceptance of the surrender
of the Premises and accomplish termination of the Lease. Landlord's consent
to or approval of any act by Tenant requiring the Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's
consent to or approval of any subsequent act by Tenant. Any waiver by
Landlord of any default must be in writing and shall not be a waiver of any
other default concerning the same of any other provision of the Lease.
25. SURRENDER OF PREMISES; HOLDING OVER. Upon expiration of the term, Tenant
shall surrender to Landlord the Premises and all Tenant Improvements and
alterations in good condition, except for ordinary wear and tear and
alterations Tenant has the right or is obligated to remove under the
provisions of Section 13 herein. Tenant shall remove all personal property
including, without limitation, all wallpaper, paneling and other decorative
improvements or fixtures and shall perform all restoration made necessary
by the removal of any alterations of Tenant's personal property before the
expiration of the term, including for example, restoring all wall surfaces
to their condition prior to the commencement of this Lease. Landlord can
elect to retain or dispose of in any manner Tenant's personal property not
removed from the Premises by Tenant prior to the expiration of the term.
Tenant waives all claims against Landlord for any damage to Tenant
resulting from Landlord's retention or disposition of Tenant's personal
property. Tenant shall be liable to Landlord for Landlord's cost for
storage, removal, or disposal of Tenant's personal property.
If Tenant, with Landlord's consent, remains in possession of the Premises
after expiration or termination of the term, or after the date in any
notice given by Landlord to Tenant terminating this Lease, such possession
by Tenant shall be deemed to be a month-to-month tenancy terminable on
written 30-day notice at any time, by either party. All provisions of this
Lease, except those pertaining to term and rent, shall apply to the
month-to-month tenancy. Tenant shall pay monthly rent in an amount equal to
125% of Rent for the last full calendar month during the regular term plus
100% of said last month's estimate of Tenant's share of Expenses pursuant
to Section 4.c.3.
26. LIMITATION OF LIABILITY. In consideration of the benefits accruing
hereunder, Tenant agrees that, in the event of any actual or alleged
failure, breach or default of this Lease by Landlord, if Landlord is a
partnership:
a. The sole and exclusive remedy shall be against the partnership and its
partnership assets;
b. No partner of Landlord shall be sued or named as a party in any suit
or action (except as may be necessary to secure jurisdiction of the
partnership);
c. No service of process shall be made against any partner of Landlord
(except as may be necessary to secure jurisdiction of the
partnership);
d. No partner of Landlord shall be required to answer or otherwise plead
to any service or process:
e. No judgment may be taken against any partner of Landlord:
f. Any judgment taken against any partner of Landlord may be vacated and
set aside at any time without hearing;
g. No writ of execution will ever be levied against the assets of any
partner of Landlord;
h. These covenants and agreements are enforceable both by Landlord and
also by any partner of Landlord.
Tenant agrees that each of the foregoing provisions shall be
applicable to any covenant or agreement either expressly contained in
this Lease or imposed by statute or at common law.
27. MISCELLANEOUS PROVISIONS.
a. TIME OF ESSENCE. Time is of the essence of each provision of this
Lease.
b. SUCCESSOR. This Lease shall be binding on and inure to the benefit of
the parties and their successors, except as provided in Section 18
herein.
8
<PAGE>
c. LANDLORD'S CONSENT. Any consent required by Landlord under this Lease
must be granted in writing and may be withheld by Landlord in its sole
and absolute discretion.
d. COMMISSIONS. Each party represents that it has not had dealings with
any real estate broker, finder, or other person with respect to this
Lease in any manner, except for the broker identified in Section 1,
who shall be compensated by Landlord.
e. OTHER CHARGES. If Landlord becomes a party to any litigation
concerning this Lease the Premises, or the Project, by reason of any
act or omission of Tenant or Tenant's authorized representatives,
Tenant shall be liable to Landlord for reasonable attorney's fees and
court costs incurred by landlord in the litigation whether or not such
litigation leads to actual court action. Should the court render a
decision which is thereafter appealed by any party thereto, Tenant
shall be liable to Landlord for reasonable attorney's fees and court
costs incurred by Landlord in connection with such appeal.
If either party commences any litigation against the other party or
files an appeal of a decision arising out of or in connection with the
Lease, the prevailing party shall be entitled to recover from the
other party reasonable attorney's fees and costs of suit. If Landlord
employs a collection agency to recover delinquent charges, Tenant
agrees to pay all collection agency and attorneys' fees charged to
Landlord in addition to rent, late charges, interest, and other sums
payable under this Lease. Tenant shall pay a charge of $75 to Landlord
for preparation of a demand for delinquent rent.
f. LANDLORD'S SUCCESSORS. In the event of a sale or conveyance by
Landlord of the project, the same shall operate to release Landlord
from any liability under this Lease, and in such event Landlord's
successor in interest shall be solely responsible for all obligations
of Landlord under this Lease.
g. INTERPRETATION. This Lease shall be construed and interpreted in
accordance with the laws of the state in which the Premises are
located. This Lease constitutes the entire agreement between the
parties with respect to the Premises and the Project, except for such
guarantees or modifications as may be executed in writing by the
parties from time to time. When required by the context of this Lease,
the singular shall include the plural, and the masculine shall include
the feminine and/or neuter. "Party" shall mean Landlord or Tenant. If
more than one person or entity constitutes Landlord or Tenant, the
obligations imposed upon that party shall be joint and several. The
enforceability, invalidity. or illegality of any provision shall not
render the other provisions unenforceable, invalid or illegal.
LANDLORD:
Patrician Associates, Inc., a California corporation, and Koll Bernal
Avenue Associates, a California general partnership doing business as
Bernal Avenue Associates
PATRICIAN ASSOCIATES INC., a California corporation
BY /s/ Rod Vogel
----------------------
ITS: Senior Regional Equity Administrator
Commercial Real Estate Equities
---------------------
BY _____________________
ITS:_____________________
TENANT: INTELLIGENT PRODUCTS MARKETING, INC.
BY /s/ Edward [ILLEGIBLE]
----------------------
ITS: President
----------------------
BY:______________________
ITS:_____________________
9
<PAGE>
FIRST ADDENDUM TO LEASE AGREEMENT
This First Addendum to Lease Agreement is entered into as of October 31, 1991 by
and between Patrician Associates, Inc., a California corporation, and Koll
Bernal Avenue Associates, a California general partnership, tenants-in-common
operating as a joint venture under the name Bernal Avenue Associates
("Landlord") and Intelligent Products Marketing Inc. for that certain premises
commonly known as: 7020 Koll Center Parkway, Suite 100, Pleasanton, Ca 94566 as
further described in Exhibit "A" attached to the Bernal Business Center Lease
("the Lease").
28. ASSESSMENTS.
A. Definition of Assessments. Tenant acknowledges that the "assessments"
described in Section 4.c.1(e) of the Lease may include assessment
districts or other funding mechanisms, including but not limited to,
improvements districts, maintenance districts, special service zones
or districts, or any combination thereof (collectively hereafter
called "Assessments Districts") for the construction, alteration,
expansion, improvements, completion, repair, operation, or
maintenance, as the case may be, of on-site or off-site improvements,
or services, or any combination thereof as required by the City of
Pleasanton (the "City") as a condition of approving the development of
Bernal Corporate Park, of which Premises are a part. These Assessment
Districts may provide, among other things, the following improvements
or services: streets, curbs, interchanges, highways, traffic noise
studies and mitigation measures, traffic control systems and expansion
of city facilities to operate same, landscaping and lighting
maintenance services, maintenance of flood control facilities, water
storage and distribution facilities, fire apparatus, manpower, and
other fire safety facilities, and sports facilities.
B. Consent to Formation. Tenant hereby consents to the formation of any
and all of the Assessment Districts and waives any and all rights of
notice and any and all rights of protest in connection with formation
of the Assessment Districts and agrees to execute all documents
including, but not limited to, formal waivers of notice and protest,
evidencing such consent and waiver upon request of Landlord of the
City.
C. No Increases in Assessment Expense. Notwithstanding the Provisions for
payment of increases or new Assessment as expenses in Section 4.c.,
Landlord agrees that, during the term of this Lease, Tenant shall not
be liable for any increases in Bernal Corporate Park Assessments, or
Assessments imposed or levied after the execution date of the lease
set forth in Section 1.a.
29. COVENANTS, CONDITIONS AND RESTRICTIONS. Reference is hereby made to that
certain Declaration of Covenants, Conditions and Restrictions for Bernal
Corporate Park recorded February l8, 1987, Series No. 87-046032 of Official
Records, Chicago Title Insurance Company. Landlord and Tenant agree that
they are fully bound by the above-named Declaration.
30. EMISSIONS; STORAGE, USE AND DISPOSAL OF WASTE
30.1 Emissions. Tenant shall not:
a. Permit any vehicles on the premises to emit exhaust which is in
violation of any governmental law, rule, regulation or requirement;
b. Discharge, emit or permit to be discharged or emitted, any liquid,
solid or gaseous matter, or any combination thereof, into the
atmosphere, the ground or any body of water, which matter, as
reasonably determined by lessor or any governmental entity, does, or
may, pollute or contaminate the same, or is, or may become,
radioactive or does, or may, adversely effect the (l) health or safety
of persons, wherever located, whether on the premises or anywhere else
(2) condition, use or enjoyment of the premises of any other real or
personal property, whether on the premises or anywhere else, or (3)
premises or any of the improvements thereto or thereon including
buildings, foundations, pipes, utility lines, landscaping or parking
areas;
c. Produce, or permit to be produced, any intense glare, light or heat
except within an enclosed or screened area and then only in such
manner that the glare, light or heat shall not be discernible from
outside the premise;
d. Create, or permit to be created, any sound pressure level which will
interfere with the quiet enjoyment of any real property outside the
premises, or which will create a nuisance or violate any governmental
law, rule, regulation or requirement;
e. Create, or permit to be created, any ground vibration that is
discernible outside the premises;
f. Transmit, receive or permit to be transmitted or received, any
electromagnetic, microwave or other radiation in which is harmful or
hazardous to any person or property in, or about the premises, or
anywhere else.
10
<PAGE>
30.2 Storage and Use.
a. Storage. Subject to the uses permitted and prohibited to Tenant under
this Lease, Tenant shall store in appropriate leak proof containers all
solid, liquid, or gaseous matter, or any combination thereof, which matter,
if discharged or emitted into the atmosphere, the ground or any body of
water, does or may (1) pollute or contaminate the same, (2) adversely
affect the (i) health or safety of persons, whether on the premise or
anywhere else, (ii) condition, use or enjoyment of the premises or any real
or personal property, whether on the premises or anywhere else, or (iii)
premises or any of the improvements thereto or thereon.
b. Use. In addition, without Landlord's prior written consent, Tenant shall
not use, store or permit to remain on the premises any solid, liquid, or
gaseous matter which is, or may become, radioactive. If Landlord does give
its consent, Tenant shall store the materials in such a manner that no
radioactivity will he detectable outside a designated storage area and
Tenant shall use the materials in such a manner that (1) no real or
personal property outside the designated storage area shall become
contaminated thereby or (2) there are and shall be no adverse effects on
the (i) health or safety of persons, whether on the premises or anywhere
else, (ii) condition, use or enjoyment of the premises or any real or
personal property thereon or therein, (iii) premises or any or the
improvements thereto and thereon.
30.3 Disposal of Waste.
a. Refuse Disposal. Tenant shall not keep any trash, garbage, waste or
other refuse on the premises except in sanitary containers and shall
regularly and frequently remove same from the premises. Tenant shall
keep all incinerators, containers or other equipment used for the
storage or disposal of such materials in a clean and sanitary
condition.
b. Sewage Disposal. Tenant shall properly dispose of all sanitary sewage
and shall not use the sewage disposal system (1) for the disposal of
anything except sanitary sewage or (2) excess of the lesser of the
amount (a) reasonably contemplated by the uses permitted under this
Lease or (b) permitted by any governmental entity. Tenant shall keep
the sewage disposal system free of all obstructions and in good
operating condition.
c. Disposal of Other Waste. Tenant shall properly dispose of all other
waste or other matter delivered to, stored upon, located upon or
within, used on, or removed from, the premises in such a manner that
it does not, and will not, adversely affect the (1) health or safety
of persons, wherever located, whether on the premises or the Project,
(2) condition, use or enjoyment of the premises or any other real or
personal property, wherever located, whether on the premises or the
Project, or (3) premises or any of the improvements thereto or thereon
including buildings, foundations, pipes, utility lines, landscaping or
parking areas.
30.4 Compliance with Law. Notwithstanding any other provision in the Lease to
the contrary, Tenant shall comply with all laws, statutes, ordinances,
regulations, rules and other governmental requirements in complying with
its obligations under this lease, and in particular, relating to the
storage, use and disposal of hazardous or toxic matter.
30.5 Indemnification. Tenant shall defend, indemnify and hold Landlord harmless
from any loss, claim, liability or expense, including attorney's fees and
costs, arising out of or in connection with its failure to observe or
comply with the provisions of this Lease.
30.6 Storage Requirements: Tenant warrants that it shall not store, shelve,
rack, or in any manner keep combustible or flammable objects higher than
twelve (12) feet from the finished floor, and any object containing plastic
material higher than five (5) feet from the finished floor, with no storage
or shelves, or other obstructions above the plastic storage.
INITIAL
Leasee /s/ RV
Lessee /s/ [ILLEGIBLE]
11
<PAGE>
BERNAL CORPORATE PARK LEASE
FIRST AMENDMENT TO LEASE
That certain Lease dated October 31, 1991, by and between PATRICIAN
ASSOCIATES, INC. a California corporation, and KOLL BERNAL AVENUE ASSOCIATES, a
California partnership as tenants in common operating as a joint venture under
the name BERNAL AVENUE ASSOCIATES, Landlord, and INTELLIGENT PRODUCTS MARKETING,
INC., Tenant for the premises located at 7020 Koll Center Parkway, Suite 100, is
amended this 12th day of February, 1996, by amending (or adding as the case may
be) the clauses below with the like numbered clauses in the Lease.
BASIC LEASE TERMS
1.h. Term of Lease.
Commencement Date: December 9, 1991
Expiration Date: December 8, 2001
Amount of Extension: Five (5) Years
4. Rent
c. Expenses (add to the end of paragraph)...."the Annual Expense Base as
shown in Section 1 shall be $3.10 per square foot on an annual basis or the
actual Annual Expense for 1997, whichever is greater."
All other terms and conditions of the above described Lease shall remain in full
force and effect.
LANDLORD: BERNAL AVENUE ASSOCIATES, a joint venture
Patrician Associates, Inc., a California Corporation, and Koll
Bernal Avenue Associates, a California general partnership doing
business as Bernal Avenue Associates
PATRICIAN ASSOCIATES, INC., a California Corporation
BY: /s/ Kurt D. Schaeffer
--------------------------
ITS: Vice President
-------------------------
TENANT:INTELLIGENT PRODUCTS MARKETING, INC.
BY: /s/ Edward [ILLEGIBLE]
--------------------------
ITS: President
-------------------------
INDUSTRIAL SPACE LEASE
THE CORPORATE WOODS
VERNON HILLS, ILLINOIS
LANDLORD: AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO,
ILLINOIS, not personally but as Trustee under Trust
Agreement No. 64661 dated June 17, 1985
TENANT: G & R TECHNOLOGIES
LEASED PREMISES: 980 CORPORATE WOODS PARKWAY
VERNON HILLS, ILLINOIS
LEASE PREPARED BY: Gould & Ratner
222 North LaSalle Street
Chicago, Illinois 60601
<PAGE>
THIS LEASE is made this 13th day of November, 1991, by and between
AMERICAN NATIONAL BANK AND TRUST COMPANY, ILLINOIS, not personally but as
Trustee under Trust Agreement No. 64661 dated June 17, 1985 (hereinafter
sometimes referred to as "Landlord"), and G & R TECHNOLOGIES (hereinafter
sometimes referred to as "Tenant") covenant and agree as follows:
I. GRANT, TERM, DEFINITIONS AND BASIC LEASE PROVISIONS
1.0 Grant. Landlord, for and in consideration of the rents herein reserved
and of the covenants and agreements herein contained on the part of the Tenant
to be performed, hereby leases to Tenant, and Tenant hereby lets from Landlord,
premises known as 980 Corporate Woods Parkway, Vernon Hills, Illinois,
consisting of approximately 10,526 square feet, being a part of the real estate
commonly known as Lot 950-990 Corporate Woods Parkway, The Corporate Woods,
Vernon Hills, Illinois, (hereinafter sometimes referred to as the "Real
Estate"), which premises are designated as Unit H on the floor plan attached
hereto as Exhibit A, together with all improvements now located or to be located
on said premises during the term of this Lease, together with all appurtenances
belonging to or in any way pertaining to the said premises (such premises,
improvements and appurtenances hereinafter sometimes jointly or severally, as
the context requires, referred to as "Leased Premises").
1.1 Term. The term of this Lease shall commence on February 1, 1992
(hereinafter sometimes referred to as "Commencement Date") and shall end on
January 31, 1997, unless sooner terminated as herein set forth.
1.2 Tenant's Pro Rata Share. As used in this Lease, the term "Tenant's Pro
Rata Share" shall be 12 and 10/100ths percent (12.10%).
1.3 Agent. As used in this Lease, the term "Agent" shall mean the agent of
Landlord (but if Landlord is an Illinois land trust, the term "Agent" shall mean
the agent of the beneficiary or beneficiaries of Landlord). Until otherwise
designated by notice in writing from Landlord, Agent shall be Van Vlissingen and
Co. Tenant may rely upon any consent or approval given in writing by Agent or
upon notice from Agent or from the attorneys for Agent or Landlord.
1.4 Basic Lease Provisions.
(a) Purpose (See Section 3.0): Office/Warehousing facilities for
electronics and computer equipment, laboratory supplies and
equipment, accessories and directly related uses.
(b) Rent (See Section 4.0):
Monthly
Period Annual Rent Installments
02/01/92 - 03/31/92 $ 91,786.68 $ 7,648.89
04/01/92 - 01/31/93 $ 95,613.48 $ 7,967.79
02/01/93 - 01/31/94 $ 96,990.36 $ 8,082.53
02/01/94 - 01/31/95 $ 98,387.76 $ 8,198.98
02/01/95 - 01/31/96 $ 99,806.16 $ 8,317.18
02/01/96 - 01/31/97 $101,246.92 $ 8,437.16
(c) Payee (See Section 4.0): Corporate Woods Associates
(d) Payee's Address (See Section 4.0): c/o Van Vlissingen & Co.
One Overlook Point, Lincolnshire Corporate Center
Lincolnshire, Illinois 60069
(e) Base Impositions (See Section 5.0): $0
(f) Form of Insurance (See Section 6.1): The insurance specified in
subsections 6.0(a) and (c) of this Lease shall insure Landlord,
Landlord's beneficiaries and respective agents (including Agent), in
addition to Tenant.
(g) Base Insurance Premium (See Section 6.3): $0
(h) Monitoring Service Charge (See Section 6.4): |X| YES |_| NO
<PAGE>
(i) Water and Sewerage Charge (See Section 12.0): |X| YES |_| NO
(j) Security Deposit (See Section 19.0): See Addendum (Section 22.0)
(k) Tenant's Address (for notices) (See Section 20.4): At the Premises
(1) Landlord's Address (for notices) (See Section 20.4): One Overlook
Point, Lincolnshire Corporate Center, Lincolnshire, Illinois 60069.
(m) Brokers (See Section 20.12): Van Vlissingen and Co.
(n) Number of Parking Spaces (see Section 20.16): 30
(o) Guarantor's Name and Address (See Separate Guaranty): N/A
II. POSSESSION
2.0 Possession. Except as otherwise expressly provided herein (or by
written instrument signed by Landlord or Agent), Landlord shall deliver
possession of the Leased Premises to Tenant on or before the Commencement Date
in their condition as of the execution and delivery hereof, reasonable wear and
tear excepted. If Landlord gives possession prior to the Commencement Date, such
occupancy shall be subject to all the terms and conditions of this Lease (except
that Tenant shall not be required to pay rent, under Section 4.0 hereof, during
such occupancy). If Landlord shall be unable to deliver possession of the Leased
Premises on the Commencement Date by reason of the fact that work required to be
done by Landlord hereunder, if any, has not been completed for any reason,
because a prior tenant has failed to deliver up possession of the Leased
Premises or for any other cause beyond the control of Landlord, Landlord shall
not be subject to any liability for the failure to give possession on said date,
nor shall the validity of this Lease or the obligations of Tenant hereunder be
in any way affected. Under such circumstances, unless the delay is the fault of
Tenant, rent and other charges hereunder shall not commence until the later of
the date possession of the Leased Premises is given or the Commencement Date.
III. PURPOSE
3.0 Purpose. The Leased Premises shall be used and occupied only for the
purpose set forth in Section 1.4(a).
3.1 Uses Prohibited. Tenant will not permit the Leased Premises to be used
in any manner which would render the insurance thereon void or the insurance
risk more hazardous. Tenant shall not use or occupy the Leased Premises, or
permit the Leased Premises to be used or occupied, contrary to any statute,
rule, order, ordinance, requirement or regulation applicable thereto; or in any
manner which would violate any certificate of occupancy affecting the same or
the Declarations of Protective Covenants; or which would cause structural injury
to the improvements; or cause the value or usefulness of the Leased Premises, or
any part thereof, to diminish; or which would constitute a public or private
nuisance or waste.
3.2 Prohibition of Use. If the use of the Leased Premises should at any
time during the Lease term be prohibited by law or ordinance or other
governmental regulation, or prevented by injunction, this Lease shall not be
thereby terminated, nor shall Tenant be entitled by reason thereof to surrender
the Leased Premises or to any abatement or reduction in rent, nor shall the
respective obligations of the parties hereto be otherwise affected.
3.3 Environmental Matters. In the event Tenant shall conduct or authorize
the generation, transportation, storage, treatment, or disposal at the Leased
Premises of any substance regulated under the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, the Superfund Amendments and Reauthorization Act of 1986, the
Federal Water Pollution Control Act and all other federal, state, and local laws
relating to pollution or protection of the environment, including, without
limitation, laws relating to emissions, discharges, releases,
2
<PAGE>
or threatened releases of industrial, toxic, or hazardous substances or wastes
of other pollutants, contaminants, petroleum products or chemicals (collectively
"Hazardous Substances") into the environment (including, without limitation,
ambient air, surface water, ground water, land surface, or subsurface strata) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of Hazardous Substances (the
"Environmental Laws"):
(a) Tenant shall, at its own cost, comply with all Environmental
Laws.
(b) Tenant shall promptly provide Landlord with copies of all
communications, permits, or agreements with any governmental authority or
agency (federal, state, or local) or any private entity relating in any
way to the presence, release, threat of release, placement on or in the
Leased Premises, or the generation, transportation, storage, treatment, or
disposal at the Leased Premises, of any Hazardous Substance.
(c) Landlord and Landlord's agents and employees shall have the
right to enter the Leased Premises and/or conduct appropriate tests for
the purposes of ascertaining that Tenant complies with all Environmental
Laws relating in any way to the presence of Hazardous Substances on the
Leased Premises.
(d) Upon written request by Landlord, Tenant shall provide Landlord
with the results of appropriate tests of air, water, or soil to
demonstrate that Tenant complies with all Environmental Laws relating in
any way to the presence of Hazardous Substances on the Leased Premises.
If, as a result of Tenant's action, or the actions of Tenant's agents,
employees, guests, invitees, or independent contractors, the presence, release,
threat of release, placement on or in the Leased Premises, or the generation,
transportation, storage, treatment, or disposal at the Leased Premises of any
Hazardous Substance: (i) gives rise to liability (including, but not limited to,
a response action, remedial action, or removal action) under RCRA, CERCLA, the
IEPA, or any common law theory based on nuisance or strict liability, (ii)
causes a significant public health effect, or (iii) pollutes or threatens to
pollute the environment, Tenant shall promptly take any and all remedial and
removal action necessary to clean up the Leased Premises and mitigate exposure
to liability arising from the Hazardous Substance, whether or not required by
law.
Tenant hereby represents that the intended operation of Tenant's business
on the Leased Premises is not currently subject to reporting under Section 312
of the Federal Emergency Planning and Community Right-to-Know Act of 1986, and
federal regulations promulgated thereunder, and in the event Tenant's business
at any time becomes subject to the afore-described Act and regulations Tenant
shall fully comply therewith and shall promptly provide Landlord with copies of
all reporting materials filed or submitted under such Act and regulations.
Tenant shall indemnify, defend, and hold Landlord harmless from all
damages, costs, losses, expenses (including, but not limited to, actual
attorneys' fees and engineering fees) arising from or attributable to any breach
by Tenant of any of the provisions of this Section. Tenant's obligations
hereunder shall survive the termination of this Lease.
IV. RENT
4.0 Rent. Beginning with the Commencement Date, and subject to (a) and (b)
below, Tenant shall pay to, or upon the order of Payee at Payee's Address, until
otherwise notified in writing by Landlord, as rent for the Leased Premises, the
annual rental set forth in Section 1.4(b) payable monthly in advance in
installments as set forth in Section 1.4(b). If Tenant occupies the Leased
Premises for the purpose of conducting business therein prior to the
Commencement Date, Tenant shall pay rent on a pro rata basis from the date of
occupancy to the Commencement Date. All payments of rent shall be made without
deduction, set off, discount or abatement in lawful money of the United States.
(a) Subject to (b) below, Tenant shall receive a credit against the
Rent payable by Tenant for the Leased Premises of $15,297.78
3
<PAGE>
("Rent Credit"). The Rent Credit shall be applied to the Rent for the
Leased Premises due and owing after the Commencement Date until exhausted.
(b) Tenant shall be entitled to the Rent Credit only if no default
occurs under the Lease prior to full application of the credit. If this
Lease or Tenant's possession of the Leased Premises is terminated by
reason of a default, all unused Rent Credit shall be cancelled, and Tenant
shall immediately pay to Landlord the portion of the credit previously
applied.
4.1 Interest on Late Payments. Each and every installment of rent and,
each and every payment of other charges hereunder which shall not be paid when
due, shall bear interest from the date when the same is payable under the terms
of this Lease until the same shall be paid at an annual rate equal to eighteen
per cent (18%) per annum unless a lesser rate shall then be the maximum rate
permissible by law with respect thereto, in which event said lesser rate shall
be charged.
4.2 Returned Checks. Tenant shall pay to Landlord as additional rent the
sum of Twenty-Five Dollars ($25.00) for each check returned to Landlord for any
reason including, but not limited to, nonsufficient funds, nonexistent or closed
account, or nonnegotiability.
V. IMPOSITIONS
5.0 Payment by Tenant. Tenant shall pay to Landlord, as additional rent
hereunder, for each calendar year all or any part of which falls within the term
of the Lease ("Adjustment Year"), Tenant's Pro Rata Share of the amount by which
the Impositions for such Adjustment Year exceeds the Base Impositions
("Imposition Adjustment"). Tenant shall make payments ("Estimated Payment") on
account of the Imposition Adjustment effective as of the first day of the term
of this Lease and of the first day of each subsequent Adjustment Year as
follows:
(a) Landlord may, prior to each Adjustment Year or from time to time
during the Adjustment Year, deliver to Tenant a written notice or notices
("Projection Notice") setting forth Landlord's reasonable estimate of the
Impositions for such Adjustment Year and Tenant's Estimated Payments for
such Adjustment Year.
(b) Until such time as Landlord notifies Tenant of the Estimated
Payments for an Adjustment Year, Tenant shall, at the time of each payment
of monthly installment of annual rental, pay to Landlord a monthly
installment of Estimated Payments equal to the greater of the latest
monthly installment of Estimated Payments or one-twelfth (1/12) of
Tenant's latest determined Imposition Adjustment. On or before the first
day of the next calendar month following Landlord's notice, and on or
before the first day of each month thereafter, Tenant shall pay to
Landlord one-twelfth (1/12) of the Estimated Payment shown in Landlord's
notice. Within fifteen (15) days following receipt of Landlord's notice,
Tenant shall also pay Landlord a lump sum equal to the Estimated Payment
shown in the Projection Notice less (1) any previous payments on account
of Estimated Payments made during such Adjustment Year and (2) monthly
installments on account of Estimated Payments due for the remainder of
such Adjustment Year.
(c) After Landlord shall have determined the actual amount of
Impositions for such Adjustment Year, Landlord shall notify Tenant in
writing ("Landlord's Statement") of such Impositions for such Adjustment
Year. If the Imposition Adjustment owed for such Adjustment Year exceeds
the Estimated Payments paid by Tenant for such Adjustment Year, then
within ten (10) days after receipt of Landlord's Statement, Tenant shall
pay to Landlord an amount equal to the excess of the Imposition Adjustment
over the Estimated Payments paid by Tenant for such Adjustment Year. If
such Estimated Payments exceed the Imposition Adjustment owed for such
Adjustment Year, then Landlord shall refund the difference to Tenant
within fifteen (15) days after delivery of Landlord's Statement.
(d) If the term of this Lease commences on any day other
4
<PAGE>
than the first day of an Adjustment Year or ends on any day other than the
last day of an Adjustment Year as the case may be, the Imposition
Adjustment for such year payable by Tenant shall be prorated based on the
number of days in such Adjustment Year included in the term of this Lease.
(e) No interest shall accrue or be payable with respect to Estimated
Payments.
5.1 Definition of Impositions. As used herein, the term "Impositions"
shall mean all taxes and assessments, general and special, water rates and all
other impositions, ordinary and extraordinary, of every kind and nature
whatsoever, which may be levied, assessed or imposed upon the Real Estate, or
any part thereof, or upon any improvements at any time situated thereon,
including, without limitation, any assessment by The Corporate Woods
Association, the association of owners of property in The Corporate Woods.
Impositions shall also include fees and costs incurred by Landlord for the
purpose of contesting or protesting tax assessments or rates. If at any time
during the term of this Lease the method of taxation prevailing at the
commencement of the term hereof shall be altered so that any new tax,
assessment, levy, imposition or charge, or any part thereof, shall be measured
by or be based in whole or in part upon the Lease, the Real Estate or Leased
Premises, or the rent, additional rent or other income therefrom and shall be
imposed upon the Landlord, then all such taxes, assessments, levies, impositions
or charges, or the part thereof, to the extent that they are so measured or
based, shall be deemed to be included within the term Impositions for the
purposes hereof, to the extent that such Impositions would be payable if the
Real Estate were the only property of Landlord subject to such Impositions.
There shall be excluded from Impositions all federal income taxes, federal
excess profit taxes, franchise, capital stock and federal or state estate or
inheritance taxes of Landlord. All references herein to Impositions "for" a
particular year shall be deemed to refer to the Impositions levied, assessed or
otherwise imposed for such year without regard to when such Impositions are
payable.
VI. INSURANCE
6.0 Kinds and Amounts. As additional rent for the Leased Premises, Tenant
shall procure and maintain policies of insurance, at its own cost and expense,
insuring:
(a) Landlord and Tenant from all claims, demands or actions for
injury to or death of any person in an amount of not less than
$1,000,000.00, for injury to or death of more than one person in any one
occurrence to the limit of $2,000,000.00, and for damage to property in
amount of not less than $500,000.00 made by, or on behalf of, any person
or persons, firm or corporation arising from, related to or connected with
the Leased Premises. Said insurance shall comprehend full coverage of the
indemnity set forth in Section 13.0 hereto;
(b) Tenant from all workmen's compensation claims;
(c) Landlord and Tenant against breakage of all plate glass utilized
in the improvements on the Leased Premises;
(d) All contents and Tenant's trade fixtures, machinery, equipment,
furniture and furnishings in the Leased Premises to the extent of at least
ninety percent (90%) of their replacement cost under standard fire and
extended coverage insurance, including, without limitation, vandalism and
malicious mischief and sprinkler leakage endorsements.
