<PAGE>
As filed with the Securities and Exchange Commission on January 13, 1998.
Registration No. 333-39173
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CPS SYSTEMS, INC.
(NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
TEXAS 7379 75-1607857
(STATE OR OTHER (PRIMARY STANDARD (I.R.S EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
3400 CARLISLE
SUITE 500
DALLAS, TEXAS 75204
(214) 855-5277
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE
OFFICES AND PRINCIPAL PLACE OF BUSINESS)
PAUL E. KANA
CHIEF EXECUTIVE OFFICER
C/O CPS SYSTEMS, INC.
3400 CARLISLE
SUITE 500
DALLAS, TEXAS 75204
(214) 855-5277
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
EDWARD H. BROWN, ESQ. MICHAEL J. ERICKSON, ESQ.
CHESTER J. HOSCH, ESQ. LAURA A. BERTIN, ESQ.
SCHREEDER, WHEELER & FLINT, LLP SUMMIT LAW GROUP, P.L.L.C.
1600 THE CANDLER BUILDING 1505 WESTLAKE AVENUE NORTH
127 PEACHTREE STREET, N.E. SUITE 300
ATLANTA, GEORGIA 30303 SEATTLE, WASHINGTON 98109
(404) 681-3450 (206) 281-9881
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
---------------
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 effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
Subject to Completion Dated January , 1998
1,250,000 SHARES
LOGO
COMMON STOCK
CPS Systems, Inc. ("CPS" or the "Company") hereby offers 1,250,000 shares of
its common stock (the "Common Stock"). Prior to this offering, there has been
no public market for the Common Stock. See "Underwriting" for a discussion of
the factors to be considered in determining the initial public offering price.
It is currently estimated that the initial public offering price will be
between $7.00 and $9.00 per share. The Company anticipates that the Common
Stock will be quoted on the American Stock Exchange under the symbol "SYS"
effective upon the closing of this offering.
-----------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 HEREOF.
-----------
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.
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<TABLE>
<S> <C> <C> <C>
UNDERWRITING
PRICE DISCOUNTS AND PROCEEDS TO
TO PUBLIC COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------
Per share....................... $ $ $
- ------------------------------------------------------------------------------------------
Total(3)........................ $ $ $
</TABLE>
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(1) Excludes a non-accountable expense allowance payable to Cruttenden Roth
Incorporated, representative of the Underwriters (the "Representative" or
"Cruttenden Roth"), and the value of warrants to purchase up to 125,000
shares of Common Stock (143,750 shares if the Underwriters' over-allotment
option is exercised in full) at an exercise price of 120% of the public
offering price to be issued to the Representative (the "Representative's
Warrant"). The Company and the selling shareholders have agreed to
indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting offering expenses, including the non-accountable expense
allowance in the amount of $300,000 ($345,000 if the Underwriters' over-
allotment option is exercised in full), estimated at $650,000, payable by
the Company.
(3) Certain shareholders have granted to the Underwriters a 45-day option to
purchase up to 187,500 additional shares of Common Stock on the same terms
and conditions as set forth above, solely to cover over-allotments, if any.
If such option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to the Selling
Shareholders will be $ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the several Underwriters, when, as
and if delivered to and accepted by the Underwriters and subject to various
prior conditions, including their right to withdraw, cancel or modify such
offer and to reject orders in whole or in part. It is expected that delivery of
share certificates will be made against payment therefor at the offices of
Cruttenden Roth Incorporated in Irvine, California, or through the facilities
of The Depository Trust Company on or about , 1998.
-----------
Cruttenden Roth
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[Map showing the locations of the Company's
customer installations and of the
Company's personnel and sales offices.]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
The Company intends to furnish annual reports to shareholders containing
audited financial statements and make available quarterly reports and such
other periodic reports as it may determine to be appropriate or as may be
required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, 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 indicated, the information in this Prospectus (a) assumes that the
over-allotment option granted to the Underwriters has not been exercised and
(b) gives effect to the exercise of outstanding warrants to purchase an
aggregate of 927,766 shares of common stock, exercisable at a per share price
of $0.0026, which warrants will be exercisable on the earlier of December 31,
1999, or completion of an initial public offering. See "Underwriting."
Investors should carefully consider the information set forth under the heading
"Risk Factors."
THE COMPANY
CPS develops, markets, implements and supports fully integrated software
applications designed specifically for public sector organizations, including
states, counties, townships, city governments and other municipal agencies. The
Company's products address the following functional areas: (i) property tax
appraisal and assessment, (ii) property tax billing and collection, (iii) city
and municipal systems and (iv) remittance processing systems. Currently, the
Company's public sector software applications are installed in six states
(Colorado, Florida, North Carolina, New Mexico, Oklahoma and Texas),
representing more than 250 customers. The majority of its customers are county
governments with taxable parcel counts over 10,000 or cities with populations
between 5,000 and 35,000. The Company's focus on the public sector allows it to
design solutions that address the needs of these organizations.
The Company has identified three significant growth opportunities in the
public sector marketplace. First, CPS intends to geographically expand its core
product business to address the following functional areas: property tax
appraisal and assessment, property tax billing and collection and city and
municipal systems. This opportunity represents a key segment of the Company's
business strategy due to the growing recurring revenue streams generated by
license agreements entered into by customers of the Company's core business.
Second, the Company plans to leverage its 17 years of public sector experience
to capitalize on the opportunity created by the Year 2000 ("Y2K") problem. The
Y2K problem results from the inability of certain computer systems to properly
interpret dates for the year 2000 and beyond. For example, unless Y2K
compliance is completed in certain systems, public sector organizations cannot
properly (i) appraise, bill and collect property taxes, a principal revenue
source, (ii) record fines and deeds resulting from property sales, and (iii)
maintain and retain accurate law enforcement records. In addressing the Y2K
problem, public sector entities are faced with the prospect of competing with
the private sector for recruiting, hiring and retaining top data processing
talent, despite possessing limited ability to match competitive salaries for
attracting new hires or retaining existing staff. Although the Company began
integrating Y2K solutions and applications into its core products in 1995, the
Company believes the opportunity to leverage Y2K applications into additional
sales has only recently materialized. Third, CPS intends to leverage the
interoperability of the Company's core products to manage information flow
between departments as organizations shift from mainframe computers to
client/server systems.
The public sector marketplace is composed of state, county and city
governments, other municipal agencies and publicly owned utilities. This market
comprises over 3,000 counties and over 19,000 municipalities in the United
States. According to one industry source, state and local government agencies
spent approximately $34.5 billion on information technology and related
products in 1996. This total includes approximately $5.0 billion for software,
$6.7 billion for external services, $7.4 billion for hardware and $15.4 billion
for internal services (e.g., in-house management information systems
departments). Management estimates the remaining $1.9 billion was spent on the
software in the Company's core product areas. While the private sector is
taking steps to address the Y2K problem, the Company believes many public
sector organizations lack the resources to achieve a timely solution due to
budgetary and other constraints. One industry source estimates that the overall
cost of solving the Y2K problem worldwide will be in the range of $300 billion
to $600 billion. CPS believes the Y2K problem will cause many public sector
organizations
3
<PAGE>
to explore further the possibility of migrating all or portions of their legacy
systems to Y2K compliant client/server systems. As computing technology evolves
and information processing requirements expand, medium to large public sector
organizations are seeking to preserve the investment in their existing systems
by integrating or replacing mainframe computers with modern distributed
computer processing architectures, such as client/server systems.
CPS currently markets 41 applications to public sector organizations,
offering customers the following: (i) compliance with periodically changing
legislation, (ii) simplification of data entry, (iii) extensive security
features, (iv) flexible report configuration and (v) open system technology.
CPS has developed a proprietary tool that converts client data into a Y2K
compliant format that can be run by CPS applications which are Y2K compliant.
Management believes this tool offers a significant competitive advantage in
marketing software applications. The Company's application software products
are designed to be readily adaptable to meet a customer's initial needs and to
offer sufficient flexibility to respond to a customer's specific system
refinements and ongoing changes. The Company's tiered software architecture
enables the CPS to utilize multiple platforms and effectively integrate new
technologies with existing software.
The Company views the Y2K market as an opportunity to become one of the
leaders in providing public sector solutions on a national basis. To accomplish
this, CPS plans to expand geographically the size of its direct sales and
marketing force and concurrently hire additional technical support and systems
personnel. Expansion benefits include the execution of additional long-term
service agreements, generating recurring revenue from continuing monthly
maintenance and service fees, typically at a rate equal to approximately 32% of
the software license fee. The Company believes that the public sector
marketplace is highly fragmented with many small, closely-held companies and
views acquisitions as a means of acquiring technology and application
expertise, broadening its customer base and expanding geographically. To
support its growth, the Company has entered into an alliance with an external
software developer and intends to enter into additional strategic alliances
with other external software developers and Y2K service providers enabling the
Company to provide the necessary technical resources in a timely manner. The
Company believes a substantial opportunity exists to sell additional products
to current customers who have only one installed CPS product. Moreover, CPS
believes its customer base offers considerable leverage to new business since
references from existing customers often result in future sales opportunities.
The Company was incorporated under the laws of the state of Texas in July
1978. The Company's executive offices are located at 3400 Carlisle, Suite 500,
Dallas, Texas 75204, and its telephone number is (214) 855-5277.
THE OFFERING
Common Stock offered by the 1,250,000
Company...........................
Common Stock to be outstanding
after this offering..............
6,082,502(1)
Use of Proceeds...................
Repayment of certain indebtedness,
potential acquisitions, working capital and
other general corporate purposes. See "Use
of Proceeds."
Proposed American Stock Exchange SYS
Symbol.......................
- --------
(1) Does not give effect to (i) 335,000 shares of Common Stock reserved for
issuance upon exercise of outstanding options under the Company's 1997
Equity Participation Plan with a per share exercise price equal to the
initial offering price, (ii) 265,000 shares of Common Stock reserved for
issuance upon exercise of options reserved for future grant under the
Company's 1997 Equity Participation Plan, (iii) 100,000 shares of Common
Stock reserved under the Company's Employee Stock Purchase Plan and (iv)
125,000 shares (143,750 shares if the Underwriters' over-allotment option
is exercised in full) of Common Stock issuable upon exercise of the
Representative's Warrant at an exercise price of $10.80 per share. See
"Management--Employee Equity Plans," "Description of Capital Stock--
Warrants" and "Underwriting."
4
<PAGE>
SUMMARY FINANCIAL DATA
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- --------------
1995 1996 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenue.................................. $6,253 $8,363 $6,356 $7,719
Gross profit................................... 4,953 6,496 4,950 5,633
Operating expenses............................. 4,683 5,758 4,143 5,255
Earnings from operations....................... 270 738 807 379
Net earnings (loss)............................ (230) (246) (30) 17
Net earnings (loss) per common share(1)......... $(0.06) $(0.06) $(0.01) $ 0.00
Weighted average shares used in computing net
earnings (loss) per common share(1)............ 3,905 3,905 3,905 3,905
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL AS ADJUSTED(/2/)
------ ----------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................... $ 338 $ 7,524
Working capital........................................ 67 7,574
Total assets........................................... 6,101 13,234
Long-term debt, net of current portion................. 2,503 2,014
Shareholders' equity................................... 540 8,718
</TABLE>
- --------
(1) Does not give effect to (i) the exercise of outstanding warrants to
purchase an aggregate of 927,766 shares of Common Stock, exercisable at a
price per share of $0.0026, which will be exercisable on the earlier of
December 31, 1999 or completion of an initial public offering, (ii) 335,000
shares of Common Stock reserved for issuance upon exercise of outstanding
options under the Company's 1997 Equity Participation Plan with a per share
exercise price equal to the initial offering price, (iii) 265,000 shares of
Common Stock reserved for issuance upon exercise of options reserved for
future grant under the Company's 1997 Equity Participation Plan, (iv)
100,000 shares of Common Stock reserved under the Company's Employee Stock
Purchase Plan and (v) 125,000 shares (143,750 shares if the Underwriters'
over-allotment option is exercised in full) of Common Stock issuable upon
exercise of the Representative's Warrant at an exercise price of $10.80 per
share. See "Management--Employee Equity Plans," "Description of Capital
Stock--Warrants" and "Underwriting."
(2) Adjusted to give effect to the sale by the Company of 1,250,000 shares of
Common Stock offered hereby at the public offering price of $8.00 per share
and the application of the estimated net proceeds therefrom. See "Use of
Proceeds."
----------------
The Company desires to take advantage of the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Certain statements in this
Prospectus that are not historical fact constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
Discussions containing such forward-looking statements may be found in the
material set forth under "Summary," "Use of Proceeds," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business,"
as well as within this Prospectus generally. In addition, when used in this
Prospectus, the words "believes," "anticipates," "expects" and similar
expressions are intended to identify forward-looking statements. Such
statements are subject to a number of risks and uncertainties. Actual results
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth in this Prospectus and the matters
set forth in this Prospectus generally. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
5
<PAGE>
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following risk factors should be considered carefully in evaluating the
Company and its business before purchasing any of the Common Stock offered
hereby.
RISKS ASSOCIATED WITH PUBLIC SECTOR MARKET
A substantial portion of the Company's revenue to date has been attributable
to sales of software and services to state, county and city governments and
other municipal agencies. The Company expects that sales to such public sector
customers will account for substantially all of the Company's revenue in the
future. Virtually all of these public sector organizations have existing
information processing systems. Accordingly, in order to continue to increase
its sales to this market, the Company must persuade these organizations to
replace or upgrade existing information processing systems. Change to an
organization's information system is a costly, time consuming and
operationally disruptive process for the customer. Conversion to a new
information processing system must typically be done without any disruption of
service and, accordingly, the Company's potential customers perceive a high
degree of risk in connection with the adoption of a new system. In addition,
the purchase of the Company's products involves a significant commitment of
capital, with attendant delays frequently associated with large capital
expenditures by an organization. For these and other reasons, the sales cycle
associated with the purchase of the Company's products is typically lengthy
and subject to a number of significant risks, including customers' budgetary
constraints and internal acceptance reviews, over which the Company has little
or no control. There can be no assurance that potential customers for the
Company's products in the public sector market will continue to make
information processing system replacement decisions at rates necessary to
maintain demand for the Company's products and sustain market growth or that
the Company's products will be accepted by public sector organizations that
consider replacing their current information processing systems. A significant
reduction in demand or acceptance of the Company's products could have a
material adverse effect on the Company's business, financial condition and
operating results.
UNCERTAINTY OF DEMAND FOR YEAR 2000 SOLUTIONS
The Company anticipates focusing a significant portion of its marketing and
sales efforts on products and solutions addressing the Y2K problem. The
Company's current plans involve developing solutions for existing and
potential customers based upon modifications to the Company's existing
software product lines. Although the Company believes that the market for Y2K
solutions will grow significantly as the year 2000 approaches, there can be no
assurance that the market will develop to the extent anticipated by the
Company. Moreover, the Company's efforts are directed at addressing the Y2K
problem within the framework of its traditional software products.
Consequently, the Company's market for its Y2K solution products is limited to
existing and potential public sector customers of the Company's existing
software products. In addition, the Company's customers may seek alternative
solutions for the Y2K problem. Many customers may attempt to resolve the
problem internally rather than purchase products and solutions from the
Company or may seek to solve the Y2K problem by retaining consultants or other
competitors who may address the Y2K problem through enterprise solutions
covering the customer's entire computer system. Due to these factors,
development of a market for the Company's Y2K solution is uncertain and
unpredictable. Furthermore, the demand for Y2K products and solutions is
likely to diminish after the year 2000. The failure of the market to increase,
or to increase more slowly than anticipated, could have a material adverse
effect on the Company's business, financial condition and operating results.
See "Business--Industry Overview."
COMPETITION
The market in which the Company competes is highly fragmented, with a large
number of competitors that vary in size, primary computer platforms and
overall product scope. Within its traditional public sector markets, the
Company competes from time to time with (i) custom software and services
providers (such as
6
<PAGE>
Andersen Consulting, KPMG Peat Marwick and Oracle Corporation), (ii) companies
which focus on selected segments of the public sector market (including
Systems & Computer Technology Corporation, Manatron, Inc., H.T.E., Inc.,
American Management Systems Incorporated and BRC Holdings, Inc.) and (iii) a
significant number of smaller private companies. The Company also competes
with in-house management information services staff. In addition, within the
market for its Y2K solution products, the Company anticipates that it will
compete with companies who focus upon overall enterprise solutions to the Y2K
problem. Many of the Company's competitors are more established, benefit from
greater name recognition and have substantially greater resources than the
Company. Moreover, the Company could face additional competition as other
established and emerging companies enter the public sector software
application market and/or the Y2K market and new products and technologies are
introduced. Increased competition could result in price reductions, fewer
customer orders, reduced gross margins and loss of market share, any of which
could have a material adverse effect on the Company's business, financial
condition and operating results. In addition, current and potential
competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share. There can be no assurance that the Company will be able to compete
successfully against current and future competitors, and the failure to do so
would have a material adverse effect upon the Company's business, financial
condition and operating results. See "Business--Competition."
MANAGEMENT OF GROWTH
The Company has recently experienced a period of significant expansion in
the number of its employees, the scope of its operating and financial systems
and the geographic area of its operations, and anticipates that growth may
continue in the future. To accommodate future growth, if any, the Company must
continue to implement and improve information systems, procedures and controls
and hire and train management, technical and sales personnel. The Company
believes there is significant competition for software development
professionals with the skills and expertise necessary to perform services
offered by the Company. Although the Company invests, and plans to continue
investing, significant resources in retaining and expanding its management,
technical and sales force, the Company may experience difficulty in recruiting
and retaining capable personnel. There can be no assurance that the Company
will be able to expand successfully its management, technical or sales
personnel or that any such expansion will increase revenue. Failure by the
Company to implement and improve the Company's operational, financial and
management systems or maintain and expand personnel could have a material
adverse effect on the Company's business, financial condition and operating
results. See "Risk Factors--Dependence on Key Personnel" and "Business--
Employees."
POTENTIAL FLUCTUATIONS OF OPERATING RESULTS; FUTURE OPERATING RESULTS
UNCERTAINTY
The Company's revenue and operating results are subject to fluctuations
resulting from a variety of factors, including the effect of budgeting and
purchasing practices of its customers, the length of customer evaluation
processes for the Company's solutions, the timing of customer system
conversions, announcements of new products by the Company or its competitors
and the Company's sales practices. In addition, since a significant portion of
the Company's operating expenses is fixed, the Company may not be able to
adjust or reduce spending in response to sales shortfalls or delays. Many of
these factors are not within the Company's control. These factors can cause
significant variations in operating results from quarter to quarter, which may
also adversely affect and cause volatility in the market price of the
Company's common stock. The Company believes that quarter to quarter
comparisons of its financial results are not necessarily meaningful and should
not be relied upon as an indication of future quarterly performance. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."
7
<PAGE>
ABILITY TO RESPOND TO TECHNOLOGICAL CHANGE
The Company's future success will depend significantly upon its ability to
enhance its current products, develop or acquire and market new products which
keep pace with technological developments, evolving industry standards and
legislative amendments and respond to changes in customer needs. There can be
no assurance that the Company will be successful in developing or acquiring
product enhancements or new products to address changing technologies and
customer requirements, or that its competitors will not develop products that
are superior to the Company's products or achieve greater market acceptance
than the Company's products. Failure by the Company to respond to
technological change or the development of superior products by its
competitors could have a material adverse effect on the Company's business,
financial condition and operating results. See "Business--Growth Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success will depend upon the availability and
performance of its senior management team, particularly Paul E. Kana, Chairman
and Chief Executive Officer, and James K. Hoofard, Jr., President and Chief
Operating Officer, each of whom possess unique and extensive industry
knowledge and experience. While the Company currently maintains key-man life
insurance policies on Paul E. Kana and James K. Hoofard, Jr., the loss of
either man could have a material adverse effect on the Company's business,
financial condition and operating results. See "Management--Directors,
Executive Officers and Key Employees" and "--Executive Compensation."
PROPRIETARY RIGHTS AND RISKS OF INFRINGEMENT
The Company regards certain features of its internal operations, software
and documentation as confidential and proprietary, and relies on a combination
of contract and trade secret laws and other measures to protect its
proprietary intellectual property. Despite these precautions, it may be
possible for unauthorized parties to copy the Company's software or reverse
engineer or otherwise obtain and use information the Company regards as
proprietary. The Company has no patents and, under existing copyright laws,
has only limited protection. In addition, certain provisions of the license
agreements entered into by the Company, including provisions against
unauthorized use, transfer and disclosure, may be unenforceable under the laws
of certain jurisdictions. There can be no assurance that the steps taken by
the Company to protect its proprietary rights will be adequate to deter
misappropriation of its technology or independent development by others of
technologies that are substantially equivalent or superior to the Company's
technology. Any such misappropriation or development could have a material
adverse effect on the Company's business, financial condition and operating
results. As the number of competitors providing similar products increases,
overlapping methodologies used in such products will become more likely.
Although the Company's methodology has never been the subject of an
infringement claim, there can be no assurance that third parties will not
assert infringement claims against the Company in the future, that assertion
of such claims will not result in litigation or that the Company would prevail
in such litigation or be able to obtain a license for the use of any infringed
intellectual property from a third party on commercially reasonable terms.
Litigation, regardless of its outcome, could result in substantial cost to the
Company and divert resources and management from the Company's operations. Any
infringement claim or litigation against the Company could, have a material
adverse effect on the Company's business, financial condition and operating
results. See "Business--Intellectual Property, Proprietary Rights and
Licenses."
POTENTIAL PRODUCT LIABILITY AND RISK OF SOFTWARE DEFECTS
The Company markets to its customers complex, mission-critical applications.
Any failure in a customer's system could result in a claim for damages,
regardless of the Company's responsibility for such failure. The Company has
never been involved in product liability litigation, and the Company's license
agreements with its customers typically contain provisions designed to limit
the Company's exposure to potential product liability claims. However, there
can be no assurance that the limitation of liability provisions contained in
the
8
<PAGE>
Company's license agreements would be enforceable or would otherwise protect
the Company from liability for damages. The Company currently carries general
liability insurance protecting against product liability claims. There can be
no assurance that such insurance will continue to be available, or available
at a cost acceptable to Company, or that the policy's limits will be
sufficient to satisfy any judgment or claim. The successful assertion of one
or more large claims against the Company that exceed available insurance
coverage or changes in the Company's insurance policies, including premium
increases or the imposition of a large deductible or co-insurance requirements
could have a material adverse effect on the Company's business, financial
condition and operating results. Furthermore, litigation, regardless of its
outcome, could result in substantial cost to the Company and divert
management's attention from the Company's operations, which could have a
material adverse effect on the Company's business, financial condition and
operating results.
Software products as complex as those developed by the Company may contain
errors or defects, particularly when first introduced or when new versions or
enhancements are released. Errors, bugs or viruses could result in loss or
delay of market acceptance, a failure in a client's system or complete loss of
client data. Although the Company has not experienced material adverse effects
resulting from any such defects or errors to date, there can be no assurance
that defects and errors will not be found after commencement of product
shipments. Any such defects could have a material adverse effect upon the
Company's business, financial condition and operating results. See "Business--
Research and Development."
ACQUISITION RISK
As part of its growth strategy, the Company intends to evaluate the
acquisition of other companies, assets or product lines that would complement
or expand its existing business in attractive geographic or service markets or
that would broaden its customer relationships. Although the Company
periodically considers possible acquisitions, no specific acquisitions are
being negotiated. In addition, although the Company conducts due diligence
reviews of potential acquisition candidates, the Company may not be able to
identify all material liabilities or risks related to potential acquisition
candidates. There can be no assurance that the Company will be able to locate
and acquire any business, retain key personnel and customers of an acquired
business or integrate any acquired business successfully. Additionally, there
can be no assurance that financing for any acquisition, if necessary, will be
available on acceptable terms, if at all, or that the Company will be able to
accomplish its strategic objectives in connection with any acquisition. See
"Business--Growth Strategy."
DEPENDENCE ON KEY SUPPLIERS AND RELATIONSHIPS
The Company purchases certain key components of its products from limited
source suppliers. Establishing relationships with additional or replacement
suppliers for any of the components used in the Company's products, if
required, could involve significant additional costs. The Company is not a
party to any long-term agreements with any of these suppliers. The Company
believes no significant obstacles to replacing these suppliers exist. However,
the inability of any of the Company's suppliers to provide functional
components on a timely basis, or the inability of the Company to locate
qualified alternative suppliers or coding programmers on acceptable terms,
could have a material adverse effect on the Company's business, financial
condition and operating results. The Company may also need to establish
additional alliances and relationships in order to keep pace with evolutions
in technology and enhance its service offerings, and there can be no assurance
such additional alliances will be established. See "Business--Growth Strategy"
and "--Sales and Marketing."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
has been determined through negotiations between the Company and the
Representative of the Underwriters based on several factors and may not be
indicative of the market price of the Common Stock after this offering. The
market price of the shares of Common Stock is likely to be highly volatile and
may be significantly affected by factors such as actual or anticipated
fluctuations in the Company's operating results,
9
<PAGE>
announcements of technological innovations, new products or new contracts by
the Company or its competitors, developments with respect to patents,
copyrights or proprietary rights, conditions and trends in the software and
other technology industries, adoption of new accounting standards affecting
the software industry, changes in financial estimates by securities analysts,
general market conditions and other factors. In addition, the stock market has
from time to time experienced significant price and volume fluctuations that
have particularly affected the market prices for the common stock of
technology companies. These broad market fluctuations may adversely affect the
market price of the Common Stock.
CONTROL BY PRINCIPAL SHAREHOLDERS, OFFICERS AND DIRECTORS
Upon completion of this offering, the six existing directors, executive
officers and principal shareholders of the Company and their affiliates will
beneficially own approximately 75% of the outstanding Common Stock (72% if the
over-allotment option is exercised in full). As a result, these shareholders
will be able to exercise control over all matters requiring shareholder
approval, including the election of directors and approval of significant
corporate transactions. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. In addition, each
of the Company's current shareholders has pledged his shares to secure certain
of the Company's outstanding indebtedness. The Company believes that operating
revenue and reserves will be sufficient to pay such indebtedness. However,
there can be no assurance that the Company will be able to repay such
indebtedness and failure to do so could result in a change of control of the
Company and/or have a material adverse effect on the Company's business,
financial condition and operating results. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Principal Shareholders."
BROAD MANAGEMENT DISCRETION AS TO USE OF PROCEEDS
The principal purposes of this offering are to retire certain indebtedness,
obtain additional working capital, create a public market for the Company's
Common Stock and facilitate the Company's future access to public equity
markets. The Company expects to use most of the net proceeds of this offering
for working capital and general corporate purposes. Accordingly, the Company's
management will retain broad discretion as to the allocation of a substantial
portion of the net proceeds from this offering. Pending such uses, the Company
intends to invest the net proceeds in short-term, investment-grade, interest-
bearing securities. See "Use of Proceeds."
RISK OF LOW-PRICED STOCKS
The Company has applied to have its Common Stock listed on the American
Stock Exchange effective upon the closing of this offering. In order to be
listed on the American Stock Exchange, a company must meet certain financial
maintenance criteria. Although the Company's Common Stock has been approved
for listing (subject to the completion of this offering) the Company currently
does not meet these criteria. There can be no assurance that the Company will
continue to be allowed to be listed on the American Stock Exchange and/or that
it will meet these criteria in the future. Failure to meet these maintenance
criteria in the future and/or the delisting of the Common Stock from the
American Stock Exchange could result in the Common Stock being traded on the
over-the-counter market, in which case investors may find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, the
Common Stock. If the Company's Common Stock was delisted from the American
Stock Exchange, and the trading price of the Common Stock were less than $5.00
per share, the Common Stock might be considered "penny stock" and trading in
the Common Stock might be subject to the requirements of certain rules under
the Securities Exchange Act of 1934. These rules could adversely affect the
ability and willingness of broker-dealers to sell the Common Stock, which
could reduce the liquidity of the Common Stock and have a material adverse
effect on the trading market for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS; POSSIBLE ADVERSE EFFECT
ON FUTURE MARKET PRICES
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the Common
Stock. Upon completion of this offering, the Company
10
<PAGE>
will have outstanding 6,082,502 shares of Common Stock, of which the 1,250,000
shares sold in this offering (1,437,500 shares if the Underwriters' over-
allotment option is exercised in full) will be freely tradeable. Approximately
4,832,502 (4,645,002 if the Underwriters' over-allotment option is exercised
in full) of the remaining shares are subject to agreements with the
Underwriters under which such shares may not be offered, sold or otherwise
disposed of for a period of one year after the date of this Prospectus without
the prior written consent of Cruttenden Roth, but will thereafter be eligible
for sale pursuant to Rule 144 of the Securities Act. Cruttenden Roth has no
present intention to release the locked-up shares prior to expiration of the
one-year period. The holders of 927,766 shares of Common Stock (865,008 if the
Underwriters' over-allotment option is exercised in full) are entitled to
certain piggyback and demand registration rights with respect to such shares.
By exercising their rights, such holders could cause additional shares to be
sold in the public market. Sales pursuant to Rule 144 or other exemptions from
registration, or pursuant to registration rights, may have an adverse effect
on the market price for the common stock and could impair the Company's
ability to raise capital through an offering of its equity securities. See
"Shares Eligible for Future Sale," "Underwriting" and "Description of Capital
Stock--Registration Rights of Certain Holders."
DILUTION
Investors purchasing shares of Common Stock in this offering will incur
immediate and substantial dilution in the net tangible book value of the
Common Stock from the initial public offering price and will incur additional
dilution upon the exercise of stock options and warrants. See "Dilution."
NO CASH DIVIDENDS
The Company intends to retain any future earnings for its business and does
not anticipate paying any cash dividends in the foreseeable future. See
"Dividend Policy."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS; ANTITAKEOVER EFFECTS
Certain provisions of the Company's Articles of Incorporation, as amended
(the "Restated Articles"), may deter or frustrate a takeover attempt of the
Company that a shareholder might consider in his best interest. The Company's
Restated Articles or Bylaws, among other things, provide that (i) any action
required or permitted to be taken by the shareholders of the Company may be
effected only at an annual or special meeting of shareholders, and not by
written consent of the shareholders, (ii) the annual meeting of shareholders
shall be held on such date and at such time fixed from time to time by the
Board of Directors, provided that there shall be an annual meeting held every
calendar year, (iii) any special meeting of the shareholders may be called
only by the Chairman of the Board, President or upon the affirmative vote of
at least a majority of the members of the Board of Directors, or upon the
written demand of the holders of not less than 50% of the votes entitled to be
cast at a special meeting, (iv) an advance notice procedure must be followed
for nomination of directors and for other shareholder proposals to be
considered at annual shareholders' meetings and (v) the Company's Board of
Directors be divided into three classes, each of which serves for different
three-year periods, and for which shareholders have no cumulative voting
rights. In addition, the Company will be authorized to issue additional shares
of Common Stock and up to 10 million shares of preferred stock in one or more
series, having terms fixed by the Board of Directors without shareholder
approval, including voting, dividend or liquidation rights that could be
greater than or senior to the rights of holders of Common Stock. Shareholders
will have no preemptive rights with respect to any additional common stock or
preferred stock. Issuance of additional shares of Common Stock or new shares
of preferred stock could also be used as an antitakeover device. Except as set
forth herein, the Company has no current intentions or plans to issue
additional Common Stock or issue preferred stock. See "Description of Capital
Stock."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,250,000 shares of
Common Stock offered by the Company at the assumed public offering price of
$8.00 per share are estimated to be $8.2 million after deducting the estimated
underwriting discounts and commissions and other estimated offering expenses
payable by the Company (assuming the over-allotment option granted to the
Underwriters by certain selling shareholders is exercised). The Company will
not receive any proceeds from any shares sold by the selling shareholders in
the event the over-allotment option is exercised, but will incur additional
expenses of approximately $200,000 in the event such option is exercised in
full. The Company intends to use the net proceeds from this offering as
follows:
<TABLE>
<CAPTION>
IN DOLLARS AS A PERCENTAGE
(APPROXIMATE) OF NET PROCEEDS
------------- ---------------
<S> <C> <C>
Repayment of indebtedness(1)..................... $1,000,000 12.20%
Acquisitions, investments, working capital and
general corporate purposes(2)............... 7,200,000 87.80
---------- ------
Total............................................ $8,200,000 100.00%
========== ======
</TABLE>
- --------
(1) As of November 30, 1997 the outstanding principal amount under the
Company's senior term loan with FINOVA Capital Corporation ("FINOVA") was
approximately $872,000, including certain prepayment fees, bearing
interest at prime plus 2 1/2% and maturing December 30, 1998, and the
loans from shareholders to the Company's subsidiary, CDP Systems, Inc.,
amounted to approximately $128,000, bearing interest at 8% and maturing
July 1, 2000. See "Risk Factors--Acquisition Risk," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Certain Transactions."
(2) The Company expects to use the balance of net proceeds of approximately
$7.2 million for possible acquisitions or investments in products,
technologies or businesses that broaden or enhance the Company's current
product or service offerings, working capital and for general corporate
purposes.
There are no current agreements or understandings with respect to any
acquisitions, investments or other transactions. Pending the uses described
above, the Company intends to invest the remaining net proceeds in short-term,
investment grade, interest-bearing securities.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its Common Stock.
The Company intends to retain earnings, if any, for use in its business and to
support growth and does not anticipate paying cash dividends on its Common
Stock in the foreseeable future. The Company's credit facilities currently
place certain restrictions on the Company's ability to declare and pay
dividends.
12
<PAGE>
DILUTION
The net tangible book value of the Company as of September 30, 1997 was
approximately ($.64) per share of Common Stock. Net tangible book value per
share of the Common Stock is equal to the book value of the Company's total
tangible assets less the book value of its total liabilities, divided by the
total number of shares of Common Stock outstanding as of September 30, 1997.
After giving effect to the sale by CPS of the 1,250,000 shares of Common Stock
offered hereby, assuming the over-allotment option granted to the Underwriters
by the selling shareholders is exercised in full and the exercise of the put
warrants, and after Deducting the underwriting discount and the estimated
offering expenses payable by CPS, the pro forma net tangible book value of CPS
at September 30, 1997 would have been $5,663,540, or $.93 per share. This
represents an immediate increase in the net tangible book value of $1.57 per
share to existing holders of Common Stock and an immediate dilution of $7.07
per share to the persons purchasing shares of Common Stock at the assumed
public offering price. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Public offering price............................................. $8.00
Net tangible book value before the offering...................... ($.64)
Increase attributable to new investors........................... 1.57
------
Pro forma net tangible book value after the offering.............. .93
-----
Dilution to new investors (88.4%)................................. $7.07
=====
</TABLE>
The following table compares, as of September 30, 1997, the number of shares
of Common Stock purchased from CPS by its existing shareholders prior to this
offering and to be purchased by new investors in this offering, the total
consideration paid or to be paid to CPS and the average price per share paid
or to be paid to the Company by the Company's existing shareholders and by new
investors purchasing shares in this offering, assuming no exercise of the
Underwriters' over-allotment option:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------- ------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders........... 4,832,502 79% $ 1,002,376 9% $ .21
New investors................... 1,250,000 21 10,000,000 91 $8.00
--------- --- ----------- ---
Total......................... 6,082,502 100% $11,002,376 100%
========= === =========== ===
</TABLE>
The foregoing table assumes exercise of outstanding options or warrants.
Subsequent to September 30, 1997, CPS granted options to purchase 335,000
shares of Common Stock under the Stock Option Plan. In addition, CPS will
issue to the Representative, effective upon consummation of this offering, the
Representative's Warrant. See "Management--Employee Equity Plans," "Principal
Shareholders" and "Underwriting."
13
<PAGE>
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
as of September 30, 1997 on an actual and as adjusted basis. The information
set forth in the table below should be read in conjunction with the Company's
Financial Statements and Notes thereto appearing elsewhere in this Prospectus.
See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-------------------
(AMOUNTS IN
THOUSANDS)
AS
ACTUAL ADJUSTED(2)
------ -----------
<S> <C> <C>
Cash and cash equivalents.................................. $ 338 $ 7,524
====== =======
SHORT-TERM DEBT:
Current portion of long-term debt.......................... 321 -0-
------ -------
LONG-TERM DEBT:
Senior term loan........................................... 489 -0-
Senior subordinated note................................... 2,014 2,014
Other debt(3).............................................. 235 -0-
------ -------
Total long-term debt...................................... $2,738 $ 2,014
------ -------
SHAREHOLDERS' EQUITY:
Common stock and paid-in capital
$.01 par value, 50,000 shares authorized;
4,833 shares issued and outstanding; 6,083 shares issued
and outstanding,
as adjusted(1)............................................. 1,000 9,392
Accumulated deficit........................................ (460) (674)
------ -------
Total shareholders' equity................................. $ 540 $ 8,718
------ -------
Total capitalization....................................... $3,599 $10,732
====== =======
</TABLE>
- --------
(1) Does not give effect to (i) 335,000 shares of Common Stock reserved for
issuance upon exercise of outstanding options under the Company's 1997
Equity Participation Plan with a per share exercise price equal to the
initial offering price, (ii) 265,000 shares of Common Stock reserved for
issuance upon exercise of options reserved for future grant under the
Company's 1997 Equity Participation Plan and (iii) 100,000 shares of
Common Stock reserved under the Company's Employee Stock Purchase Plan.
See "Management--Employee Equity Plans," "Description of Capital Stock--
Warrants" and "Underwriting."
(2) Reflects the issuance and sale by the Company of 1,250,000 shares of the
Common Stock offered hereby and the application of a portion of the net
proceeds therefrom to repay certain indebtedness, after deducting the
underwriting discount and estimated offering expenses. Assumes the over-
allotment option granted to the Underwriters by the selling shareholders
is exercised in full.
(3) Represents recorded amount of put warrants as of September 30, 1997.
Warrant holders have agreed to exercise all warrants upon the effective
date of the Company's initial public offering.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below for the nine months ended
September 30, 1997, the years ended December 31, 1996 and 1995 and as of
September 30, 1997 and December 30, 1996 are derived from the Company's
audited Financial Statements, which appear elsewhere in this Prospectus. The
selected financial data as of December 31, 1995 are derived from the Company's
audited financial statements which are not included in this Prospectus. The
selected financial data as of September 30, 1996 are derived from the
Company's unaudited financial statements, which are not included in this
Prospectus. The selected financial data for the nine months ended September
30, 1996, are derived from the Company's unaudited financial statements which
appear elsewhere in this Prospectus. In the opinion of management, the
unaudited financial statements have been prepared on a basis consistent with
the Financial Statements which appear elsewhere in this Prospectus, and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such unaudited financial statements. The
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Financial Statements, including the Notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE
YEAR ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------- ----------------
1995 1996 1996 1997
------ ------ ------- -------
(AMOUNTS IN THOUSANDS EXCEPT
PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fees................................ $ 424 $1,635 $ 1,436 $ 1,795
Recurring maintenance and service fees...... 3,907 3,851 2,872 2,887
Product sales............................... 1,594 2,052 1,571 2,299
Other service fees.......................... 328 825 477 738
------ ------ ------- -------
Total revenue.............................. 6,253 8,363 6,356 7,719
------ ------ ------- -------
Cost of revenue:
Product sales............................... 1,033 1,465 1,148 1,616
Software.................................... 256 391 250 414
Distribution................................ 11 11 8 56
------ ------ ------- -------
Total cost of revenue...................... 1,300 1,867 1,406 2,086
------ ------ ------- -------
Gross profit................................. 4,953 6,496 4,950 5,633
Operating expenses:
Support and customer service................ 2,276 2,743 1,979 2,358
Selling..................................... 601 772 584 702
Research and development.................... 588 866 554 1,136
General and administrative.................. 871 1,030 757 793
Amortization of goodwill and non-compete
agreements................................. 347 347 269 265
------ ------ ------- -------
4,683 5,758 4,143 5,254
------ ------ ------- -------
Earnings from operations..................... 270 738 807 379
Interest and financing costs................. 524 819 618 275
------ ------ ------- -------
Earnings (loss) before income taxes.......... (254) (81) 189 104
Income tax expense (benefit)................. (24) 165 219 87
------ ------ ------- -------
Net earnings (loss).......................... $ (230) $ (246) $ (30) $ 17
====== ====== ======= =======
Net earnings (loss) per common share(1)...... $(0.06) $(0.06) $ (0.01) $ 0.00
Weighted average shares used in computing net
earnings (loss) per common share............ 3,905 3,905 3,905 3,905
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
-------------- ----------------
1995 1996 1996 1997
------ ------ ------- -------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash......................................... $ 385 $ 592 $ 292 $ 338
Working capital.............................. 200 303 531 67
Total assets................................. 6,025 6,134 6,567 6,101
Long-term debt, net of current portion....... 3,041 2,741 2,819 2,503
Shareholders' equity......................... 770 524 743 540
</TABLE>
- --------
(1) Does not give effect to (i) the exercise of outstanding warrants to
purchase an aggregate of 927,766 shares of Common Stock, exercisable at a
price per share of $0.0026, which will be exercisable on the earlier of
December 31, 1999 or completion of an initial public offering, (ii)
335,000 shares of Common Stock reserved for issuance upon exercise of
outstanding options under the Company's 1997 Equity Participation Plan
with a per share exercise price equal to the initial offering price, (iii)
265,000 shares of Common Stock reserved for issuance upon exercise of
options reserved for future grant under the Company's 1997 Equity
Participation Plan, (iv) 100,000 shares of Common Stock reserved under the
Company's Employee Stock Purchase Plan and (v) 125,000 shares (143,750
shares if the Underwriters' over-allotment option is exercised in full) of
Common Stock issuable upon exercise of the Representative's Warrant at an
exercise price of $10.80 per share. See "Management--Employee Equity
Plans," "Description of Capital Stock--Warrants" and "Underwriting."
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company offers fully integrated, Y2K compliant, software solutions
designed to automate and integrate the operations of public sector
organizations. CPS serves the public sector market through three core product
groups: property tax appraisal and assessment, property tax billing and
collection and city and municipal systems. The Company provides its software
applications to customers in public sector markets under license agreements
and service contracts generally ranging from one to five years with automatic
renewals thereafter. The Company also markets to the private sector its
remittance processing systems ("RPS") solutions and related network and
communications products. The Company derives its revenue from four principal
sources: software license fees; recurring monthly maintenance and service
fees; hardware and product sales; and recurring monthly hardware maintenance
fees. Revenue from software licenses is generated from the initial contracts
that grant customers the right to use the Company's software products. Revenue
from recurring monthly service fees is generated from the continued use of the
Company's software products. Revenue from hardware and product sales includes
sales of computers, data collection equipment, peripherals, RPS solutions and
related network and communications products purchased from third parties and
sold by the Company to its customers. Maintenance and other revenue includes
revenue associated with hardware maintenance and support services.
License fees charged to end users are fixed, with the amount of the fee
based upon the number of accounts processed, hardware configuration, number of
users and applications licensed. License fees are recognized when the related
license agreement has been executed, software has been delivered and
installed, all significant contractual obligations have been met and
collection of the related receivable is probable. Revenue from maintenance and
service agreements are deferred and recognized ratably over the contractual
periods the services are provided. Service contracts are required to be in
effect during the entire license term. Hardware revenue is recognized upon
shipment.
The Company capitalizes software development costs associated with the
development of products. At September 30, 1997, capitalized software
development costs totaled approximately $877,000. These costs relate primarily
to the development of new products and major enhancements to existing products
to accommodate new markets or platforms using existing technologies and
programming methods. These capitalized costs are amortized on a straight line
basis over a 72-120 month period, commencing when each product is available to
the market. The useful lives of the capitalized software development costs are
based on management's expectations of the minimum life cycle of each product.
At September 30, 1997 goodwill and other intangible assets totaled
approximately $1,976,000 and $201,000, respectively. The goodwill arose
primarily in connection with the 1994 Acquisition (as defined below) of the
Company. The useful life of the goodwill was based on management's estimate of
the minimum period of time that the goodwill acquired by the Company would be
of benefit to its operations. The useful lives of the other intangible assets,
consisting of debt issue costs and non-compete agreements were based on the
terms of the related agreements.
Management periodically evaluates the realizability of its capitalized
software development costs, goodwill and other intangible assets in light of
current technology, as it relates to the Company's products, and the current
environment of its industry and markets. Management believes that no material
impairment of software development costs, goodwill and other intangible assets
existed as of September 30, 1997.
Management has addressed the Y2K issue as it affects the Company's internal
computer programs and believes that its significant internal computer programs
and systems are currently Y2K compliant.
16
<PAGE>
RESULTS OF OPERATIONS
Certain of the Company's operating data for fiscal years 1995 and 1996 and
for the nine months ended September 30, 1997 and 1996 are set forth below as
percentages of total revenue:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
--------------- ---------------
1995 1996 1996 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
License fees.............................. 6.8% 19.6% 22.6% 23.2%
Recurring maintenance and service fees.... 62.5 46.0 45.2 37.4
Product sales............................. 25.5 24.5 24.7 29.8
Other service fees........................ 5.2 9.9 7.5 9.6
------ ------ ------ ------
Total revenue........................... 100.0 100.0 100.0 100.0
------ ------ ------ ------
Cost of revenue:
Product sales............................. 16.5 17.5 18.1 20.9
Software.................................. 4.1 4.7 3.9 5.4
Distribution.............................. 0.2 0.1 0.1 0.7
------ ------ ------ ------
Total cost of revenue................... 20.8 22.3 22.1 27.0
------ ------ ------ ------
Gross profit............................... 79.2 77.7 77.9 73.0
Operating expenses:
Support and customer service.............. 36.4 32.8 31.2 30.6
Selling................................... 9.6 9.2 9.2 9.1
Research and development.................. 9.4 10.4 8.7 14.7
General and administrative................ 13.9 12.3 11.9 10.3
Amortization of goodwill and non-compete
agreements............................... 5.6 4.2 4.2 3.4
------ ------ ------ ------
Operating expenses...................... 74.9 68.9 65.2 68.1
------ ------ ------ ------
Earnings from operations.................... 4.3 8.8 12.7 4.9
Interest and financing costs................ 8.4 9.7 9.7 3.6
------ ------ ------ ------
Earnings (loss) before income taxes......... (4.1) (0.9) 3.0 1.3
Income tax expense (benefit)................ (0.4) 2.0 3.5 1.1
------ ------ ------ ------
Net earnings (loss)......................... (3.7)% (2.9)% (0.5)% 0.2%
====== ====== ====== ======
</TABLE>
17
<PAGE>
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUE
The Company's total revenue was $7.7 million for the nine months ended
September 30, 1997 compared to $6.4 million for the nine months ended
September 30, 1996, an increase of $1.3 million, or 20.3%. This increase was
due to an increase in computer assisted mass appraisal ("CAMA") installations,
RPS hardware and software sales and $330,000 of revenue related to CDP
integrated voice response systems.
License Fees. The Company's revenue from license fees was $1.8 million for
the nine months ended September 30, 1997 compared to $1.4 million for the nine
months ended September 30, 1996, an increase of $400,000, or 28.6%. The
increase was primarily due to an increase in new customer CAMA installations
and, to a lesser extent, installations of RPS software and CDP integrated
voice response systems. The Company sold 164 licenses at fees ranging from
less than $10,000 to $200,000 per license during the nine months ended
September 30, 1997. The Company sold 153 licenses at fees ranging from less
than $10,000 to $500,000 per license during the nine months ended September
30, 1996. Revenues from each license fee vary depending upon the number of
accounts processed, hardware configuration, number of users and applications
licensed.
Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $2.9 million for the nine months ended September 30, 1997 compared to
$2.9 million for the same period in 1996. Although there was an increase in
license fees during the period, the recurring revenues attributable to the
maintenance and service contracts remained constant because revenues
associated with such sales are not realized until the effective date of the
maintenance and service contracts, which could become effective up to three to
12 months following execution of the licensing agreement. During this same
period, recurring software and service fees increased while the recurring fees
associated with hardware maintenance declined due to hardware manufacturers
offering longer extended warranties, declining costs of hardware and the
Company's belief that some customers no longer view hardware maintenance as a
mission critical need for all components.
Product Sales. Revenue from product sales was $2.3 million for the nine
months ended September 30, 1997 compared to $1.6 million for the nine months
ended September 30, 1996, an increase of $700,000, or 43.8%. This increase was
primarily due to an increase in RPS sales and, to a lesser extent,
installations of CAMA, sales of hardware for property tax billing and
collection systems, and CDP integrated voice response systems.
Other Service Fees. Revenue from other service fees was $700,000 for the
nine months ended September 30, 1997 compared to $500,000 for the nine months
ended September 30, 1996, an increase of $200,000, or 40.0%. This increase was
primarily due to increased RPS software and hardware sales, CAMA installations
and, starting in 1997, cabling installations to improve client site
infrastructure.
COST OF REVENUE
The Company's cost of revenue includes the cost of hardware product sales,
the cost of software and distribution costs.
Product Sales. The cost of product sales was $1.6 million, or approximately
70.3% of product sales, for the nine months ended September 30, 1997 compared
to $1.1 million, or approximately 73.1% of product sales, for the nine months
ended September 30, 1996, an increase of $500,000, or 45.5%. This increase was
primarily due to costs associated with an increase in RPS hardware sales and,
to a lesser extent, hardware sales associated with CAMA installations. The
decrease in cost as a percentage of product sales was due to an increase in
sales at full list price.
18
<PAGE>
Software. Cost of software includes purchased software as well as the
amortization of capitalized software development costs. The cost of software
was $400,000, or approximately 23.1% of license fees, for the nine months
ended September 30, 1997 compared to $300,000, or approximately 17.4% of
license fees, for the nine months ended September 30, 1996, an increase of
$100,000, or 33.3%. This increase was largely due to the cost of purchased
software associated with the Cleveland County, Oklahoma installation.
Distribution. The costs associated with distribution were $60,000 for the
nine months ended September 30, 1997 compared to $10,000 for the nine months
ended September 30, 1996, an increase of $50,000, or 500.0%. This increase was
due to increased sales of RPS and cabling installation work performed as a
result of new CAMA installations.
Total cost of revenue was $2.1 million for the nine months ended September
30, 1997 compared to $1.4 million for the nine months ended September 30,
1996, an increase of $700,000, or 50.0%. This yielded a gross profit margin of
73.0% for the nine months ended September 30, 1997 compared to a gross profit
margin of 77.9% for the nine months ended September 30, 1996. This decrease in
gross profit resulted from an increase in product sales from 24.7% of total
revenue in 1996 to 29.8% in 1997. Product sales have a higher cost of revenue
associated with them than the Company's other sources of revenue.
OPERATING EXPENSES
Support and Customer Service. Expenses related to support and customer
service were $2.4 million for the nine months ended September 30, 1997
compared to $2.0 million for the nine months ended September 30, 1996, an
increase of $400,000, or 20.0%. This increase resulted from an increase in
personnel costs relating to enhancing customer service and supporting future
growth for expected Y2K sales.
Selling. The Company's selling expenses were $700,000 for the nine months
ended September 30, 1997 compared to $600,000 for the nine months ended
September 30, 1996, an increase of $100,000, or 16.7%. This increase was due
to an increase in the number of sales personnel and the expenses related to
covering new markets such as California, Nevada and Ohio. In addition, sales
commission expenses rose as a result of increased sales of RPS and CAMA.
Research and Development. Research and development expenses were $1.1
million, or 14.7% of revenue, for the nine months ended September 30, 1997
compared to $600,000, or 8.7% of revenue, for the nine months ended September
30, 1996, an increase of $500,000, or 83.3%. These expenses are comprised
primarily of salaries and a portion of the Company's overhead as well as
amounts paid to outside consultants to supplement product development efforts.
This increase resulted from the initiation of development for new database
technology.
General and Administrative. General and administrative expenses were
$800,000 for the nine months ended September 30, 1997 compared to $800,000 for
the nine months ended September 30, 1996.
Amortization of Goodwill and Non-Compete Agreements. The Company incurred a
non-cash expense for amortization of goodwill and non-compete agreements
related to the 1994 Acquisition (as defined below) of $300,000 for the nine
months ended September 30, 1997 compared to $300,000 for the nine months ended
September 30, 1996.
EARNINGS FROM OPERATIONS
Earnings from operations were $400,000, or 4.9% of revenue, for the nine
months ended September 30, 1997 compared to $800,000, or 12.7% of revenue, for
the nine months ended September 30, 1996. The decline in earnings from
operations of $400,000 was primarily due to the increase in research and
development expenses to 14.7% of revenue for the nine months ended September
30, 1997 compared to 8.7% of revenue for the nine months ended September 30,
1996. In each period earnings from operations includes non-cash expenses
related to the amortization of goodwill and non-complete agreements of
$300,000, incurred in connection with the 1994 Acquisition (as defined below).
19
<PAGE>
NON-OPERATING EXPENSES
Interest and Financing Costs. The Company's interest expense on its long
term debt was $300,000 for the nine months ended September 30, 1997 compared
to $600,000 for the nine months ended September 30, 1996, a decrease of
$300,000, or 50.0%. This decrease was primarily attributable to a decrease in
the put warrant adjustment. The put warrant adjustment is primarily based on
the operating earnings of the Company for the previous twelve month period,
which decreased from 1996 to 1997. In addition, the Company's investment
policies contributed approximately $20,000 of earned interest towards
offsetting interest expense during the first nine months of 1997.
Provision for Income Taxes. The Company's provision for income taxes was
$90,000 for the nine months ended September 30, 1997, compared to $200,000 for
the nine months ended September 30, 1996, a decrease of $110,000, or 55.0%.
This decrease was primarily attributable to decreased earnings from
operations. The income tax provision is higher than income taxes determined by
applying the applicable statutory tax rates primarily due to non-deductible
amortization of goodwill and non-deductible put warrant adjustments.