6.1 Form of Insurance. The aforesaid insurance shall be in companies and
in form, substance and amount (where not stated above) satisfactory to Landlord
and any mortgagee of Landlord, and shall contain standard mortgage clauses
satisfactory to Landlord's mortgagee. The aforesaid insurance may be furnished
under a blanket policy, if, and only if, said blanket policy contains an
endorsement that references the Leased Premises and guarantees a minimum limit
available for the Leased Premises equal to the amounts required under Section
6.0 above. The aforesaid insurance shall not be subject to cancellation except
after at least thirty (30) days' prior written notice to Landlord and any
mortgagee of
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Landlord. The original insurance policies (or certificates thereof satisfactory
to Landlord) together with satisfactory evidence of payment of the premiums
thereon, shall be deposited with Landlord at the Commencement Date and renewals
thereof not less than thirty (30) days prior to the end of the term of each such
coverage. If Landlord is an Illinois Land Trustee the insurance referred to in
subsection 6.0(a), (b) and (d) hereof shall also insure the beneficiary or
beneficiaries thereof.
6.2 Mutual Waiver of Subrogation Rights. Whenever (a) any loss, cost,
damage or expense resulting from fire, explosion or any other casualty or
occurrence is incurred by either of the parties to this Lease, or anyone
claiming by, through or under it, in connection with the Leased Premises, and
(b) such party is then covered in whole or in part by insurance with respect to
such loss, cost, damage or expense, or is required under this Lease to be so
insured, then the party so insured (or so required) hereby releases the other
party from any liability said other party may have on account of such loss,
cost, damage or expense to the extent of any amount recovered by reason of such
insurance (or which could have been recovered had such insurance been carried as
so required) and waives any right of subrogation which might otherwise exist in
or accrue to any person on account thereof. If the party released from liability
hereunder is the Landlord, and if Landlord is an Illinois land trust, the term
"Landlord" for the purpose of this Section 6.2 only, shall include the Trustee,
its agents, its beneficiary or beneficiaries and their agents.
6.3 Excess Insurance Premiums. Tenant shall pay to Landlord, as additional
rent for the Leased Premises, Tenant's Pro Rata Share of any excess in premiums
for casualty, rent loss and all liability insurance (with all endorsements) paid
annually by Landlord with respect to the Real Estate during the Lease term over
the Base Insurance Premium. Tenant shall be obligated to pay its Pro Rata Share
of only those annual premiums which relate to insurance coverage during the term
of this Lease. Tenant's Pro Rata Share of such excess premiums shall be paid by
Tenant to Landlord within ten (10) days after Landlord bills Tenant therefor,
or, at Landlord's election, in monthly installments in amounts estimated by
Landlord. If Landlord bills Tenant based on estimates, the amount payable by
Tenant shall be adjusted when the actual premium amount is determined.
6.4 Fire Protection. Tenant shall conform with all applicable fire codes
of any governmental authority, and with the rules and regulations of Landlord's
fire underwriters and their fire protection engineers, including, without
limitation, the installation of adequate fire extinguishers. If a Monitoring
Service Charge is provided in Section 1.4(h), then Landlord is providing a
sprinkler monitoring system with a direct connection to the local fire
department or monitoring service and Tenant shall pay to Landlord a monthly
Monitoring Service Charge to reimburse Landlord for the cost of the operation
and maintenance thereof. Said monthly Monitoring Service charge shall be
determined by Landlord based on Tenant's Pro Rata Share of the cost of operating
and maintaining the system and shall be paid by Tenant to Landlord within ten
(10) days after Landlord bills Tenant therefor. If there is no Monitoring
Service Charge provided in Section 1.4(h) and if the Leased Premises are served
by a sprinkler system, then Tenant shall, at its sole cost and expense, install
a sprinkler monitoring system with direct connection to the local fire
department or a monitoring service approved by Landlord and maintain the same in
effect at all times during the entire Lease term.
VII. DAMAGE OR DESTRUCTION
7.0 Landlord's Obligation to Rebuild. In the event the Leased Premises are
damaged by fire, explosion or other casualty, Landlord shall commence the
repair, restoration or rebuilding thereof within sixty (60) days after such
damage and shall complete such restoration, repair or rebuilding within one
hundred fifty (150) days after the commencement thereof, provided that if
construction is delayed because of changes, deletions, or additions in
construction requested by Tenant, strikes, lockouts, casualties, acts of God,
war, material or labor shortages, governmental regulation or control or other
causes beyond the control of Landlord, the period for restoration, repair or
rebuilding shall be extended for the amount of time Landlord is so delayed. If
the casualty or the repair, restoration or rebuilding caused thereby shall
render the Leased Premises untenantable, in whole or in part, an equitable
abatement in
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rent shall be allowed from the date when the damage occurred until the date on
which the Leased Premises are again fit for occupancy by Tenant. If such a fire,
explosion or other casualty damages the building in which the Leased Premises
are located to the extent of fifty percent (50%) or more thereof, Landlord may,
in lieu of repairing, restoring or rebuilding the same, terminate this Lease
within sixty (60) days after occurrence of the event causing the damage. In such
event, the obligation of Tenant to pay rent and other charges hereunder shall
end as of the date when the damage occurred. In the event Landlord's fire and
extended coverage insurance provides for a "deductible" and a loss occurs which
is the kind of risk otherwise insured under the policy, then Tenant shall pay to
Landlord, promptly upon being billed therefor, the lesser of (a) the amount of
the loss or (b) the amount of the deductible.
VIII. CONDEMNATION
8.0 Taking of Whole. If the whole of the Leased Premises shall be taken or
condemned for a public or quasi-public use or purpose by a competent authority,
or if such a portion of the Leased Premises shall be so taken that as a result
thereof the balance cannot be used for the same purpose and with substantially
the same utility to Tenant as immediately prior to such taking, then in either
of such events, the Lease term shall terminate upon delivery of possession to
the condemning authority, and any award, compensation or damages (hereinafter
sometimes called the "award") shall be paid to and be the sole property of
Landlord whether the award shall be made as compensation for diminution of the
value of the leasehold estate or the fee of the Real Estate or otherwise and
Tenant hereby assigns to Landlord all of Tenant's right, title and interest in
and to any and all such award. Tenant shall continue to pay rent and other
charges hereunder until the Lease term is terminated and any excess Impositions
and excess premiums prepaid by Tenant, or which accrue prior to the termination,
shall be adjusted between the parties.
8.1 Partial Taking. If only a part of the Leased Premises shall be so
taken or condemned, but the balance of the Leased Premises can still be used for
the same purpose and with substantially the same utility to Tenant as
immediately prior to such taking, this Lease shall not terminate and Landlord
shall repair and restore the Leased Premises and all improvements thereon,
except that Landlord shall not hereby be required to expend for repair and
restoration any sum in excess of the Award. Any portion of the Award which has
not been expended by Landlord for such repairing or restoration shall be
retained by Landlord as Landlord's sole property. The rent shall be equitably
abated following delivery of possession to the condemning body. If fifty percent
(50%) or more of the building within which the Leased Premises are located shall
be so taken or condemned, Landlord may terminate this Lease by giving written
notice thereof to Tenant within sixty (60) days after such taking. In such
event, the award shall be paid to or be the sole property of Landlord.
IX. MAINTENANCE AND ALTERATIONS
9.0 Landlord's Maintenance.
(a) Landlord shall, at its sole cost and expense, keep and maintain
the roof and exterior walls (but not exterior windows and doors and their
frames) of the building of which the Leased Premises are a part, in good
order and repair, except for loss by fire or other casualty, which loss is
covered by Article VII of this Lease.
(b) Landlord shall perform all exterior painting (at such intervals
as Landlord deems appropriate) and shall remove snow accumulations from
the roof (if deemed necessary by Landlord), and from the parking lot, and
shall perform necessary maintenance, repairs and replacements to the
exterior windows and doors and their frames and on portions of the Real
Estate and the improvements and mechanical equipment thereon (including
the parking lot and landscaping) used in common by the tenants thereof.
Except as provided in subsection 9.0(a) and in Article VII hereof, Tenant
shall pay to Landlord Tenant's Pro Rata Share of the cost and expense
incurred by Landlord in fulfilling its obligations under this subsection
9.0(b). Such payment shall be additional rent hereunder and shall be paid
to Landlord within ten (10) days after Landlord bills
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Tenant therefor or, at Landlord's election, in monthly installments in
amounts estimated by Landlord.
(c) Landlord shall repair or replace any damage to the Real Estate,
including, without limitation, damage to the roof, landscaping, or
exterior of the building of which the Leased Premises are a part, and to
truck dock doors caused by or resulting from any act or omission or
negligence of Tenant, its agents, employees, contractors, customers and
invitees. Tenant shall reimburse Landlord for Landlord's costs and
expenses incurred for repairs or replacements made pursuant to this
subsection 9.0(c), within ten (10) days after Landlord bills Tenant
therefor.
9.1 Tenant's Maintenance.
(a) Tenant shall keep and maintain the entire interior of the Leased
Premises and the portion of the exterior not to be maintained by Landlord
pursuant to Section 9.0, roof-mounted mechanical equipment used in
connection with the Leased Premises, pipes and conduits below the floor of
the Leased Premises, and windows on the interior and exterior of the
Leased Premises clean and sanitary and in good condition and repair,
including, without limitation, any necessary replacements, and further
including, without limitation, carpet cleaning at least once each year,
necessary interior painting, and maintaining and repairing of exterior
doors in conformity with other exterior doors of the building or buildings
on the Real Estate. Tenant shall, to the extent possible, keep the Leased
Premises from falling temporarily out of repair or deteriorating. Tenant
shall fully comply with all health, safety and police regulations in
force. Tenant shall promptly remove any debris left by Tenant, its
employees, agents, contractors, or invitees in the parking area or other
exterior areas of the Real Estate.
(b) At all times during the term of this Lease, Tenant shall be
responsible for the expense of that portion of Landlord's maintenance
contract allocable to the equipment in the Leased Premises, which provides
for inspection at least once each calendar quarter of the heating, air
conditioning and ventilating equipment, and provides for necessary repairs
thereto. Said inspection and repairs shall encompass the following work:
1. Check performance of all major components.
2. Lubricate moving parts as required.
3. Check refrigerant charges (during cooling season).
4. Inspect for oil and refrigerant leaks.
5. Check operating and safety controls.
6. Check pressures and temperatures.
7. Inspect condensers.
8. Inspect fans, motors and starters.
9. Tighten electrical connections at equipment.
10. Test amperages and voltages.
11. Check belts and drives.
12. Change oil and filters, or dryers, as required.
13. Check temperature on control system.
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9.2 Alterations. Tenant shall make all additions, improvements and
alterations (hereinafter "Alterations") on the Leased Premises, and on and to
the appurtenances and equipment thereof, required by any governmental authority
or which may be made necessary by the act or neglect of any persons, firm or
corporation, public or private. Except as provided in the immediately preceding
sentence, Tenant shall not create any openings in the roof or exterior walls, or
make any other Alterations to the Leased Premises without Landlord's prior
written consent, which consent Landlord may, in its discretion, withhold. As to
any Alterations which Tenant is required hereunder to perform or to which
Landlord consents, such work shall be performed strictly in accordance with
plans and specifications therefor first approved in writing by Landlord or, at
Landlord's option (exercised by notice in writing from Landlord to Tenant given
within ten (10) days after Landlord receives Tenant's plans and specifications),
such work shall be performed by employees of or contractors employed by
Landlord, at Tenant's expense. Upon completion of any Alterations by or on
behalf of Tenant, Tenant shall provide Landlord with such documents as Landlord
may require (including, without limitation, sworn contractors' statements and
supporting lien waivers) evidencing payment in full for such work. In the event
Tenant makes any Alterations not in compliance with the provisions of this
Section 9.2, Tenant shall, upon written notice from Landlord, immediately remove
such Alterations and restore the Leased Premises to their condition immediately
prior to the making thereof. If Tenant fails so to remove such Alterations and
restore the Leased Premises as aforesaid, Landlord may, at its option, and in
addition to all other rights or remedies of Landlord under this Lease, at law or
in equity, enter the Leased Premises and perform said obligation of Tenant and
Tenant shall reimburse Landlord for the cost to the Landlord thereof,
immediately upon being billed therefor by Landlord. Such entry by Landlord shall
not be deemed an eviction or disturbance of Tenant's use or possession of the
Leased Premises nor render Landlord liable in any manner to Tenant.
X. LIENS AND ENCUMBRANCES
10.0 Encumbering Title. Tenant shall not do any act which shall in any way
encumber the title of Landlord in and to the Leased Premises or the Real Estate,
nor shall the interest or estate of Landlord in the Leased Premises or the Real
Estate be in any way subject to any claim by way of lien or encumbrance, whether
by operation of law or by virtue of any express or implied contract by Tenant.
Any claim to, or lien upon, the Leased Premises or Real Estate arising from any
act or omission of Tenant shall accrue only against the leasehold estate of
Tenant and shall be subject and subordinate to the paramount title and rights of
Landlord in and to the Leased Premises and the Real Estate.
10.1 Liens and Right to Contest. Tenant shall not permit the Leased
Premises or the Real Estate to become subject to any mechanics', laborers' or
materialmen's lien on account of labor or material furnished to Tenant or
claimed to have been furnished to Tenant in connection with work of any
character performed or claimed to have been performed on the Leased Premises by,
or at the direction or sufferance of, Tenant; provided, however, that Tenant
shall have the right to contest in good faith and with reasonable diligence, the
validity of any such lien or claimed lien if Tenant shall give to Landlord such
security as may be deemed satisfactory to Landlord to insure payment thereof and
to prevent any sale, foreclosure, or forfeiture of the Leased Premises or the
Real Estate by reason of non-payment thereof; provided further, however, that on
final determination of the lien or claim for lien, Tenant shall immediately pay
any judgment rendered, with all proper costs and charges, and shall have the
lien released and any judgment satisfied.
XI. ASSIGNMENT AND SUBLETTING
11.0 Consent Required. Tenant shall not, without Landlord's prior written
consent, (a) assign, convey or mortgage this Lease or any interest under it; (b)
allow any transfer thereof or any lien upon Tenant's interest by operation of
law; (c) sublet the Leased Premises or any part thereof; or (d) permit the use
or occupancy of the Leased Premises or any part thereof by anyone other than
Tenant. Landlord agrees that it will not unreasonably withhold its consent to
any assignment or sublease, provided that if Tenant requests Landlord's consent
to a sublease or to an assignment of all or a substantial portion of the entire
Leased Premises, Landlord may, in lieu of granting such
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consent or reasonably withholding the same, terminate this Lease, effective on
the commencement date specified in the sublease or on the effective date of said
assignment, as the case may be, to which Landlord's consent was requested. No
permitted assignment or subletting shall relieve Tenant of Tenant's covenants
and agreements hereunder and Tenant shall continue to be liable as a principal
and not as a guarantor or surety, to the same extent as though no assignment or
subletting had been made.
11.1 Merger or Consolidation. Tenant may, without Landlord's consent,
assign this Lease to any corporation resulting from a merger or consolidation of
the Tenant upon the following conditions: (a) that the total assets and net
worth of such assignee after such consolidation or merger shall be equal to or
more than that of Tenant immediately prior to such consolidation or merger; (b)
that Tenant is not at such time in default hereunder; and (c) that such
successor shall execute an instrument in writing fully assuming all of the
obligations and liabilities imposed upon Tenant hereunder and deliver the same
to Landlord. If the aforesaid conditions are satisfied, Tenant shall be
discharged from any further liability hereunder.
11.2 Voting Control of Tenant. If Tenant is a corporation, the shares of
which, at the time of execution of this Lease or during the term hereof are or
shall be held by fewer than one hundred (100) persons, and if at any time during
the term of this Lease the persons, firms or corporations who own a majority or
controlling number of its shares at the time of the execution of this Lease or
following Landlord's consent to a transfer of such shares cease to own such
shares (except as a result of transfer by bequest or inheritance) and such
cessation shall not. first have been approved in writing by Landlord, then such
cessation shall, at the option of Landlord, be deemed a default by Tenant under
this Lease.
11.3 Other Transfer of Lease. Tenant shall not allow or permit any
transfer of this Lease, or any interest hereunder, by operation of law, or
convey, mortgage, pledge, or encumber this Lease or any interest herein.
XII. UTILITIES
12.0 Utilities.
(a) Tenant shall purchase all utility services, including but not
limited to fuel and electricity, but excluding water and sewerage, from
the utility or municipality providing such service, and shall pay for such
services when such payments are due. If subsection 1.4(i) provides for a
water and sewerage charge, then Tenant shall pay to Landlord within ten
(10) days after receipt of a bill therefore, as additional rent hereunder,
Tenant's Pro Rata Share of Landlord's payments to the utility or
municipality for water or sewerage services. If subsection 1.4(i) does not
provide for the Water and Sewerage Charge, then Tenant shall purchase
water and sewerage from the utility and municipality providing such
services, and pay for such services when such payments are due.
(b) Tenant shall pay to Landlord, as additional rent for the Leased
Premises, Tenant's Pro Rata Share of the charges, if any, for utilities
used for areas of common use by the Tenants on the Real Estate. Such
charges shall be paid by Tenant to Landlord within ten (10) days after
Landlord bills Tenant therefor, or, at Landlord's election, in monthly
installments in amounts estimated by Landlord.
XIII. INDEMNITY AND WAIVER
13.0 Indemnity. Tenant will protect, indemnify and save harmless Landlord
and Landlord's agents (and Landlord's beneficiary or beneficiaries and their
agents if Landlord is an Illinois Land Trustee) from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including without limitation, reasonable attorneys' fees and
expenses) imposed upon or incurred by or asserted against Landlord by reason of
(a) any accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Premises or resulting from any act or omission
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of Tenant or anyone claiming by, through or under Tenant; (b) any failure on the
part of Tenant to perform or comply with any of the terms of this Lease; or (c)
performance of any labor or services or the furnishing of any materials or other
property in respect of the Leased Premises or any part thereof. If any action,
suit or proceeding is brought against Landlord and/or Landlord's agents (and/or
Landlord's beneficiary or beneficiaries or their agents if Landlord is an
Illinois Land Trustee) by reason of any such occurrence, Tenant will, at
Tenant's expense, resist and defend such action, suit or proceeding, or cause
the same to be resisted and defended by counsel approved by Landlord.
13.1 Waiver of Certain Claims. Tenant waives all claims it may have
against Landlord and Landlord's agents (and Landlord's beneficiary or
beneficiaries and their agents if Landlord is an Illinois Land Trustee) for
damage or injury to person or property sustained by Tenant or any persons
claiming through Tenant or by any occupant of the Leased Premises, or by any
other person, resulting from any part of the Real Estate or any of its
improvements, equipment or appurtenances becoming out or repair, or resulting
from any accident on or about the Real Estate or resulting directly or
indirectly from any act or neglect of any tenant or occupant of any part of the
Real Estate or of any other person, excluding Landlord. This Section 13.1 shall
include, but not by way of limitation, damage cause by water, snow, frost,
steam, excessive heat or cold sewage, gas, odors, or noise, or caused by
bursting or leaking of pipes or plumbing fixtures, and shall apply equally
whether any such damage results from the act or neglect of Tenant or of other
tenants, or occupants or any part of the Real Estate or of any other person,
excluding Landlord, and whether such damage be caused by or result from any
thing or circumstance above mentioned or referred to, or to any other thing or
circumstance whether of a like nature or of a wholly different nature. All
personal property belonging to Tenant or any occupant of the Leased Premises
that is in or on any part of the Real Estate shall be there at the risk of
Tenant or of such other person only, and Landlord shall not be liable for any
damage thereto or for the theft or misappropriation thereof.
XIV. RIGHTS RESERVED TO LANDLORD
14.0 Rights Reserved to Landlord. Without limiting any other rights
reserved or available to Landlord under this Lease, at law or in equity,
Landlord, on behalf of itself and Agent reserves the following rights to be
exercised at Landlord's election:
(a) To change the street address of the Leased Premises;
(b) To inspect the Leased Premises and to make repairs, additions or
alterations to the Leased Premises or the building of which the Leased
Premises are a part, which Tenant may neglect or refuse to make in
accordance with the covenants and agreements of this Lease, and,
specifically including, but without limiting the generality of the
foregoing, to make repairs, additions or alterations within the Leased
Premises to mechanical, electrical, and other facilities serving other
premises in the building of which the Leased Premises are a part or other
parts of the Real Estate;
(c) To show the Leased Premises to prospective purchasers,
mortgagees, or other persons having a legitimate interest in viewing the
same, and, at any time within one (1) year prior to the expiration of the
Lease term, to persons wishing to rent the Leased Premises;
(d) During the last year of the Lease term, to place and maintain
the usual "For Rent" sign in or on the Leased Premises or the Real Estate;
(e) During the last ninety (90) days of the Lease term, if during or
prior to that time Tenant vacates the Leased Premises, to decorate,
remodel, repair, alter or otherwise prepare the Leased Premises for new
occupancy; and
(f) To place and maintain "For Sale" signs on the Real Estate and on
the exterior of the building of which the Leased Premises are a part.
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Landlord may enter upon the Leased Premises for any and all of said purposes and
may exercise any and all of the foregoing rights hereby reserved, during normal
business hours unless an emergency exists, without being deemed guilty of any
eviction or disturbance of Tenant's use or possession of the Leased Premises,
and without being liable in any manner to Tenant.
XV. QUIET ENJOYMENT
15.0 Quiet Enjoyment. So long as Tenant is not in default under the
covenants and agreements of this Lease, Tenant's quiet and peaceable enjoyment
of the Leased Premises shall not be disturbed or interfered with by Landlord or
by any person claiming by, through or under Landlord.
XVI. SUBORDINATION OR SUPERIORITY
16.0 Subordination or Superiority. The rights and interest of Tenant under
this Lease shall be subject and subordinate to any first mortgage or trust deed
creating a first mortgage that may be placed upon the Leased Premises and to any
and all advances to be made thereunder, and to the interest thereon, and all
renewals, replacements and extensions thereof, if the mortgagee or trustee named
in said mortgages or trust deeds shall elect to subject and subordinate the
rights and interest of Tenant under this Lease to the lien of its mortgage or
deed of trust. Any mortgagee or trustee may elect to give the rights and
interest of Tenant under this Lease priority over the lien of its mortgage or
deed of trust. In the event of either such election and upon notification by
such mortgagee or trustee to Tenant to that effect, the rights and interest of
Tenant under this Lease shall be deemed to be subordinate to, or to have
priority over, as the case may be, the lien of said mortgage or trust deed,
whether this Lease is dated prior to or subsequent to the date of said mortgage
or trust deed. Tenant shall execute and deliver whatever instruments may be
required for such purposes, and in the event Tenant fails so to do within ten
(10) days after demand in writing, Tenant does hereby make, constitute and
irrevocably appoint Landlord as its attorney in fact and in its name, place, and
stead so to do.
XVII. SURRENDER
17.0 Surrender. Upon the termination of this Lease, whether by forfeiture,
lapse of time or otherwise, or upon the termination of Tenant's right to
possession of the Leased Premises, Tenant will at once surrender and deliver up
the Leased Premises, together with all improvements thereon, to Landlord in good
condition and repair, reasonable wear and tear excepted. Said improvements shall
include all plumbing, lighting, electrical, heating, cooling and ventilating
fixtures and equipment and other articles or personal property used in the
operation of the Leased Premises (as distinguished from operations incident to
the business of Tenant), together with all duct work. All additions, hardware,
non-trade fixtures and all improvements, temporary or permanent, in or upon the
Leased Premises placed there by Tenant shall become Landlord's property and
shall remain upon the Leased Premises upon such termination of this Lease by
lapse of time or otherwise, without compensation or allowance or credit to
Tenant, unless Landlord requests their removal in writing at or before the time
of such termination of this Lease. If Landlord so requests removal of said
additions, hardware, non-trade fixtures and all improvements and Tenant does not
make such removal prior to termination of this Lease, or within ten (10) days
after such request, whichever is later, Landlord may remove the same and deliver
the same to any other place of business of Tenant or warehouse the same, and
Tenant shall pay the cost of such removal, delivery and warehousing to Landlord
on demand.
17.1 Removal of Tenant's Property. Upon the termination of this Lease by
lapse of time, Tenant may remove Tenant's trade fixtures and all of Tenant's
personal property and equipment other than such personal property and equipment
as are referred to in Section 17.0; provided, however, that Tenant shall repair
any injury or damage to the Leased Premises which may result from such removals.
If Tenant does not remove Tenant's furniture, machinery, trade fixtures and all
other items of personal property of every kind and description from the Leased
Premises prior to the end of the term, however ended, Landlord may, at its
option, remove the same and deliver the same to any other place of business of
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Tenant or warehouse the same, and Tenant shall pay the cost of such removal
(including the repair of any injury or damage to the Leased Premises resulting
from such removal), delivery and warehousing to Landlord on demand, or Landlord
may treat such property as having been conveyed to Landlord with the Lease as a
Bill of Sale, without further payment or credit by Landlord to Tenant.
17.2 Holding Over. Any holding over by Tenant of the Leased Premises after
the expiration of this Lease shall operate and be construed to be tenancy from
month to month only, at a monthly rental of double the rate of rent payable
hereunder the Lease term, or at the election of Landlord expressed in a written
notice to Tenant, and not otherwise, such holding over shall constitute a
renewal of this Lease for one (1) year at the same rental and upon all of the
other covenants and agreements contained in this Lease. Nothing contained in
this Section 17.2 shall be construed to give Tenant the right to hold over after
the expiration of this Lease, and Landlord may exercise any and all remedies at
law or in equity to recover possession of the Leased Premises.
XVIII. REMEDIES
18.0 Defaults. Tenant further agrees that any one or more of the following
events shall be considered events of default as said term is used herein, that
is to say, if
(a) Tenant shall be adjudged an involuntary bankrupt, or a decree or
order approving, as properly filed, a petition or answer filed against
Tenant asking reorganization of Tenant under the Federal bankruptcy laws
as now or hereafter amended, or under the laws of any State, shall be
entered, and any such decree or judgment or order shall not have been
vacated or stayed or set aside within sixty (60) days from the date of the
entry or granting thereof; or
(b) Tenant shall file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy or any
petition pursuant or purporting to be pursuant to the Federal bankruptcy
laws now or hereafter amended, or Tenant shall institute any proceedings
or shall give its consent to the institution of any proceedings for any
relief of Tenant under any bankruptcy or insolvency laws or any laws
relating to the relief of debtors, readjustment of indebtedness,
reorganization, arrangements, composition or extension; or
(c) Tenant shall make any assignment for the benefit of creditors or
shall apply for or consent to the appointment of a receiver for Tenant or
any of the property of Tenant; or
(d) The Leased Premises are levied upon by any revenue officer or
similar officer; or
(e) A decree or order appointing a receiver of the property of
Tenant shall be made and such decree or order shall not have been vacated,
stayed or set aside within sixty (60) days from the date of entry or
granting thereof; or
(f) Tenant shall vacate the Leased Premises or abandon the same
during the term hereof; or
(g) Tenant shall default in any payment of rent or other charge
required to be paid by Tenant hereunder when due as herein provided and
such default shall continue for five (5) days after notice thereof in
writing to Tenant; or
(h) If Tenant shall fail to contest the validity of any lien or
claimed lien and give security to Landlord to insure payment thereof, or
having commenced to contest the same and having given such security, shall
fail to prosecute such contest with diligence, or shall fail to have the
same released and satisfy any judgment rendered thereon, and such default
continues for five (5) days after notice thereof in writing to Tenant; or
(i) Tenant shall default in keeping, observing or performing
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any of the other covenants or agreements herein contained to be kept,
observed and performed by Tenant, and such defaults shall continue to
thirty (30) days after notice thereof in writing to Tenant; or
(j) Tenant shall repeatedly be late in the payment of rent or other
charges required to be paid hereunder or shall repeatedly default in the
keeping, observing, or performing of any other covenants or agreements
herein contained to be kept, observed or performed by Tenant (provided
notice of such payment or other defaults shall have been given to Tenant,
but whether or not Tenant shall have timely cured any such payment or
other defaults of which notice was given).
Upon the occurrence of any one or more of such events of default, Landlord may
terminate this Lease. Upon termination of this Lease, Landlord may re-enter the
Leased Premises with or without process of law using such force as may be
necessary, and remove all persons, fixtures and chattels therefrom, and Landlord
shall not be liable for any damages resulting therefrom. Such re-entry and
repossession shall not work a forfeiture of the rents or other charges to be
paid and covenants to be performed by Tenant during the full term of this Lease.
Upon such repossession of the Leased Premises, Landlord shall be entitled to
recover as liquidated damages and not as a penalty a sum of money equal to the
value of the rent and other sums provided herein to be paid by Tenant to
Landlord for the remainder of the Lease term, less the fair rental value of the
Leased Premises for said period. Upon the happening of any one or more of the
above-mentioned events Landlord may repossess the Leased Premises by forcible
entry or detainer suit, or otherwise, without demand or notice of any kind to
Tenant (except as hereinabove provided for) and without terminating this Lease,
in which event Landlord may but shall be under no obligation so to do, relet all
or any part of the Leased Premises for such rent and upon such terms as shall be
satisfactory to Landlord (including the right to relet the Leased Premises for a
term greater or lesser than that remaining under the Lease term, and the right
to relet the Leased Premises as a part of a larger area, and the right to change
the character or use made of the Leased Premises). For the purpose of such
reletting, Landlord may decorate or make any repairs, changes, alterations or
additions in or to the Leased Premises that may be necessary or convenient. If
Landlord does not relet the Leased Premises, Tenant shall pay to Landlord on
demand as liquidated damages and not as a penalty a sum equal to the amount of
the rent, and other sums provided herein to be paid by Tenant for the remainder
of the Lease term. If the Leased Premises are relet and sufficient sum shall not
be realized from such reletting after paying all of the expenses of such
decorations, repairs, changes, alterations, additions, reletting and the
collection of the rent accruing therefrom (including, but not by way of
limitation, attorneys' fees and brokers' commissions), to satisfy the rent and
other charges herein provided to be paid for the remainder of the Lease term,
Tenant shall pay to Landlord on demand any deficiency and Tenant agrees that
Landlord may file suit to recover any sums falling due under the terms of this
Section from time to time. If default shall be made in any covenant, agreement,
condition or undertaking herein contained to be kept, observed and performed by
Tenant, other than the making of any payments as herein provided, which cannot
with due diligence be cured within a period of thirty (30) days, and if notice
thereof in writing shall have been given to Tenant, and if Tenant, prior to the
expiration of thirty (30) days from and after the giving of such notice,
commences to eliminate the cause of such default and proceeds diligently and
with reasonable dispatch to take all steps and do all work required to cure such
default and does so cure such default, then Landlord shall not have the right to
declare and said term ended by reason of such default or to repossess without
terminating the Lease, provided, however, that the curing of any default in such
manner shall not be construed to limit or restrict the right of Landlord to
declare the said term ended or to repossess without terminating the Lease, and
to enforce all of its rights and remedies hereunder for any other default not so
cured.
18.1 Remedies Cumulative. No remedy herein or otherwise conferred upon or
reserved to Landlord shall be considered to exclude or suspend any other remedy
but the same shall be cumulative and shall be in addition to every other remedy
given hereunder, or now or hereafter existing at law or in equity or by statute,
and every power and remedy given by this Lease to Landlord may be exercised from
time to time and so often as occasion may arise or as may be deemed expedient.
18.2 No Waiver. No delay or omission of Landlord to exercise any right
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or power arising from any default shall impair any such right or power or be
construed to be a waiver of any such default or any acquiescence therein. No
waiver of any breach of any of the covenants of this Lease shall be construed,
taken or held to be a waiver of any other breach or waiver, acquiescence in or
consent to any further or succeeding breach of the same covenant. The acceptance
by Landlord of any payment of rent or other charges hereunder after the
termination by Landlord of this Lease or of Tenant's right to possession
hereunder shall not, in the absence of agreement in writing to the contrary by
Landlord, be deemed to restore this Lease or Tenant's right to possession
hereunder, as the case may be, but shall be construed as a payment on account,
and not in satisfaction of damages due from Tenant to Landlord.
18.3 Default under Other Leases. A default in this Lease, or in any other
lease made by Tenant for any premises on the Real Estate shall, at the option of
the Landlord, be deemed a default under this Lease, the other lease or both
leases.
XIX. SECURITY DEPOSIT
19.0 Security Deposit. Subject to the terms of Section 22.00 in the
Addendum attached hereto, to secure the faithful performance by Tenant of all
the covenants, conditions, and agreements in this Lease set forth and contained
on the part of the Tenant to be fulfilled, kept, observed and performed,
including, but without limiting the generality of the foregoing, such covenants,
conditions and agreements in this Lease which become applicable upon the
expiration or termination of the same or upon termination of Tenant's right to
possession pursuant to Section 18.0 of the Lease, Tenant has deposited herewith
the Security Deposit with Agent on the understanding: (a) that the Security
Deposit or any portion thereof not previously applied, or from time to time such
other portions thereof, may be applied to the curing of any default that may
then exist, without prejudice to any other remedy or remedies which the Landlord
may have on account thereof, and upon such application Tenant shall pay Agent on
demand the amount so applied which shall be added to the Security Deposit so the
same may be restored to its original amount; (b) that should the Leased Premises
be conveyed by Landlord or should Agent cease to be the agent of the beneficiary
or beneficiaries of Landlord, the Security Deposit or any portion thereof not
previously applied may be turned over to Landlord's grantee or the new agent, as
the case may be, and if the same be turned over as aforesaid, the Tenant hereby
releases Landlord and Agent from any and all liability with respect to the
Security Deposit and/or its application or return, and the Tenant agrees to look
to such grantee or agent, as the case may be, for such application or return;
(c) that Landlord shall have no personal liability with respect to said sum and
Tenant shall look exclusively to Agent or its successors pursuant to subsection
(b) hereof for return of said sum on the expiration of this Lease; (d) that
Agent or its successor shall not be obligated to hold said Security Deposit as a
separate fund, but on the contrary may commingle the same with its other funds;
(e) that if Tenant shall faithfully fulfill, keep, perform and observe all of
the covenants, conditions, and agreements in this Lease set forth and contained
on the part of the Tenant to be fulfilled, kept, performed and observed, the sum
deposited or the part or portion thereof not previously applied shall be
returned to the Tenant without interest no later than thirty (30) days after the
expiration of the term of this Lease or any renewal or extension thereof,
provided Tenant has vacated the Leased Premises and surrendered possession
thereof to the Landlord at the expiration of said term or any extension or
renewal thereof as provided herein and Tenant has paid all amounts due or to
become due under this Lease; (f) in the event that Landlord terminates the Lease
or Tenant's right to possession pursuant to Section 18.0 of this Lease, Agent
may apply the Security Deposit against all damages suffered to the date of such
termination and/or may retain the Security Deposit to apply against such damages
as may be suffered or shall accrue thereafter by reason of Tenant's default; and
(g) in the event any bankruptcy, insolvency, reorganization or other
credit-debtor proceedings shall be instituted by or against Tenant, or its
successors or assigns, the Security Deposit shall be deemed to be applied first
to the payment of any rents and/or other charges due Landlord for all periods
prior to the institution of such proceedings, and the balance, if any, of the
Security Deposit may be retained or paid to Landlord in partial liquidation of
Landlord's damages.
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XX. MISCELLANEOUS
20.0 Tenant's Statement. Tenant shall furnish Landlord annually within
ninety (90) days after the end of each of Tenant's fiscal years a copy of its
annual audited and certified statement. It is mutually agreed that Landlord may
deliver a copy of such statements to its mortgagee or any prospective purchaser
of the Real Estate, but otherwise Landlord shall treat such statements and
information contained therein as confidential.
20.1 Estoppel Certificates. Tenant shall at any time and from time to time
upon not less than ten (10) days prior written request from Landlord execute,
acknowledge and deliver to Landlord, in form reasonably satisfactory to Landlord
and/or Landlord's mortgagee, a written statement certifying that Tenant has
accepted the Leased Premises, that this Lease is unmodified and in full force
and effect (of if there have been modifications, that the same is in full force
and effect as modified and stating the modifications), that the Landlord is not
in default hereunder, the date to which the rental and other charges have been
paid in advance, if any, or such other accurate certification as may reasonably
be required by Landlord or Landlord's mortgagee, and agreeing to give copies to
any mortgagee of Landlord of all notices by Tenant to Landlord. It is intended
that any such statement delivered pursuant to this Section may be relied upon by
any prospective purchaser of the Leased Premises or Real Estate, mortgagee of
the Leased Premises or Real Estate and their respective successors and assigns.
20.2 Landlord's Right to Cure. Landlord may, but shall not be obligated
to, cure any default by Tenant specifically including, but not only by way of
limitation, Tenant's failure to pay Impositions, obtain insurance, make repairs,
or satisfy lien claims, after complying with the notice provisions established
in Article XVIII; and whenever Landlord so elects, all costs and expenses paid
by Landlord in curing such default, including without limitation reasonable
attorneys' fees, shall be so much additional rent due on the next rent date
after such payment together with interest (except in the case of said attorneys'
fees) at the rate of eighteen percent (18%) per annum from the date of
advancement to the date of repayment by Tenant to Landlord.
20.3 Amendments Must Be in Writing. None of the covenants, terms or
conditions of this Lease, to be kept and performed by either party, shall in any
manner be altered, waived, modified, changed or abandoned except by a written
instrument, duly signed, acknowledged and delivered by the other party; and no
act or acts, omission or omissions or series of acts or omissions, or waiver,
acquiescence or forgiveness by Landlord as to any default in or failure of
performance, either in whole or in part, by Tenant, of any of the covenants,
terms and conditions to this Lease, shall be deemed or construed to be a waiver
by Landlord of the right at all times thereafter to insist upon the prompt, full
and complete performance by Tenant of each and all the covenants, terms and
conditions hereon thereafter to be performed in the same manner and to the same
extent as the same as herein covenanted to be performed by Tenant.
20.4 Notices. All notices to or demands upon Landlord or Tenant desired or
required to be given under any or the provisions hereof, shall be in writing.
Any notices or demands from Landlord to Tenant shall be deemed to have been duly
and sufficiently given if a copy thereof has been mailed by United States
registered or certified mail in an envelope properly stamped and addressed to
Tenant at Tenant's Address or at such address as Tenant may theretofore have
furnished by written notice to Landlord, and any notices or demands from Tenant
to Landlord shall be deemed to have been duly and sufficiently given if mailed
by United States registered or certified mail in an envelope properly stamped
and addressed to Landlord at Landlord's Address, or at such other address as
Landlord may theretofore have furnished by written notice to Tenant. The
effective date of such notice shall be three (3) days after delivery of the same
to the United States Post Office for mailing.
20.5 Short Form Lease. This Lease shall not be recorded, but the parties
agree, at the request of either of them, to execute a Short Form Lease for
recording, containing the name of the parties, the legal description and the
term of the Lease.
20.6 Time of Essence. Time is of the essence of this Lease, and all
provisions herein relating thereto shall be strictly construed.
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20.7 Relationship of Parties. Nothing contained herein shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent or of partnership, or of joint venture by
the parties hereto, it being understood and agreed that no provision contained
in this Lease nor any acts of the parties hereto shall be deemed to create any
relationship other than the relationship of Landlord and Tenant.
20.8 Captions. The captions to this Lease are for convenience only and are
not to be construed as part of this Lease and shall not be construed as defining
or limiting in any way the scope or intent of the provisions hereof.
20.9 Severability. If any term or provision of this Lease shall to any
extent be held invalid or unenforceable, the remaining terms and provisions of
this Lease shall not be affected thereby, but each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
20.10 Law Applicable. This Lease shall be construed and enforced in
accordance with the laws of the state where the Leased Premises are located.
20.11 Covenants Binding on Successors. All of the covenants, agreements,
conditions and undertakings contained in the Lease shall extend, inure to and be
binding upon the heirs, executors, administrators, successors and assigns or the
respective parties hereto, the same as if they were in every case specifically
named, and wherever in this Lease reference is made to either of the parties
hereto, it shall be held to include and apply to, wherever applicable, the
heirs, executors, administrators, successors and assigns of such party. Nothing
herein contained shall be construed to grant or confer upon any person or
persons, firm, corporation or governmental authority, other than the parties
hereto, their heirs, executors, administrators, successors and assigns, any
right, claim or privilege by virtue of any covenant, agreement, condition or
undertaking in this Lease contained.
20.12 Brokerage. Tenant warrants that it has had no dealings with any
broker or agent in connection with this Lease other than Brokers listed in
Section 1.4(m), whose commissions Landlord covenants and agrees to pay in the
amount agreed between Landlord and Brokers. Tenant covenants to pay, hold
harmless and indemnify Landlord from and against any and all cost, expense or
liability for any compensation, commissions and charges claimed by any other
broker or other agent with respect to this Lease or the negotiation thereof.
20.13 Landlord Means Owner. The term "Landlord" as used in this Lease, so
far as covenants or obligations on the part of Landlord are concerned, shall be
limited to and include only the owner or owners at the time in question of the
fee of the Real Estate, and in the event of any transfer or transfers of the
title to such fee, Landlord herein named (and in case of any subsequent transfer
or conveyances, the then grantor) shall be automatically freed and relieved,
from and after the date of such transfer or conveyance, of all liability as
respects the performance of any covenants or obligations on the part of Landlord
contained in this Lease thereafter to be performed; provided that any funds in
the hands of such Landlord or the then grantor at the time of such transfer, in
which Tenant has an interest, shall be turned over to the grantee, and any
amount then due and payable to Tenant by Landlord or the then grantor under any
provision of this Lease, shall be paid to Tenant.
20.14 Lender's Requirements. If any mortgagee or committed financer of
Landlord should require, as a condition precedent to the closing of any loan or
the disbursal of any money under any loan, that this Lease be amended or
supplemented in a manner (other than in the description of the Leased Premises,
the term, the purpose or the rent or other charges hereunder) Landlord shall
give written notice thereof to Tenant, which notice shall be accompanied by a
Lease Supplement Agreement embodying such amendments and supplements. Tenant
shall, within ten (10) days after the effective date of Landlord's notice,
either consent to such amendments and supplements (which consent shall not be
unreasonably withheld) and execute the tendered Lease Supplement Agreement, or
deliver to Landlord a written statement of its reason or reasons for refusing to
so consent and execute. Failure of Tenant to respond within said ten (10) day
period shall be a default under this Lease, without further notice. If Landlord
and Tenant are then unable to agree on a Lease Supplement Agreement satisfactory
to each of them and to the Lender within thirty (30) days after delivery of
Tenant's written statement, Landlord shall have the right to terminate this
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Lease within sixty (60) days after the end of said thirty (30) day period.
20.15 Signs. Tenant shall install no exterior sign on the Leased Premises
or the Real Estate. If Tenant desires to have an identity sign included on the
general directory sign for the Building, Tenant shall advise Landlord of the
name and logo it desires to have on its sign, and Landlord shall install a sign
showing such name and logo, which shall be the standard sign used by Landlord
for tenants on the Real Estate. Tenant shall reimburse Landlord for Landlord's
costs of producing and installing said sign within ten (10) days after being
billed therefor by Landlord.
20.16 Parking Areas. It is understood by and between the parties hereto
that parking on the Real Estate is allocated to the tenants thereof on an
unreserved basis, and Tenant, its employees and invitees may use not more than
the Number of Parking Spaces thereon. Landlord shall have no obligation to
Tenant to enforce parking limitations imposed on other tenants on the Real
Estate. If Tenant uses parking in excess of that provided for herein, and if
such excess use occurs on a regular or repeated basis, and if Tenant fails,
after written notice from Landlord, to reduce its excess use of the parking
areas, then such excess use shall constitute a default under this Lease.
20.17 Landlord's Expenses. Tenant agrees to pay on demand Landlord's
expenses, including reasonable attorney's fees, expenses and administrative
hearing and court costs incurred either directly or indirectly in enforcing any
obligation of Tenant under this Lease, in curing any default by Tenant as
provided in Section 20.2, in connection with appearing, defending or otherwise
participating in any action or proceeding arising from the filing, imposition,
contesting, discharging or satisfaction of any lien or claim for lien, in
defending or otherwise participating in any legal proceedings initiated by or on
behalf of Tenant wherein Landlord is not adjudicated to be in default under this
Lease, or in connection with any investigation or review of any conditions or
documents in the event Tenant requests Landlord's approval or consent to any
action of Tenant which may be desired by Tenant or required of Tenant hereunder.
20.18 Execution of Lease by Landlord. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Leased Premises and this document shall
become effective and binding only upon the execution and delivery hereof by
Landlord and by Tenant. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein.
20.19 Declaration of Protective Covenants. Tenant acknowledges that the
Leased Premises are subject to the Declaration of Protective Covenants For The
Corporate Woods, Vernon Hills, Illinois recorded August 5, 1986, as Document
2468421 in the Lake County Recorder's Office, as amended by instruments recorded
as Documents 2646364 and 2692982. (Said Declaration as so amended and as it may
be further amended from time to time is herein referred to as the "Declaration
of Protective Covenants".) Tenant covenants and agrees to maintain the Leased
Premises in accordance with the Declaration of Protective Covenants. All amounts
imposed on the Owner of the Leased Premises by said Declaration of Protective
Covenants, including without limitation payment of any costs of maintenance
allocable to the Leased Premises pursuant to Section V.F and VI.C of said
Declaration of Protective Covenants shall be deemed Impositions. Nothing herein
shall give Tenant any voting rights in the Association to be created pursuant to
Section V.A of the Declaration of Protective Covenants.
XXI. EXCULPATORY CLAUSE
21.0 Exculpatory Clause. This Lease is executed by American National Bank
and Trust Company of Chicago, Illinois, not personally but as Trustee as
aforesaid, in the exercise of the power and authority conferred upon and vested
in it as such Trustee, and under the express direction of beneficiaries of a
certain Trust Agreement dated June 11, 1985, and known as Trust Number 64661 to
all provisions of which Trust Agreement this Lease is expressly made subject. It
is expressly understood and agreed that nothing in this Lease contained shall be
construed as creating any liability whatsoever against said Trustee or said
beneficiaries, and in particular without limiting the generality of the
foregoing, there shall be no personal liability to pay any indebtedness accruing
hereunder or to perform any covenant, either express or implied, herein
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contained, to keep, preserve or sequester any property of said Trust, and that
all personal liability of said Trustee (and said beneficiaries to the extent
permitted by law), of every sort, if any, is hereby expressly waived by Tenant,
and by every person now or hereafter claiming any right or security hereunder;
and that so far as the parties hereto are concerned the owner of any
indebtedness or liability accruing hereunder shall look solely to the Trust
estate from time to time subject to the provisions of said Trust Agreement for
the payment thereof. It is further understood and agreed that the said Trustee
has no agent or employees and merely holds naked legal title to the property
herein described and has no control over the management thereof or the income
therefrom and has no knowledge respecting rentals, leases or other factual
matter with respect to said premises, except as represented to it by the
beneficiary or beneficiaries of said Trust.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
LANDLORD:
AMERICAN NATIONAL BANK AND TRUST COMPANY
OF CHICAGO, ILLINOIS, as Trustee aforesaid
Attest:
/s/ [ILLEGIBLE] BY: /s/ [ILLEGIBLE]
- ----------------------------- --------------------------------------
TENANT:
G & R TECHNOLOGIES
Attest:
/s/ [ILLEGIBLE] BY: /s/ William M. Rychel
- ----------------------------- --------------------------------------
19
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EXHIBIT "A"
LEASED PREMISES
[MAP OF 950-990 Corporate Woods Parkway
Vernon Hills, Illinois]
<PAGE>
ADDENDUM
22.0 Letter of Credit. Tenant shall, not later than the Commencement Date,
deliver to Landlord an irrevocable letter of credit in the amount of Sixteen
Thousand Five Hundred Ninety and no/100 ($16,590.00) in a form and from a
financial institution acceptable to Landlord. The letter of credit shall
designate Landlord and Van Vlissingen and Co. as beneficiaries, each with the
right to alone draw on the letter of credit (in part or in whole) (i) under
circumstances set forth in Section 19.0 hereof which entitle Landlord to apply
the Security Deposit, or (ii) in the event Tenant fails to renew the letter of
credit four (4) months prior to the date of its expiration. The letter of
credit, with renewals, shall remain effective for the entire term set forth in
Section 1.1 hereof. In the event a draw is made under the letter of credit,
Tenant shall promptly deliver to Landlord a new letter of credit, cash or a
certified check in such amount as is necessary to cause the total amount of cash
and funds available to Landlord as a Security Deposit to equal Sixteen Thousand
Five Hundred Ninety and no/100 Dollars ($16,590.00). Any amounts drawn under the
letter of credit or paid in cash or certified check which are not applied upon
default shall be held by Landlord as a Security Deposit pursuant to Section
19.0.
23.0 Tenant's Improvements. Landlord, at its sole cost and expense, shall be
responsible for constructing the improvements to the Leased Premises
("Improvements") shown on the Plans and Specifications prepared by Thelander,
Nelson & Associates dated Oct. 16, 1991 , which are attached hereto and made a
part hereof.
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE is made as of the 14th day of April, 1995,
by and between AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, as Trustee
under Trust Agreement No. 116194-05 dated October 8, 1992, successor in interest
to American National Bank and Trust Company of Chicago as Trustee under Trust
Agreement No. 64561 dated June 17, 1985 ("Landlord") and G & R TECHNOLOGIES
("Tenant").
WITNESSETH:
WHEREAS, by a Lease dated November 13, 1992 ("Lease"), Landlord leased to
Tenant certain premises (the "Leased Premises") containing approximately 10,526
square feet of space, commonly known as 980 Corporate Woods Parkway, Vernon
Hills, Illinois; and
WHEREAS, Landlord and Tenant now wish to expand the Leased Premises to
include an additional 4,409 square feet of space, to extend the term of the
Lease and to amend the Lease in certain other respects, all as set forth below.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, Landlord
and Tenant agree as follows:
1. Addition of Space. As of June 1, 1995 (the "Effective Date"), the
Leased Premises shall be expanded to include approximately 4,409 square feet of
space located east and adjacent to the Leased Premises as shown on the attached
Exhibit "A" (the "Additional Space").
2. Possession. Except as specifically set forth in Paragraph 7 hereof,
Landlord shall deliver possession of the Additional Space in "as-is" condition
as of the Effective Date. Upon taking possession of the Additional Space, Tenant
shall deliver to Landlord an estoppel certificate reasonably satisfactory to
Landlord. If Landlord is unable to give possession of the Additional Space to
Tenant on June 1, 1995, Landlord shall not be subject to any liability for
failure to give possession, but the rent to be paid for the Additional Space
shall not commence until the date on which possession is delivered to Tenant.
3. Extension. The term of the Lease is hereby extended to May 31, 2000 on
the same terms and conditions as set forth in the Lease except as modified
herein and unless sooner terminated pursuant to the terms of the Lease.
<PAGE>
4. Rent. As of the Effective Date, Section 1.4(b) of the Lease is hereby
amended to read as follows:
Monthly
Period Annual Rent Installments
------ ----------- ------------
6/1/95 - 5/31/96 $154,228.55 $12,856.55
6/1/96 - 5/31/97 $156,668.15 $13,055.68
6/1/97 - 5/31/98 $159,057.75 $13,254.81
6/1/98 - 5/31/99 $161,447.35 $13,453.95
6/1/99 - 5/31/00 $163,836.95 $13,653.08
5. Proportionate Share. As of the Effective Date, Section 1.2 of the Lease
is hereby amended by deleting the figure "Twelve and 10/100 percent (12.10%)"
and substituting therefor the figure "Seventeen and 17/100 percent (17.17%)."
6. Parking. As of the Effective Date, Section 1.4(n) of the Lease is
amended to provide for a maximum of forty-two (42) Parking Spaces.
7. Work. Landlord shall, at Landlord's expense, perform the following work
with respect to the Additional Space:
(a) Create an 8' X 10' opening to connect the warehouse area of the Leased
Premises with the warehouse area of the Additional Space;
(b) Create an 3' X 9' opening to connect the office area of the Leased
Premises with the office area of the Additional Space; and
(c) Construct an open office area as shown on Exhibit "A" attached hereto,
with one (1) 12' X 18' conference room, using Landlord's building standard
materials.
8. Real Estate Brokers. Tenant represents that Tenant has dealt directly
with and only with Van Vlissingen and Co. as brokers in connection with this
Second Amendment and that no other broker acting by, through, or under Tenant
negotiated this Second Amendment or is entitled to any commission in connection
therewith. Tenant indemnifies and holds Landlord harmless from all claims of any
broker or brokers, other than that broker named above, in connection with its
Second Amendment, to the extent that such broker is claiming by, through, or
under Tenant.
9. Lease in Full Force and Effect. Except for the provisions of this
Amendment, all the terms, covenants, and conditions of the Lease and all the
rights and obligations of Landlord and Tenant thereunder, shall remain in full
force and effect, and are not otherwise altered, amended, revised or changed.
2
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10. Estoppel. Tenant hereby acknowledges that as of the date hereof,
Tenant has no claims arising under the Lease against Landlord or its agents, or
any one or more of the foregoing, and that Tenant knows of no default or failure
on the part of Landlord to keep or perform any covenant, condition or
undertaking to be kept or performed by Landlord under the Lease. Tenant hereby
releases Landlord from any liability arising under the Lease prior to the date
hereof.
11. Trust Exculpation. This Amendment is executed by the undersigned
trustee, not personally, but solely as trustee, and it is expressly understood
and agreed by the parties hereto that each and all of the covenants,
undertakings, representations, and agreements herein made, are made and
intended, not as personal covenants, undertakings, representations, and
agreements of the trustee individually, but this Amendment is executed and
delivered by the trustee solely in the exercise of the powers conferred upon it
as such trustee, and no personal liability or responsibility is assumed by, nor
shall at any time be asserted or enforced against said bank or the beneficiaries
of said trustee on account hereof, all such personal liability being hereby
expressly waived and released by the parties hereto, and by all persons claiming
by, through, or under said parties. It is expressly understood and agreed that
any claims by the Tenant against the Landlord in case of default by Landlord in
the performance of its obligations under the Lease or this Agreement shall be
payable out of and only out of the trust estate.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.
AMERICAN NATIONAL BANK AND
TRUST COMPANY OF CHICAGO, not
personally, but as Trustee
aforesaid
Attest: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
----------------------- -------------------
Vice President President
Van Vlissinger and Co.
Owner's Authorized Agent
G & R TECHNOLOGIES
By: /s/ William M. Rychel
-----------------------
3
COMMERCIAL LEASE
THIS LEASE AGREEMENT is made this 29th day of March, 1991, by and between
Girard Associates II Limited Partnership, hereinafter referred to as "Landlord",
and Computer Graphics Distributing Company hearinafter referred to as "Tenant".
WITNESSETH, that for and in consideration of the rent hereafter reserved,
and the covenants contained herein, the parties hereby agree as follows:
LEASED PREMISES. Landlord hereby leases to Tenant and Tenant hereby leases
from Landlord for the term, at the rental, and upon the conditions set forth
herein, that certain real property ("Real Property") with Premises thereon known
as Girard Place, Building #3 located at 620 East Diamond Avenue, Gaithersburg,
Maryland 20877 (approximately ** square feet) hereinafter referred to as the
"Premises." The Premises are shown more fully in the Site Plan and Space Plan.
TERM AND POSSESSION.
2.1 TERM. The term of this Lease shall be for six (6) years commencing on
the 1st day of July, 1991 or at a date no sooner than June 1, 1991 (the
"Alternative Commencement Date"), contingent upon Tenant receiving permission by
its present landlord to terminate its existing lease, effective as of the
Alternative Commencement Date, and ending on the 30th day of June, 1997, unless
terminated sooner pursuant to any Provisions hereof. The date upon which the
term shall commence is herein defined as the "Commencement Date". In no event
shall the Commencement Date occur prior to the date that the Landlord's work is
substantially completed, with Tenant's loading dock and all mechanical,
electrical and plumbing systems servicing the premises in good and proper
working order and condition, together with issuance to Tenant of a certificate
of occupancy and any other governmental permits or authorizations obtained by
Landlord which are necessary in order to permit Tenant to immediately commence
use and occupancy of the Premises.
In the event the Commencement Date shall not have occurred by September 1, 1991
for reasons other than the delay of Tenant or any employee or agent of Tenant,
then and in such event Tenant shall be entitled to terminate this Lease and
receive prompt reimbursement of its security deposit and any other sums
previously paid to Landlord with respect to the Premises, whereupon the parties
shall be relieved of further liability or obligation hereunder.
In the event the Commencement Date shall not have occurred by January 1, 1992
for reasons other than the delay of Landlord or Landlord's contractor, then and
in such event Landlord shall be entitled to terminate this Lease by written
notice to Tenant accompanied by reimbursement to Tenant of the security deposit
and any sums previously paid to Landlord by Tenant with respect to the Premises,
whereupon the parties shall be relieved of any further liability or obligation
hereunder.
2.2 POSSESSION. If Landlord should be unable to give possession of the
Premises on the date of commencement of the term hereof because the Premises are
located in a building being constructed and which has not been sufficiently
completed to make the Premises ready for occupancy or if the Landlord is unable
to give possession or the Premises on the date of commencement of the term
hereof by reason of holding over or retention of possession of any Tenant or
occupant, or if repairs, improvements, or decoration of the Premises or of the
building of which the Premises form a part are not completed, or for any other
reason, Landlord shall not be subject to any liability for failure to give
possession on said date. Should tender of possession of the Premises be later
than the beginning date named, then, and in that event, the beginning date and
ending date of this Lease shall be adjusted by letter from Landlord to Tenant,
to conform the date of such tender or possession, as if the same had been
originally named as the beginning date and this Lease shall run for the full
term, from the date of such tender of possession. Provided that, no such failure
to give possession on the date of commencement of the term shall in any other
respect affect the validity of this Lease or the obligations of the Tenant
hereunder except as otherwise specifically provided in Section 2.1 above. If
permission is
** See Rider 1, Paragraph 11.
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given to the Tenant to enter into possession of the Premises, or to occupy space
other than the Premises prior to the date specified as the commencement of the
term of this Lease, Tenant covenants and agrees that such occupancy shall be
deemed to be under all the terms, covenants and conditions of the provisions of
this Lease.
2.3 Lease Year. "Lease Year" shall mean each consecutive twelve (12)
months' period commencing on the first day of the month closest to the
Commencement Date, or if applicable, the Alternative Commencement Date.
3. RENT.
3.1 RENT. Subject to the Rent Abatement provided under Paragraph 4 of the
Rider, Tenant shall pay to Landlord as rent for the Premises the annual sum of *
(hereinafter referred to as the "annual base rental"), payable without notice,
deduction or demand, in equal monthly installments of * ($ * , (hereinafter
referred to as "basic monthly rental"), in advance, on the first day of each
calendar month during the term hereof, the first installment being payable on
the execution of this Lease and the remaining installments being payable, in
advance, on the first day of each month, during the said term to and at the
office of Perlmutter Properties 200 Girard St Gaithersburg, Maryland, 2087 or at
such other place as Landlord may from time to time designate to Tenant in
writing. Notwithstanding the foregoing, Tenant shall be entitled to defer
payment of the first such monthly installment until receipt by Tenant of the
non-disturbance and attornment agreement referred to in Paragraph 17 below from
Landlord's present mortgagee. Rent checks shall be made payable to Girard
Associates II Limited Partnership. Should the term of this Lease commence on a
day other than the first day of a calendar month, the parties agree that rental
for the first and last month of the term shall be prorated and the basic monthly
rental for the remaining months shall be due and payable on the first of each
month as provided above.
3.2 RENT ESCALATIONS
3.2 Rent Escalations. Commencing upon the first day of the nineteenth
calendar month following the Commencement Date (or if applicable the Alternative
Commencement Date) (such first day being referred to herein as the "Escalation
Date"), the annual base rental to be paid by the Tenant shall be increased on an
annual basis by a fixed amount equal to four percent (4%) of the initial annual
base rental as determined under Section 3.1 hereinabove. The first such annual
increase shall occur upon the Escalation Date, with successive annual increases
occurring on each anniversary of such Escalation Date. For example, in the event
the Commencement Date shall occur on July 1, 1991, then and in such event the
Escalation Date shall occur on January 1, 1993, and future increases shall occur
on each successive January 1.
* See Rider 1 - paragraph 11
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3.3 LATE CHARGES. Tenant hereby recognizes and acknowledges that if rental
payments are not received within SEVEN (7) days after rent becomes due, Landlord
will suffer damages and additional expense thereby and Tenant therefore agrees
that a late charge equal to $15.00 per day (including additional rent as
hereinafter provided) may be assessed by Landlord, at his option, as additional
rental. Notwithstanding the foregoing, Landlord agrees to provide Tenant with
written notice and the opportunity to cure within seven (7) days thereafter up
to one (1) time per calendar year prior to imposing upon Tenant the foregoing
late charge. In the event a check issued to the Landlord by the Tenant is
insufficient upon presentment for payment by the Landlord, there will be a
Twenty-five Dollars ($25) returned check fee to the Tenant.
3.4 OPERATING COSTS. The Premises and the building in which the Premises
are located (the "Building") are part of the Girard Place (the "Business Park")
as shown on the Site Plan attached hereto as Exhibit B. "Common Area" means all
areas of space provided by the Landlord for the common or joint use of all
tenants, their employees, agents and invitees, as more fully shown on the Site
Plan, including, without limitation, the stairways, sprinkler rooms, electrical
rooms and parking lots. Landlord reserves the right to make alterations to the
Building or additional improvements on the Common Areas or to make any and all
modifications or changes to the Building or Common Areas without the consent of
Tenant. Tenant shall pay up to a maximum of $1.85 per square foot during the
first Lease Year for its pro-rata share of operating expenses inclusive of real
estate taxes and insurance. Beginning with the second (2nd) lease year, Tenant's
pro-rata share of common area maintenance charges, (exclusive of real estate
taxes,) shall not increase by more than eight percent (8%) per annum over the
previous year's charges. For example, in the event the charges for common area
maintenance (exclusive of real estate taxes) during the first lease year were
One and 25/100 Dollars ($1.25) per square foot, then and in such event the
maximum amount required to be paid by Tenant for common area maintenance charges
(exclusive of real estate taxes) during the second lease year would be One and
35/100 Dollars ($1.35) (i.e. 108% of $1.25).
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Tenant shall pay as additional rent its pro rata share of operating costs.
"Operating Costs" shall mean the aggregate of all costs and expenses incurred by
Landlord in connection with the operation and maintenance of the Premises,
Building, other buildings and improvements in the Business Park, and Common
Areas in the Business Park, including, but not limited to, (a) the proportionate
share or expenses allocated for the repair, maintenance and upkeep of the
Building and toward the cost of maintaining and repairing the Common Areas used
in common with the occupants of all other buildings located in the Business
Park; (b) the cost of trash removal service and snow removal; (c) the cost of
operating, repairing and maintaining life safety systems, including, without
limitation, sprinkler systems; (d) the cost of security services, if provided by
Landlord, including, without limitation, any security device enacted by Landlord
in regulating the parking areas; (e) the cost of water, sewer, electricity, gas
(if provided) and other utilities; (f) legal, accounting and consulting fees and
expenses; (g) administrative expenses; (h) compensation (including employment
taxes and fringe benefits) of all persons who performs duties connected with the
operation, maintenance, repair and janitorial services for the Premises or
Building or Common Areas; (i) energy allocation, energy use surcharges, or
environmental charges; (j) public agency inspection fees or changes; (k) all
taxes, rates and assessments, general and special, levied or imposed with
respect to the Premises, Building or Business Park, including all taxes, rates
and assessments, general and special, levied or imposed for school, public
betterment, general or local improvements, front-foot benefit charges, and also
including reasonable expenses incurred by Landlord in obtaining or attempting to
obtain a reduction of any real estate taxes; (l) the actual insurance premiums
paid by Landlord for all insurance on the Premises, Building and Business Park
carried by Landlord; and (m) any other costs or expenses incurred by Landlord
under this Lease which are not otherwise reimbursed directly by tenants of the
Building. Notwithstanding the foregoing, Operating Costs shall not include any
of the following:
a. Leasing costs of any type, be it procuring tenants or re-leasing
as well as retaining existing tenants, including without limitation attorneys
fees and brokerage costs associated with such leases.
b. The costs of any capital improvements, replacements, additions
and alterations of the Common Areas and any such costs with respect to the roof
or other structural components of the Premises or Building.
c. Costs incurred due to violations by Landlord of any of the terms
and conditions of any leases in the Building.
d. Overhead and profit to subsidiaries or affiliates of the Landlord
for management services in addition to the management fee referred to in item o.
below.
e. Any amounts paid to any person, firm or corporation related or
otherwise affiliated with Landlord or any general partner, officer or director
of Landlord or any of its general partners, to the extent same exceeds
arms-length competitive prices paid in Gaithersburg, Maryland for the services
or goods provided.
f. Costs attributable to enforcing leases against tenants in the
Building, such as attorneys' fees, court costs, adverse judgments and similar
expenses.
g. Interest and amortization of funds borrowed by Landlord, whether
secured or unsecured;
h. Ground rents.
i. Rentals and other related expenses incurred in leasing equipment
ordinarily considered to be of a capital nature, except equipment used in
providing janitorial, security, maintenance services not affixed to the
Premises, and also excepting any equipment used in performance of maintaining
the Common Areas.
j. Repairs and other work occasioned by fire, or other casualty that
would be reimbursable by insurance customarily maintained by other property
owners.
k. Any fines or penalties incurred due to violations by Landlord of
any governmental rule or authority and the defense of same.
l. Expenses for vacant or vacated space, including utility costs,
securing and renovating such space.
m. Repairs and maintenance performed in any tenant's exclusive space
that was solely for such tenant's exclusive space, and not for common area
maintenance.
n. The costs of any utilities other than water or sewer to the
extent provided to rentable areas of the Building and/or Project (i.e. utilities
to any tenantable space shall not be passed through).
o. Management fees in excess of 5% of the rents receivable from the
Building by Landlord.