COMPARISON OF YEARS ENDED DECEMBER 31, 1996 AND 1995
REVENUE
The Company's total revenue was $8.4 million for the year ended December 31,
1996, compared to $6.3 million for the year ended December 31, 1995, an
increase of $2.1 million, or 33.3%. This increase was primarily due to
increased license fees related to installation of the Company's property tax
billing and collection systems software, sales of related hardware and RPS
software and hardware sales.
License Fees. The Company's revenue from license fees was $1.6 million for
the year ended December 31, 1996, compared to $400,000 for the year ended
December 31, 1995 an increase of $1.2 million, or 300.0%. This increase was
primarily the result of increased license fees related to installation of the
Company's property tax billing and collection system and, to a lesser extent,
RPS and the Company's city and municipal systems software. The Company sold
219 licenses at fees ranging from less than $10,000 to $500,000 per license
during the year ended December 31, 1996. The Company sold 97 licenses at fees
ranging from less than $10,000 to $200,000 per license during the year ended
December 31, 1995. Revenues from each license fee vary depending upon the
number of accounts processed, hardware configuration, number of users and
applications licensed.
Recurring Maintenance and Service Fees. The Company's revenue from recurring
fees was $3.9 million for the year ended December 31, 1996, compared to $3.9
million for the year ended December 31, 1995. Although there was an increase
in license fees during the period, the recurring revenues attributable to the
maintenance and service contracts remained constant because revenues
associated with such sales are not realized until the effective date of the
maintenance and service contracts, which could become effective up to three to
12 months following execution of the licensing agreement. During this same
period, recurring software and service fees increased while recurring fees
associated with hardware maintenance declined due to hardware manufacturers
offering longer extended warranties, declining costs of hardware and the
Company's belief that some customers no longer view hardware maintenance as a
mission critical need for all components.
Product Sales. Revenue from hardware product sales was $2.1 million for the
year ended December 31, 1996, compared to $1.6 million for the year ended
December 31, 1995, an increase of $500,000, or 31.3%. This increase was
primarily attributable to sales of RPS hardware and, to a lesser extent,
increased delivery of hardware associated with the increased sales of property
tax billing and collection systems software.
Other Service Fees. Revenue from other service fees was $800,000 for the
year ended December 31, 1996, compared to $300,000 for the year ended December
31, 1995, an increase of $500,000, or 166.7%. This
20
<PAGE>
increase resulted principally from increased RPS hardware installations and,
to a lesser extent, RPS software customizations and customer conversions of
the property tax billing and collection systems.
COST OF REVENUE
Product Sales. The cost of product sales was $1.5 million, or approximately
71.4% of product sales, for the year ended December 31, 1996 compared to $1.0
million, or approximately 64.8% of product sales, for the year ended December
31, 1995, an increase of $500,000, or 50.0%. This increase was primarily due
to costs associated with an increase in RPS hardware sales. The increase in
cost as a percentage of product sales was due to RPS hardware comprising a
larger portion of total hardware sales as RPS hardware generally has a higher
cost of sales than other hardware products.
Software. The cost of software was $400,000, or approximately 23.9% of
license fees, for the year ended December 31, 1996 compared to $300,000, or
approximately 60.3% of license fees, for the year ended December 31, 1995, an
increase of $100,000, or 33.3%. This increase was largely due to the cost of
purchased software associated with RPS installations. Cost of software as a
percentage of license fees was significantly higher in 1995 than 1996 as a
result of the amortization of capitalized software costs remaining consistent
from year to year yet with a significant increase in license fees in 1996.
Distribution. The costs attributed to distribution and other miscellaneous
costs were $10,000 for the year ended December 31, 1996, compared to $10,000
for the year ended December 31, 1995.
The total cost of revenue was $1.9 million for year ended December 31, 1996,
compared to $1.3 million for the year ended December 31, 1995, an increase of
$600,000, or 46.2%. This yielded a gross profit margin of 77.7% for the year
ended December 31, 1996 compared to a gross profit margin of 79.2% for the
year ended December 31, 1995. The decrease in the gross profit margin was
primarily attributable to the decrease in gross margin on hardware sales.
OPERATING EXPENSES
Support and Customer Service. The Company's expenses related to support and
customer service, which include personnel costs, travel and other costs
related to the service business, were $2.7 million for the year ended December
31, 1996, compared to $2.3 million for the year ended December 31, 1995, an
increase of $400,000, or 17.4%. This increase resulted primarily from
increased staffing to enhance customer service and to support growth.
Selling. The Company's selling expenses were $800,000 for the year ended
December 31, 1996, compared to $600,000 for the year ended December 31, 1995,
an increase of $200,000, or 33.3%. This increase resulted primarily from
expansion of the Company's RPS sales force, as well as enhanced marketing
efforts, travel and commissions directly related to increased sales.
Research and Development. Research and development expenses, which consist
primarily of salaries and a portion of the Company's overhead for in-house
staff as well as amounts paid to outside consultants to supplement product
development efforts, were $900,000 for the year ended December 31, 1996,
compared to $600,000 for the year ended December 31, 1995, an increase of
$300,000, or 50.0%. This increase resulted primarily from the use of outside
professional services to supplement the product development efforts of the
Company's in-house staff.
General and Administrative. The Company's general and administrative
expenses, which include the cost of corporate operations, finance and
accounting, human resources and other general operations of the Company, were
$1.0 million for the year ended December 31, 1996, compared to $900,000 for
the year ended December 31, 1995, an increase of $100,000, or 11.1%. This
increase resulted primarily from staff additions and increases in other
general corporate expenses.
21
<PAGE>
Amortization of Goodwill and Non-Compete Agreements. The Company incurred a
non-cash expense primarily for amortization of goodwill and non-compete
agreements related to the 1994 Acquisition (as defined below) of $300,000 for
the year ended December 31, 1996, compared to $300,000 for the year ended
December 31, 1995.
EARNINGS FROM OPERATIONS
Earnings from operations were $700,000, or 8.8% of revenue, for the year
ended December 31, 1996 compared to $300,000, or 4.3% of revenue, for the year
ended December 31, 1995. The increase in earnings from operations of $400,000
was primarily due to the decrease in support and customer service expenses to
32.8% of revenue for the year ended December 31, 1996 compared to 36.4% of
revenue for the year ended December 31, 1995. In each period earnings from
operations includes non cash expenses related to the amortization of goodwill
and non compete agreements of $300,000 incurred in connection with the 1994
Acquisition (as defined below).
NON-OPERATING EXPENSES
Interest and Financing Costs. The Company's interest expense on its long-
term debt was $800,000 for the year ended December 31, 1996, compared to
$500,000 for the year ended December 31, 1995, an increase of $300,000, or
60.0%. This increase was attributable to an increase in the put warrant
adjustment. The put warrant adjustment is based primarily on the operating
earnings of the Company for the preceding 12-month period, which increased
from 1995 to 1996.
Provision for Income Taxes. The Company's provision for income taxes was
$200,000 for the year ended December 31, 1996, compared to a benefit of
$20,000 for the year ended December 31, 1995, an increase of $220,000. This
increase was primarily attributable to an increase in earnings from
operations. The income tax provision is higher than income taxes determined by
applying the applicable statutory tax rates primarily due to non-deductible
amortization of goodwill and non-deductible put warrant adjustments.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth a summary of the Company's unaudited
quarterly operating results for each of the eight quarters in the period ended
September 30, 1997. This information has been derived from unaudited interim
financial statements that, in the opinion of management, have been prepared on
a basis consistent with the Financial Statements contained elsewhere in this
Prospectus and include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair statement of such information when read in
conjunction with the Company's Financial Statements and Notes thereto. The
operating results for any quarter are not necessarily indicative of results
for any future period. See "Risk Factors--Potential Fluctuations of Operating
Results; Future Operating Results Uncertainty."
22
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE. 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- --------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License fees........... $ 138 $ 123 $ 729 $ 584 $ 199 $ 190 $1,175 $ 430
Recurring maintenance
and service fees...... 985 969 959 944 979 955 956 976
Product sales.......... 598 360 618 593 481 501 1,147 651
Other service fees..... 141 68 168 241 348 146 335 257
------ ------ ------ ------ ------ ------ ------ ------
Total revenue........ 1,862 1,520 2,474 2,362 2,007 1,792 3,613 2,314
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenue:
Product sales.......... 438 238 465 445 317 363 873 380
Software............... 74 54 85 111 141 93 189 132
Distribution........... 6 1 4 3 3 3 37 16
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenue............. 518 293 554 559 461 459 1,099 528
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 1,344 1,227 1,920 1,803 1,546 1,333 2,514 1,786
Operating expenses:
Support and customer
service............... 588 587 714 678 764 732 727 899
Selling................ 252 165 214 205 188 145 264 293
Research and
development........... 40 137 200 217 312 353 376 407
General and
administrative........ 277 251 252 254 273 301 229 263
Amortization of
goodwill and non-
compete agreements.... 75 90 89 90 78 90 91 84
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 1,232 1,230 1,469 1,444 1,615 1,621 1,687 1,946
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) from
operations............. 112 (3) 451 359 (69) (288) 827 (160)
Interest and financing
costs.................. 152 208 207 203 201 116 116 43
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) before
income taxes........... (40) (211) 244 156 (270) (404) 711 (203)
Income tax expense
(benefit).............. (4) (31) 142 108 (54) (125) 299 (87)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)..... $ (36) $ (180) $ 102 $ 48 $ (216) $ (279) $ 412 $ (116)
====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30,
1995 1996 1996 1996 1996 1997 1997 1997
-------- -------- -------- --------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
License fees........... 7.4% 8.1% 29.4% 24.7% 9.9% 10.6% 32.5% 18.6%
Recurring maintenance
and service fees...... 52.9 63.8 38.8 40.0 48.8 53.3 26.5 42.2
Product sales.......... 32.1 23.7 25.0 25.1 24.0 28.0 31.7 28.1
Other service fees..... 7.6 4.4 6.8 10.2 17.3 8.1 9.3 11.1
------ ------ ------ ------ ------ ------ ------ ------
Total revenue........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------ ------ ------ ------
Cost of revenue:
Product sales.......... 23.5 15.6 18.8 18.9 15.8 20.2 24.2 16.4
Software............... 4.0 3.6 3.4 4.7 7.0 5.2 5.2 5.7
Distribution........... 0.3 0.1 0.2 0.1 0.2 0.2 1.0 0.7
------ ------ ------ ------ ------ ------ ------ ------
Total cost of
revenue............. 27.8 19.3 22.4 23.7 23.0 25.6 30.4 22.8
------ ------ ------ ------ ------ ------ ------ ------
Gross profit............ 72.2 80.7 77.6 76.3 77.0 74.4 69.6 77.2
Operating expenses:
Support and customer
service............... 31.6 38.6 28.9 28.7 38.1 40.9 20.1 38.8
Selling................ 13.5 10.9 8.6 8.7 9.3 8.1 7.3 12.7
Research and
development........... 2.2 9.0 8.1 9.2 15.5 19.7 10.4 17.6
General and
administrative........ 14.9 16.5 10.2 10.7 13.6 16.8 6.4 11.4
Amortization of
goodwill and non-
compete agreements.... 4.0 5.9 3.6 3.8 3.9 5.0 2.5 3.6
------ ------ ------ ------ ------ ------ ------ ------
Total operating
expenses............ 66.2 80.9 59.4 61.1 80.4 90.5 46.7 84.1
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) from
operations............. 6.0 (0.2) 18.2 15.2 (3.4) (16.1) 22.9 (6.9)
Interest and financing
costs.................. 8.1 13.7 8.4 8.6 10.0 6.5 3.2 1.9
------ ------ ------ ------ ------ ------ ------ ------
Earnings (loss) before
income taxes........... (2.1) (13.9) 9.8 6.6 (13.4) (22.6) 19.7 (8.8)
Income tax expense
(benefit).............. (0.2) (2.1) 5.7 4.6 (2.7) (7.0) 8.3 (3.8)
------ ------ ------ ------ ------ ------ ------ ------
Net earnings (loss)..... (1.9)% (11.8)% 4.1% 2.0% (10.7)% (15.6)% 11.4% (5.0)%
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
A private investor group acquired the Company on December 30, 1994 for
approximately $4.6 million (including a non-compete payment of $250,000) in
leveraged transaction (the "1994 Acquisition"). The 1994 Acquisition was
financed with funding provided by certain of the Company's officers and
directors in the form of equity capital as well as with a $1.5 million senior
term loan due December 1998 provided by FINOVA and a $2.1 million senior
subordinated note due in two equal installments in December 1999 and December
2000, with 12% interest paid quarterly, provided by Hanifen Imhoff Mezzanine
Fund, L.P. ("Hanifen"). Each of FINOVA and Hanifen hold a security interest in
substantially all of the Company's assets and the Company's currently
outstanding Common Stock. Moreover, each loan agreement contains certain
restrictive covenants relating to debt coverage and liquidity ratios, payment
of cash dividends and other matters. The Company intends to retire the
outstanding balance of the FINOVA senior term loan with proceeds from this
offering, as well as certain shareholder indebtedness in the amount of
$128,000. Management believes the Hanifen note can be retired with cash
generated from operations. However, management intends to seek alternative
financing with more favorable terms to replace the Hanifen note. There can be
no assurance that the Company will be able to obtain such alternative
financing on acceptable terms. In addition, in connection with the 1994
Acquisition, FINOVA agreed to provide a $1.0 million revolving credit facility
(the "Revolver") for working capital and general corporate purposes.
Subsequent to the closing of the 1994 Acquisition, the Company has funded its
business solely with the cash generated from operations and therefore to date
has not utilized the Revolver. See "Use of Proceeds" and "Risk Factors--
Control by Principal Shareholders, Officers and Directors."
The Company's cash balances were $340,000, $590,000 and $390,000 as of
September 30, 1997, December 31, 1996 and December 31, 1995, respectively. In
1996 and 1995, the Company generated cash from operating activities of
$550,000 and $470,000 respectively, which was principally attributable to an
increase in non-cash operating expenses in 1996. For the nine months ended
September 30, 1997 and September 30, 1996, the Company generated cash from
operations of $360,000 and $140,000, respectively. This increase was primarily
the result of improved collections of accounts receivable partially offset by
a reduction in non-cash operating expenses. Cash used in investing activities
totaled $250,000 and $290,000 in fiscal 1996 and 1995, respectively. For the
nine months ended September 30, 1997 and September 30, 1996, cash used in
investing activities totaled $400,000 and $190,000, respectively. Investing
activities include capital expenditures and software development costs. The
increase in the nine months ended September 30, 1997 over the nine months
ended September 30, 1996 was primarily due to the increase in capitalized
software development costs and an increase in investments of tooling and
related software. Net cash used in financing activities was $100,000 and
$210,000 in fiscal 1996 and 1995, respectively. For the nine months ended
September 30, 1997 and September 30, 1996, cash used in financing activities
was $220,000 and $50,000, respectively. Included in financing activities for
the year ended December 31, 1996 and the nine months ended September 30, 1996
is a reimbursement of $170,000 from the seller's escrow entered into in
connection with the 1994 Acquisition.
The Company believes that the proceeds of this offering when combined with
its cash balances, cash generated from operations, and proceeds from this
offering will satisfy the Company's working capital, business development and
capital expenditures for at least the next 12 months. In the longer term, the
Company may require additional sources of liquidity to fund future growth.
Such sources of liquidity may include additional equity offerings, or debt
financings. In the normal course of business, the Company evaluates
acquisitions of business, products and technologies that complement the
Company's business. The Company has no present commitments or agreements with
respect of any such transaction. There can be no assurance, however, that the
Company will have sufficient working capital to satisfy all of the anticipated
needs for the next 12 months. Increased costs or expenses, acquisition
prospects and opportunities for growth or expansion may increase the demand
for working capital thereby making an additional infusion of capital
necessary. See "Risk Factors--Acquisition Risk."
24
<PAGE>
ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued the following
Statements of Financial Accounting Standards (SFAS):
SFAS 128, Earnings Per Share, which is effective for financial statements
for periods ending after December 15, 1997. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and diluted earnings per share together with disclosure of how the per
share amounts were computed.
SFAS 129, Disclosure of Information about Capital Structure, which is
effective for financial statements for periods ending after December 15, 1997.
SFAS 129 requires disclosure of certain information about a Company's
securities.
SFAS 130, Reporting Comprehensive Income, which is effective for fiscal
years beginning after December 15, 1997. SFAS 130 requires companies to
include details about comprehensive income that arise during a reporting
period. Comprehensive income includes revenue, expenses, gains and losses that
bypass the income statement and are reported directly in a separate component
of equity.
SFAS 131, Disclosures About Segments of an Enterprise and Related
Information, which is effective for financial statements for periods beginning
after December 15, 1997. SFAS 131 requires companies to report information
about an entity's different types of business activities and the different
economic environments in which it operates, referred to as operating segments.
Additionally, the AICPA Accounting Standards Executive Committee has issued
Statement of Position (SOP) 97-2, Software Revenue Recognition, which is
effective for fiscal years beginning after December 15, 1997. SOP 97-2
modifies the criteria for determining recognition of revenue and allocation of
the contract fee for contracts containing multiple elements, such as software
products, rights to upgrades and other services.
Management does not expect the adoption of the Statements of Financial
Accounting Standards and SOP 97-2, referred to above, to have a material
impact on the Company's presentation of its results of operations or financial
condition.
25
<PAGE>
BUSINESS
INTRODUCTION
CPS develops, markets, implements and supports fully integrated software
applications designed specifically for public sector organizations, including
states, counties, townships, city governments and other municipal agencies.
The Company's products address the following functional areas: (i) property
tax appraisal and assessment, (ii) property tax billing and collection, (iii)
city and municipal systems and (iv) remittance processing systems. Currently,
the Company's public sector software applications are installed in six states
(Colorado, Florida, North Carolina, New Mexico, Oklahoma and Texas),
representing more than 250 customers. The majority of its customers are county
governments with taxable parcel counts over 10,000 or cities with populations
between 5,000 and 35,000. The Company's focus on the public sector allows it
to design solutions that address the needs of these organizations. The Company
has identified three significant growth opportunities in the public sector
marketplace as described below.
Expand Core Public Sector Business. The Company intends to geographically
expand its core product business to address the following functional areas:
property tax appraisal and assessment; property tax billing and collection;
and city and municipal systems. Recently, this core business has been growing
rapidly due, in the Company's judgment, to the ability of the Company's
software to improve delivery of service, reduce costs, enhance revenue
collection, operate successfully within budget constraints, comply with
rapidly changing local, state and federal regulations and improve management
economics. This opportunity represents a key segment of the Company's business
strategy due to the growing recurring revenue streams generated by license
agreements entered into by customers of the Company's core business.
Provide Y2K Solutions. The Company plans to leverage its 17 years of public
sector experience to capitalize on the opportunity to provide Y2K-compliant
software applications to public sector organizations. The Y2K problem results
from the traditional use of two-digit date fields to perform computations and
decision-making functions. For example, a program using a two-digit date field
may misinterpret "00" as the year 1900 rather than the year 2000. The Company
believes this problem has been magnified in the public sector due to the
substantially greater allocation of resources to the higher-paying private
sector. In addressing the Y2K problem, public sector entities are faced with
the prospect of competing with the private sector for recruiting, hiring and
retaining top data processing talent, despite possessing limited ability to
match competitive salaries for attracting new hires or retaining existing
staff. As a result, the Company believes many public sector organizations are
seeking cost-effective, non-labor intensive solutions such as those offered by
CPS.
Leverage Client/Server-Based Products. The Company intends to leverage the
interoperability of the Company's core products to manage information flow
between departments as organizations shift from mainframe computers to
client/server systems. When local governments began to use computerized
operations in the 1970s and 1980s, management systems were originally based on
mainframe computers and later based on minicomputers. These legacy systems
typically were developed on a customized basis using proprietary and often in-
house operating systems and database software. The Company believes many
public sector organizations currently are faced with a pressing need to
integrate mission critical functions and databases by replacing standalone
applications and customized, out-dated software with integrated software
applications similar to those offered by CPS.
INDUSTRY OVERVIEW
PUBLIC SECTOR MARKETPLACE
The public sector marketplace is composed of state, county and city
governments, other municipal agencies and publicly owned utilities. The
Company estimates the local government market comprises over 3,000 counties
and over 19,000 municipalities in the United States, not including school
districts, townships
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and special government districts. According to one industry source, state and
local government agencies spent approximately $34.5 billion on information
technology and related products in 1996. This total included approximately
$5.0 billion for software, $6.7 billion for external services, $7.4 billion
for hardware and $15.4 billion on internal services (e.g., in-house management
information systems departments).
Of the $5.0 billion in 1996 software expenditures, approximately $3.1
billion was spent on law enforcement, child welfare, education and emergency
services. Management estimates the remaining $1.9 billion was spent on
software in the four areas CPS markets applications: property tax appraisals
and assessments, property tax billing and collection, city and municipal
systems and remittance processing systems. As local jurisdictions experience
increasing pressure to provide more services without raising taxes, management
believes state legislatures will raise needed revenue by amending tax laws.
However, these same legislatures cannot, in the Company's view, appropriate
sufficient resources to modify existing information systems. Thus, the public
sector is faced with the dilemma of responding to frequent legislative change
during a period of budget cuts.
YEAR 2000 OPPORTUNITY
The Y2K problem relates to the highly publicized inability of many existing
computer legacy systems to accurately process information involving the year
2000 and beyond. For example, unless Y2K compliance is completed in certain
systems, public sector organizations cannot properly (i) appraise, bill and
collect property taxes, a principal revenue source, (ii) record fines and
deeds resulting from property sales and (iii) maintain and retain accurate law
enforcement records. Date-dependent programs are commonly found in legacy
software applications used in many critical business operations, including
those used by public sector organizations. Management has observed that the
public awareness and recognition of the Y2K crisis is rapidly increasing as
the millennium approaches.
While the business community is taking steps to address the Y2K problem, the
Company believes many public sector organizations lack the resources to
achieve a timely solution due to budgetary and other constraints. One industry
source estimates that the overall cost of solving the Y2K problem worldwide
will be in the range of $300 billion to $600 billion. As a result of the
significant resources required to resolve an enterprise-wide Y2K problem, many
public sector organizations may adopt temporary or partial solutions. The
failure by public sector organizations to install permanent Y2K solutions is
expected by management to provide opportunities for CPS to provide Y2K
solutions for years after the year 2000.
DELIVERY OF CLIENT/SERVER TECHNOLOGY
As computing technology evolves and information processing requirements
expand, medium to large public sector organizations are seeking to preserve
the investment in their existing systems by integrating or replacing mainframe
computers with modern distributed computer processing architectures, such as
client/server systems. Distributed computing refers to computer transactions
that may take place among different types of computers at one or more
locations, thereby permitting enterprise-wide information exchanges to occur
that otherwise might not be possible. In a client/server environment, a mid-
range computer serves as the network's hub or server. The server is connected
to possibly hundreds of desktop personal computers or workstations known as
"clients" throughout an organization. The Company believes the client/server
approach has several benefits over mainframe-based systems, including user
friendliness, flexibility in creating new applications in response to changes
in an organization's informational requirements such as tax code changes,
accessibility of enterprise-wide data from a variety of databases, and the
ability to present data in different formats. Moreover, client/server
architectures are becoming more cost effective as a result of technological
advances in personal computers, networking, disk storage, operating systems
and tiered software applications. As the public sector marketplace
increasingly recognizes the benefits of client/server technology, the Company
believes that there will be an increased demand for software and services that
assist such organizations in making this transition.
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<PAGE>
THE CPS SOLUTION
PUBLIC SECTOR MARKETPLACE
Extensive Public Sector Experience. The Company's products are the result of
more than 17 years of focusing on the public sector. CPS software is designed
to help organizations streamline and automate administrative intensive
processes such as property tax billing and collection, property tax appraisal
and assessment and improve timeliness and quality of services. Each product
was developed specifically for the public sector, addressing specific needs at
an attractive price.
Integrated Solution and Depth of Functionality. CPS currently markets 41
applications, which provide feature-rich systems for property tax appraisal
and assessment, property tax billing and collection, as well as city and
municipal systems. The Company's software applications are designed to offer
customers the following: (i) simplification of data entry, (ii) compliance
with periodically changing legislation, (iii) extensive security features,
(iv) flexible report configuration and (v) open system technology. The
Company's products operate as stand-alone applications or as integrated suites
which provide users with a consistent graphical user interface ("GUI") and the
ability to easily access data and share information between different
departments. The Company's applications are based upon proven technologies and
are designed to function in mission critical environments.
Cost Effective Implementation Technology. The Company employs a highly
responsive implementation and planning process, offering rapid product
deployment and easy migration among its product lines. The Company minimizes
the productivity interruption that typically results from the introduction of
new technology, thereby enabling organizations to realize the associated
benefits more quickly.
YEAR 2000 OPPORTUNITY
Y2K Solutions and Applications. The CPS solution methodology incorporates
the following process: (i) complete assessment of the customer's information
systems using a proprietary technique to identify critical software components
and related Y2K compliance, (ii) demonstrate the benefits of the Company's Y2K
software applications, (iii) implement consulting and programming services to
convert the non-Y2K data, (iv) install the Company's Y2K software application
and (v) commence user training.
Proprietary Software Conversion Tool. The most important element of the Y2K
solution methodology is the conversion of the non-Y2K compliant data into Y2K
compliance. CPS has developed a proprietary tool that converts data into a
form that can be run by CPS applications. Management believes this tool offers
a significant competitive advantage in marketing its software applications
because the time to conversion and compliance is much shorter than a tedious
legacy conversion of data and source code.
Elimination Rather Than Correction of Legacy Code. The Company believes that
the principal issues facing all Y2K solution providers are finding the hidden
date codes embedded within legacy systems and locating any original lost
source codes. The CPS solution overcomes these obstacles through the following
process: (i) applying field expansion to the year field, (ii) running the
newly-converted Y2K-compliant database on the Company's software, thereby
eliminating the possibility of lost source codes and (iii) replacing the
legacy source code with the Company's Y2K compliant application, thus
eliminating the costly and time-consuming process of searching the legacy
system for hidden date codes. CPS believes the Y2K problem will cause many
public sector organizations to explore further the possibility of migrating
all or portions of their legacy systems to Y2K compliant client/server
systems.
DELIVERY OF CLIENT/SERVER TECHNOLOGY
Adaptability/Flexibility/Scalability. The Company's application software
products are designed to be readily adaptable to meet a customer's initial
needs and to offer sufficient flexibility to respond to a customer's specific
system refinements and ongoing changes once the system is fully in service.
The scalability of the
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Company's software applications and the customer's ability to migrate within
the Company's product family allow state and local governments to increase
operating levels and expand application functionality. In addition, the
Company offers several application programming interfaces intended to enable
customers to develop customized reporting and satisfy unique requirements.
Multi-Platform Tiered Software Architecture. The Company's tiered software
architecture separates the application logic from the GUI and database. This
feature enables the Company to utilize multiple platforms and effectively
integrate new technologies with existing software. The tiered architecture
also allows customers to protect their investments in information systems
while positioning them to adopt new object-based solutions, high performance
servers and database management systems with no loss of functionality.
Centralized System Administration. System administration is simplified in
the Company's software applications, thereby simplifying system management,
reducing the need for in-house system administrators and programmers and
mitigating the need for third-party services. The Company's software
applications incorporate extensive security features designed to protect data
from unauthorized retrieval or modification. Simplified menus and data access
can be tailored to meet each organization's requirements.
GROWTH STRATEGY
The Company's growth strategy with respect to serving the public sector
marketplace providing Y2K solutions and capitalizing on the shift to
client/server-based systems includes the following elements:
Augment Recurring Revenue Base. The Company's customers typically enter into
long-term service agreements which generate recurring revenue from continuing
monthly maintenance and service fees, typically at a rate equal to
approximately 32% of the software license fee. Recurring monthly maintenance
and service fees represented approximately 46% of the Company's revenues in
fiscal 1996. Customers benefit from continually updated software and service
in response to technological and legislative changes. In addition, long-term
agreements serve as competitive barriers to entry in the Company's markets.
The Company believes that its service, support and singular knowledge of its
customers' hardware and software requirements ensure continued service and
support revenues. See "Product Description."
Leverage the Y2K Opportunity. The Company views the Y2K market as an
opportunity to become one of the leaders in providing public sector solutions
on a national basis. The Company's history in servicing the public sector
coupled with the need for timely Y2K solutions creates a significant growth
opportunity for the Company. The Company believes the Y2K opportunity will
allow it to establish an installed base of large public sector accounts
nationwide.
Expand Geographic Initiatives. The Company intends to increase its
penetration of the public sector market by expanding the distribution of its
products into new and existing geographic markets. Currently, the Company has
installations in six states and is actively pursuing new business
opportunities in additional states, including Kentucky, Montana, Ohio and
California. To accomplish this expansion, the Company plans to actively
increase the size of its direct sales and marketing force and concurrently,
hire additional technical, support and systems personnel. In addition, the
Company intends to continue to build collaborative relationships with
customers in order to develop new applications and assist customers in keeping
pace with technology and in maintaining compliance with changing governmental
regulations. The Company intends to leverage its installed customer base in
order to enhance its ability to capture additional statewide accounts, as
exemplified by the Company's market penetration in the state of Florida. Since
entering the Florida market in 1988, the Company has completed 25 county
installations out of a total of 67 counties in the state.
Pursue Strategic Acquisitions. The Company views acquisitions as a means of
acquiring technology and application expertise, broadening its customer base
and expanding geographically. The Company believes that the public sector
marketplace is highly fragmented with many small, closely-held companies. The
Company believes its strong management team, the ability to leverage its core
technologies and expertise, proven marketing programs and strategies, as well
as access to capital, should provide the Company with a competitive advantage
and position it to capitalize on acquisition and integration opportunities
which may
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<PAGE>
become available over the next several years. Its only corporate acquisition
to date has been the acquisition of its subsidiary CDP Systems, Inc. in July
1997. See "Risk Factors--Acquisition Risk" and "Certain Transactions."
Leverage Software Development Relationship. In 1995, the Company entered
into an agreement with a subsidiary of Mastek, Ltd. ("Mastek"), an offshore
provider of economical programming services, to provide coding services. All
work is communicated to Mastek's Bombay, India office. Due to the difference
in time zones, the Company can send Mastek a new specification or design and
generally obtain the development code by the next business day. The Company
believes this relationship provides several competitive advantages. First, the
Company can respond rapidly to state and local regulatory changes through
prompt software modifications and updates. Second, the costs of recruitment,
hiring and traditional employee overhead expenses are minimized (if not
completely eliminated). Third, by utilizing a varying number of offshore
programming and development individuals, the Company minimizes its need to
employ increasingly sought-after and highly qualified technical personnel,
particularly as such programming relates to Y2K activities.
Capitalize on Public Sector Expertise. The Company intends to capitalize on
its public sector knowledge and experience to enhance sales in existing
markets and new markets. For the past 17 years, the Company has focused
exclusively on the public sector marketplace, resulting in the development of
core expertise. The Company believes its customer base offers considerable
leverage to new business since references from existing customers often result
in future sales opportunities.
Maximize Integrated Solutions to Become Sole Source Provider. The Company
believes a substantial opportunity exists to sell additional products to
current customers who have only one installed CPS product. For example, a
customer using the Company's property tax appraisal and assessment system
offers a direct-sales opportunity for the Company's property tax billing and
collection system since both systems share a common database and processes.
Leverage Relationships With Y2K Tool and Service Providers. CPS plans to
leverage relationships with leading Y2K tool and service providers. In certain
circumstances, CPS solutions may be unavailable to some public sector
organizations who have already committed to in-house remedial measures. These
public sector organizations can be referred to a Y2K tool and service provider
partner of CPS for a fee. CPS will then use corresponding referrals from these
Y2K tool and service providers of public sector organizations who desire a
replacement application.
PRODUCT DESCRIPTION
CPS offers fully integrated, Y2K compliant software solutions designed to
automate and integrate the operations of county governments with taxable
parcel counts over 10,000 or cities with populations between 5,000 and 35,000.
The Company has designed its products based upon the philosophy that complete
application integration is essential for the effective sharing of information
across an organization.
CPS seeks to be an innovative leader in each market served and set the
standard through high perceived value. This perception results in premium
pricing for its application software and related services which serves to
strengthen the Company's market position. Upon contract signing, customers pay
a license fee and a recurring maintenance and service fee equal to a rate of
approximately 32% (depending upon a variety of factors) of the software
license fee, which compares favorably with the Company's estimate of the
industry average of 12-20%. The Company can often command such a premium in
most markets it serves because the Company's products are designed to offer:
(i) the ability to maintain legislative compliance, (ii) a strong service and
support organization with a single point of contact, (iii) fully-integrated,
proven and feature-rich software applications, and (iv) a complete system
solution. Pricing for most applications is generally transaction based on a
parcel count which allows the larger, more affluent governmental units to bear
a proportionately higher cost in a way that is readily justifiable. The
Company also provides RPS hardware and software to regulated utilities and
commercial markets to meet the needs of public and private sector
organizations with high speed processing of check payments. Currently, the
Company has RPS solutions installed in 12 states with
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applications in such areas as utility payments, subscription payments and
county property tax collections. The Company also offers Windows NT-based
integrated voice response and document imaging systems.
The Company's technological strategy is to continue to offer applications
that run across the most popular operating systems. Currently, supported
systems include UNIX, AIX and Microsoft NT. The Company's products are
supported on databases including Oracle, Informix, Microsoft SQL Server and C-
ISAM.
The following table sets forth a summary description of certain of the
Company's products.
<TABLE>
<CAPTION>
CAMA
COMPUTER ASSISTED MASS TAX MANAGER CITY MANAGER
APPRAISAL TAX BILLING AND COLLECTIONS MUNICIPAL SOLUTIONS
--------------------------------- -------------------------------------- ----------------------------------
<S> <C> <C> <C>
PRODUCT POSITIONING: Exceeding 100,000 taxable parcels Exceeding 100,000 taxable parcels Population up to 35,000
SOLUTIONS: Software and Y2K tools/services Software and Y2K tools/services Software and Y2K tools/services
PRODUCTS/FEATURES: CAMA System Tax Manager General Ledger
--------------------------------- -------------------------------------- ----------------------------------
-- Appeals tracking -- Integrated current/delinquent taxes -- Flexible chart of accounts
-- Real time valuation -- Unlimited paid and audit history -- Integrated budgeting
-- Valuations by all methods -- Comprehensive distribution of taxes -- Financial reporting
-- Sketching/Field automation
-- Integrated real and personal
systems
Occupational License Utility Billing
----------------------------------
-- Mutliple services tracked
Tourism Tax -- Hand held meter reading
-- Extensive billing parameters
Game and Fish Licensing -- Cycle billing
Vessel Registration Accounts Payable
----------------------------------
-- Unlimited vendor history
Non-Ad Valorem Assessment System -- Integrated with purchase orders
-- Allows for one time vendors
<CAPTION>
RPS
REMITTANCE PROCESSING
-----------------------
<S> <C>
PRODUCT POSITIONING: 50,000 peak items
per day or less
SOLUTIONS: Various services
PRODUCTS/FEATURES:
Integrators for various
software systems
designed for the NCR
7780
</TABLE>
PROPERTY TAX APPRAISAL AND ASSESSMENT SYSTEMS
The Company's CAMA system, designed and written using computer-aided
software engineering tools, is a fully integrated suite of programs with
applications for mass property tax appraisal, assessment administration
(appeals processing, statistical analysis of property values and sketching of
property and buildings), integrated imaging and GIS/911 interfacing and is
designed to meet the needs of county property appraisers and/or tax assessors.
The CAMA system adheres to IAAO standards and provides a powerful set of tools
to establish an equitable, defensible set of property values for a variety of
property types including residential, agricultural, multi-family, commercial,
industrial, business, personal and household goods.
The CPS CAMA system incorporates regression and feedback methodologies to
produce direct market values and market adjusting techniques which are
available for costing out location and depreciation. The system also provides
the user with the ability to: (i) specify which valuation appraisal method
(cost, market or income) will be used as the default valuation for each type
of property, (ii) maintain a comprehensive history file on each parcel,
including transactions affecting it, which can be displayed or printed upon
request and (iii) maintain sales data and descriptive information on each
parcel at the time of sale, thereby generating a "snapshot" vital in market
valuation and appraisal analyses.
Representative current licensees and users of the CPS CAMA system product
include Martin County (Florida), Union County (North Carolina) and Canadian
County (Oklahoma). The initial license fee for a typical client currently
ranges from approximately $225,000 to $1,800,000, depending on hardware
configurations, number of users and applications licensed.
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PROPERTY TAX BILLING AND COLLECTION SYSTEMS
Designed to meet the needs of county tax collectors and/or treasurers, the
Company's property tax billing and collection product (the "Tax Manager")
provides public sector organizations with a comprehensive integrated property
tax billing and collection reporting system designed to improve and streamline
revenue tracking, processing and payment collection. The Tax Manager provides
multiple terminal cash drawer, payment processing and validation capability
and eliminates redundant data entry. The product is designed to handle a full
range of services including posting, recording, universal cashiering,
reconciliation, cash control, auditing, distribution of funds, report
generation and interfacing to various high speed remittance processors.
The Tax Manager encompasses the following property tax billing and
collection applications: (i) current ad valorem tax system, (ii) installment
processing, (iii) mortgage processing, (iv) non ad valorem assessments, (v)
distribution systems, (vi) splits and corrections, (vii) advertising, (viii)
current tax roll billing, (ix) personal property system, (x) tax sale (real
estate, non ad valorem assessments), (xi) delinquent tax and assessment
system, (xii) tax deed processing, (xiii) boat licensing system and (xiv)
hunting and fishing licensing systems.
Representative current licensees and users of the Tax Manager product
include the Florida counties of Broward (Fort Lauderdale), Okaloosa (Fort
Walton Beach/Destin) and Volusia (Daytona Beach). The initial license fee for
a typical client currently ranges from approximately $225,000 to $1,800,000,
depending on hardware configurations, number of users and applications
licensed.
CITY AND MUNICIPAL SYSTEMS
The Company's city and municipal systems products provide key operating and
financial management functions for public city and municipal governments. The
Company's City Manager ("City Manager") and Financial Manager ("Financial
Manager") are both state-of-the-art libraries of software applications which
can be completely integrated with each other. CPS provides its users with
customization capabilities and updated applications which are the result of
changes mandated by state and local legislatures.
The City Manager and Financial Manager have been designed to serve the needs
of governmental financial officers and human resource managers in public
sector organizations by providing the following benefits: (i) serve as an
integrated financial reporting system designed to monitor organizational
goals, (ii) comply with all Governmental Accounting, Auditing, and Financial
Reporting and state standards, (iii) streamline reporting requirements, and
(iv) eliminate redundant data entry and minimizes record management. Both the
City Manager and the Financial Manager are integrated with the following
applications: (i) general ledger, (ii) payroll, (iii) purchase order, (iv)
inventory management, (v) accounts payable, (vi) account receivable, (vii)
fixed asset management and (viii) investment management.
Representative current licensees and users of the City Manager and Financial
Manager products include the City of Port Lavaca (Texas), City of Cedar Hill
(Texas) and City of Altus (Oklahoma). The initial license fee for a typical
sale currently ranges from approximately $25,000 to $150,000, depending on
hardware configurations, number of users and applications licensed.
REMITTANCE PROCESSING SYSTEMS
The Company also provides remittance processing hardware and software to
regulated utilities and commercial markets to meet the needs of public and
private sector organizations for high speed processing of check payments with
applications in such areas as utility payments, subscription payments and
county property tax collections. Currently, the Company has RPS installations
in 12 states (Arizona, California, Florida, Kansas, New York, Georgia,
Massachusetts, Minnesota, Utah, Oregon, Idaho and Texas) and has completed
21 installations since commencing RPS activities in June 1995. Representative
installations in the public sector market include San Bernardino County, Texas
Department of Public Safety, Georgia Department of Revenue and Tax and
Hillsborough County, Florida. In the private sector, representative
installations include Guidepost, Feature Films, Palm Coast Data, Snapping
Shoals Utility and Eugene Electric and Water Board. A typical RPS sale
currently ranges from approximately $50,000 to $650,000, depending on hardware
configuration and software conversion.
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<PAGE>
CPS PROPRIETARY Y2K CONVERSION PROCESS
CPS utilizes a unique, step-by-step process by which the client's legacy
data is removed, re-engineered with compliant date fields and then loaded into
an industry standard relational database of the client's choosing. Prior to
entering into a contract, CPS analyzes the data formats, sources and types in
anticipation of using the Company's Y2K tools. Immediately after the contract
process is complete, both on-site and in the Company's conversion centers, CPS
begins the process of extracting the raw data, analyzing it field by field,
mapping to the CPS database layout by application and testing the system
through use of the Company's Y2K compliant application software.
The Company believes that the primary advantage of the CPS approach is that
the time to conversion and compliance is much shorter than a tedious legacy
conversion of data and source code. In addition, the Company's Y2K compliant
application will be offering the client a multi-tiered client/server approach
allowing for extensive data mining using standard structured query language
("SQL") tools.
LOGO
[CHART OF CPS PROPRIETARY Y2K CONVERSION PROCESS APPEARS HERE]
As shown above, the Y2K conversion process involves numerous steps to
interrogate the legacy data, inventory all date fields and create a data
dictionary map for use in the Company's Y2K compliant software. Each date
field is expanded, tested for proper validation, formatted to the proper Y2K
compliant format of the target database and then loaded for testing. All date
fields are converted in this process. By making the legacy source code
obsolete and eventually discarding it, the unique CPS solution ensures that no
non-Y2K compliant processes inherent in the legacy code survive the conversion
process. In addition, this solution eliminates the problems of hidden date
codes and lost source code.
33
<PAGE>
CPS TIERED SOFTWARE ARCHITECTURE
The Company's tiered software architecture separates the application logic
from the GUI and the database, thereby enabling the Company's products to
operate on any Windows NT, UNIX or any UNIX derivative platform including IBM
(AIX), NCR (UNIX), Hewlett-Packard (HP-UX) and Sun Microsystems (Solaris). The
Company offers customers CPS GUI, internet browser and character-based
interface. Furthermore, the applications can be implemented on multiple
platforms with no loss of functionality. The Company's applications operate on
systems running databases such as Oracle, Informix, Microsoft SQL Server and
C-ISAM. The Company's tiered software architecture does not require the
application code to be reconfigured to enable the applications to operate on
different platforms, databases or operating systems. The tiered architecture
permits customers to protect their investment in the Company's system while
enabling them to adapt to emerging operating systems, servers and databases.
CPS TIERED APPLICATION ARCHITECTURE
LOGO
[Chart appears here]
34
<PAGE>
SALES AND MARKETING
The Company sells its products in the United States through a direct sales
force. As of November 30, 1997, the Company had 17 employees in its sales and
marketing organization. The Company employs a variety of business development
and marketing techniques to communicate directly with current and prospective
customers. These techniques include exhibiting at trade shows, holding
seminars for clients and prospective clients on technology and industry issues
and marketing through targeted mail campaigns.
The Company believes in establishing a strong local presence in order to
effectively address the needs of local governments and establish long-term
relationships. For that reason, CPS has established regional offices in
Dallas, Texas; Tampa, Florida; and Tulsa, Oklahoma. The Company also operates
customer service and sales offices in San Antonio, Houston, Abilene and
Wichita Falls, Texas. Additionally, CPS maintains sales and software
development personnel in Los Angeles and San Francisco, California; Boston,
Massachusetts; Atlanta, Georgia; and Tallahassee, Florida.
The Company's sales and marketing strategy focuses on building and
maintaining strong relationships with businesses that the Company believes
play a role in the successful marketing of its software products. These
providers include software and hardware vendors and technology consulting
firms, some of which are active in the selection and implementation of
information systems for organizations that comprise the Company's principal
customer base.
In connection with the sales and marketing of software application products,
the Company has established direct and indirect value-added re-seller
arrangements pursuant to standard re-seller agreements with IBM, NCR and
Compaq Computer for the sale of hardware and related products. In turn, the
sales force of these manufacturers work closely with the Company's sales and
marketing personnel in an effort to promote sales of the Company's products
and services in conjunction with hardware sales by such manufacturer.
A sales cycle is the period between the confirmation of interest and the
consummation of the sale. Historically, the sales cycle for the Company ranges
from nine to 18 months on average. Since public sector entities are subject to
and bound by budgets formally approved by the appropriate governing board, the
length of the sales cycle depends on (i) when the entity becomes a prospect,
(ii) the size of the appropriation and (iii) the availability of budgeted
funds for the purchase of a new system. In the future, management has
experienced and expects to continue to experience a trend towards a shorter
sales cycle. Entities who are experiencing a dilemma due to a Y2K problem are
accelerating their purchasing requirements. Moreover, CPS employs creative
software financing techniques that shorten the sales cycle.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are focused on the
enhancement of its existing products and the introduction of new products. The
Company outsources certain product development and enhancement activities to
independent contractors. CPS continually updates its products for amendments
to the various tax laws and regulations. Research and development expenses
were $870,000 for the year ended December 31, 1996, compared to $590,000 for
the year ended December 31, 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
The Company believes it has a strong competitive advantage in the areas of
cost containment and time to market with key technology for its clients
resulting from its offshore out-sourcing programming services. Costs of
recruitment, hiring and traditional employee overhead expenses are minimized
or eliminated. By utilizing a team of offshore developers, the size of which
can be modified upon request, the Company can maintain a level of development
resources to match existing market needs. The Company is presently obtaining
these programming services through a non-exclusive agreement with Mastek,
cancellable upon 30 days' written notice. However, management believes
commercially competitive replacement services are available through other
offshore programming service providers.
The Company plans to continue to enhance its applications to suit the
evolving needs of the public sector market. In particular, the Company intends
to develop additional functionality on existing application modules and to
create new modules. Additionally, the Company seeks to improve and expand its
object development
35
<PAGE>
environment, with two fundamental objectives: (i) continued user empowerment
with an emphasis on ease-of-use and (ii) increased flexibility to modify base
products in order to suit specific customer requirements. The Company plans to
continue to add new products and services, both through internal development
and potential acquisitions, to leverage the Company's core technologies and
expertise.
COMPETITION
The market in which the Company competes is highly fragmented, with a large
number of competitors that vary in size, primary computer platforms and
overall product scope. Within its traditional public-sector markets, the
Company competes from time to time with (i) custom software and services
providers (such as Andersen Consulting, KPMG Peat Marwick and Oracle
Corporation), (ii) companies which focus on selected segments of the public
sector market (including Systems & Computer Technology Corporation, Manatron,
Inc., H.T.E., Inc., American Management Systems, Incorporated and BRC
Holdings, Inc.), and (iii) a significant number of smaller private companies.
The Company also competes with in-house management information services staff.
In addition, within the market for its Y2K solution products, the Company
anticipates that it will compete with companies who focus upon overall
enterprise solutions to the Y2K problem. Many of the Company's competitors are
more established, benefit from greater name recognition and have substantially
greater resources than the Company. Moreover, the Company could face
additional competition as other established and emerging companies enter the
public sector software application market and/or the Y2K market and new
products and technologies are introduced. Increased competition could result
in price reductions, fewer customer orders, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, financial condition and operating results. In addition, current and
potential competitors may make strategic acquisitions or establish cooperative
relationships among themselves or with third-parties, thereby increasing the
ability of their products to address the needs of the Company's prospective
customers. Accordingly, it is possible that new competitors or alliances among
current and new competitors may emerge and rapidly gain significant market
share.
CPS believes it can differentiate its own products and services from these
current and future competitors, focusing on the Company's functionality,
product flexibility, ease of implementation and adaptability to customer needs
without custom programming, enterprise product breadth, individual product
features, service reputation and price. The Company believes that many of its
competitors lack these essential qualities because they do not focus
exclusively on the public sector market or offer fully-integrated software
applications. However, there can be no assurance that the Company will be able
to compete successfully against current and future competitors, and the
failure to do so could have a material adverse effect upon the Company's
business, financial condition and operating results. See "Risk Factors--
Competition."
The following table sets forth a representative list of the Company's
competitors.
<TABLE>
<CAPTION>
CAMA
COMPUTER ASSISTED MASS TAX MANAGER CITY MANAGER RPS
APPRAISAL TAX BILLING AND COLLECTIONS MUNICIPAL SOLUTIONS REMITTANCE PROCESSING
- ---------------------- --------------------------- ---------------------------- ---------------------
<S> <C> <C> <C>
Cole Layer Trumble ASIX, Inc. H.T.E., Inc. Wassau Financial
Systems, Inc.*
American Management BRC Holdings, Inc. Interactive Computer Designs J & B Software, Inc.
Systems, Incorporated d/b/a INCODE
Sigma Systems New World Systems
Technology, Inc. Corporation
Kb Systems, Inc. Pentamation
BRC Holdings, Inc.
</TABLE>
- --------
* Currently serves as a supplier to the Company
INTELLECTUAL PROPERTY, PROPRIETARY RIGHTS AND LICENSES
The Company regards certain features of its internal operations, software
and documentation as confidential and proprietary, and relies on a combination
of contract and trade secret laws and other measures to protect its
proprietary intellectual property. Despite these precautions, it may be
possible for unauthorized
36
<PAGE>
parties to copy the Company's software or reverse engineer or otherwise obtain
and use information the Company regards as proprietary. The Company has no
patents and, under existing copyright laws, has only limited protection. In
addition, certain provisions of the license agreements entered into by the
Company, including provisions against unauthorized use, transfer and
disclosure, may be unenforceable under the laws of certain jurisdictions.
There can be no assurance that the steps taken by the Company to protect its
proprietary rights will be adequate to deter misappropriation of its
technology or independent development by others of technologies that are
substantially equivalent or superior to the Company's technology. Any such
misappropriation or development could have a material adverse effect on the
Company's business, financial condition and operating results. As the number
of competitors providing similar products increases, overlapping methodologies
used in such products will become more likely. Although the Company's
methodology has never been the subject of an infringement claim, there can be
no assurance that third parties will not assert infringement claims against
the Company in the future, that assertion of such claims will not result in
litigation or that the Company would prevail in such litigation or be able to
obtain a license for the use of any infringed intellectual property from a
third party on commercially reasonable terms. Litigation, regardless of its
outcome, could result in substantial cost to the Company and divert resources
and management from the Company's operations. Any infringement claim or
litigation against the Company could, have a material adverse effect on the
Company's business, financial condition and operating results. See "Risk
Factors--Proprietary Rights and Risks of Infringement."
CUSTOMERS
The following table sets forth a representative list of the Company's
customers.
<TABLE>
<CAPTION>
CAMA TAX MANAGER CITY MANAGER RPS
CLIENT LOCATION COMPUTER ASSISTED MASS APPRAISAL TAX BILLING AND COLLECTIONS MUNICIPAL SOLUTIONS REMITTANCE PROCESSING
- --------------- -------------------------------- --------------------------- ------------------- -----------------------------
<S> <C> <C> <C> <C>
California Sacramento County Sacramento County San Bernardino County
San Diego County
Colorado Douglas County City of Alamosa
Adams County
Florida Martin County Appraiser Broward County Sarasota County Tax Collector
Charlotte County Hillsborough County Tax
Sarasota County Collector
New Mexico City of Artesia
North Carolina Union County
Oklahoma Canadian County Assessor Rogers County Treasurer City of Altus
City of El Reno
Texas Cooke County Appraisal District City of Port Lavaca City of Arlington
City of Cedar Hill Texas Department of Public
Safety
</TABLE>
EMPLOYEES
As of November 30, 1997, the Company had 85 full-time and 4 part-time
employees. This total includes 17 people in sales and marketing, 19 in
research and development, 40 in customer support and field services and 13 in
general administration. None of the Company's employees is represented by a
labor union or is subject to a collective bargaining agreement. The Company
believes its relations with its employees are good.
DESCRIPTION OF PROPERTIES
The Company maintains its headquarters in Dallas, Texas where it leases an
aggregate of approximately 14,250 square feet under a lease expiring in April
2000. The lease requires annual rental payments of $182,811 ($12.83 per sq ft
per year) in 1998, $194,682 ($13.66 per sq ft per year) in 1999 and $66,477
($14.00 per sq ft per year) in 2000 through the lease termination date.
General and administrative, marketing, product development and customer
support and service operations are located in this space. The Company also
leases an aggregate of approximately 7,800 square feet of office space in
various other locations throughout the
37
<PAGE>
United States for sales and service offices. These leases typically have terms
of one year or less with an average per square foot rental of $9.44, and on
standard commercial terms. CPS believes its facilities are in good condition
and adequate for present needs.
LEGAL PROCEEDINGS
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not a party to any legal proceedings, the adverse outcome of which,
individually or in the aggregate, would have a material adverse effect on the
Company's results of operations or financial position.
38
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information concerning the directors,
executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul E. Kana............ 64 Chairman and Chief Executive Officer
James K. Hoofard, Jr. .. 38 Director, President and Chief Operating Officer
Kevin L. Figge.......... 39 Chief Financial Officer
Michael P. Brown........ 47 Vice President
John C. Thomas.......... 51 Vice President
Bobby C. Dow............ 38 Vice President
Lisa D. Hargiss......... 36 Vice President
Randy A. Sellers........ 35 Vice President
G. Dean Booth, Jr. ..... 58 Director and Secretary
Sidney H. Cordier....... 53 Director
Brian R. Wilson......... 46 Director
</TABLE>
PAUL E. KANA has served as Chairman of the Board of Directors and Chief
Executive Officer of the Company since December 1994. From 1988 to 1994, Mr.