In no event shall any Real Estate Taxes include any interest or penalty
nor shall there be included any tax computed on Landlord's net rents or net
income, or any capital levy, franchise, estate, inheritance, transfer or
recordation taxes. Assessments which may be paid over a period in excess of
twelve months without penalties shall be included with real estate taxes only to
the extent such payments are required to be made within the particular calendar
year.
Tenant shall be entitled to audit Landlord's books and records pertaining
to the computation of Operating Costs. In the event as a result of any such
audit it is determined that Landlord has overcharged Tenant by more than five
percent (5%) of such Operating Costs, Tenant shall be entitled to be reimbursed,
together with the overpayment of all reasonable costs incurred by Tenant in
connection with such audit. In any event, Tenant shall be entitled to be
reimbursed by Landlord any overpayment of Operating Costs determined hereunder.
The computation of Operating Costs shall be made in accordance with
generally accepted accounting principles.
Tenant's share of Operating Costs as computed by Landlord means the
quotient obtained by dividing the total number of square feet of floor area
within the Premises by the total number of square feet of floor area within the
Business Park. Tenant's share of such Operating Costs as so computed is
initially * Percent (*%). Subject to the foregoing provisions, Tenant shall
pay * Percent (*%) of all Operating Costs, here after referred to as "Tenant's
Share". If an additional building or buildings are constructed in the Business
Park, then upon completion of the new building, Tenant's share of the Operating
Costs shall be recomputed by adding the floor area of the new building to the
formula set forth above.
* Tenants pro-rata share is 38% of Building
** Tenants pro-rata share is ____ of the Park
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Landlord may in its discretion, make from time to time during the term a
reasonable estimate of the Operating Costs and Tenant's share thereof which may
become due for any calendar year and require Tenant to pay Landlord for each
month during such year, one-twelfth of the Tenant's share (as estimated) as
additional rent at the time and in the manner that Tenant is required hereunder
to pay the monthly installments of annual rent. At Landlord's reasonable
discretion, it may increase or decrease from time to time the amount initially
so estimated for such calendar year by giving Tenant written notice thereof.
Tenant shall pay Tenant's share to Landlord as additional rent within thirty
(30) days from the date of the aforesaid statement.
4. SECURITY DEPOSIT. Tenant shall deposit with Landlord, upon execution
hereof, the sum of Six Thousand Five Hundred and 00/100 Dollars as security for
the faithful performance of Tenant's obligations hereunder. Tenant hereby agrees
that this security deposit will not be applied to rent due under this Lease or
to the last month's rent. The conditions under which Landlord will be obligated
to return the security deposit are as follows:
a. Full term of Lease has expired.
b. Tenant does vacate the Premises at the expiration of Lease and returns
keys thereto.
c. Premises, inside and out, are left in "broom clean" condition and
undamaged (except ordinary wear and tear and damage by fire or other casualty).
d. There are no unpaid late charges, fees, delinquent rent, court costs or
attorney's fees or other monies owed by Tenant to Landlord.
If Tenant has complied with each of the above requirements, Landlord
agrees that said security deposit will be returned with payment of interest
thereof. If Tenant violates any of the above requirements, Landlord may apply a
part, or all of the security deposit to cover the costs or expenses incurred or
the deficiency existing in any monies due to the Landlord for failure to comply
with the provisions of this Lease, including the matters as set forth in this
Paragraph 4(a) through (d) and Landlord shall reimburse Tenant the remaining
portion of the security deposit, together with interest accrued thereon. The
Landlord shall also have the right to proceed with any other legal or equitable
remedies available to it. Interest earned on the security deposit shall be
remitted to Tenant on an annual basis. Landlord agrees to invest the security
deposit in a separate interest bearing money market fund account in a federally
insured bank.
5. USE. The Premises shall be used and occupied by the Tenant only for
office and storage use for computer and related inventory or such other use as
may be lawful for the premises and in accordance with applicable laws,
ordinances, regulations, licenses or permits.
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6. UTILITIES. Tenant agrees to pay all utility charges incurred by it in
connection with its use and occupancy of the Premises, including, but not
limited to, electricity, fuel, gas, water, sewer and telephone (including
equipment and installation charges) and to pay said charges as the same become
due and to immediately transfer all utility accounts into its own name at the
commencement of this Lease.
Tenant agrees that such utility charges, which in the case of all
utilities excepting only water shall be separately metered at Landlord's sole
cost and expense in the Premises, will be apportioned by the Landlord, and
Tenant agrees to pay on the first of each month its proportionate share thereof
as additional rental.
7. CONDITION OF PREMISES.
7.1 NEW PREMISES. Landlord agrees that Tenant shall have, to the extent
permitted by law, the benefit of any guarantees or warranties which Landlord may
receive on any equipment or systems in the Premises for whatever period said
guarantees and warranties may apply. This shall not, however, relieve the Tenant
from any responsibility for damage caused by its negligence or from its
responsibilities for maintenance or repairs as provided for in Paragraph 8.2
below.
7.2 PREMISES NOT NEW. At such time as Tenant enters into possession of the
Premises, Tenant shall be deemed to have inspected and accepted the Premises,
the equipment and the HVAC, electrical, sprinkler and elevator systems therein,
if any, in their existing condition and as complying with all applicable
requirements of the Lease with respect to the condition thereof and Tenant shall
thereafter be solely responsible for all maintenance, repair and/or replacements
required therefore during the lease term as provided in Paragraph 8.2 below.
7.3 Landlord's Warranty. Landlord agrees to warrant all of the Landlord's
Work, together with all systems and equipment servicing the Premises for the
first lease year.
The foregoing warranty by Landlord shall not apply to any repairs or
replacements resulting by reason of the negligence or willful misconduct of
Tenant or any employee or agent of Tenant. Further, Tenant's obligations under
Section 8.2 with respect to maintenance of a service contract shall remain in
full force and effect during the first lease year, notwithstanding the
obligation of Landlord to warrant the Landlord's Work during such first lease
year.
8. MAINTENANCE AND REPAIRS.
8.1 STRUCTURAL MAINTENANCE. Landlord shall be solely responsible for and
shall maintain in good condition order and repair the parking lot, paving, roof,
foundation, windows, window casings, plate glass, gutters and down-spouts
exterior walls, as well as the underground pipes and conduits located beyond the
boundaries of the Premises, and the sprinkler system (provided that the system
serves more than Tenant's Premises) and all other building systems and elevators
servicing the Premises and other tenants in the Building; and Landlord shall
make all repairs or replacements becoming necessary by reason of any structural
defect in the Premises' provided, however, that Landlord shall not be required
to make any repairs necessitated by reason of any act or omission by Tenant, its
employees, agents, licensees, invitees or anyone entering the Premises by force,
but if Landlord does make any such repairs, Tenant agrees to promptly, upon
demand, reimburse Landlord for the full costs thereof. Absent the negligence or
willful misconduct of Landlord, its agents, employees or contractors, no
liability shall be imposed on the Landlord because of any personal injury or
damage to personal property, or because of any interference with the services
and facilities listed above, caused by accidents or repairs, riots, strikes, or
any other reason beyond the
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control of the Landlord, and the Landlord shall be under no duty to restore any
of such services and facilities or to make any of the repairs except after
receipt of written notice from the Tenant of a need therefor, and there shall be
a reasonable period of time within which the Landlord may make such repairs.
8.2 OTHER MAINTENANCE AND REPAIRS. Except to the extent required of
Landlord under Section 8.1. Tenant shall, at its own expense, during the full
term of the Lease, keep the Premises in good order and condition, and make all
repairs and do all acts of maintenance becoming necessary in or upon the
Premises including specifically, but not being limited to maintaining the doors
and door jambs, both inside and outside, and Tenant's loading docks, at Tenant's
expense, to enter into service contracts on behalf of Tenant only, for the
maintenance of the heating system, as well as the air conditioning system, if
any. If any such service contract should not be obtainable, Tenant agrees to
have the system or equipment not covered inspected at least once each year by a
qualified serviceman. Notwithstanding the foregoing, to the extent caused by any
act or omission of Tenant, its agents, employees or invitees, Tenant shall
remain solely responsible for the repair and/or replacement of the windows and
window casings and sills, both inside and outside, together with Tenant's plate
glass or other glass windows and doors.
9. ALTERATIONS.*
9.1 INSTALLATION. Tenant shall not make any alterations, additions,
modifications or improvements ("alterations") to the Premises without the prior
written consent of the Landlord, which consent will not be unreasonable
withheld. If Tenant desires to make any such alterations, plans for the same
shall first be submitted to and approved by Landlord, and same shall be done by
Tenant at its own expense. Tenant agrees that all such work shall be done in a
good and workmanlike manner, that the structural integrity of the building shall
not be impaired, that no liens shall attach to the Premises by reason thereof,
and that the Tenant will secure all necessary permits pertaining to the
aforementioned alterations. Any increase in property tax or insurance rates that
are assessed against the Landlord, due to the Tenant's alterations made
following the Commencement Date, shall be passed through to the respective
Tenant as an additional rental by the Landlord.
9.2 OWNERSHIP and removal. The alterations, refered to in Paragraph 9.1,
and consented to in writing by Landlord, shall become part of the real property
as soon as they are affixed thereto; however, Landlord may at Landlord's option,
in the event Landlord so notifies Tenant in writing at the time of Landlord's
consent thereto, require that Tenant remove all or any part of said alterations
on or before the expiration of the Lease term. If Landlord so requires,
(provided notice of such requirement was given at the time of Landlord's
consent, as aforesaid) Tenant agrees, at its own expense, to remove same and to
restore the Premises to their original condition, reasonable wear and tear and
damage by fire or other casualty excepted.
* See Rider 1, Paragraph 1.
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10. HAZARDOUS STORAGE. Tenant agrees that it will not store gasoline or
other explosive, flammable or toxic material on the Premises or do anything
which may affect the insurance rating of the Premises or cause Landlord's
insurance company to void the policy covering the Premises or to increase the
premium thereon, and that Tenant will immediately conform to all rules and
regulations from time to time made or established by Landlord's insurance
company or insurance rating bureau.
11. INSURANCE
11.1 FIRE INSURANCE. Tenant agrees, in addition to the provisions of
Paragraph 10. that it will not do anything that will cause Landlord's insurance
against loss by fire or other hazards, as well as public liability insurance, to
be cancelled or that will prevent Landlord from procuring same from acceptable
companies and at standard rates. Tenant will further do everything possible and
consistent with the conduct of Tenant's business to obtain the lowest possible
rates for insurance on the Premises. If, however, the cost to Landlord of
obtaining insurance on the Premises (or the building in which the Premises are
located) is increased due to the Tenant's particular use hereof, Tenant agrees
to pay, promptly upon demand, as additional rental, any such increase.
11.2 LIABILITY INSURANCE AND INDEMNIFICATION OF LANDLORD. Landlord shall
not be liable to Tenant for any injury, loss, or damages to the Tenant or to any
other person or property occuring upon the Premises or the approaches thereto or
the parking facilities on or adjacent thereto from any cause other than the
negligence or willful misconduct of Landlord its agents, employees or
contractors. Tenant agrees to indemnify and hold the Landlord harmless against
any and all liability, damages, expenses, including reasonable attorneys fees,
claims, and demands of every kind that may be brought against it, for or on
account of any damage, loss or injury to persons or property in or about the
Premises during the term of this Lease, or during any occupancy by Tenant prior
or subsequent to the term of this Lease unless such damage, loss or injury
results from the negligence or willful misconduct of Landlord, its agents,
employees or contractors. Tenant further agrees to carry, at its own expense, at
all times during the term hereof, comprehensive public liability insurance, in a
form and with a company satisfactory to Landlord, in the minimum amount of One
Million Dollars ($1,000,000) combined single limit with respect to property
damage and personal injury (including death), said policy to include fire legal
liability insurance in the additional amount of at least One Million Dollars
($1,000,000), or in such greater amounts as Landlord may from time to time
reasonably require. All such policies shall name the Tenant and the Landlord as
parties insured and shall contain a provision that the same may not be cancelled
without giving the Landlord at least thirty (30) days prior written notice. In
addition, such policies
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or certificates evidencing that such policies are in effect shall be delivered
to Landlord at the commencement of the term hereof and renewals shall be
delivered at least thirty (30) days prior to the expiration or cancellation of
any such policy.
12. DESTRUCTION-FIRE OR OTHER CASUALTY.
(A) In case of partial damage to the Premises by fire or other casualty,
Tenant shall give immediate notice thereof to Landlord, and Landlord, to the
extent that insurance proceeds respecting such damages are subject to or are
under the control and use of Landlord, shall thereupon cause such damage to all
property owned by Landlord be repaired by Landlord with due diligence, provided
Landlord shall in no event be required to pay any amount in excess of insurance
proceeds paid or to be paid to landlord, due allowance being made for reasonable
delay on account of "labor troubles" or any other cause beyond Landlord's
control. To the extent that the Premises are rendered untenantable, the rent
shall proportionately abate;
(b) In the event the damage shall be so extensive to the whole building or
to the Premises as to render it uneconomical, in Landlord's sole opinion, to
restore for the use of Tenant, as specified in Paragraph 5 hereof, or Landlord
shall decide not to repair or rebuild the building, this Lease, at the option of
Landlord, shall be terminated upon written notice to Tenant and the rent shall,
in such event, be paid to or adjusted as of the date of such damage, and the
terms of this Lease shall expire by lapse of time upon the third day after such
notice is mailed, and Tenant shall thereupon vacate the Premises and surrender
the same to Landlord, but no termination of this Lease under either this Section
12(b) or 12(c) shall release either party from any liability to the other
arising from such damage or from any such damage or from any breach of the
obligations imposed on Landlord or Tenant hereunder.
(c) In the event repair and restoration of the damage to the Premises
caused by such fire or other casualty shall require more than 180 days to fully
restore and repair, then and in such event, Tenant by written notice to
Landlord, shall be entitled to terminate this Lease as of the day of the fire or
other casualty, whereupon rent shall be prorated and the term of this Lease
shall expire upon the third day after Tenant's notice is mailed to Landlord.
(d) Tenant shall be responsible to insure its own personal property (e.g.
inventory and movable trade fixtures) to the extent such personal property is
located within the Premises. In no event shall Tenant look to Landlord or
Landlord's insurer for replacement of such personal property hereunder.
Similarly, Landlord shall be solely responsible to insure the Premises and all
of Landlord's Work thereunder and shall not look to Tenant or Tenant's insurer
for replacement of same, by reason of any fire or other casualty.
13. PROPERTY LOSS OR DAMAGE.
13.1 Absent the negligence or willful misconduct of Landlord, its agents,
employees or contractors, Tenant hereby expressly agrees that Landlord shall not
be responsible in any manner for any damage to the property of Tenant or injury
to any officer, employee, agent, servant, licensee, or invitee of Tenant or of
any other person or business which is directly or indirectly caused by (i)
dampness of water, whether due to a break or
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leak in any part or the roof, heating, plumbing or sprinkler system within the
Premises or within the building in which the Premises are located, no matter how
caused, (ii) theft, (iii) fire or other casualty, and (iv) any other cause
whatsoever.
13.2 Subject to Paragraph 13.1, Landlord shall not be liable for damage to
the property of Tenant or injury to any officer, employee, agent, servant,
invitee, licensee of Tenant or any other person or business, unless (i) Landlord
has a duty under this Lease to correct any defect on the Premises, (ii) Landlord
shall have received actual notice in sufficient time before the occurrence of
such damage or injury to reasonably enable it to correct such defect, or such
damage has been caused by the negligence or willful misconduct of Landlord, its
agents, employees or contractors.
14. PERMITS--COMPLIANCE WITH LAWS.
14.1 PERMITS. Landlord shall, at its own cost and expense, promptly obtain
from the appropriate governmental authorities any and all permits, licensee and
the like required to permit Tenant to occupy the Premises for the purposes and
in the manner herein stated. This requirement shall not relieve the Tenant of
its liability for rent from the commencement date hereinabove set forth,
however, procurement of the certificate of occupancy by Landlord shall be a
condition precedent to the Commencement Date.
14.2 COMPLIANCE WITH LAWS. Tenant shall promptly comply with all statutes,
laws, ordinances, orders, rules, regulations and requirements of the Federal,
State and local governments and of the Board of Fire Underwriters applicable to
Tenant's use of the Premises, for the correction, prevention and abatement of
nuisances, safety hazards or violations in, upon, or connected with the Premises
during the term of this Lease, However, Landlord shall be solely responsible to
comply with any of the foregoing resulting from any defect or deficiency in the
Landlord's Work or the Building, or requiring any corrections or alterations be
made to any structural components of the Premises or any of the Building systems
serving the Premises.
15. ASSIGNMENT AND SUBLETTING. Tenant agrees that it will not transfer,
assign or sublet the Premises, in whole or in part, without Landlord's prior
written consent. Landlord agrees that it will not unreasonably delay, condition
or withhold its consent, and if such consent is given, Tenant shall not be
relieved from any liability under this Lease. Tenant further agrees that if it
intends to assign or sublet the Premises, it will first notify Landlord in
writing and Landlord shall have fifteen (15) days to notify Tenant that
Landlord, at its option, may accept a surrender of the Premises, (in the case of
an assignment) or portion of the Premises desired to be sublet (in the case of a
subletting) in which event, Landlord shall release Tenant from any further
liability under this Lease. However, no such notice shall be required nor shall
Landlord have any right to demand a surrender of the premises (or any part
thereof) in the case of any assignment or subletting to any entity (1) which at
the time of such transfer is the record holder of all of the voting stock of
Tenant; (2) which at the time of such transfer is a wholly owned subsidiary of
Tenant or an entity which is the then record holder of all of the voting stock
of Tenant; (3) which Tenant has been consolidated into; (4) which shall result
from a merger of the Tenant with one or more entities; (5) to whom Tenant shall
have sold all or substantially all of its assets or stock. In the case of any
assignment or subletting described in 1 through 5 in the immediately preceding
sentence, the original named Tenant shall not be relieved from any liability
under this Lease.
16. SUBORDINATION. This Lease and the Tenancy created hereunder is hereby
subject and subordinate to any leases, mortgages, deeds of trust, leasehold
mortgages or other security interests (collectively "security interests") now or
hereafter constituting a lien upon or affecting the Building, the Premises, or
the Business Park, or any part thereof, and to any and all increases,
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renewals, modifications, consolidations, replacements of the security interests.
This subordination provision shall be self operative and no further instrument
of subordination shall be required. Tenant shall, at any time hereafter, within
seven (7) days of any such request from Landlord, execute any instruments
leases, or other documents that may be required by any security interest or
holder thereof or Landlord hereunder to subordinate Tenant's interest hereunder
to the lien of any such security interest. In the event Tenant fails or refuses
to comply with the request of Landlord hereunder, within the time provided,
Tenant hereby irrevocably appoints Landlord as his attorney-in-fact, this
appointment being an agency coupled with an interest, to execute any and all
such instruments at the sole expense of Tenant.
17. ATTORNMENT AND NON-DISTURBANCE. Tenant agrees that upon termination of
Landlord's interest in the Premises, Tenant will, upon request, attorn to the
person or organization then holding title to the reversion of the Premises (the
"Successor") and to all subsequent Successors, and shall pay to the Successor
all rents and other monies required to be paid by the Tenant hereunder and
perform all of the other terms, covenants, conditions and obligations contained
in this Lease, provided however, that Tenant shall not be so obligated to attorn
unless, if Tenant shall so request in writing, such Successor will execute and
deliver to Tenant an instrument wherein such Successor agrees that so long as
Tenant performs all of the terms, covenants and conditions of this Lease,
Tenant's possession under the provisions of this Lease shall not be disturbed by
any such Successor. Landlord agrees to provide Tenant with appropriate
assurances of non-disturbance from Landlord's present mortgagee in order that
the Lease shall be recognized by such mortgagee, notwithstanding any foreclosure
by such mortgagee. Such assurances shall be furnished by Landlord no later than
April 12, 1991. In the event such non-disturbance agreement is not delivered to
Tenant signed by Landlord's mortgagee by such date, Tenant shall be entitled to
terminate this Lease, whereupon Tenant shall be entitled to the immediate return
of the security deposit.
18. TENANT'S FAILURE TO PERFORM. In the event that Tenant fails, after
fifteen (15) days written notice from Landlord, to keep the Premises in
workable, rentable condition and repair, or to commence and continuously make
required repairs, or to do any act or make any payment or perform any term or
covenant on Tenant's part required under this lease or otherwise fails to
comply herewith, Landlord may (at its option, but without being required to do
so) immediately, or at any time thereafter and without notice, perform the same
for the account of Tenant (including entering the Premises at all reasonable
hours to make repairs and do any act or make any payment which Tenant has failed
to do). However, Landlord agrees that in the case of any default other than the
payment of money to Landlord, Tenant shall be entitled to such additional time
as may be reasonably required in order to prosecute to completion the cure of
such default beyond the aforesaid fifteen (15) days period and Landlord shall
refrain from making any expenditure or otherwise incurring any obligations
during such additional time. If Landlord makes any expenditures, or incurs any
obligations for the payment of money in connection therewith, including, but not
limited to, reasonable attorneys' fees in instituting, prosecuting or defending
any action or proceeding connected with the Lease of the Premises, such sums
paid or obligations incurred, with interest at the prime rate of interest plus
three percent (3%) per annum at either Maryland National Bank or Sovran Bank and
costs, shall be deemed to be additional rent hereunder and shall be paid by
Tenant to Landlord within five (5) days of rendition of any bill or statement to
Tenant therefor. All rights given to Landlord in this section shall be in
addition to any other right or remedy of Landlord herein contained.
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19. LANDLORD'S RIGHT TO ENTER AND SHOW PREMISES.
19.1 LANDLORD'S RIGHT TO INSPECT AND REPAIR. Tenant agrees to permit
Landlord to enter the Premises at any reasonable time following reasonable
advance notice for the purpose of determining the condition of the Premises and
making repairs thereto, as provided above in Paragraph 18.
19.2 LANDLORD'S RIGHT TO SHOW PREMISES. Tenant agrees that Landlord may,
within the last four (4) months of the Lease term, display a "For Lease" or "For
Sale" sign on the Promises and show prospects through the Premises at any
reasonable time.
20. SURRENDER AT END OF TERM. Tenant shall vacate the Premises at the
expiration or other termination of this Tease and shall remove a goods and
effects not belonging to Landlord and shall surrender possession of the Premises
and all fixtures and systems thereof in good repair, reasonable wear and tear
and damage by fire or other casualty excepted. If Tenant shall fall to perform
any of the foregoing obligations, Landlord is hereby expressly authorized to do
so on Tenant's behalf and Landlord may sell such articles, goods, and effects on
the Premises as Landlord, in its sole discretion, deems saleable, and may
dispose of other personalty in any manner which it chooses. The proceeds of any
such sale shall be applied toward the expenses thus incurred and Tenant will
receive net proceeds if any or promptly pay any deficiency.
21. HOLDING OVER. If in the absence of Landlord's prior consent thereto
Tenant shall not immediately surrender possession of the Premises at the
expiration of this Lease, Tenant shall become a month-to-month Tenant, at ONE
AND ONE HALF TIMES the current monthly rental just prior to expiration of this
Lease, said rental to be payable in advance; but, unless Landlord elects to
accept such rental from Tenant, the Landlord shall continue to be entitled to
re-enter and to re-take possession of the Premises without any prior notice to
Tenant. However, Landlord agrees to prorate such rental on a per diem basis for
any period less than thirty (30) days. If Tenant shall fail to surrender
possession of the Premises immediately upon expiration of the term hereof, TShe
Tenant hereby agrees that all of the obligations of the Tenant and all rights of
the Landlord applicable during the term of this Lease shall be equally
applicable during such period oF subsequent occupancy, whether or not a
month-to-month tenancy shall have been created as aforesaid. Tenant further
agrees that it shall be liable for any damages suffered by Landlord by reason of
Tenant's failure to immediately surrender the Premises provided herein.
22. EMINENT DOMAIN.
(a) If the entire Premises shall be substantially taken (either
temporarily or permanently) for public purposes, as determined by Landlord, or
in the event Landlord shall convey or Lease the property to any public authority
in settlement of a threat of condemnation or taking, the rent shall be adjusted
to the date of such taking or leasing or conveyance, and this Lease shall
thereupon terminate.
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(b) If only a portion of the Premises shall be so taken, leased, or
condemned, and, as a result of such partial taking, Tenant is reasonably able to
use the remainder of the Premises for the purpose intended hereunder, then this
Lease shall not terminate, but, effective as of the date of such taking,
leasing, or condemnation, the rent hereunder shall be abated in aN amount
proportionate to the percentage of the total area of the Premises so taken,
leased or condemned. If, following such partial taking, Tenant shall not be
reasonably able to use the remainder of the Premises for the purposes intended
hereunder, then this Lease shall terminate as if the entire Premises had been
taken, leased or condemned. In the event of a taking, lease or condemnation as
described in this section, whether or not there is a terminating hereunder,
Tenant shall have no claim against Landlord other than an adjustment of rent to
the date of taking, lease, or condemnation, and Tenant shall not be entitled to
any portion of any amount that may be awarded as damages or paid in settlement
of such proceedings or threat.
23. DEFAULTS-REMEDIES. The occurrence of any one or more of the following
events shall constitute a default and breach of this Lease by Tenant:
(a) [STRICKEN]
(b) The failure by Tenant, without notice or demand by Landlord, to make
any payment of basic monthly rental, additional rental or any other payment
required to be made by Tenant hereunder, within five (5) business days following
written notice thereof to Tenant that Tenant has not timely made such payment
when due.
(c) The failure by Tenant to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant,
other than described in subparagraph (b) above, where such failure shall
continue for a period of fifteen (15) days after notice thereof from Landlord to
Tenant; provided however, that if the nature of the Tenant's default as
determined by Landlord is such that more than fifteen (15) days are reasonably
required for its cure, Tenant shall not be deemed to be in default if Tenant
commences such cure within said fifteen (15) day period and, thereafter,
diligently prosecutes such cure to completion, but such period shall in no event
exceed thirty (30) days after notice thereof.
(d) The making by Tenant of any general assignment or general arrangement
for the benefit of creditors, the filing by or against Tenant of a petition to
have Tenant adjudged a bankrupt or a petition for reorganization or arrangement
under any law relating to bankruptcy (unless in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days), the appointment
of a Trustee or receiver to take possession of substantially all
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of the Tenant's property located in the Premises or Tenant's interest in this
Lease where such seizure is not discharged within thirty (30) days, the
attachment, execution of other judicial seizure of substantially all of Tenant's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
In the event of such material default or breach by Tenant, Landlord may,
at any time hereunder, with or without notice or demand, without limiting
Landlord in the exercise of any right or remedy which Landlord may have by
reason of such default or breach, proceed in the following manner:
(i) Terminate Tenant's right to possession of the Premises by any lawful
means, in which case Tenant's possession shall be terminated and Tenant shall
immediately surrender possession of the Premises to the Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including, but not limited to the cost
of recovering possession of the Premises; the expenses of reletting, including
advertising, promotion and necessary renovation or alteration of the Premises;
the reasonable attorneys fees; any real estate commission or fees actually paid
pro-rated in the case of any replacement lease extending beyond the original
term hereof; and such other out-of-pocket expense as the Landlord might
reasonably incur. Unpaid installments of rent, additional rental, or other sums
due under the lease prior to the date of Tenant's surrender of possession of the
Premises, shall bear interest from the date due at the prime rate of interest
plus three percent (at) per annum at either Maryland National Bank or Sovran
Bank.
(ii) Maintain Tenant's right to possession in which case this Lease shall
continue in effect, whether or not Tenant shall have abandoned the Premises. In
such effect, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder. Unpaid installments of rent, additional rental or other sums due
under the lease shall bear interest from the date due at the prime rate of
interest plus three percent (3%) per annum at either Maryland National Bank or
Sovran Bank. Laws or jurisdictional decisions of the state in which the Premises
are located, or under this Lease or any amendment thereto.
(iii) Pursue any other remedy now or hereafter available to Landlord under
the laws or jurisdictional decisions of the state in which the Premises are
located, or under this Lease or any amendment thereto.
24. [STRICKEN]
25. [STRICKEN]
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26. ESTOPPEL CERTIFICATES. Landlord and Tenant agree at any time and from
time to time upon not less than ten (10) days prior notice by the other to
execute, acknowledge, and deliver to the other a statement in writing certifying
that this Lease is unmodified and in full force and effect (or if there have
been modifications, that the same are in full force and effect as modified and
stating the modifications) and the dates to which the rent and other charges
have been paid in advance, if any, and stating whether or not, to the best
knowledge of the signer of such certificate, Landlord or Tenant is in default in
performance of any covenant, agreement or condition contained in this Lease and,
if so, specifying each such default of which the signer may have knowledge, and
any corrective action undertaken by the Landlord or Tenant, it being intended
that any such statement delivered hereunder may be relied upon by any third
party not a party to this Lease.
27. NOTICES. All notices, demands, and requests required under this Lease
shall be in writing. All such notices shall be deemed to have been properly
given if sent United States registered or certified mail, return receipt
requested, postage prepaid, addressed to the Landlord at: 200 Girard Street,
Gaithersburg, Maryland 20877 Suite 216 to the Tenant: prior to occupancy: c/o
Beverly Nerenburg, Computer Graphics Distributing, 15934 Shady Grove Road,
Gaithersburg, MD 20877, and subsequent to occupancy c/o the demised premises,
Attention: Beverly Nerenburg Contact person: Either party
may designate a change of address by written notice to the other party. Tenant
shall promptly inform Landlord of any change in the Contact Person.
Notices, demands, and requests, which shall be served in the manner
aforesaid, shall be deemed sufficiently given for all purposes hereunder at the
time such notice, demand or request shall be mailed in any Post Office or Branch
Post Office regularly maintained by the United States Government or its
instrumentalities.
28. SEPARABILITY. If any term or provision of this Lease or the
application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Lease or the application of such
term or provision to persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and each term and
provision of this Lease shall be valid and enforceable to the fullest extent
permitted by law.
29. CAPTION. All headings in this Lease are intended for convenience of
reference only and are not to be deemed or taken as a summary of the provisions
to which they pertain or as a construction thereof.
30. SUCCESSORS AND ASSIGNS. The covenants, conditions and agreements
contained in this Lease shall bind and inure to the benefit of Landlord and
Tenant, and their respective heirs, distributees, executors, administrators,
successors, and their assigns.
31. GOVERNING LAW. This Lease was made in the State of Maryland and shall
be governed by the construed in all respects in accordance with the laws of the
State of Maryland.
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32. INCORPORATION OF PRIOR AGREEMENTS. This Lease contains all agreements
of the parties with respect to any matters contained herein. This Lease may be
modified only in writing and signed by the parties in interest at the time of
the modification.
33. CUMULATIVE REMEDY. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
34. RULES & REGULATIONS. Tenant, its agents and employees, invitees,
customers and guests, convenants and agrees to abide by and observe the rules
and regulations as may be promulgated from time to time by Landlord in its sole
discretion for the operation and maintenance of the Building. Nothing contained
in this Lease shall be construed to impose upon Landlord any duty or obligation
to enforce such rules and regulations, or the terms, conditions or covenants
contained in any other lease, as against any other tenant, and Landlord shall
not be liable to Tenant for violation of the same by any other tenant, its
employees, agents or invitees.
35. MISCELLANEOUS.
(a) As used in this Lease, and where the context requires: (1) the
masculine shall be deemed to include the feminine and neuter and vice-versa; and
(2) the singular shall be deemed to include the plural and vice-versa.
(b) Landlord and Tenant do hereby waive trial by jury in any action,
proceeding, or counterclaim brought by either of the parties hereto against the
other on any matters whatsoever arising out of or in any way connected with this
Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the
Premises, and/or any claim of injury or damage, and any emergency statutory or
any other statutory remedy. Tenant further waives the right to any counterclaim,
setoff, recoupment, or deduction against any rent or amount due hereunder to
Landlord, absent a final unappealable judgment obtained by Tenant against
Landlord.
(c) Tenant covenants and agrees that it shall not inscribe, affix, or
otherwise display signs, advertisements, or notices in, on, upon, or behind any
windows or on any door, partition, or other part of the interior or exterior of
the Building without the prior written consent of the Landlord. Such consent
shall not be unreasonably withheld or delayed, it being the parties' intent that
Tenant shall have prominent exterior signage. If such consent be given by
Landlord, any such sign, advertisement, or notice shall be inscribed, painted,
or affixed by Landlord, or a company approved by Landlord, but the cost of
installing, maintaining, repairing, replacing, and removing same shall be
charged to and be paid by Tenant, and Tenant agrees to pay same promptly, on
demand.
(d) Tenant covenants and agrees that it shall not attach or place awnings,
antennas, or other projections to the outside walls or any exterior portion of
the Building. No curtains, blinds, shades, or screens shall be attached to or
hung in, or used in connection with any window or door of the Premises without
the prior written consent of Landlord.
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(e) Tenant further covenants and agrees that it shall not pile or place or
permit to be placed any goods on the sidewalk or parking lots, in the front,
rear or sides of the Building or block said sidewalks, parking lots, and loading
areas and it shall not do anything that directly will take away any of the
rights of ingress or egress or of light from any other tenant of the Landlord.
Tenant shall store all trash and garbage within the leased premises and shall
arrange to have the trash placed in the dumpster provided by Landlord for the
use of Tenants in the center. Tenant agrees to pay additional rental, when and
as billed by Landlord, a pro-rata portion of expenses incurred by Landlord in
connection with Landlord's keeping the driveways, parking area, sidewalks and
steps in the Business Park free and clear of ice, snow, and debris, and
Landlord's maintenance of all grass and landscaping in the Business Park.
(f) Tenant, Tenant's servants, agents, invitees, employees and licensees
shall not park on, store on, or otherwise utilize any parking or loading areas
in the Business Park, except as provided in writing by Landlord. Tenant agrees
that any vehicle owned by the parties provided in this subparagraph and parked
in violation hereof may, at the option of the Landlord, be towed at the sole
expense of the Tenant. Tenant, for itself and on behalf of the parties provided
in this paragraph, hereby waives to the extent permitted by law, any notice
prior to towing, which is required by statute to be given by Landlord. Tenant
shall use its reasonable best efforts to assure that at no time will either
Tenant, its servants, agents, invitees, employees or licensees (collectively
"Tenant's Invitees") cause more vehicles to be parked at the Building Parking
Lot beyond the number to which Tenant is entitled under Paragraph 3 of Rider I.
In the event Landlord shall be required to give Tenant written notice of the
continued violation by Tenant of the foregoing parking restrictions more than
three (3) times in any lease year, then and in such event the subsequent
violation by Tenant of such parking restrictions shall be deemed to constitute a
default by Tenant under this Lease.
(g) Tenant agrees that it will at all times maintain a minimum temperature
of fifty (50) degrees F, to prevent freezing of the pipes, conduits or ducts,
subject to force majeure or other causes beyond Tenant's reasonable control.
(h) Time is of the essence as to all provisions of this Lease.
(i) Lessee shall not make or permit to be made any unusual or
objectionable sounds which could be heard or any unusual or objectionable odors
which could be smelled at the exterior of the premises.
36. RIDERS. One (1) Rider(s), consisting of two (2) page(s), is/are
attached hereto, and made a part hereof.
37. Broker. Landlord and Tenant represent that they have dealt with no
broker or agent in connection with this Lease other than Carey Winston Company
and Julian J. Studley, Inc., and Landlord shall hold Tenant harmless from and
against any and all liability, loss, damage, expense, claim, action, demand,
suit or obligation arising out of or relating to a breach by Landlord of such
representation. Landlord has by separate agreement recognized Julian J. Studley,
Inc. and Carey Winston Company as its agents for this Lease and has agreed to
compensate them for services rendered therefor.
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IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and
sealed this Lease as of the day and year first above written.
WITNESS OR ATTEST: LANDLORD
GIRARD ASSOCIATES II LIMITED PARTNERSHIP
/s/ [ILLEGIBLE] Davis By: /s/ [ILLEGIBLE]
- ---------------------------- ------------------------------------
General Partner
(SEAL)
____________________________ ____________________________________
(SEAL)
____________________________ ____________________________________
(SEAL)
By:
____________________________ ____________________________________
(TITLE)
WITNESS OR ATTEST: TENANT:
COMPUTER GRAPHICS DISTRIBUTING COMPANY
/s/ Lisa M. Jordan By: /s/ Lowell Nerenberg (SEAL)
- ---------------------------- ------------------------------------
(TITLE)
President
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RIDER 1
Attached hereto and made a part of the Lease dated the 29th day of
March, 1991, between Girard Associates II Limited Partnership ("Landlord") and
Computer Graphics Distributing Company ("Tenant");
1. IMPROVEMENTS
The demised premises shall be completed by the Landlord in
accordance with a space plan to be completed and mutually agreed upon by
Landlord and Tenant. Based on said drawing, Landlord anticipates an
air-conditioned, sixty percent (60%) office/air-conditioned forty percent
(40%) warehouse build-out with one (1) loading dock, one (1) overhead door
and the balance of the front exterior of the space to be glassed
"storefront". In the event a mutually agreed upon plan is not formulated
by the Lease Execution Date, the Lease will be executed contingent upon
the mutual approval of the plan based on a sixty percent (60%)
office/forty percent (40%) warehouse layout. Any changes made to said plan
after final approval shall be the responsibility of the Tenant.
Notwithstanding the foregoing, in the event the Premises should
require any special sound or odor insulation to prevent unreasonable
noise, disturbance and any other disturbance of Tenant in the Premises by
another tenant or tenants of the building such as a commercial printer,
costs pertaining to such insulation shall be borne solely by Landlord.
Computer Graphics agrees to work with and cooperate with Landlord in
the selection of materials required to construct, and finish the premises.
Landlord, at Landlord's expense, will supply and construct all materials
to comply with all applicable building, fire and life safety codes and
regulations.
All work required to be performed under the Space Plan (and
architectural working drawings referred to below) shall be defined herein
as the Landlord's work.
2. SPACE PLANNING
Landlord agrees to provide tenant, at Landlord's sole cost and
expense, with all architectural, mechanical, electrical, and plumbing
working drawings and preliminary space planning services for the Demised
Premises for all building improvements, including revisions.
3. PARKING
Landlord will provide Tenant with three (3) spaces per each 1,000
square feet leased, free of charge for the term of the lease and any
extensions thereof.
4. RENTAL ABATEMENT
Landlord shall fully abate Tenant's base rental obligation for the
initial six (6) months of the lease term following the Commencement Date.
In addition, Landlord shall abate fifty percent (50%) of Tenant's monthly
base rental obligation for months seven (7) through twelve (12) following
the Commencement Date. In the event of any abatement of base annual rental
occurring during the initial six (6) month period, by reason of fire or
other casualty, then and in such event the six (6) month abatement
provided under this paragraph 4 shall be extended on a day for day basis
by the same number of days of abatement of rent resulting from the fire or
other casualty. Similarly, in the event of any abatement of rent occurring
by reason of a fire or other casualty during months 7 through 12, the
aforesaid abatement in effect during months 7 through 12 under this
paragraph 4 shall be extended on the basis of one-half day for each day of
rent abated due to such fire or casualty.
5. OPTION TO RENEW
Unless the Lease has been terminated as a result of Tenant's default
or other cause specified in the Lease, Tenant shall have the right to
renew the Lease for two (2) additional terms of five (5) years each upon
giving the Landlord six (6) months prior written notice of its intention
to exercise such options. The base rent for each option shall not be more
than ninety-five percent (95%) of the then prevailing fair market rental
rate for Tenant's of space of comparable size, location and quality
including concessions in the building's vicinity.
<PAGE>
6. OPTIONS/RIGHTS ON ADDITIONAL SPACE
Landlord will provide Tenant with a first right of refusal in any
contiguous space on the upper level of the building. In addition, should
it become available, Tenant shall have the first right to negotiate on
lower level space, shall it not be encumbered by previous options afforded
to Shepherd Printing and/or other Tenants to the space.
7. NON-DISTURBANCE/QUIET ENJOYMENT
8. SIGNAGE
Tenant, at its sole cost and expense, shall have the right to place
a sign on the exterior of the building upon the prior consent of the
Landlord which shall not be unreasonably withheld. Said signage shall be
in conformance with all applicable local and county codes.
9. MOVING ALLOWANCE
Landlord shall provide Tenant with an allowance of fifty cents
($.50) per square foot for move related expenses. Tenant shall pay said
expenses and Landlord shall reimburse Tenant for these expenses within
thirty (30) days following the Commencement Date.
10. ACCESS
Tenant shall have access to the Demised Premises twenty four (24)
hours a day, seven (7) days a week.
11. RENT
Tenant's initial base monthly rent shall be based on $8.35 per
square foot net of common area maintenance, real estate taxes and
insurance multiplied by the amount of square footage determined by the
final space plan which shall be mutually agreed upon by both Tenant and
Landlord. Such square footage shall be certified to Tenant by Landlord's
architect.
AGREED AND ACCEPTED this 29th day of March, 1991.
/s/ [ILLEGIBLE] /s/ Lowell Nerenberg, Pres.
- ---------------------------- ----------------------------------------
WITNESS/ATTEST Computer Graphics Distributing Company
/s/ [ILLEGIBLE] /s/ [ILLEGIBLE]
- ---------------------------- ----------------------------------------
WITNESS/ATTEST Girard Associates II Limited Partnership
<PAGE>
[Letterhead Computer Graphics]
May 15, 1997
Perlmutter Management Group
200 Girard Street
Suite 216
Gaithersburg, MD 20877
Attention: Mr. David Perlmutter
Re: Lease Agreement for Premises at 620 Diamond Avenue,
Gaithersburg, Maryland
Dear David:
This letter supersedes our April 16, 1997 offer.
Thank you for your interest in extending our lease. This letter sets forth the
terms upon which we would be willing to extend the present lease agreement for
an additional two (2) year period, commencing July 1, 1997.
1. Rent:
The lease will be extended at an increase in rent of four per cent (4%), as
defined in the Lease. The existing basic rent provisions would continue to
apply, including the January 1, 1998, and January 1, 1999, four per cent (4%)
annual increases in rent as defined in the Lease.
2. Pass-throughs:
Tenant will be provided a one-time credit against pass-throughs for the period
up to and including December 31, 1995, in the amount of $3,527.01, on account of
contested pass-throughs. This credit may be deducted in full from the first
month's payment on the extended term.
3. Conditions of Premises:
As is, subject to prospective lease obligations of Landlord under the Lease.
We look forward to receiving your confirmation that the foregoing has been
approved by the Landlord. Thank you for your cooperation and assistance.
Computer Graphics Distributing Company
620 East Diamond Avenue, Gaithersburg, MD 20877
301-921-0011 o 800-548-5048 o Fax: 301-990-1647
<PAGE>
Perlmutter Management Group 2 May 15, 1997
Sincerely,
COMPUTER GRAPHICS DISTRIBUTING COMPANY
By: /s/ Lowell Nerenburg
---------------------------
Lowell Nerenburg
President
ACCEPTED AND AGREED:
GIRARD ASSOCIATES II LIMITED PARTNERSHIP
By: /s/ [Illegible]
---------------------------
Limited Partner
COVER PAGE
The capitalized terms in this Lease shall have the meanings ascribed to
them below, and each reference to such term in the Lease shall incorporate such
meaning therein as if fully set forth therein.
TERMS:
LESSOR: ASC NORTH FULTON ASSOCIATES JOINT VENTURE, a Georgia joint
venture, comprised of New England Mutual Life Insurance
Company, a Massachusetts corporation, and Anderson &
Senkbeil/Hembree Joint Venture, a Georgia joint venture, as
its sole joint venture partners with its principal office
located at P.O. Box 720462, Atlanta, Georgia 30358-2462
LESSEE: MICROSOUTH, INC., a corporation duly organized and existing
under the laws of the State of Georgia.
PREMISES:
(a) Suite: J
(b) Rentable Area: 10,447 square feet
(c) See Floor Plan attached hereto as Exhibit "A"
BUILDING: 645 Hembree Parkway
Suite J
Roswell, GA
COMMENCEMENT DATE: May 1, 1992
TERMINATION DATE: April 30, 1995
FIRST LEASE YEAR BASE RENT (PER YEAR): $41,788.00
BASE YEAR: 1992
BASE YEAR TAXES: 1992
BASE YEAR INSURANCE: 1992
SECURITY DEPOSIT: $3,482.33
AGENT: The Stanfield York Co.
Doug Stanfield
<PAGE>
LEASE
THIS LEASE, made on the date of last execution and acceptance hereof by
Lessor or Lessee, as the case may be, by and between Lessor and Lessee:
WITNESSETH:
1. Premises. Lessor does hereby rent and lease to Lessee, and Lessee does
hereby rent and hire from Lessor, that certain space containing approximately
10,447 rentable square feet, as shown on the floor plan attached hereto as
Exhibit "A", which is made a part hereof by this reference (said space being
herein referred to as the "Premises"). The Premises are located in Lessor's
building (herein referred to as the "Building") known as 645 Hembree Parkway,
Suite J, Roswell, Georgia. No easement for light or air is included in the
Premises.
2. Lease Term. (a) The term of this Lease shall be for a period of three
(3) years, commencing on May 1, 1992 (herein referred to as the "Commencement
Date"), and ending on April 30, 1995 at midnight (herein referred to as the
"Termination Date"). All references to the "term of this Lease" refer to the
term of the Lease as it is renewed, extended or sooner terminated.
(b) If Lessor is unable to give possession of the Premises to Lessee on
the Commencement Date because (i) the Premises are not sufficiently completed to
render the Premises ready for occupancy, or (ii) a tenant or occupant remains in
possession of the Premises, or (iii) for any other reason, then Lessor shall not
be liable for such failure, and no such failure shall affect the validity of
this Lease; provided, however, Lessee shall not be required to pay rent for any
period during which Lessor is prevented from giving possession of the Premises
to Lessee.
(c) Upon delivery of possession of the Premises to Lessee, Lessee agrees
to execute and deliver to Lessor a Tenant's Acceptance of Premises, in the form
attached hereto as Exhibit "C."
3. Base Rent. (a) Lessee shall pay to Lessor at Lessor's office, or such
other place as Lessor shall from time to time designate in writing, an annual
Base Rent of $41,788.00 in equal monthly installments of $3,482.33 to be paid
without notice, demand, deduction, or set-off, on the first (1st) day of each
month in advance.
(b) As used herein, the term "Lease Year" shall mean each term of twelve
(12) consecutive calendar months commencing on the Commencement Date or on the
first (1st) day of the first (1st) calendar month following the Commencement
Date, if the Commencement Date does not fall on the first (1st) day of a
calendar month; provided, however, that the first (1st) Lease Year shall include
the partial month, if any, caused by the Commencement Date's falling on other
than the first (1st) day of a calendar month.
(c) Rental payments not received by Lessor within five (5) calendar days
of the due date thereof shall be subject to a late charge due and payable by
Lessee to Lessor on the sixth (6th) calendar day after the due date thereof in
an amount equal to five (5%) percent of such past due rental.
(d) As used in this Lease, the term "rent" or "rental" shall include all
amounts payable pursuant to this Paragraph 3 and all other additional charges or
sums payable to Lessor hereunder.
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(e) Lessee shall pay the first (1st) month's Base Rent on the date of
Lessee's execution of this Lease.
4. Additional Rent. In addition to the Base Rent, Lessee shall pay to
Lessor, as additional rent, the amounts described in subparagraphs 4(a), 4(b)
and 4(c) below:
(a) (i) Commencing January 1 following 1992 (the "Base "Year) or on the
Commencement Date, whichever is later, and continuing thereafter during each
year of the term of this Lease, in the event Lessor determines that Lessor's
cost of "taxes and assessments," as hereinafter defined, will increase above an
amount equal to the greater of (A) the actual cost for taxes and assessments for
the Base Year or (B) $0.45 per square foot contained in the Building, then
Lessee shall, in equal monthly installments with the Base Rent, pay to Lessor as
additional rent the pro rata amount of such anticipated increase attributable to
the Premises. The term "taxes and assessments" shall include every type of tax,
charge or impost now or hereafter assessed against the Building or the Land,
including, but not limited to, ad valorem taxes, special assessments and
governmental charges, excepting only income taxes imposed upon Lessor; the term
"taxes and assessments" shall include any tax levied or imposed upon or assessed
against the rent reserved hereunder or income arising herefrom to the extent the
same is in lieu of or a substitute for any of the taxes and assessments
hereinabove described; and such term shall also include any reasonable expenses,
including fees and disbursements of attorneys, tax consultants, arbitrators,
appraisers, experts and other witnesses, incurred by Lessor in contesting any
taxes or the assessed valuation of all or any part of the Building or the Land.
Provided, however, that the taxes and assessments for any particular year shall
not include increases in taxes and assessments for previous years, even though
such increases are assessed or are payable in such particular year.
(ii) Prior to January 1 of each calendar year (except the Base Year)
during the term of this Lease, Lessor shall estimate the increase for that
calendar year in taxes and assessments and shall deliver to Lessee a statement
of Lessee's share of such increase. Lessee shall deliver the prorated, monthly
amount of such increase (for the period prior to receipt of such statement) to
Lessor with the next regular payment of Base Rent. Promptly following receipt of
the actual tax bills, Lessor shall notify Lessee of the actual increase and any
adjustment necessary shall be made to the additional rental payments next coming
due under this subparagraph 4(a).
(iii) Lessee shall pay, or cause to be paid, before delinquency, any
and all taxes levied or assessed during the term of this Lease, upon all
improvements installed by Lessee in the Premises, Lessee's other leasehold
improvements, equipment, furniture, fixtures and any other personal property
located on the Premises. In the event any or all of said improvements, Lessee's
other leasehold improvements, equipment, furniture, fixtures and other personal
property shall be assessed and taxed with the Building or the Land, Lessee shall
pay to Lessor its share of such taxes within ten (10) calendar days after
delivery to Lessee by Lessor of a statement in writing setting forth the amount
of such taxes attributable to the above property.
(b) (i) Commencing January 1 following 1992 (the "Base Year") or on the
Commencement Date, whichever is later, and continuing thereafter during each
year of the term of this Lease, in the event Lessor determines that Lessor's
cost of "insurance," as hereinafter defined, will increase above an amount equal
to the greater of (A) the actual cost for insurance for the Base Year, or (B)
$0.03 per square foot contained in the Building, then Lessee shall, in equal
monthly installments with the Base Rent, pay to Lessor as additional rent the
pro rata amount of such anticipated increase attributable to the Premises. The
term "insurance" shall include all fire and extended casualty insurance on the
Building and all liability coverage on the common areas of the Building, and the
grounds, sidewalks, driveways and parking areas on the Land, together with such
other insurance protection, including, but not limited to, business interruption
insurance, as are from time to time obtained by Lessor.
(ii) Prior to January 1 of each calendar year (except the "Base
Year") during the term of this Lease, Lessor shall estimate the increase for
that calendar year in insurance and shall deliver to Lessee a statement of
Lessee's share of such increase. Lessee shall deliver the
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<PAGE>
prorated, monthly amount of such increase (for the period prior to receipt of
such statement) to Lessor with the next regular payment of Base Rent. Promptly
following receipt of the actual bills for the insurance, Lessor shall notify
Lessee of the actual increase and any adjustment necessary shall be made to
additional rental payments next coming due under this subparagraph 4(b).
(c) (i) The pro rata amount of all common area electrical, grounds
maintenance charges, security services and other common area charges and
expenses for the Building and the Land (the "CAM Charges"), shall be paid by
Lessee to Lessor, as additional rent, as provided in subparagraph (c)(ii) below.
The term "grounds maintenance" shall include, without limitation, all
landscaping, planting, lawn and grounds care, all improvements to the grounds
and other common areas adjacent to the Premises and the Building and to all
sidewalks, driveways, loading areas and parking areas. The CAM Charges shall not
include items of a capital nature.
(ii) Prior to January 1 of each calendar year Lessor shall deliver
to Lessee an estimate of the total CAM Charges for that calendar year and the
amount thereof attributable to the Premises. Lessee shall thereafter, during
that calendar year, pay to Lessor one-twelfth (1/12) of the amount set forth in
said statement at the same time its monthly installments of Base Rent hereunder
are due and payable. In the event the January installment of Base Rent is
already due and payable or has been paid at the time said statement is delivered
to Lessee, Lessee shall, within ten (10) days following receipt of said
statement, deliver to Lessor one-twelfth (1/12) of the amount set forth on said
statement in payment thereof. At such time as Lessor is able to determine the
actual CAM Charges for each calendar year, Lessor shall deliver to Lessee a
statement thereof and, in the event the estimated CAM Charges differ from the
actual CAM Charges, any adjustment necessary shall be made to additional rental
payments next coming due under this subparagraph 4(c).
(d) Lessor's failure to deliver a statement to Lessee prior to January 1
of each year with the estimated additional rent payments due under subparagraphs
(a), (b) and (c) above shall not preclude Lessor from later collecting the past
due amounts shown thereon, all of which shall be paid by Lessee within ten (10)
days following receipt of such statement.
5. Security Deposit. Lessee has concurrently with its execution of this
Lease deposited with Lessor the Security Deposit as security for the full
performance of every provision of this Lease by Lessee. Lessor may apply all or
any part of the Security Deposit to cure any default by Lessee hereunder and
Lessee shall promptly restore to the Security Deposit all amounts so applied
upon invoice therefor. If Lessee shall fully perform each provision of this
Lease, any portion of the Security Deposit which has not been appropriated by
Lessor in accordance with the provisions hereof shall be returned to Lessee,
without interest, within thirty (30) days after the expiration of the term of
this Lease. If Lessor or its managing agent is a licensed real estate broker or
salesman under the laws of the State of Georgia, Lessor or such managing agent
shall have the right (if required by law) to deposit the Security Deposit in an
interest-bearing trust or escrow account. All interest earned on such deposits
shall be paid to Lessor or such managing agent, as directed by Lessor, to defray
the cost of maintaining and administering such account.
6. Utilities. Lessee shall promptly pay all charges for utilities and
other services furnished to the Premises by Lessor or the applicable utility
company, including, but not limited to, gas, water, electricity, fuel, light and
heat, and Lessee shall promptly pay all charges for garbage collection services
and for all other sanitary services rendered to the Premises or used by Lessee
in connection herewith. In the event any utilities furnished to the Premises are
not separately metered, Lessee shall pay to Lessor, as additional rental,
Lessee's pro rata share of the utilities used by Lessee, within ten (10)
calendar days following receipt of a statement showing the amount due. Lessee's
prorated amount shall be determined on the basis of the size of the Premises,
unless Lessor determines that Lessee's use of the Premises justifies a
disproportionate allocation of utility costs to Lessee.
7. Use. The Premises shall be used for general office sales, distribution
and no other purposes. The Premises shall not be used for any illegal purposes;
nor in violation of any
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regulation of any governmental body; nor in any manner to create any nuisance or
trespass; nor in any manner to vitiate the insurance or increase the rate of
insurance on the Premises or on the Building. Lessee agrees to use the Premises
for the purposes herein leased until the expiration of the term of this Lease.
8. Repairs by Lessor. (a) Lessee accepts the Premises in their present
condition and as suited for the uses intended by Lessee, subject only to
Lessor's agreement to complete the Lessor's Work described in Exhibit "A".
Except as otherwise expressly provided in this Lease, Lessor shall not be
required to make any repairs or improvements to the Premises except repairs to
the foundation, exterior walls or roof of the Building as necessary for safety
and tenantability; Lessor's duties shall also include repairs to underground
utility and sewer pipes outside the exterior walls of the Building, or under or
within the floor of the Premises, unless made necessary by the negligence or
misuse of Lessee, its employees or agents.
(b) Lessor shall be responsible for the maintenance of those areas around
the Building, including parking areas, planted areas and landscaping areas which
are from time to time designated by Lessor and open for the joint use by tenants
of the Building or the public.
9. Repairs by Lessee. Lessee shall repair, maintain, replace as necessary
and keep in good, clean and safe repair all portions of the Premises and all
equipment, fixtures and systems therein which are not specifically set forth as
the responsibility of Lessor in Paragraph 8 of this Lease. Lessee's repairs and
replacements shall include without limitation all electrical, plumbing, heating
and air conditioning systems, parts, components and fixtures within or relating
to the Premises; in connection therewith, Lessee shall maintain in force at all
times a maintenance contract for the heating, ventilation and air conditioning
equipment acceptable in form and content to Lessor and with a service
organization acceptable to Lessor. Lessee shall also promptly repair or replace
all partitions and all glass and plate glass within the Premises immediately
when cracked or broken. Lessor gives to Lessee exclusive control of the Premises
and shall be under no obligation to inspect the Premises. Lessee shall at once
report in writing to Lessor any defective conditions known to Lessee which
Lessor is required to repair, and failure to promptly report such defects shall
make Lessee liable to Lessor for any liability incurred by Lessor by reason of
such defects, and Lessee indemnifies and holds harmless Lessor from and against
all loss, cost and damage (including reasonable attorney's fees) arising from or
related to Lessee's failure to so report such defective conditions.
10. Lessor's Finish Work. Lessor agrees that it will finish out the
Premises as depicted and described on Exhibit "A" attached hereto and by this
reference made a part hereof (the "Plans and Specifications"), which were
submitted, reviewed and approved by Lessor and Lessee prior to the execution
hereof. In the event that Lessee shall desire, or Lessor shall find it necessary
to make, any modifications or changes to the Plans and Specifications, the party
desiring or requiring said changes shall give the other party written notice
thereof. No change to the Plans and Specifications shall be effective unless and
until it has been approved in writing by Lessor and Lessee. The Plans and
Specifications, as amended, shall thereafter, for all purposes, be considered
the "Plans and Specifications" hereunder. Notwithstanding the foregoing, Lessee
acknowledges that in the course of construction, certain changes, deviations or
omissions may be required by governmental authorities or job conditions and
Lessee agrees to such changes, deviations or omissions, provided that such
changes, deviations or omissions do not materially alter the value or appearance
of the Premises or materially reduce the quality of materials used in the
construction thereof. Lessee understands and agrees that any plans, renderings
or drawings or similar documents which purport to depict any of the improvements
which comprise the Premises are merely an approximation of, and may not
necessarily reflect, actual, as-built conditions. Lessee agrees to such
modifications, provided that any such modifications to the Plans and
Specifications do not materially affect the value or appearance of the Premises.
Notwithstanding the provisions of Paragraph 9 above, upon completion of
Lessor's work required under this Paragraph 10, Lessor shall guarantee, for the
one-year period following Lessee's acceptance of the Premises, the materials and
workmanship for such work. Upon the expiration of the one-year guarantee period,
Lessor shall, upon Lessee's request, during the
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period of Lessee's possession of the Premises, permit Lessee to jointly exercise
with Lessor the rights and benefits occurring under the warranties, guaranties
and service agreements, if any, covering those portions of the Premises for
which Lessee is responsible under Paragraph 9 hereof.
11. Right of Entry. Lessor shall have the right, but not the obligation,
and upon reasonable notice, to enter the Premises at reasonable hours to exhibit
same to prospective purchasers or tenants; to inspect the Premises to see that
Lessee is complying with all Lessee's obligations hereunder; and to make repairs
required of Lessor under the terms of this Lease or repairs or modifications to
any adjoining space.
12. Lessor's Right to Act for Lessee. If Lessee fails to pay any
additional rent or make any other payment (except Base Rent) or take any other
action when and as required under this Lease, Lessor may, without demand upon
Lessee and without waiving or releasing Lessee from any duty, obligation or
liability under this Lease, pay any such additional rent, make any such other
payment or take any such other action required of Lessee. The actions which
Lessor may take shall include, but are not limited to, the performance of
maintenance or repairs and the making of replacements to the Premises, the
payment of insurance premiums which Lessee is required to pay under this Lease
and the payment of taxes and assessments which Lessee is required to pay under
this Lease. Lessor may pay all incidental costs and expenses incurred in
exercising its rights hereunder, including, without limitation, reasonable
attorneys' fees and expenses, penalties, re-instatement fees, late charges and
interest. All amounts paid by Lessor pursuant to this Paragraph, and all costs
and expenses incurred by Lessor in exercising Lessor's rights under this
Paragraph, shall bear interest at the lesser of (i) eighteen percent (18%) per
annum or (ii) the highest rate permitted under applicable law (the "Default Rate
of Interest"), from the date of payment by Lessor and shall be payable by Lessee
to Lessor upon demand.
13. Default. (a) Each of the following events shall constitute an "Event
of Default" by Lessee under this Lease:
(i) if Lessee shall fail to pay when due any rent or other
payment to be made by Lessee hereunder and shall not cure such failure within
ten (10) days after the due date (as to the scheduled monthly rental payments)
or within ten (10) days after written notice thereof from Lessor (as to
nonscheduled payments), as the case may be; or
(ii) if Lessee shall violate or breach, or shall fail fully
and completely to observe, keep, satisfy, perform and comply with, any
agreement, term, covenant, condition, requirement, restriction or provision of
this Lease (other than the payment of rent or any other payment to be made by
Lessee), and shall not cure such failure within thirty (30) days after Lessor
gives Lessee written notice thereof; or
(iii) if the Premises are deserted or abandoned; or
(iv) if Lessee's interest in the Premises is levied upon and
Lessee fails to have such levy cured, lifted or vacated within thirty (30) days
thereafter; or
(v) if any petition is filed by or against Lessee under any
Section or Chapter of the Federal Bankruptcy Code, and in the case of a petition
filed against Lessee, such petition is not dismissed within sixty (60) days of
such filing; or if Lessee becomes insolvent or transfers property in fraud of
creditors; or if Lessee makes an assignment for the benefit of creditors; or if
a receiver is appointed for any of Lessee's assets.
For the purposes of the Events of Default specified in clause (v)
above, the word "Lessee" shall include, without limitation: (i) any party
comprising Lessee, should more than one person or entity execute this Lease as
Lessee, or any general partner or joint venturer of Lessee or any such party;
and (ii) any person or entity now or hereafter liable, whether primarily,
secondarily or contingently, for the performance of the duties and obligations
of Lessee under this Lease, including without limitation any principal, maker,
endorser, guarantor or surety.