Kana served as President, Chief Executive Officer and a member of the Board of
Directors of Delaware-based MR Data Management, Inc. ("MR"), a wholly-owned
subsidiary of MR Data Management Group PLC ("MR Data Management"), which
engages in data transcription and document image-processing. In 1988, MR
acquired Computer Microfilm Corporation ("CMC"), a publicly-held company
founded by Mr. Kana in 1968. CMC engages in digital image processing,
conversion of computer output to microfilm and CD-ROM, computer processing,
high volume laser printing services and micro-publishing. Mr. Kana is a
graduate of Columbia University of New York with a Bachelor of Science in
Engineering.
JAMES K. HOOFARD, JR. has served as a Director, President and Chief
Operating Officer of CPS since December 1994. From 1991 to 1994, Mr. Hoofard
served as Vice President of Marketing and Sales, and was responsible for the
Property Tax Billing and Collection group. He joined the Company as a
Programmer/Analyst in May 1982 and moved into the marketing and sales area in
September 1987, focusing on developing the Florida market. From 1982 to 1987,
he served as a Revenue Analyst, Software Product Manager, and as a Product
Manager for the Florida Tax Manager product. Mr. Hoofard is a graduate of the
University of Texas at Arlington with a Bachelor of Business Administration in
Systems Analysis.
KEVIN L. FIGGE has served as Chief Financial Officer since October 1997. Mr.
Figge's responsibilities since December 1994 have been encompassed within the
Administrative Services group which is comprised of the Accounting and the
Finance Department, as well as the Personnel and Corporate Services
Department. He joined the Company in July 1992 as Controller and was made an
officer of the Company in December 1994. Prior to joining CPS, Mr. Figge
served as Controller of Aarberg Printing Inks, Inc. and was an Accounting
Manager with the Army and Air Force Exchange Service. Mr. Figge graduated with
a Bachelor of Science degree in Business Administration from the University of
Maryland and also obtained a Bachelor of Science degree in Accounting from the
same university. Mr. Figge is a certified public accountant.
MICHAEL P. BROWN has served as Vice President--Conversions since October
1996. From June 1995 to October 1996, Mr. Brown was responsible for the
Property Tax Appraisal and Assessment group. He served as Vice President of
Special Projects from 1993 to 1995 with responsibility for the development of
Property Tax Billing and Collection. Prior thereto, Mr. Brown was the Vice
President of the City and Municipal group primarily in Florida. Mr. Brown
joined CPS in November 1980. He is a graduate of Louisiana Tech University
with a Bachelor of Science degree in Computer Science.
39
<PAGE>
JOHN C. THOMAS has served as Vice President--Sales since June 1997. Mr.
Thomas was previously employed by Kb Systems, Inc., a Florida-based developer
of property tax appraisal and assessment software ("Kb Systems"), where he
served in various corporate management and marketing positions, focusing on
the areas of administration, CAMA and Property Tax Billing and Collection
software. Prior to joining Kb Systems in 1989, Mr. Thomas authored the Thomas
Sales Prospecting and Territory Management Directory, which was published by
the American Management Association. Prior thereto, he served as Vice
President of Sales of Citicorp Information Services, a division of Citibank,
N.A. and as Regional Sales Manager of Interactive Data Corporation, a wholly-
owned subsidiary of Chase Manhattan Corporation. Mr. Thomas earned a Bachelor
of Science degree in Industrial Management from Wayne State University.
LISA D. HARGISS has served as Vice President--Long Term Client Care since
September 1995. She joined the Company in August 1987 as a Client Support
Representative, becoming an integral part of the design team for the Florida
Property Tax Billing and Collection product and the CAMA product. Ms. Hargiss
obtained a Bachelor of Science degree in Computer Science from Texas A&M
University at Commerce.
RANDY A. SELLERS has served as Vice President--Implementation since November
1996. Prior to joining CPS in March 1994, Mr. Sellers served two years as MIS
director and four years in technical support with DacEasy, Inc., a provider of
accounting software. Mr. Sellers received a Bachelor of Science degree in
Management Science and Computer Systems from Oklahoma State University.
BOBBY C. DOW has served as Vice President--Product Development since October
1996. Mr. Dow was responsible for the Municipal group for one year prior to
joining the Product Development group. Mr. Dow, who joined the Company in 1983
as a programmer/analyst, has been part of the original development team that
designed and produced the City group product and has also devoted considerable
developmental efforts to the Tax Collection product. Mr. Dow is a graduate of
Southeastern Oklahoma State University with a Bachelor of Science degree in
Computer Science.
G. DEAN BOOTH, JR. has served as a Director and the Secretary of CPS since
December 1994. Mr. Booth is a partner at the law firm of Schreeder, Wheeler &
Flint, LLP of Atlanta, Georgia. Prior to joining Schreeder, Wheeler & Flint in
March 1996, he was the founder and managing partner of Booth, Wade and
Campbell from 1990. He currently serves as Honorary Chairman and Member of the
Executive Council for the International Bar Association, Trustee and Secretary
for the Institute for Political Economy, and Chairman of the Bar Council,
United States District Court, Northern District of Georgia.
SIDNEY H. CORDIER has served as a Director of the Company since December
1994. From January 1994 to present, Mr. Cordier has served as Chairman of the
Board of Directors of Cedardata PLC, a publicly-held U.K. company listed on
the London Stock Exchange, specializing in commercial and financial accounting
systems software ("Cedardata"). From 1984 to 1993, Mr. Cordier was Chief
Executive Officer of MR Data Management.
BRIAN R. WILSON has served as a Director of CPS since December 1994. From
1993 to the present, Mr. Wilson has been a management consultant, advising
companies on restructurings and serving as a manager of a private investment
trust, and in May 1996, was appointed a director of Cedardata. From 1987 to
1993 Mr. Wilson served as Finance Director and a member of the Board of
Directors of MR Data Management where his responsibilities included mergers
and acquisitions, cash management, pensions, insurance, certain legal matters
and investor relations. Prior to joining MR Data Management in 1987,
Mr. Wilson was the Chief Financial Officer for European Properties with the
Pension Fund Property Unit Trust in the United Kingdom.
The Company's Board of Directors is divided into three classes, with two
classes composed of two directors and one class with one director. The classes
serve staggered three-year terms. G. Dean Booth, Jr.'s term as Director shall
expire as of the 1998 annual meeting, Brian P. Wilson's and Sidney H.
Cordier's terms shall expire as of the 1999 annual meeting, and James K.
Hoofard, Jr.'s and Paul E. Kana's terms shall expire
40
<PAGE>
at the 2000 annual meeting. The Company's executive officers are appointed by
and serve at the discretion of the Board of Directors. No family relationships
exists between any directors or executive officers of CPS.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board maintains an Audit Committee and Compensation Committee. The Audit
Committee is responsible for reviewing the results and scope of audits and
other services provided by the Company's independent auditors. The Audit
Committee is comprised of Messrs. Kana and Wilson. The Compensation Committee
is comprised of Messrs. Booth, Wilson and Kana. The Compensation Committee
makes recommendations concerning the salaries and incentive compensation of
employees and consultants to the Company, and will oversee and administer the
Company's stock option plans.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and the four next most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers") for
services rendered during the fiscal year ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ------------------ -------
RESTRICTED
NAME AND OTHER ANNUAL STOCK OPTION/ LTIP OTHER
PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS PAYOUTS COMPENSATION
- ------------------ ---- -------- ----- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Paul E. Kana............ 1996 $110,000 -- -- -- -- -- --
Chairman and Chief
Executive Officer
James K. Hoofard, Jr.... 1996 $125,000 -- -- -- -- -- --
Director, President and
Chief Operating Officer
</TABLE>
EMPLOYMENT AND CHANGE OF CONTROL AGREEMENTS
Messrs. Kana and Hoofard entered into employment agreements with the Company
on December 30, 1997.
These agreements are for a two-year term and automatically renew for another
two-year period absent termination by the Company of the employee. The
employment agreements provide for an annual salary of not less than $150,000
per year for Mr. Hoofard and $110,000 per year for Mr. Kana, with annual
performance bonuses to be determined by the Compensation Committee in
connection with achievement of performance criteria to be determined. In
addition, each of Messrs. Kana and Hoofard shall receive severance payments
equal to base compensation at the most recent annual amount (including
performance bonus) for two years if employment is terminated by the Company
without cause or if such employee resigns with "good cause" (i.e., in the
event of any material alteration, reduction or dimmunition in duties or
responsibilities, or following a merger or change in control of the Company).
These agreements are for a two-year term and automatically renew for another
two-year period absent termination by the Company of the employee. The
employment agreements provide for an annual salary of not less than $150,000
per year for Mr. Hoofard and $110,000 per year for Mr. Kana, with annual
performance bonuses to be determined by the Compensation Committee in
connection with achievement of performance criteria to be determined. In
addition, each of Messrs. Kana and Hoofard shall receive severance payments
equal to base compensation at the most recent annual amount (including
performance bonus) for two years if employment is terminated by the Company
without cause or if such employee resigns with "good cause" (i.e., in the
event of any material alteration, reduction or dimmunition in duties or
responsibilities, or following a merger or change in control of the Company).
COVENANTS NOT TO COMPETE
Messrs. Kana and Hoofard have agreed to devote substantially full time to
the business of the Company and not engage in any competitive businesses. In
particular, they will not manage, consult or participate in any software
business (other than an ownership 5% or less), unless the independent
directors of the Company determine such investment is in the best interests of
the Company.
41
<PAGE>
COMPENSATION OF DIRECTORS
All directors are reimbursed for their usual and customary expenses incurred
in attending all Board and committee meetings. CPS currently pays directors
who are not also employees (Messrs. Cordier, Wilson and Booth) $650 per day of
service as it relates to attending such meetings. Directors who are also
employees of the Company receive no remuneration for serving as directors.
BONUS PLAN
The Company has adopted bonus programs for employees, including executive
officers, whereby bonus payments are made based on achievement of individual
performance and consolidated corporate operating results. Business unit
performance also will be a factor in determining compensation awards with
respect to key employees who are not executive officers. The specified
qualitative and quantitative criteria employed by the Board of Directors of
the Company in determining bonus awards will vary for each individual and from
year to year.
401(K) SAVINGS PLAN
The Company sponsors a deferred savings plan (the "401(k) Plan") qualified
under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"). All employees over the age of 21 who have completed one
year of service with the Company are eligible to participate in the 401(k)
Plan. Eligible employees may contribute to the 401(k) Plan up to 15% of their
salary subject to an annual maximum established under the Code. Presently, the
Company does not match employee contributions to the 401(k) Plan.
EMPLOYEE EQUITY PLANS
1997 Equity Participation Plan. The Company has established an equity
participation plan (the "1997 Equity Participation Plan") to enable executive
officers, other key employees, independent directors and consultants of CPS to
participate in the ownership of the Company. The 1997 Equity Participation
Plan is designed to attract and retain executive officers, other key
employees, independent directors and consultants of the Company and to provide
incentives to such persons to maximize the Company's performance. The 1997
Equity Participation Plan provides for the award to executive officers, other
key employees, independent directors and consultants of the Company of a broad
variety of stock-based compensation alternatives such as nonqualified stock
options, incentive stock options, restricted stock and performance awards and
provides for the grant to executive officers, other key employees, independent
directors and consultants of nonqualified stock options. Awards under the 1997
Equity Participation Plan may provide participants with rights to acquire
shares of Common Stock.
The 1997 Equity Participation Plan is administered by the Compensation
Committee, which is authorized to select from among the eligible participants
the individuals to whom options, restricted stock purchase rights and
performance awards are to be granted and to determine the number of shares to
be subject thereto and the terms and conditions thereof. The members of the
Compensation Committee who are not affiliated with the Company will select
from among the eligible participants the individuals to whom nonqualified
stock options are to be granted, except as set forth below, and will determine
the number of shares to be subject thereto and the terms and conditions
thereof. The Compensation Committee is also authorized to adopt, amend and
rescind rules relating to the administration of the 1997 Equity Participation
Plan.
Nonqualified stock options will provide for the right to purchase Common
Stock at a specified price which may be less than fair market value on the
date of grant (but not less than par value), and usually will become
exercisable in installments after the grant date. Nonqualified stock options
may be granted for any reasonable term.
42
<PAGE>
Incentive stock options will be designed to comply with the provisions of
the Code and will be subject to restrictions contained in the Code, including
exercise prices equal to at least 100% of fair market value of Common Stock on
the grant date and a ten year restriction on their term, but may be
subsequently modified to disqualify them from treatment as an incentive stock
option.
Restricted stock may be sold to participants at various prices (but not
below par value) and made subject to such restrictions as may be determined by
the Compensation Committee. Restricted stock, typically, may be repurchased by
the Company at the original purchase price if the conditions or restrictions
are not met. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends prior to the time when the restrictions
lapse.
Performance awards may be granted by the Compensation Committee on an
individual or group basis. Generally, these awards will be based upon specific
agreements and may be paid in cash or in Common Stock or in a combination of
cash and Common Stock. Performance awards may include "phantom" stock awards
that provide for payments based upon increases in the price of the Common
Stock over a predetermined period. Performance awards may also include bonuses
which may be granted by the Compensation Committee on an individual or group
basis and which may be payable in cash or in Common Stock or in a combination
of cash and Common Stock.
There are 600,000 shares of Common Stock reserved for issuance pursuant to
the 1997 Equity Participation Plan, of which options to purchase 335,000
shares have been granted to certain directors, officers and employees to be
effective upon the closing of this offering, with an exercise price equal to
the initial public offering price.
Employee Stock Purchase Plan. The Company has established the CPS Systems,
Inc. Employee Stock Purchase Plan (the "Employee Stock Purchase Plan") to
assist employees of the Company in acquiring a stock ownership interest in CPS
and to encourage them to remain in the employment of the Company. The Employee
Stock Purchase Plan permits employees to purchase shares of Common Stock
through payroll deductions at a price equal to 85% of fair market value. A
total of 100,000 shares of Common Stock are reserved for issuance pursuant to
the Employee Stock Purchase Plan. Each employee is limited to purchasing
Common Stock having an aggregate market value of $25,000 in any calendar year.
CERTAIN TRANSACTIONS
G. Dean Booth, Jr., a director of the Company, is a partner in the law firm
of Schreeder, Wheeler & Flint, LLP of Atlanta, Georgia ("SWF") and was
formerly a partner at Booth, Owens & Jospin, LLP ("BOJ"). SWF has acted as
counsel to the Company and has been retained by the Company to assist in the
preparation of this offering. During fiscal 1996, SWF was paid approximately
$28,000 in legal fees and expenses, and BOJ was paid approximately $7,000 in
legal fees and expenses. The Company did not make any payments to SWF in
fiscal 1995; however during that year the Company paid approximately $27,500
in legal fees and expenses to BOJ. Though October 24, 1997, the Company has
paid SWF approximately $135,000 in legal fees and expenses and it is
anticipated the firm's fees from services in the preparation of this offering
will total approximately $75,000.
In May 1997, the Company's shareholders formed Thor Concepts, Inc., a
Georgia corporation ("Thor"), for the sole purpose of acquiring CDP Systems,
Inc., a Florida corporation ("CDP"), for nominal consideration. In addition,
the Company's shareholders advanced approximately $123,000 to CDP to cover CDP
expenses (the "CDP Loans"). Effective July 1997, the Company purchased the
shares of CDP from Thor in exchange for nominal consideration and assumption
of the CDP Loans. As of October 31, 1997, there was approximately $128,000 in
principal and accrued interest outstanding under the CDP Loans. See "Use of
Proceeds."
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of December 31, 1997, and as adjusted to
reflect the sale of the shares of the Common Stock offered hereby, by (i) each
of the directors of CPS, (ii) each of the Named Executive Officers, (iii) each
person or entity known to CPS to own beneficially more than 5% of the
Company's Common Stock and (iv) all directors and executive officers as a
group. To the Company's knowledge, none of these entities has a relationship
with any Underwriters of this offering or their respective affiliates. Except
as otherwise indicated below, each person or entity named in the table has
sole voting and investment power (or shares such power with his or her spouse)
with respect to his or her Common Stock shown as beneficially owned by each.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY BENEFICIAL OWNERSHIP
OWNED AFTER THE
NAME AND ADDRESS OF PRIOR TO THE OFFERING(1) OFFERING(1)
DIRECTOR, OFFICER AND -------------------------------------------------
OTHER PRINCIPAL SHAREHOLDER NUMBER PERCENTAGE NUMBER PERCENTAGE
- --------------------------- -------------- ----------------------- ----------
<S> <C> <C> <C> <C>
Paul E. Kana................. 1,139,402 23.6% 1,139,402 18.7%
3400 Carlisle, Suite 500
Dallas, Texas 75204
Sidney H. Cordier(2)......... 1,139,402 23.6% 1,139,402 18.7%
Weybourne
10 Wray Park Road
Reigate Surrey
RH2 2 ODD
United Kingdom
Brian R. Wilson(2)........... 1,139,402 23.6% 1,139,402 18.7%
Drymen House
Horn Lane
East Hendren, Near Wantage,
Oxon OX128LD United Kingdom
G. Dean Booth, Jr.(2)........ 243,265 5.0% 243,265 4.0%
Schreeder, Wheeler & Flint
LLP
1600 The Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303
James K. Hoofard, Jr......... 182,449 3.7% 182,449 3.1%
3400 Carlisle, Suite 500
Dallas, Texas 75204
Hanifen Imhoff Mezzanine
Fund, L.P.(2)(3)............ 724,719 15.0% 724,719 11.9%
1125 17th Street, Suite 1600
Denver, Colorado 80202
All directors and executive
officers as a group(2)
(5 persons)................. 3,843,920 79.5% 3,843,920 63.2%
</TABLE>
- --------
(1) The number of shares beneficially owned by each shareholder is determined
under rules and regulations promulgated by the Securities and Exchange
Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership includes any shares as to which the individual has sole or
shared voting power or investment power, as well as any shares which the
individual has the right to acquire within 60 days of the date of this
Prospectus through the exercise of any stock option, warrant or other
right. The inclusion herein of such shares, however, does not constitute
an admission that the named shareholder is a direct or indirect beneficial
owner of such shares.
(2) Does not assume the sale of any shares of Common Stock. See "Selling
Shareholders."
(3) The Hanifen Imhoff Mezzanine Fund, L.P. is a Small Business Investment
Company licensed under the Small Business Investment Act of 1958, as
amended. Its focus is $1.0 million to $3.0 million subordinated debt
investments in later stage manufacturing, distribution and service
companies.
44
<PAGE>
SELLING SHAREHOLDERS
In the event that the Underwriter's over-allotment option is exercised in
full, the following shareholders (the "Selling Shareholders") will sell the
number of shares indicated below:
<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP PRIOR NUMBER OF OWNERSHIP AFTER
TO OVER-ALLOTMENT SHARES OVER-ALLOTMENT
NAME EXERCISE BEING OFFERED EXERCISE
- ---- ----------------- ------------- ---------------
<S> <C> <C> <C>
Sidney H. Cordier.............. 1,139,402 56,355 1,083,047
Brian R. Wilson................ 1,139,402 56,355 1,083,047
G. Dean Booth Jr............... 243,265 12,032 231,233
Hanifen Imhoff Mezzanine Fund,
L.P........................... 724,719 41,758 682,961
John K. Percival............... 103,476 14,000 89,476
Robert J. Newcorn.............. 30,457 7,000 23,457
</TABLE>
In the event that the Underwriter elects to exercise less than its full
over-allotment option, the number of shares being offered by the Selling
Shareholders will be reduced proportionately.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of (i) 50 million shares of
Common Stock, par value $.01 per share, (ii) 10 million shares of preferred
stock, par value $.01 per share. As of the date of this Prospectus an
aggregate of 4,832,502 shares of Common Stock were outstanding and held by
nine Shareholders (assuming the exercise by four holders of warrants to
purchase 927,766 shares of Common Stock). No shares of preferred stock have
been issued or are outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share for each
share held of record on all matters submitted to a vote of shareholders.
Subject to preferential rights with respect to any series of preferred stock
which may issued, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors on the Common Stock out
of funds legally available therefor (subject to the terms and conditions
contained in the Company's existing credit agreements with its lenders), and
in the event of a liquidation, dissolution or winding-up of the affairs of the
Company, are entitled to share equally and ratably in all remaining assets and
funds of the Company. The holders of Common Stock have no preemptive rights,
cumulative voting rights, or rights to convert shares of Common Stock into any
other securities and are not subject to future calls or assessments by the
Company. All outstanding shares of Common Stock are fully paid and non-
assessable.
PREFERRED STOCK
The Board of Directors is authorized, subject to limitations prescribed by
law, without shareholder approval, to issue such shares of preferred stock in
one or more series. Each series of preferred stock shall have such rights,
preferences, privileges and restrictions, including voting rights, dividend
rights, conversion rights, redemption privileges and liquidation preferences,
as shall be determined by the Board of Directors. No shares are issued and
outstanding as of the date hereof, and the Company has no present plans to
issue any of the preferred stock in the foreseeable future. The issuance of
the preferred stock, while providing desirable flexibility for corporate
acquisitions and other corporate purposes, could make it more difficult for
third-parties to acquire, or discourage third-parties from acquiring, a
majority of the outstanding voting stock of the Company. See "Risk Factors--
Effect of Certain Charter and Bylaw Provisions; Antitakeover Effects."
45
<PAGE>
WARRANTS
As of September 30, 1997, CPS had four outstanding warrants to purchase an
aggregate of 927,766 shares of the Common Stock at an exercise price of $.0026
per share. These warrants become exercisable upon the earlier of December 30,
1999 or the completion of an initial public offering and expire on December
29, 2004. The warrant holders have agreed to exercise all warrants upon the
effective date of this offering.
REGISTRATION RIGHTS OF CERTAIN HOLDERS
Upon the completion of this offering, the holders of 927,766 shares of
Common Stock (the "Registrable Securities") or their transferees are entitled
to certain rights with respect to the registration of such shares under the
Securities Act. These rights are provided under the terms of an agreement
between the Company and the holders of the Registrable Securities. If the
Company registers any of its Common Stock either for its own account or for
the account of other security holders, the holders of Registrable Securities
are entitled to include their shares of Common Stock in the registration,
subject to the ability of the underwriters to limit the number of shares
included in the registration to not more than 10% of the offering. All
registration expenses must be borne by the Company; provided, however, that
all underwriting discounts and selling commissions applicable to the sale of
shares in connection with any registration shall be borne by the holders of
the securities registered pro rata on the basis of the number of shares of
such securities being registered.
REPRESENTATIVE'S WARRANT
For a description of the warrant to be sold to the Representative in
connection with this offering, see "Underwriting."
CERTAIN STATUTORY AND CHARTER PROVISIONS REGARDING LIMITATIONS OF LIABILITIES
OF DIRECTORS
As permitted by the Texas Business Corporation Act, the Company's Restated
Articles include a provision that eliminates the personal liability of its
directors with respect to any acts or omissions in the performance of his
duties to the full extent permitted by law. The Texas Business Corporation Act
provides that Directors will not be liable in the discharge of any duty if
they relied in good faith and with ordinary care on information, opinions,
reports, or statements, including financial statements and other financial
data, that were prepared or presented by (i) one or more officers or employees
of the Corporation, (ii) a committee of the Board of Directors of which the
Director is not a member, or (iii) anyone the Director reasonably believed to
have professional or expert knowledge.
The Company's Restated Articles further provide that, if the Texas Business
Corporation Act is amended to authorize the elimination or limitation of
director liability which is greater than therein provided, then the liability
of a director of the Company will be eliminated or limited to the fullest
extent permitted by such law, as so amended.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable.
CERTAIN CHARTER AND BYLAW PROVISIONS REGARDING CHANGE OF CONTROL
Certain provisions of the Company's Articles of Incorporation, as amended
(the "Restated Articles"), may deter or frustrate a takeover attempt of the
Company that a shareholder might consider in his best interest. The Company's
Restated Articles or Bylaws, among other things, provide that (i) any action
required or permitted to be taken by the shareholders of the Company may be
effected only at an annual or special meeting of shareholders, and not by
written consent of the shareholders, (ii) the annual meeting of shareholders
shall be held on such date and at such time fixed from time to time by the
Board of Directors, provided that there shall be an annual meeting held every
calendar year, (iii) any special meeting of the
46
<PAGE>
shareholders may be called only by the Chairman of the Board, President or
upon the affirmative vote of at least a majority of the members of the Board
of Directors, or upon the written demand of the holders of not less than 50%
of the votes entitled to be cast at a special meeting, (iv) an advance notice
procedure must be followed for nomination of directors and for other
shareholder proposals to be considered at annual shareholders' meetings, and
(v) the Company's Board of Directors be divided into three classes, each of
which serves for different three-year periods, and for which shareholders have
no cumulative voting rights. In addition, the Company will be authorized to
issue additional shares of Common Stock and up to ten million shares of
preferred stock in one or more series, having terms fixed by the Board of
Directors without shareholder approval, including voting, dividend or
liquidation rights that could be greater than or senior to the rights of
holders of Common Stock. Shareholders will have no preemptive rights with
respect to any additional common stock or preferred stock. Issuance of
additional shares of Common Stock or new shares of preferred stock could also
be used as an antitakeover device. Except as set forth herein, the Company has
no current intentions or plans to issue additional Common Stock or issue
Preferred Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is American
Securities Transfer and Trust, Inc.
47
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering there will be 6,082,502 shares of Common
Stock outstanding. Immediately following the completion of this offering, a
total of 1,250,000 shares of Common Stock (1,437,500 shares if the
Underwriters' over-allotment is exercised in full) will be freely tradeable
without restriction. An additional 4,832,502 (4,645,002 if the Underwriters'
over-allotment option is exercised in full) shares of Common Stock may be sold
subject to the limitations of Rule 144 under the Securities Act, following
expiration of a lock-up agreements executed by the Company's directors,
executive officers, certain key employees and certain other shareholders,
which expire one year after the date of this Prospectus. Cruttenden Roth has
no present intention to release the locked-up shares prior to expiration of
the one-year period.
In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned restricted shares for at least one year, including
any persons who may be deemed to be an affiliate of the Company, is entitled
to sell, within any three-month period, a number of shares that does not
exceed the greater of 1% of the total number of then-outstanding shares of
Common Stock or the average weekly trading volume in the Common Stock as
reported by the American Stock Exchange during the four calendar weeks
preceding such sale. Sales pursuant to Rule 144 also are subject to certain
other requirements relating to the manner of sale, notice and availability of
current public information about the Company.
Affiliates may publicly sell shares not constituting restricted securities
under Rule 144 in accordance with the foregoing volume limitations and other
restrictions but without regard to the one-year holding period. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding a sale by such person, and
who has beneficially owned restricted shares for at least two years, is
entitled to sell such shares under Rule 144 without regard to any of the
limitations described above.
48
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom Cruttenden Roth
Incorporated is acting as Representative, have severally agreed to purchase
from the Company and the Company has agreed to sell to the Underwriters, the
respective number of shares of Common Stock set forth opposite each
Underwriter's name below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Cruttenden Roth Incorporated....................................
---------
Total......................................................... 1,250,000
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to certain conditions precedent, including
the absence of any material adverse change in the Company's business and the
receipt of certain certificates, opinions and letters from the Company's
counsel and independent public accountants. The nature of the Underwriters'
obligation is such that they are committed to purchase and pay for all the
shares of Common Stock if any are purchased.
The Company has been advised by the Representative that the Underwriters
propose to offer the shares of Common Stock directly to the public on the
terms set forth on the cover page of this Prospectus. The Underwriters may
allow selected dealers, a concession of not more than $ per share, and
the Underwriters may allow, and such selected dealers may reallow, a
concession of not more than $ per share to other dealers. After the initial
public offering of the shares, the public offering price and other selling
terms may be changed by the Representative. No change in such terms shall
change the amount of proceeds to be received by the Company as set forth on
the cover page of this Prospectus.
The selling shareholders have granted an option to the Underwriters,
exercisable for a period of 45 days after the date of this Prospectus, to
purchase up to an additional 187,500 shares of Common Stock at the same price
per share as the initial shares to be purchased by the Underwriters to cover
over-allotments, if any. To the extent that the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares of Common Stock in
approximately the same proportion as set forth in the above table.
The Representative has advised the Company that they do not expect any sales
of the shares of Common Stock offered hereby to be made to discretionary
accounts controlled by the Underwriters.
The Company has agreed to issue to the Representative at the closing of this
offering five-year warrants (the "Representative's Warrants") to purchase up
to 10% of the number of shares of Common Stock sold in this offering
(including shares sold in the event the over-allotment option is exercised in
full) at an exercise price per share equal to 120% of the initial per share
public offering price. The Representative's Warrants are exercisable for a
period of four years beginning one year from the date of this Prospectus and
contain standard net-issuance provisions. The holders of the Representative's
Warrants will have no voting, dividend or other shareholder rights until the
Representative's Warrants are exercised. The terms of the Representative's
Warrants were established as the result of negotiations between the Company
and the Representative. If the
49
<PAGE>
Representative's Warrants are exercised, the Representative may realize
additional compensation. By their terms, the Representative's Warrants will be
restricted from sale, transfer, assignment or hypothecation, except to persons
that are officers of the Representative. The number of shares covered by the
Representative's Warrants and the exercise price thereof are subject to
adjustment in certain events to prevent dilution. In addition, the Company has
granted certain rights to the holders of the Representative's Warrants to
register the Representative's Warrants and the Common Stock underlying the
Representative's Warrants under the Securities Act, all of which are being
registered as part of this offering.
The Company has agreed to bear all costs and expenses incurred in connection
with this offering and to reimburse the Representative up to $50,000 for its
accountable expenses (the "Accountable Expenses"). In addition, the Company
has agreed to pay the Representative a non-accountable expense allowance equal
to 3.0% of the aggregate Price to Public (including with respect to shares of
Common Stock underlying the over-allotment option, if and to the extent it is
exercised) set forth on the front cover of this Prospectus, less amounts paid
for Accountable Expenses. To the extent that the expenses of the
Representative are less than the non-accountable expense allowance, the excess
may be deemed to be compensation to the Representative.
The Company, its officers, directors and warrant holders have entered into
lock-up agreements with the Representative which provide that they will not
offer, sell or otherwise dispose of any of the Company's Common Stock for a
period of 365 days after the commencement of the offering without the prior
written consent of the Representative. Cruttenden Roth has no present
intention to release the locked-up shares prior to expiration of the one-year
period. In addition, the Representative shall have the right of first refusal
for a period of two years after the date of this Prospectus to be the sole
broker/dealer for any sales made under Rule 144 of the Securities Act (or
similar provisions enacted subsequent to the date of this agreement). See
"Shares Eligible for Future Sale."
Prior to this offering, there has been no established trading market for the
Common Stock. Consequently, the initial public offering price for the Common
Stock offered hereby has been determined by negotiation between the Company
and the Representative. Among the factors considered in such negotiations were
the preliminary demand for the Common Stock, the prevailing market and
economic conditions, the Company's results of operations, estimates of the
business potential and prospects of the Company, the present state of the
Company's business operations, an assessment of the Company's management, the
consideration of these factors in relation to the market valuation of
comparable companies in related businesses, the current condition of the
markets in which the Company operates, and other factors deemed relevant.
There can be no assurance that an active trading market will develop for the
Common Stock or that the Common Stock will trade in the public market
subsequent to this offering at or above the initial public offering price.
The Underwriting Agreement provides that the Company and the selling
shareholders will indemnify the Underwriters and their controlling persons
against certain liabilities under the Securities Act or will contribute to
payments the Underwriters and their controlling persons may be required to
make in respect thereof.
LEGAL MATTERS
The law firm of Schreeder, Wheeler & Flint, LLP, Atlanta, Georgia, has acted
as counsel to the Company in connection with this offering and will render an
opinion as to the legality of the shares of Common Stock being offered hereby.
See "Certain Transactions." Summit Law Group, P.L.L.C., Seattle, Washington,
has acted as counsel to the Underwriters in connection with certain legal
matters relating to this offering.
EXPERTS
The Company's financial statements as of September 30, 1997 and December 31,
1996, and for the nine months ended September 30, 1997 and for each of the two
years in the period ended December 31, 1996 included in this Prospectus have
been so included in reliance on the report of Grant Thornton LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
50
<PAGE>
AVAILABLE INFORMATION
The Company has not previously been subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, accordingly, has not filed reports and other information with the
Securities and Exchange Commission (the "Commission"). The Company has filed
with the Commission a registration statement (the "Registration Statement")
with respect to the shares of Common Stock offered hereby. This Prospectus,
which constitutes part of the Registration Statement, does not contain all of
the information contained in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the shares of
Common Stock offered hereby, reference is made to the Registration Statement,
including the exhibits thereto, which may be examined without charge at, and
copies of all or part of which may be obtained at prescribed rates from, the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at its regional offices located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Electronic filings made through the Electronic Data Gathering and Retrieval
system are publicly available through the Commission's website at
"http://www.sec.gov". Statements contained in this Prospectus as to the
contents of any contract or any other document 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 statement
being qualified in all respects by such reference.
51
<PAGE>
CPS SYSTEMS, INC.
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants.......................... F-2
Consolidated Balance Sheets................................................. F-3
Consolidated Statements of Operations....................................... F-4
Consolidated Statements of Shareholders' Equity............................. F-5
Consolidated Statements of Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
CPS Systems, Inc.
We have audited the accompanying consolidated balance sheets of CPS Systems,
Inc. and Subsidiary as of September 30, 1997 and December 31, 1996, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for the nine months ended September 30, 1997 and the years ended
December 31, 1996 and 1995. 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 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 consolidated financial position of CPS Systems,
Inc. and Subsidiary as of September 30, 1997 and December 31, 1996, and the
consolidated results of its operations and its cash flows for the nine months
ended September 30, 1997 and for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
Atlanta, Georgia
October 31, 1997 (except for the third paragraph of Note D, as to which the
date is December 3, 1997)
F-2
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
ASSETS ------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash.............................................. $ 591,698 $ 337,876
Accounts receivable, less allowance for doubtful
accounts of $27,000 and $49,000.................. 1,509,087 1,755,792
Deferred income taxes............................. 146,000 137,000
Inventories....................................... 91,599 66,488
Prepaid expenses.................................. 74,976 134,049
Other current assets.............................. -- 36,490
---------- ----------
Total current assets............................ 2,413,360 2,467,695
PROPERTY AND EQUIPMENT.............................. 455,633 557,184
SOFTWARE DEVELOPMENT COSTS.......................... 799,438 876,909
OTHER ASSETS
Costs in excess of net assets acquired............ 2,119,675 1,976,499
Debt issue costs.................................. 241,759 180,539
Non-compete agreements............................ 83,333 20,834
Other assets...................................... 20,948 20,948
---------- ----------
2,465,715 2,198,820
---------- ----------
$6,134,146 $6,100,608
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long term debt................. $ 299,927 $ 321,423
Accounts payable.................................. 403,635 588,444
Accrued salaries, wages and payroll taxes......... 122,090 --
Other accrued expenses............................ 81,880 181,331
Unearned revenue, current portion................. 1,025,743 1,261,025
Income taxes payable.............................. 176,904 48,370
---------- ----------
Total current liabilities....................... 2,110,179 2,400,593
OTHER LIABILITIES
Long-term debt.................................... 2,741,118 2,503,254
Deferred income taxes............................. 284,000 289,000
Unearned revenue.................................. 95,551 57,602
Other liabilities................................. 54,710 75,226
---------- ----------
3,175,379 2,925,082
---------- ----------
Total liabilities............................... 5,285,558 5,325,675
PUT WARRANTS........................................ 324,801 234,552
COMMITMENTS AND CONTINGENCIES....................... -- --
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized
10,000,000 shares, none issued and outstanding... -- --
Common stock, $.01 par value, 50,000,000 shares
authorized; 3,904,736 shares issued.............. 39,047 39,047
Additional paid-in capital........................ 960,953 960,953
Accumulated deficit............................... (476,213) (459,619)
---------- ----------
Total shareholders' equity...................... 523,787 540,381
---------- ----------
$6,134,146 $6,100,608
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
---------------------- -----------------------
1995 1996 1996 1997
---------- ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenue
License fees.................. $ 423,964 $1,634,835 $1,435,712 $1,795,294
Recurring maintenance and
service fees................. 3,906,499 3,851,308 2,871,648 2,886,676
Product sales................. 1,594,388 2,052,148 1,571,560 2,298,786
Other service fees............ 328,262 824,486 477,125 738,294
---------- ---------- ---------- ----------
6,253,113 8,362,777 6,356,045 7,719,050
---------- ---------- ---------- ----------
Cost of revenue
Product sales................. 1,033,334 1,464,664 1,148,085 1,616,387
Software...................... 255,774 390,830 250,218 414,074
Distribution.................. 11,358 11,115 7,498 55,480
---------- ---------- ---------- ----------
1,300,466 1,866,609 1,405,801 2,085,941
---------- ---------- ---------- ----------
Gross profit................ 4,952,647 6,496,168 4,950,244 5,633,109
Operating expenses
Support and customer service.. 2,276,131 2,743,217 1,978,542 2,357,732
Selling....................... 600,979 771,470 584,324 702,234
Research and development...... 588,344 866,366 553,957 1,135,997
General and administrative.... 870,975 1,030,277 757,315 793,065
Amortization of goodwill and
non-compete agreements....... 346,586 346,586 269,194 265,525
---------- ---------- ---------- ----------
4,683,015 5,757,916 4,143,332 5,254,553
---------- ---------- ---------- ----------
Earnings from operations.... 269,632 738,252 806,912 378,556
Interest and financing costs.... 523,772 819,125 618,195 274,962
---------- ---------- ---------- ----------
Earnings (loss) before in-
come taxes................. (254,140) (80,873) 188,717 103,594
Income tax expense (benefit).... (24,000) 165,200 218,700 87,000
---------- ---------- ---------- ----------
Net earnings (loss)......... $ (230,140) $ (246,073) $ (29,983) $ 16,594
========== ========== ========== ==========
Net earnings (loss) per common
share.......................... $ (.06) $ (.06) $ (.01) $ --
========== ========== ========== ==========
Weighted average shares used in
computing net earnings (loss)
per common share............... 3,904,736 3,904,736 3,904,736 3,904,736
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
ADDITIONAL
NUMBER PAR PAID IN ACCUMULATED
OF SHARES VALUE CAPITAL DEFICIT TOTAL
--------- ------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31,
1994..................... 3,904,736 $39,047 $960,953 $ -- $1,000,000
Net loss for the year..... -- -- -- (230,140) (230,140)
--------- ------- -------- --------- ----------
Balance, December 31,
1995..................... 3,904,736 39,047 960,953 (230,140) 769,860
Net loss for the year..... -- -- -- (246,073) (246,073)
--------- ------- -------- --------- ----------
Balance, December 31,
1996..................... 3,904,736 39,047 960,953 (476,213) 523,787
Net earnings for the peri-
od....................... -- -- -- 16,594 16,594
--------- ------- -------- --------- ----------
Balance, September 30,
1997..................... 3,904,736 $39,047 $960,953 $(459,619) $ 540,381
========= ======= ======== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- ----------------------
1995 1996 1996 1997
--------- --------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activi-
ties:
Net earnings (loss)............. $(230,140) $(246,073) $ (29,983) $ 16,594
Adjustments to reconcile net
loss to net cash provided by
operating activities:
Deferred income tax (benefit)
expense...................... (13,000) (16,000) 4,000 14,000
Depreciation and amortization. 691,474 702,318 529,477 559,235
Adjustment to put warrants.... (56,831) 271,632 203,724 (90,249)
Loss on disposal of assets.... -- 820 -- --
Change in assets and
liabilities, net of business
acquired:
Accounts receivable......... 344,670 (612,648) (1,242,967) (217,106)
Refundable income taxes..... (118,134) 118,134 118,134 --
Inventories................. (32,407) (58,552) (41,646) 31,074
Prepaid expenses............ 42,423 9,480 (1,649) (53,410)
Other assets................ 87,599 963 (169) (12,944)
Accounts payable............ 194,359 70,476 137,691 58,277
Accrued expenses............ (379,763) 116,488 132,969 (24,009)
Unearned revenue............ (87,162) (8,210) 168,441 187,694
Income taxes payable........ -- 176,904 142,204 (128,534)
Other liabilities........... 27,356 27,354 20,515 20,516
--------- --------- ---------- ---------
Net cash provided by
operating activities..... 470,444 553,086 140,741 361,138
--------- --------- ---------- ---------
Cash flows from investing activi-
ties:
Purchase of property and equip-
ment........................... (104,758) (209,450) (143,684) (216,421)
Software development costs...... (180,428) (41,016) (41,016) (185,718)
Cash acquired in CDP acquisi-
tion........................... -- -- -- 3,547
Proceeds from sale of property
and equipment.................. -- 1,299 -- --
--------- --------- ---------- ---------
Net cash used by investing
activities............... (285,186) (249,167) (184,700) (398,592)
--------- --------- ---------- ---------
Cash flows from financing activi-
ties:
Principal payments on long-term
debt........................... (210,311) (262,644) (214,194) (216,368)
Other receivable................ -- 165,000 165,000 --
--------- --------- ---------- ---------
Net cash used by financing
activities............... (210,311) (97,644) (49,194) (216,368)
--------- --------- ---------- ---------
Net increase (decrease) in cash... (25,053) 206,275 (93,153) (253,822)
Cash at beginning of period....... 410,476 385,423 385,423 591,698
--------- --------- ---------- ---------
Cash at end of period............. $ 385,423 $ 591,698 $ 292,270 $ 337,876
========= ========= ========== =========
Supplementary Cash Flow Disclo-
sure:
Interest and financing costs
paid........................... $ 465,584 $ 432,048 $ 328,209 $ 337,231
Income taxes (refunded) paid,
net............................ $ 107,234 $(113,839) $ (51,638) $ 201,534
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE A--DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
1.BUSINESS
CPS Systems, Inc. and its wholly-owned Subsidiary, CDP Systems, Inc. (the
"Company"), engage primarily in developing, marketing, licensing and
supporting proprietary software and selling hardware and related products to
appraisal/assessment districts, tax collection agencies, municipalities and
law enforcement agencies located primarily in Texas, Oklahoma and Florida.
2.PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CPS Systems,
Inc. and its wholly-owned subsidiary, CDP Systems, Inc. All significant
intercompany transactions and balances have been eliminated.
3.REVENUE RECOGNITION
The Company licenses its software products. Revenue from software license
fees is recognized when an agreement has been executed, software has been
delivered and installed, all significant contractual obligations have been met
and collection of the related receivable is probable. Post contract customer
support revenue, consisting of continuing maintenance and service fees,
including that bundled with initial license fees, is deferred and recognized
ratably over the contractual periods the services are provided. Product sales,
consisting primarily of computer hardware, are recognized upon delivery of the
product.
Other fees consist primarily of training, conversion, customization and
installation fees and are recognized as the services are provided.
4.INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
5.PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Accelerated methods are utilized for income tax purposes.
6.SOFTWARE DEVELOPMENT COSTS
In accordance with SFAS No. 86, all software development costs are charged
to expense as incurred until technological feasibility has been established
for the product. Software development costs incurred after technological
feasibility has been established are capitalized and amortized, commencing
with product release, on a straight line basis over a period of six to ten
years. Amortization of software development costs was approximately $103,000,
$116,000 and $108,000 during the years ended December 31, 1995 and 1996 and
the nine months ended September 30, 1997, respectively and is included in
software cost of revenue in the accompanying consolidated statements of
operations. Software development costs are net of accumulated amortization of
approximately $219,000 and $327,000 at December 31, 1996 and September 30,
1997, respectively.
F-7
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. COSTS IN EXCESS OF NET ASSETS ACQUIRED
The excess acquisition cost over the fair value of net assets acquired
(goodwill) of CPS Systems, Inc. is amortized on a straight line basis over a
ten year period. Goodwill arising from the acquisition of CDP Systems is
amortized on a straight-line basis over a three year period. Accumulated
amortization of goodwill was $529,918 and $732,944 at December 31, 1996 and
September 30, 1997, respectively. Amortization of costs in excess of net
assets acquired charged to operations was $264,959 annually in 1995 and 1996
and $203,026 for the nine months ended September 30, 1997.
The remaining balance of goodwill at September 30, 1997 consists of
$1,920,956 and $55,543 attributable to CPS and CDP, respectively.
8. DEBT ISSUE COSTS
Costs incurred in connection with obtaining financing have been capitalized
and are amortized on a straight-line basis over the term of the loan
agreements, which range from four to six years. Debt issue costs are stated
net of accumulated amortization of $163,255 and $224,477 at December 31, 1996
and September 30, 1997, respectively. Amortization of debt issue costs charged
to operations was $81,627 annually in 1995 and 1996 and $62,221 for the nine
months ended September 30, 1997 and is included in interest and financing
costs in the accompanying consolidated statements of operations.
9. NON-COMPETE AGREEMENTS
Cost of non-compete agreements have been capitalized and are amortized on a
straight line basis over the three year term of the agreements. Non-compete
agreements are net of accumulated amortization of $166,667 and $229,166 at
December 31, 1996 and September 30, 1997, respectively. Amortization of
non-compete agreements charged to operations was $83,333 annually in 1995 and
1996 and $62,500 for the nine months ended September 30, 1997.
10. INCOME TAXES
The Company accounts for income taxes using the asset and liability method.
Under this method, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates applied to taxable income. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for
deferred tax assets when it is more likely than not that the asset will not be
realized.
11. USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
In preparing financial statements in conformity with General Accepted
Accounting Principles ("GAAP"), management is required to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
12. LONG-LIVED ASSETS
Management periodically evaluates the realizability of its property and
equipment, software development costs and intangible assets in light of
current technology, as it may relate to the Company's products, and the
current environment of its industry and markets. Management believes that no
impairment of property and equipment, software development costs and
intangible assets exists at September 30, 1997.
F-8
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, cash equivalents and long-
term debt. The carrying value of cash and cash equivalents approximates fair
value due to the relatively short period to maturity of the instruments. The
carrying value of the Company's long-term obligations approximates fair value
based upon borrowing rates currently available to the Company for borrowings
with comparable maturities.
14. INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying statements of operations and cash flows for the nine months
ended September 30, 1996, included herein have been prepared by the Company
and are unaudited. The information furnished in the unaudited financial
statements referred to above includes all adjustments which are, in the
opinion of management, necessary for a fair presentation of such financial
statements. These adjustments are all of a normal recurring nature.
15. NET EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per share is based on the weighted average number of
common shares and common equivalent shares outstanding during the period.
Common stock equivalents, regardless of their anti-dilutive impact, issued
at prices below the offering price per share during the twelve months
preceding the initial filing of the Company's Registration Statement and
through the effective date of the initial public offering of the Company's
common stock have been considered in the calculation of net earnings (loss)
per share as if outstanding since the beginning of each period presented.
16. RECLASSIFICATIONS
Certain amounts in the 1995 and 1996 consolidated financial statements have
been reclassified to conform to the September 30, 1997 presentation.
NOTE B--ACQUISITION OF CDP SYSTEMS, INC.
On July 1, 1997, the Company acquired all the outstanding common stock of CDP
Systems, Inc. from Thor Concepts, Inc. (Thor) for $10 cash and the assumption
of approximately $146,000 of liabilities. Thor, which is owned by the
identical shareholders as CPS, acquired the common stock of CDP in June 1997
from the former CDP shareholders under substantially identical terms and
amounts. CDP develops automated voice response software.
The acquisition of CDP has been accounted for as a purchase. Accordingly,
the purchase price was allocated to assets and liabilities based on their
estimated fair value, at the date of acquisition. Results of operations of CDP
have been included in the consolidated financial statements from the date of
acquisition. The excess purchase price over the fair value of the net assets
acquired of approximately $68,000 is being amortized on a straight-line basis
over three years. The results of operations of CDP prior to July 1, 1997 were
not material.
Subsequent to September 30, 1997, certain shareholders made advances to CDP
in the amount of approximately $123,000. These advances bear interest at 8%
per annum and are payable in October 2000.
F-9
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
ESTIMATED
DECEMBER 31, SEPTEMBER 30, SERVICE
1996 1997 LIVES
------------ ------------- ---------
<S> <C> <C> <C>
Computer equipment and purchased soft-
ware................................. $ 562,597 $ 734,162 5 years
Furniture and fixtures................ 160,201 187,481 5-7 years
Vehicles.............................. 15,686 43,000 3 years
Leasehold improvements................ 17,194 17,194 4 years
--------- --------- ---------
755,678 981,837
Accumulated depreciation.............. 300,045 424,653
--------- ---------
$ 455,633 $ 557,184
========= =========
</TABLE>
Depreciation of property and equipment charged to operations was $154,121,
$151,839 and $124,243 for the years ended December 31, 1995 and 1996, and the
nine months ended September 30, 1997, respectively.
NOTE D--LONG-TERM DEBT AND REVOLVING LINE OF CREDIT
LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Senior term loan. Requires monthly payments of
$32,614 including interest at prime plus 2.5%
(effective rate of 10.5% and 10.25% at Septem-
ber 30, 1997 and December 31, 1996, respective-
ly). All principal and interest due December
1998........................................... $1,027,045 $ 810,677
Subordinated note. Requires annual principal
payments of approximately $1,007,000 in
December 1999 and December 2000. Interest is
payable quarterly.............................. 2,014,000 2,014,000
---------- ----------
3,041,045 2,824,677
Less current portion............................ 299,927 321,423
---------- ----------
$2,741,118 $2,503,254
========== ==========
</TABLE>
In accordance with the subordination and intercreditor agreement, the
Company can make no payments on the subordinated note until all indebtedness
under the senior term loan and revolving line of credit has been repaid, with
the exception of interest payments required under the subordinated note. Each
loan is collateralized by substantially all assets of the Company.
Each loan agreement contains covenants which, among other things, restrict
the payment of dividends and the level of capital expenditures, and require
the Company to maintain certain minimum financial ratios. The company was not
in compliance with certain covenants at September 30, 1997 relating to changes
in its capital structure, acquisition of subsidiaries, assumption of
indebtedness and the maintenance of a minimum current ratio and minimum debt
coverage ratios. The Company has received waivers from the lenders for these
instances of noncompliance at September 30, 1997. Additionally, the covenants
related to the maintenance of a minimum current ratio and debt coverage ratio
(the financial ratio covenants) have been restructured and the Company is in
compliance with the restructured financial ratio covenants as of September 30,
1997. Management believes that the Company will continue to be in compliance
with all loan covenants.
F-10
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The senior term loan requires the payment of a monthly maintenance fee of
$4,167 through December 1998. The lender may also require additional principal
payments not to exceed fifty percent of the Company's annual excess cash
flows, as defined.
In connection with the issuance of the subordinated note, CPS issued a put
warrant to purchase 724,719 shares of the Company's common stock for
approximately $.0026 per share to the note holder. Interest on this note is
payable at a stated rate of 12%. Giving effect to the issuance of the
warrants, and the put feature adjustment attributable to the warrants (see
Note G), the imputed interest rate on this note was 11.1%, 23.8% and 8.6% for
the years ended December 31, 1995 and 1996 and the nine months ended September
30, 1997, respectively.
Maturities of long-term debt are as follows:
<TABLE>
<S> <C>
Year ending September 30,
1998............................................................. $ 321,423
1999............................................................. 489,254
2000............................................................. 975,725
2001............................................................. 1,038,275
----------
$2,824,677
==========
</TABLE>
REVOLVING LINE OF CREDIT
The Company executed a revolving line of credit agreement with the senior
lender which provides for maximum borrowings of $1,000,000. Borrowings are
restricted to 70% of eligible accounts receivable. Interest is payable monthly
at the prime rate plus 2%. The agreement is collateralized by substantially
all assets of the Company. The provisions of the agreement contain covenants
identical to those of the senior term loan. No amounts were outstanding under
this revolving line of credit at December 31, 1996 or September 30, 1997.
NOTE E--INCOME TAXES
The income tax provision consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Current expense (benefit).................. $(11,000) $181,200 $73,000
Deferred expense (benefit)................. (13,000) (16,000) 14,000
-------- -------- -------
$(24,000) $165,200 $87,000
======== ======== =======
</TABLE>
F-11
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's temporary differences result in a deferred income tax
liability, summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Deferred tax liabilities:
Capitalized software costs...................... $303,800 $333,200
Depreciation.................................... 30,100 25,800
Other........................................... 1,000 --
-------- --------
Gross deferred tax liability.................. 334,900 359,000
-------- --------
Deferred tax assets:
Unearned revenue................................ 129,400 111,700
Amortization of intangible assets............... 50,700 69,700
Accruals and allowances......................... 16,800 25,600
-------- --------
196,900 207,000
-------- --------
Net deferred tax liability.................... $138,000 $152,000
======== ========
</TABLE>
The net deferred tax liability is classified in the accompanying balance
sheets as follows:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Current deferred tax asset........................ $(146,000) $(137,000)
Long-term deferred tax liability.................. 284,000 289,000
--------- ---------
Net deferred tax liability........................ $ 138,000 $ 152,000
========= =========
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the applicable federal rates due to the following:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1995 1996 1997
-------- -------- -------------
<S> <C> <C> <C>
Tax expense (benefit) at applicable fed-
eral rate of 34%........................ $(86,400) $(27,500) $35,200
State tax expense (benefit), net......... (12,400) 14,500 10,100
Non deductible amortization of goodwill.. 90,100 90,100 67,600
Non deductible (non taxable) warrant ac-
cretion................................. (19,300) 92,400 (23,000)
Other non deductible items............... 4,000 15,200 14,100
Tax credits.............................. -- (19,500) (17,000)
-------- -------- -------
$(24,000) $165,200 $87,000
======== ======== =======
</TABLE>
F-12
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE F--COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company has entered into noncancelable operating lease agreements for
office space which expire at various dates through March 2001. Approximate
minimum future payments under noncancelable leases with initial or remaining
terms in excess of one year at September 30, 1997 are due as follows:
<TABLE>
<S> <C>
Year ending September 30,
1998.............................................................. $ 195,300
1999.............................................................. 241,600
2000.............................................................. 210,600
2001.............................................................. 103,100
2002.............................................................. 4,500
---------
$ 755,100
=========
</TABLE>
Rental expense for the years ended December 31, 1995 and 1996 and the nine
months ended September 30, 1997 was approximately $217,000, $177,000 and
$204,000, respectively.
CONTINGENCIES
A former employee has filed a civil action in the United States District
Court for the Middle District of Florida asserting claims under federal and
state Equal Employment Opportunity laws. Management believes this action to be
without merit and intends to vigorously defend itself. However, the ultimate
outcome of this uncertainty cannot be determined at this time. Accordingly, no
provision for any liabilities that may result based on the ultimate outcome of
this claim has been made.
NOTE G--WARRANTS
The Company issued warrants for the purchase of 724,719 shares of common
stock in connection with the subordinated note. Additionally, warrants for the
purchase of 203,047 shares of common stock were issued in connection with
costs of obtaining financing. All warrants issued entitle the holders to
purchase common stock at an exercise price of approximately $.0026 per share
and expire in December 2004. The terms of the warrant also entitle the holders
to require the Company to purchase the warrant for cash on or after December
31, 1999, or upon an initial public offering of the Company's common stock if
earlier, for a price as defined in the warrant agreements.
Upon issuance, the Company recorded the put warrants at their value as
estimated by management of $110,000. The Company is adjusting the put warrants
to the highest redemption price of the put warrants (the put feature
adjustment) in accordance with the warrant agreement, which is a formula based
on operating earnings, as defined, for the preceding twelve months,
outstanding indebtedness and cash balances. The put feature adjustments are
accrued over the period from the date of issuance to the earliest put date of
the warrants. The put feature adjustments resulted in a $271,632 charge to
earnings for the year ended December 31, 1996, and a benefit of $56,831 and
$90,249 for the years ended December 31, 1995 and nine months ended September
30, 1997, respectively. Such put feature adjustments are classified as
interest and financing costs in the accompanying statements of operations.
Subsequent to September 30, 1997, all warrant holders executed agreements to
exercise all warrants into common stock upon the closing of the initial public
offering of the Company's common stock.
F-13
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--RETIREMENT PLAN
The Company has a retirement savings plan covering substantially all of its
employees. The Company matches employee contributions at a rate determined
annually by the Board of Directors. No Company contributions were made for the
years ended December 31, 1995 and 1996 and the nine months ended September 30,
1997.
NOTE I--NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued the following
Statements of Financial Accounting Standards (SFAS):
SFAS 128, Earnings Per Share, which is effective for financial statements
for periods ending after December 15, 1997. The new standard eliminates
primary and fully diluted earnings per share and requires presentation of
basic and diluted earnings per share together with disclosure of how the per
share amounts were computed.
SFAS 129, Disclosure of Information about Capital Structure, which is
effective for financial statements for periods ending after December 15, 1997.
SFAS 129 requires disclosure of certain information about a Company's
securities.
SFAS 130, Reporting Comprehensive Income, which is effective for fiscal
years beginning after December 15, 1997. SFAS 130 requires companies to
include details about comprehensive income that arise during a reporting
period. Comprehensive income includes revenue, expenses, gains and losses that
bypass the income statement and are reported directly in a separate component
of equity.
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, which is effective for financial statements for periods beginning
after December 15, 1997. SFAS 131 requires companies to report information
about an entity's different types of business activities and the different
economic environments in which it operates, referred to as operating segments.
Additionally, the AICPA Accounting Standards Executive Committee has issued
Statement of Position (SOP) 97-2, Software Revenue Recognition, which is
effective for fiscal years beginning after December 15, 1997. SOP 97-2
modifies the criteria for determining recognition of revenue and allocation of
the contract fee for contracts containing multiple elements, such as software
products, rights to upgrades and other services.
Management does not expect the adoption of the Statements of Financial
Accounting Standards and SOP 97-2, referred to above, to have a material
impact on the Company's results of operations or financial condition.
NOTE J--SHAREHOLDERS' EQUITY
On October 23, 1997, the board of directors approved the following items:
A stock split of 390 to 1 was approved, effective October 23, 1997.
Additionally, the articles of incorporation were amended to authorize
50,000,000 common shares and 10,000,000 preferred shares. The board can issue
such shares of preferred stock in one or more series and shall have rights,
preferences, privileges and restrictions as determined by the board of
directors. All per share amounts and references to common and preferred stock
have been retroactively restated.
The 1997 Equity Participation Plan and Employee Stock Purchase Plan (the
Plans) were adopted. The Plans provide for the issuance of stock options and
other performance awards as may be approved by the
F-14
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
board of directors. 335,000 stock options were issued under this plan, pending
the successful closing of the Company's initial public offering, with an
exercise price equal to the offering per share price of the Company's common
stock offered in its initial public offering.
NOTE K--SIGNIFICANT CUSTOMERS
Sales to two customers accounted for approximately 20% of consolidated
revenue for the nine months ended September 30, 1997, each accounting for 10%.
No single customer comprised at least 10% of consolidated revenue for the
years ended December 31, 1995 and 1996.
F-15
<PAGE>
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NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION 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 ANY UNDERWRITER.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. 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 ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Dilution.................................................................. 13
Capitalization............................................................ 14
Selected Financial Data................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 16
Business ................................................................. 26
Management................................................................ 39
Certain Transactions...................................................... 43
Principal Shareholders.................................................... 44
Selling Shareholders...................................................... 45
Description of Capital Stock.............................................. 45
Shares Eligible for Future Sale........................................... 48
Underwriting.............................................................. 49
Legal Matters............................................................. 50
Experts................................................................... 50
Available Information..................................................... 51
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,250,000 SHARES
LOGO
[LOGO OS CPS SYSTEMS, INC. APPEARS HERE]
COMMON STOCK
----------------
PROSPECTUS
----------------
Cruttenden Roth
Incorporated
, 1998
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Restated Articles of Incorporation ("Restated Articles")
contains a provision that requires the Registrant to indemnify its directors,
officers, agents and employees to the extent permitted under Texas law. The
Registrant's Restated Articles provide that the Registrant shall indemnify its
directors, officers, employees and other agents to the fullest extent
permitted by law. The Registrant believes that indemnification under its
Restated Articles covers at least negligence and gross negligence on the part
of the indemnified parties. The Registrant's Restated Articles also require it
to maintain insurance, to the extent reasonably available and at its expense,
to protect any person entitled to indemnity thereunder against any liability
for which indemnification would be provided thereunder, whether or not the
Registrant has the power to indemnify such person against such liability under
Texas law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than the
underwriting discounts and commissions, payable by the Registrant in
connection with the sale of the Common Stock being registered:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee................... $ 4,392
National Association of Securities Dealers, Inc. Filing Fee........... 1,794
Amex Filing Fee....................................................... 15,000
Non-accountable expense allowance * .................................. 300,000
Blue Sky Fees and Expenses * ......................................... 15,000
Legal Fees and Expenses *............................................. 175,000
Accounting Fees and Expenses *........................................ 75,000
Printing and Engraving Expenses *..................................... 55,000
Transfer Agent Fee *.................................................. 3,000
Miscellaneous Expenses *.............................................. 5,814
--------
Total................................................................. $650,000
========
</TABLE>
- --------
* Estimated for the purpose of this filing.
In the event the Underwriters' over-allotment option is exercised in full,
an additional $45,000 in non-accountable expenses will be payable by the
Registrant.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
None.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
1.1*** Form of Underwriting Agreement
1.2* Form of Warrant Agreement
3.1*** Restated Articles of Incorporation and all amendments thereto
3.2*** Bylaws
4.1* Form of Common Stock Certificate
4.2 See Exhibits 3.1 and 3.2 for provisions in the Certificate of
Incorporation and Amended and Restated Bylaws of the Company
defining the rights of the holders of Common Stock
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
5.1 Opinion of Schreeder, Wheeler & Flint, LLP regarding legality
10.1 Warrant to Purchase Shares of Common Stock issued on December 29, 1994
by the Company to Hanifen Imhoff Mezzanine Fund, L.P. granting the
right to purchase from the Company 724,719 shares of the Company's
Common Stock
10.2 Warrant to Purchase Shares of Common Stock issued on December 29, 1994
by the Company to John K. Percival granting the right to purchase from
the Company 103,476 shares of the Company's Common Stock
10.3 Warrant to Purchase Shares of Common Stock issued on December 29, 1994
by the Company to Samuel E. Hudgins granting the right to purchase from
the Company 69,114 shares of the Company's Common Stock
10.4 Warrant to Purchase Shares of Common Stock issued on December 29, 1994
by the Company to Robert J. Newcorn granting the right to purchase from
the Company 30,457 shares of the Company's Common Stock
10.5 401(k) Retirement Plan
10.6 1997 Equity Participation Plan
10.7 CPS Systems, Inc. Employee Stock Purchase Plan
10.8 Standard Office Building Lease Agreement between Aetna Life Insurance
Company and CPS Business Systems, Inc., dated February 13, 1990, as
amended by Amendment No. 1 between Dallas Metro Real Estate Fund I,
Aetna Life Insurance Company and CPS Systems, Inc. dated January 31,
1995
10.9 Term Loan Agreement dated as of December 29, 1994 between CPS
Acquisition Corp. and Greyhound Financial Corporation**
10.10* Term Loan Promissory Note dated December 29, 1994 in the amount of
$1,500,000
10.11* Guaranty and Subordination Agreement (Term Loan) dated December 29,
1994 between CPS Systems, Inc. and Greyhound Financial Corporation**
10.12* Form of Stock Pledge and Security Agreement (with Irrevocable Proxy)
dated December 29, 1994 between each of the Company's Shareholders and
Greyhound Financial Corporation**
10.13* Assignment of contract dated December 29, 1994 between CPS Acquisition
Corp. and Greyhound Financial Corporation**
10.14* Stock Pledge and Security Agreement (with Irrevocable Proxy) dated
December 29, 1994 between CPS Acquisition Corp. and Greyhound Financial
Corporation**
10.15* Assumption Agreement dated December 29, 1994 between CPS Systems, Inc.
and Greyhound Financial Corporation**
10.16* Revolver Loan and Security Agreement dated December 29, 1994 between
CPS Systems, Inc. and Greyhound Financial Corporation**
10.17* Revolver Loan Promissory Note dated December 29, 1994 in the amount of
$1,000,000
10.18* Assignment of Contracts, Intangibles, Licenses and Permits dated
December 29, 1994 between CPS Systems, Inc. and Greyhound Financial
Corporation**
10.19* Guaranty and Subordination Agreement (Revolver Loan) dated December 29,
1994 by CPS Acquisition Corp. in favor of Greyhound Financial
Corporation**
10.20* Subordination and Intercreditor Agreement dated December 29, 1994 among
Greyhound Financial Corporation, Hanifen Imhoff Mezzanine Fund, L.P.,
CPS Acquisition Corp. and CPS Systems, Inc.**
10.21 CPS Acquisition Corp. and CPS Systems, Inc. Note Agreement dated as of
December 29, 1994 for $2,100,000 12% Senior Subordinated Secured Note
Due December 31, 2000
10.22* Security Agreement (general) dated December 29, 1994 between CPS
Systems, Inc. and Hanifen Imhoff Mezzanine Fund, L.P.
10.23* Security Agreement (Stock) dated December 29, 1994 from Paul E. Kana to
and for the benefit of Hanifen Imhoff Mezzanine Fund, L.P.
10.24* Agreement for Ongoing Maintenance & Enhancement of Software Products
entered between CPS Systems, Inc. and Majesco Software, Inc. dated
January 1997
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
10.25* Value Added Reseller Agreement by and between CPS Systems, Inc. and NCR
Corporation dated June 13, 1996
10.26* Industry Remarketer Affiliate Document of Understanding by and between
IBM Corporation and CPS Systems, Inc. dated September 12, 1996
10.27* Form of Lock-Up Agreement
10.28* Employment Agreement for James K. Hoofard
10.29* Employment Agreement for Paul E. Kana
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
23.2 Consent of Schreeder, Wheeler and Flint, LLP (see Exhibit 5.1)
24.1 Power of Attorney (see page II-IV)
27.1 Financial Data Schedules
</TABLE>
- --------
* Filed herewith.
** Greyhound Financial Corporation changed its name to FINOVA Capital
Corporation.
*** Amends previously filed Exhibit.
(B) FINANCIAL STATEMENT SCHEDULES
Report of Independent Auditors on Financial Statement Schedules
ITEM 28. UNDERTAKINGS
The small business issuer will 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange 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 small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
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 small business issuer 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.
For determining any liability under the Securities Act, 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 small business issuer under Rule 424(b)(1), or 497(h) under the
Securities Act will be treated as part of this Registration Statement as of
the time the Commission declares it effective.
For determining any liability under the Securities Act, each post-effective
amendment that contains a form of prospectus will be treated as a new
Registration Statement for the securities offered in the Registration
Statement, and the offering of the securities at that time will be treated as
the initial bona fide offering of those securities.
II-3
<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 SB-2 and has authorized this
Amendment No. 1 to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Dallas, State of
Texas, on January 12, 1998.
CPS SYSTEMS, INC.
By /s/ Paul E. Kana,
_____________________________________
Paul E. Kana,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons in the capacities indicated below on January 12, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C> <C>
/s/ Paul E. Kana Chairman of the Board and
____________________________________ Chief Executive Officer
Paul E. Kana (Principal Executive
Officer)
/*/ Kevin L. Figge Chief Financial Officer
____________________________________ (Principal Financial Officer)
Kevin L. Figge
/s/ James K. Hoofard, Jr. Director, President and
____________________________________ Chief Operating Officer
James K. Hoofard, Jr.
/*/ G. Dean Booth Director and Secretary
____________________________________
G. Dean Booth
/*/ Sidney H. Cordier Director
____________________________________
Sidney H. Cordier
/*/ Brian R. Wilson Director
____________________________________
Brian R. Wilson
</TABLE>
II-4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors
CPS Systems, Inc.
In connection with our audit of the consolidated financial statements of CPS
Systems, Inc. and Subsidiary and referred to in our report dated October 31,
1997 (except for the third paragraph of Note D, as to which the date is
December 3, 1997); which is included in the Prospectus constituting Part I of
this Registration Statement, we have also audited Schedule II of CPS Systems,
Inc. and Subsidiary for the nine months ended September 30, 1997 and the years
ended December 31, 1996 and 1995. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
Atlanta, Georgia
October 31, 1997
<PAGE>
CPS SYSTEMS, INC. AND SUBSIDIARY
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ---------- ------------ ----------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE (1) PERIOD
----------- ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C>
Nine months ended September 30,
1997
Allowance for doubtful accounts
receivable..................... $27,000 $24,000 $ 2,000 $49,000
Year ended December 31, 1996
Allowance for doubtful accounts
receivable..................... $40,000 $ -- $13,000 $27,000
Year ended December 31, 1995
Allowance for doubtful accounts
receivable..................... $49,000 $ -- $ 9,000 $40,000
</TABLE>
- --------
(1) Bad debt write off.
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
1.1*** Form of Underwriting Agreement
1.2* Form of Warrant Agreement
3.1*** Restated Articles of Incorporation and all amendments thereto
3.2*** Bylaws
4.1* Form of Common Stock Certificate
4.2 See Exhibits 3.1 and 3.2 for provisions in the Certificate of
Incorporation and Amended and Restated Bylaws of the Company
defining the rights of the holders of Common Stock
5.1 Opinion of Schreeder, Wheeler & Flint, LLP regarding legality
10.1 Warrant to Purchase Shares of Common Stock issued on December 29,
1994 by the Company to Hanifen Imhoff Mezzanine Fund, L.P. granting
the right to purchase from the Company 724,719 shares of the
Company's Common Stock
10.2 Warrant to Purchase Shares of Common Stock issued on December 29,
1994 by the Company to John K. Percival granting the right to
purchase from the Company 103,476 shares of the Company's Common
Stock
10.3 Warrant to Purchase Shares of Common Stock issued on December 29,
1994 by the Company to Samuel E. Hudgins granting the right to
purchase from the Company 69,114 shares of the Company's Common
Stock
10.4 Warrant to Purchase Shares of Common Stock issued on December 29,
1994 by the Company to Robert J. Newcorn granting the right to
purchase from the Company 30,457 shares of the Company's Common
Stock
10.5 401(k) Retirement Plan
10.6 1997 Equity Participation Plan
10.7 CPS Systems, Inc. Employee Stock Purchase Plan
10.8 Standard Office Building Lease Agreement between Aetna Life
Insurance Company and CPS Business Systems, Inc., dated February
13, 1990, as amended by Amendment No. 1 between Dallas Metro Real
Estate Fund I, Aetna Life Insurance Company and CPS Systems, Inc.
dated January 31, 1995
10.9 Term Loan Agreement dated as of December 29, 1994 between CPS
Acquisition Corp. and Greyhound Financial Corporation**
10.10* Term Loan Promissory Note dated December 29, 1994 in the amount of
$1,500,000
10.11* Guaranty and Subordination Agreement (Term Loan) dated December 29,
1994 between CPS Systems, Inc. and Greyhound Financial
Corporation**
10.12* Form of Stock Pledge and Security Agreement (with Irrevocable
Proxy) dated December 29, 1994 between each of the Company's
Shareholders and Greyhound Financial Corporation**
10.13* Assignment of contract dated December 29, 1994 between CPS
Acquisition Corp. and Greyhound Financial Corporation**
10.14* Stock Pledge and Security Agreement (with Irrevocable Proxy) dated
December 29, 1994 between CPS Acquisition Corp. and Greyhound
Financial Corporation**
10.15* Assumption Agreement dated December 29, 1994 between CPS Systems,
Inc. and Greyhound Financial Corporation**
10.16* Revolver Loan and Security Agreement dated December 29, 1994
between CPS Systems, Inc. and Greyhound Financial Corporation**
10.17* Revolver Loan Promissory Note dated December 29, 1994 in the amount
of $1,000,000
10.18* Assignment of Contracts, Intangibles, Licenses and Permits dated
December 29, 1994 between CPS Systems, Inc. and Greyhound Financial
Corporation**
10.19* Guaranty and Subordination Agreement (Revolver Loan) dated December
29, 1994 by CPS Acquisition Corp. in favor of Greyhound Financial
Corporation**
10.20* Subordination and Intercreditor Agreement dated December 29, 1994
among Greyhound Financial Corporation, Hanifen Imhoff Mezzanine
Fund, L.P., CPS Acquisition Corp. and CPS Systems, Inc.**
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NO. DESCRIPTION
--- -----------
<C> <S>
10.21 CPS Acquisition Corp. and CPS Systems, Inc. Note Agreement dated as of
December 29, 1994 for $2,100,000 12% Senior Subordinated Secured Note
Due December 31, 2000
10.22* Security Agreement (general) dated December 29, 1994 between CPS
Systems, Inc. and Hanifen Imhoff Mezzanine Fund, L.P.
10.23* Security Agreement (Stock) dated December 29, 1994 from Paul E. Kana to
and for the benefit of Hanifen Imhoff Mezzanine Fund, L.P.
10.24* Agreement for Ongoing Maintenance & Enhancement of Software Products
entered between CPS Systems, Inc. and Majesco Software, Inc. dated
January 1997
10.25* Value Added Reseller Agreement by and between CPS Systems, Inc. and NCR
Corporation dated June 13, 1996
10.26* Industry Remarketer Affiliate Document of Understanding by and between
IBM Corporation and CPS Systems, Inc. dated September 12, 1996
10.27* Form of Lock-Up Agreement
10.28* Employment Agreement for James K. Hoofard
10.29* Employment Agreement for Paul E. Kana
21.1 List of Subsidiaries
23.1 Consent of Independent Auditors
23.2 Consent of Schreeder, Wheeler and Flint, LLP (see Exhibit 5.1)
24.1 Power of Attorney (see pages II-IV)
27.1 Financial Data Schedules
</TABLE>
- --------
* Filed herewith.
** Greyhound Financial Corporation changed its name to FINOVA Capital
Corporation.
*** Amends previously filed Exhibit.
<PAGE>
1,250,000/1/
CPS SYSTEMS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
December ____, 1997
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92612
Ladies and Gentlemen:
CPS Systems, Inc., a Texas corporation (the "Company"), addresses you as
the Representative of each of the persons, firms and corporations listed in
Schedule A hereto (herein collectively called the "Underwriters") and hereby
confirms its agreement with the several Underwriters as follows:
1. Description of Shares. The Company proposes to issue and sell
---------------------
1,250,000 shares of its authorized and unissued Common Stock, $.01 par value per
share (the "Firm Shares"), to the several Underwriters. In addition, certain
shareholders of the Company listed on Schedule B hereto (the "Selling
Shareholders") propose to grant to the Underwriters an option to purchase up to
187,500 additional shares of the Company's Common Stock (the "Option Shares"),
as provided in Section 5 hereof. The Company also proposes to sell to you,
individually and not in your capacity as Representative, warrants (the
"Representative's Warrants") to purchase up to 125,000 (143,750 if the
overallotment option is exercised in full) shares of Common Stock of the Company
(the "Representative's Warrant Stock"), which sale will be consummated in
accordance with the terms and conditions of the Representative's Warrant
Agreement (the "Representative's Warrant Agreement"), the form of which is filed
as an exhibit to the Registration Statement described below. As used in this
Agreement, the term "Shares" shall include the Firm Shares and the Option
Shares. All shares of Common Stock of the Company to be outstanding after
giving effect to the sales contemplated hereby, including the sale of the
Shares, are hereinafter referred to as "Common Stock." Unless the context
otherwise requires, references herein to the "Company" include CPS Systems, Inc.
together with its subsidiaries described in the Prospectus (hereinafter
defined).
- --------------------
/1/ Plus an option to purchase up to 187,500 additional shares from certain
selling shareholders to cover over-
1
<PAGE>
2. Representations, Warranties and Agreements of the Company.
----------------------------------------------------------
The Company represents and warrants to and agrees with each
Underwriter and each Selling Shareholder that:
(a) A registration statement on Form SB-2 (File No. 333-
39173) with respect to the Shares, the Representative's Warrants and the
Representative's Warrant Stock, including a prospectus subject to completion,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Act"), and the applicable rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Act and has been filed with the
Commission; such amendments to such registration statement and such amended
prospectuses subject to completion as may have been required prior to the date
hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to such registration statement and
such amended prospectuses subject to completion as may hereafter be required.
Copies of such registration statement and amendments and of each related
prospectus subject to completion (the "Preliminary Prospectuses") have been
delivered to you.
If the registration statement relating to the Shares has been
declared effective under the Act by the Commission, the Company will prepare and
promptly file with the Commission the information previously omitted from the
registration statement pursuant to Rule 430A(a) of the Rules and Regulations
pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations
or as part of a post-effective amendment to the registration statement
(including a final form of prospectus). If the registration statement relating
to the Shares has not been declared effective under the Act by the Commission,
the Company will prepare and promptly file an amendment to the registration
statement, including a final form of prospectus. The term "Registration
Statement" as used in this Agreement shall mean such registration statement,
including financial statements, schedules and exhibits, in the form in which it
became or becomes, as the case may be, effective (including, if the Company
omitted information from the registration statement pursuant to Rule 430A(a) of
the Rules and Regulations, the information deemed to be a part of the
registration statement at the time it became effective pursuant to Rule 430A(b)
of the Rules and Regulations) and, in the event of any amendment thereto after
the effective date of such registration statement, shall also mean (from and
after the effectiveness of such amendment) such registration statement as so
amended. The term "Prospectus" as used in this Agreement shall mean the
prospectus relating to the Shares as included in such Registration Statement at
the time it becomes effective (including, if the Company omitted information
from the Registration Statement pursuant to Rule 430A(a) of the Rules and
Regulations, the information deemed to be a part of the Registration Statement
at the time it became effective pursuant to Rule 430A(b) of the Rules and
Regulations), except that if any revised prospectus shall be provided to the
Underwriters by the Company for use in connection with the offering of the
Shares that differs from the prospectus on file with the Commission at the time
the Registration Statement became or becomes, as the case may be, effective
(whether or not such revised prospectus is required to be filed with the
- --------------------------------------------------------------------------------
allotments, if any.
2
<PAGE>
Commission pursuant to Rule 424(b)(3) of the Rules and Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus or instituted proceedings for
that purpose, and each such Preliminary Prospectus, at the time of filing
thereof, has conformed in all material respects to the requirements of the Act
and the Rules and Regulations and, as of its date, has not included any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; and at the time the Registration Statement became or
becomes, as the case may be, effective and at all times subsequent thereto up to
and on the Closing Date (hereinafter defined) and on any later date on which
Option Shares are to be purchased, (i) the Registration Statement and the
Prospectus, and any amendments or supplements thereto, contained and will
contain all material information required to be included therein by the Act and
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, (ii) the Registration
Statement, and any amendments or supplements thereto, did not and will not
include any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and (iii) the Prospectus, and any amendments or supplements thereto,
did not and will not include any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
-------- -------
that none of the representations and warranties contained in this subparagraph
(b) shall apply to information contained in or omitted from the Registration
Statement or Prospectus, or any amendment or supplement thereto, in reliance
upon, and in conformity with, written information relating to any Underwriter
furnished to the Company by such Underwriter specifically for use in the
preparation thereof.
(c) The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 of the Registration Statement. The Company and
each of its subsidiaries 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, lease
and operate its properties and conduct its business as described in the
Prospectus; the Company and each of its subsidiaries is duly qualified to do
business as a foreign corporation and is in good standing in each jurisdiction
in which the ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure to be so
qualified or be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company taken as a whole; no proceeding has been instituted in any such
jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or
curtail, such power and authority or qualification; the Company is in possession
of and operating in compliance with all authorizations, licenses, certificates,
consents, orders and permits from state, federal and other regulatory
authorities that are material to the conduct of its business, all of which are
valid and in
3
<PAGE>
full force and effect; the Company is not in material violation of its charter
or bylaws or in default in the performance or observance of any material
obligation, agreement, covenant or condition contained in any material bond,
debenture, note or other evidence of indebtedness, or in any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture or
other agreement or instrument to which the Company is a party or by which it or
its properties or assets may be bound; and the Company is not in violation of
any law, order, rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties or assets.
(d) The Company has full legal right, power and authority to
enter into this Agreement and the Representative's Warrant Agreement and to
perform the transactions contemplated hereby and thereby. Each of this Agreement
and the Representative's Warrant Agreement has been duly authorized, executed
and delivered by the Company and is a valid and binding agreement on the part of
the Company, enforceable in accordance with its terms, except as rights to
indemnification under this Agreement or the Representative's Warrant Agreement
may be limited by applicable law and except as the enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws relating to or affecting creditors' rights generally or by general
equitable principles; the performance of this Agreement and the Representative's
Warrant Agreement and the consummation of the transactions herein or therein
contemplated will not violate any provisions of the charter, bylaws or other
organizational document of the Company and will not result in a breach or
violation of any of the terms and provisions of, or constitute, either by itself
or upon notice or the passage of time or both, a default under any bond,
debenture, note or other evidence of indebtedness, or under any lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or other
agreement or instrument to which the Company is a party or by which its
properties or assets may be bound, or any law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company or over its
properties or assets. No consent, approval, authorization or order of or
qualification with any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its properties
or assets is required for the execution and delivery of this Agreement or the
Representative's Warrant Agreement and the consummation by the Company of the
transactions herein and therein contemplated, except such as may be required
under the Act or under state or other securities or Blue Sky laws, all of which
requirements have been satisfied in all material respects.
(e) There is not any pending or, to the best of the
Company's knowledge, threatened action, suit, claim or proceeding against the
Company, or any of its officers or any of its properties, assets or rights
before any court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its officers or properties
or otherwise that (i) is reasonably likely to result in any material adverse
change in the condition (financial or otherwise), earnings, operations, business
or business prospects of the Company or might materially and adversely affect
its properties, assets or rights, (ii) might prevent consummation of the
transactions contemplated hereby or (iii) is required to be disclosed in the
4
<PAGE>
Registration Statement or Prospectus and is not so disclosed; and there are no
agreements, contracts, leases or documents of the Company of a character
required to be described or referred to in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement by the Act
or the Rules and Regulations or by the Securities Exchange Act of 1934 (the
"Exchange Act") or the rules and regulations of the Commission thereunder that
have not been accurately described in all material respects in the Registration
Statement or Prospectus or filed as exhibits to the Registration Statement.
(f) All outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" and conforms to the statements
relating thereto contained in the Registration Statement and the Prospectus (and
such statements correctly state the substance of the instruments defining the
capitalization of the Company); the Firm Shares and the Option Shares have been
duly authorized for issuance and sale to the Underwriters pursuant to this
Agreement and, when issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly and validly issued
and fully paid and nonassessable, and will be sold free and clear of any pledge,
lien, security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal or
other similar right of shareholders exists with respect to any of the Firm
Shares or Option Shares or the issuance and sale thereof other than those that
will automatically expire upon the consummation of the transactions contemplated
on the Closing Date. No further approval or authorization of any shareholder,
the Board of Directors of the Company or others is required for the issuance and
sale or transfer of the Shares except as may be required under the Act, the
Rules and Regulations or under state or other securities or Blue Sky laws.
Except as disclosed in or contemplated by the Prospectus and the financial
statements of the Company, and the related notes thereto, included in the
Prospectus, the Company has no outstanding options to purchase, or any
preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights under the Act and the Rules and
Regulations.
(g) Grant Thornton LLP, which has expressed its opinion with
respect to the financial statements of the Company filed with the Commission as
a part of the Registration Statement, which are included in the Prospectus, are
independent accountants within the meaning of the Act and the Rules and
Regulations. The audited financial statements of the Company, together with the
related schedules and notes, and the unaudited financial information, included
in the Registration Statement and Prospectus, fairly present the financial
position and the
5
<PAGE>
results of operations of the Company at the respective dates and for the
respective periods to which they apply. Such financial statements of the
Company, together with the related schedules and notes, filed with the
Commission as part of the Registration Statement, have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods as certified by Grant Thornton LLP. The selected and
summary financial and statistical data included in the Registration Statement
present fairly the information shown therein and have been compiled on a basis
consistent with the audited financial statements presented therein. No other
financial statements or schedules are required to be included in the
Registration Statement.
(h) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, except as
specifically disclosed or contemplated therein, there has not been (i) any
material adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company, (ii) incurred by the Company any
transaction that is material to the Company, (iii) any obligation, direct or
contingent incurred by the Company that is material to the Company, (iv) any
change in the capital stock or outstanding indebtedness of the Company that is
material to the Company, (v) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company, or (vi) any loss or damage
(whether or not insured) to the property of the Company which has a material
adverse effect on the condition (financial or otherwise), earnings, operations
or business of the Company.
(i) Except as set forth in the Registration Statement and
Prospectus, (i) the Company has good and marketable title to all properties and
assets described in the Registration Statement and Prospectus as owned by it,
free and clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations or business of
the Company, (ii) the agreements to which the Company is a party described in
the Registration Statement are valid agreements, enforceable by the Company,
except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles and, to
the best of the Company's knowledge, the other contracting party or parties
thereto are not in material breach or material default under any of such
agreements, and (iii) the Company has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as leased by
it, except as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles. Except
as set forth in the Registration Statement and Prospectus, the Company owns or
leases all such properties as are necessary to its operations as now conducted
and as described in the Registration Statement and the Prospectus.
(j) The Company has timely filed all federal, state, local
and foreign tax returns required to be filed by it and has paid all taxes shown
thereon as due, and there is no tax deficiency that has been or, to the best of
the Company's knowledge, is reasonably likely to be asserted against the
Company, which might have a material adverse effect on the condition
6
<PAGE>
(financial or otherwise), earnings, operations or business of the Company, and
all tax liabilities are adequately provided for on the books of the Company.
(k) The Company maintains insurance with insurers of
recognized financial responsibility of the types and in the amounts generally
deemed adequate for its business including, but not limited to, insurance
covering real and personal property owned or leased by the Company against
theft, damage, destruction, acts of vandalism and all other risks customarily
insured against, all of which insurance is in full force and effect; the Company
has not been refused any insurance coverage sought or applied for; and the
Company does not have any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition
(financial or otherwise), earnings, operations or business of the Company.
(l) To the best of Company's knowledge, no labor disturbance
by the employees of the Company exists or is imminent. No collective bargaining
agreement exists with any of the Company's employees and, to the best of the
Company's knowledge, no such agreement is imminent.
(m) Except as disclosed in or specifically contemplated by
the Prospectus, the Company owns or possesses adequate rights to use all patent
rights, trade secrets, mask works, know-how, trademarks, copyrights, licenses,
service marks and trade names that are necessary to conduct its businesses as
described in the Registration Statement and Prospectus; the Company has not
received any notice of, and has no knowledge of, any infringement of or conflict
with asserted rights of the Company by others with respect to any patent rights,
trade secrets, mask works, know-how, trademarks, copyrights, licenses, service
marks or trade names; and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with asserted rights of others
with respect to any patent rights, trade secrets, mask works, know-how,
trademarks, copyrights, licenses, service marks or trade names which, singly or
in the aggregate, in the event of an unfavorable decision, ruling or finding,
would have a material adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(n) The Common Stock is registered pursuant to Section 12(g)
of the Exchange Act and is approved for quotation on the Nasdaq SmallCap Market,
and the Company has taken no action designed to, or likely to have the effect
of, terminating the registration of the Common Stock under the Exchange Act or
delisting the Common Stock from the Nasdaq SmallCap Market, nor has the Company
received any notification that the Commission or the National Association of
Securities Dealers, Inc. ("NASD") is contemplating terminating such registration
or listing.
(o) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and
7
<PAGE>
has in the past conducted, and intends in the future to conduct, its affairs in
such a manner as to ensure that it will not become an "investment company" or a
company "controlled" by an "investment company" within the meaning of the 1940
Act and such rules and regulations.
(p) The Company has not distributed and will not distribute
prior to the later of (i) the Closing Date, or any date on which Option Shares
are to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale of
the Shares other than any Preliminary Prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the Act
(q) The Company has not at any time during the last five (5)
years (i) made any unlawful contribution to any candidate for foreign office or
failed to disclose fully any contribution in violation of law, or (ii) made any
payment to any federal or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof.
(r) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization in violation of law or manipulation of the price of
the Common Stock to facilitate the sale or resale of the Shares.
(s) Each officer, director and director-nominee of the
Company and each beneficial owner of the Company's Common Stock has agreed in
writing that such person will not without the prior written consent of
Cruttenden Roth Incorporated, for a period of 365 days from the date that the
Registration Statement is declared effective by the Commission (the "Lock-up
Period"), (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation, any short sale), pledge, transfer, establish an open "put equivalent
position" within the meaning of Rule 16a-1(h) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under the Exchange Act) by such person (collectively,
"Securities") or publicly announce the undersigned's intention to do any of the
foregoing. Furthermore, such person will also agree and consent to the entry of
stop transfer instructions with the Company's transfer agent against the
transfer of the Securities held by such person except in compliance with this
restriction. In addition, such person will also agree that the Representative
shall have the right of first refusal for a period of two years after the date
the Registration Statement is declared effective to be the sole broker/dealer
for any sales made under Rule 144 of the Securities Act (or similar provisions
enacted subsequent to the date of this Agreement). The Company has provided to
counsel for the Underwriters a complete and accurate list of all shareholders of
the Company and the number and type of securities held by each shareholder. The
Company has provided to counsel for the Underwriters true, accurate and complete
copies of all of the agreements pursuant to which its officers, directors,
director-nominees and shareholders have agreed to such restrictions (the "Lock-
up Agreements"). The Company hereby represents and warrants that it will not
release any of its officers, directors or director-nominees or other
8
<PAGE>
shareholders from any Lock-up Agreements currently existing or hereafter
effected without the prior written consent of Cruttenden Roth Incorporated
(t) Except as set forth in the Registration Statement and
Prospectus, (i) the Company is in material compliance with all rules, laws and
regulations relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
that are applicable to its business, (ii) the Company has received no notice
from any governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the Registration
Statement and the Prospectus, (iii) to its best knowledge, the Company is not
likely to be required to make future material capital expenditures to comply
with Environmental Laws and (iv) no property which is owned, leased or occupied
by the Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended (42
U.S.C. (S) 9601, et seq.), or otherwise designated as a contaminated site under
-- ----
applicable state or local law.
(u) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorizations,
(ii) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, including without limitation cash receipts,
(iii) access to assets is permitted only in accordance with management's general
or specific authorization, and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or guarantees
of indebtedness by the Company to or for the benefit of any of the officers,
directors or director-nominees of the Company or any of the members of the
families of any of them, except as disclosed in the Registration Statement and
the Prospectus.
(w) The Representative's Warrants have been duly and validly
authorized by the Company and upon delivery to you in accordance with the
Representative's Warrant Agreement will be duly issued and legal, valid and
binding obligations of the Company.
(x) The Representative's Warrant Stock has been duly
authorized and reserved for issuance upon the exercise of the Representative's
Warrants and when issued upon payment of the exercise price therefor will be
validly issued, fully paid and nonassessable shares of Common Stock of the
Company.
9
<PAGE>
3. Representations, Warranties and Covenants of the Selling Shareholders.
---------------------------------------------------------------------
Each of the Selling Shareholders severally, and not jointly,
represents and warrants to, and agrees with, the several Underwriters that:
(a) Such Selling Shareholder has, and on the Closing Date
and on any later date on which the Option Shares are to be purchased will have,
good and marketable title to the Shares proposed to be sold by such Selling
Shareholder hereunder on such closing date and full right, power and authority
to enter into this Agreement and to sell, assign, transfer and deliver such
Option Shares hereunder, free and clear of all voting trust arrangements, liens,
encumbrances, equities, security interests, restrictions and claims whatsoever,
other than pursuant to this Agreement and the Shareholders' Agreement (as
defined below); and upon delivery of and payment for such Shares hereunder, the
Underwriters will acquire good and marketable title thereto, free and clear of
all liens, encumbrances, equities, claims, restrictions, security interests,
voting trusts or other defects of title whatsoever.
(b) Such Selling Shareholder has executed and delivered a
Power of Attorney and caused to be executed and delivered on his behalf a
Custody Agreement (hereinafter collectively referred to as the "Shareholders'
Agreement") and in connection herewith such Selling Shareholder further
represents, warrants and agrees that such Selling Shareholder has deposited in
custody, under the Shareholders' Agreement, with the agent named therein (the
"Agent") as custodian, certificates in negotiable form for the Shares or
warrants to purchase the Shares to be sold hereunder by such Selling
Shareholder, for the purpose of further delivery pursuant to this Agreement.
Such Selling Shareholder agrees that the Shares or warrants to purchase the
Shares to be sold by such Selling Shareholder on deposit with the Agent are
subject to the interests of the Company and the Underwriters, that the
arrangements made for such custody are to that extent irrevocable, and that the
obligations of such Selling Shareholder hereunder shall not be terminated,
except as provided in this Agreement or in the Shareholders' Agreement, by any
act of such Selling Shareholder, by operation of law, by the death or incapacity
of such Selling Shareholder or by the occurrence of any other event. If the
Selling Shareholder should die or become incapacitated, or if any other event
should occur, before the delivery of the Shares hereunder, the documents
evidencing Shares or warrants to purchase the Shares then on deposit with the
Agent shall be delivered by the Agent in accordance with the terms and
conditions of this Agreement and the Shareholders' Agreement as if such death,
incapacity or other event had not occurred, regardless of whether or not the
Agent shall have received notice thereof. This Agreement and the Shareholders'
Agreement have been duly executed and delivered by or on behalf of such Selling
Shareholder and the form of such Shareholders' Agreement has been delivered to
you.
(c) The performance of this Agreement and the Shareholders'
Agree ment and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation by such Selling Shareholder of
any of the terms or provisions of, or constitute a default by such Selling
Shareholder under, any indenture, mortgage, deed of trust, trust (constructive
or other), loan agreement, lease, franchise, license or other agreement or
instrument to which such Selling Shareholder is a party or by which such Selling
Shareholder or any of its
10
<PAGE>
properties is bound, any statute, or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties, other than breaches or violations
which do not adversely affect such Selling Shareholder's ability to perform
under this Agreement or the Shareholders' Agreement.
(d) Such Selling Shareholder has not taken and 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 stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Shares, except usual and customary market maker and brokerage
transactions up to two business days prior to the offering contemplated hereby
in each case in accordance with applicable Commission regulations.
(e) To the extent that any statements or omissions made in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, are made in reliance upon and in conformity
with written information furnished to the Company by such Selling Shareholder
specifically for use therein, such Preliminary Prospectus and the Registration
Statement did, and the Prospectus and any further amendments or supplements to
the Registration Statement and the Prospectus will, when they become effective
or are filed with the Commission, as the case may be, not contain any untrue
statement of material fact or omit any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made.
(f) To the best of its knowledge, such Selling Shareholder
is not aware that any of the representations and warranties set forth in Section
2 above is untrue or inaccurate in any material respect.
4. Representation, Warranties and Agreements of the Underwriters.
-------------------------------------------------------------
The information set forth in the last paragraph on the front cover page (insofar
as such information relates to the Underwriters), in the first paragraph on page
2, concerning stabilization and over-allotment by the Underwriters, and in third
and eighth paragraphs under the caption "Underwriting" in any Preliminary
Prospectus and in the final form of Prospectus filed pursuant to Rule 424(b)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in any Preliminary Prospectus, the Prospectus or the Registration
Statement, and you, on behalf of the respective Underwriters, represent and
warrant to the Company that the statements made therein do not include any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
5. Purchase, Sale and Delivery of Shares. On the basis of the
-------------------------------------
representations, warranties and agreements herein contained, but subject to the
terms and conditions herein set forth, the Company agrees to sell to the
Underwriters, and each Underwriter agrees, severally and not jointly, to
purchase from the Company, at a purchase price of $_____ per share, the
respective number of Firm Shares as hereinafter set forth. The obligation of
each Underwriter to the Company
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<PAGE>
shall be to purchase from the Company that number of Firm Shares which is set
forth opposite the name of such Underwriter in Schedule A hereto (subject to
adjustment as provided in Section 11).
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 5 shall be made against
payment of the purchase price therefor by the several Underwriters by certified
or official bank check or checks drawn in next-day funds, payable to the order
of the Company (and the Company agrees not to deposit any such check in the bank
on which it is drawn until the day following the date of its delivery to the
Company) at the offices of the Representative or such other place as may be
agreed upon among the Representative and the Company, at 7:00 A.M., California
time, on the third (3rd) full business day following the first day that Shares
are traded (or at such time and date to which payment and delivery shall have
been postponed pursuant to Section 11 hereof), such time and date of payment and
delivery being herein called the "Closing Date." The certificates for the Firm
Shares to be so delivered will be made available to you at such office or such
other location as you may reasonably request for checking at least one (1) full
business day prior to the Closing Date and will be in such names and
denominations as you may request, such request to be made at least two (2) full
business days prior to the Closing Date. If the Representative so elects,
delivery of the Firm Shares may be made by credit through full fast transfer to
the accounts at The Depository Trust Company designated by the Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the Closing
Date for the Firm Shares 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.
On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Selling Shareholders hereby grant to the several Underwriters, for the purpose
of covering over-allotments in connection with the distribution and sale of the
Firm Shares only, a nontransferable option to purchase, in the respective
amounts set forth on the Schedule B, up to an aggregate of 143,750 Option Shares
at the purchase price per share for the Firm Shares set forth in this Section 5.
Such option may be exercised by the Representative on behalf of the several
Underwriters on one or more occasions in whole or in part during the forty-five
(45) day period after the date on which the Firm Shares are initially offered to
the public, by giving written notice to the Company and the Agent. The number of
Option Shares to be purchased by each Underwriter upon the exercise of such
option shall be the same proportion of the total number of Option Shares to be
purchased as the number of Firm Shares purchased by such Underwriter (set forth
in Schedule A hereto) bears to the total number of Firm Shares purchased by the
several Underwriters (set forth in Schedule A hereto), adjusted by the
Representative in such manner as to avoid fractional shares.
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<PAGE>
Delivery of definitive certificates for the Option Shares to be
purchased by the several Underwriters pursuant to the exercise of the option
granted by this Section 5 shall be made against payment of the purchase price
therefor by the several Underwriters by certified or official bank check or
checks drawn in next-day funds, payable to the order of the Agent (and the Agent
agrees not to deposit any such check in the bank on which it is drawn until the
day following the date of its delivery). Such delivery and payment shall take
place at the offices of the Representative, or at such other place as may be
agreed upon by the Representative and the Agent (i) on the Closing Date, if
written notice of the exercise of such option is received by the Agent at least
three (3) full business days prior to the Closing Date, or (ii) on a date which
shall not be later than the fifth (5th) full business day following the date the
Agent receives written notice of the exercise of such option, if such notice is
received by the Agent less than three (3) full business days prior to the
Closing Date.
To the extent that the option is not exercised for the entire
143,750 Option Shares, the number of Option Shares to be sold by each Selling
Shareholder shall be that number which bears the same relationship to the
aggregate number of Option Shares being purchased as the maximum number of
Option Shares being sold by each Selling Shareholder bears to 143,750.
The certificates for the Option Shares to be so delivered will be
made available to you at such office or such other location as you may
reasonably request for inspection at least two (2) full business days prior to
the date of payment and delivery and will be in such names and denominations as
you may request, such request to be made at least three (3) full business days
prior to such date of payment and delivery. If the Representative so elects,
delivery of the Option Shares may be made by credit through full fast transfer
to the accounts at The Depository Trust Company designated by the
Representative.
It is understood that you, individually, and not as the
Representative of the several Underwriters, may (but shall not be obligated to)
make payment of the purchase price on behalf of any Underwriter or Underwriters
whose check or checks shall not have been received by you prior to the date of
payment and delivery for the Option Shares 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.
Upon exercise of any option provided for in this Section 5, the
obligations of the several Underwriters to purchase such Option Shares will be
subject (as of the date hereof and as of the date of payment and delivery for
such Option Shares) to the accuracy of and compliance with the representations,
warranties and agreements of the Company herein, to the accuracy of the
statements of the Company and officers of the Company made pursuant to the
provisions hereof, to the performance by the Company of its obligations
hereunder, and to the condition that all proceedings taken at or prior to the
payment date in connection with the sale and transfer of such Option Shares
shall be reasonably satisfactory in form and substance to you and to
Underwriters' Counsel, and you shall have been furnished with all such
documents, certificates and opinions as you may reasonably request in order to
evidence the accuracy and completeness of any of the
13
<PAGE>
representations, warranties or statements, the performance of any of the
covenants or agreements of the Company or the compliance with any of the
conditions herein contained in each case in all material respects.
After the Registration Statement becomes effective, the several
Underwriters intend to make an initial public offering (as such term is
described in Section 13 hereof) of the Firm Shares at an initial public offering
price of $_____ per share. After the initial public offering, the several
Underwriters may, in their discretion, vary the public offering price.
6. Further Agreements of the Company. The Company agrees with the
---------------------------------
several Underwriters that:
(a) The Company will use best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; it will notify you, promptly after it
shall receive notice thereof, of the time when the Registration Statement or any
subsequent amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed; if the Company omitted information
from the Registration Statement at the time it was originally declared effective
in reliance upon Rule 430A(a) of the Rules and Regulations, the Company will
provide evidence satisfactory to you that the Prospectus contains such
information and has been filed, within the time period prescribed, with the
Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and
Regulations or as part of a post-effective amendment to such Registration
Statement as originally declared effective which is declared effective by the
Commission; if for any reason the filing of the final form of Prospectus is
required under Rule 424(b)(3) of the Rules and Regulations, it will provide
evidence satisfactory to you that the Prospectus contains such information and
has been filed with the Commission within the time period prescribed; it will
notify you promptly of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for additional
information; promptly upon your request, it will prepare and file with the
Commission any amendments or supplements to the Registration Statement or
Prospectus which, in the opinion of counsel for the several Underwriters
("Underwriters' Counsel"), may be necessary or advisable in connection with the
distribution of the Shares by the Underwriters; it will promptly prepare and
file with the Commission, and promptly notify you of the filing of, any
amendments or supplements to the Registration Statement or Prospectus which may
be necessary to correct any statements or omissions, if, at any time when a
prospectus relating to the Shares is required to be delivered under the Act, any
event shall have occurred as a result of which the Prospectus or any other
prospectus relating to the Shares as then in effect would include any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; in case any Underwriter is required to deliver a
prospectus nine (9) months or more after the effective date of the Registration
Statement in connection with the sale of the Shares, it will prepare promptly
upon request, but at the expense of such Underwriter, such amendment or
amendments to the Registration Statement and such prospectus or prospectuses as
may be necessary to permit
14
<PAGE>
compliance with the requirements of Section 10(a)(3) of the Act; and it will
file no amendment or supplement to the Registration Statement or Prospectus
which shall not previously have been submitted to you a reasonable time prior to
the proposed filing thereof or to which you shall reasonably object in writing,
subject, however, to compliance with the Act and the Rules and Regulations and
the rules and regulations of the Commission thereunder and the provisions of
this Agreement.
(b) The Company will advise you promptly after it shall
received notice or obtained knowledge of the issuance of any stop order by the
Commission suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceeding for that purpose; and it will promptly
use its best efforts to prevent the issuance of any stop order or to obtain its
withdrawal at the earliest possible moment if such stop order should be issued.
(c) The Company will use reasonable efforts to qualify the
Shares for offering and sale under the securities laws of such jurisdictions as
you may designate and to continue such qualifications in effect for so long as
may be required for purposes of the distribution of the Shares, except that the
Company shall not be required in connection therewith or as a condition thereof
to qualify as a foreign corporation or to execute a general consent to service
of process in any jurisdiction in which it is not otherwise required to be so
qualified or to so execute a general consent to service of process. In each
jurisdiction in which the Shares shall have been qualified as above provided,
the Company will make and file such statements and reports in each year as are
or may be reasonably required by the laws of such jurisdiction.
(d) The Company will furnish to you, as soon as available,
copies of the Registration Statement (three of which will be signed and which
will include all exhibits), each Preliminary Prospectus, the Prospectus and any
amendments or supplements to such documents, including any prospectus prepared
to permit compliance with Section 10(a)(3) of the Act (three of which will
include all exhibits) all in such quantities as you may from time to time
reasonably request.
(e) The Company will make generally available to its
shareholders as soon as practicable, but in any event not later than the forty-
fifth (45th) day following the end of the fiscal quarter first occurring after
the first anniversary of the effective date of the Registration Statement, an
earnings statement (which will be in reasonable detail but need not be audited)
complying with the provisions of Section 11(a) of the Act and covering a twelve
(12) month period beginning after the effective date of the Registration
Statement.
(f) During a period of five (5) years after the date hereof
and for so long as the Company is subject to Section 13 or 15 of the Exchange
Act, the Company will furnish to its shareholders as soon as practicable after
the end of each respective period, annual reports (including financial
statements audited by independent certified public accountants) and unaudited
quarterly reports of operations for each of the first three quarters of the
fiscal year, and
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<PAGE>
will furnish to you and the other several Underwriters hereunder, upon request
(i) concurrently with furnishing such reports to its shareholders, statements of
operations of the Company for each of the first three (3) quarters in the form
furnished to the Company's shareholders, (ii) concurrently with furnishing to
its shareholders, a balance sheet of the Company as of the end of such fiscal
year, together with statements of operations, of shareholders' equity, and of
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate or report thereon of independent certified public accountants, (iii)
as soon as they are available, copies of all reports (financial or other) mailed
to shareholders, (iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, any securities
exchange or the NASD, (v) every material press release and every material news
item or article in respect of the Company or its affairs which was generally
released to shareholders or prepared by the Company, and (vi) any additional
information of a public nature concerning the Company or its business which you
may reasonably request. During such five (5) year period, if the Company shall
have active subsidiaries, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and its
subsidiaries are consolidated, and shall be accompanied by similar financial
statements for any significant subsidiary that is not so consolidated.
(g) The Company will apply the net proceeds from the sale of
the Shares being sold by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(h) The Company will maintain a transfer agent and a
registrar (which may be the same entity) for its Common Stock.
(i) The Company will file Form SR in conformity with the
requirements of the Act and the Rules and Regulations.
(j) If the transactions contemplated hereby are not
consummated by reason of any failure, refusal or inability on the part of the
Company to perform any agreement on its part to be performed hereunder or to
fulfill any condition of the Underwriters' obligations hereunder, or if the
Company shall terminate this Agreement pursuant to Section 12(a) hereof, or if
the Underwriters shall terminate this Agreement pursuant to Section 12(b)(i),
and, in the judgment of the Representative, a public offering price of $5.00 or
more per share is available, then the Company shall pay the Representative an
amount equal to one and one half percent (1.5%) of the gross amount of the
proposed offering (assuming a $5.00 per share price) less any amounts previously
paid to the Representative.
(k) If at any time during the ninety (90) day period after
the Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in your
opinion the market price of the Common Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or event
necessitates a supplement to or amendment of the Prospectus), the Company will,
if reasonably requested by you, forthwith prepare, and, if permitted by law,
disseminate a press
16
<PAGE>
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(l) During the Lock-up Period, the Company will not, without the
prior written consent of the Representative, effect the Disposition of, directly
or indirectly, any Securities other than (i) the sale of the Firm Shares and the
Option Shares hereunder and, (ii) the Company's issuance of options or Common
Stock under the Company's presently authorized stock option plans or restricted
stock plans (collectively, the "Option Plans").