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(b) Upon the occurrence of any Event of Default, Lessor may pursue any one
or more of the following remedies, in addition to any other remedies provided
under this Lease, at law or in equity, separately or concurrently or in any
combination, without any notice (except as specifically provided herein) or
demand whatsoever and without prejudice to any other remedy which it may have
for possession of the Premises or for arrearages in rent or other amounts
payable to Lessee:
(i) Lessor may terminate this Lease by giving Lessee written notice
of termination, in which event Lessee shall immediately quit and vacate the
Premises and deliver and surrender possession of the Premises to Lessor, and
this Lease shall be terminated at the time designated by Lessor in its notice of
termination to Lessee; provided, however, that no termination of this Lease
prior to the normal expiration hereof shall affect Lessor's right to collect
rent for the period prior to termination; or
(ii) With or without terminating this Lease, Lessor may enter upon
and take possession of the Premises and expel or remove Lessee and any other
person who may be occupying the Premises, by force if necessary, without being
liable for prosecution or any claim for damages; or
(iii) Lessor may re-let the Premises or any part thereof, on such
terms and conditions as Lessor may deem satisfactory, and receive the rent for
any such re-letting, in which event Lessee shall pay to Lessor on demand any
deficiency that may arise by reason of such re-letting; provided, further, that
Lessee shall pay over to Lessor on demand any and all reasonable costs and
expenses incurred in renovating or altering the Premises to make it suitable for
re-letting; or
(iv) Lessor may declare immediately due and payable the present
value (using a discount rate of eight percent (8%) per annum) of all rent and
other sums due or to become due under this Lease immediately due and payable;
provided, however, that such payment shall not constitute a penalty or
forfeiture or liquidated damages, but shall merely constitute payment in advance
of the rent for the remainder of the term of this Lease. Upon making such
payment, Lessee shall be entitled to receive from Lessor all rents actually
received by Lessor from other assignees, tenants and subtenants on account of
the Premises during the term of this Lease, provided that the monies to which
Lessee shall so become entitled shall in no event exceed the entire amount
actually paid by Lessee to Lessor pursuant to this subparagraph (iv), less all
costs, expenses and attorneys' fees of Lessor incurred in connection with the
reletting of the Premises.
(c) Lessor's pursuit of any one or more of the remedies provided in this
Lease shall not constitute an election of remedies excluding the election of
another remedy or other remedies, or a forfeiture or waiver of any rent or other
amounts payable under this Lease by Lessee or of any damages or other sums
accruing to Lessor by reason of Lessee's violation of any provision of this
Lease. No action taken by or on behalf of Lessor shall be construed to mean
acceptance of a surrender of this lease. No failure of Lessor to pursue or
exercise any of Lessor's powers, rights or remedies or to insist upon strict and
exact compliance by Lessee with any provision of this Lease, and no custom or
practice at variance with the terms of this Lease, shall constitute a waiver by
Lessor of the right to demand strict and exact compliance with the terms and
conditions of this Lease.
14. Rights Cumulative. All rights, remedies, powers and privileges
conferred under this Lease on Lessor shall be cumulative of and in addition to,
but not restrictive of or in lieu of, those conferred by law.
15. Liens. Lessee hereby indemnifies Lessor against, and shall keep the
Premises, the Building and the Land free from liens for any work performed,
material furnished or obligations incurred by Lessee. Should any liens or claims
be filed against the Premises, the Building or the Land by reason of Lessee's
acts or omissions, Lessee shall cause same to be discharged by bond or otherwise
within ten (10) days after filing. If Lessee fails to cause any such lien or
claim to be discharged within the required time, Lessor may cause same to be
discharged and may make any payment that Lessor, in its sole judgment, considers
necessary, desirable or
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proper in order to do so. All amounts paid by Lessor shall bear interest at the
Default Rate of Interest from the date of payment by Lessor and shall be payable
by Lessee to Lessor upon demand.
16. Lessee's Property; Improvements to the Premises. (a) If Lessee shall
not remove all Lessee's effects from the Premises at any expiration or other
termination of this Lease, Lessor shall have the right, at Lessor's election, to
remove all or part of said effects in any manner that Lessor shall choose and
store the same without liability to Lessee for loss thereof, and Lessee shall be
liable to Lessor for all expenses incurred in such removal and also for the cost
of storage of said effects.
(b) Lessee shall not make, any alterations, additions or improvements to
the Premises, exterior or interior, without the prior written consent of Lessor,
except for unattached movable fixtures which may be installed without drilling,
cutting or otherwise defacing the Premises. If any such alterations, additions
or improvements are made, then, at the expiration of the term of this Lease,
Lessee agrees to restore the Premises to the condition prior to making same, at
Lessee's sole cost and expense, reasonable wear and tear excepted, provided that
if Lessor does not require removal, then all such alterations, additions or
improvements shall become the sole property of Lessor. Lessee may not use or
penetrate the roof of the Premises for any purpose whatsoever without Lessor's
prior written consent. All construction work done by Lessee in the Premises
shall be performed in a good and workmanlike manner, in compliance with all
governmental requirements, and at such times and in such manner as will cause a
minimum of interference with other construction in progress and with the
transaction of business in the Building. Lessee covenants and agrees that all
contractors, subcontractors and other persons or entities performing work for
Lessee at the Premises will carry liability insurance in amounts acceptable to
Lessor.
17. Subletting and Assignment. (a) Lessee shall not, directly or
indirectly, without the prior written consent of Lessor, endorsed hereon, sell,
assign, hypothecate or otherwise transfer this Lease or any interest hereunder,
or sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than Lessee. Consent to any assignment or sublease shall not be
deemed a waiver of the right of Lessor to approve any further assignment or
subletting. Notwithstanding any permitted assignment or subletting, Lessee shall
remain liable for the full and complete performance, satisfaction and compliance
with each and every agreement, term, covenant, condition, requirement, provision
and restriction of this Lease, as principal and not as surety or guarantor, and
as if no such assignment or subletting had been made.
(b) In the event that during the term of this Lease Lessee desires to
sublease the Premises or assign this Lease Lessee shall give written notice
thereof to Lessor, which notice shall contain (i) the name of the proposed
subtenant or assignee; (ii) the terms of any sublease; and (iii) such other
information as Lessor shall reasonably request; whereupon Lessor shall consider
such proposed subtenant or assignee and notify Lessee with reasonable promptness
as to Lessor's choice, at Lessor's sole discretion, of the following: (x) that
Lessor consents to a subleasing of the Premises or assignment of this Lease to
such proposed subtenant or assignee; or (y) that upon such proposed subtenant's
or assignee's entering into a mutually satisfactory new lease of the Premises
with Lessor, then Lessee shall be released from all further obligations and
liabilities under this Lease (excepting only any unpaid rentals or any
unperformed covenants then past due or unperformed under this Lease); or (z)
that Lessor declines to consent to such sublease or assignment due to
insufficient or unsatisfactory documentation furnished to Lessor to establish
the proposed subtenant's or assignee's financial strength and proposed use of
and operations upon the Premises.
(c) In the event that Lessee sublets the Premises or any part thereof, or
sells, assigns or transfers this lease and at any time receives rent and/or
other consideration which exceeds that which Lessee would at that time be
obligated to pay to Lessor, Lessee shall pay to Lessor 100% of the gross excess
in such rent as such rent is received by Lessee and 100% of any other
consideration received by Lessee from such subtenant in connection with such
sublease or, in the case of an assignment of this Lease by Lessee, Lessor shall
receive 100% of any consideration paid to Lessee by such assignee in connection
with such assignment. In addition, should
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Lessor agree to an assignment or sublease agreement, Lessee will pay to Lessor
on demand a sum equal to all of Lessor's costs, including reasonable attorneys'
fees, incurred in connection with such assignment or transfer.
18. Damage or Destruction. If the Premises or any portion thereof are
destroyed by storm, fire, lightning, earthquake or other casualty, Lessee shall
immediately notify Lessor. In the event the Premises cannot, in Lessor's
judgment, be restored within one hundred eighty (180) days of the date of such
damage or destruction, this Lease shall terminate as of the date of such
destruction, and all rent and other sums payable by Lessee hereunder shall be
accounted for as between Lessor and Lessee as of that date. Lessor shall notify
Lessee within thirty (30) days of the date of the damage or destruction whether
the Premises can be restored within one hundred eighty (180) days. If this Lease
is not terminated as provided in this Paragraph, Lessor shall, to the extent
insurance proceeds payable on account of such damage or destruction are
available to Lessor (with the excess proceeds belonging to Lessor), within a
reasonable time, repair, restore, rebuild, reconstruct or replace the damaged or
destroyed portion of the Premises to a condition substantially similar to the
condition which existed prior to the damage or destruction. Provided, however,
Lessor shall only be required to repair, restore, rebuild, reconstruct and
replace the Lessor's Work shown on Exhibit "A," and Lessee shall, at its sole
cost and expense, upon completion of the Lessor's Work, repair, restore,
rebuild, reconstruct and replace, as required, any and all improvements
installed in the Premises by Lessee and all trade fixtures, personal property,
inventory, signs and other contents in the Premises, and all other repairs not
specifically required of Lessor hereunder, in a manner and to at least the
condition existing prior to the damage. Lessee's obligation to pay Base Rent
shall abate until Lessor has repaired, restored, rebuilt, reconstructed or
replaced the Premises, as required herein, in proportion to the part of the
Premises which are unusable by Lessee. If the damage or destruction is due to
the act, neglect, fault or omission of Lessee, there shall be no rent abatement.
Notwithstanding the foregoing, if any such damage or destruction occurs within
the final two (2) years of the term hereof, then Lessor, in its sole discretion,
may, without regard to the aforesaid 180-day period, terminate this Lease by
written notice to Lessee.
19. Condemnation. (a) In the event of a taking of all or any material part
of the Premises (so that the untaken portion is unsuitable for the continued
feasible and economic operation of the Premises by Lessee for substantially the
same purposes as immediately prior to such taking), then this Lease shall
automatically terminate and all rent and other sums payable by Lessee hereunder
shall be apportioned and paid through and including the date of such taking.
(b) Lessor shall be entitled to all awards, damages, compensation or
proceeds payable by reason of any taking, and Lessee shall not be entitled to
any portion thereof, and shall have no claim for, and hereby transfers, assigns,
conveys and sets over unto Lessor all of its right, title and interest, if any,
in or to any award, damages, compensation or proceeds payable by reason of any
taking; and, without limiting the generality of the foregoing, Lessee shall have
no claim, against Lessor or the condemning authority, or otherwise, for any
award, damages, compensation or proceeds for (i) the value of any unexpired term
of this Lease, or (ii) the value of any fixtures or improvements installed by
Lessee in the Premises. Nothing herein shall be construed, however, to preclude
Lessee from prosecuting any claim directly against the condemning authority for
loss of business, moving expenses, damage to, and cost of removal of, trade
fixtures, furniture and other personal property belonging to Lessee; provided,
however, that Lessee shall make no claim which shall diminish or adversely
affect any award claimed or received by Lessor.
20. Indemnity. Lessee shall, at all times, except to the extent of the
negligence of Lessor, its agents and employees, indemnify and hold harmless
Lessor and Lessor's officers, employees and agents from, against and in respect
of, all liabilities, damages, losses, costs, expenses (including all reasonable
attorneys' fees), causes of action, suits, claims, demands and judgments of any
nature whatsoever arising, in whole or in part, out of, by reason of or in
connection with: (i) injury to or the death of persons or damage to property
caused by Lessee (A) on the Premises, or (B) in any manner arising out of, by
reason of or in connection with, the use, nonuse or occupancy of the Premises by
Lessee, or (C) resulting from the condition of the Premises, if caused by
Lessee; (ii) the violation or breach of, or the failure of Lessee to fully
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and completely keep, observe, satisfy, perform and comply with, any agreement,
term, covenant, condition, requirement, provision or restriction of this lease;
or (iii) the violation by Lessee of any law affecting the Premises or the use or
occupancy thereof. Lessee, on behalf of itself and all persons and entities
claiming through Lessee, waives all claims against Lessor for damage to any
property or injury to, or death of, any person in, upon, or about the Premises,
the Building or the Land arising at any time and from any cause (including
without limitation fire, explosion, water, rain, flood, or leaks from any part
of the Premises or from the pipes, appliances, plumbing works, roof, or
subsurface of any floor or ceiling, or from the street or any other place),
except to the extent caused by the negligence or willful misconduct of Lessor,
its agents, employees, representatives, or contractors.
21. Insurance. (a) Lessee shall maintain in force at all times
comprehensive general public liability insurance in an amount of not less than
$2,000,000.00 combined single limit coverage for bodily injury, death and
property damage. Such insurance shall include contractually assumed liability;
and such insurance shall be primary and not in excess of or contributory with
other insurance carried by other persons. Said policy shall name both Lessor and
Lessee as insureds and shall contain a provision requiring the insurer to give
Lessor at least fifteen (15) calendar days' prior written notice before any
termination or expiration of said policy or any reason. Prior to the
commencement of this Lease and prior to the expiration of each term of such
policy Lessee shall deliver to Lessor the original of such policy or a proper
certificate from the insurer.
(b) Lessee hereby agrees to insure any improvements installed by Lessee in
the Premises and its merchandise, trade fixtures, personal property,
furnishings, supplies, inventory, signs and all other contents of the Premises
against fire, with all risk coverage, for the full replacement value thereof.
Lessor shall have no responsibility whatsoever for any damage, theft or other
casualty to or involving the same.
(c) Each policy of insurance obtained by Lessee hereunder or otherwise
with respect to the Premises shall contain a waiver of subrogation clause
reasonably acceptable to Lessor.
(d) Lessor shall insure the Building against damage with casualty
insurance not less than the replacement value of the Building and with such
deductibles as Lessor reasonably deems appropriate and with comprehensive
general public liability insurance in such amounts and with such deductibles as
Lessor reasonably deems appropriate.
22. Signage. Lessee shall not install any signs visible from outside the
Premises except with the prior written consent of Lessor. Any permitted signs
shall be maintained in compliance with applicable governmental rules and
regulations governing such signs, and Lessee shall be responsible to Lessor for
any damage caused by the installation, use or maintenance of said signs. Lessee
agrees, upon removal of said signs, to repair all damage incident thereto.
23. Attorneys' Fees. In the event that either party is required to enforce
the provisions of this Lease, such party, if it prevails, shall be entitled to
receive from the other party all costs and expenses incurred at trial and on
appeal in connection with such enforcement, including but not limited to
reasonable attorneys' fees.
24. Parties. "Lessor" as used in this Lease shall include Lessor's assigns
and successors in title to the Premises. "Lessee" shall include Lessee and, if
this Lease shall be validly assigned or the Premises validly sublet, shall
include such assignee or subtenant, its successors and permitted assigns.
"Lessor" and "Lessee" shall include male and female, singular and plural,
corporation, partnership or individual, as may fit the particular parties.
25. Landlord and Tenant Relationship. This Lease shall create the
relationship of landlord and tenant between Lessor and Lessee; no estate shall
pass out of Lessor; Lessee has only an usufruct not subject to levy and sale.
26. Holding Over. If Lessee remains in possession of the Premises after
expiration of the term of this Lease, with Lessor's acquiescence and without any
distinct agreement of
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parties, Lessee shall be a tenant at will at a rental rate equal to 150% of the
rate in effect at the end of this Lease; there shall be no renewal of this Lease
by operation of law.
27. Sale by Lessor. In the event of any sale, conveyance, transfer or
assignment by Lessor of its interest in and to the Premises, all obligations
under this Lease of the party selling, conveying, transferring, assigning or
otherwise disposing shall cease and terminate and Lessee releases said party
from same and Lessee shall thereafter look only and solely to the party to whom
or which the Premises were sold, conveyed, transferred, assigned or otherwise
disposed of for performance of all of Lessor's duties and obligation under this
Lease.
28. Surrender of the Premises. At the termination of this Lease, Lessee
shall surrender the Premises and keys thereof to Lessor in at least as good a
condition as at commencement of the term of this Lease, natural wear and tear
and casualty only excepted.
29. Notices. Lessee hereby appoints as Lessee's agent to receive the
service of all dispossessory or distraint proceedings and notices thereunder,
and all notices required or permitted under this Lease, the person in charge of
or occupying the Premises at that time; and if no person is in charge of or
occupying same, then such service or notice may be made by attaching the same on
the main entrance to the Premises. All notices to Lessor shall be delivered by
hand or sent by certified mail, return receipt requested, postage prepaid, to
Lessor's principal office set forth at the beginning of this Lease.
30. Covenant of Quiet Enjoyment. So long as Lessee observes and performs
the covenants and agreements contained herein to be observed and performed by
Lessee, Lessor covenants and agrees that Lessee shall at all times during the
term of this Lease peacefully and quietly have and enjoy possession of the
Premises, but always subject to the terms hereof.
31. Subordination and Attornment. (a) This Lease shall be subordinate to
the right, title and interest of any lender or other party holding a security
interest in or a lien upon the Premises under any and all mortgage instruments
or deeds to secure debt presently encumbering the Premises or the Building and
to any and all other deeds to secure debt or mortgage instruments hereafter
encumbering the Premises or the Building. Lessee shall at any time hereafter, on
demand of Lessor or the holder of any such deed to secure debt or mortgage
instrument, execute any instruments which may reasonably be required by such
party for the purpose of evidencing the subordination of this Lease to the lien
or security interest of such party.
(b) The following provisions shall be applicable to the subordinations
provided under subparagraph (a) above: (i) Lessor agrees to use its best efforts
following full execution and delivery of this Lease to obtain from its present
lender a nondisturbance agreement providing that, in the event the deed to
secure debt or mortgage instrument is foreclosed, Lessee's possession of the
Premises shall not be disturbed so long as no Event of Default shall have
occurred and is continuing and so long as Lessee continues to comply with the
terms of this Lease (a "Nondisturbance Agreement"); and (ii) as to any deed to
secure debt or mortgage instrument that is placed against the Premises or the
Building after the date of this Lease, the foregoing subordination shall not be
effective unless the holder of such deed to secure debt or mortgage instrument
shall execute and deliver to Lessee a Nondisturbance Agreement.
(c) Lessee shall, upon demand, at any time or times, execute, acknowledge
and deliver to Lessor or the holder of any such instruments or deeds to secure
debt, without expense, any and all documents that may be necessary to make this
Lease superior to the lien of any of the same.
(d) If the holder of any of said instruments or deeds to secure debt shall
hereafter succeed to the rights of Lessor under this Lease, Lessee shall, at the
option of such holder or a purchaser at any foreclosure or sale under power,
attorn to and recognize such successor as Lessee's landlord under this Lease.
Lessee shall promptly execute, acknowledge and deliver any instrument that may
be necessary to evidence such attornment. Upon such attornment, this
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Lease shall continue in full force and effect as a direct lease between each
successor Lessor and Lessee, subject to all of the terms, covenants and
conditions of this Lease.
(e) If Lessee fails at any time to execute, acknowledge and deliver any of
the documents provided for by this Paragraph within ten (10) days after Lessor's
notice so to do, in addition to the remedies allowed by Paragraph 13 hereof, or
otherwise, Lessor may execute, acknowledge and deliver any and all such
documents as the attorney-in-fact of Lessee in its name, place and stead and
Lessee hereby appoints Lessor, its successors and assigns as such attorney-in-
fact, such power of attorney being coupled with an interest and being
irrevocable by death, dissolution or merger of Lessee.
32. Estoppel Certificate. At any time and from time to time, Lessee, on or
before the date specified in a request therefor made by Lessor, which date shall
not be earlier than ten (10) days from the making of such request, shall
execute, acknowledge and deliver to Lessor a certificate evidencing whether or
not (i) this Lease is in full force and effect; (ii) this Lease has been amended
in any way; (iii) there are any existing defaults on the part of Lessor
hereunder, to the knowledge of Lessee, and specifying the nature of such
defaults, if any; (iv) the date to which rent and other amounts due hereunder,
if any, have been paid; and (v) such other matters requested by Lessor. Each
certificate delivered pursuant to this Paragraph may be relied on by any
prospective purchaser of the Building or transferee of Lessor's interest
hereunder or by any holder or prospective holder of any mortgage instrument or
deed to secure debt now or hereafter encumbering the Building.
33. Governmental Regulations. Lessee agrees, at its sole expense, to
promptly comply with all requirements of any legally constituted public
authority made necessary by reason of Lessee's use or occupancy of the Premises.
Lessor agrees to promptly comply with any such requirements if not made
necessary by reason of Lessee's use or occupancy of the Premises. It is mutually
agreed, however, between Lessor and Lessee, that if in order to comply with such
requirements the cost to Lessor or Lessee, as the case may be, shall exceed a
sum equal to one (1) year's Base Rent under this Lease at the time compliance is
required, then the party who is obligated to comply with such requirement is
entitled to terminate this Lease by giving written notice of termination to the
other party, which termination shall become effective sixty (60) days after
receipt of such notice, and which notice shall eliminate necessity of compliance
with such requirement by the party giving such notice, unless the party
receiving such notice of termination shall, before the termination becomes
effective, pay to the party giving notice all costs of compliance in excess of
one (1) year's Base Rent, or secure payment of said sum in a manner satisfactory
to the party giving notice.
34. Relocation. Lessor shall have the right from time to time to designate
any other space in the Building to be occupied by Lessee in lieu of the
Premises, provided that said other space is of substantially equal size and
area. Lessor shall be responsible for the reasonable costs and expenses related
to Lessee's move as well as the expense of any renovation or alterations
necessary to make the new space substantially conform to layout and appointment
with the original Premises.
35. Successors and Assigns. The provisions of this Lease shall inure to
the benefit of and be binding upon Lessor and Lessee and their respective
successors, heirs, legal representatives and assigns, subject, however, in the
case of Lessee, to the restrictions on assignment and subletting contained in
this Lease.
36. Limitation of Liability. Lessor's obligations and liability to Lessee
with respect to this Lease shall be limited solely to Lessor's interest in the
Building, and neither Lessor, nor any joint venturer, partner, officer, director
or shareholder of Lessor or any of the joint venturers of Lessor shall have any
personal liability whatsoever with respect to this Lease.
37. Agent's Commission. (a) The Agent shall be entitled to receive a
commission in the amounts, and upon the terms and conditions, contained in a
commission agreement between Lessor and Agent.
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(b) Lessee warrants and represents to Lessor that, except as set forth
above, no other party is entitled, as a result of the actions of Lessee, to a
commission or other fee resulting from the execution of this Lease; and in the
event Lessee extends or renews this Lease, or expands the Premises, and Agent is
entitled to a commission under the above-referenced commission agreement, Lessee
shall pay all commissions and fees payable to any party (other than Agent)
engaged by Lessee to represent Lessee in connection therewith. Lessor warrants
and represents to Lessee that, except as set forth above, no other party is
entitled, as a result of the actions of Lessor, to a commission or other fee
resulting from the execution of this Lease. Lessor and Lessee agree to indemnify
and hold each other harmless from any loss, cost, damage or expense (including
reasonable attorneys' fees) incurred by the nonindemnifying party as a result of
the untruth or incorrectness of the foregoing warranty and representation, or
failure to comply with the provisions of this subparagraph.
(c) The Agent is representing Lessee in connection with this Lease, and is
not representing Lessor. Employees of Lessor or its affiliates are representing
Lessor and are not representing Lessee.
(d) The parties acknowledge that a general partner of Lessor or of one of
the sub-partnerships of Lessor, and/or other officers, directors, shareholders,
or partners of Lessor or such sub-partnerships, are licensed real estate brokers
and/or salesmen under the laws of the State of Georgia. Lessee consents to such
parties acting in such dual capacities.
38. Rules and Regulations. Lessee accepts the Premises subject to and
hereby agrees with Lessor to abide by the Rules and Regulations attached to this
Lease and incorporated herein by reference, together with such additional Rules
and Regulations or amendments thereto as may hereafter from time to time be
reasonably established by Lessor, and such additions or amendments shall be
binding on Lessee upon receipt of same by Lessee.
39. Hazardous Substances. Lessee covenants and agrees that it shall not
cause or permit any Hazardous Substances (as hereinafter defined) to be
generated, used, treated, stored, released or disposed of in, on, at, or under
the Premises, the Building or the Land without Lessor's prior written consent.
Lessee further covenants and agrees to indemnify Lessor for any loss, cost,
damage, liability or expense (including, without limitation, attorneys' fees),
as well as environmental impairment damages, that Lessor might ever incur
because of Lessee's failure to comply with the provisions of the immediately
preceding sentence, this indemnification to survive the expiration or other
termination of this Lease. For the purposes of the Paragraph 39, Hazardous
Substances shall mean and refer to (i) all those substances, elements,
materials, compounds or wastes defined or classified as hazardous or restricted
under (A) the Comprehensive Environmental Response, Compensation, and Liability
Act of 1980, as amended from time to time, the regulations promulgated
thereunder and analogous state statutes and regulations, (B) the Resource
Conservation and Recovery Act of 1976, as amended from time to time, the
regulations promulgated thereunder and analogous state statutes and regulations,
(C) the Toxic Substances Control Act, as amended from time to time, the
regulations promulgated thereunder and analogous state statutes and regulations;
and (ii) petroleum products, including, without limitation, waste oils; and
(iii) "asbestos," as defined in 29 C.F.R. Sec. 1910.1001 et seq. (or analogous
regulations promulgated under the Occupational Safety and Health Act of 1970, as
amended from time to time, and the regulations promulgated thereunder); and (iv)
"PCBs," as defined in 40 C.F.R. Sec. 761 et seq., and "TCDD," as defined in 40
C.F.R. Sec. 775 et seq. (or in either case analogous regulations promulgated
under the Toxic Substances Control Act, as amended from time to time); and (v)
any other substance, element, material or compound defined or restricted as a
hazardous, toxic, radioactive or dangerous substance, material or waste by the
Environmental Protection Agency or by any other ordinance, statute, law, code,
or regulation of any federal, state or local governmental entity or any agency,
department or other subdivision thereof, whether now or later enacted, issued,
or promulgated.
40. Miscellaneous. Time is of the essence of this Lease. This Lease
contains the entire agreement of Lessor and Lessee and no representations or
agreements, oral or otherwise, between the parties not embodied herein shall be
of any force or effect. No failure of Lessor to exercise any power given Lessor
hereunder, or to insist upon strict compliance by Lessee of
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any obligations hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of Lessor's right to demand
exact compliance with the terms hereof. If any clause or provision of this Lease
is illegal, invalid or unenforceable under applicable present or future laws or
regulations effective during the term of this Lease, the remainder of this Lease
shall not be affected. In lieu of each clause or provision of this Lease which
is illegal, invalid or unenforceable, there shall be added as a part of this
Lease a clause or provision as nearly identical as may be possible and as may be
legal, valid and enforceable. This Lease shall be governed by, construed under
and interpreted and enforced in accordance with the laws of the State of
Georgia. Neither this Lease, nor any memorandum of this Lease or reference
hereto, shall be recorded by Lessee without Lessor's consent endorsed hereon.
Lessor shall be excused from the performance of any of its obligations under
this Lease for the period of any delay resulting from any cause beyond its
control, including, without limitation, all labor disputes, governmental
regulations or controls, fires or other casualties, inability to obtain any
material or services or acts of God. If Lessee executes this Lease as a
corporation, each of the persons executing this Lease on behalf of Lessee does
hereby personally represent and warrant that Lessee is a duly authorized and
existing corporation, that Lessee is qualified to do business in the state in
which the Premises are located, that the corporation has full right and
authority to enter into this Lease, and that each person signing on behalf of
the corporation is authorized to do so. In the event any representation or
warranty is false, all persons who execute this Lease shall be liable,
individually, as Lessee.
41. Special Stipulations. In the event any Special Stipulations are
attached to this Lease the terms thereof shall control in the event of a
conflict between the provisions of this lease and the provisions thereof.
42. Guaranty. Intentionally deleted.
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IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed, under seal, in their respective names and on their behalf by their
duly authorized officials, the day and year indicated below.
Lessor:
ASC NORTH FULTON ASSOCIATES JOINT VENTURE
By: Anderson & Senkbeil/Hembree Joint Venture
By: Anderson/Hembree Park Partners, Ltd., a
Georgia limited partnership, joint venturer
By: ________________________(SEAL)
General Partner
Date of Execution by Lessor:
____________________________
Lessee:
(Corporate Execution):
MICROSOUTH, INC.
By: ____________________________
President
Attest: ________________________
Secretary
(CORPORATE SEAL)
Date of Execution by Lessee:
________________________________
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EXHIBIT "B"
All that tract or parcel of land lying and being in Land Lot 522 of the
1st District, 2nd Section, Fulton County, Georgia, and being more particularly
described as follows:
Starting at the northwestern corner of Land Lot 522, proceeding thence
South 00(degrees) 24' 52" West, a distance of 40.02 feet to an iron pin
found, being the POINT OF BEGINNING; thence North [ILLEGIBLE](degrees) 45'
52" East, a distance of 165.44 feet to a point; thence along the arc of a
7,476.62' radius curve an arc distance of 350.44 feet to an iron pin found
(said arc being subtended on its southerly side by a chord, bearing South
89(degrees) 53' 34" East, with a length of 350.40 feet); thence along the
arc of a 7,476.62' radius curve an arc distance of 311.69 feet to an iron
pin found (said arc being subtended on its southerly side by a chord, bearing
South 87(degrees) 21' 21" East, with a length of 311.67 feet); thence South
00(degrees) 24' 52" West, a distance of [ILLEGIBLE] feet to an iron pin
found; thence North 89(degrees) 47' 00" West; a distance of 427.20 feet to
a point; thence North 00(degrees) 24' 52" East, a distance of [ILLEGIBLE]
feet to the POINT OF BEGINNING, said tract of Land being shown on that certain
Boundary Survey for Alpha/Booker, dated November 17, 1981, updated June 21,
1982, by Benchmark Engineering Corporation, Dennis [ILLEGIBLE], Georgia
Registered Land Surveyor No. 1873.
Together with all rights under that certain Easement from Kingswood I. to
J. W. Booker, dated November 25, 1981, recorded in Deed Book 8014, page 194,
Fulton County, Georgia Records; together with all rights created under that
certain Easement from Goodman Realty and Mortgage Company, et. al., in favor of
J. W. Booker, dated April 19, 1982, recorded in Deed Book 8114, page 281, Fulton
County, Georgia Records; and together with any interest of John W. Booker in and
to the following described real estate.
Starting at the northwest corner of Land Lot 522, being the POINT OF
BEGINNING; thence North 88(degrees) 45' 52" East, a distance of 164.29 feet to a
point; thence along the arc of a 7,516.62' radius curve; an arc distance of
351.58 feet to a point (said arc being subtended on its southerly side by a
chord, bearing South 89(degrees) 53' 44" East, with a length of 351.55 feet);
thence along the arc of a 7,516.62' radius curve, an arc distance of 311.69 feet
to a point (said arc being subtended on its southerly side by a chord, bearing
South 87(degrees) 22' 04" East, with a length of 311.67 feet); thence South
00(degrees) 24' 52" West, a distance of 40.07 feet to an iron pin found; thence
along the arc of a 7,476.62' radius curve, a distance of 311.69 feet to an iron
pin found (said arc being subtended on its southerly side by a chord, bearing
North 87(degrees) 21' 21" West, with a length of 311.67 feet); thence
northwesterly along the arc of a 7,476.62' radius curve, an arc distance of
350.44 feet, to a point (said arc being subtended on its southerly side by a
chord, bearing North 89(degrees) 53' 34" West, with a length of 350.40 feet);
thence South 88(degrees) 45' 52" West, a distance of 165.44 feet to an iron pin
found, thence North 00(degrees) 24' 52" East, a distance of 40.02 feet to the
POINT OF BEGINNING.
BOOK 8209 PAGE 877
<PAGE>
ACCEPTANCE OF PREMISES
Lessee: ________________________________________________________
Lessor: ________________________________________________________
Date Lease Signed: _______________________________________________
Term of Lease: _______________________________ Months
Address of Leased Premises: Suite ____________ containing
approximately ______________ square feet, located at _____________
__________________________________________________________________
Commencement Date: _______________________________________________
Expiration Date: _________________________________________________
The above described premises are accepted by Lessee as suitable for the purpose
for which they were let. The above described lease term commences and expires on
the dates set forth above. Lessee acknowledges that it has been received from
Lessor ________ number of keys to the leased premises. It is understood that
there is a punch list which will be completed after move-in and will be an
exhibit to the Tenant Estoppel.
LESSEE
__________________________________ WITNESS
(Type Name of Lessee)
By _______________________________ _______________________________
(Signature) (Signature)
__________________________________ _______________________________
(Type Name and Title) (Company)
EXHIBIT "C"
<PAGE>
EXHIBIT "D"
RULES AND REGULATIONS
1. Sign Display. Lessor will provide at Lessee's expense signage for the
Premises. Such signage will be coordinated throughout the park for uniformity
and attractiveness. No sign, tag, label, picture, advertisement or notice shall
be displayed, distributed, inscribed, painted or affixed by Lessee on any part
of the outside or inside of the Building or of the Premises without the prior
written consent of Lessor.