7. Expenses.
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(a) The Company agrees with each Underwriter that:
(i) The Company will pay and bear all costs and expenses
in connection with the preparation, printing and filing of the Registration
Statement (including financial statements, schedules and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments or supplements thereto; the
printing of this Agreement, the Agreement Among Underwriters, the Selected
Dealer Agreement, the Preliminary Blue Sky Survey and any supplemental Blue Sky
Survey, the Underwriters' Questionnaire and Power of Attorney, and any
instruments related to any of the foregoing; the issuance and delivery of the
Shares hereunder to the several Underwriters, including transfer taxes, if any,
the cost of all certificates representing the Shares and transfer agents' and
registrars' fees; the fees and disbursements of counsel and accountants for the
Company; the fees and disbursements of counsel for the several Underwriters, all
fees and other charges of the Company's independent certified public
accountants; the cost of furnishing to the several Underwriters copies of the
Registration Statement (including appropriate exhibits), Preliminary Prospectus
and the Prospectus, and any amendments or supplements to any of the foregoing;
NASD filing fees and the cost of qualifying the Shares under the laws of such
jurisdictions as you may designate (including filing fees and fees and
disbursements of counsel for the Underwriters related to such qualification);
the Company's road show costs and expenses, the cost of preparing bound volumes
of the documents relating to the public offering of Common Stock contemplated
hereby; and all other expenses directly incurred by the Company in connection
with the performance of its obligations hereunder.
(ii) To the extent that the Representative's accountable
expenses (including without limitation, travel expenses) exceed $20,000 (which
amount has previously been advanced to the Representative by the Company), the
Company shall reimburse the Representative on the Closing Date up to an
additional $30,000 (exclusive of the Representative's legal expenses) for such
accountable expenses.
(iii) In addition to its other obligations under Section
7(a)(i) hereof, if the Shares are sold pursuant to this Agreement, the Company
will pay to the Representative a nonaccountable expense allowance equal to 3.0%
of the aggregate sales price of the Shares to the public. This nonaccountable
expense allowance with respect to the Firm Shares
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shall be paid to you on the Closing Date and the nonaccountable expense
allowance with respect to the Option Shares shall be paid to you on the closing
of the sale to you of such Option Shares. The $20,000 previously paid to the
Representative by the Company and any amount owed to the Representative pursuant
to Section 7(a)(ii) hereof shall be credited against this nonaccountable expense
allowance.
(iv) In addition to its other obligations under Section 9
hereof, the Company agrees that, as an interim measure during the pendency of
any claim, action, investigation, inquiry or other proceeding described in
Section 9(a) hereof, it will reimburse the Underwriters and Selling
Shareholders, as the case may be, on a monthly basis for all reasonable legal or
other expenses incurred in connection with investigating or defending any such
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's obligation to reimburse the Underwriters for such expenses and the
possibility that such payments might later be held to have been improper by a
court of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the Underwriters shall
promptly return such payment to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) listed from time to time in
The Wall Street Journal which represents the base rate on corporate loans posted
by a substantial majority of the nation's five (5) largest banks (the "Prime
Rate"). Any such interim reimbursement payments which are not made to the
Underwriters within thirty (30) days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request.
(b) In addition to their other obligations under Section
9(b) hereof, the Underwriters severally and not jointly agree that, as an
interim measure during the pendency of any claim, action, investigation, inquiry
or other proceeding described in Section 9(b) hereof, they will reimburse the
Company and Selling Shareholders, as the case may be, on a monthly basis for all
reasonable legal or other expenses incurred in connection with investigating or
defending any such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the propriety and
enforceability of the Underwriters' obligation to reimburse the Company for such
expenses and the possibility that such payments might later be held to have been
improper by a court of competent jurisdiction. To the extent that any such
interim reimbursement payment is so held to have been improper, the Company
shall promptly return such payment to the Underwriters together with interest,
compounded daily, determined on the basis of the Prime Rate. Any such interim
reimbursement payments which are not made to the Company within thirty (30) days
of a request for reimbursement shall bear interest at the Prime Rate from the
date of such request
(c) It is agreed that any controversy arising out of the
operation of the interim reimbursement arrangements set forth in Sections
7(a)(iv) and 7(b) hereof, including the amounts of any requested reimbursement
payments, the method of determining such amounts and the basis on which such
amounts shall be apportioned among the reimbursing parties, shall be settled by
arbitration conducted pursuant to the Code of Arbitration Procedure of the NASD
in
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Orange County, California (or as close geographically to Orange County,
California as is reasonably practical). Any such arbitration must be commenced
by service of a written demand for arbitration or a written notice of intention
to arbitrate, therein electing the arbitration tribunal. In the event the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Sections 7(a)(iv) and 7(b)
hereof and will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 9(a) and 9(b) hereof or the obligation to contribute to expenses which
is created by the provisions of Section 9(d) hereof.
8. Conditions of Underwriters' Obligations. The obligations of the
---------------------------------------
several Underwriters to purchase and pay for the Shares as provided herein shall
be subject to the accuracy, as of the date hereof and the Closing Date and any
later date on which Option Shares are to be purchased, as the case may be, of
the representations and warranties of the Company and the performance by the
Company of its obligations hereunder and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 P.M., California time, on the date of this Agreement, or such later
date as shall be consented to in writing by you; and no stop order suspending
the effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the Company or any
Underwriter, threatened by the Commission, and any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise) shall have been complied with to the satisfaction of
Underwriters' Counsel.
(b) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issuance, sale and delivery of the Shares,
shall have been reasonably satisfactory to Underwriters' Counsel, and such
counsel shall have been furnished with such documents and information as they
may reasonably have requested to enable them to pass upon the matters referred
to in this Section.
(c) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock of the Company other than
pursuant to the exercise of outstanding options and warrants disclosed in the
Prospectus or any material change in the indebtedness of the Company, (ii)
except as set forth or contemplated by the Registration Statement or the
Prospectus, no material verbal or written agreement or other transaction shall
have been entered into by the Company, which is not in the ordinary course of
business, (iii) no loss or damage (whether or not insured) to the property of
the Company shall have been sustained which materially and adversely affects the
condition (financial or otherwise), business, results of
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operations or prospects of the Company, (iv) no legal or governmental action,
suit or proceeding affecting the Company which is material to the Company or
which affects or may affect the transactions contemplated by this Agreement
shall have been instituted or threatened and (v) there shall not have been any
material change in the condition (financial or otherwise), business, management,
results of operations or prospects of the Company which makes it impractical or
inadvisable in the judgment of the Representative to proceed with public
offering or purchase the Common Shares as contemplated hereby.
(d) You shall have received on the Closing Date and on any later date
on which Option Shares are purchased, as the case may be, an opinion of
Schreeder, Wheeler, Flint, counsel for the Company, dated the Closing Date or
such later date on which Option Shares are purchased, addressed to the
Underwriters (and stating that it may be relied upon by Underwriters' Counsel in
rendering its opinion pursuant to Section 8 (d) of this Agreement) and with
reproduced copies or signed counterparts thereof for each of the Underwriters,
to the effect that:
(i) The Company and each of its subsidiaries has been duly
incorporated and is validly existing and in good standing under the
laws of the jurisdiction of its incorporation;
(ii) The Company and each of its subsidiaries has full
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Registration
Statement;
(iii) The Company and each of its subsidiaries is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires such
qualification, except where the failure to be so qualified or be in
good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company taken as a whole. To such counsel's knowledge, Company
has no subsidiaries or other than as listed in Exhibit 21 to the
Registration Statement;
(iv) The authorized, issued and outstanding capital stock
of the Company is as set forth in the Prospectus under the caption
"Capitalization"; all outstanding shares of capital stock of the
Company have been duly and validly issued and are fully paid and
nonassessable, and, to such counsel's knowledge, have not been issued
in violation of or subject to any preemptive right, co-sale right,
registration right, right of first refusal or other similar right;
without limiting the foregoing, to such counsel's knowledge, there are
no preemptive or other rights to subscribe for or purchase any of the
Shares;
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(v) The certificates evidencing the Shares to be
delivered hereunder are in due and proper form under Texas law and
when duly countersigned by the Company's transfer agent and registrar
and delivered to you against payment of the agreed compensation in
accordance with this Agreement, the Firm Shares and the Option Shares,
represented thereby will be duly and validly issued and fully paid and
nonassessable, and will not have been issued in violation of or
subject to any preemptive right, co-sale right, registration right,
right of first refusal or other similar right of shareholders and will
conform in all respects to the description thereof in the Registration
Statement;
(vi) the Company has the corporate power and authority to
enter into this Agreement and to issue, sell and deliver to the
Underwriters the Shares to be issued and sold by it hereunder;
(vii) The Company has the corporate power and authority to
enter into the Representative's Warrant Agreement and to issue, sell
and deliver to the Representative the Representative's Warrants to be
issued and sold by it thereunder;
(viii) Each of this Agreement, the Representative's
Warrant Agreement and the Representative's Warrants has been duly
authorized by all necessary corporate action on the part of the
Company and has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by you, is a valid
and binding agreement of the Company, enforceable in accordance with
its terms, except insofar as indemnification provisions may be limited
by applicable law and to which counsel need not express any opinion
and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally or by general equitable principles;
(ix) The Registration Statement has become effective under
the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or
threatened under the Act;
(x) The Registration Statement and the Prospectus, and
each amendment or supplement thereto (other than the financial
statements and schedules included in the Registration Statement as to
which such counsel need express no opinion), as of the effective date
of the Registration Statement, complied as to form in all material
respects with the requirements of the Act and the applicable Rules and
Regulations;
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(xi) The statements in the Registration Statement and
Prospectus under the captions "Management," "Certain Transactions,"
"Description of Capital Stock" and "Shares Eligible For Future Sale,"
and in the Registration Statement in Items 24 and 26 insofar as they
constitute matters of law or legal conclusions or are descriptions of
contracts, agreements or other documents are accurate and complete in
all material respects and fairly present the information contained
herein;
(xii) The description in the Registration Statement and
the Prospectus of the charter and bylaws of the Company and of
statutes are accurate and fairly present the information required to
be presented by the Act and the applicable Rules and Regulations and
the Company is not in violation of its charter or bylaws, or other
organizational documents;
(xiii) To such counsel's knowledge, there are no
agreements, contracts, leases or documents to which the Company is a
party of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to
the Registration Statement that are not described or referred to
therein or filed as required;
(xiv) The execution and delivery of this Agreement and the
Representative's Warrant Agreement and the performance by the Company
of its obligations hereunder and thereunder will not (a) result in any
violation of the Company's charter, bylaws or other organizational
documents, or (b) result in a material breach or violation of any of
the terms and provisions of, or constitute a material default under,
any material bond, debenture, note or other evidence of indebtedness,
or under any material lease, contract, indenture, mortgage, deed of
trust, loan agreement, joint venture or other agreement or instrument
to which the Company is a party or by which its properties are bound,
or any applicable statute, rule or regulation known to such counsel
or, to such counsel's knowledge, any order, writ or decree of any
court, government or governmental agency or body having jurisdiction
over the Company or over any of its properties or operations;
(xv) To counsel's best knowledge, no consent, approval,
authorization or order of or qualification with any court, government
or governmental agency or body having jurisdiction over the Company or
over any of its properties or operations is necessary in connection
with the consummation by the Company of the transactions contemplated
in this Agreement and the Representative's Warrant Agreement, except
such as have been obtained under the Act or such as may be required
under state or other securities or Blue Sky laws in connection with
the purchase and the distribution of the Shares by the Underwriters;
22
<PAGE>
(xvi) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against the Company of
a character required to be disclosed in the Registration Statement or
the Prospectus by the Act or the Rules and Regulations or by the
Exchange Act or the applicable rules and regulations of the Commission
thereunder, other than those described therein;
(xvii) The Representative's Warrants have been duly and
validly authorized by the Company and upon delivery to you in
accordance with the Representative's Warrant Agreement will be duly
issued and legal, valid and binding obligations of the Company;
(xviii) The Representative's Warrant Stock to be issued by
the Company pursuant to the terms of the Representative's Warrant has
been duly authorized and, upon issuance and delivery against payment
therefor in accordance with the terms of the Representative's Warrant
Agreement, will be duly and validly issued and fully paid and
nonassessable, and to such counsel's knowledge, will not have been
issued in violation of or subject to any preemptive right, co-sale
right, registration right, right of first refusal or other similar
right of shareholders;
(xix) To such counsel's knowledge, no holders of Common
Stock or other securities of the Company have registration rights with
respect to securities of the Company that have not been waived; and
(xx) The offer and sale of all securities of the Company
made within the last three years as set forth in Item 15 of the
Registration Statement were exempt from the registration requirements
of the Securities Act, pursuant to the provisions set forth in such
Item, and from the registration or qualification requirements of all
relevant state securities laws.
(xxi) The Company has satisfied the conditions for use of
Form SB-2 as set forth in the General Instructions thereto.
(xxii) No transfer taxes are required to be paid in
connection with the sale and delivery of the Shares to the
Underwriters.
In addition, such counsel shall state that such counsel has
participated in conferences with officials and other representatives of the
Company, the Representative, Underwriters' Counsel and the independent certified
public accountants of the Company, at which the contents of the Registration
Statement and Prospectus and related matters were discussed, and although they
have not verified the accuracy or completeness of the statements contained in
the Registration Statement or the Prospectus, nothing has come to the attention
of such counsel that leads them to believe that, at the time the Registration
Statement became effective and at all times subsequent thereto up to and on the
Closing Date and on any later date on which Option Shares are
23
<PAGE>
purchased, the Registration Statement and any amendment or supplement thereto,
when such documents became effective or were filed with the Commission (other
than the financial statements and supporting schedules included in the
Registration Statement as to which such counsel need express no comment)
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or at the Closing Date or any later date on which the Option
Shares are purchased, as the case may be, the Registration Statement, the
Prospectus and any amendment or supplement thereto contained any untrue
statement of a material fact or omitted to state a material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States upon opinions of local counsel,
and as to questions of fact upon representations or certificates of officers of
the Company, and of government officials, in which case its opinion is to state
that they are so relying and that they have no knowledge of any material
misstatement or inaccuracy in any such opinion, representation or certificate.
Copies of any opinion, representation or certificate so relied upon shall be
delivered to you, as Representatives of the Underwriters, and to Underwriters'
Counsel.
(e) You shall have received on the date on which any Option
Shares are purchased an opinion or opinions of counsel for the Selling
Shareholders, addressed to the Underwriters and stating that it may be relied
upon by Underwriters' Counsel in rendering its opinion pursuant to Section 8(f)
and dated the date on which any Option Shares are purchased, to the effect that:
(1) To the best of such counsel's knowledge, this
Agreement and the Shareholders' Agreement have been duly
authorized, executed and delivered by or on behalf of each of the
Selling Shareholders; the Agent has been duly and validly
authorized to act as the custodian of the Shares and, where
applicable, warrants to purchase the Shares, to be sold by each
such Selling Shareholder; and the performance of this Agreement
and the Shareholders' Agreement and the consummation of the
transactions herein contemplated by the Selling Shareholders will
not result in a breach of, or constitute a default under, any
indenture, mortgage, deed of trust, trust (constructive or
other), loan agreement, lease, franchise, license or other
agreement or instrument to which any of the Selling Shareholders
is a party or by which any of the Selling Shareholders or any of
their properties may be bound, or violate any statute, judgment,
decree, order, rule or regulation known to such counsel of any
court or governmental body having jurisdiction over any of the
Selling Shareholders or any of their properties; and to the best
of such counsel's knowledge, no approval, authorization, order or
consent of any court, regulatory body, administrative agency or
other governmental body is required for the execution and
delivery of this Agreement or the Shareholders' Agreement or the
consummation by the
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Selling Shareholders of the transactions contemplated by this
Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under
the rules of the NASD and applicable Blue Sky laws;
(2) To the best of such counsel's knowledge, the
Selling Shareholders have full right, power and authority to
enter into this Agreement and the Shareholders' Agreement and to
sell, transfer and deliver the Shares to be sold on such closing
date by such Selling Shareholders and good and marketable title
to such Shares so sold, free and clear of all liens,
encumbrances, equities, claims, restrictions, security interests,
voting trusts, or other defects of title whatsoever, has been
transferred to the Underwriters (whom counsel may assume to be
bona fide purchasers) who have purchased such Shares hereunder;
(3) To the best of such counsel's knowledge, this
Agreement and the Shareholders' Agreement are valid and binding
agreements of each of the Selling Shareholders in accordance with
their terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally
and except with respect to those provisions relating to
indemnities or contributions for liabilities under the Act, as to
which no opinion need be expressed; and
(4) No transfer taxes are required to be paid in
connection with the sale and delivery of the Shares to the
Underwriters here under.
(f) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, an opinion of
Summit Law Group PLLC in form and substance satisfactory to you, with respect to
the sufficiency of all such corporate proceedings and other legal matters
relating to this Agreement and the transactions contemplated hereby as you may
reasonably require, and the Company shall have furnished to such counsel such
documents as they may have requested for the purpose of enabling them to pass
upon such matters.
(g) You shall have received on the Closing Date and on any later
date on which Option Shares are to be purchased, as the case may be, a letter
from Grant Thornton LLP, addressed to the Company and the Underwriters, dated
the Closing Date or such later date on which Option Shares are purchased, as the
case may be, confirming that they are independent certified public accountants
with respect to the Company within the meaning of the Act and the applicable
published Rules and Regulations and based upon the procedures described in such
letter delivered to you concurrently with the execution of this Agreement
(herein called the "Original
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Letter"), but carried out to a date not more than three (3) business days prior
to the Closing Date or such later date on which Option Shares are to be
purchased, as the case may be, (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date on which Option Shares are to be purchased,
as the case may be, and (ii) setting forth any revisions and additions to the
statements and conclusions set forth in the Original Letter which are necessary
to reflect any changes in the facts described in the Original Letter since the
date of such letter, or to reflect the availability of more recent financial
statements, data or information. The letter shall not disclose any change in the
condition (financial or otherwise), earnings, operations or business of the
Company from that set forth in the Registration Statement or Prospectus, which,
in your sole judgment, is material and adverse and that makes it, in your sole
judgment, impracticable or inadvisable to proceed with the public offering of
the Shares as contemplated by the Prospectus. The Original Letter from Grant
Thornton LLP shall be addressed to or for the use of the Underwriters in form
and substance satisfactory to the Underwriters and shall (i) represent, to the
extent true, that they are independent certified public accountants with respect
to the Company within the meaning of the Act and the applicable published Rules
and Regulations, (ii) set forth its opinion with respect to its examination of
the balance sheets of the Company as of September 30, 1997, and December 31,
1996 and related statements of operations, shareholders' equity, and cash flows
for the years ended December 31, 1995 and 1996, and (iii) address other matters
agreed upon by Grant Thornton LLP and you. In addition, you shall have received
from Grant Thornton LLP a letter addressed to the Company and made available to
you for the use of the Underwriters stating that its review of the Company's
system of internal accounting controls, to the extent they deemed necessary in
establishing the scope of its examination of the Company's financial statements
as of September 30, 1997, did not disclose any weaknesses in internal controls
that they considered to be material weaknesses.
(h) You shall have received on the Closing Date and on any later
date on which Option Shares are purchased, as the case may be, a certificate of
the Company, dated the Closing Date or such later date on which Option Shares
are to be purchased, as the case may be, signed by the President and Chief
Financial Officer of the Company, to the effect that, and you shall be satisfied
that:
(i) The representations and warranties of the Company in
this Agreement are true and correct, as if made on and as of the
Closing Date or any later date on which Option Shares are to be
purchased, as the case may be, and the Company has complied, in all
material aspects, with all the agreements and satisfied all the
conditions on its part to be performed or satisfied, in all material
respects, at or prior to the Closing Date or any later date on which
Option Shares are to be purchased, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been instituted or, to their knowledge, are pending or
threatened under the Act;
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(iii) When the Registration Statement became effective and
at all times subsequent thereto up to the delivery of such
certificate, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, contained all material information
required to be included therein by the Act and the Rules and
Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, and in
all material respects conformed to the requirements of the Act and the
Rules and Regulations or the Exchange Act and the applicable rules and
regulations of the Commission thereunder, as the case may be, the
Registration Statement, and any amendment or supplement thereto, did
not and does not include any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, the
Prospectus, and any amendment or supplement thereto, did not and does
not include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and,
since the effective date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus that has not been so set forth; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
there has not been (a) any material adverse change in the condition
(financial or otherwise), earnings, operations or business of the
Company, (b) any transaction that is material to the Company, (c) any
obligation, direct or contingent incurred by the Company, that is
material to the Company, (d) any change in the capital stock or
outstanding indebtedness of the Company, (e) any dividend or
distribution of any kind declared, paid or made on the capital stock
of the Company, or (f) any loss or damage (whether or not insured) to
the property of the Company which has a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company.
(i) The Company shall have obtained and delivered to you an
agreement from each officer, director and director-nominee of the Company, and
each beneficial owner of five percent or more of the Common Stock immediately
after the offering contemplated hereby, in writing prior to the date hereof that
such person will not, during the Lock-up Period, effect the Disposition of any
Securities now owned or hereafter acquired directly by such person or with
respect to which such person has or hereafter acquires the power of disposition,
otherwise than (i) as a bona fide gift or gifts, provided the donee or donees
thereof agree in writing to be bound by this restriction, (ii) as a distribution
to limited partners or shareholders of such person, provided that the
distributees thereof agree in writing to be bound by the terms of this
restriction, or (iii) with the prior written consent of Cruttenden Roth
Incorporated. The foregoing restriction is expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
Securities during the
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Lock-up Period, even if such Securities would be disposed of by someone other
than the such holder. Such prohibited hedging or other transactions would
include, without limitation, any short sale (whether or not against the box) or
any purchase, sale or grant of any right (including, without limitation, any put
or call option) with respect to any Securities or with respect to any security
(other than a broad-based market basket or index) that includes, relates to or
derives any significant part of its value from Securities. Furthermore, such
person will have also agreed and consented to the entry of stop transfer
instructions with the Company's transfer agent against the transfer of the
Securities held by such person except in compliance with this restriction.
(j) The Company shall have furnished to you such further certificates
and documents as you shall reasonably request, including certificates of
officers of the Company as to the accuracy of the representations and warranties
of the Company, as to the performance by the Company of its obligations
hereunder and as to the other conditions concurrent and precedent to the
obligations of the Underwriters hereunder.
(k) The Representative's Warrant Agreement shall have been entered
into by the Company and you, and the Representative's Warrants shall have been
issued and sold to you pursuant thereto.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to Underwriters' Counsel. The Company will furnish you with such number of
conformed copies of such opinions, certificates, letters and documents as you
shall reasonably request.
9. Indemnification and Contribution.
--------------------------------
(a) The Company and each of the Selling Shareholders severally agrees
to indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject (including, without limitation, in its capacity as an Underwriter or as
a "qualified independent underwriter" within the meaning of Schedule E of the
Bylaws of the NASD), under the Act, the Exchange Act or otherwise, specifically
including, but not limited to, 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 (i) with respect to the Company, any breach of
any representation, warranty, agreement or covenant of the Company herein
contained, or any failure of the Company to perform its obligations hereunder or
under law, (ii) with respect to each of the Selling Shareholders, arise out of
or are based in whole or in part on any inaccuracy in the representations and
warranties of such Selling Shareholder contained herein or any failure of such
Selling Shareholder to perform its obligations hereunder or under law, (iii) any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus or the Prospectus or any
amendment or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (but, with respect to each of the Selling Shareholder only to
28
<PAGE>
the extent that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished by such Selling Shareholder, in its capacity as such, to
the Company or the Underwriters, directly or through such Selling Shareholders'
representatives, specifically for inclusion therein) and agrees to reimburse
each Underwriter for any legal or other expenses reasonably incurred by it in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that neither the Company nor any Selling
-------- -------
Shareholder shall be liable in any such case to the extent that any such loss,
claim, damage, liability or action arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
the Registration Statement, such Preliminary Prospectus or the Prospectus, or
any such amendment or supplement thereto, in reliance upon, and in conformity
with, written information relating to any Underwriter furnished to the Company
as described in Section 4 hereof, and, provided further, that the indemnity
-------- -------
agreement provided in this Section 9(a) with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter from whom the
person asserting any losses, claims, damages, liabilities or actions based upon
any untrue statement or alleged untrue statement of material fact or omission or
alleged omission to state therein a material fact purchased Shares, if a copy of
the Prospectus in which such untrue statement or alleged untrue statement or
omission or alleged omission was corrected had not been sent or given to such
person within the time required by the Act and the Rules and Regulations, unless
such failure is the result of noncompliance by the Company with Section 6(d)
hereof.
The indemnity agreement in this Section 9(a) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each person, if
any, who controls any Underwriter within the meaning of the Act or the Exchange
Act. This indemnity agreement shall be in addition to any liabilities which the
Company may otherwise have.
(b) Each Underwriter, severally and not jointly, agrees to indemnify
and hold harmless the Company and the Selling Shareholders against any losses,
claims, damages or liabilities, joint or several, to which the Company may
become subject under the Act or otherwise, specifically including, but not
limited to, 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 the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company as described in Section 4 hereof, and agrees to
reimburse the Company and the Selling Shareholders for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such loss, claim, damage, liability or action.
29
<PAGE>
The indemnity agreement in this Section 9(b) shall extend upon the
same terms and conditions to, and shall inure to the benefit of, each officer of
the Company who signed the Registration Statement and each director of the
Company and each person, if any, who controls the Company or any of the Selling
Shareholders within the meaning of the Act or the Exchange Act. This indemnity
agreement shall be in addition to any liabilities which each Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 9, notify the indemnifying party in writing 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 9. In case any such action is brought against any
indemnified party, and it notified the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it shall elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party; provided, however, that if the defendants in any such action
-------- -------
include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party which pose a
conflict of interest for such counsel, the indemnified party or parties shall
have the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel (together with appropriate local counsel) approved by the
indemnifying party representing all the indemnified parties under Section 9(a)
or 9(b) hereof who are parties to such action), (ii) the indemnifying party
shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall any indemnifying party be liable in
respect of any amounts paid in settlement of any action unless the indemnifying
party shall have approved the terms of such settlement; provided that such
--------
consent shall not be unreasonably withheld. No indemnifying party shall,
without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnification could have
been sought hereunder by such indemnified party, unless such settlement includes
an unconditional
30
<PAGE>
release of such indemnified party from all liability on claims that are the
subject matter of such indemnification.
(d) In order to provide for just and equitable contribution in any
action in which a claim for indemnification is made pursuant to this Section 9
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 this Section 9 provides for
indemnification in such case, all the parties hereto shall contribute to the
aggregate losses, claims, damages or liabilities to which they may be subject
(after contribution from others) in such proportion so that the Underwriters
severally and not jointly are responsible pro rata for the portion represented
by the percentage that the underwriting discount bears to the initial public
offering price, and the Company is responsible for the remaining portion,
provided, however, that (i) no Underwriter shall be required to contribute any
- -------- -------
amount in excess of the underwriting discount applicable to the Shares purchased
by such Underwriter and (ii) 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. The contribution agreement in this Section 9(d) shall extend
upon the same terms and conditions to, and shall inure to the benefit of, each
person, if any, who controls the Underwriters or the Company within the meaning
of the Act or the Exchange Act and each officer of the Company who signed the
Registration Statement and each director of the Company.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof including, without limitation, the
provisions of this Section 9, and are fully informed regarding said provisions.
They further acknowledge that the provisions of this Section 9 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement and Prospectus as required by the Act and the Exchange
Act. The parties are advised that federal or state public policy, as
interpreted by the courts in certain jurisdictions, may be contrary to certain
of the provisions of this Section 9, and the parties hereto hereby expressly
waive and relinquish any right or ability to assert such public policy as a
defense to a claim under this Section 9 and further agree not to attempt to
assert any such defense.
10. Representations, Warranties, Covenants and Agreements to Survive
----------------------------------------------------------------
Delivery. All representations, warranties, covenants and agreements of the
- --------
Company and the Underwriters herein or in certificates delivered pursuant
hereto, and the indemnity and contribution agreements contained in Sections 7
and 9 and hereof shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Underwriter or any controlling
person within the meaning of the Act or the Exchange Act, or by or on behalf of
the Company or any of its officers, directors or controlling persons within the
meaning of the Act or the Exchange Act, and shall survive the delivery of the
Shares to the several Underwriters hereunder or termination of this Agreement.
31
<PAGE>
11. Substitution of Underwriters. If any Underwriter or Underwriters
----------------------------
shall fail to take up and pay for the number of Firm Shares agreed by such
Underwriter or Underwriters to be purchased hereunder upon tender of such Firm
Shares in accordance with the terms hereof, and if the aggregate number of Firm
Shares which such defaulting Underwriter or Underwriters so agreed but failed to
purchase does not exceed 10% of the Firm Shares, the remaining Underwriters
shall be obligated, severally in proportion to their respective commitments
hereunder, to take up and pay for the Firm Shares of such defaulting Underwriter
or Underwriters.
If any Underwriter or Underwriters so defaults and the aggregate
number of Firm Shares which such defaulting Underwriter or Underwriters agreed
but failed to take up and pay for exceeds 10% of the Firm Shares, the remaining
Underwriters shall have the right, but shall not be obligated, to take up and
pay for (in such proportions as may be agreed upon among them) the Firm Shares
which the defaulting Underwriter or Underwriters so agreed but failed to
purchase. If such remaining Underwriters do not, at the Closing Date, take up
and pay for the Firm Shares which the defaulting Underwriter or Underwriters so
agreed but failed to purchase, the Closing Date shall be postponed for twenty-
four (24) hours to allow the several Underwriters the privilege of substituting
within twenty-four (24) hours (including non-business hours) another underwriter
or underwriters (which may include any nondefaulting Underwriter) satisfactory
to the Company. If no such underwriter or underwriters shall have been
substituted as aforesaid by such postponed Closing Date, the Closing Date may,
at the option of the Company, be postponed for a further twenty-four (24) hours,
if necessary, to allow the Company the privilege of finding another underwriter
or underwriters, satisfactory to you, to purchase the Firm Shares which the
defaulting Underwriter or Underwriters so agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted underwriter or
underwriters to take up the Firm Shares of the defaulting Underwriter or
Underwriters as provided in this Section 11, (i) the Company shall have the
right to postpone the time of delivery for a period of not more than seven (7)
full 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 number of Firm Shares to
be purchased by the remaining Underwriters and substituted underwriter or
underwriters shall be taken as the basis of their underwriting obligation. If
the remaining Underwriters shall not take up and pay for all such Firm Shares so
agreed to be purchased by the defaulting Underwriter or Underwriters or
substitute another underwriter or underwriters as aforesaid and the Company
shall not find or shall not elect to seek another underwriter or underwriters
for such Firm Shares as aforesaid, then this Agreement shall terminate.
In the event of any termination of this Agreement pursuant to the
preceding paragraph of this Section 11, the Company shall not be liable to any
Underwriter (except as provided in Sections 7 and 9 hereof) nor shall any
Underwriter (other than an Underwriter who shall have failed, otherwise than for
some reason permitted under this Agreement, to purchase the number of Firm
Shares agreed by such Underwriter to be purchased hereunder, which Underwriter
32
<PAGE>
shall remain liable to the Company and the other Underwriters for damages, if
any, resulting from such default) be liable to the Company (except to the extent
provided in Sections 7 and 9 hereof).
The term "Underwriter" in this Agreement shall include any person
substituted for an Underwriter under this Section 11.
12. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at the earlier of (i) 6:30
A.M., California time, on the second full business day following the effective
date of the Registration Statement, or (ii) the time of the initial public
offering of any of the Shares by the Underwriters after the Registration
Statement becomes effective. The time of the initial public offering shall mean
the time of the release by you, for publication, of the first newspaper
advertisement relating to the Shares, or the time at which the Shares are first
generally offered by the Underwriters to the public by letter, telephone,
telegram or telecopy, whichever shall first occur. By giving notice as set
forth in Section 13 before the time this Agreement becomes effective, you, as
Representative of the several Underwriters, or the Company, may prevent this
Agreement from becoming effective without liability of any party to any other
party, except as provided in Sections 6(j), 7 and 9 hereof.
(b) You, as Representative of the several Underwriters, shall have the
right to terminate this Agreement by giving notice as hereinafter specified at
any time at or prior to the Closing Date or on or prior to any later date on
which Option Shares are purchased, as the case may be, (i) if the Company shall
have failed, refused or been unable to perform any agreement on its part to be
performed, or (ii) because any other condition of the Underwriters' obligations
hereunder required to be fulfilled is not fulfilled, including, without
limitation, any change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company from that set forth in
the Registration Statement or Prospectus, which, in your sole judgment, is
material and adverse, or (iii) if additional material governmental restrictions,
not in force and effect on the date hereof, shall have been imposed upon trading
in securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such exchange or in the over the counter
market by the NASD, or if a banking moratorium shall have been declared by
federal, New York or California authorities, or (iv) if the Company shall have
sustained a loss by strike, fire, flood, earthquake, accident or other calamity
of such character as to interfere materially with the conduct of the business
and operations of the Company regardless of whether or not such loss shall have
been insured, or (v) if there shall have been a material adverse change in the
general political or economic conditions or financial markets as in your
reasonable judgment makes it inadvisable or impracticable to proceed with the
offering, sale and delivery of the Shares, or (vi) if there shall have been an
outbreak or escalation of hostilities or of any other insurrection or armed
conflict or the declaration by the United States of a national emergency which,
in the reasonable opinion of the Representatives, makes it impracticable or
inadvisable to proceed with the public
33
<PAGE>
offering of the Shares as contemplated by the Prospectus. Any termination
pursuant to any of subparagraphs (ii) through (vi) above shall be without
liability of any party to any other party except as provided in Sections 7 and 9
hereof. In the event of termination pursuant to subparagraph (i) above, the
Company shall also remain obligated to pay costs and expenses pursuant to
Sections 6(j), 7 and 9 hereof.
If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 12, you shall promptly
notify the Company by telephone, telecopy or telegram, in each case confirmed by
letter. If the Company shall elect to prevent this Agreement from becoming
effective, the Company shall promptly notify you by telephone, telecopy or
telegram, in each case, confirmed by letter.
13. Notices. All notices or communications hereunder, except as
-------
herein otherwise specifically provided, shall be in writing and if sent to you
shall be mailed, delivered, telegraphed (and confirmed by letter) or telecopied
(and confirmed by letter) to you c/o Cruttenden Roth Incorporated, 18301 Von
Karman, Suite 100, Irvine, California 92715, telecopier number (714) 852-9603,
Attention: James Stearns; if sent to the Company, such notice shall be mailed,
delivered, telegraphed (and confirmed by letter) or telecopied (and confirmed by
letter) to 3400 Carlisle Suite 500, Dallas, TX, telecopier number (214) 855-
5277, Attention: Ken Hoofardff.
14. Parties. This Agreement shall inure to the benefit of and be
-------
binding upon the several Underwriters and the Company and their respective
executors, administrators, successors and assigns. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any person
or corporation, other than the parties hereto and their respective executors,
administrators, successors and assigns, and their controlling persons within the
meaning of the Act or the Exchange Act, officers and directors referred to in
Section 9 hereof, any legal or equitable right, remedy or claim in respect of
this Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole and
exclusive benefit of the parties hereto and their respective executors,
administrators, successors and assigns and said controlling persons and said
officers and directors, and for the benefit of no other person or corporation.
No purchaser of any of the Shares from any Underwriter shall be construed a
successor or assign by reason merely of such purchase. The Agreement
constitutes the entire agreement and understanding of the parties with respect
to the subject matter hereof.
In all dealings with the Company under this Agreement, you shall act
on behalf of each of the several Underwriters, and the Company shall be entitled
to act and rely upon any statement, request, notice or agreement made or given
by you on behalf of each of the several Underwriters.
15. Applicable Law. This Agreement shall be governed by, and
--------------
construed in accordance with, the laws of the State of California.
34
<PAGE>
16. Counterparts. This Agreement may be signed in several
------------
counterparts, each of which will constitute an original.
If the foregoing correctly sets forth the understanding among the
Company and the several Underwriters, please so indicate in the space provided
below for that purpose, whereupon this letter shall constitute a binding
agreement among the Company and the several Underwriters.
Very truly yours,
CPS SYSTEMS, INC.
By:
----------------------------------
Name:
---------------------------------
Title:
-------------------------------
SELLING SHAREHOLDERS
By:
-----------------------------------
Attorney-in-fact
Accepted as of the date first above written:
CRUTTENDEN ROTH INCORPORATED
On their behalf and on behalf of each of the
several Underwriters named in Schedule A hereto.
By: CRUTTENDEN ROTH INCORPORATED
By:
---------------------------
Name:
----------------------
Title:
---------------------
35
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Firm Shares
To Be
Underwriters Purchased
- ----------- ----------
<S> <C>
Cruttenden Roth Incorporated...................................
-------------
Total........................................................
=============
</TABLE>
36
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
Selling Shareholders Number of Option Shares
- -------------------- -----------------------
<S> <C>
Sidney H. Cordier 62,371
Brian R. Wilson 62,371
Hanifen Imhoff Mezzanine Fund, L.P. 41,758
John K. Percival 14,000
Robert J. Newcorn 7,000
</TABLE>
37
<PAGE>
EXHIBIT 1.2
WARRANT AGREEMENT
This Warrant Agreement (this "Agreement") dated as of December __, 1997 is
by and between CPS Systems, Inc., a Texas corporation (the "Company") and
Cruttenden Roth Incorporated ("Cruttenden").
WHEREAS, Cruttenden has agreed pursuant to an Underwriting Agreement dated
_____, December __, 1997 (the "Underwriting Agreement") to act as the
representative of the several underwriters in connection with the proposed
public offering (the "Public Offering") by the Company of _________ shares of
Common Stock, including up to _________ additional shares of Common Stock to
cover over-allotments, if any; and
WHEREAS, pursuant to Section 1 of the Underwriting Agreement, the Company
has agreed to issue warrants (the "Warrants") to Cruttenden to purchase, at a
price of $0.001 per warrant, up to an aggregate of _______ shares (hereinafter,
and as the number thereof may be adjusted hereto, the "Warrant Shares") of the
Company's Common Stock, $0.01 par value per share (the "Common Stock"), each
Warrant initially entitling the holder thereof to purchase one share of Common
Stock.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein and in the Underwriting Agreement set forth and for other good and
valuable consideration, the parties hereto agree as follows:
1. ISSUANCE OF WARRANTS: FORM OF WARRANT. The Company will issue and
deliver to Cruttenden, Warrants to purchase _______ Warrant Shares on the
Closing Date referred to in the Underwriting Agreement and Warrants to purchase
up to _________additional Warrant Shares on any closing dates on which the over-
allotment option is exercised, in consideration for, and as part of Cruttenden's
compensation in connection with, its acting as the representative of the several
underwriters for the Public Offering pursuant to the Underwriting Agreement.
The text of the Warrants and of the form of election to purchase Warrants Shares
shall be substantially as set forth in Exhibit A attached hereto. The Warrants
shall be executed on behalf of the Company by the manual or facsimile signature
of the present or any future Chairman of the Board, President or Vice President
of the Company, under its corporate seal, affixed or in facsimile, attested by
the manual or facsimile signature of the Secretary or an Assistant Secretary of
the Company.
Warrants bearing the manual or facsimile signatures of individuals who were
at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any one of them shall have ceased to
hold such offices prior to the delivery of such Warrants or did not hold such
offices on the date of this Agreement. Warrants shall be dated as of the date
of execution thereof by the Company either upon initial issuance or upon
division, exchange, substitution or transfer.
2. REGISTRATION. The Warrants shall be numbered and registered on the
books of the Company (the "Warrant Register") as they are issued. The Company
shall be entitled to treat the registered holder of any Warrant on the Warrant
Register (the "Holder") as the owner in fact therefor for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in such
1
<PAGE>
Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or are to be
registered in the name of a fiduciary or the nominee of a fiduciary unless made
with the actual knowledge that a fiduciary or nominee is committing a breach of
trust in requesting such registration or transfer, or with the knowledge of such
facts that its participation therein amounts to bad faith. The Warrants shall be
registered initially in the name of "Cruttenden Roth Incorporated" or in such
other denominations as Cruttenden may request in writing to the Company.
3. EXCHANGE OF WARRANT CERTIFICATES. Subject to any restriction upon
transfer set forth in this Agreement, each Warrant certificate may be exchanged
for another certificate or certificates entitling the Holder thereof to purchase
a like aggregate number of Warrant Shares as the certificate or certificates
surrendered then entitled such Holder to purchase. Any Holder desiring to
exchange a Warrant certificate or certificates shall make such request in
writing delivered to the Company, and shall surrender, properly endorsed, the
certificate or certificates to be so exchanged. Thereupon, the Company shall
execute and deliver to the person entitled thereto a new Warrant certificate or
certificates, as the case may be, as so requested.
4. TRANSFER OF WARRANTS. Until December __, 1998, the Warrants will not
be sold, transferred, assigned or hypothecated except to (i) other brokers or
dealers; (ii) one or more bona fide officers and/or partners of Cruttenden;
(iii) a successor to the transferring Holder in merger or consolidation; (iv) a
purchaser of all or substantially all of the transferring Holder's assets; or
(v) any person receiving the Warrants from one or more of the persons listed in
this Section 4 at such person's or persons' death pursuant to will, trust or the
laws of intestate succession, each of whom agrees in writing to be bound by the
terms hereof. The Warrants shall be transferable only on the Warrant Register
upon delivery thereof duly endorsed by the Holder or by the Holder's duly
authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the person entitled thereto.
5. TERM OF WARRANTS; EXERCISE OF WARRANTS.
5.1 Each Warrant entitles the registered owner thereof to purchase one
share of Common Stock at any time from 10:00 a.m., Pacific time, on December__,
1998 (the "Initiation Date") until 6:00 p.m., Pacific time, on December __, 2002
(the "Expiration Date") at a purchase price of $________, subject to adjustment
(the "Warrant Price"). Notwithstanding the foregoing, if at 6:00 p.m., Pacific
time on the Expiration Date, any Holder or Holders of the Warrants have not
exercised their Warrants and the Closing Price (as defined below) for the
Common Stock on the Expiration Date is greater than the Warrant Price, then each
such unexercised Warrant shall be automatically converted into a number of
shares of Common Stock of the Company equal to: (A) the number of shares of
Common Stock then issuable upon exercise of a Warrant multiplied by (B) a
fraction (1) the numerator of which is the difference between the Closing Price
2
<PAGE>
for the Common Stock on the Expiration Date and the Warrant Price and (2) the
denominator of which is the Closing Price for the Common Stock on the Expiration
Date.
5.2 The Warrant Price and the number of Warrant Shares issuable upon
exercise of each Warrant are subject to adjustment upon the occurrence of
certain events, pursuant to the provisions of Section 11 of this Agreement.
Subject to the provisions of this Agreement, each Holder of Warrants shall have
the right, which may be exercised as expressed in the Warrant Certificate, to
purchase from the Company (and the Company shall issue and sell to such Holder
of Warrants) the number of fully paid and nonassessable Warrant Shares specified
in such Warrant Certificate, upon surrender to the Company, or its duly
authorized agent, of such Warrant Certificate, with the form of election to
purchase on the reverse thereof duly filled in and signed, and upon payment to
the Company of the Warrant Price, as adjusted in accordance with the provisions
of Section 11 of this Agreement, for the number of Warrant Shares in respect of
which such Warrants are then exercised. Payment of such Warrant Price shall be
made in cash, by wire transfer or by certified or official bank check, or any
combination thereof. No adjustment shall be made for any dividends on any
Warrant Shares of stock issuable upon exercise of a Warrant.
5.3 Upon such surrender of Warrants, and payment of the Warrant Price as
aforesaid, the Company shall issue and cause to be delivered with all reasonable
dispatch to or upon the written order of the Holder of such Warrants and in such
name or names as such registered Holder may designate, a certificate or
certificates for the number of full Warrant Shares so purchased upon the
exercise of such Warrants, together with cash, as provided in Section 12 of this
Agreement, in respect of any fraction of a share otherwise issuable upon such
surrender and, if the number of Warrants represented by a Warrant certificate
shall not be exercised in full, a new Warrant certificate, executed by the
Company for the balance of the number of whole Warrant Shares.
5.4 If permitted by applicable law, such certificate or certificates shall
be deemed to have been issued and any person so designated to be named therein
shall be deemed to have become a holder of record of such shares as of the date
of the surrender of such Warrants and payment of the Warrant Price as aforesaid.
The rights of purchase represented by the Warrants shall be exercisable, at the
election of the registered Holders thereof, either as an entirety or from time
to time for only part of the shares specified therein.
6. COMPLIANCE WITH GOVERNMENT REGULATIONS. The Company covenants that if
any shares of Common Stock required to be reserved for purposes of exercise or
conversion of Warrants require, under any Federal or state law or applicable
governing rule or regulation of any national securities exchange, registration
with or approval of any governmental authority, or listing on any such national
securities exchange before such shares may be issued upon exercise, the Company
will in good faith and as expeditiously as possible endeavor to cause such
shares to be duly registered, approved or listed on the relevant national
securities exchange, as the case may be; provided, however, that (except to the
-------- -------
extent legally permissible with respect to Warrant of which Cruttenden is the
Holder) in no event shall such shares of Common Stock be issued, and the Company
is hereby authorized to suspend the exercise of all Warrants, for the period
during which such registration, approval or listing is required but not in
effect.
3
<PAGE>
7. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if
any, attributable to the initial issuance of the Warrants or the securities
comprising the Warrant Shares upon the exercise of Warrants; provided, however,
-------- -------
that the Company shall not be required to pay any tax or taxes which may be
payable in respect of any transfer involved in the issue or delivery of any
warrants or certificate for Warrant Shares in a name other than that of the
registered Holder of such warrants.
8. MUTILATED OR MISSING WARRANTS. In case any of the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall issue and deliver in
exchange and substitution for and upon cancellation of the mutilated Warrant, or
in lieu of and substitution for the Warrant lost, stolen or destroyed, a new
Warrant of like tenor and representing an equivalent right or interest; but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of such Warrant and, if requested, indemnity or bond also
reasonably satisfactory to the Company. An applicant for such substitute
Warrants shall also comply with such other reasonable regulations and pay such
other reasonable charges as the Company may prescribe.
9. RESERVATION OF WARRANT SHARES. There has been reserved out of the
authorized and unissued shares of Common Stock a number of shares sufficient to
provide for the exercise of the Warrants, and the transfer agent for the Common
Stock ("Transfer Agent") and every subsequent Transfer Agent for any shares of
the Company's capital stock issuable upon the exercise of any of the rights of
purchase aforesaid are hereby irrevocably authorized and directed at all times
until the Expiration Date to reserve such number of authorized and unissued
shares as shall be required for such purpose. The Company will keep a copy of
this Agreement on file with the Transfer Agent and with every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by the Warrants. The Company
will supply such Transfer Agent with duly executed stock certificates for such
purposes and will itself provide or otherwise make available any cash which may
be issuable as provided in Section 12 of this Agreement. The Company will
furnish to such Transfer Agent a copy of all notices of adjustments, and
certificates related thereto, transmitted to each Holder pursuant to Section
11.2 of this Agreement. All Warrants surrendered in the exercise of the rights
thereby evidenced shall be cancelled.
10. OBTAINING STOCK EXCHANGE LISTINGS. The Company will from time to time
take all action which may be necessary so that the Warrant Shares, immediately
upon their issuance upon the exercise of Warrants, will be listed on the
securities exchanges and stock markets within the United States of America, if
any, on which other shares of Common Stock are then listed.
11. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES. The number
and kind of securities purchasable upon the exercise of each Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter defined. For purposes of this
Section 11, "Common Stock" means shares now or hereafter authorized of any class
of common stock of the Company and any other stock of the Company, however
designated, that has the right (subject to any prior rights of any class or
series of preferred stock) to participate in any distribution of the assets or
earnings of the Company without limit as to per share amount.
11.1 MECHANICAL ADJUSTMENTS. The number of Warrant Shares purchasable
upon the exercise of each Warrant and the Warrant Price shall be subject to
adjustment as follows:
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(a) In case the Company shall (i) pay a dividend in shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock or (iv) issue by reclassification of its
shares of Common Stock other securities of the Company (including any such
reclassification in connection with a consolidation or merger in which the
Company is the surviving corporation), the number of Warrant Shares purchasable
upon exercise of each warrant immediately prior thereto shall be adjusted so
that the Holder of each Warrant shall be entitled to receive the kind and number
of Warrant Shares or other securities of the Company which he would have owned
or would have been entitled to receive after the happening of any of the events
described above, had such Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. An adjustment
made pursuant to this paragraph (a) shall become effective immediately after the
effective date of such event retroactive to the record date, if any, for such
event. Such adjustment shall be made successively whenever any event listed
above shall occur.
(b) In case the Company shall distribute to all holders of its shares of
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the surviving corporation)
evidences of its indebtedness or assets (excluding cash dividends or
distributions payable out of consolidated earnings or earned surplus and
dividends or distribution referred to in paragraph (a) above or in the paragraph
immediately following this paragraph) or rights, options or warrants, or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, then in each case the number of Warrant Shares
thereafter purchasable upon the exercise of each Warrant shall be determined by
multiplying the number of Warrant Shares theretofore purchasable upon the
exercise of each Warrant by a fraction, the numerator of which shall be the then
current market price per share of Common Stock (as defined in paragraph (c)
below) on the date of such distribution, and the denominator of which shall be
the then current market price per share of Common Stock, less the then fair
value (as reasonably determined by the Board of Directors of the Company) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights, options or warrants, or of such convertible or exchangeable
securities applicable to one share of Common Stock. Such adjustment shall be
made whenever any such distribution is made and shall become effective on the
date of distribution retroactive to the record date for the determination of
stockholders entitled to receive such distribution.
In the event of a distribution by the Company to all holders of its shares
of Common Stock of a subsidiary or securities convertible into or exercisable
for such stock, then in lieu of an adjustment in the number of Warrant Shares
purchasable upon the exercise of each Warrant, the Holder of each Warrant, upon
the exercise thereof at any time after such distribution, shall be entitled to
receive from the Company, such subsidiary or both, as the Company shall
determine, the stock or other securities to which such Holder would have been
entitled if such Holder had exercised such Warrant immediately prior thereto,
all subject to further adjustment as provided in this Section 11.1; provided,
--------
however, that no adjustment in respect of dividends or interest on such stock or
- -------
other securities shall be made during the term of a Warrant or upon the exercise
of a Warrant.
(c) For the purpose of any computation under paragraph (b) of this Section,
the current market price per share of Common Stock at any date shall be the
average of the daily Closing Prices for 20 consecutive trading days commencing
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30 trading days before the date of such computation. The selling price for each
day (the "Closing Price") shall be the last such reported sales price regular
way or, in case no such reported sale takes place on such day, the average of
the closing bid and asked prices regular way for such day, in each on the
principal national securities exchange on which the shares of Common Stock are
listed or admitted to trading or, if not listed or admitted to trading, the
average of the closing bid and asked prices of the Common Stock in the over-the
counter market as reported by the Nasdaq National Market System or Nasdaq
SmallCap System or if not approved for quotation on the Nasdaq National Market
System or Nasdaq SmallCap System, the average of the closing bid and asked
prices as furnished by two members of the National Association of Securities
Dealers, Inc. selected from time to time by the Company for that purpose.
(d) No adjustment in the number of Warrant Shares purchasable hereunder
shall be required unless such adjustment would require an increase or decrease
of at least one percent (1%) in the number of Warrant Shares purchasable upon
the exercise of each Warrant; provided, however, that any adjustments which by
-------- -------
reason of this paragraph (d) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
shall be made to the nearest one-thousandth of a share.
(e) Whenever the number of Warrant Shares purchasable upon the exercise of
each Warrant is adjusted, as herein provided, the Warrant Price payable upon
exercise of each Warrant shall be adjusted by multiplying such Warrant Price
immediately prior to such adjustment by a fraction, the numerator of which shall
be the number of Warrant Shares purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and the denominator of which shall be the
number of Warrant Shares purchasable immediately thereafter.
(f) No adjustment in the number of Warrant Shares purchasable upon the
exercise of each Warrant need be made under paragraph (b) if the Company issues
or distributes to each Holder of Warrants the rights, options, warrants or
convertible or exchangeable securities, or evidences of indebtedness or assets
referred to in those paragraphs which each Holder of Warrants would have been
entitled to receive had the Warrants been exercised prior to the happening of
such event or the record date with respect thereto. No adjustment need be
made for a change in the par value of the Warrant Shares.
(g) In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, the Holders shall become entitled to purchase
any securities of the Company other than shares of Common Stock, thereafter the
number of such other shares so purchasable upon exercise of each Warrant and the
Warrant Price of such shares 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 Warrant Shares contained in this Section 11, and the other
provisions of this Agreement, with respect to the Warrant and Warrant Shares,
shall apply as nearly equivalent as practicable on like terms to such other
securities.
(h) Upon the expiration of any rights, options, warrants or conversion or
exchange privileges for which an adjustment was made hereunder, if any thereof
shall not have been exercised, the Warrant Price and the number of shares of
Common Stock purchasable upon the exercise of each Warrant shall, upon such
expiration, be readjusted and shall thereafter be such as it would have been had
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<PAGE>
it been originally adjusted (or had the original adjustment not been required,
as the case may be) as if (i) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion or exchange rights and (ii) such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company for the issuance, sale
or grant of all such rights, options, warrants or conversion or exchange rights
whether or not exercised; provided, however, that no such readjustment shall
-------- -------
have the effect of increasing the Warrant Price or decreasing the number of
shares of Common Stock purchasable upon the exercise of each Warrant by an
amount in excess of the amount of the adjustment initially made in respect to
the issuance, sale or grant of such rights, options, warrants or conversion or
exchange rights.
11.2 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares
purchasable upon the exercise of each Warrant or the Warrant Price of such
Warrant Shares is adjusted, as herein provided, the Company shall promptly mail
by first class, postage prepaid, to each Holder notice of such adjustment or
adjustments and a certificate of a firm of independent public accountants
selected by the Board of Directors of the Company (who may be the regular
accountants employed by the Company) setting forth the number of Warrant Shares
purchasable upon the exercise of each Warrant and the Warrant Price of such
Warrant Shares after such adjustment, setting forth a brief statement of the
facts requiring such adjustment and setting forth the computation by which such
adjustment was made.
11.3 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in Section 11.1, no
adjustments in respect of any dividends shall be made during the term of a
Warrant or upon the exercise of a Warrant.
11.4 PRESERVATION OF PURCHASE RIGHTS UPON MERGER, CONSOLIDATION ETC. In
case of any consolidation of the Company with or merger of the Company into
another corporation or in case of any sale, transfer or lease to another
corporation of all or substantially all the property of the Company, the Company
or such successor or purchasing corporation, as the case may be, shall execute
with each Holder an agreement that each Holder shall have the right thereafter
upon payment of the Warrant Price in effect immediately prior to such action to
purchase upon exercise of each Warrant the kind and amount of shares and other
securities, cash and property which he would have owned or would have been
entitled to receive after the happening of such consolidation, merger, sale,
transfer or lease had such Warrant been exercised immediately prior to such
action; provided, however, that no adjustment in respect of dividends, interest
-------- -------
or other income on or from such shares or other securities, cash and property
shall be made during the term of a Warrant or upon the exercise of a Warrant.
Such agreement shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
11. The provisions of this Section 11.4 shall similarly apply to successive
consolidations, mergers, sales transfer or leases.
11.5 STATEMENTS ON WARRANTS. Irrespective of any adjustments in the
Warrant Price or the number or kind of shares purchasable upon the exercise of
the Warrants, Warrants theretofore or thereafter issued may continue to express
the same price and number and kind of shares as are stated in the Warrants
initially issuable pursuant to this Agreement.
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<PAGE>
11.6 OPTIONAL CONVERSION.
(a) In addition to and without limiting the rights of the Holders of the
Warrants under the terms of this Agreement and the Warrants, the holder of the
Warrants shall have the right (the "Conversion Right") to convert the Warrants
or any portion thereof into shares of Common Stock as provided in this Section
11.6 at any time or from time to time after the first anniversary of the date
hereof and prior to its expiration, subject to the restrictions set forth in
paragraph (c) below. Upon exercise of the Conversion Right with respect to a
particular number of shares subject to the Warrants (the "Converted Warrant
Shares"), the Company shall deliver to the Holder of the Warrants, without
payment by the Holder of any exercise price or any cash or other consideration,
the number of shares of Common Stock equal to the quotient obtained by dividing
the Net Value (as hereinafter defined) of the Converted Warrant Shares by the
fair market value (as defined in paragraph (d) below) of a single share of
Common Stock, determined in each case as of the close of business on the
Conversion Date (as hereinafter defined). The "Net Value" of the Converted
Warrant Shares shall be determined by subtraction of the aggregate warrant
purchase price of the Converted Warrant Shares (which aggregate warrant purchase
price includes the consideration actually received by the Company upon such
exercise plus the aggregate consideration, if any, actually received by the
Company for the issuance of the Warrants) from the aggregate fair market value
of the Converted Warrant Shares. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued in
accordance with the foregoing formula is other than a whole number, the Company
shall pay to the Holder of the Warrants an amount in cash equal to the fair
market value of the resulting fractional share.
(b) The Conversion Right may be exercised by the Holder of the Warrants by
the surrender of such Warrants at the principal office of the Company together
with a written statement specifying that the holder thereby intends to exercise
the Conversion Right and indicating the number of shares subject to the Warrants
which are being surrendered (referred to in paragraph (a) above as the Converted
Warrant Shares) in exercise of the Conversion Right. Such conversion shall be
effective upon receipt by the Company of the Warrants together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), not later than the expiration date of the Warrants.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right together with a check in payment of any fractional share and,
in the case of a partial exercise, new warrants evidencing the shares remaining
subject to the Warrants, shall be issued as of the Conversion Date and shall be
delivered to the holder of the Warrants within 7 days following the Conversion
Date.
(c) In the event the Conversion Right would, at any time the Warrants
remain outstanding, be deemed by the Company's independent certified public
accountants to give rise to a charge to the Company's earnings for financial
reporting purposes, then the Conversion Right shall automatically terminate upon
receipt by the holder of this Warrant of an opinion of such independent
certified public accountant as to such adverse accounting treatment.
(d) For purposes of this paragraph 11.6, the "fair market value" of a share
of Common Stock as of a particular date shall be its "current market price,"
calculated as described in paragraph 11.1(c) hereof.
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12. FRACTIONAL INTERESTS. The Company shall not be required to issue
fractional Warrant Shares on the exercise of Warrants. If more than one Warrant
shall be presented for exercise in full at the sale time by the same holder, the
number of full Warrant Shares which shall be issuable upon the exercise thereon
shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of the Warrants so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12 be issuable on
the exercise of any Warrant (or specified portion thereof), the Company shall
pay an amount in cash equal to the closing price for one share of the Common
Stock, as defined in Section 11.1(c), on the trading day immediately preceding
the date the Warrant is presented for exercise, multiplied by such faction.
13. REGISTRATION UNDER THE SECURITIES ACT OF 1933. Cruttenden represents
and warrants to the Company that it will not dispose of the Warrants or the
Warrant Shares except pursuant to (i) an effective registration statement under
the Securities Act of 1933, as amended (the "Act"), including a post-effective
amendment to the Registration Statement, (ii) Rule 144 under the Act (or any
similar rule under the Act relating to the disposition of securities), or (iii)
an opinion of counsel, reasonably satisfactory to counsel of the Company, that
an exemption from such registration is available.
14. CERTIFICATES TO BEAR LEGENDS. The Warrant, the Warrant Shares or other
securities issued upon exercise of the Warrant shall be subject to a stop-
transfer order and the certificate or certificates therefore shall bear the
following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAW. SAID SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT.
15. REGISTRATION RIGHTS.
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15.1 Demand Registration Rights. The Company covenants and agrees with
--------------------------
Cruttenden and any subsequent Holders of the Warrants and/or Warrant Shares
that, on one occasion, within 60 days after receipt of a written request from
Cruttenden or from Holders of more than 25% in interest of the aggregate of
Warrants and/or Warrant Shares issued pursuant to this Agreement that Cruttenden
or such Holders of the Warrants and/or Warrant Shares desires and intends to
transfer more than 25% in interest of the aggregate number of the Warrants
and/or Warrant Shares under such circumstances that a public offering, within
the meaning of the Act, will be involved, the Company shall, on that one
occasion, file a registration statement (and use its best efforts to cause such
registration statement to become effective under the Act at the Company's
expense) with respect to the offering and sale or other disposition of the
Warrant Shares (the "Offered Warrant Shares"); provided, however, that the
-------- -------
Company shall have no obligation to comply with the foregoing provisions of this
Section 15.1 if in the opinion of counsel to the Company reasonably acceptable
to the Holder or Holders, from whom such written requests have been received,
registration under the Act is not required for the transfer of the Offered
Warrant Shares in the manner proposed by such person or persons or that a post-
effective amendment to an existing registration statement would be legally
sufficient for such transfer (in which latter event the Company shall promptly
file such post-effective amendment (and use its best efforts to cause such
amendment to become effective under the Act)). Notwithstanding the foregoing,
the Company shall not be obligated to file a registration statement with respect
to the Offered Warrant Shares on more than one occasion.
The Company may defer the preparation and filing of a registration
statement for up to 90 days after the request for registration is made if the
Board of Directors determines in good faith that such registration or post-
effective amendment would materially adversely affect or otherwise materially
interfere with a proposed or pending transaction by the Company, including
without limitation a material financing or a corporate reorganization, or during
any period of time in which the Company is in possession of material inside
information concerning the Company or its securities, which information the
Company determines in good faith is not ripe for disclosure.
The Company shall not honor any request to register Warrant Shares pursuant
to this Section 15.1 received later than five (5) years from the effective date
of the Company's Registration Statement on Form SB-2 (File No. 333-__) (the
"Effective Date"). The Company shall not be required (i) to maintain the
effectiveness of the registration statement beyond the earlier to occur of 90
days after the effective date of the registration statement or the date on which
all of the Offered Warrant Shares have been sold (the "Termination Date");
provided, however, that if at the Termination Date the Offered Warrant Shares
- -------- -------
are covered by a registration statement which also covers other securities and
which is required to remain in effect beyond the Termination Date, the Company
shall maintain in effect such registration statement as it relates to Offered
Warrant Shares for so long as such registration statement (or any substitute
registration statement) remains or is required to remain in effect for any such
other securities, or (ii) to cause any registration statement with respect to
the Warrant Shares to become effective prior to the Initiation Date. All
expenses of registration pursuant to this Section 15.1 shall be borne by the
Company (excluding underwriting discounts and commissions on Warrant Shares not
sold by the Company).
The Company shall be obligated pursuant to this Section 15.1 to include in
the registration statement Warrant Shares that have not yet been purchased by a
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Holder of Warrants so long as such Holder of Warrants submits an undertaking to
the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such registration statement prior to
the consummation of the public offering with respect to such Warrant Shares. In
addition, such Holder of Warrants is permitted to pay the Company the Warrant
Price for such Warrant Shares upon the consummation of the public offering with
respect to such Warrant Shares.
15.2 Piggy-back Registration Rights. The Company covenants and agrees with
------------------------------
the Holders and any subsequent Holders of the Warrants and/or Warrant Shares
that in the event the Company proposes to file a registration statement under
the Act with respect to any class of security (other than in connection with an
exchange offer, a non-cash offer or a registration statement on Form S-8 or
other unsuitable registration statement form) which becomes or which the Company
believes will become effective at any time after the Initiation Date then the
Company shall in each case give written notice of such proposed filing to the
Holders of Warrants and Warrant Shares at least 30 days before the proposed
filing date and such notice shall offer to such Holders the opportunity to
include in such registration statement such number of Warrant Shares as they may
request, unless, in the opinion of counsel to the Company reasonably acceptable
to any such Holder of Warrants or Warrant Shares who wishes to have Warrant
Shares included in such registration statement, registration under the Act is
not required for the transfer of such Warrants and/or Warrant Shares in the
manner proposed by such Holders. The Company shall not honor any such request to
register any such Warrant Shares if the request is received later than six (6)
years from the Effective Date, and the Company shall not be required to honor
any request (a) to register any such Warrant Shares if the Company is not
notified in writing of any such request pursuant to this Section 15.2 within at
least 20 days after the Company has given notice to the Holders of the filing,
or (b) to register Warrant Shares that represent in the aggregate fewer than 25%
of the aggregate number of Warrant Shares. The Company shall permit, or shall
cause the managing underwriter of a proposed offering to permit, the Holders of
Warrant Shares requested to be included in the registration (the "Piggy-back
Shares") to include such Piggy-back Shares in the proposed offering on the same
terms and conditions as applicable to securities of the Company included therein
or as applicable to securities of any person other than the Company and the
Holders of Piggy-back Shares if the securities of any such person are included
therein. Notwithstanding the foregoing, if any such managing underwriter shall
advise the Company in writing that it believes that the distribution of all or a
portion of the Piggy-back Shares requested to be included in the registration
statement concurrently with the securities being registered by the Company would
materially adversely affect the distribution of such securities by the Company
for its own account, then the Holders of such Piggy-back Shares shall delay
their offering and sale of Piggyback Shares (or the portion thereof so
designated by such managing underwriter) for such period, not to exceed 120
days, as the managing underwriter shall request provided that no such delay
shall be required as to Piggy-back Shares if any securities of the Company are
included in such registration statement for the account of any person other than
the Company and the Holders of Piggy-back Shares. In the event of such delay,
the Company shall file such supplements, post-effective amendments or separate
registration statement, and take any such other steps as may be necessary to
permit such Holders to make their proposed offering and sale for a period of 90
days immediately following the end of such period of delay ("Piggy-back
Termination Date"); provided, however, that if at the Piggy-back Termination
-------- -------
Date the Piggyback Shares are covered by a registration statement which is, or
required to remain, in effect beyond the Piggy-back Termination Date, the
Company shall maintain in effect the registration statement as it relates to the
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Piggy-back Shares for so long as such registration statement remains or is
required to remain in effect for any of such other securities. All expenses of
registration pursuant to this Section 15.2 shall be borne by the Company, except
that underwriting commissions and expenses attributable to the Piggy-back Shares
and fees and disbursements of counsel (if any) to the Holders requesting that
such Piggy-back Shares be offered will be borne by such Holders.
The Company shall be obligated pursuant to this Section 15.2 to include in
the Piggy-back Offering, Warrant Shares that have not yet been purchased by a
holder of Warrants so long as such Holder of Warrants submits an undertaking to
the Company that such Holder intends to exercise Warrants representing the
number of Warrant Shares to be included in such Piggy-back Offering prior to the
consummation of such Piggy-back Offering. In addition, such Holder of Warrants
is permitted to pay the Company the Warrant Price for such Warrant Shares upon
the consummation of the Piggy-back Offering.
If the Company decides not to proceed with a Piggy-back Offering, the
Company has no obligation to proceed with the offering of the Piggy-back Shares,
unless the Holders of the Warrants and/or Warrant Shares otherwise comply with
the provisions of Section 15.1 hereof (without regard to the 60 days' written
request required thereby). Notwithstanding any of the foregoing contained in
this Section 15.2, the Company's obligation to offer registration rights to the
Piggy-back Shares pursuant to this Section 15.2 shall terminate two (2) years
after the Expiration Date.
15.3 In connection with the registration of Warrant Shares in accordance
with Section 15.1 and 15.2 above, the Company agrees to:
(a) Use its best efforts to register or qualify the Warrant Shares for
offer or sale under the state securities or Blue Sky laws of such states
which the Holders of such Warrant Shares shall designate, until the dates
specified in Section 15.1 and 15.2 above in connection with registration
under the Act; provided, however, that in no event shall the Company be
-------- -------
obligated to qualify to do business in any jurisdiction where it is not now
so qualified or to take any action which would subject it to general
service of process in any jurisdiction where it is not now so subject or to
register or get a license as a broker or dealer in securities in any
jurisdiction where it is not so registered or licensed or to register or
qualify the Warrant Shares for offer or sale under the state securities or
Blue Sky laws of any state other than the states in which some or all of
the shares offered or sold in the Public Offering were registered or
qualified for offer and sale.
(b) (i) In the event of any post-effective amendment or other
registration with respect to any Warrant Shares pursuant to Section 15.1 or
15.2 above, the Company will indemnify and hold harmless any Holder whose
Warrant Shares are being so registered, and each person, if any, who
controls such Holder within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which such Holder or
such controlling person may be 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, on the effective date
thereof, in any such registration statement, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto,
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<PAGE>
or arise out of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each such Holder
and each such controlling person for any legal or other expenses reasonably
incurred by such Holder or such controlling person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in such case
-------- -------
to the extent that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in any such registration statement, any
preliminary prospectus or final prospectus, or any amendment or supplement
thereto, in reliance upon and in conformity with written information
furnished by such Holder expressly for use in the preparation thereof. The
Company will not be liable to a claimant to the extent of any misstatement
corrected or remedied in any amended prospectus if the Company timely
delivers a copy of such amended prospectus to such indemnified person and
such indemnified person does not timely furnish such amended prospectus to
such claimant. The Company shall not be required to indemnify any Holder or
controlling person for any payment made to any claimant in settlement of
any suit or claim unless such payment is approved by the Company.
(ii) Each Holder of Warrants and/or Warrant Shares who
participates in a registration pursuant to Section 15.1 or 15.2 will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed any such registration statement, and each person,
if any, who controls the Company within the meaning of the Act, against any
losses, claims, damages or liabilities to which the Company, or any such
director, 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 or
alleged untrue statement or any material fact contained in any such
registration statement, any preliminary prospectus or final 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 any such registration statement, any preliminary
prospectus or final prospectus, or any amendment or supplement thereto, in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in the preparation thereof; and will reimburse any
legal or other expenses reasonably incurred by the Company, or any such
director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
--------
however, that the indemnity agreement contained in this subparagraph (ii)
--------
shall not apply to amounts paid to any claimant in settlement of any suit
or claim unless such payment is first approved by such Holder.
(iii) In order to provide for just and equitable contribution in
any action in which a claim for indemnification is made pursuant to this
clause (b)(iii) of Section 15.3 but 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 this clause (b)(iii) of Section 15.3 provides for
13
<PAGE>
indemnification in such case, all the parties hereto shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that each
Holder whose Warrant Shares are being registered is responsible pro rata
for the portion represented by the public offering price received by such
Holder from the sale of such Holder's Warrant Shares, and the Company is
responsible for the remaining portion; provided, however, that (i) no
-------- -------
Holder shall be required to contribute any amount in excess of the public
offering price received by such Holder from the sale of such Holder's
Warrant Shares and (ii) 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. This subsection (b)(iii) shall not be operative as to
any Holder of Warrant Shares to the extent that the Company has received
indemnity under this clause (b)(iii) of Section 15.3.
16. NO RIGHTS AS STOCKHOLDER; NOTICES TO HOLDERS. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring upon
the Holders or their transferee(s) the right to vote or to receive dividends or
to consent to or receive notice as stockholders in respect of any meeting of
stockholders for the election of directors of the Company or any other matter or
any rights whatsoever as stockholders of the Company. If, however, at any time
prior to the expiration of the Warrants and prior to their exercise, any of the
following events occur:
(a) the Company shall declare any dividend payable in any securities
upon its shares of Common Stock or make any distribution (other than a cash
dividend) to the holders of its shares of Common Stock: or
(b) the Company shall offer to the holders of its shares of Common
Stock any additional shares of Common Stock or securities convertible into
or exchangeable for shares of Common Stock or any right to subscribe to or
purchase any thereof; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation, merger, sale, transfer or lease of
all or substantially all of its property, assets and business as an
entirety) shall be proposed,
then in any one or more of said events the Company shall (i) give notice in
writing of such event to the Holders, as provided in Section 17 hereof and (ii)
if there are more than 100 Holders, cause notice of such event to be published
once in The Wall Street Journal (national edition), such giving of notice and
publication to be completed at least 20 days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution or subscription rights, or
for the determination of stockholders entitled to vote on such proposed
dissolution, liquidation or winding up. Such notice shall specify such record
date or the date of closing the transfer books, as the case may be. Failure to
publish, mail or receive such notice or any defect therein or in the publication
or mailing thereof shall not affect the validity of any action taken in
connection with such dividend, distribution or subscription rights, or such
proposed dissolution, liquidation or winding up.
17. NOTICES. Any notice pursuant to this Agreement to be given or made by
14
<PAGE>
the registered Holder of any Warrant to the Company shall be sufficiently given
or made if sent by first-class mail or facsimile to:
CPS Systems, Inc.
3400 Carlisle, Suite 500
Dallas, TX 95204
Attn: President
Fax: 214-770-1380
Notices or demands authorized by this Agreement to be given or made by the
Company to the registered Holder of any Warrant shall be sufficiently given or
made (except as otherwise provided in this Agreement) if sent by first-class
mail to such Holder at the address of such Holder as shown on the Warrant
Register.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
principles of conflicts of laws.
19. SUPPLEMENTS AND AMENDMENTS. The Company and Cruttenden may from time
to time supplement or amend this Agreement in order to cure any ambiguity or to
correct or supplement any provision contained herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and Cruttenden may deem necessary or desirable and which shall not be
inconsistent with the provisions of the Warrants and which shall not adversely
affect the interests of the Holders. This Agreement may also be supplemented or
amended from time to time by a writing executed by or on behalf of the Company
and all of the Holders.
20. SUCCESSOR. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns hereunder. Assignments by
the Holders of their rights hereunder shall be made in accordance with Section 4
hereof.
21. MERGER OR CONSOLIDATION OF THE COMPANY. So long as Warrants remain
outstanding, the Company will not merge or consolidate with or into, or sell,
transfer or lease all or substantially all of its property to, any other
corporation unless the successor or purchasing corporation, as the case may be
(if not the Company), shall expressly assume, by supplemental agreement executed
and delivered to the Holders, the due and punctual performance and observance of
each and every covenant and condition of this Agreement to be performed and
observed by the Company.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Holders, any legal or equitable right, remedy or claim under this Agreement, but
this Agreement shall be for the sole and exclusive benefit of the Company any
the Holders of the Warrants and Warrant Shares.
23. CAPTIONS. The captions of the sections and subsections of this
Agreement have been reserved for convenience only and shall have no substantive
effect.
15
<PAGE>
24. COUNTERPARTS. This Agreement may be executed in any number of
counterparts each of which when so executed shall be deemed to be an original;
but such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
CRUTTENDEN ROTH INCORPORATED
Attest:
By:
- ---------------------------- ---------------------------------
Name:
Title:
CPS SYSTEMS, INC.
Attest:
By:
- ---------------------------- ---------------------------------
Name:
Title:
16
<PAGE>
EXHIBIT A
[Form of Warrant Certificate]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. SAID
SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT
WARRANT CERTIFICATE
OF
CPS SYSTEMS, INC.
EXERCISABLE ON OR BEFORE DECEMBER , 2002
No. ___ _________ Warrants
This Warrant Certificate certifies that the registered holder hereof or its
registered assigns, is the registered holder of Warrants expiring December __,
2002 (the "Warrants") to purchase Common Stock, $0.01 par value per share (the
"Common Stock"), of CPS Systems, Inc., a Texas corporation (the "Company").
Each Warrant entitles the holder upon exercise to receive from the Company from
10:00 a.m., Pacific time, on December __, 1998 through and until 6:00 p.m.,
Pacific time, on December __, 2002, one fully paid and nonassessable share of
Common Stock (a "Warrant Share") at the initial exercise price (the "Warrant
Price") of $_____ payable in lawful money of the United States of America upon
surrender of this Warrant Certificate and payment of the Warrant Price at the
conditions set forth herein and in the Warrant Agreement referred to on the
reverse hereof. The Warrant Price and number of Warrant Shares issuable upon
exercise of the Warrants are subject to adjustment upon the occurrence of
certain events set forth in the Warrant Agreement.
No Warrant may be exercised after 6:00 p.m., Pacific Time, on December __,
2002 (the "Expiration Date"). Notwithstanding the foregoing, if at 6:00 p.m.,
Pacific time on the Expiration Date, any Holder or Holders of the Warrants have
not exercised their Warrants and the Closing Price (as defined in the Warrant
Agreement) for the Common Stock on the Expiration Date is greater than the
Warrant Price, then each such unexercised Warrant shall be automatically
converted into a number of shares of Common Stock of the Company equal to: (A)
the number of shares of Common Stock then issuable upon exercise of a Warrant
multiplied by (B) a fraction (1) the numerator of which is the difference
between the Closing Price for the Common Stock on the Expiration Date and the
Warrant Price and (2) the denominator of which is the Closing Price for the
Warrant Stock on the Expiration Date.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this price.
17
<PAGE>
This Warrant Certificate shall not be valid unless countersigned by the
Company.
IN WITNESS WHEREOF, CPS Systems, Inc. has caused this Warrant Certificate
to be signed by its President and by its Chief Financial Officer and has caused
its corporate seal to be affixed hereunto or imprinted hereon.
Dated: December __, 1997 CPS SYSTEMS, INC.
------------------------------------
Ken Hoofard
President
------------------------------------
Chief Financial Officer
18
<PAGE>
[Form of Warrant Certificate]
[Reverse]
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring December __, 2002 entitling the holder on
exercise to receive shares of Common Stock, $0.001 par value per share, of the
Company (the "Common Stock"), and are issued or to be issued pursuant to a
Warrant Agreement, dated as of December __, 1997 (the "Warrant Agreement"), duly
executed and delivered by the Company, which Warrant Agreement is hereby
incorporated by reference in and made a part of this instrument and is hereby
referred to for a description of the rights, limitation of rights, obligations,
duties and immunities thereunder of the Company and the holders (the words
"holders" or "holder" meaning the registered holders or registered holder) of
the Warrants. A copy of the Warrant Agreement may be obtained by the holder
hereof upon written request to the Company.
The Warrants may be exercised at any time on or before December __, 2002.
The holder of Warrants evidenced by this Warrant Certificate may exercise them
by surrendering this Warrant Certificate, with the form of election to purchase
set forth hereon properly completed and executed, together with payment of the
Warrant Price at the office of the Company designated for such purpose. In the
event that upon any exercise of Warrants evidenced hereby the number of Warrants
exercised shall be less than the total number of Warrants evidenced hereby,
there shall be issued to the holder hereof or his assignee a new Warrant
Certificate evidencing the number of Warrants not exercised. No adjustment
shall be made for any dividends on any Common Stock issuable upon exercise of
this Warrant.
The Warrant Agreement provides that upon the occurrence of certain events
the number of shares of Common Stock issuable upon the exercise of each Warrant
shall be adjusted. If the number of shares of Common Stock issuable upon such
exercise is adjusted, the Warrant Agreement provides that the Warrant Price set
forth on the face hereof may, subject to certain conditions, be adjusted. No
fractions of a share of Common Stock will be issued upon the exercise of any
Warrants but the Company will pay the cash value thereof determined as provided
in the Warrant Agreement. The Warrant Agreement also provides that, while the
Warrants are exercisable, the holders of the Warrants shall have an optional
conversion right to convert, without payment of any exercise price or any cash
or other consideration by such holders, the Warrants or any portion thereof into
a number of shares of Common Stock as specified in the Warrant Agreement.
The holders of the Warrants are entitled to certain registration rights
with respect to the Common Stock purchasable upon exercise thereof. Said
registration rights are set forth in full in the Warrant Agreement.
Warrant Certificates, when surrendered at the office of the Company by the
registered holder thereof in person or by legal representative or attorney duly
authorized in writing, may be exchanged, in the manner and subject to the
limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant certificate of Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
19
<PAGE>
Upon due presentation for registration of transfer of this Warrant
Certificate at the office of the Company, a new Warrant certificate or Warrant
certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to other transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
The Company may deem and treat the registered holder(s) thereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, of any distribution to the holder(s) hereof and for all other
purposes, and the Company shall not be affected by any notice to the contrary.
Neither the Warrants nor this Warrant Certificate entitles any holder hereof to
any rights of a stockholder of the Company.
20
<PAGE>
(Form of Election to Purchase)
(To be Executed upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to receive ____________ shares of
Common Stock and herewith tenders payment for such shares in accordance with the
terms of the Warrant Agreement. The undersigned requests that a certificate for
such shares be registered in the name of _____________________________, whose
address is ______________________________________ and that such shares be
delivered to _______________________ whose address is ________________________
________________________________________. If said number of shares is less than
all of the shares of Common Stock purchasable hereunder, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
such shares be registered in the name of ________________________, whose address
is _______________________, and that such Warrant Certificate be delivered to
_______________________, whose address is _________________________________.
Signature:
Date:
Signature Guaranteed:
21
<PAGE>
(Form of Assignment)
(To be Executed upon Assignment of Warrants)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
(Name and Address of Assignee Must Be Printed or Typewritten)
___________________________________
___________________________________
___________________________________
the within Warrants, hereby irrevocably constituting and appointing
________________ Attorney to transfer said Warrants on the books of the Company,
with full power of substitution in the premises.
Dated: ___________________ _________________________________
Signature of Registered Holder
Note: The signature on this assignment must correspond with the name as it
appears upon the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatever.
Signature Guaranteed: __________________________
(Signature must be guaranteed by a bank or trust company having an office or
correspondent in the United States or by a member firm of a registered
securities exchange or the National Association of Securities Dealers, Inc.)
22
<PAGE>
[STATE OF TEXAS SEAL APPEARS HERE]
THE STATE OF TEXAS
Secretary of State
CERTIFICATE OF RESTATED ARTICLES
OF INCORPORATION
OF
CPS SYSTEMS, INC.
CHARTER NO. 441398-0
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Restated Articles of Incorporation for the above named corporation have
been received in this office and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Restated Articles of Incorporation.
Dated: October 28, 1997
Effective: October 28, 1997
[STATE OF TEXAS SEAL APPEARS HERE]
/s/ Antonio O. Garza, Jr.
-------------------------
Antonio O. Garza, Jr.
Secretary of State pac
<PAGE>
RESTATED ARTICLES OF INCORPORATION
----------------------------------
of
--
CPS SYSTEMS, INC.
-----------------
ARTICLE I
---------
CPS Systems, Inc., pursuant to the provisions of Article 4.07 of the Texas
Business Corporation Act, hereby adopts Restated Articles of Incorporation which
accurately copy the Articles of Incorporation and all amendments thereto that
are in effect to date and as further amended by such Restated Articles of
Incorporation as hereinafter set forth and which contain no other change in any
provision thereof.
ARTICLE II
----------
The Articles of Incorporation of the Corporation are amended by the Restated
Articles of Incorporation as follows:
(a) The language in Article IV is deleted and replaced with the
following:
ARTICLE IV
-----------
Section 4.1
-----------
The total number of shares of stock which the Corporation has authority
to issue is Sixty Million (60,000,000) shares of capital stock, Fifty
Million (50,000,000) of which shall be designated as common stock with the
par value of one cent ($.01) each, Ten Million (10,000,000) of which shall
be designated as preferred stock with a par value of one cent ($.01) each.
Section 4.2
-----------
All shares of common stock shall have rights identical to those of all
other such shares. Shares of common stock shall have unlimited voting
<PAGE>
rights and shall be entitled to receive the net assets of the Corporation
upon liquidation or dissolution.
Section 4.3
-----------
Preferred stock may be issued in one or more series. The Board of
Directors is hereby authorized to issue the shares of preferred stock in such
series and to fix from time to time before issuance the number of shares to be
included in any such series to determine the designations, preferences,
limitations and relative rights, including voting rights, of all shares of
such series. The authority of the Board of Directors with respect to each such
series will include, without limiting the generality of the foregoing, the
determination of any or all of the following:
(a) The number of shares of any series and the designation to
distinguish the shares of such series from the shares of all
other series;
(b) The voting powers, if any, and whether such voting powers are
full or limited in such series;
(c) The redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(d) Whether dividends, if any, will be cumulative or noncumulative,
the dividend rate of such series, and the dates and preferences
of dividends of such series;
(e) The rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the
Corporation;
<PAGE>
(f) The provisions, if any, pursuant to which the shares of such
series are convertible into, or exchangeable for, shares of any
other class or classes of any other series of the same or any
other class or classes of stock, or any other security, of the
Corporation or any other corporation or other entity, and the
price or prices of the rates of exchange applicable thereto;
(g) The right, if any, to subscribe for or to purchase any securities
of the Corporation or any other corporation or other entity;
(h) The provisions, if any, of a sinking fund applicable to such
series; and
(i) Any other relative, participating, optional or other special
powers, preferences, rights, qualifications, limitations or
restrictions thereof.
(b) The language in Article VII is deleted and replaced with the following:
ARTICLE VII
-----------
Directors
---------
The names of the current Directors of the Corporation are:
Paul E. Kana
Sidney H. Cordier
Brian R. Wilson
G. Dean Booth, Jr.
James K. Hoofard, Jr.
<PAGE>
The address of each of the Directors is 3400 Carlisle Street, Suite 500,
Dallas, Texas 75204.
(c) The language in Article VIII is deleted and hereby replaced with the
following:
ARTICLE VIII
------------
Election of Directors
---------------------
Subject to the rights of the holders of any series of preferred stock to elect
additional Directors, the number of the Directors of the Corporation shall be
fixed from time to time by or pursuant to the Bylaws of the Corporation. The
Directors shall be classified with respect to the time for which they severally
hold office into three classes, as nearly equal in number as possible. At each
annual meeting of the shareholders of the Corporation, the successors of the
class of Directors whose term expires at that meeting shall be elected by
plurality vote of all shares cast at such meeting to hold office for a term
expiring at the annual meeting of shareholders held in the third year following
the year of their election.
Advance notice of shareholder nominations for the election of Directors and
advance notice of business to be brought by shareholders before an annual
meeting shall be given in a manner provided in the Bylaws of the
Corporation.
(d) The language in Article XII is deleted and hereby replaced with the
following:
ARTICLE XII
-----------
Indemnification
---------------
Each person who is or was a Director or officer of the Corporation, or each
such person who is or was serving at the request of the Board of Directors or an
officer of the Corporation as a Director, officer, partner, venturer,
<PAGE>
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust or other
enterprise or employee benefit plan (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the Corporation
to the fullest extent that a corporation is required or permitted to grant
indemnification to such person under the Texas Business Corporation Act and the
Texas Miscellaneous Corporation Act as the same may exist or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment) or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter into one or
more agreements with any person which provide for indemnification greater or
different than that provided in this Article to the extent provided by
applicable laws. Any amendment or repeal of this Article shall not adversely
affect any right or protection existing hereunder immediately prior to such
amendment or repeal.
(e) The language in Article XIII is deleted and hereby replaced with
the following:
ARTICLE XIII
------------
Liability of Directors
----------------------
To the full extent permitted by the Texas Business Corporation Act or any
other applicable laws presently or hereafter in effect, no Director of the
Corporation shall be personally liable to the Corporation or its shareholders
for or with respect to any acts or omissions in the performance of his or her
<PAGE>
duties as a Director of the Corporation. Any repeal or modification of this
Article shall not adversely affect any right or protection of a Director of the
Corporation existing immediately prior to such repeal or modification.
(f) The following amendment is an addition to the Articles of
Incorporation and the full text of this provision is added as follows:
ARTICLE XIV
-----------
Special Meetings of Shareholders
--------------------------------
Special meetings of the shareholders, unless otherwise prescribed by
statute, may be called by the chairman of the board, president or the Board of
Directors or by the holders of at least fifty percent of all shares entitled to
vote at the meeting.
ARTICLE III
-----------
Each such amendment made by these Restated Articles of Incorporation has been
effected in conformity with the provisions of the Texas Business Corporation Act
and such Restated Articles of Incorporation and each such amendment made by the
Restated Articles of Incorporation were duly adopted by the shareholders of the
Corporation on the 28th day of October, 1997.
ARTICLE IV
----------
The number of shares outstanding was Ten Thousand (10,000), and the number of
shares entitled to vote on the Restated Articles of Incorporation as so amended
was Ten Thousand (10,000), the holders of all of which have signed a written
consent to the adoption of such Restated Articles of Incorporation as so
amended.
<PAGE>
ARTICLE V
---------
The manner in which any exchange, reclassification or cancellation of issued
shares provided for in this Amendment shall be effected is as follows:
Upon the filing of these Amended and Restated Articles of Incorporation with
the Secretary of State of the State of Texas, each then issued and
outstanding share of the Corporation's stock shall continue to be designated
as common stock. Each holder of the Corporation's existing stock shall
automatically receive, without any action on the part of the respective
holders thereof, an additional 403.0077569 shares of common stock for each
share of stock held at the time of this amendment.
ARTICLE VI
----------
The manner in which such amendment effects a change in the amount of stated
capital, and the amount of stated capital has changed by such amendment, are as
follows:
Upon the filing of these Amended and Restated Articles of Incorporation with
the Secretary of State of the State of Texas, the stated capital of the
Corporation shall be increased from One Hundred and No/100ths Dollars
($100.00) to Forty Thousand Four Hundred and 78/100ths Dollars ($40,400.78)
to reflect the Corporation's recapitalization by stock split.
ARTICLE VII
-----------
The Articles of Incorporation and all amendments and supplements thereto are
hereby superseded by the following Restated Articles of Incorporation which
accurately copy the entire text thereof and as amended as set forth:
<PAGE>
ARTICLES OF INCORPORATION OF
----------------------------
CPS SYSTEMS, INC.
-----------------
ARTICLE I
---------
Name
----
The name of the Corporation is CPS Systems, Inc.
ARTICLE II
----------
Duration
--------
The period of its duration is perpetual.
ARTICLE III
-----------
Purpose
-------
The purposes for which this Corporation is organized are, subject to the
provisions of part four of the Texas Miscellaneous Corporation Laws Act, as
follows:
1. To engage in the business of furnishing computer programming
services and all related businesses;
2. To engage in any lawful business which may be incorporated under
the Texas Business Corporation Act.
The foregoing shall be construed as objects, purposes and powers and the
enumeration thereof shall not be held to limit or restrict in any manner the
powers now or hereafter conferred on this Corporation by the laws of the State
of Texas.
<PAGE>
ARTICLE IV
----------
Capitalization
--------------
Section 4.1
-----------
The total number of shares of stock which the Corporation has authority to
issue is Sixty Million (60,000,000) shares of capital stock, Fifty Million
(50,000,000) of which shall be designated as common stock with the par value of
one cent ($.01) each, Ten Million (10,000,000) of which shall be designated as
preferred stock with a par value of one cent ($.01) each.
Section 4.2
-----------
All shares of common stock shall have rights identical to those of all
other such shares. Shares of common stock shall have unlimited voting rights and
shall be entitled to receive the net assets of the Corporation upon liquidation
or dissolution.
Section 4.3
-----------
Preferred stock may be issued in one or more series. The Board of Directors
is hereby authorized to issue the shares of preferred stock in such series and
to fix from time to time before issuance the number of shares to be included in
any such series to determine the designations, preferences, limitations and
relative rights, including voting rights, of all shares of such series. The
authority of the Board of Directors with respect to each such series will
include, without limiting the generality of the foregoing, the determination of
any or all of the following:
(a) The number of shares of any series and the designation to distinguish
the shares of such series from the shares of all other series;
<PAGE>
(b) The voting powers, if any, and whether such voting powers are full or
limited in such series;
(c) The redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(d) Whether dividends, if any, will be cumulative or noncumulative, the
dividend rate of such series, and the dates and preferences of
dividends of such series;
(e) The rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the
Corporation;
(f) The provisions, if any, pursuant to which the shares of such series
are convertible into, or exchangeable for, shares of any other class
or classes of any other series of the same or any other class or
classes of stock, or any other security, of the Corporation or any
other corporation or other entity, and the price or prices of the
rates of exchange applicable thereto;
(g) The right, if any, to subscribe for or to purchase any securities of
the Corporation or any other corporation or other entity;
(h) The provisions, if any, of a sinking fund applicable to such series;
and
(i) Any other relative, participating, optional or other special powers,
preferences, rights, qualifications, limitations or restrictions
thereof.
ARTICLE V
---------
Issuance of Shares
------------------
The Corporation will not commence business until it has received for the
issuance of shares consideration of the value of one thousand dollars ($1,000)
consisting of money, labor done or property actually received.
<PAGE>
ARTICLE VI
----------
Registered Office
-----------------
The street address of its initial registered office is 3400 Carlisle
Street, Suite 500, Dallas, Texas 75204, and the name of its initial registered
agent at such address is Kevin Figge.
ARTICLE VII
-----------
Directors
---------
The names of the current Directors of the Corporation are:
Paul E. Kana
Sidney H. Cordier
Brian R. Wilson
G. Dean Booth, Jr.
James K. Hoofard, Jr.
The address of each of the Directors is 3400 Carlisle Street, Suite 500,
Dallas, Texas 75204.
ARTICLE VIII
------------
Election of Directors
---------------------
Subject to the rights of the holders of any series of preferred stock to elect
additional Directors, the number of the Directors of the Corporation shall be
fixed from time to time by or pursuant to the Bylaws of the Corporation. The
Directors shall be classified with respect to the time for which they severally
hold office into three classes, as nearly equal in number as possible. At each
annual meeting of the shareholders of the Corporation, the successors of the
class of Directors whose term expires at that meeting shall be elected by
<PAGE>
plurality vote of all shares cast at such meeting to hold office for a term
expiring at the annual meeting of shareholders held in the third year following
the year of their election.
Advance notice of shareholder nominations for the election of Directors and
advance notice of business to be brought by shareholders before an annual
meeting shall be given in a manner provided in the Bylaws of the Corporation.
ARTICLE IX
----------
Denial of Preemptive Rights
---------------------------
No holder of any shares of capital stock of the Corporation, whether now or
hereafter authorized, shall, as such holder, have any preemptive or preferential
right to receive, purchase, or subscribe to (a) any unissued or treasury shares
of any class of stock (whether now or hereafter authorized) of the Corporation,
(b) any obligations, evidences of indebtedness, or other securities of the
Corporation convertible into or exchangeable for, or carrying or accompanied by
any rights to receive, purchase, or subscribe to, any such unissued or treasury
shares, (c) any right of subscription to or to receive, or any warrant or option
for the purpose of, any of the foregoing securities, or (d) any other securities
that may be issued or sold by the Corporation.
ARTICLE X
---------
Denial of Cumulative Voting
---------------------------
Cumulative voting for the election of Directors is expressly denied and
prohibited.
ARTICLE XI
----------
Conflict of Interest
--------------------
No contract or transaction between the Corporation and one or more of its
Directors or officers, or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
Directors or officers are Directors or officers or have a financial interest,
<PAGE>
shall be void or voidable solely for this reason, solely because the Director or
officer is present at or participates in the meeting of the Board of Directors
or committee thereof which authorizes the contract or transaction, or solely
because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board of Directors or committee in good
faith authorizes the contract or transaction by the affirmative vote of a
majority of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the shareholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by vote of the shareholders; or
(c) The contract or transaction is fair as to the Corporation as of the time
it is authorized, approved, or ratified by the Board of Directors, a committee
thereof, or the shareholder.
Common or interested Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee which authorizes
the contract or transaction.
This provision shall not be construed to invalidate a contract or transaction
which would be valid in the absence of this provision or to subject any Director
or officer to any liability that he would not be subject to in the absence of
this provision.
<PAGE>
ARTICLE XII
-----------
Indemnification
---------------
Each person who is or was a Director or officer of the Corporation, or each
such person who is or was serving at the request of the Board of Directors or an
officer of the Corporation as a Director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another
corporation, partnership, joint venture, sole proprietorship, trust or other
enterprise or employee benefit plan (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the Corporation
to the fullest extent that a corporation is required or permitted to grant
indemnification to such person under the Texas Business Corporation Act and the
Texas Miscellaneous Corporation Act as the same may exist or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment) or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter into one or
more agreements with any person which provide for indemnification greater or
different than that provided in this Article to the extent provided by
applicable laws. Any amendment or repeal of this Article shall not adversely
affect any right or protection existing hereunder immediately prior to such
amendment or repeal.
ARTICLE XIII
------------
Liability of Directors
----------------------
To the full extent permitted by the Texas Business Corporation Act or any
other applicable laws presently or hereafter in effect, no Director of the
Corporation shall be personally liable to the Corporation or its shareholders
for or with respect to any acts or omissions in the performance of his or her
<PAGE>
duties as a Director of the Corporation. In any repeal or modification of this
Article shall not adversely affect any right or protection of a Director of the
Corporation existing immediately prior to such repeal or modification.
ARTICLE XIV
-----------
Special Meetings of Shareholders
--------------------------------
Special meetings of the shareholders, unless otherwise prescribed by statute,
may be called by the chairman of the board, president or the Board of Directors
or by the holders of at least fifty percent of all shares entitled to vote at
the meeting.
<PAGE>
PUBLIC NOTARY
-------------
STATE OF Georgia
_________________
COUNTY OF Fulton
________________
Before me, a notary public, on this day personally appeared
Paul E. Kana
_______________________, known to me to be a person whose name is subscribed to
the foregoing document and, being by me first duly sworn, declared that the
statements therein contained are true and correct.
Given under my hand and seal this 27 day of October, 1997.
----- --------------
--------------------------------------
NOTARY PUBLIC, STATE OF __________
MY COMMISSION EXPIRES __________________, 1997.
(NOTARIAL SEAL)
<PAGE>
DATED: October 27, 1997 CPS SYSTEMS, INC.
-----------------
By:
-------------------------
Title: Chief Executive Officer
and
By:
---------------------------
Title: Secretary
<PAGE>
[STATE OF TEXAS SEAL APPEARS HERE]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF CORRECTION
OF
CPS SYSTEMS, INC.
CHARTER NO. 441398-0
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Articles of Correction, duly executed pursuant to the provisions of the
Texas Miscellaneous Corporation Laws Act, have been received in this office and
are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Correction and attaches hereto a copy of the Articles of Correction.
Dated: October 30, 1997
[SEAL OF TEXAS APPEARS HERE]
/s/ Antonio O. Garza, Jr.
------------------------
Antonio O. Garza, Jr.
Secretary of State
<PAGE>
---------------------------
FILED
in the Office of the
Secretary of State of Texas
OCT 30 1997
Corporations Section
---------------------------
ARTICLES OF CORRECTION
The undersigned submits these articles pursuant to Texas Civil Statutes article
1302.7.01 to correct a document which is an inaccurate record of the entity
action, contains an inaccurate or erroneous statement, or was defectively or
erroneously executed, sealed, acknowledged, or verified.
ARTICLE ONE
The name of the entity is CPS Systems, Inc.
ARTICLE TWO
The document to be corrected is the Restated Articles of Incorporation of CPS
Systems, Inc., which was filed in the Office of the Secretary of State on the
28th day of October, 1997.
ARTICLE THREE
The inaccuracy, error, or defect to be corrected is:
The additional shares in Article V of the Restated Articles of Incorporation and
the stated capital in Article VI of the Restated Articles of Incorporation. The
following corrections also need to be made, adding a comma after "effected" in
Article V and changing "has" to "as" in Article VI.
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the document
reads as follows:
ARTICLE FIVE
The manner in which any exchange, reclassification or cancellation of
issued shares provided for in this Amendment shall be effected, is as follows:
Upon the filing of these Amended and Restated Articles of Incorporation
with the Secretary of State of the State of Texas, each then issued and
outstanding share of the Corporation's stock shall continue to be designated as
common stock, Each holder of the Corporation's existing stock shall
automatically receive, without any action on the part of the respective holders
thereof, and additional 389.4735 shares of common stock for each share of stock
held at the time of this amendment.
<PAGE>
ARTICLE SIX
The manner in which such amendment effects a change in the amount of
stated capital, and the amount of stated capital as changed by such amendment,
are as follows:
Upon the filing of these Amended and Restated Articles of Incorporation
with the Secretary of State of the State of Texas, the stated capital of the
Corporation shall be increased from One Hundred and No/100ths Dollars ($100.00)
to Thirty-Nine Thousand Forty-Seven and 35/100ths Dollars ($39,047.35) to
reflect the Corporation's recapitalization by stock split.
CPS SYSTEMS, INC
By: /s/ Paul E. Kana
--------------------------
Its: Chief Executive Officer
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
CPS SYSTEMS, INC.
<PAGE>
TABLE OF CONTENTS
ARTICLE 1. OFFICES.................................................. 1
1.1 Registered Office and Agent.................................. 1
1.2 Other Offices................................................ 1
ARTICLE 2. NUMBER OF DIRECTORS...................................... 1
ARTICLE 3. SHAREHOLDERS............................................. 1
3.1 Annual Meeting............................................... 1
3.2 Special Meetings............................................. 2
3.3 Place of Meetings............................................ 2
3.4 Business for Shareholders' Meetings.......................... 2
3.4.1 Business at Annual Meetings............................ 2
3.4.2 Business at Special Meetings........................... 3
3.4.3 Notice to Corporation.................................. 3
3.5 Fixing of Record Date........................................ 3
3.6 Voting Lists................................................. 3
3.7 Notice of Meetings........................................... 4
3.8 Waiver of Notice............................................. 4
3.9 Proxies...................................................... 4
3.10 Participation by Conference Telephone........................ 5
3.11 Quorum; Manner of Acting..................................... 5
3.12 Voting of Shares............................................. 5
3.13 Voting for Directors......................................... 5
3.14 Voting of Shares by Certain Holders.......................... 5
3.14.1 Another Corporation................................... 5
3.14.2 Personal Representative or Guardian................... 6
3.14.3 Receiver.............................................. 6
3.14.4 Fiduciaries........................................... 6
3.14.5 Pledged Shares........................................ 6
3.14.6 Counting Shares....................................... 6
3.14.7 Redemption............................................ 6
3.15 Action of Shareholders Without a Meeting..................... 7
ARTICLE 4. BOARD OF DIRECTORS....................................... 7
4.1 General Powers............................................... 7
4.2 Number, Tenure and Qualification............................. 7
4.3 Nomination and Election...................................... 7
4.3.1 Nomination............................................. 7
4.3.2 Election............................................... 8
4.4 Annual and Other Regular Meetings............................ 8
4.5 Special Meetings............................................. 8
4.6 Quorum....................................................... 9
4.7 Manner of Acting............................................. 9
4.8 Participation by Conference Telephone........................ 9
4.9 Presumption of Assent........................................ 9
4.10 Action by Board Without a Meeting............................ 9
4.11 Board Committees............................................. 10
-i-
<PAGE>
4.12 Resignation.................................................. 10
4.13 Removal...................................................... 10
4.14 Vacancies.................................................... 10
4.15 Compensation................................................. 11
ARTICLE 5. OFFICERS................................................. 11
5.1 Number....................................................... 11
5.2 Appointment and Term of Office............................... 11
5.3 Resignation.................................................. 11
5.4 Removal...................................................... 11
5.5 Chairman and Vice-Chairmen of the Board...................... 12
5.6 President.................................................... 12
5.7 Vice-Presidents.............................................. 12
5.8 Secretary.................................................... 12
5.9 Treasurer.................................................... 13
5.10 Assistant Officers........................................... 13
5.11 Compensation of Officers and Employees....................... 13
ARTICLE 6. CONTRACTS, LOANS, CHECKS, DEPOSITS....................... 13
6.1 Contracts.................................................... 13
6.2 Loans........................................................ 14
6.3 Checks, Drafts, Etc.......................................... 14
6.4 Deposits..................................................... 14
6.5 Contracts with or Loan to Directors and Officers............. 14
ARTICLE 7. SHARES................................................... 14
7.1 Certificates for Shares...................................... 14
7.2 Issuance of Shares........................................... 15
7.3 Beneficial Ownership......................................... 15
7.4 Transfer of Shares........................................... 15
7.5 Lost or Destroyed Certificates............................... 16
7.6 Restrictions on Transfer..................................... 16
7.7 Stock Transfer Records....................................... 16
ARTICLE 8. SEAL..................................................... 16
ARTICLE 9. INDEMNIFICATION.......................................... 16
9.1 Right to Indemnification..................................... 16
9.2 Restrictions on Indemnification.............................. 17
9.3 Advancement of Expenses...................................... 17
9.4 Right of Indemnitee to Bring Suit............................ 17
9.5 Procedures Exclusive......................................... 18
9.6 Nonexclusivity of Rights..................................... 18
9.7 Insurance, Contracts and Funding............................. 18
9.8 Indemnification of Employees and Agents of the Corporation... 18
9.9 Personal Serving Other Entities.............................. 19
ARTICLE 10. BOOKS AND RECORDS....................................... 19
ARTICLE 11. FISCAL YEAR............................................. 19
ARTICLE 12. VOTING OF SHARES OF ANOTHER CORPORATION................. 19
ARTICLE 13. AMENDMENTS TO BYLAWS................................... 19
-ii-
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
CPS SYSTEMS, INC.
PREAMBLE
These bylaws are subject to, and governed by, the Texas Business Corporation
Act and the articles of incorporation of CPS SYSTEMS, INC., a Texas corporation
(the "Corporation"). In the event of a direct conflict between the provisions
of these bylaws and the mandatory provisions of the Texas Business Corporation
Act or the provisions of the articles of incorporation of the Corporation, such
provisions of the Texas Business Corporation Act or the articles of
incorporation of the Corporation, as the case may be, will be controlling.
ARTICLE 1. OFFICES
1.1 REGISTERED OFFICE AND AGENT
The registered office and registered agent of the Corporation shall be as
designated from time to time by the appropriate filing by the Corporation in the
office of the Secretary of State of Texas.
1.2 OTHER OFFICES
The Corporation may also have offices at such other places, both within and
without the State of Texas, as the board of directors may from time to time
determine or the business of the Corporation may require.
ARTICLE 2. NUMBER OF DIRECTORS
The Board of Directors shall consist of five (5) persons or so many as may
from time to time be designated by the then-existing Board of Directors.
ARTICLE 3. SHAREHOLDERS
3.1 ANNUAL MEETING
The annual meeting of the shareholders for the election of Directors and
for the transaction of such other business as may properly come before the
meeting shall be held each year within 90 to 180 days after the fiscal year end
of the corporation at a date, time and location determined by resolution of the
Board of Directors. At any time prior to the commencement of the annual
meeting, the Board of Directors may postpone the annual meeting for a period of
up to 120 days from the date fixed for such meeting in accordance with this
Section 3.1.
-1-
<PAGE>
3.2 SPECIAL MEETINGS
Special meetings of the shareholders for any purpose may be called at any
time by the president, Board of Directors or the holders of at least fifty
percent (50%) of all votes entitled to be cast on any issue proposed to be
considered at such special meeting.
3.3 PLACE OF MEETINGS
Meetings of the shareholders shall be held at either the principal office of
the corporation or at such other place within or without the state of Texas as
the Board of Directors or the president may designate.