2. Drives and Parking Areas. All parking shall be within the property
boundaries and within marked parking spaces. There should be no on-street
parking and at no time shall any lessee obstruct drives and loading areas
intended for the use of all lessees. The drives and parking areas are for the
joint and non-exclusive use of lessor's lessees, and their agents, customers and
invitees, unless specifically marked. In the event Lessee, its agents, customers
and/or invitees use a disportionate portion of the parking, Lessor shall have
the right to restrict Lessee, its agents, customers and/or invitees to certain
parking areas. Lessee shall not permit any fleet trucks to park overnight in the
Building's parking areas.
3. Storage and Loading Areas. Unless specifically approved by Lessor in
writing, no materials, supplies or equipment shall be stored anywhere except
inside the Premises. Trash receptacles may not be placed in the service areas
except by Lessor. If Lessor does not supply trash receptacles, Lessee shall
furnish its own receptacles, and shall place such receptacles in a location
designated by Lessor.
4. Locks. No additional locks, other than landlord approved entry systems,
shall be placed on the doors of the Premises by Lessee nor shall any existing
locks be changed unless Lessor is immediately furnished with two keys thereto.
Lessor will, without charge, furnish Lessee with two keys for each lock on the
entrance doors when Lessee assumes possession, with the understanding that at
the termination or expiration of the term of the Lease the keys shall be
returned.
5. Contractors and Service Maintenance. Lessee will refer all contractors,
contractor's representatives and installation technicians rendering any service
on or to the Premises for Lessee to Lessor for its approval and supervision
before performance of any service. This provision shall apply to all work
performed in the Building, including, but not limited to, installation of
electrical devices and attachments and installations of any nature affecting
floors, walls, woodwork, trim, windows, ceilings, equipment or any other
physical portion of the Building.
6. Lodging. No Lessee shall at any time occupy any part of the Building as
sleeping or lodging quarters.
7. Regulation of Operation and Use. Lessee shall not place, install or
operate on the Premises or in any part of Building, any engine, stove or
machinery, or conduct mechanical operations or cook thereon or therein, or place
or use in or about the Premises any explosives, gasoline, kerosene, oil, acids,
caustics or any other flammable, explosive or hazardous material without the
prior written consent of Lessor. The foregoing shall not prohibit the use of
microwave ovens.
8. Window Coverings. Windows facing the Building exterior shall at all
times be wholly clear and uncovered (except for such blinds or curtains or other
window coverings Lessor may provide or approve) so that a full unobstructed view
of the interior of the Premises may be had from outside the Building.
9. Modifications. Lessor shall have the right from time to time to modify,
add to or delete any of these Rules and Regulations at Lessor's reasonable
discretion, provided that any changes are uniformly applied to all lessees, and
do not materially interfere with the conduct of Lessee's business at the
Premises.
<PAGE>
EXHIBIT "E"
SPECIAL STIPULATIONS
1. EXPANSION PROVISION. In the event Lessee find it necessary to expand its
operations and requires at least 50% more rentable area than is contained
in the Premises, Lessor agrees to work in good faith to help Lessee locate
to other premises meeting these space requirements owned by Lessor within
Hembree Park. If Lessor does not have appropriate space within Hembree
Park, Lessor will endeavor to relocate Lessee to any other facility owned
by Lessor or a company affiliated with Lessor within a one-mile radius of
the Premises. The rental for the new space shall be then market rent for
space of similar size, quality and finish with Hembree Park. The expansion
shall otherwise be on terms mutually acceptable to Lessor and Lessee. In
no event shall Lessor be required to terminate this Lease in order to
relocate Lessee to any place other than another building owned by Lessor
an affiliated company, as described above.
2. RENEWAL OPTION. If, at the end of the primary term of this Lease, Lessee
is not in default in any of the terms, conditions or covenants of the
Lease, Lessee, but not any assignee or subtenant of Lessee, is hereby
granted an option to renew this Lease for an additional term of thirty-six
(36) months upon the same terms and conditions contained in this Lease
with the following exceptions:
A. The renewal option term will contain no further renewal options
unless expressly granted by Lessor in writing; and
B. In no event shall the base rent for the 1st year of the renewal term
exceed 1.04% of the base rent as stated in Paragraph 3 of the Lease.
If Lessee desires to renew this Lease, Lessee will notify Lessor of its
intention to renew no later than six (6) months prior to the expiration
date of this Lease; Lessor shall, within the next fifteen days, notify
Lessee in writing of the proposed renewal rate and the Lessee shall,
within the next fifteen days following receipt of the proposed rate,
notify the Lessor in writing, of its acceptance or rejection of the
proposed rental rate.
3. Lessor and Lessee agree that allowances for taxes and assessments and
insurance are included in the Base Rental Rate of $4.00 per square foot.
The allowance for taxes and assessments shall be $0.45 per square foot
annually and insurance shall be $0.03 per square foot annually.
4. Lessor and Lessee agree that the estimate for CAM charges (Common Area
Maintenance) shall be $.25 per square foot annually. The estimated
increase for the CAM charges for the next calendar years following the
Base Year shall not exceed 10% annually from the previous year charges.
5. Lessor agrees to provide a nine (9) month warranty on repairs and
maintenance for heating, ventilation and air conditioning equipment.
6. SUBLETTING AND ASSIGNMENT. The consideration paid to the Lessor in excess
of Lessee's obligation from subletting or assignment will first apply to
the cost of procuring such assignment or transfer, which shall include,
but not limited to, reasonable brokerage fees, legal fees and the cost of
improvements made for the subtenant.
8. GOVERNMENTAL REGULATIONS. In the event that any legally constituted public
authority requires the protection of a fire wall between the warehouse and
office areas of the Premises, then Lessor agrees, at its sole expense to
comply with this requirement.
<PAGE>
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE, dated as of the 9th day of January, 1995 by
and between ASC NORTH FULTON ASSOCIATES JOINT VENTURE, a Georgia joint venture,
comprised of New England Mutual Life Insurance Company, a Massachusetts
corporation, and Anderson & Senkbeil/Hembree Joint Venture, a Georgia joint
venture, as its sole joint venture partners ("Lessor"), and MICROSOUTH, INC., a
Delaware Corporation ("Lessee").
WHEREAS, Lessor and Lessee entered into that certain Lease dated April 13,
1992, covering certain real property at 645 Hembree Parkway, Suite J, Roswell,
Fulton County, Georgia being approximately 10,447 square feet of
office/warehouse space.
WHEREAS, Lessor and Lessee wish to amend the Lease hereinafter provided;
NOW THEREFORE, for and in consideration of the premises, the sum of Ten
Dollars ($10.00) cash in hand party to the other and other good and valuable
considerations, the receipt and adequacy of which are hereby acknowledged, the
parties hereto agree as follows:
A. TERM
The lease term is hereby extended for an additional three (3) year
period beginning May 1, 1995 and ending April 30, 1998.
B. RENTAL
The rental as specified in Paragraph 3.01, shall be amended as
follows:
5/1/95 to 4/30/96 - $3,621.63 per month (4.16 SF)
5/1/96 to 4/30/97 - $3,769.63 per month (4.33 SF)
5/1/97 to 4/30/98 - $3,917.63 per month (4.50 SF)
This monthly rental shall be paid under the same terms and
conditions as specified in the original lease agreement, being the
first day of each month.
C. LANDLORD IMPROVEMENTS
It is understood that there will be no Landlord Improvements.
D. CANCELLATION OPTION
Tenant shall have option to cancel at the end of the first 12-month
period with the following conditions:
1) Landlord will receive 120 days prior written notice of
Lessee's intent to cancel.
<PAGE>
First Amendment to Lease
Microsouth, Inc.
Page two
All other terms, provisions and covenants of the lease dated April 13,
1992 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
be executed, under seal, in their respective names and on their behalf by their
duly authorized officers, on the day and year set forth above.
LESSEE: LESSOR:
MICROSOUTH, INC. ASC NORTH FULTON ASSOCIATES
JOINT VENTURE
By: /s/ Tom Woolsey By: Anderson & Senkbeil/Hembree Joint
------------------------- Venture
Title: President
-------------------------
Attest: /s/ [ILLEGIBLE] S. Richardson By: Anderson/Hembree Park Partners,
------------------------- Ltd., a Georgia limited
Title: Office Manager partnership, joint venturer
-------------------------
(CORPORATE SEAL)
By: /s/ Thomas D. Senkbeil
-------------------------
Thomas D. Senkbeil
5,495 square feet
6721 Port West #100
Houston, TX 77024
LEASE AGREEMENT
STATE OF TEXAS
COUNTY OF HARRIS
This Lease Agreement, made and entered into by and between Connecticut General
Life Insurance Company, a Connecticut Corporation hereinafter referred to as
"Landlord," and TekGraf, Inc., a Texas Corporation hereinafter referred to as
"Tenant".
WITNESSETH:
1. Premises and Term: In consideration of the obligation of Tenant to pay rent
as herein provided, and in consideration of the other terms, provisions and
covenants hereof, Landlord hereby demises and leases to Tenant, and Tenant
hereby takes from Landlord certain premises situated within the County of
Harris, State of Texas, more particularly described as follows:
Approximately 5,495 square feet of office and warehouse space located in a
building containing approximately 23,795 square feet situated on 6,101 acres of
land out of Block 2, Reserve "B", Westport Business Park, recorded in Volume
294, Page 93, Harris County Map Records, Houston, Texas and being more
particularly described as 6721 Portwest Drive, Suite 100, Houston, Texas 77024,
as shown in Exhibit "A". Further described as Westport #8 situated within a
project known as Westport Park consisting of 42.8760 acres
together with all rights, privileges, easements, appurtenances and immunities
belonging to or in any way pertaining to the said premises and together with the
buildings and other improvements erected upon said premises (the said real
property and the buildings and improvements thereon being hereinafter referred
to as the "premises").
To have and to hold the same for a term commencing on March 1, 1994 and ending
February 28, 1997, thirty-six (36) months thereafter. Tenant acknowledges that
it has inspected and accepts the premises, and specifically the buildings and
improvements comprising the same, in their present condition as suitable for the
purpose for which the premises are leased. Taking of possession by Tenant shall
be deemed conclusively to establish that said buildings and other improvements
are in good and satisfactory condition as of when possession was taken. Tenant
further acknowledges that no representations as to the repair of the premises,
nor promises to alter, remodel or improve the premises have been made by
Landlord, unless such are expressly set forth in this lease. If this lease is
executed before the premises become vacant or otherwise available and ready for
occupancy, or if any present tenant or occupant of the premises holds over, and
Landlord cannot acquire possession of the premises prior to the date above
recited as the commencement date of this lease, Landlord shall not be deemed to
be in default hereunder, and Tenant agrees to accept possession of the premises
at such time as Landlord is able to tender the same, which date shall
thenceforth be deemed the "commencement date", and Landlord hereby waives
payment of rent covering any period prior to the tendering of possession to
Tenant hereunder. After the commencement date Tenant shall, upon demand, execute
and deliver to Landlord a letter of acceptance of delivery of the premises.
2. Base Rent and Security Deposit.
a) Tenant agrees to pay to Landlord rent for the premises in advance, without
demand, deduction or set off, for the entire term hereof at the rate of Three
Thousand Two Hundred Ninety Seven and no/100------------ Dollars ($ 3,297.00)
per month. One such monthly installment shall be due and payable on the date
hereof and a like monthly installment shall be due and payable on or before the
first day of each calendar month succeeding the Commencement Date recited above
during the hereby demised term, except that the rental payment for any
fractional calendar month at the commencement or end of the lease period shall
be prorated.
b) In addition, Tenant agrees to deposit with Landlord on the date hereof the
sum of Two Thousand Eight Hundred Forty Eight and no/100-------- Dollars
($2,848.00), which sum shall be held by Landlord, without obligation for
interest, as security for the performance of Tenant's covenants and obligations
under this lease, it being expressly understood and agreed that such deposit is
not an advance rental deposit or a measure of Landlord's damages in case of
Tenant's default. Upon the occurrence of any event of default by Tenant,
Landlord may, from time to time, without prejudice to any other remedy provided
herein or provided by law, use such fund to the extent necessary to make good
any arrears of rent or other payments due Landlord hereunder, and any other
damage, injury, expense or liability caused by such event of default; and Tenant
shall pay to Landlord on demand the amount so applied in order to restore the
security deposit to its original amount. Although the security deposit shall be
deemed the property of Landlord, any remaining balance of such deposit shall be
returned by Landlord to Tenant at such time after termination of this lease that
all of Tenant's obligations under this lease have been fulfilled.
3. Use. The demised premises shall be used only for the purpose of receiving,
storing, shipping and selling (other than retail) products, materials and
merchandise made and or distributed by Tenant and for such other lawful purposes
as may be incidental thereto. Outside storage, including without limitation,
trucks and other vehicles, is prohibited without Landlord's prior written
consent. Tenant shall at its own cost and expense obtain any and all licenses
and permits necessary for any such use. Tenant shall comply with all
governmental laws, ordinances and regulations applicable to the use of the
premises, and shall promptly comply with all governmental orders and directives
for the correction, prevention and abatement of nuisances in or upon, or
connected with, the premises, all at Tenant's sole expense. Tenant shall not
permit any objectionable or unpleasant odors, smoke, dust, gas, noise or
vibrations to emanate from the premises, nor take any other action which would
constitute a nuisance or would disturb or endanger any other tenants of the
building in which the premises are situated or unreasonably interfere with their
use of their respective premises. Without Landlord's prior written consent,
Tenant shall not receive, store or otherwise handle any product, material or
merchandise which is explosive or highly inflammable. Tenant will not permit the
premises to be used for any purpose or in any manner (including without
limitation any method of storage) which would render the insurance thereon void
or the insurance risk more hazardous or cause the State Board of Insurance or
other insurance authority to disallow any sprinkler credits.
4. Operating Expense Stop
In the event the operating expenses (as defined below) of Landlord for the
project of which the leased premises are a part shall, in any calendar year
during the term of this Lease, exceed the sum of their 1994 base year level,
Tenant agrees to pay as additional rental Tenant's proportionate share of such
excess operating expenses. Tenant's proportionate share as used in this lease
shall mean a fraction, the numerator which is the space contained in the
premises and the denominator of which is the entire space contained in the
building. Landlord shall, within nine months following the close of any calendar
year for which additional rental is due under this paragraph, invoice Tenant for
the additional rental. The invoice shall include in reasonable detail all
computations of the additional rental, and Tenant agrees to pay the additional
rental within ten days following receipt of the invoice. If this Lease shall
terminate on a day other than the last day of a year, the amount of any
additional rental payable by Tenant applicable to the year in which such
termination shall occur shall be prorated on the ratio that the
<PAGE>
number of days from the commencement of such year to and including such
termination date bears to 365. If at any time during the term of this Lease,
Landlord has reason to believe the per square foot operating expenses for the
calendar year will exceed the sum set forth above, Landlord may by invoice
direct Tenant to prepay monthly one-twelfth of an amount equal to the additional
rental paid in the previous year, or if no additional rental was paid in the
previous year, then Tenant shall prepay monthly one-twelfth of the amount
Landlord reasonably estimates for Tenant's additional rental for such calendar
year. If the invoice delivered within nine months following the close of a
calendar year in accordance with this subparagraph shows an amount owing by
Tenant that is less than the sum of the monthly payments made by Tenant in the
previous calendar year, the invoice shall be accompanied by a refund of the
excess by Landlord to Tenant. If such invoice shows an amount owing by Tenant
which is more then the sum of the monthly payments made by Tenant in the
previous calendar year. Tenant shall pay such deficiency to Landlord within ten
days after receipt of the invoice. For the year in which this Lease terminates,
Landlord shall have the option to charge Tenant for Tenant's proportionate share
of the excess operating expenses based upon the previous year's excess operating
expenses; Landlord shall invoice Tenant under this option within thirty (30)
days prior to the termination of this Lease or at any time thereafter. Tenant
shall have the right, at its own expense and at a reasonable time, but not more
than once per calendar year, to audit Landlord's books relevant to the
additional rentals due under this paragraph.
The term "operating expenses" as used above includes all expenses incurred with
respect to the maintenance and operation of the project, including but not
limited to, maintenance and repair costs, management fees, wages and fringe
benefits payable to employees of Landlord whose duties are connected with the
operation and maintenance of the project, all services, supplies, repairs,
replacements or other expenses for maintaining and operating the project. The
term "operating expenses" also includes all taxes and installments of special or
general assessments (excluding any assessments for municipal or county street
repairs, widening or replacement) upgrades, changes in, or additions to water
and sewage, including special assessments due to deed restrictions and/or
owners' associations, which accrue against the project of which the leased
premises are a part during the terms of this Lease as well as all insurance
premiums Landlord is required to pay or deems appropriate to pay, including
public liability insurance, with respect to the project. The term "operating
expenses" does not include any capital improvement to the project of which the
leased premises are a part, nor shall it include repairs, restoration or other
work occasioned by fire, windstorm or other casualty, income and franchise taxes
of Landlord, expenses incurred in leasing to or procuring of Tenants, leasing
commissions, advertising expenses, expenses for the renovating of space for new
Tenants, interest or principal payments on any mortgage or other indebtedness of
Landlord, compensation paid to any employee of Landlord above the grade of
building superintendent nor any depreciation allowance or expense.
The Landlord shall have the right to employ a tax consulting firm to attempt to
assure a fair tax burden on the building and grounds within the applicable
taxing jurisdiction. Tenant shall pay to Landlord upon demand from time to time,
as additional rent, the amount of Tenant's "proportionate share" of the cost of
such service.
Notwithstanding the foregoing, Tenant shall be responsible for and shall pay to
Landlord an initial monthly common area maintenance reimbursement of $275.00
which includes Tenant's proportionate share of landscape maintenance, parking
lot maintenance, security (if any), water, sewer and general project utilities,
and these monthly reimbursed expenses shall be excluded from the general expense
calculations for determining "base year level" expenses as discussed above. The
common area maintenance reimbursement shall not increase more than 10% per
annum.
5. Landlord's Repairs. Landlord shall at his expense maintain only the roof,
foundation and the structural soundness of the exterior walls of the building in
good repair, reasonable wear and tear excepted. Tenant shall repair and pay for
any damage caused by Tenant, or Tenant's employees, agents or invitees, or
caused by Tenant's default hereunder. The term "walls" as used herein shall not
include windows, glass or plate glass, doors, special store fronts or office
entries. Tenant shall immediately give Landlord written notice of defect or need
for repairs, after which Landlord shall have reasonable opportunity to repair
same or cure such defect. Landlord's liability with respect to any defects,
repairs or maintenance for which Landlord is responsible under any of the
provisions of this lease shall be limited to the cost of such repairs or
maintenance or the curing of each defect.
6. Tenant's Repairs
a) Tenant shall at its own cost and expense keep and maintain all parts of the
premises (except those for which Landlord is expressly responsible under the
terms of this lease) in good condition, promptly making all necessary repairs
and replacements, including but not limited to, windows, glass and plate glass,
doors, any special office entry, interior walls and finish work, floors and
floor covering, downspouts, gutters, heating and air conditioning systems, dock
boards, truck doors, dock bumpers, paving, plumbing work and fixtures, termite
and pest extermination, regular removal of trash and debris, keeping the parking
areas, driveways, alleys and the whole of the premises in a clean and sanitary
condition. Tenant shall not be obligated to repair any damage caused by fire,
tornado or other casualty covered by the insurance to be maintained by Landlord
pursuant to subparagraph 12(a) below, except that Tenant shall be obligated to
repair all wind damage to glass except with respect to tornado or hurricane
damage.
b) Tenant shall not damage any demising wall or disturb the integrity and
support provided by any demising wall and shall, at its sole cost and expense,
promptly repair any damage or injury to any demising wall caused by tenant or
its employees, agents or invitees.
c) In the event the premises constitute a portion of a multiple occupancy
building, Tenant and its employees, customers and licensees shall have the
exclusive right to use the parking areas, if any, as may be designated by
Landlord in writing, subject to such reasonable rules and regulations as
Landlord may from time to time prescribe and subject to rights of ingress and
egress of other tenants. Landlord shall not be responsible for enforcing
Tenant's exclusive parking rights against any third parties. Further, in
multiple occupancy buildings, if Tenant or any other particular tenant of the
building can be clearly identified as being responsible for obstructions or
stoppage of the common sanitary sewage line, then Tenant, if Tenant is
responsible, or such other responsible tenant, shall pay the entire cost
thereof, upon demand, as additional rent. Tenant shall pay when due its share,
determined as aforesaid, of such costs and expenses in the event Landlord elects
to perform or cause to be performed such work.
2
<PAGE>
e) Tenant shall, at its own cost and expense will maintain hot water, heating
and air conditioning systems and equipment within the premises.
7. Alterations. Tenant shall not make any alterations, additions or improvements
to the premises (including but not limited to roof and wall penetrations)
without the prior written consent of Landlord. Tenant may, without the consent
of Landlord, but at its own cost and expense and in a good workmanlike manner
erect such shelves, bins, machinery, and trade fixtures as it may deem
advisable, without altering the basic character of the building or improvements
and without overloading or damaging such building or improvements, and in each
case complying with all applicable governmental laws, ordinances, regulations
and other requirements. All alterations, additions, improvements and partitions
erected by Tenant shall be and remain the property of Tenant during the term of
this lease and Tenant shall, unless Landlord otherwise elects as hereinafter
provided, remove all alterations, additions, improvements and partitions erected
by Tenant restore the premises to their original condition by the date of
termination of this lease or upon earlier vacating of the premises; provided,
however, that if Landlord so elects prior to termination of this lease or upon
earlier vacating of the premises, such alterations, additions, improvements and
partitions shall become the property of Landlord as of the date of termination
of this lease or upon earlier vacating of the premises and shall be delivered up
to the Landlord with the premises. All shelves, bins, machinery and trade
fixtures installed by Tenant may be removed by Tenant prior to the termination
of this lease if Tenant so elects, and shall be removed by the date of
termination of this lease or upon earlier vacating of the premises if required
by Landlord; upon any such removal Tenant shall restore the premises to their
original condition. All such removals and restoration shall be accomplished in a
good workmanlike manner so as not to damage the primary structure or structural
qualities of the buildings and other improvements situated on the premises.
8. Signs. Tenant shall have the right to install signs upon the premises only
when first approved in writing by Landlord and subject to any applicable
governmental laws, ordinances, regulations, Landlord's architectural controls,
and other requirements. Tenant shall remove all such signs by the termination of
this lease. Such installations and removals shall be made in such manner as to
avoid injury or defacement of the building and other improvements, and Tenant
shall repair any injury or defacement, including without limitation
discoloration, caused by such installation and/or removal.
9. Inspection. Landlord and Landord's agents and representatives shall have the
right to enter and inspect the premises at any reasonable time during business
hours, for the purpose of ascertaining the condition of the premises or in order
to make such repairs as may be required or permitted to be made by Landlord
under the terms of this lease. During the period that is six (6) months prior to
the end of the term hereof, Landlord and Landlord's agents and representatives
shall have the right to enter the premises at any reasonable time during
business hours for the purpose of showing the premises and shall have the right
to erect on the premises a suitable sign indicating the premises are available.
Tenant shall give written notice to Landlord at least thirty (30) days prior to
vacating the premises and shall arrange to meet with Landlord for a joint
inspection of the premises prior to vacating. In the event of Tenant's failure
to give such notice or arrange such joint inspection, Landlord's inspection at
or after Tenant's vacating the premises shall be conclusively deemed correct for
purposes of determining Tenant's responsibility for repairs and restoration.
10. Utilities. Landlord agrees to provide at its cost water, electricity and
telephone service connections into the premises; but Tenant shall pay for all
water, gas, heat, light, power, telephone, sewer, sprinkler charges and other
utilities and services used on or from the premises, together with any taxes,
penalties, surcharges or the like pertaining thereto and any maintenance charges
for utilities and shall furnish all electric light bulbs and tubes. If any such
services are not separately metered to Tenant, Tenant shall pay a reasonable
portion as determined by Landlord of all charges jointly metered with other
premises. Landlord shall in no event be liable for any interruption or failure
of utility services on the premises.
11. Assignment and Subletting. Tenant will not assign this lease, or allow same
to be assigned by operation of law or otherwise, or sublet the demised premises
or any part thereof without the prior written consent of Landlord.
Notwithstanding any permitted assignment or subletting, Tenant shall at all
times remain directly, primarily and fully responsible and liable for the
payment of the rent herein specified and for compliance with all of its other
obligations under the terms, provisions and covenants of this lease. Upon the
occurrence of an "event of default" as hereinafter defined, if the premises or
any part thereof are then assigned or sublet, Landlord, in addition to any other
remedies herein provided or provided by law, may at its option collect directly
from such assignee or subtenant all rents becoming due to Tenant under such
assignment or sublease and apply such rent against any sums due to Landlord from
Tenant hereunder, and no such collection shall be construed to constitute a
novation or a release of Tenant from the further performance of Tenant's
obligations hereunder.
If Tenant shall propose to sublet or assign this Lease, it shall so notify
Landlord in writing not lease than thirty (30) days prior to the date of the
proposed assignment or subletting, such notice setting forth the name of the
proposed subtenant or assignee, the term, use, rental rate and other particulars
of the proposed subletting or assignment, including without limitation, proof
satisfactory to Landlord that the proposed subtenant or assignee is financially
responsible and will immediately occupy and thereafter use the entire premises
(or any sublet portion thereof) for the remaining term of this lease (or for
the entire term of the sublease, if shorter).
Landlord shall have the option, in the event of any proposed assignment or
subletting, to cancel this lease as of the date the subletting or assignment
described in Tenant's notice is to be effective. The option shall be exercised,
if at all, by Landlord's giving Tenant written notice thereof within twenty
(20) days following Landlord's receipt of Tenant's written request. Upon any
such cancellation Tenant shall pay to Landlord all costs or charges which are
the responsibility of Tenant hereunder, and Tenant shall, at Tenant's own cost
and expense, discharge in full any outstanding commission obligation on the part
of Landlord with respect to this lease. Further, upon any such cancellation
Landlord and Tenant shall have no further obligations or liabilities to each
other under this lease, except with respect to obligations or liabilities which
accrue hereunder, as of such cancallation date in the same manner as if such
cancellation date were the date originally fixed for the expiration of the term
hereof. Without limitation, Landlord may lease the premises to the prospective
subtenant or assignee, without liability to the Tenant. Landlord's failure to
exercise any right hereunder shall not waived Landlord's right as to any
subsequent proposed sublease or assignment, nor shall any such failure be deemed
to constitute Landlord's approval of the proposed sublease or assignment.
If Landlord does not cancel this lease, Landlord agrees to approve any
assignment by Tenant to any corporation succeeding to substantially all the
business and assets of Tenant by merger, consolidation, purchase of assets or
otherwise, or to any assignment or subletting to a corporation which is an
affiliate of Tenant. In other cases, Landlord agrees not to unreasonably
withhold approval of any proposed subletting or assingment as to which Landlord
declines its rights of cancellation hereunder provided such proposed transaction
is consummated within thirty (30) days after Landlord's refusal or failure to so
recapture, and upon the same terms and conditions disclosed to Landlord in
Tenant's notice, and with another financially responsible party whose use of the
demised premises will not depreciate the value of the premises, or the value of
the property adjacent thereto, or will not be extra hazardous with reference to
the risk of fire or other hazards. Any assignment or subletting without
Landlord's approval, where required hereunder, shall be void and of no effect.
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Landlord shall have the right to transfer and assign, in whole or in part, any
of its rights under this lease, and in the Building and property referred to
herein; and to the extent that such assignee assumes Landlord's obligations
hereunder, Landlord shall by virtue of such assignment be released from such
obligations.
12. Fire and Casualty Damage.
a) Landlord agrees to maintain standard fire and extended coverage insurance
covering the building of which the premises are a part in an amount not less
than 80% (or such greater percentage as may be necessary to comply with the
provisions of any co-insurance clauses of the policy) of the "replacement cost"
thereof as such term is defined in the Replacement Cost Endorsement to be
attached thereto, insuring against the perils of Fire, Lightning and Extended
Coverage, such coverages and endorsements to be as defined, provided and limited
in the standard bureau forms prescribed by the insurance regulatory authority
for the State in which the premises are situated for use by insurance companies
admitted in such state for the writing of such insurance on risks located within
such state. Subject to the provisions of subparagraphs 12(c), 12(d) and 12(e)
below, such insurance shall be for the sole benefit of Landlord and under its
sole control.
b) If the buildings situated upon the premises should be damaged or destroyed by
fire, tornado or other casualty, Tenant shall give immediate written notice
thereof to Landlord.
c) If the buildings situated upon the premises should be totally destroyed by
fire, tornado or other casualty, or if they should be so damaged, thereby that
rebuilding or repairs cannot in Landlord's estimation be completed within two
hundred (200) days after the date upon which Landlord is notified by Tenant of
such damage, this lease shall terminate and the rent shall be abated during the
unexpired portion of this lease, effective upon the date of the occurrence of
such damage.
d) If the buildings situated upon the premises should be damaged by any peril
covered by the insurance to be provided by Landlord under subparagraph 12(a)
above, but only to such extent that rebuilding or repairs can in Landlord's
estimation be completed within two hundred (200) days after the date upon which
Landlord is notified by Tenant of such damage, this lease shall not terminate,
and Landlord shall at its sole cost and expense thereupon proceed with
reasonable diligence to rebuild and repair such buildings to substantially the
condition in which they existed prior to such damage, except that Landlord shall
not be required to rebuild, repair or replace any part of the partitions,
fixtures, additions and other improvements which may have been placed in, on or
about the premises by Tenant. If the premises are untenantable in whole or in
part following such damage, the rent payable hereunder during the period in
which they are untenantable shall be reduced to such extent as may be fair and
reasonable under all of the circumstances. In the event that Landlord should
fail to complete such repairs and rebuilding within two hundred (200) days after
the date upon which Landlord is notified by Tenant of such damage, Tenant may at
its option terminate this lease by delivering written notice of termination to
Landlord as Tenant's exclusive remedy, whereupon all rights and obligations
hereunder shall cease and terminate.
e) Notwithstanding anything herein to the contrary, in the event the holder of
any indebtedness secured by a mortgage or deed of trust covering the premises
requires that the insurance proceeds be applied to such indebtedness, then
Landlord shall have the right to terminate this lease by delivering written
notice of termination to Tenant within fifteen (15) days after such requirement
is made by any such holder, whereupon all rights and obligations hereunder shall
cease and terminate.
f) Each of Landlord and Tenant hereby releases the other from any loss or damage
to property caused by fire or any other perils insured through or under them by
way of subrogation or otherwise for any loss or damage to property caused by
fire or any other perils insured in policies of insurance covering such
property, even if such loss or damage shall have been caused by the fault or
negligence of the other party, or anyone for whom such party may be responsible;
provided, however, that this release shall be applicable and in force and effect
only with respect to loss or damage occurring during such times as the
releasor's policies shall contain a clause or endorsement to the effect that any
such release shall not adversely affect or impair said policies or prejudice the
right of the releasor to recover thereunder and then only to the extent of the
insurance proceeds payable under such policies. Each of the Landlord and Tenant
agrees that it will request its insurance carriers to include in its policies
such a clause or endorsement. If extra cost shall be charged therefor, each
party shall advise the other thereof and of the amount of the extra cost, and
the other party, at its election, may pay the same, but shall not be obligated
to do so.