3.4 BUSINESS FOR SHAREHOLDERS' MEETINGS
3.4.1 BUSINESS AT ANNUAL MEETINGS
In addition to the election of Directors, other proper business may be
transacted at an annual meeting of shareholders, provided that such business is
properly brought before such meeting. To be properly brought before an annual
meeting, business must be (a) brought by or at the direction of the Board of
Directors or (b) brought before the meeting by a shareholder pursuant to written
notice thereof, in accordance with subsection 3.4.3 hereof, and received by the
Secretary not fewer than 60 nor more than 90 days prior to the anniversary of
the previous year's annual meeting; provided, however, that in the event that
the date of the annual meeting is more than 30 days earlier or more than 60 days
later than such anniversary date, notice by the shareholder to be timely must be
so given not earlier than the 90th day prior to such annual meeting and not
later than the close of business on the later of the 60th day prior to such
annual meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made. Any such shareholder notice shall set
forth (i) the name and address of the shareholder proposing such business; (ii)
a representation that the shareholder is entitled to vote at such meeting and a
statement of the number of shares of the corporation which are beneficially
owned by the shareholder; (iii) a representation that the shareholder intends to
appear in person or by proxy at the meeting to propose such business; and (iv)
as to each matter the shareholder proposes to bring before the meeting, a brief
description of the business desired to be brought before the meeting, the
reasons for conducting such business at the meeting, the language of the
proposal (if appropriate), and any material interest of the shareholder m such
business. No business shall be conducted at any annual meeting of shareholders
except in accordance with this subsection 3.4.1. If the facts warrant, the Board
of Directors, or the chairman of an annual meeting of shareholders, may
determine and declare (a) that a proposal does not constitute proper business to
be transacted at the meeting or (b) that business was not properly brought
before the meeting in accordance with the provisions of this subsection 3.4.1
and, if, in either case, it is so determined, any such business shall not be
transacted. The procedures set forth in this subsection 3.4.1 for business to
be properly brought before an annual meeting by a shareholder are in addition
to, and not in lieu of, the requirements set forth in Rule 141-8 under Section
14 of the Securities Exchange Act of 1934, as amended, or any successor
provision.
-2-
<PAGE>
3.4.2 BUSINESS AT SPECIAL MEETINGS
At any special meeting of the shareholders, only such business as is
specified in the notice of such special meeting given by or at the direction of
the person or persons calling such meeting, in accordance with Section 3.2
hereof, shall come before the meeting.
3.4.3 NOTICE TO CORPORATION
Any written notice required to be delivered by a shareholder to the
corporation pursuant to subsection 3.4.1 or any other subsection hereof must be
given, either by personal delivery or by registered or certified mail, postage
prepaid, to the Secretary at the corporation's executive offices.
3.5 FIXING OF RECORD DATE
For the purpose of determining shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other proper purpose, the Board of Directors may fix in
advance a date as the record date for any such determination of shareholders,
which date in any case shall not be more than seventy (70) days prior to the
date on which the particular action requiring such determination of shareholders
is to be taken. If no record date is fixed for the determination of
shareholders entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend or distribution, the day
before the first notice of a meeting is dispatched to shareholders or the date
on which the resolution of the Board of Directors authorizing such dividend or
distribution is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled to
notice of or to vote at any meeting of shareholders has been made as provided in
this section, such determination shall apply to any adjournment thereof unless
the Board of Directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than one hundred twenty (120) days after the date
fixed for the original meeting.
3.6 VOTING LISTS
At least ten (10) days before each meeting of the shareholders, the officer
or agent having charge of the stock transfer books for shares of the corporation
shall prepare an alphabetical list of all its shareholders on the record date
who are entitled to vote at the meeting or any adjournment thereof, arranged by
voting group, and within each voting group by class or series of shares, with
the address of and the number of shares held by each, which record for a period
of ten (10) days prior to the meeting shall be kept on file at the principal
office of the corporation or at a place identified in the meeting notice in the
city where the meeting will be held. Such record shall be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any shareholder, shareholder's agent or shareholder's attorney during the
whole time of the meeting. Failure to comply with the requirements of this
bylaw shall not affect the validity of any action taken at the meeting.
-3-
<PAGE>
3.7 NOTICE OF MEETINGS
Written or printed notice stating the date, time and place of a meeting of
shareholders and, in the case of a special meeting of shareholders, the purpose
or purposes Aor which the meeting is called, shall be given by or at the
direction of the president, the secretary, or the officer or persons calling the
meeting to each shareholder of record entitled to vote at such meeting (unless
required by law to send notice to all shareholders regardless of whether or not
such shareholders are entitled to vote), not less than ten (10) days and not
more than sixty (60) days before the meeting, except that notice of a meeting to
act on an amendment to the articles of incorporation, a plan of merger or share
exchange, a proposed sale, lease, exchange or other disposition of all or
substantially all of the assets of the corporation other than in the usual
course of business, or the dissolution of the corporation shall be given not
less than twenty (20) days and not more than sixty (60) days before the meeting.
Written notice may be transmitted by: Mail, private carrier or personal
delivery; telegraph or teletype; or telephone, wire or wireless equipment which
transmits a facsimile of the notice. Such notice shall be effective upon
dispatch if sent to the shareholder's address, telephone number, or other number
appearing on the records of the corporation.
If an annual or special shareholders' meeting is adjourned to a different
date, time or place, notice need not be given of the new date, time or place if
the new date, time or place is announced at the meeting before adjournment
unless a new record date is or must be fixed. If a new record date for the
adjourned meeting is or must be fixed, however, notice of the adjourned meeting
must be given to persons who are shareholders as of the new record date.
3.8 WAIVER OF NOTICE
A shareholder may waive any notice required to be given under the provisions
of these bylaws, the articles of incorporation or by applicable law, whether
before or after the date and time stated therein. A valid waiver is created by
any of the following three methods: (a) in writing signed by the shareholder
entitled to the notice and delivered to the corporation for inclusion in its
corporate records; (b) by attendance at the meeting, unless the shareholder at
the beginning of the meeting objects to holding the meeting or transacting
business at the meeting; or (c) by failure to object at the time of presentation
of a matter not within the purpose or purposes described in the meeting notice.
3.9 PROXIES
A shareholder may vote either in person or by proxy. A shareholder may vote
by proxy by means of a proxy appointment form which is executed in writing by
the shareholder, his agent, or by his duly authorized attorney-in-fact. All
proxy appointment forms shall be filed with the secretary of the corporation
before or at the commencement of meetings. No unrevoked proxy appointment form
shall be valid after eleven (11) months from the date of its execution unless
otherwise expressly provided in the appointment form. No proxy appointment may
be effectively revoked until notice in writing of such revocation has been given
to the secretary of the corporation by the shareholder appointing the proxy.
-4-
<PAGE>
3.10 PARTICIPATION BY CONFERENCE TELEPHONE
At the discretion of the Board of Directors, shareholders or proxies may
participate in a meeting of the shareholders by any means of communication by
which all persons participating in the meeting can hear each other during the
meeting, and participation by such means shall constitute presence in person at
the meeting.
3.11 QUORUM; MANNER OF ACTING
At any meeting of the shareholders, a majority in interest of all the shares
entitled to vote on a matter, represented by shareholders of record, shall
constitute a quorum of that voting group for action on that matter. Once a
share is represented at a meeting, other than to object to holding the meeting
or transacting business, it is deemed to be present for purposes of a quorum for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be fixed for the adjourned meeting. At such
reconvened meeting, any business may be transacted which might have been
transacted at the adjourned meeting. If a quorum exists, action on a matter is
approved by a voting group if the votes cast within the voting group favoring
the action exceed the votes cast within the voting group opposing the action,
unless the question is one upon which a different vote is required by express
provision of law or of the articles of incorporation or of these bylaws.
3.12 VOTING OF SHARES
Each outstanding share, regardless of class, shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders, except as may
be otherwise provided in the articles of incorporation.
3.13 VOTING FOR DIRECTORS
Unless otherwise provided in the articles of incorporation, shareholders
entitled to vote at any election of Directors are entitled to cumulate votes by
multiplying the number of votes they are entitled to cast by the number of
Directors for whom they are entitled to vote and to cast the product for a
single candidate or distribute the product among two or more candidates. Unless
otherwise provided in the articles of incorporation, in any election of
Directors the candidates elected are those receiving the largest numbers of
votes cast by the shares entitled to vote in the election, up to the number of
Directors to be elected by such shares.
3.14 VOTING OF SHARES BY CERTAIN HOLDERS
3.14.1 ANOTHER CORPORATION
Shares standing in the name of another corporation, domestic or foreign,
may be voted by such officer, agent or proxy as the Board of Directors of such
corporation may determine. A certified copy of a resolution adopted by such
Directors shall be conclusive as to their determination.
-5-
<PAGE>
3.14.2 PERSONAL REPRESENTATIVE OR GUARDIAN
Shares held by a personal representative, administrator, executor,
guardian or conservator may be voted by such administrator, executor, guardian
or conservator, without a transfer of such shares into the name of such personal
representative, administrator, executor, guardian or conservator. Shares
standing in the name of a trustee may be voted by such trustee, but no trustee
shall be entitled to vote shares held in trust without a transfer of such shares
into the name of the trustee.
3.14.3 RECEIVER
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by the
receiver without the transfer thereof into his name if authority so to do is
contained in an appropriate order of the court by which such receiver was
appointed.
3.14.4 FIDUCIARIES
If shares are held jointly by three or more fiduciaries, the will of the
majority of the fiduciaries shall control the manner of voting or appointment of
a proxy, unless the instrument or order appointing such fiduciaries otherwise
directs.
3.14.5 PLEDGED SHARES
Unless the pledge agreement expressly provides otherwise, a shareholder
whose shares are pledged shall be entitled to vote such shares until the shares
have been transferred into the name of the pledgee, and thereafter the pledgee
shall be entitled to vote the shares so transferred.
3.14.6 COUNTING SHARES
Shares held by another corporation shall not be voted at any meeting or
counted in determining the total number of outstanding shares entitled to vote
at any given time if a majority of the shares entitled to vote for the election
of Directors of such other corporation is held by this corporation.
3.14.7 REDEMPTION
On and after the date on which written notice of redemption of redeemable
shares has been dispatched to the holders thereof and a sum sufficient to redeem
such shares has been deposited with a bank or trust company with irrevocable
instruction and authority to pay the redemption price to the holders thereof
upon surrender of certificates therefor, such shares shall not be entitled to
vote on any matter and shall be deemed to be not outstanding shares.
-6-
<PAGE>
3.15 ACTION OF SHAREHOLDERS WITHOUT A MEETING
Any action which may or is required to be taken at a meeting of the
shareholders may be taken without a meeting if one or more written consents
setting forth the action so taken shall be signed, either before or after the
action taken, by all the shareholders entitled to vote with respect to the
subject matter thereof. Action taken by written consent of the shareholders is
effective when all consents are in possession of the corporation, unless the
consent specifies a later effective date. Whenever any notice is required to be
given to any shareholder of the corporation pursuant to applicable law, a waiver
thereof in writing, signed by the person or persons entitled to notice, shall be
deemed equivalent to the giving of notice.
ARTICLE 4. BOARD OF DIRECTORS
4.1 GENERAL POWERS
The business and affairs of the corporation shall be managed by its Board of
Directors.
4.2 NUMBER, TENURE AND QUALIFICATION
The number of Directors set forth in Article 2 of these bylaws may be
increased or decreased from time to time by amendment to or in the manner
provided in these bylaws. No decrease, however, shall have the effect of
shortening the term of any incumbent director unless such director resigns or is
removed in accordance with the provisions of these bylaws. Except as
classification of Directors may be specified by the articles of incorporation
and unless removed in accordance with these bylaws, each director shall hold
office until the next annual meeting of the shareholders and until a successor
shall have been elected and qualified. Directors need not be residents of the
state of Texas or shareholders of the corporation.
4.3 NOMINATION AND ELECTION
4.3.1 NOMINATION
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as Directors. Nominations for the
election of Directors may be made (a) by or at the direction of the Board of
Directors or (b) by any shareholder of record entitled to vote for the election
of Directors at such meeting; provided, however, that a shareholder may nominate
persons for election as Directors only if written notice (in accordance with
subsection 3.4.3 hereof) of such shareholder's intention to make such
nominations is received by the Secretary not later than (i) with respect to an
election to be held at an annual meeting of the shareholders, not fewer than 60
nor more than 90 days prior to the anniversary of the previous year's annual
meeting (provided, however, that in the event that the date of the annual
meeting is more than 30 days earlier or more than 60 days later than such
anniversary date, notice by the shareholder to be timely must be so given not
earlier than the 90th day prior to such annual meeting and not later than the
close of business on the later of the, 60th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of such
meeting is first made) and (ii) with respect to an election to be held at a
special meeting of the shareholders for the election of Directors, the close of
business on the seventh business day following the date on
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which notice of such meeting is first given to shareholders. Any such
shareholder's notice shall set forth (a) the name and address of the shareholder
who intends to make a nomination; (b) a representation that the shareholder is
entitled to vote at such meeting and a statement of the number of shares of the
corporation which are beneficially owned by the shareholder; (c) a
representation that the shareholder intends to appear in person or by proxy at
the meeting to nominate the person or persons specified in the notice; (d) as to
each person the shareholder proposes to nominate for election or re-election as
a Director, the name and address of such person and such other information
regarding such nominee as would be required in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission had such nominee
been nominated by the Board, and a description of any arrangements or
understandings, between the shareholder and such nominee and any other persons
(including their names), pursuant to which the nomination is to be made; and (e)
the consent of each such nominee to serve as a Director if elected. if the facts
warrant, the Board of Directors, or the chair of a shareholders' meeting at
which Directors are to be elected, shall determine and declare that a nomination
was not made in accordance with the foregoing procedure and, if it is so
determined, the defective nomination shall be disregarded. The right of
shareholders to make nominations pursuant to the foregoing procedure is subject
to the rights of the holders of any class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation. The procedures set
forth in this subsection 4.3 for nomination for the election of Directors by
shareholders are in addition to, and not in limitation of, any procedures now in
effect or hereafter adopted by or at the direction of the Board or any committee
thereof.
4.3.2 ELECTION
At each election of Directors, the persons receiving the greatest number
of votes shall be the Directors.
4.4 ANNUAL AND OTHER REGULAR MEETINGS
An annual meeting of the Board of Directors shall be held without other
notice than this bylaw, immediately after and at the same place as the annual
meeting of shareholders. The Board of Directors may specify by resolution the
time and place, either within or without the state of Texas, for holding any
other regular meetings of the Board of Directors.
4.5 SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by the Board of
Directors, the chairman of the Board, the president, the secretary or any
director. Notice of special meetings of the Board of Directors stating the
date, time and place thereof shall be given at least two (2) days prior to the
date set for such meeting by the person or persons authorized to call such
meeting, or by the secretary at the direction of the person or persons
authorized to call such meeting. The notice may be oral or written. Oral
notice may be communicated in person or by telephone, wire or wireless
equipment, which does not transmit a facsimile of the notice. Oral notice is
effective when communicated. Written notice may be transmitted by mail, private
carrier, or personal delivery; telegraph or teletype; or telephone, wire, or
wireless equipment which transmits a facsimile of the notice. Written notice is
effective upon dispatch if such notice
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is sent to the director's address, telephone number, or other number appearing
on the records of the corporation. If no place for such meeting is designated in
the notice thereof, the meeting shall be held at the principal office of the
corporation. Any director may waive notice of any meeting at any time. Whenever
any notice is required to be given to any director of the corporation pursuant
to applicable law, a waiver thereof in writing signed by the director, entitled
to notice, shall be deemed equivalent to the giving of notice. The attendance of
a director at a meeting shall constitute a waiver of notice of the meeting
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully convened.
Unless otherwise required by law, neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors need be
specified in the notice or waiver of notice of such meeting.
4.6 QUORUM
A majority of the number of Directors specified in or fixed in accordance with
these bylaws shall constitute a quorum for the transaction of any business at
any meeting of Directors. If less than a majority shall attend a meeting, a
majority of the Directors present may adjourn the meeting from time to time
without further notice, and a quorum present at such adjourned meeting may
transact business.
4.7 MANNER OF ACTING
If a quorum is present when a vote is taken, the affirmative vote of a
majority of Directors present is the act of the Board of Directors.
4.8 PARTICIPATION BY CONFERENCE TELEPHONE
Directors may participate in a regular or special meeting of the Board by, or
conduct the meeting through the use of, any means of communication by which all
Directors participating can hear each other during the meeting and participation
by such means shall constitute presence in person at the meeting.
4.9 PRESUMPTION OF ASSENT
A director who is present at a meeting of the Board of Directors at which
action is taken shall be presumed to have assented to the action taken unless
such director's dissent shall be entered in the minutes of the meeting or unless
such director shall file his written dissent to such action with the person
acting as secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the corporation
immediately after adjournment of the meeting. Such right to dissent shall not
apply to a director who voted in favor of such action.
4.10 ACTION BY BOARD WITHOUT A MEETING
Any action permitted or required to be taken at a meeting of the Board of
Directors may be taken without a meeting if one or more written consents setting
forth the action so taken, shall
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be signed, either before or after the action taken, by all the Directors. Action
taken by written consent is effective when the last director signs the consent,
unless the consent specifies a later effective date.
4.11 BOARD COMMITTEES
The Board of Directors may by resolution designate from among its members an
executive committee and one or more other committees, each of which must have
two (2) or more members and shall be governed by the same rules regarding
meetings, action without meetings, notice, waiver of notice, and quorum and
voting requirements as applied to the Board of Directors. To the extent
provided in such resolutions, each such committee shall have and may exercise
the authority of the Board of Directors, except as limited by applicable law.
The designation of any such committee and the delegation thereto of authority
shall not relieve the Board of Directors, or any members thereof, of any
responsibility imposed by law.
4.12 RESIGNATION
Any director may resign at any time by delivering written notice to the
chairman of the Board, the president, the secretary, or the registered office of
the corporation, or by giving oral notice at any meeting of the Directors or
shareholders. Any such resignation shall take effect at any subsequent time
specified therein, or if the time is not specified, upon delivery thereof and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
4.13 REMOVAL
At a meeting of the shareholders called expressly for that purpose, any
director or the entire Board of Directors may be removed from office, with or
without cause (unless the articles of incorporation provide that Directors may
be removed only for cause) by a vote of the holders of a majority of the shares
then entitled to vote at an election of the director or Directors whose removal
is sought. If shareholders have the right to cumulate votes in the election of
Directors and if less than the entire Board is to be removed, no one of the
Directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
Board or the class of Directors of which he is a part. If the Board of
Directors or any one or more Directors is so removed, new Directors may be
elected at this same meeting.
4.14 VACANCIES
A vacancy on the Board of Directors may occur by the resignation, removal or
death of an existing director, or by reason of increasing the number of
Directors on the Board of Directors as provided in these bylaws. Except as may
be limited by the articles of incorporation, any vacancy occurring in the Board
of Directors may be filled by the affirmative vote of a majority of the
remaining Directors though less than a quorum. A director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office,
except that a vacancy to be filled
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by reason of an increase in the number of Directors shall be filled by the Board
of Directors for a term of office continuing only until the next election of
Directors by shareholders.
If the vacant office was held by a director elected by holders of one or more
authorized classes or series of shares, only the holders of those classes or
series of shares are entitled to vote to fill the vacancy.
4.15 COMPENSATION
By resolution of the Board of Directors, the Directors may be paid a fixed sum
plus their expenses, if any, for attendance at meetings of the Board of
Directors or committee thereof, or a stated salary as director. No such payment
shall preclude any director from serving the corporation in any other capacity
and receiving compensation therefor.
ARTICLE 5. OFFICERS
5.1 NUMBER
The corporation shall have a president, and may have one or more vice-
presidents, a secretary and a treasurer, each of whom shall be appointed by the
Board of Directors. Such other officers and assistant officers, including a
chairman of the Board, as may be deemed necessary or appropriate may be
appointed by the Board of Directors. By resolution, the Board of Directors may
designate any officer as chief executive officer, chief operating officer, chief
financial officer, or any similar designation. Any two or more offices may be
held by the same person.
5.2 APPOINTMENT AND TERM OF OFFICE
The officers of the corporation shall be appointed by the Board of Directors
for such term as the Board may deem advisable or may be appointed to serve for
an indefinite term at the pleasure of the Board. Each officer shall hold office
until a successor shall have been appointed regardless of such officer's term of
office, except in the event of such officer's termination of an indefinite term
at the pleasure of the Board or such officer's removal in the manner herein
provided.
5.3 RESIGNATION
Any officer may resign at any time by delivering written notice to the
chairman of the Board, the president, a vice-president, the secretary or the
Board of Directors, or by giving oral notice at any meeting of the Board. Any
such resignation shall take effect at any subsequent time specified therein, or
if the time is not specified, upon delivery thereof and, unless otherwise
specified therein, the acceptance of such resignation shall riot be necessary to
make it effective.
5.4 REMOVAL
Any officer appointed by the Board of Directors may be removed by the Board of
Directors with or without cause. The removal shall be without prejudice to the
contract rights,
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if any, of the person so removed. Appointment of an officer or agent shall not
of itself create contract rights.
5.5 CHAIRMAN AND VICE-CHAIRMEN OF THE BOARD
The Chairman of the Board, if there be such an office, shall, if present,
preside at all meetings of the Board of Directors, and exercise and perform such
other powers and duties as may be determined from time to time by resolution of
the Board of Directors. The Vice-Chairman of the Board, if there be such an
office, or in the event there shall be more than one Vice-Chairman, the one
designated most senior at the time of election, shall perform the duties of the
Chairman of the Board in the chairman's absence, or in the event of the
chairman's death, disability or refusal to act. The Vice-Chairman of the Board
shall exercise and perform such other powers and duties as may be determined
from time to time by resolution of the Board of Directors.
5.6 PRESIDENT
The president shall be the principal executive officer of the corporation and,
subject to the control of the Board of Directors, shall generally supervise and
control the business and affairs of the corporation. When present the president
shall preside at all meetings of the shareholders and in the absence of the
chairman of the Board, or if there be none, at all meetings of the Board of
Directors. The president may sign with the secretary or any other proper officer
of the corporation thereunto authorized by law, certificates for shares of the
corporation, and may sign deeds, mortgages, bonds, contracts, or other
instruments which the Board of Directors has authorized to be executed, except
in cases where the signing and execution thereof shall be expressly delegated by
the Board of Directors or by these bylaws to some other officer or agent of the
corporation or shall be required by law to be otherwise signed or executed. In
general, the president shall perform all duties incident to office of and such
other duties as may be prescribed by resolution of the Board of Directors from
time to time.
5.7 VICE-PRESIDENTS
In the absence of the president or in the event of his death, disability or
refusal to act, the vice-president, or in the event there shall be more than one
vice-president, the vice-presidents in the order designated at the time of their
election, or in the absence of any designation then in the order of their
election, if any, shall perform the duties of the president. When so acting the
vice-president shall have all the powers of and be subject to all the
restrictions upon the president and shall perform such other duties as from time
to time may be assigned to the vice-president by resolution of the Board of
Directors.
5.8 SECRETARY
The secretary shall keep the minutes of the proceedings of the shareholders
and Board of Directors, shall give notices in accordance with the provisions of
these bylaws and as required by law, shall be custodian of the corporate records
of the corporation, shall keep a record of the names and addresses of all
shareholders and the number and class of shares held by each, have
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general charge of the stock transfer books of the corporation, may sign with the
president, or a vice-president, certificates for shares of the corporation,
deeds, mortgages, bonds, contracts, or other instruments which shall have been
authorized by resolution of the Board of Directors, and in general shall perform
all duties incident to the office of secretary and such other duties as from
time to time may be assigned to the secretary by resolution of the Board of
Directors.
5.9 TREASURER
If required by the Board of Directors, the treasurer shall give a bond for the
faithful discharge of his duties, in such sum and with such surety or sureties
as the Board of Directors shall determine. The treasurer shall have charge and
custody of and be responsible for keeping correct and complete books and records
of account, for all funds and securities of the corporation, receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, deposit all such moneys in the name of the corporation in the banks,
trust companies or other depositories as shall be selected in accordance with
the provisions of these bylaws, and in general perform all of the duties
incident to the office of treasurer and such other duties as from time to time
may be assigned to the treasurer by resolution of the Board of Directors.
5.10 ASSISTANT OFFICERS
The assistant officers in general shall perform such duties as are customary
or as shall be assigned to them by resolution of the Board of Directors. If
required by the Board of Directors, the assistant treasurers shall respectively
give bonds for the faithful discharge of their duties in such sums and with such
sureties as the Board of Directors shall determine.
5.11 COMPENSATION OF OFFICERS AND EMPLOYEES
The Board of Directors shall fix compensation of officers and may fix
compensation of other employees from time to time. No officer shall be
prevented from receiving a salary by reason of the fact that such officer is
also a director of the corporation. In the event any salary payment, or portion
thereof, to an officer or other employee is disallowed by the Internal Revenue
Service as a deduction for employee compensation under Section 162(a)(1) of the
Internal Revenue Code of 1986, as may be amended from time to time, on the
grounds such payment was unreasonable in amount, then such officer or employee
shall promptly repay the amount disallowed as a deduction to the corporation; it
shall be the duty of the Board of Directors to take all action necessary to
enforce this bylaw requiring repayment of unreasonable compensation.
ARTICLE 6. CONTRACTS, LOANS, CHECKS, DEPOSITS
6.1 CONTRACTS
The Board of Directors may authorize any officer or officers, agent or agents,
to enter any contract or execute and deliver any instrument in the name of and
on behalf of the corporation, and that authority may be general or confined to
specific instances.
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6.2 LOANS
No loans shall be contracted on behalf of the corporation and no evidences of
indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors, which authority may be general.
6.3 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by the officer or officers, or agent or agents, of the corporation and in the
manner as shall from time to time be prescribed by resolution of the Board of
Directors.
6.4 DEPOSITS
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in the banks, trust companies or
other depositories as the Board of Directors may select.
6.5 CONTRACTS WITH OR LOAN TO DIRECTORS AND OFFICERS
The corporation may enter into contracts and otherwise transact business as
vendor, purchaser, or otherwise, with its Directors, officers, and shareholders
and with corporations, associations, firms, and entities in which they are or
may become interested as Directors, officers, shareholders, members, or
otherwise, as freely as though such interest did not exist, as permitted by
applicable law. In the absence of fraud the fact that any director, officer,
shareholder, or any corporation, association, firm or other entity of which any
director, officer, or shareholder is interested, is in any way interested in any
transaction or contract shall not make the transaction or contract void or
voidable, or require the director, officer, or shareholder to account to this
corporation for any profits therefrom if the transaction or contract is or shall
be authorized, ratified, or approved by (a) vote of a majority of a quorum of
the Board of Directors excluding any interested director or Directors, (b) the
written consent of the holders of a majority of the shares entitled to vote, or
(c) a general resolution approving the acts of the Directors and officers
adopted at a shareholders meeting by vote of the holders of the majority of the
shares entitled to vote. Nothing herein contained shall create or imply any
liability in the circumstances above described or prevent the authorization,
ratification or approval of such transactions or contracts in any other manner.
ARTICLE 7. SHARES
7.1 CERTIFICATES FOR SHARES
The shares of the corporation may be represented by certificates in such form
as prescribed by the Board of Directors. Signatures of the corporate officers
on the certificate may be facsimiles if the certificate is manually signed on
behalf of a transfer agent, or registered by a registrar, other than the
corporation itself or an employee of the corporation. All certificates shall be
consecutively numbered or otherwise identified. All certificates shall bear
such legend or legends as prescribed by the Board of Directors or these bylaws.
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7.2 ISSUANCE OF SHARES
Shares with or without par value may be issued for such consideration and to
such persons as the board of directors may from time to time determine, except
in the case of shares with par value the consideration must be at least equal to
the par value of such shares. Shares may not be issued until the full amount of
the consideration has been paid. After the issuance of uncertificated shares,
the Corporation or the transfer agent of the Corporation shall send to the
registered owner of such uncertificated shares a written notice containing the
information required to be stated on certificates representing shares of stock
as set forth in Section 7.1 above and such additional information as may be
required by '8.408 of the Texas Uniform Commercial Code as currently in effect
and as the same may be amended from time to time hereafter.
7.3 BENEFICIAL OWNERSHIP
Except as otherwise permitted by these bylaws, the person in whose name shares
stand on the books of the corporation shall be deemed by the corporation to be
the owner thereof for all purposes. The Board of Directors may adopt by
resolution a procedure whereby a shareholder of the corporation may certify in
writing to the corporation that all or a portion of the shares registered in the
name of such shareholder are held for the account of a specified person or
persons. Upon receipt by the corporation of a certification complying with such
procedure, the persons specified in the certification shall be deemed, for the
purpose or purposes set forth in the certification, to be the holders of record
of the number of shares specified in place of the shareholder making the
certification.
7.4 TRANSFER OF SHARES
Transfer of shares of the corporation shall be made only on the stock transfer
books of the corporation by the holder of record thereof or by his legal
representative who shall furnish proper evidence of authority to transfer, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the secretary of the corporation, on surrender for cancellation of the
certificate for the shares. All certificates surrendered to the corporation for
transfer shall be cancelled and no new certificate shall be issued until the
former certificate for a like number of shares shall have been surrendered and
cancelled. With respect to uncertificated shares, upon delivery to the
Corporation or the transfer agent of the Corporation of an instruction
originated by an appropriate person (as prescribed by '8.308 of the Texas
Uniform Commercial Code as currently in effect and as the same may be amended
from time to time hereafter) and accompanied by any reasonable assurances that
such instruction is genuine and effective as the Corporation may require and
after compliance with any applicable law relating to the collection of taxes,
the Corporation or its transfer agent shall, if it has no notice of an adverse
claim or has discharged any duty with respect to any adverse claim, record the
transaction upon its books, and shall send to the new registered owner of such
uncertificated shares, and, if the shares have been transferred subject to a
registered pledge, to the registered pledgee, a written notice containing the
information required to be stated on certificates representing shares of stock
set forth in Section 7.02 above and such additional information as may be
required by '8.408 of the Texas Uniform Commercial Code as currently in effect
and as the same may be amended from time to time hereafter.
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7.5 LOST OR DESTROYED CERTIFICATES
In the case of a lost, destroyed or mutilated certificate, a new certificate
may be issued therefor upon such terms and indemnity to the corporation as the
Board of Directors may prescribe.
7.6 RESTRICTIONS ON TRANSFER
Except to the extent that such shares have been registered under state and
federal laws and except to the extent that the corporation has obtained an
opinion of counsel acceptable to the corporation that transfer restrictions are
not required under applicable securities laws, all certificates representing
shares of the corporation shall bear a legend on the face of the certificate or
on the reverse of the certificate if a reference to the legend is contained on
the face, to the effect as follows:
"These securities are not registered under state or federal securities
laws and may not be offered, sold, pledged or otherwise transferred,
nor may these securities be transferred on the books of the company,
without an opinion of counsel or other assurance satisfactory to the
company that no violation of such registration provisions would result
therefrom."
7.7 STOCK TRANSFER RECORDS
The stock transfer books shall be kept at the principal office of the
corporation or at the office of the corporation's transfer agent or registrar.
The name and address of the person to whom the shares represented by any
certificate, together with the class, number of shares and date of issue, shall
be entered on the stock transfer books of the corporation. Except as provided
in these bylaws, the person in whose name shares stand on the books of the
corporation shall be deemed by the corporation to be the owner thereof for all
purposes.
ARTICLE 8. SEAL
This corporation need not have a corporate seal. If the Directors adopt a
corporate seal, the seal of the corporation shall be circular in form and
consist of the name of the corporation, the state and year of incorporation, and
the words "Corporate Seal."
ARTICLE 9. INDEMNIFICATION
9.1 RIGHT TO INDEMNIFICATION
Each person who was, is or is threatened to be made a named party to or is
otherwise involved (including, without limitation, as a witness) in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative and whether formal or informal
(hereinafter a "proceeding"), by reason of the fact that he or she is or was a
Director or officer of the corporation or, that being or having been such a
Director or officer or an employee of the corporation, he or she is or was
serving at the request of the corporation as
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a Director, officer, partner, trustee, employee or agent of another corporation
or of a partnership, joint venture, trust, employee benefit plan or other
enterprise (hereinafter an "indemnitee"), whether the basis of a proceeding is
alleged action in an official capacity as such a Director, officer, partner,
trustee, employee or agent or in any other capacity while serving as such a
Director, officer, partner, trustee, employee or agent, shall be indemnified and
held harmless by the corporation against all expense, liability and loss
(including counsel fees, judgments, fines, ERISA excise taxes or penalties and
amounts to be paid in settlement) actually and reasonably incurred or suffered
by such indemnitee in connection therewith, and such indemnification shall
continue as to an indemnitee who has ceased to be a Director, officer, partner,
trustee, employee or agent and shall inure to the benefit of the indemnitee's
heirs executors and administrators. Except as provided in subsection 9.2 of this
Section with respect to proceedings seeking to enforce rights to
indemnification, the corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if a proceeding (or part thereof) was authorized or ratified by the Board. The
right to indemnification conferred in this Section shall be a contract right.
9.2 RESTRICTIONS ON INDEMNIFICATION
No indemnification shall be provided to any such indemnitee for acts or
omissions of the indemnitee finally adjudged to be intentional misconduct or a
knowing violation of law, for conduct of the indemnitee finally adjudged to be
in violation of the Texas Business Corporation Act and the Texas Miscellaneous
Corporation Act as the same may exist or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), for any transaction with
respect to which it was finally adjudged that such indemnitee personally
received a benefit in money, property or services to which the indemnitee was
not legally entitled or if the corporation is otherwise prohibited by applicable
law from paying such indemnification, except that if any successor provision of
the Texas Business Corporation Act and the Texas Miscellaneous Corporation Act
may hereafter amended, the restrictions on indemnification set forth in this
subsection 9.2 shall be as set forth in such amended statutory provision.
9.3 ADVANCEMENT OF EXPENSES
The right to indemnification conferred in this Section shall include the right
to be paid by the corporation the expenses incurred in defending any proceeding
in advance of its final disposition (hereinafter an "advancement of expenses").
An advancement of expenses shall be made upon delivery to the corporation of an
undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee,
to repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal that such
indemnitee is not entitled to be indemnified for such expenses under this
subsection 9.3.
9.4 RIGHT OF INDEMNITEE TO BRING SUIT
If a claim under subsection 9.1 or 9.3 of this Section is not paid in full by
the corporation within sixty days after a written claim has been received by the
corporation, except in the case
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of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim. If successful
in whole or in part, in any such suit or in a suit brought by the corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. The indemnitee shall be presumed to be entitled to
indemnification under this Section upon submission of a written claim (and, in
an action brought to enforce a claim for an advancement of expenses, where the
required undertaking has been tendered to the corporation) and thereafter the
corporation shall have the burden of proof to overcome the presumption that the
indemnitee is so entitled.
9.5 PROCEDURES EXCLUSIVE
Pursuant to the Texas Business Corporation Act, the Texas Miscellaneous
Corporation Act and any successor provision thereof, the procedures for
indemnification and advancement of expenses set forth in this Section are in
lieu of the procedures required by the Texas Business Corporation Act, the Texas
Miscellaneous Corporation Act and any successor provision thereof.
9.6 NONEXCLUSIVITY OF RIGHTS
The right to indemnification and the advancement of expenses conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Articles of Incorporation
or Bylaws of the corporation, general or specific action of the Board, contract
or otherwise.
9.7 INSURANCE, CONTRACTS AND FUNDING
The corporation may maintain insurance, at its expense, to protect itself and
any Director, officer, partner, trustee, employee or agent of the corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the corporation would
have the power to indemnify such person against such expense, liability or loss
under the Texas Business Corporation Act. The corporation may enter into
contracts with any Director, officer, partner, trustee, employee or agent of the
corporation in furtherance of the provisions of this Section and may create a
trust fund, grant a security interest or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Section.
9.8 INDEMNIFICATION OF EMPLOYEES AND AGENTS OF THE CORPORATION
The corporation may, by action of the Board, grant rights to indemnification
and advancement of expenses to employees and agents or any class or group of
employees and agents of the corporation (i) with the same scope and effect as
the provisions of this Section with respect to the indemnification and
advancement of expenses of Directors and officers of the corporation; (ii)
pursuant to rights granted pursuant to, or provided by, the Texas Business
Corporation Act; or (iii) otherwise consistent with law.
-18-
<PAGE>
9.9 PERSONAL SERVING OTHER ENTITIES
Any person who, while a Director, officer or employee of the corporation, is
or was serving (a) as a Director or officer of another foreign or domestic
corporation of which a majority of the shares entitled to vote in the election
of its Directors is held by the corporation or (b) as a partner, trustee or
otherwise in an executive or management capacity in a partnership, joint
venture, trust or other enterprise of which the corporation or a wholly owned
subsidiary of the corporation is a general partner or has a majority ownership
shall be deemed to be so serving at the request of the corporation and entitled
to indemnification and advancement of expenses under subsections 9.1 and 9.3 of
this Section.
ARTICLE 10. BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of account,
stock transfer books, minutes of the proceedings of its shareholders and the
Board of Directors and such other records as may be necessary or advisable.
ARTICLE 11. FISCAL YEAR
The fiscal year of the corporation shall be determined by resolution adopted
by the Board of Directors. In the absence of such a resolution, the fiscal year
shall be the calendar year.
ARTICLE 12. VOTING OF SHARES OF ANOTHER CORPORATION
Shares of another corporation held by this corporation may be voted by the
president or vice-president, or by proxy appointment form executed by either of
them, unless the Directors by resolution shall designate some other person to
vote the shares.
ARTICLE 13. AMENDMENTS TO BYLAWS
These bylaws may be altered, amended or repealed, and new bylaws may be
adopted, by the Board of Directors or by the shareholders. Any bylaw adopted,
amended or repealed by the Directors may be repealed, amended or reinstated by
the shareholders at the next meeting of shareholders following such action,
without further notice than this bylaw.
-19-
<PAGE>
EXHIBIT 4.1
ORGANIZED UNDER THE LAWS OF THE STATE OF TEXAS
NUMBER SHARES
CPS SYSTEMS, INC.
COMMON STOCK
The Corporation is Authorized to Issue 50,000,000 Shares Common Stock -
Par Value $.01 Per Share
THIS CERTIFIES THAT _________________________________ is the owner of
__________________________ fully paid and non-assessable Shares of the above
Corporation transferable only on the books of the Corporation by the holder
hereof in person or by duly authorized Attorney upon surrender of this
Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and to be sealed with the Seal of the
Corporation.
Dated ___________________________
_________________________________ ___________________________
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER AND TRUST COMPANY TRANSFER AGENT AND REGISTRAR
- -----------------------------
BY AUTHORIZED SIGNATURE
AMERICAN BANK NOTE COMPANY
200 Park Avenue
49th Floor
New York, NY 10166
Phone: 212/557-9100
Fax: 212/338-0753
<PAGE>
Legend on back of certificate:
The Corporation shall furnish without charge to each shareholder who so requests
a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation of series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation. The
following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT - Custodian (Cust)(Minor) under
-------------- -----------
Uniform Gifts to Minors Act (State)
--------------------------
UNIF TRF MIN ACT - Custodian (until age ) (Cust)
--------------- --- -----------
under Uniform Transfers (Minor) to Minors Act (State)
----------------
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, hereby sell, assign and transfer unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------------------------------------------- .
(PLEASE
- -----------------------------------------------------------------------
PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares of the capital
- ----------------------------------------------------------
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
Attorney to transfer the
- -------------------------------------------------------
said stock on the books of the within named Corporation with full power of
substitution in the premises.
Dated X X
------------------------- -------------------------------------
THE SIGNATURE(S) TO THIS
- -------------------------------------------------------
ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS NOTICE: WRITTEN UPON THE FACE OF
THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed By THE SIGNATURE(S)
------------------------------------
SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17 Ad-15.
- --------------------------
AMERICAN BANK NOTE COMPANY
200 Park Avenue
49th Floor
New York, NY 10166
Phone: 212/557-9100
Fax: 212/338-0753
<PAGE>
EXHIBIT 10.10
TERM LOAN
PROMISSORY NOTE
U.S. $1,500,000 December 29, 1994
FOR VALUE RECEIVED, the undersigned CPS ACQUISITION CORP., a Georgia
corporation ("Maker"), promises to pay to GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation ("Lender"), or order, at its principal offices in Dial
Corporate Center, Dial Tower, Phoenix, Arizona 85077, or at such other place as
the holder of this Note ("Holder") may from time to time designate in writing,
in lawful money of the United States of America, the principal sum of ONE
MILLION FIVE HUNDRED THOUSAND UNITED STATES DOLLARS (U.S. $1,500,000) ("Loan"),
together with interest on the unpaid principal balance from time to time
outstanding from the date hereof until paid, as more fully provided for below.
All payments hereunder shall be made in immediately available funds.
This Term Loan Promissory Note ("Note") is executed pursuant to a Loan
and Security Agreement dated as of even date herewith between Maker and Lender
(together with any and all extensions, renewals, modifications and restatements
thereof, "Loan Agreement") and evidences the loan made pursuant to the Loan
Agreement.
Except as otherwise provided herein, interest ("Basic Interest") shall
accrue on the unpaid principal balance of the Loan from time to time outstanding
at a variable interest rate per annum equal to the Base Rate (as hereinafter
defined) plus two hundred fifty (250) basis points, which rate shall be adjusted
as and when the Base Rate changes. The term "Base Rate" as used herein shall
mean the per annum rate of interest publicly announced, from time to time, by
Citibank, N.A., New York, New York ("Citibank"), as the base (or "Equivalent")
rate of interest charged by Citibank to its largest and most creditworthy
commercial borrowers notwithstanding the fact that some borrowers of Citibank
may borrower from Citibank at rates less than the announced base rate, or if
Citibank ceases to publish its base rate, then such other published rate as
Holder shall deem comparable in its sole and absolute discretion. Interest shall
be calculated on the basis of the actual number of days elapsed during the
period for which interest is being charged predicated on a year consisting of
three hundred sixty (360) days.
Payments of principal, interest and any other amounts due and payable
hereunder shall, at the option of Holder, earn interest after they are due at a
-----
rate ("Default Rate") equal to (a) four hundred (400) basis points above the
rate of Basic Interest otherwise payable hereunder, or (b) the maximum contract
rate permitted under the law ("Applicable Usury Law") which has been chosen
below to govern this Note or may otherwise be applicable, whichever of (a) or
(b) is lesser. At the option of Holder, while an Event of Default (as that term
is defined in the Loan Agreement) exists, and in all events after an
acceleration of the Note by Holder, interest shall accrue on the entire
outstanding principal balance of this Note at the Default Rate.
<PAGE>
The contracted for rate of interest of the Loan contemplated hereby,
without limitation, shall consist of the following: (i) Basic Interest,
calculated in accordance with the provisions of this Note; (ii) the Default
Rate, calculated and applied to the principal balance of this Note in accordance
with the provisions hereof; (iii) the late charge calculated and applied to an
overdue payment in accordance with the provisions hereof; (iv) the Prepayment
Premium (as defined in the Loan Agreement); (v) the Basic Term Loan Fee (as
defined in the Loan Agreement); (vi) the Term Loan Maintenance Fee (as defined
in Section 2.12.1(b) of the Loan Agreement); (vii) the Term Loan Success Fee (as
defined in the Loan Agreement); and (viii) all Additional Sums (as hereinafter
defined), if any. Makers agree to pay an effective contracted for rate of
interest which is the sum of the above-referenced elements but in no event to
exceed the maximum contract rate permitted under the Applicable Usury Law. All
fees, charges, goods, things in action or any other sums or things of value
[other than amounts described in (i), (ii), (iii), (iv), (v), (vi) and (vii)
hereof], pursuant to this Note, the Loan Agreement, the other Loan Documents or
any other documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction, that under
any applicable law may be deemed to be interest with respect to this lending
transaction, for the purpose of any applicable law that may limit the maximum
amount of interest to be charged with respect to this lending transaction (the
"Additional Sums"), shall be payable by Maker as, and shall be deemed to be,
additional interest, and for such purposes only, the agreed upon and "contracted
for rate of interest" of this lending transaction shall be deemed to be
increased by the rate of interest resulting from the Additional Sums.
The principal of and interest on the Loan shall be due and payable in
forty-seven (47) consecutive monthly installments of Thirty-Two Thousand Six
Hundred Fourteen Dollars ($32,614) each, commencing on February 1, 1995, and
continuing on the first day of each month thereafter through and including
December 1, 1998. On December 30, 1998, the entire unpaid principal balance of
this Note, all accrued and unpaid Basic Interest, and all other charges or
amounts owing in connection with the Loan shall be due and payable in full.
Maker is also required to make to Lender additional payments of
principal on the Loan, as more fully provided pursuant to the terms of the Loan
Agreement.
All payments under this Note shall be applied first to any late charge
or other fees, then to accrued but unpaid Basic Interest, then to any other
amounts due and payable hereunder or under the Loan Agreement, and the balance,
if any, to outstanding principal.
If any installment of principal, interest or any other payment required
to be made in connection with the Loan is not paid when
2
<PAGE>
due, or upon the occurrence of any other Event of Default, Holder may at its
option, without notice or demand, declare immediately due and payable the entire
unpaid principal balance hereof, all accrued and unpaid Basic Interest thereon,
the Prepayment Premium, and all other obligations owing in connection with the
Loan, including, without limitation, the Term Loan Success Fee and any unpaid
balance of the Term Loan Maintenance Fee. This Note shall also be immediately
due and payable:
(a) if Maker shall (i) file, or consent, by answer or otherwise, to
the filing against Maker of a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or insolvency under the laws of
any jurisdiction, (ii) make an assignment for the benefit of creditors, (iii)
consent to the appointment of a custodian, receiver, trustee or other officer
with similar powers for Maker, or for any substantial part of the property owned
by Maker, or (iv) be adjudicated insolvent; or
(b) if a petition for relief or reorganization, arrangement or
liquidation, or any other petition in bankruptcy or insolvency, or the
appointment of a custodian under the laws of any jurisdiction is filed against
Maker or a custodian is appointed for properties of Maker, and such proceeding
is not dismissed and/or appointment vacated within ninety (90) days thereafter.
In the event that any monthly installment of principal and interest
shall not be paid within ten (10) days of the date when due, a "late charge" of
two percent (2.0%) of the late payment may be charged by the Holder for the
purposes of defraying the expense incident to handling such delinquent payments.
Such late charge represents the reasonable estimate of Maker and Lender of a
fair average compensation for the loss which may be sustained by Holder due to
the failure of Maker to make timely payments. All late charges shall be due and
payable monthly on the same dates provided herein for the payment of
installments.
Except as expressly provided in the Loan Agreement, prepayment of this
Note will not be permitted in whole or in part.
---
Holder shall not by any act or omission be deemed to have waived any
of its rights or remedies hereunder unless such waiver be in writing and signed
by an authorized officer of Holder and then only to the extent specifically set
forth therein; a waiver on one occasion shall not be construed as continuing or
as a bar to or waiver of such right or remedy on any other occasion. All
remedies conferred upon Holder by this Note, the Loan Agreement, or any other
instrument or agreement related hereto shall be cumulative and none is
exclusive, and such remedies may be exercised concurrently or consecutively at
Holder's option.
If Holder undertakes to collect this Note, Maker will pay to Holder in
addition to any indebtedness due and unpaid, all costs and expenses of
collection, including, without limitation,
3
<PAGE>
attorneys' fees and expert witnesses' fees, whether or not legal proceedings
shall be instituted. In the event Holder institutes legal proceedings to enforce
this Note, the award of costs of collection, including attorneys' fees, shall be
made by the court (and not by a jury).
Maker and every person or entity at any time liable for the payment of
the indebtedness evidenced by this Note, hereby absolutely waive: presentment
for payment, protest and demand; notice of dishonor, protest, demand and
nonpayment of this Note; and each and every other notice of any kind except for
notices expressly provided in this Note or in any of the other documents
securing payment of, or otherwise related to, this Note. Maker and every such
person or entity further consent to renewals or extensions of the payment of any
sums to be paid under this Note at any time and from time to time, without limit
as to the number or aggregate period of such renewals or extensions, at the
request of any other person or entity liable for them. Any such renewals or
extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced by this Note.
This Note is given and accepted as evidence of indebtedness only and
not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's obligations and
agreements under this Note.
This Note and all its provisions, conditions, promises and covenants
shall be binding upon Maker, and its respective successors and assigns, provided
nothing herein shall be deemed Holder's consent to any assignment restricted or
prohibited by the terms of the Loan Agreement. If more than one person or entity
has executed this Note as Maker, the obligations of such persons and entities
shall be joint and several.
If any one or more of the provisions contained in this Note shall be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby; provided that where the provisions of any invalidating law
may be waived, they are waived by Maker to the fullest extent possible.
THIS NOTE AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES HERETO
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS
OF THE UNITED STATES.
MAKER: (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS,
JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY,
AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER
PROCEEDINGS ARISING OUT OF OR
4
<PAGE>
RELATING TO THIS NOTE OR THE SUBJECT MATTER HEREOF OR, IF HOLDER INITIATES SUCH
ACTION, ANY COURT IN WHICH HOLDER SHALL INITIATE SUCH ACTION AND THE CHOICE OF
SUCH VENUE SHALL IN ALL INSTANCES BE AT HOLDER'S ELECTION; AND (B) WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT TO ASSERT
BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING
ANY CLAIM THAT MAKER IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-
NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT
FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. MAKER
HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY
OTHER FORUM.
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES AND THEREFORE ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING WITHOUT A JURY, AND MAKER HEREBY
KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY SUCH PROCEEDING.
ALL OF THE PROVISIONS SET FORTH ABOVE ARE A MATERIAL INDUCEMENT FOR
LENDER'S MAKING THE LOAN TO MAKER.
[INITIALS APPEAR HERE] MAKER'S Initials
----------------------
Maker warrants and represents that the Loan is for business purposes.
This Note is secured by property owned by Maker and others.
MAKER: CPS ACQUISITION CORP.,
a Georgia corporation
By: /s/ Paul E. Kana
----------------------------------
Paul E. Kana, President
5
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 30th day of
December, 1994, by Paul E. Kana, the President of CPS ACQUISITION CORP., a
Georgia corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Tonja M. Moore
-----------------------------------------------
Type/Print Name: Tonja M. Moore
-------------------------------
Notary Public, State of Arizona
My commission expires:
- ----------------------
[SEAL APPEARS HERE]
6
<PAGE>
EXHIBIT 10.11
GUARANTY AND SUBORDINATION
--------------------------
(Term Loan)
This GUARANTY AND SUBORDINATION ("Guaranty") is made as of the 29th
day of December, 1994, by CPS SYSTEMS, INC., a Texas Corporation ("Guarantor"),
in favor of GREYHOUND FINANCIAL CORPORATION, a Delaware corporation ("Lender").
R E C I T A L S:
---------------
A. Lender has to made to CPS Acquisition Corp., a Georgia corporation
("Borrower"), pursuant to a Term Loan Agreement of even date herewith (as from
time to time renewed, amended, restated or replaced, the "Term Loan Agreement")
a term loan in a principal amount of One Million Five Hundred Thousand Dollars
($1,500,000) ("Term Loan"). The Term Loan will be evidenced by a promissory note
in the original face amount up to One Million Five Hundred Thousand Dollars
($1,500,000) (as from time to time renewed, amended, restated or replaced, "Term
Loan Note").
B. The Term Loan Agreement, the Term Loan Note, and all other
documents now or hereafter executed in connection with the Term Loan are
hereinafter referred to as the "Term Loan Documents".
C. In order to induce Lender to make the Term Loan, Guarantor has
agreed to execute and deliver this Guaranty. Lender has agreed to make the Term
Loan only if the Guaranty is executed by Guarantor and delivered to Lender.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor hereby unconditionally
covenants and agrees as follows:
ARTICLE 1
---------
GUARANTY
--------
1.1 Guarantor absolutely, unconditionally, irrevocably, and jointly
and severally guarantees the full, prompt, complete and faithful performance,
payment, observance and fulfillment by Borrower of all the obligations,
covenants and conditions of the Term Loan Documents (collectively
"Obligations"), including, but not limited to, the payment when due of any and
all sums that may become due to Lender from Borrower under the Term Loan
Documents. Guarantor further agrees to pay all expenses (including reasonable
attorneys' fees and legal expenses) incurred by Lender in endeavoring to collect
or secure performance of all or any part of the Obligations or in enforcing this
Guaranty.
<PAGE>
1.2 Guarantor hereby covenants and agrees unconditionally that within
(a) five (5) days of the receipt of written notice from or on behalf of Lender
to the effect that there exists a breach or default of the Obligations which
Borrower has failed to pay or perform or (b) such unexpired grace period, if
any, as Borrower may then have under the Term Loan Documents to cure the breach
or default before it becomes an Event of Default (as defined in the Term Loan
Documents), which ever period is longer, Guarantor will pay the entire unpaid
amount thereof to Lender at its offices at Dial Corporate Center, Dial Tower,
Phoenix, Arizona 85077 or such other address as Lender may by notice direct or
will provide Lender with evidence of the performance of the Obligations which
Borrower has failed to perform. If Guarantor fails to pay any sums properly due
Lender hereunder within the period applicable pursuant to terms of the preceding
sentence, then, as to Guarantor, such sums shall bear interest at the Default
Rate (as defined in the Term Loan Agreement), in lieu of the interest rate
otherwise applicable thereunder. Further, if Guarantor shall fail to pay any
amount or perform any obligations due Lender hereunder, Lender may institute and
pursue any action or proceeding to judgment or final decree and may enforce any
such judgment or final decree against Guarantor and collect in the manner
provided by law out of its property, wherever situated, the monies adjudged or
decreed to be payable.