13. Liability. Landlord shall not be liable to Tenant or Tenant's employees,
agents, patrons or visitors, or to any other person whomsoever, for any injury
to person or damage to property on or about the premises, resulting from and/or
caused in part or whole by the negligence or misconduct of Tenant, its agents,
servants or employees, or of any other person entering upon the premises, or
caused by the buildings and improvements located on the premises becoming out of
repair, or caused by leakage of gas, oil, water or steam or by electricity
emanating from the premises, or due to any cause whatsoever, and Tenant hereby
covenants and agrees that it will at all times indemnify and hold safe and
harmless the property, the Landlord (including without limitation the trustee
and beneficiaries if Landlord is a trust), Landlord's agents and employees from
any loss, liability, claims, suits, costs, expenses, including without
limitation attorney's fees and damages, both real and alleged, arising out of
any such damage or injury; except injury to persons or damage to property the
sole cause of which is the negligence of Landlord or the failure of Landlord to
repair any part of the premises which Landlord is obligated to repair and
maintaining hereunder within a reasonable time after the receipt of written
notice from Tenant of needed repairs. Tenant shall procure and maintain
throughout the term of this lease a policy or policies of insurance, at its sole
cost and expense, insuring both Landlord and Tenant against all claims, demands
or actions arising out of or in connection with: (i) the premises; (ii) the
condition of the premises; (iii) Tenant's operations in and maintenance and use
of the premises; and (iv) Tenant's liability assumed under this lease, the
limits of such policy or policies to be in the amount of not less than
$1,000,000 per occurrence in respect of injury to persons (including death), and
in the amount of not less than $500,000 per occurrence in respect of property
damage or destruction, including loss of use thereof. All such policies shall be
procured by Tenant from responsible insurance companies satisfactory to
Landlord. Certified copies of such policies, together with receipt evidencing
payment of premiums therefor, shall be delivered to Landlord prior to the
commencement date of this lease. Not less than fifteen (15) days prior to the
expiration date of any such policies certified copies of the renewals thereof
(bearing notations evidencing the payment of renewal premiums) shall be
delivered to Landlord. Such policies shall further provide that not less than
thirty (30) days written notice shall be given to Landlord before such policy
may be cancelled or changed to reduce insurance provided thereby.
14. Condemnation
a) If the whole or any substantial part of the premises should be taken for any
public or quasi-public use under governmental law, ordinance or regulation, or
by right of eminent domain, or by private purchase in lieu thereof and the
taking would prevent or materially interfere with the use of the premises for
the purpose for which they are being used, this lease shall terminate and the
rent shall be abated during the unexpired portion of this lease, effective when
the physical taking of said premises shall occur.
b) If part of the premises shall be taken for any public or quasi-public use
under any governmental law, ordinance or regulation, or by right of eminent
domain, or by private purchase in lieu thereof, and this lease is not terminated
as provided in the subparagraph above, this lease shall not terminate but the
rent payable hereunder during the unexpired portion of this lease shall be
reduced to such extent as may be fair and reasonable under all of the
circumstances.
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c) In the event of any such taking or private purchase in lieu thereof, Landlord
and Tenant shall each be entitled to receive and retain such separate awards
and/or portion of Lump Sum awards as may be allocated to their respective
interests and any condemnation proceedings.
15. Holding Over. Tenant will at the termination of this lease by lapse of time
or otherwise, yield up immediate possession to Landlord. If Landlord agrees in
writing that Tenant may hold over after the expiration or termination of this
lease, unless the parties hereto otherwise agree in writing on the terms of such
holding over, the hold over tenancy shall be subject to termination by Landlord
at any time upon not less than five (5) days advance written notice, or by
Tenant at any time upon not less than thirty (30) days advance written notice,
and all of the other terms and provisions of this lease shall be applicable
during that period, except that Tenant shall pay Landlord from time to time upon
demand, as rental for the period of any hold over, an amount equal to one and
one-half (1 1/2) the rent in effect on the termination date, computed on a daily
basis for each day of the hold over period. No holding over by Tenant, whether
with or without consent of Landlord shall operate to extend this lease except as
otherwise expressly provided. The preceding provisions of this paragraph 15
shall not be construed as Landlord's consent for Tenant to hold over.
16. Quiet Enjoyment. Landlord covenants that it now has, or will acquire before
Tenant takes possession of the premises, good title to the premises, free and
clear of all liens and encumbrances, excepting only the lien for current taxes
not yet due, such mortgage or mortgages as are permitted by the terms of this
lease, zoning ordinances and other building and fire ordinances and governmental
regulations relating to the use of such property, and easements, restrictions
and other conditions of record. In the event this lease is a sublease, then
Tenant agrees to take the premises subject to the provisions of the prior
leases. Landlord represents and warrants that it has full right and authority to
enter into this lease and that Tenant, upon paying the rental herein set forth
and performing its other covenants and agreements herein set forth, shall
peaceably and quietly have, hold and enjoy the premises for the term hereof
without hindrance or molestation from Landlord, subject to the terms and
provisions of this lease.
17. Events of Default. The following events shall be deemed to be events of
default by Tenant under this lease:
a) Tenant shall fail to pay any installment of the rent herein reserved when
due, or any payment with respect to taxes hereunder when due, or any other
payment or reimbursement to Landlord required herein when, due, and such failure
shall continue for a period of five (5) days from the date such payment was due.
b) Tenant shall become insolvent, or shall make a transfer in fraud of
creditors, or shall make an assignment for the benefit of creditors.
c) Tenant shall file a petition under any section or chapter of the National
Bankruptcy Act, as amended, or under any similar law or statute of the United
States or any State thereof; or Tenant shall be adjudged bankrupt or insolvent
in proceedings filed against Tenant thereunder.
d) A receiver or trustee shall be appointed for all or substantially all of the
assets of Tenant.
e) Tenant shall desert or vacate any substantial portion of the premises.
f) Tenant shall fail to comply with any term, provision or covenant of this
lease (other than the foregoing in this Paragraph 17), and shall not cure such
failure within twenty (20) days after written notice thereof to Tenant.
18. Remedies. Upon the occurrence of any such events of default described in
Paragraph 17 hereof, Landlord shall have the option to pursue any one or more of
the following remedies without any notice or demand whatsoever:
a) Terminate this lease, in which event Tenant shall immediately surrender the
premises to Landlord, and if Tenant falls so to do, Landlord may, without
prejudice to any other remedy which it may have for possession or arrearages in
rent, enter upon and take possession of the premises and expel or remove Tenant
and any other person who may be occupying such premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim of damages
therefor; and Tenant agrees to pay to Landlord on demand the amount of all loss
and damage which Landlord may suffer by reason of such termination, whether
through inability to relet the premises on satisfactory terms or otherwise.
b) Enter upon and take possession of the premises and expel or remove Tenant and
any other person who may be occupying such premises or any part thereof, by
force if necessary, without being liable for prosecution or any claim for
damages therefor, and relet the premises and receive the rent therefor; and
Tenant agrees to pay to the Landlord on demand any deficiency that may arise by
reason of such reletting. In the event Landlord is successful in reletting the
premises at a rental in excess of that agreed to be paid by Tenant pursuant to
the terms of this lease, Landlord and Tenant each mutually agree that Tenant
shall not be entitled, under any circumstances, to such excess rental, and
Tenant does hereby specifically waive any claim to such excess rental.
c) Enter upon the premises, by force if necessary, without being liable for
prosecution or any claim for damages therefor, and do whatever Tenant is
obligated to do under the terms of this lease; and Tenant agrees to reimburse
Landlord on demand for any expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this lease, and Tenant further agrees
that Landlord shall not be liable for any damages resulting to the Tenant from
such action, whether caused by the negligence of Landlord or otherwise.
In the event Tenant fails to pay any installment of rent or any reimbursement,
additional rental, or any other payment hereunder as and when such payment is
due, to help defray the additional cost to Landlord for processing such late
payments Tenant shall pay to Landlord on demand a late charge in an amount equal
to five percent (5%) of such installment, reimbursement, additional rental or
any other payment and the failure to pay such late charge within ten (10) days
after demand therefor shall be an event of default hereunder. The provision for
such late charge shall be in addition to all of Landlord's other rights and
remedies hereunder or at law and shall not be construed as liquidated damages or
as limiting Landlord's remedies in any manner.
Pursuit of any of the foregoing remedies shall not preclude pursuit of any of
the other remedies herein provided or any other remedies provided by law, nor
shall pursuit of any remedy herein provided constitute a forfeiture or waiver of
any rent due to Landlord hereunder or of any damages accruing to Landlord by
reason of the violation of any of the terms, provisions and covenants herein
contained. No act or thing done by the Landlord or its agents during the term
hereby granted shall be deemed a termination of this lease or an acceptance of
the surrender of the premises, and no agreement to terminate this lease or
accept a surrender of said premises shall be valid unless in writing signed by
Landlord. No waiver by Landlord of any violation or breach of any of the terms,
provisions and covenants herein contained shall be deemed or construed to
constitute a waiver of any other violation or breach of any of the terms,
provisions and covenants herein contained. Landlord's acceptance of the payment
of rental or other payments hereunder after the occurrence of an event of
default shall not be construed as a waiver of such default, unless Landlord so
notifies Tenant in writing. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default or of Landlord's right to
enforce any such remedies with respect to such default or any subsequent
default. If, on account of any breach or default by
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Tenant in Tenant's obligations under the terms and conditions of this lease, it
shall become necessary or appropriate for Landlord to employ or consult with an
attorney concerning or to enforce or defend any of Landlord's rights or remedies
hereunder, Tenant agrees to pay any reasonable attorney's fees so incurred.
19. Landlord's Lien. In addition to any statutory lien for rent in Landlord's
favor, Landlord shall have and Tenant hereby grants to Landlord a continuing
security interest for all rentals and other sums of money becoming due hereunder
from Tenant, upon all goods, wares, equipment, fixtures, furniture, inventory,
accounts, contract rights, chattel paper and other personal property of Tenant
situated on the premises, and such property shall not be removed therefrom
without the consent of Landlord until all arrearages in rent as well as any and
all other sums of money then due to Landlord hereunder shall first have been
paid and discharged. In the event of a default under this lease, Landlord shall
have, in addition to any other remedies provided herein or by law, all rights
and remedies under the Uniform Commercial Code, including without limitation the
right to sell the property described in this Paragraph 19 at public or private
sale upon five (5) days notice to Tenant. Tenant hereby agrees to execute such
financing statements and other instruments necessary or desirable in Landlord's
discretion to perfect the security interest hereby created. Any statutory lien
for rent is not hereby waived, the express contractual lien herein granted being
in addition and supplementary thereto.
20. Subordination. This Lease and all rights of Tenant hereunder are subject and
subordinate (i) to any mortgage or deed of trust, blanket or otherwise, which
does now or may hereafter affect the building (and which may also affect other
properties) and (ii) to any and all increases, renewals, modifications,
consolidations, replacements and extensions of any such mortgage or deed of
trust. This provision is hereby declared by Landlord and Tenant to be
self-operative and no further instruments shall be required to effect such
subordination of this Lease. Tenant shall, however, upon demand at any time or
times execute, acknowledge and deliver to Landlord any and all instruments and
certificates that may be necessary or proper to more effectively subordinate
this Lease and all rights of Tenant hereunder to any such mortgage or deed of
trust or to confirm or evidence such subordination. In the event Tenant shall
fail or neglect to execute, acknowledge and deliver any such subordination
agreement or certificate, Landlord in addition to any other remedies it may
have, may, as the agent and attorney in fact of Tenant, execute, acknowledge and
deliver the same and Tenant hereby irrevocably nominates, constitutes and
appoints Landlord Tenant's proper and legal agent and attorney in fact for such
purposes. Such power of attorney shall not terminate on disability of the
principal. Tenant covenants and agrees, in the event any proceedings are brought
for the foreclosure of any such mortgage or if the Building be sold pursuant to
any such deed of trust, to attorn to the purchaser, upon any such foreclosure
sales or trustee's sale if so requested by such purchaser and to recognize such
purchaser as the Landlord under this Lease. Tenant agrees to execute and deliver
at any time and from time to time, upon the request of Landlord or of any
holder(s) of any of the indebtedness or other obligations secured by any of the
mortgages or deeds of trust referred to in this paragraph any instruments or
certificates which, in the sole judgment of the Landlord or of such holder(s),
may be necessary or appropriate in any such foreclosure proceeding or otherwise
to evidence such attornment. Tenant hereby irrevocably appoints Landlord and the
holders of the indebtedness or other obligations secured by the aforesaid
mortgages and/or deeds of trust jointly and severally the agent and attorney in
fact of Tenant to execute and deliver for and on behalf of Tenant any such
instrument or certificate. Such power of attorney shall not terminate on
disability of the principal. Tenant further waives the provisions of any statute
or rule of law, now or hereafter in effect, which may give or purport to give
Tenant any right or election to terminate or otherwise adversely affect this
Lease and the obligation of Tenant hereunder in the event any such foreclosure
proceeding is brought or trustee's sale occurs and agrees that this Lease shall
not be affected in any way whatsoever by any such foreclosure proceeding or
trustee's sale unless the holder(s) of the indebtedness or other obligations
secured by said mortgages and/or deeds of trust shall declare otherwise.
21. Landlord's Default. In the event Landlord should become in default in any
payments due on any such mortgage described in Paragraph 20 hereof or in the
payment of taxes or any other items which might become a lien upon the premises
and which Tenant is not obligated to pay under the terms and provisions of this
lease, Tenant is authorized and empowered after giving Landlord five (5) days
prior written notice of such default and Landlord's failure to cure such
default, to pay any such items for and on behalf of Landlord, and the amount of
any item so paid by Tenant for or on behalf of Landlord, together with any
interest or penalty required to be paid in connection therewith, shall be
payable on demand by Landlord to Tenant; provided, however, that Tenant shall
not be authorized and empowered to make any payment under the terms of this
Paragraph 21 unless the item paid shall be superior to Tenant's interest
hereunder. In the event Tenant pays any mortgage debt in full, in accordance
with this paragraph, it shall, at its election, be entitled to the mortgage
security by assignment or subrogation.
22. Mechanic's Liens. Tenant shall have no authority, express or implied, to
create or place any lien or encumbrance of any kind or nature whatsoever upon,
or in any manner to bind, the interest of Landlord in the premises or to charge
the rentals payable hereunder for any claim in favor of any person dealing with
Tenant, including those who may furnish materials or perform labor for any
construction or repairs, and each such claim shall affect and each such lien
shall attach to, if at all, only the leasehold interest granted to Tenant by
this instrument. Tenant covenants and agrees that it will pay or cause to be
paid all sums legally due and payable by it on account of any labor performed or
materials furnished in connection with any work performed on the premises on
which any lien is or can be validly and legally asserted against its leasehold
interest in the premises or the improvements thereon and that it will save and
hold Landlord harmless from any and all loss, cost or expense based on or
arising out of asserted claims or liens against the leasehold estate or against
the right, title and interest of the Landlord in the premises or under the terms
of this lease.
23. Notices. Each provision of this instrument or of any applicable governmental
laws, ordinances, regulations and other requirements with reference to the
sending, mailing or delivery of any notice or the making of any payment by
Landlord to Tenant or with reference to the sending, mailing or delivery of any
notice or the making of any payment by Tenant to Landlord shall be deemed to be
complied with when and if the following steps are taken:
a) All rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at the address hereinbelow set forth or
at such other address as Landlord may specify from time to time by written
notice delivered in accordance herewith. Tenant's obligation to pay rent and any
other amounts to Landlord under the terms of this lease shall not be deemed
satisfied until such rent and other amounts have been actually received by
Landlord.
b) All payments required to he made by Landlord to Tenant hereunder shall be
payable to Tenant at the address hereinbelow set forth, or at such other address
within the continental United States as Tenant may specify from time to time by
written notice delivered in accordance herewith.
c) Any notice or document required or permitted to be delivered hereunder shall
be deemed to be delivered whether actually received and not when deposited in
the United States Mail, postage prepaid. Certified or Registered Mail, addressed
to the parties hereto at the respective addresses set out below, or at such
other address as they have heretofore specified by written notice delivered in
accordance herewith:
Landlord: Tenant:
Connecticut General Life Insurance Company
a Connecticut Corporation TekGraf, Inc., a Texas Corporation
- ------------------------------------------- ----------------------------------
c/o Transwestern Property Company; 6671 6721 Portwest, Suite 100
- ------------------------------------------- ----------------------------------
Southwest Freeway #200, Houston, TX 77074 Houston, TX 77024
- ------------------------------------------- ----------------------------------
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If and when included within the term "Landlord", as used in this instrument,
there are more than one person, firm or corporation, all shall jointly arrange
among themselves for their joint execution of such a notice specifying some
individual at some specific address for the receipt of notices and payments to
Landlord; if and when included within the term "Tenant", as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address within the continental
United States for the receipt of notices and payments to Tenant. All parties
included within the terms "Landlord" and "Tenant", respectively, shall be bound
by notices given in accordance with the provisions of this paragraph to the same
effect as if each had received such notice.
24. Miscellaneous.
a) Words of any gender used in this lease shall be held and construed to include
any other gender, and words in the singular number shall be held to include the
plural, unless the context otherwise requires.
b) The terms, provisions and covenants and conditions contained in this lease
shall apply to, inure to the benefit of, and be binding upon, the parties hereto
and upon their respective heirs, legal representatives, successors and permitted
assigns, except as otherwise herein expressly provided, Landlord shall have the
right to assign any of its rights and obligations under this lease. Each party
agrees to furnish to the other, promptly upon demand, a corporate resolution,
proof of due authorization by partners, or other appropriate documentation
evidencing the due authorization of such party to enter into this lease.
c) The captions inserted in this lease are for convenience only and in no way
define, limit or otherwise describe the scope or intent of this lease, or any
provision hereof, or in any way affect the interpretation of this lease.
d) Tenant agrees from time to time within ten (10) days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this lease is in full force and effect, the date to
which rent has been paid, the unexpired term of this lease and such other
matters pertaining to this lease as may be requested by Landlord. It is
understood and agreed that Tenant's obligation to furnish such estoppel
certificates in a timely fashion is a material inducement for Landlord's
execution of this lease.
e) This lease may not be altered, changed or amended except by an instrument in
writing signed by both parties hereto.
f) All obligations of Tenant hereunder not fully performed as of the expiration
or earlier termination of the term of this lease shall survive the expiration or
earlier termination of the term hereof, including without limitation all
payments obligations with respect to taxes and insurance and all obligations
concerning the condition of the premises. Upon the expiration or earlier
termination of the term hereof, and prior to Tenant vacating the premises,
Tenant shall pay to Landlord any amount reasonably estimated by Landlord as
necessary to put the premises, including without limitation all heating and air
conditioning systems and equipment therein, in good condition and repair. Tenant
shall also, prior to vacating the premises, pay to Landlord the amount, as
estimated by Landlord, of Tenant's obligation hereunder for real estate taxes
and insurance premiums for the year in which the lease expires or terminates.
All such amounts shall be used and held by Landlord for payment of such
obligations of Tenant hereunder, with Tenant being liable for any additional
costs therefor upon demand by Landlord, or with any excess to be returned to
Tenant after all such obligations have been determined and satisfied, as the
case may be. Any security deposit held by Landlord shall be credited against the
amount payable by Tenant under this Paragraph 24(f).
g) If any clause or provision of this lease is illegal, invalid or unenforceable
under present or future laws effective during the term of this lease, then and
in that event, it is the intention of the parties hereto that the remainder of
this lease shall net be affected thereby, and it is also the intention of the
parties to this lease that in lieu of each clause or provision of this lease
that is illegal, invalid or unenforceable, there be added as a part of this
lease contract a clause or provision as similar in terms to such illegal,
invalid or unenforceable clause or provision as may be possible and be legal,
valid and enforceable.
h) Because the premises are on the open market and are presently being shown,
this lease shall be treated as an offer with the premises being subject to prior
lease and such offer subject to withdrawal or non-acceptance by Landlord or to
other use of the premises without notice, and this lease shall not be valid or
binding unless and until accepted by Landlord in writing.
i) All references in this lease to "the date hereof" or similar references shall
be deemed to refer to the last date, in point of time, on which all parties
hereto have executed this lease.
25. Exhibits and Attachment. All exhibits, attachments, riders and addenda
referred to in this Lease are incorporated in this Lease and made a part hereof
for all intents and purposes.
Executed by Landlord, this 14th day of April, 1994.
Connecticut General Life Insurance Company
Attest/Witness a Connecticut Corporation
------------------------------------------
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ------------------------------- --------------------------------------
[ILLEGIBLE]
Title: Administrative Assistant Title: Vice President
------------------------ -----------------------------------
Executed by Tenant, this day of , 19 .
Attest/Witness TekGraf, Inc., a Texas Corporation
------------------------------------------
By: /s/ [ILLEGIBLE]
- ------------------------------- --------------------------------------
Title: Title: President
------------------------ -----------------------------------
7
<PAGE>
ADDENDUM ONE
TO LEASE AGREEMENT BETWEEN
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, A CONNECTICUT CORPORATION
AND
TEKGRAF, INC., A TEXAS CORPORATION
1. Landlord agrees to provide, at its cost, the following building standard
improvements:
1. Repaint all interior walls.
2. Recarpet all Tenant desired high traffic interior areas, with the
total amount of new carpeting installed not to exceed 1,200 square
feet.
3. Fix or replace all interior lighting and ballasts.
4. Install a "drop in" electric range in Tenant's existing kitchen.
5. Install security bars on existing shipping doors.
6. Install disposal unit in kitchen sink.
7. Restripe the parking area immediately in front of the Tenant's
demised building and identify ten (10) reserved parking spaces
within same area.
8. Tint remaining (5) windows.
Except as provided herein, Tenant agrees to accept the premises in its "as is",
"where is" condition.
2. While this Lease is in full force and effect, provided that Tenant is not in
default of any of the terms, covenants and conditions thereof, Tenant shall have
the right or option to extend the original term of this Lease for one further
term of thirty six (36) months. Such extension or renewal of the original term
shall be on the same terms, covenants and conditions as provided for in the
original term except that the rental during the extended term shall be at the
fair market rental then in effect on equivalent properties, of equivalent size,
in equivalent areas. Notice of Tenant's intention to exercise the option must be
given to Landlord in writing at least one hundred twenty (120) days prior to the
expiration of the original term of this Lease.
3. Provided Tenant is not in default of any terms and conditions of the Lease
Agreement and subject to Tenant paying to Landlord an additional payment of
$40.00 per month for a period of eighteen (18) months commencing April 1, 1994
and ending September 30, 1995, Landlord shall warrant the existing compressors
that are a part of the heating and air-conditioning systems that serve the
premises for such eighteen (18) month period outlined in this paragraph above.
4. Hazardous Waste. The term "Substances", as used in this lease shall mean
pollutants, contaminants, toxic or hazardous wastes, or any other substances,
the use, storage, handling, disposal, transportation or removal of which is
regulated, restricted, prohibited or penalized by any "Environmental Law", which
term shall mean any federal, state or local law, ordinance or other statute of a
governmental or quasi-governmental authority relating to pollution or protection
of the environment and shall specifically include, but not be limited to, any
"hazardous substance" as that term is defined under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 and any
amendments or successors in function thereto. Tenant hereby agrees that (1) no
activity will be conducted on the premises that will produce any Substance,
except for such activities that are part of the ordinary course for Tenant's
business activities (the "Permitted Activities") provided said Permitted
Activities are conducted in accordance with all Environmental Laws and have been
approved in advance in writing by Landlord, Tenant shall be responsible for
obtaining any required permits and paying any fees and providing any testing
required by any governmental agency; (2) the premises will not be used in any
manner for the storage of any Substances except for the temporary storage of
such materials that are used in the ordinary course of Tenant's business (the
"Permitted Materials") provided such Permitted Materials are properly stored in
a manner and location meeting all Environmental Laws and approved in advance, in
writing, by Landlord; Tenant shall be responsible for obtaining any required
permits and paying any fees and providing any testing required by any
governmental agency; (3) no portion of the premises will be used as a landfill
or a dump; (4) Tenant will not install any underground tanks of any type; (5)
Tenant will not allow any surface or subsurface conditions to exist or come into
existence that constitute, or with the passage of time may constitute a public
or private nuisance; (6) Tenant will not permit any Substances to be brought
onto the premises, except for the Permitted Materials described below or upon
written permission from Landlord, and if so brought or found located thereon,
the same shall be immediately removed, with proper disposal, and all required
cleanup procedures shall be diligently undertaken pursuant to all Environmental
Laws. Prior to any substance being brought upon or into the Lease premises,
whether with Landlord's written permission or not, Tenant will provide to
Landlord any applicable material safety data sheets regarding said Substance as
well as a written description of the amount of such substance to be brought upon
or into the leased premises and the common and recognized chemical name of such
Substance. Landlord or Landlord's representative shall have the right but not
the obligation to enter the premises for the purpose of inspecting the storage,
use and disposal of Permitted Materials to ensure compliance with all
Environmental Laws. Should it be determined, in Landlord's sole opinion, that
said Permitted Materials are being improperly stored, used, or disposed of, then
Tenant shall immediately take such corrective action as requested by Landlord.
Should Tenant fail to take such corrective action within twenty-four (24) hours,
Landlord shall have the right to perform such work and Tenant shall promptly
reimburse Landlord for any and all costs associated with said work. If at any
time during or after the term of the lease, the premises is found to be so
contaminated or subject to said conditions, Tenant shall diligently institute
proper and thorough cleanup procedures at Tenant's sole cost, and Tenant agrees
to indemnify and hold Landlord harmless from all claims, demands, actions,
liabilities, costs, expenses, damages, fines, reimbursement, restitution,
response costs, cleanup costs, and obligations (including investigative
responses and attorney's fees) of any nature arising from or as a result of the
use of the premises by Tenant. The foregoing indemnification of the
responsibilities of Tenant shall survive the termination or expiration of this
Lease.
Permitted Materials: None
8
<PAGE>
February 13, 1997
Mr. Martyn Cooper
Tekgraf, Inc.
6721 Portwest, Suite 100
Houston, Texas 77024
Re: First Amendment to Lease
Dear Martyn:
Whereas a Lease Agreement was made and entered into by and between Connecticut
General Life Insurance Company, a Connecticut Corporation, hereinafter referred
to as "Landlord", and Tekgraf, Inc., a Texas corporation, hereinafter referred
to as "Tenant", dated and executed April 14, 1994, referring to approximately
5,495 square feet of space at 6721 Portwest, Suite 100, Houston, Texas, it is
hereby agreed that, as of March 1, 1997, the aforementioned Lease Agreement
shall be amended as follows:
1) The lease term shall be extended for an additional twelve (12) months,
resulting in a new expiration date of February 28, 1998.
2) The monthly base rent shall be as follows:
Months 1-12 $3,750.00/month
Except as provided herein, all terms, covenants and conditions of the
aforementioned Lease Agreement shall remain in full force and effect. The last
date set forth below shall be the date of this First Amendment.
ACCEPTED AND AGREED: ACCEPTED AND AGREED:
Tenant: Landlord:
Tekgraf, Inc. Connecticut General Life Insurance Company,
a Connecticut Corporation
By: CIGNA Investments, Inc.
By:/s/ Martyn Cooper By: /s/ James H. Rogers
---------------- ---------------------
James H. Rogers
MANAGING DIRECTOR
Date: 2-18-97 Date: 3/10/97
-------------- ---------------------
VOTING AGREEMENT
VOTING AGREEMENT (this "Agreement"), dated as of August 7, 1997, made by
and between Tekgraf, Inc., a Delaware corporation (the "Company"), A. Lowell
Nerenberg ("Nerenberg") and Edward H.L. Mason ("Mason").
WHEREAS, the Company is the successor by merger to Crescent Computers,
Inc., a Georgia corporation;
WHEREAS, the Company and Nerenberg, and the Company and Mason, are each
parties to a Stock Purchase Agreement dated as of May 1, 1997, as amended as of
June 2, 1997 (the "Stock Purchase Agreements");
WHEREAS, Nerenberg and Mason are directors of the Company;
WHEREAS, pursuant to Section 3.3(c) of the Stock Purchase Agreements,
Nerenberg and Mason have certain voting rights as directors of the Company; and
WHEREAS, the Company, Nerenberg and Mason desire that Nerenberg and Mason
resign as directors of the Company in order to facilitate an initial public
offering of the Company's securities and that Nerenberg and Mason retain the
voting rights conferred by Section 3.3(c) of the Stock Purchase Agreements.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth, the parties intending to be legally bound, hereby agree
as follows:
A. Nerenberg hereby resigns from the Board of Directors of the Company
effective on the date hereof.
B. Mason hereby resigns from the Board of Directors of the Company
effective on the date hereof.
C. During the period from the date hereof through November 1, 1997 or prior
thereto upon the unanimous consent of the Board of Directors of the Company,
Nerenberg and Mason, the votes or actions of the Board of Directors of the
Company specified in Section 3.3(c) of the Stock Purchase Agreements shall
require the consent of each of Nerenberg and Mason.
D. This Agreement may be executed in one or more counterparts, which taken
together shall constitute a single document.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
TEKGRAF, INC.
By:__________________________________
Phillip C. Aginsky
_____________________________________
A. Lowell Nerenberg
_____________________________________
Edward H.L. Mason
-2-
Computation of Earnings Per Share
Exhibit 11
For the years ended December 31 Three months
--------------------------------- ended
1994 1995 1996 March 31, 1997
---- ---- ---- --------------
Primary and Fully-diluted:
Net income (loss) ($15,230) ($3,721) $43,073 $109,610
Weighted average shares
outstanding(1) 1,369,600 1,369,600 1,369,600 1,369,600
Earnings (loss) per
share(2) ($0.01) ($0.003) $0.03 $0.08
========= ========= ========= ==========
(1) reflects the Recapitalization
(2) Primary and fully-diluted earnings(loss) per share are computed by
dividing net income(loss) by the weighted average number of shares
outstanding
Exhibit 21.1
Subsidiaries of the Registrant
Prisym Technologies, Inc.
G&R Marketing, Inc.
Microsouth, Inc.
tekgraf, inc.
Computer Graphics Distributing Company
Intelligent Products Marketing, Inc.
IG Distributing, Inc.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File
No._____) of our report dated June 2, 1997 except for Note 8 as to which the
date is June 17, 1997, on our audits of the consolidated financial statements of
Crescent Computers, Inc.; our report dated June 2, 1997, on our audits of the
financial statements of MicroSouth, Inc.; our report dated May 21, 1997, except
for Note 4 as to which the date is June 2, 1997 on our audits of the financial
statements of IG Distribution, Inc.; our report dated June 2, 1997, on our
audits of the financial statements of Intelligent Products Marketing, Inc.; our
report June 2, 1997, on our audits of the financial statements of tekgraf, inc.;
our report dated May 12, 1997, except for Note 7 as to which the date is June
30, 1997 on our audits of the financial statements of G&R Marketing, Inc.; and
our report dated May 12, 1997, except for Note 9 as to which the date is June
30, 1997 on our audits of the financial statements of Computer Graphics
Distributing Company. We also consent to the references to our firm under the
captions "Experts" and "Selected Financial and Operating Data."
Coopers & Lybrand L.L.P.
Atlanta, Georgia
August 11, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form S-1
for the periods ended March 31, 1997 and December 31, 1996.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> MAR-31-1997 DEC-31-1996
<CASH> 667,409 633,027
<SECURITIES> 0 0
<RECEIVABLES> 1,712,460 1,621,180
<ALLOWANCES> 0 35,000
<INVENTORY> 704,886 636,019
<CURRENT-ASSETS> 3,085,955 2,891,726
<PP&E> 124,417 119,519
<DEPRECIATION> (73,132) 62,765
<TOTAL-ASSETS> 3,213,393 3,007,109
<CURRENT-LIABILITIES> 3,069,394 2,995,568
<BONDS> 2,094,054 2,211,164
0 0
0 0
<COMMON> 1,370 1,370
<OTHER-SE> 118,581 8,971
<TOTAL-LIABILITY-AND-EQUITY> 3,213,393 3,007,109
<SALES> 3,130,610 13,414,131
<TOTAL-REVENUES> 3,130,610 13,414,131
<CGS> 2,519,472 10,951,551
<TOTAL-COSTS> 2,519,472 10,951,551
<OTHER-EXPENSES> 373,587 2,261,923
<LOSS-PROVISION> 0 18,000
<INTEREST-EXPENSE> 25,000 159,500
<INCOME-PRETAX> 218,958 56,073
<INCOME-TAX> 85,400 13,000
<INCOME-CONTINUING> 0 43,073
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 109,610 43,073
<EPS-PRIMARY> 0.08 0.03
<EPS-DILUTED> 0.08 0.03
</TABLE>