ARTICLE 2
---------
GENERAL COVENANTS AND WAIVERS OF
--------------------------------
GUARANTOR; REMEDIES AND RIGHTS OF LENDER
----------------------------------------
2.1 Neither failure to give, nor defect in, any notice to the Borrower
or Guarantor and/or any other guarantor or surety of the Obligations ("Obligor")
concerning a default in the performance of the Obligations, an Event of Default
or any event which might mature into an Event of Default shall extinguish or in
any way affect the obligations of Guarantor hereunder. Neither demand on, nor
the pursuit of any remedies against, Borrower or any other Guarantor shall be
required as a condition precedent to, and neither the pendency nor the prior
termination of any action, suit or proceeding against Borrower or any other
Obligor (whether for the same or a different remedy) shall bear on or prejudice
the making of a demand on Guarantor by Lender and commencement against Guarantor
after such demand, of any action, suit or proceeding, at law or in equity, for
the specific performance of any covenant or agreement contained herein or for
the enforcement of any other appropriate legal or equitable remedy.
2.2 Guarantor's liability hereunder is primary, direct, immediate, and
joint and several with that of Borrower and each and every other Obligor.
Neither (a) the exercise or the failure to exercise by Lender of any rights or
remedies conferred on it under the Term Loan Documents, hereunder or existing at
law or otherwise,
2
<PAGE>
or against any security for performance of the Obligations, (b) the commencement
of an action at law or the recovery of a judgment at law against Borrower or any
other Obligor and the enforcement thereof through levy or execution or
otherwise, (c) the taking or institution or any other action or proceeding
against Borrower or any other Obligor nor (d) any delay in taking, pursuing or
exercising any of the foregoing actions, rights, powers or remedies (even though
requested by Guarantor) by Lender or anyone acting for Lender, shall extinguish
or affect the obligations of Guarantor hereunder. Subject to the provisions of
paragraph 4.6, Guarantor shall be and remain liable for all the Obligations
until fully paid and performed and for one year and one day after such payment
and performance of all the Obligations (and without limiting Guarantor's
obligations under paragraph 2.8), notwithstanding the previous discharge (total
or partial) from further liability of Borrower or any other Obligor.
2.3 Guarantor hereby expressly waives: (a) notice of acceptance by
Lender of this Guaranty; (b) notice of the existence, creation or non-payment
of all or any of the Obligations, except as provided in paragraph 1.2; (c)
presentment, protest, demand, dishonor, notice of dishonor, protest and all
notices whatsoever; (d) all diligence in collection or protection of or
realization on the Obligations or any part thereof, any obligation hereunder, or
any security for or guarantee of any of the foregoing; (e) any defense based
upon an election of remedies by Lender or marshalling of assets; (f) any defense
arising because of Lender's election under Section 1111(b) (2) of the United
States Bankruptcy Code ("Bankruptcy Code") in any proceeding instituted under
the Bankruptcy Code; (g) any defense based on post-petition borrowing or the
grant of a security interest by Borrower under Section 364 of the Bankruptcy
Code; (h) any duty on the part of Lender to disclose to Guarantor any facts
Lender may now or hereafter know about Borrower, regardless of whether Lender
has reason to believe that any such facts materially increase the risk beyond
that which Guarantor intends to assume or has reason to believe that such facts
are known to Guarantor or has a reasonable opportunity to communicate such facts
to Guarantor, because Guarantor represents and warrants that it is fully
responsible for being and keeping informed of the financial condition of
Borrower and of all circumstances bearing on the risk of non-payment of any
obligation guaranteed hereby; and (i) any and all suretyship defenses and
defenses in the nature thereof under Arizona and/or any other applicable law,
including, without limitation, the benefits of the provisions of Sections
12-1641 through 12-1646, of the Arizona Revised Statutes, Sections 17 and 21,
A.R.C.P., and all other laws of similar import.
2.4 Without limiting the generality of the foregoing, Guarantor will
not assert against Lender any defense of waiver, release, discharge in
bankruptcy, statute of limitations, res judicata, statute of frauds,
anti-deficiency statute, fraud, usury,
3
<PAGE>
illegality or unenforceability which may be available to Borrower with respect
to the Term Loan Documents (or the Term Loan), or any setoff available to
Borrower against Lender, whether or not on account of a related transaction.
2.5 The benefits, remedies and rights provided or intended to be
provided hereby for Lender are in addition to and without prejudice to any
rights, benefits, remedies or security to which Lender might otherwise be
entitled.
2.6 Anything else contained herein to the contrary notwithstanding,
Lender, from time to time, without notice to Guarantor, may take all or any of
the following actions without in any manner affecting or impairing the
obligations of Guarantor hereunder: (a) obtain a lien on or a security interest
in any property to secure any of the Obligations; (b) retain or obtain the
primary or secondary liability of any party or parties, in addition to
Guarantor, with respect to any of the Obligations; (c) renew, extend or
otherwise change the time for payment or performance of any of the Obligations
for any period; (d) release or compromise any liability of Guarantor hereunder
or any liability of any nature of any other party or parties with respect to the
Obligations; (e) exchange, enforce, waive, release and apply any security for
the performance of the Obligations and direct the order or manner of sale
thereof as Lender may in Lender's discretion determine; (f) resort to Guarantor
for payment of any of the Obligations, whether or not Lender shall proceed
against any other party primarily or secondarily liable on any of the
Obligations; (g) agree to any amendment (including, without limitation, any
amendment which changes the amount of interest to be paid under the Term Loan
Documents or extends the period of time during which Borrower may obtain an
advance of the Term Loan), any alteration of the Term Loan Documents or any
waiver of any provisions of the Term Loan Documents and/or exercise Lender's
rights to consent to any action or non-action of Lender which may violate the
covenants and agreements contained in the Term Loan Documents with or without
consideration, on such terms and conditions as may be acceptable to Lender in
Lender's sole and absolute discretion; or (h) exercise any of Lender's rights
conferred by the Term Loan Documents or by law.
2.7 No delay on the part of Lender in the exercise of any right or
remedy under this Guaranty shall operate as a waiver thereof, and no single or
partial exercise by Lender of any right or remedy shall preclude other or
further exercise thereof or the exercise of any other right or remedy; nor shall
any modification or waiver of any of the provisions of this Guaranty be binding
on Lender except as expressly set forth in writing, duly signed and delivered on
behalf of Lender. No action of Lender permitted hereunder shall in any way
affect or impair the rights of Lender or the obligations of Guarantor under this
Guaranty.
4
<PAGE>
2.8 If at any time all or any part of any payment theretofore applied
by Lender to any of the Obligations is or must be rescinded or returned by
Lender for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of Borrower), such Obligations, for purposes of
this Guaranty, to the extent that such payment is or must be rescinded or
returned, shall be deemed to have never been paid; and this Guaranty shall
continue to be effective or be reinstated, as the case may be, as to such
Obligations, all as though such application by Lender had not been made.
2.9 Guarantor shall have no right of subrogation with respect to the
Obligations or any right of indemnification, reimbursement or contribution from
Borrower or from any other Obligor with respect to the Obligations regardless of
any payment made by Guarantor pursuant to the provisions of this Guaranty until
the Obligations have been paid and performed in full, and Guarantor hereby
unconditionally waives any and all rights of subrogation, indemnification,
reimbursement or contribution.
2.10 It is not necessary for Lender to inquire into the powers of
Borrower or Borrower's officers, directors, partners or agents purporting to act
on its behalf and the Obligations are hereby guaranteed notwithstanding the lack
of power or authority on the part of Borrower or anyone acting on the Borrower's
behalf to incur the Obligations.
2.11 If Guarantor shall (a) generally not be paying its debts as they
become due, (b) file, or consent by answer or otherwise to the filing against it
of a petition for relief or reorganization, arrangement or any other petition in
bankruptcy or insolvency under the laws of any jurisdiction, (c) make an
assignment for the benefit of its creditors, (d) consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers for itself or
any substantial part of its property, (e) be adjudicated insolvent (f) dissolve
or commence to wind-up its affairs, or (g) take any action for purposes of the
foregoing, Guarantor will pay to Lender forthwith the whole then unpaid amount
of the Term Loan Note (which amount, together with any other sums due under the
Term Loan Documents is herein called the "Unpaid Amount") as if such Unpaid
Amount were then due and payable; and in any such event Lender, irrespective of
whether any demand shall have been made on Guarantor, Borrower or any Obligor by
intervention in or initiation of judicial proceedings relative to Guarantor, its
creditors or its property, may file and prove a claim or claims for the whole or
any portion of the Unpaid Amount or any portion thereof and file such other
papers or documents as may be necessary or advisable in order to have such claim
allowed in such judicial proceedings and to collect and receive any monies or
other property payable or deliverable on any such claim, and to distribute the
same; and any receiver, assignee or trustee in
5
<PAGE>
bankruptcy or reorganization is hereby authorized to make such payments to
Lender.
ARTICLE 3
---------
SUBORDINATION
-------------
3.1 Guarantor subordinates to the Obligations all present and future
indebtedness of Borrower to Guarantor ("Subordinated Obligations") and all
liens, security interests, claims and right of any kind that Guarantor may now
have or hereafter acquire against Borrower and/or the property of Borrower
("Borrower's Property") which secure, result from Borrower's or otherwise
pertain to present and future indebtedness to the Subordinated Obligations.
Guarantor agrees that all liens, security interests, claims and rights of any
kind that Guarantor may now have or hereafter acquire against Borrower and
Borrower's Property which secure, result from or otherwise pertain to the
Subordinated Obligations shall be subordinate, inferior and subject to the
liens, security interests, claims and rights of Lender against Borrower and/or
Borrower's Property under the terms of any of the Term Loan Documents or at law,
whether direct or contingent or whether now or hereafter created, including but
not limited to, any renewals, extensions or modifications thereof. Guarantor
agrees that Guarantor may not accept payments on the Subordinated Obligations.
Any payment received by Guarantor shall be deemed received in trust for Lender
and shall be immediately remitted to Lender. Lender shall be entitled to receive
full payment and performance of the Obligations before the holder(s) thereof
is/are entitled to receive any payment of the Subordinated Obligations.
Guarantor grants to Lender a security interest in the Subordinated Obligations
as security for performance of Guarantor's obligations under this Guaranty, and
Guarantor shall remain liable for any deficiency following any foreclosure of
such security interest.
3.2 Guarantor does not have and will not take or accept any lien upon
security interest in, assignment of or other charge upon Borrower's Property as
security for the Subordinated Indebtedness. Guarantor will not take any action
which will either (a) force the sale of Borrower's Property in order to satisfy
the Subordinated Obligations or (b) affect in any manner any and all of Lender's
liens, security interests, claims or rights of any kind that Lender may now have
or hereafter acquire against Borrower and/or Borrower's Property. Guarantor will
refrain from taking any action which is in any way inconsistent with or in
derogation of this subordination or of the rights of Lender hereunder and
covenants to perform such further acts as necessary or appropriate to giving
effect to this subordination. Without limiting the generality of the foregoing,
Guarantor will not assign any portion of the Subordinated Obligations, except
expressly subject to the terms of this Guaranty; and Guarantor will cause all
evidence of the
6
<PAGE>
Subordinated Obligations to set forth the provisions hereof and shall cause any
instrument representing the Subordinated Obligations to be endorsed with the
following legend: "The indebtedness evidenced by this instrument is
subordinated, pursuant to a Guaranty and Subordination ("Guaranty") dated as of
December ____, 1994, by CPS Systems, Inc. in favor of Greyhound Financial
Corporation, to the prior payment in full of the Obligations (as defined in the
Guaranty)."
ARTICLE 4
---------
MISCELLANEOUS PROVISIONS
------------------------
4.1 All the covenants, stipulations, promises and agreements contained
in this Guaranty by or on behalf of Guarantor are for the benefit of Lender, its
successors or assigns and shall bind Guarantor, and Guarantor's heirs,
executors, personal representatives, successors and assigns. Lender, without
notice of any kind, may sell, assign or transfer the Term Loan Documents, and in
such event each and every immediate and successive assignee or transferee
thereof may be given the right by Lender to enforce this Guaranty in full, by
suit or otherwise, for Lender's own benefit. Guarantor agrees for the benefit of
any such assignee or transferee that Guarantor's obligations hereunder shall not
be subject to any reduction, abatement, defense, setoff, counterclaim or
recoupment for any reason whatsoever.
4.2 All notices, requests or demands required or permitted to be given
hereunder shall be in writing, and shall be deemed effective (a) upon hand
delivery, if hand delivered; (b) one (1) Business Day after such are deposited
for delivery via Federal Express or other nationally recognized overnight
courier service; or (c) three (3) Business Days after such are deposited in the
United States mails, certified or registered mail, all with delivery charges
and/or postage prepaid, and addressed as shown below, or to such other address
as either party may, from time to time, designate in writing. Written notice may
be given by telecopy to the telecopier number shown below as either party may
designate, from time to time, in writing, provided that such notice shall not be
deemed effective unless it is confirmed within 24 hours by hand delivery,
courier delivery or mailing of a copy of such notice in accordance with the
requirements set forth above.
If to Lender: Greyhound Financial Corporation
(two copies) Dial Tower
Dial Corporate Center
1850 North Central Avenue
Phoenix, Arizona 85077-1141
Attn: Vice President - Law
Telecopy No.: 602-207-5036
and
7
<PAGE>
Greyhound Financial Corporation
311 So. Wacker, Suite 2725
Chicago, Illinois 60606
Attn: Portfolio Manager
Telecopy No.: (312) 322-7250
If to Guarantor: CPS Systems, Inc.
3400 Carlisle St., Suite 500
Dallas, Texas 75204
Attn: Paul E. Kana
Telecopy No.: (214) 720-1380
As used herein the term "Business Day" means any day other than a Saturday,
Sunday or other day on which banks in Los Angeles, California or New York, New
York are required to close.
4.3 Terms used and not otherwise defined herein shall have the same
meanings given thereto in the Term Loan Documents. The recitals set forth above
are incorporated herein by this reference.
4.4 CHOICE OF LAW: JURISDICTION: VENUE: AND WAIVER OF JURY TRIAL.
------------------------------------------------------------
(a) THIS GUARANTY AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE
PARTIES THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT THE LAWS OF
SUCH STATE, THE LAWS OF THE UNITED STATES.
(b) GUARANTOR: (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS,
JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY,
AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE SUBJECT MATTER
HEREOF, OR, IF LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL
INITIATE SUCH ACTION AND THE CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT
LENDER'S ELECTION; AND (B) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN
ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT GUARANTOR IS NOT PERSONALLY
SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT,
ACTION OR PROCEEDING IS IMPROPER. GUARANTOR HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
(c) LENDER AND GUARANTOR ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS GUARANTY WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY SHALL BE TRIED BY
8
<PAGE>
A JUDGE SITTING WITHOUT A JURY, AND GUARANTOR HEREBY KNOWINGLY AND VOLUNTARILY
WAIVES TRIAL BY JURY IN ANY SUCH PROCEEDING.
(d) ALL OF THE PROVISIONS SET FORTH IN THIS PARAGRAPH ARE A MATERIAL
INDUCEMENT FOR LENDER'S MAKING THE TERM LOAN TO BORROWER.
(INITIALS
APPEAR GUARANTOR's Initials
HERE)
----
4.5 Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and no such prohibition or unenforceability shall
invalidate or render unenforceable such provision in any other jurisdiction.
4.6 Notwithstanding anything herein to the contrary, this Guarantee
shall terminate upon the merger of Borrower into Guarantor.
4.7 Guarantor, at its sole cost and expense, agrees to deliver and
supply Lender with a favorable opinion of its independent legal counsel, which
counsel must be acceptable to Lender, confirming and substantiating, to the best
of such counsel's knowledge, the truth and accuracy of all its warranties and
representations.
4.8 In the event litigation or any other type of proceeding is
commenced to enforce or interpret this Guaranty, to recover damages for breach
of this Guaranty, to obtain declaratory relief in connection with this Guaranty,
or otherwise to obtain judicial relief in connection herewith, the prevailing
party shall be entitled to recover reasonable attorneys' fees as set by the
court sitting without a jury and all of the reasonable costs of that litigation
or proceeding, and any and all appeals therefrom, including, but not limited to,
taxable and nontaxable costs, together with interest on those attorneys' fees
and costs at the Default Rate.
4.9 This Guaranty may be executed in any number of counterparts. Each
such counterpart shall be deemed to be an original instrument but all such
counterparts together shall constitute but one Guaranty.
4.10 This Guaranty sets forth the entire agreement of Guarantor and
Lender with respect to the subject matter hereof and supersedes all prior oral
and written agreements and representations by Lender to Guarantor. No
modification or waiver of any provision of this Guaranty or any right of Lender
hereunder and no release of Guarantor from any obligation hereunder shall be
effective unless in a writing executed by an authorized officer of Lender.
9
<PAGE>
IN WITNESS WHEREOF, this Guaranty is executed to be effective as of
that date first appearing above.
GUARANTOR:
CPS SYSTEMS, INC.
a Texas corporation
By: /s/ Paul E. Kana
-------------------------------
Paul E. Kana, President
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged before me this 30th day of December,
1994, by Paul E. Kana the President of CPS SYSTEMS, INC., a Texas corporation,
on behalf of such corporation.
/s/ Tonja M. Moore
-------------------------------
Type/Print Name: Tonja M. Moore
---------------
Notary Public, State of Arizona
My commission expires:
[OFFICIAL SEAL OF
TONJA M. MOORE
APPEARS HERE]
Lender hereby accepts this Guaranty and Subordination.
LENDER:
GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By /s/ Patricia Murray
--------------------------------
Its: Vice President
10
<PAGE>
Schedule 1
NONE
11
<PAGE>
EXHIBIT 10.12
STOCK PLEDGE AND SECURITY AGREEMENT
-----------------------------------
(WITH IRREVOCABLE PROXY)
------------------------
THIS STOCK PLEDGE AND SECURITY AGREEMENT (WITH IRREVOCABLE PROXY)
("Agreement"), is entered into as of the 29th day of December, 1994, by and
between G. DEAN BOOTH, a single man ("Pledgor"), and GREYHOUND FINANCIAL
CORPORATION, a Delaware corporation ("Secured Party").
A. CPS Acquisition Corp., a Georgia corporation ("Issuing
Corporation"), has requested that Secured Party extend to it a loan ("Term
Loan") in an amount not to exceed One Million Five Hundred Thousand Dollars
($1,500,000) pursuant to a Term Loan Agreement between Issuing Corporation and
Secured Party dated as of even date herewith (as it may be from time to time
renewed, amended, restated or replaced, "Term Loan Agreement") and evidenced by
a promissory note (as from time to time renewed, amended, restated or replaced,
"Term Loan Note").
B. CPS Systems Inc., a Texas corporation ("Company"; and Issuing
Corporation and Company collectively, "Borrowers"), has requested that Secured
Party extend to it in the form a revolving line of credit a loan ("Revolver
Loan"; and the Term Loan and Revolver Loan collectively, "Loans") in a principal
amount not to exceed One Million Dollars ($1,000,000) pursuant to a Revolver
Loan and Security Agreement between Company and Secured Party dated as of even
date herewith (as it may be from time to time renewed, amended, restated or
replaced, "Revolver Loan Agreement"; and the Term Loan Agreement and the
Revolver Loan Agreement collectively, "Loan Agreements") and evidenced by a
promissory note (as from time to time renewed, amended, restated or replaced,
"Revolver Loan Note"; and the Term Loan Note and the Revolver Loan Note
collectively, "Notes").
C. The Loan Agreements, Notes, and all other documents now or
hereafter evidencing and/or securing the Loans are hereinafter referred to as
the "Credit Facilities Documents."
D. The Term Loan will be used to pay a part of the acquisition costs
of Issuing Corporation for all of the capital stock of Company. Under the terms
of the Credit Facilities Documents, Acquisition Corp. is required to merge into
Company. Upon such merger, the term "Issuing Corporation" shall mean Company and
the term "Borrowers" will include only Company.
E. Pledgor owns the shares of common stock of Issuing Corporation
described in Schedule E (including any of the share of capital stock of Company
into which it may be converted upon consummation of the merger, "Shares").
<PAGE>
F. In order to induce Secured Party to make the Loans, Pledgor desires
to grant a security interest in, pledge, assign and transfer to Secured Party,
as additional security for the Loans and other obligations, all of Pledgor's
right, title and interest in and to the Shares.
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants, conditions, representations and warranties contained herein,
the parties hereto do hereby agree as follows:
1. Security Interest. Pledgor hereby grants a security interest to
-----------------
Secured Party in and to the Shares, together with all rights thereof or arising
therefrom, all certificates, options or warrants associated therewith, all
additions thereto, dividends and payments arising thereunder, all substitutions
therefor and the proceeds (including, without limitation, all accounts, chattel
paper, contract rights, documents, general intangibles, instruments, and
equipment, inventory and other goods) of all of the foregoing (collectively,
"Collateral"), as security for all of the following (collectively,
"Obligations"): the obligations of Borrowers, or either of them, to Secured
Party under the Loan Agreements and any and all of the other Credit Facilities
Documents, all obligations of Pledgor under this Agreement, and all other
obligations now or hereafter owed to Secured Party by Borrowers, or either of
them, or their respective successors and/or assigns to Secured Party. Upon
execution of this Agreement, Pledgor shall deliver to Secured Party the
certificates evidencing the Shares together with stock power(s) and
assignment(s) separate from certificate for the certificates representing the
Shares, endorsed in blank, with signature guaranteed as required by the transfer
agent for the Shares, and the books of Issuing Corporation of such Shares shall
contain a legend to reflect such pledge of the Shares hereunder.
2. Covenants, Representations and Warranties. Pledgor covenants,
-----------------------------------------
represents and warrants to Secured Party, with the understanding that Secured
Party is relying on such representations and warranties, that:
(a) the Collateral is the sole and separate Property of
Pledgor, and Pledgor has title to the Collateral and is the legal and
beneficial owner of the Collateral, free from any liens, security
interests, assignments, encumbrances or claims of any kind, other than
the security interest created by this Agreement and, subject to the
provisions of the Subordination Agreement (as defined in the Term Loan
Agreement), and the Subordinated Indebtedness Liens (as defined in the
Term Loan Agreement);
2
<PAGE>
(b) Except for the Subordinated Indebtedness Lien, so long as it is
subject to the terms and conditions of the Subordination Agreement, Pledgor will
not assign, pledge, encumber or otherwise transfer in any way, so long as this
Agreement shall remain in effect, the whole or any part of the Collateral;
(c) Except for the Subordinated Indebtedness Liens, so long as it is
subject to the terms and conditions of the Subordination Agreement, Pledgor will
not permit or suffer to exist any lien, security interest, encumbrance or claim
of any kind upon the Collateral, except those in favor of Secured Party;
(d) Pledgor shall deliver to Secured Party and Secured Party shall
retain physical possession of all stock certificates and other instruments and
documents representing or evidencing any of the Collateral, which stock
certificates shall be duly endorsed for transfer to Secured Party;
(e) Pledgor will not amend or waive or consent to any amendment or
waiver of the instruments or documents constituting the Collateral or make any
compromise, adjustment, settlement or termination in connection therewith, and
Pledgor will preserve and enforce all of its rights under the corporate
governance documents establishing the rights of holders of shares of stock of
the class held by Pledgor, unless failure to do so would not adversely affect
the Collateral;
(f) Pledgor will accept no payments, distributions or dividends on the
Collateral, Pledgor will hold any such payment, distribution or dividend
received by Pledgor in trust for Secured Party and not commingle it with its
general funds, and Pledgor will immediately remit to Secured Party any payment,
distribution or dividend received by it;
(g) The execution and delivery of this Agreement, and the performance
of its terms, will not result in any violation of or constitute a default under
the terms of any agreement, or other instrument, license, judgment, order,
statute, ordinance or other governmental rule or regulation, applicable to
Pledgor or the Collateral;
(h) Upon its execution and delivery, this Agreement shall create an
enforceable and valid lien upon and security interest in the Collateral;
(i) Pledgor has full power and authority to enter into this Agreement
and, if Pledgor is other than a natural person,
3
<PAGE>
the person executing this Agreement on behalf of Pledgor have been duly
authorized to act on behalf of Pledgor in the execution thereof;
(j) The capitalization of the Issuing Corporation consists of ten
thousand (10,000) authorized and issued shares of common stock and upon the
merger of Issuing Corporation into Company will convert into ten thousand
(10,000) shares of common stock of Company; the capitalization of Company
consists of five thousand six hundred (5,600) authorized and issued shares of
common stock and except for the warrants described in Schedule 2(j), there are
no agreements in effect which require or obligate Issuing Corporation or Company
to issue any additional shares of stock of Issuing Corporation or Company and
there are no outstanding warrants, options of other rights to purchase any
shares of stock of Issuing Corporation;
(k) Other than Pledgor and the other stockholders of Issuing
Corporation listed in Schedule 2(k), there are no persons who assert any type of
ownership interest or control (whether by virtue of voting rights or otherwise)
whatsoever in Issuing Corporation; and other than Issuing Corporation, there are
no other persons who assert any type of ownership interest in Company.
(1) Other than this Agreement and the pledge agreement creating the
Subordinated Indebtedness Liens on the Collateral, there is no agreement which
imposes any conditions or restrictions on the Shares, and Pledgor shall take no
action to impose any such restrictions prior to full satisfaction of all of
Borrowers' Obligations under the Credit Facilities Documents;
(m) All of the Shares have been duly authorized, validly issued and are
fully paid and non-assessable;
(n) The granting by Pledgor to Secured Party of the security interest
in the Collateral as evidenced by this Agreement complies with all applicable
federal and state securities laws or qualifies for an exemption from such
registration;
(o) Pledgor will promptly (but not later than three (3) days after
receipt thereof) deliver to Secured Party copies of any notices received with
respect to matters materially affecting the Collateral; and
4
<PAGE>
(p) Pledgor's principal place of business, chief executive
office and/or (if it is a natural person) residence is located at the
mailing address set forth in Schedule 2(m) and Pledgor will not change
the location of its principal place of business or chief executive
office or (if it is a natural person) residence without ten (10) days
prior written notice to Secured Party.
3. Default. The occurrence of any of the following shall constitute an
-------
event of default ("Event of Default") under this Agreement:
(a) A default or violation shall occur in the performance
of any of the obligations of Pledgor under Section 2;
(b) A default or violation in the performance of Pledgor's
obligations under this Agreement or any of the other Loan Documents
(other than a default or violation referred to elsewhere in this
Section 3) which continues unremedied (i) for a period of five (5)
Business Days (as defined below) after notice of such default or
violation to Pledgor in the case of any default or violation which can
be cured by the payment of money alone or (ii) for a period of twenty
(20) Business Days after notice to Pledgor in the case of any other
default or violation;
(c) Any representation or warranty of Pledgor contained herein
or in any certificate furnished to Secured Party hereunder by or on
behalf of Pledgor proves to be, in any material respect, false or
misleading as of the date deemed made; or
(d) An "Event of Default," as defined elsewhere in any of the
other Credit Facilities Documents.
As used herein, the term "Business Day" means any day other than a Saturday,
Sunday or a day on which banks in, Los Angeles, California, or New York, New
York, are required to close.
4. Remedies. Upon the occurrence of any Event of Default, Secured Party
--------
may, at its option and without further notice to Pledgor, do one or more of the
following:
(a) Sell, assign and deliver any or all of the Collateral or
any rights or interest therein at public or private sale, at Secured
Party's option;
5
<PAGE>
(b) Collect any and all dividends or proceeds due from the
Collateral and apply such to all costs and expenses of Secured Party
and to all obligations secured hereby; and
(c) Take such other action and remedies as are provided in the
applicable Uniform Commercial Code or as otherwise allowed by law.
With respect to any sale of the Collateral by Secured Party, whether public or
private, under the UCC or otherwise, notice of such sale shall be deemed
commercially reasonable if given to Pledgor at least ten (10) Business Days
prior to the date of the intended disposition. Any and all remedies conferred
upon Secured Party shall be deemed cumulative with and non-exclusive of any
other remedies allowed by law. The exercise of any one remedy by Secured Party
shall not preclude the exercise of any other. Secured Party may delay exercising
a right or remedy hereunder without waiving that, or any other past, present or
future right or remedy.
5. Maintenance of Priority of Security Interest. Except for the
--------------------------------------------
Subordinated Indebtedness Liens, so long as it is subject to the terms and
conditions of the Subordination Agreement, Pledgor will not, and will it not
attempt to or permit a third party to, assign, pledge, mortgage, lease,
hypothecate or otherwise encumber, sell or otherwise dispose of the Collateral,
and Pledgor will not suffer or permit to be incurred any liens on or security
interests in the Collateral or permit the Collateral to be subjected to any
unpaid charges whatsoever. In addition, Pledgor agrees that it will defend the
Collateral against the claims and demand of all parties; provided, that, at
Secured Party's option, Secured Party may do so at Pledgor's expense. Pledgor
agrees, at its sole cost and expenses, to execute, re-execute, deliver and
re-deliver all documents requested by Secured Party to enable Secured Party to
perfect, preserve and protects its security interest in and on the Collateral,
and does hereby authorize Secured Party to file and record any such documents
for such purposes. If Issuing Corporation declares any share dividend,
reclassification, readjustment, makes any other change in the structure of
Issuing Corporation or if any subscription, warrants or other options are
exercisable with respect to the Collateral, of if Issuing Corporation is a party
to any merger or consolidation, all new, substituted, or additional shares or
other securities, issued by reason of such change or option, shall be subject to
the security interest of Secured Party described herein, and all references to
the word "Collateral" shall automatically be deemed to include such new,
substituted or additional shares or other securities (notwithstanding the fact
that such action on the part of Issuing Corporation may constitute an Event of
Default under this Agreement) and immediately upon the issuance of such new,
6
<PAGE>
substituted or additional shares or other securities, Pledgor shall deliver such
shares or other securities to Secured Party, accompanied by a stock power and
assignment apart from certificate (or other comparable assignment instrument in
the case of the issuance of securities other than stock) endorsed in blank.
6. Taxes. Pledgor will pay promptly, when due, any and all property
-----
taxes, excise taxes (however called) and other taxes, assessments, duties and
other charges, which, if unpaid, might by law or otherwise become a lien or
charge upon the Collateral (including any and all interest, penalties and
related provisional fees) imposed, levied or assessed against the Collateral, or
upon or measured by the use, ownership, possession or operation thereof, or in
respect of this Agreement or incident to the security interest in the Collateral
granted and conveyed herein; provided, however, that Pledgor shall have the
right to contest in good faith by appropriate proceedings promptly initiated,
the validity, amount or imposition of such fee or tax if such contest, in
Secured Party's determination, does not have any material adverse impact on
Secured Party's interest under this Agreement or any other Loan Document or on
the Collateral.
7. Pledgor's Failure to Pay Taxes and Other Items. If Pledgor fails to
----------------------------------------------
make any payment or do any act required of it under this Agreement, then Secured
Party shall have the right, but not the obligation, upon three (3) Business Days
notice to Pledgor, and without releasing Pledgor from any obligation under this
Agreement, to make or do the same, and to pay, purchase, contest or compromise
any lien which in Secured Party's judgment places its security interest in the
Collateral or Pledgor's title to the Collateral in jeopardy, and in exercising
any such rights, to expend whatever reasonable amounts Secured Party in its sole
discretion may deem necessary therefor. Any amounts expended by Secured Party
pursuant to this Section 7 shall be a demand obligation owing by Pledgor, which
shall bear interest at the Default Rate (as defined in the Term Loan Agreement)
from the date Secured Party expends such amount until repaid.
8. Indemnification. Pledgor agrees to indemnify, defend and hold
---------------
harmless Secured Party for, from and against all losses, claims, demands and
expenses, including, without limitation, expert witness fees and attorneys'
fees, incurred by Secured Party and arising out of: (a) a misrepresentation or
breach of warranty contained in this Agreement; (b) failure of Debtor to
establish or maintain in favor of Lender a first priority security interest in
the Collateral in favor of Lender subject only to the restrictions set forth in
the Subordination Agreement; or (c) any contest by Debtor of the exercise of any
of Secured Party's rights or remedies under this Agreement, at law or in equity.
7
<PAGE>
9. Unregistered Securities. Pledgor acknowledges that the Shares
-----------------------
constitute unregistered securities subject to legal restrictions upon the
transfer thereof which will render a public sale of the Shares unavailable, and
that Secured Party has no obligation to register the Collateral under federal
and/or state securities laws. If, upon an Event of Default, Secured Party
exercises its right to sell the Shares, Pledgor waives all right to a public
sale and agrees to the private placement of the Shares to any qualified third
party buyer at a commercially reasonable price therefor. Secured Party may in
its discretion at any such sale, restrict the prospective bidders or purchasers
as to their number, nature of business and investment intention and may require
that the persons making such purchases represent and agree to the satisfaction
of Secured Party that they are purchasing the Collateral for their account, for
investment, and not for distribution or resale or place any other restrictions
on sale that are necessary to satisfy any securities law restrictions. Pledgor
further acknowledges that the legal restrictions upon transfer of the Shares
adversely affect the marketability of the Shares and any commercially reasonable
price of the Shares will include a discount from the proportionate part of the
net asset value of Issuing Corporation represented by the Shares to reflect
those restrictions upon marketability.
10. Irrevocable Proxy. Pledgor does hereby irrevocably constitute and
-----------------
appoint Secured Party and Secured Party's successors and assigns as its proxy,
with full power, in the same manner, to the same extent, and with the same
effect as if they were to do the same:
(a) To attend all meetings of Issuing Corporation held from
the date hereof, and to vote the Collateral at any such meeting in such
manner as Secured Party shall, in its sole discretion deem appropriate;
and
(b) To consent, in the sole discretion of Secured Party, to
any and all actions by or with respect to Issuing Corporation for which
the consent of the Pledgor is or may be necessary or appropriate; and
(c) Without limitation, to do all things which Pledgor can or
could do as a shareholder of Issuing Corporation, giving to Secured
Party full power of substitution and revocation;
provided, however, that this proxy shall not be exercisable by Secured Party,
and Pledgor alone shall have the foregoing powers, so long as no Event of
Default exists, and provided further that this proxy shall terminate at such
time as this Agreement is terminated as provided in Section 11 below. Except for
the proxy
8
<PAGE>
of Paul Kana which expires not later than thirty (30) days from the date hereof,
Pledgor hereby revokes any proxy or proxies heretofore given to any person or
persons and agrees not to give any other proxy in derogation hereof until such
time as this Agreement is terminated as provided below. Pledgor and Secured
Party hereby specifically agree that the proxy granted hereunder shall be deemed
to be valid and irrevocable until this Agreement shall be terminated as provided
below.
11. Attorney-in-Fact. Pledgor hereby appoints Secured Party as
----------------
Pledgor's attorney-in-fact with full power of substitution (without imposing any
obligations on Secured Party), to perform all acts which Secured Party deems
appropriate to perfect and continue the security interest granted hereunder. The
power of attorney granted herein is coupled with an interest and is irrevocable
until this Agreement is terminated as provided below.
12. Termination. Subject to the provisions of the Subordination
-----------
Agreement with respect to the delivery of the Collateral to Subordinated Lender
(as defined in the Term Loan Agreement), this Agreement shall terminate upon
full satisfaction of the indebtedness hereby secured, and, upon such
termination, Secured Party shall return to Pledgor any of the Collateral held by
Secured Party pursuant to this Agreement, and the original executed copy of this
Agreement which contains an irrevocable proxy.
13. Acknowledgement. Pledgor acknowledges that Secured Party would not
---------------
agree to make the Loans to Borrower without the execution, delivery and
performance of this Agreement by Pledgor. Pledgor further acknowledges that it
has received good and sufficient consideration for the execution, delivery and
performance of this Agreement.
14. No Duty to Protect. This is a pledge and assignment of Pledgor's
------------------
rights and benefits in the Collateral without an assumption by Secured Party of
any of Pledgor's duties or obligations attendant thereto. Except for physical
safeguarding of the stock certificate(s) included in the Collateral delivered to
Secured Party, Secured Party shall have no duty to protect, insure, collect or
realize upon the Collateral or any proceeds therefrom. Secured Party shall not
have any obligation to any third party by virtue of Secured Party's possession
of the Collateral.
15. Miscellaneous.
-------------
(a) This Agreement and all other Credit Facilities Documents
shall constitute the entire agreement among the parties hereto with
respect to the subject matter hereof and shall supersede all other
prior agreements, written or oral, with respect thereto.
9
<PAGE>
[TO COME]
<PAGE>
AND PLEDGOR HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY SUCH
PROCEEDING.
(g) ALL OF THE PROVISIONS SET FORTH IN THIS PARAGRAPHS 15(d) - (g),
INCLUSIVE, ARE MATERIAL INDUCEMENTS FOR SECURED PARTY'S MAKING THE LOANS
TO BORROWERS.
[INITIALS
APPEAR
HERE]
[Pledgor's initials ____________]
(h) All parties hereto shall, from time to time, do and perform such
other and further actions and execute and deliver any and all such other and
further instruments as may be required or reasonably requested by any other
party to establish, maintain and protect the respective rights and remedies of
such other party and to carry out and effect the intents and purposes of this
Agreement.
(i) All documents, agreements, certificates and instruments herein
required shall be in form and substance satisfactory in all respects to Secured
Party in its sole discretion and shall be provided at the sole cost and expense
of Pledgor.
(j) The representations and warranties hereunder shall survive the
execution hereof and Secured Party may enforce such representations and
warranties at any time. Pledgor's covenants shall survive the execution hereof
and shall be performed fully and faithfully by Pledgor at all times. The
indemnities of Pledgor shall survive repayment of the indebtedness secured
hereby.
(k) If any term or provision of this Agreement, or the application
thereof to any circumstances, shall be invalid, illegal or unenforceable to any
extent, such term or provision shall not invalidate or render unenforceable any
other term or provision of this Agreement, or the application of such term or
provision to any other circumstance. To the extent permitted by law, the parties
hereto hereby waive any provision of law that render any term or provision
hereof invalid or unenforceable in any respect.
(l) Time is of the essence of this Agreement.
(m) All notices, requests or demands required or permitted to be given
hereunder shall be in writing, and shall be deemed effective (a) upon hand
delivery, if hand delivered; (b) one (1) Business Day after such are deposited
for delivery via Federal Express or other nationally recognized overnight
courier service; or (c) three (3) Business Days after such are deposited in the
United States mails, certified or registered mail, all with delivery charges
and/or postage prepaid, and
11
<PAGE>
addressed as shown below, or to such other address as either party may, from
time to time, designate in writing. Written notice may be given by telecopy to
the telecopier number shown below or such other telecopier number as either
party may designate, from time to time, in writing, provided that such notice
shall not be deemed effective unless it is confirmed within twenty-four (24)
hours by hand delivery, courier delivery or mailing of a copy of such notice in
accordance with the requirements set forth above.
If to Secured Party: Greyhound Financial Corporation
(two copies) 1850 North Central Avenue
Phoenix, Arizona 85077-1141
Attn: Vice President Law
Telecopy No.: (602) 207-5036
and
Greyhound Financial Corporation
311 So. Wacker, Suite 2725
Chicago, ILL 60606
Attn: Portfolio Manager
Telecopy No.: (312) 322-7250
If to Pledgor: G. Dean Booth
c/o Booth, Wade & Campbell
3100 Cumberland Circle, Suite 1500
Atlanta, Georgia 30339
Telecopy: (404) 850-5079
(n) This Agreement may be executed in any number of counterparts, each
of which, when so executed and delivered, shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
(o) The headings of the sections and paragraphs of this Agreement have
been inserted for convenience of reference only and shall in no way restrict or
otherwise modify any of the terms or provisions hereof.
12
<PAGE>
(p) All references to the singular shall include the plural and vice
versa and all references to the masculine shall include the neuter or feminine
and vice versa. This Agreement has been reviewed and negotiated by counsel for
each party and no ambiguity in this Agreement shall be construed against any
party based upon its having prepared the same.
16. Waiver of Suretyship Defenses and Rights.
----------------------------------------
(a) Neither (i) the exercise or the failure to exercise by Secured
Party of any rights of remedies conferred on it under any of the
other Credit Facilities Documents, hereunder or existing at law or
otherwise, or against any other security for performance of
Obligations, (ii) the commencement of an action at law or the
recovery of a judgment at law against a Borrower or other obligor
("Third Party Obligor") for the Obligations and the enforcement
thereof through levy or execution or otherwise, (iii) the taking or
institution or any other action or proceeding against a Borrower or
any other Third Party Obligor nor (iv) any delay in taking,
pursuing or exercising any of the foregoing actions, rights, powers
or remedies (even though requested by Pledgor) of Secured Party or
anyone acting for Secured Party shall extinguish or affect the
obligations of Pledgor hereunder. Pledgor shall be and remain
liable hereunder until all Obligations are fully paid and
performed, notwithstanding the previous discharge (total or
partial) from further liability of a Borrower or any Third Party
Obligor.
(b) Borrower hereby expressly waives: (i) notice of the existence,
creation or non-payment of all or any of the Obligations except as
otherwise provided in this Agreement; (ii) presentment, protest,
demand, dishonor, notice of dishonor, protest and all notices
whatsoever with respect to the Obligations; (iii) all diligence in
collection or protection of or realization on the Obligations or
any part thereof, an Obligation hereunder, or any security for or
guarantee of any of the foregoing; (iv) any right or defense based
upon an election of remedies by Secured Party or marshalling of
assets; (v) any defense arising because of Secured Party's election
under Section 1111(b)(2) of the United States Bankruptcy Code
("Bankruptcy Code") in any proceeding instituted under the
Bankruptcy Code;
13
<PAGE>
(vi) any defense based on post-petition borrowing or the grant of a
security interest by a Borrower under Section 365 of the Bankruptcy
Code; (vii) any duty on the part of Secured Party to disclose to
Pledgor any facts Secured Party may know or hereafter know about a
Borrower, regardless of whether Secured Party has reason to believe
that any such facts materially increase the risk beyond that which
Pledgor intends to assume or has reason to believe that such facts
are known to Pledgor or has a reasonable opportunity to communicate
such facts to Pledgor, because Pledgor represents and warrants that
it is fully responsible for being and keeping informed of the
financial condition of each Borrower and of all circumstances
bearing on the risk of non-payment or any obligation guaranteed
hereby; and (viii) any and all suretyship defenses and defenses in
the nature thereof under Arizona and/or any other applicable law,
including, without limitation, the benefits of the provisions of
Sections 12-1641 through 12-1646, of the Arizona Revised Statues,
Sections 17 and 21, A.R.C.P., and all other laws and procedural
rules of similar import.
(c) Without limiting the generality of the foregoing, Pledgor will
not assert against Secured Party any defense of waiver, release,
discharge in bankruptcy, statute of limitation, res judicata,
statute of frauds, anti-deficiency statute, fraud, usury,
illegality or unenforceability which may be available to Borrower
with respect to the other Credit Facilities Documents, or any
setoff available to a Borrower against Secured Party, whether or
not on account of a related transaction.
(d) Anything else contained herein to the contrary notwithstanding,
Secured Party, from time to time, without notice to Pledgor, may
take all or any of the following actions without in any manner
affecting or impairing the obligations of Pledgor hereunder: (i)
obtain a lien on or a security interest in any property to secure
any of the Obligations; (ii) retain or obtain the secondary
liability of any party or parties, in addition to Pledgor, with
respect to any of the Obligations; (iii) renew, extend or otherwise
change the time for payment or performance of any of the
Obligations for any period; (iv) release or compromise any
liability of a Borrower or any
14
<PAGE>
liability of any nature of any other party or parties with respect
to any of the Obligations; (v) exchange, enforce, waive, release
and apply any security for the performance of any of the
Obligations and direct the order or manner of sale thereof as
Secured Party may in Secured Party's discretion determine; (vi)
resort to the Collateral for payment of any Obligations, whether or
not Secured Party shall proceed against any other party primary or
secondarily against any other party primarily or secondarily liable
on any of the Obligations; (vii) agree to any amendment (including,
without limitation, any amendment which changes the amount of
interest to be paid under the Credit Facilities Documents or
extends the period of time during which a Borrower may obtain
advances of a Loan), any alteration of any of the Credit Facilities
Documents or any waiver of any of the provision of any of the
Credit Facilities Documents and/or exercise Secured Party's rights
to consent to any action or non-action of a Borrower which may
violate the covenants and agreements contained in the Credit
Facilities Documents, with or without consideration and on such
terms and conditions as may be acceptable to Secured Party; or (h)
exercise any of Secured Party's rights conferred by the Credit
Facilities Documents or by law.
(e) Notwithstanding anything herein to the contrary, if at any time
or any part of any payment theretofore applied by Secured Party to
any of the Obligations is or must be rescinded or returned by
Secured Party for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of a
Borrower), such Obligations, for purposes of this Section 16, to
the extent that such payment is or must be rescinded or returned,
shall be deemed to have never been performed; and this Section 16
shall continue to be effective or be reinstated, as the case may
be, as to such Obligations, all as though such application by
Secured Party had not been made.
(f) Borrower shall have no right of subrogation with respect to the
Obligations or any right of indemnification reimbursement or
contribution from a Borrower or from any other Third Party Obligor
with respect to the Obligations regardless of any payment thereon
resulting from the provisions of this Section 16 until the
Obligations have been
15
<PAGE>
paid and performed in full and Borrower hereby unconditionally
waives any such right of subrogation, indemnification,
reimbursement or arbitration.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first hereinabove written.
PLEDGOR:
/s/ G. Dean Booth
------------------------------------
G. DEAN BOOTH
SECURED PARTY: GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Patricia Murray
---------------------------------
Patricia Murray, Vice President
16
<PAGE>
SCHEDULES
Schedule E 623 shares, $.0l par value, represented by
certificate No. 35.
Schedule 2 (j) Warrant in favor of Hanifen Imhoff Mezzanine
Fund, L.P.
Warrant in favor of Percival Hudgins & Company, Inc.
Schedule 2 (k) G. Dean Booth, Sid H. Cordier, James K.
Hoofard, Jr., Paul E. Kane, Brian R. Wilson.
Schedule 2 (p) Fulton County, Georgia
17
<PAGE>
EXHIBIT 10.13
ASSIGNMENT OF CONTRACT
----------------------
THIS ASSIGNMENT OF CONTRACT ("Assignment") is entered into as of
December 29, 1994 by and between CPS ACQUISITION CORP., a Georgia corporation
("Assignor"), and GREYHOUND FINANCIAL CORPORATION, a Delaware corporation
("Assignee").
R E C I T A L S:
A. CPS Systems, Inc., a Texas corporation ("Company"), as borrower, and
Assignee, as lender, have entered into a Revolver Loan and Security Agreement
(as from time to time renewed, amended, restated or replaced, "Revolver Loan
Agreement") dated as of December 29, 1994, pursuant to which Assignee has agreed
to lend to Assignor a sum not to exceed One Million Dollars ($1,000,000)
("Revolver Loan").
B. Assignor, as borrower, and Assignee, as lender, have entered into a
Term Loan Agreement (as from time to time, renewed, amended, restated or
replaced, "Term Loan Agreement"; and the Revolver Loan Agreement and Term Loan
Agreement collectively, "Credit Facilities Loan Agreements"), pursuant to which
Assignee has loaned to Parent a sum not to exceed One Million Five Hundred
Thousand Dollars ($1,500,000) ("Term Loan"; and the Revolver Loan and Term Loan
collectively, "Loans").
C. The proceeds of the Term Loan will be used by Assignor to pay a
portion of the acquisition costs of all the capital stock of Company pursuant to
that Stock Purchase Agreement ("Stock Purchase Agreement") dated as of November
11, 1994, by and among PHF Associates, Inc. (to whose interest Assignor has
succeeded), as buyer, and Clayton Calloway, Gary P. Caldwell, Robert F.
Kiesling, Janice H. McCord, James K. Hoofard, Jr., Katherine M. Williamson,
Richard G. Bingham, II and Stanton W. Galbraith (collectively "Sellers"), as
sellers, and that Escrow Agreement ("Escrow Agreement") dated as of December 29,
1994 among Assignor, Sellers, Comerica Bank-Texas ("Escrow Agent"), and Clayton
O. Callaway ("Sellers' Representative"). The Stock Purchase Agreement and Escrow
Agreement are hereinafter referred to collectively as the "Contract."
D. To facilitate repayment of the obligations of Assignee under the
Credit Facilities Loan Agreements and all other documents now or hereafter
evidencing, securing or otherwise pertaining to the Loans ("Credit Facilities
Documents"), Assignor has agreed to assign to Assignee, inter alia, all of
----- ----
Assignor's right, title, and interest in and to the Contract and any benefits
due and to become due or arising from the use or enjoyment of the Contract
(which, together with any additions, extensions or modifications thereto and all
products and proceeds thereof, are herein referred to as the "Collateral").
E. All capitalized terms used but not defined herein shall have the
same meaning ascribed to such terms in the Term Loan Agreement.
<PAGE>
A G R E E M E N T:
NOW, THEREFORE, for and in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee agree as follows:
1. The Assignment. Assignor hereby absolutely, irrevocably and
--------------
unconditionally grants, assigns, and transfers to Assignee all of Assignor's
right, title, and interest in and to the Collateral, including but not limited
to any and all benefits arising thereunder. The interest of Assignee by virtue
of this Assignment is deemed to be vested as of the date hereof, and shall
extend to and cover any and all modifications, extensions, renewals and
replacements of the Collateral.
2. Purpose. This Assignment is made for the purpose of securing all
-------
obligations of Assignor to Assignee ("Obligations"), including, without
limitation, the following:
2.1 Payment of the Revolver Loan, the advances of which shall
be evidenced by a Revolver Loan Promissory Note dated as of even date
herewith and made payable by Company to Assignee in the original face
amount of One Million Dollars ($1,000,000), and any renewals,
amendments, restatements or replacements of such promissory note (such
promissory note, as from time to time renewed, amended, restated or
replaced, "Revolver Loan Note"), together with accrued interest,
according to the terms of the Revolver Loan Note;
2.2 Payment of the Term Loan, the advance of which is
evidenced by a Term Loan Promissory Note dated as of even date herewith
and made payable by Assignor to Assignee in the original face amount of
One Million Five Hundred Thousand Dollars ($1,500,000) and any
renewals, amendments, restatements or replacements of such promissory
note (such promissory note, as from time to time renewed, amended,
restated or replaced, collectively, "Term Loan Note"; and the Revolver
Loan Note and Term Loan Note, collectively, "Notes"), together with
accrued interests, according to the terms of the Term Loan Note;
2.3 Payment, performance, observance and satisfaction of all
representations, warranties, covenants [including, without limitation,
the covenants to pay Fees (as defined in the Revolver Loan Agreement)],
and conditions contained in the Credit Facilities Documents, including,
without limitation, this Assignment, on the part of Assignor and/or
Company;
2.4 The repayment of all monies expended by Assignee pursuant
to the provisions of the Credit Facilities Documents, together with
interest thereon from the date of expenditure at the Default Rate (as
defined in the Revolver Loan Agreement); and
2.5 Any and all other liabilities or obligations of Assignor
and/or Company to Assignee, direct or indirect, absolute or contingent,
-2-
<PAGE>
due or to become due, whether now existing or which may hereafter arise
in any manner.
3. License.
-------
3.1 General. Subject to the terms and conditions of this
-------
Assignment, including without limitation, the provisions of Paragraph 3.2,
Assignee confers upon Assignor a license ("License") to utilize, collect and
retain the benefits of the Collateral until the occurrence of an Event of
Default (as defined in Paragraph 6.1). Upon the occurrence of an Event of
Default, the License may be revoked by written notice of revocation to Assignor
and immediately upon such revocation, Assignee may utilize, collect and retain
the benefits of the Collateral without further notice.
3.2 Assignee's Right to Distributions. If Assignor is entitled
---------------------------------
to any distribution under the Contract for any reason, except on account of a
claim which is based upon an actual expense of Assignor and arises from a breach
of a warranty made by Seller under the Contract and is being distributed when no
Event of Default exists, such distribution shall be remitted to Assignee and
shall be applied as a prepayment of the Obligations in accordance with the terms
of the Term Loan Agreement. Any distributions which are received by Assignor
under the Contract and are not entitled to be received and retained by Assignor
will be held by Assignor in trust for Assignee, will not be commingled with the
general funds of Assignor and will be immediately remitted to Assignee.
4. Protection of security. Notwithstanding anything herein to the
----------------------
contrary, if an Event of Default exists or Assignee determines such action to be
necessary in order to prevent the termination of the Contract, the loss of any
material benefit to Assignor or Assignee under the Contract, or the incurrence
of any material detriment to Assignor or Assignee under the Contract, or to be
necessary in order to protect and preserve the right, title and interest of
Assignee hereunder in and to the Contract, Assignee may, but without obligation
to do so:
4.1 Execution of Loan Documents. Execute, acknowledge, obtain
---------------------------
and deliver all documents (including, without limitation, notices,
requests and instructions) or things necessary or required as a term,
covenant or condition of the Contract, or which may be necessary or
proper under the Contract;
4.2 Performance of Assignor's Obligations. Perform any
-------------------------------------
obligation which Assignor has failed to perform when due under the
Contract, or satisfy any condition of the Contract;
4.3 Enforcement of Other Party's Obligations. Demand and
----------------------------------------
receive all performances due under or with respect to the Contract,
take all lawful actions for the enforcement thereof (including, without
limitation, the filing of claims and the commencement of arbitration,
litigation or other lawful proceedings), compromise and settle any
claim or cause of action in Assignor arising from any of the Contract,
and give acquittances and other sufficient discharges relating thereto;
-3-
<PAGE>
4.4 Make Concessions. Make concessions to other parties to the
----------------
Contract; and
4.5 Exercise Assignor's Rights Under Contracts, etc. Exercise
-----------------------------------------------
any and all other rights and remedies to which Assignor may have under
the Contract and/or are otherwise available to Assignor at law, in
equity or by statute.
All sums expended by Assignee pursuant to this Paragraph 4 shall be payable by
Assignor to Assignee upon demand, together with interest thereon from the date
of expenditure until paid at the Default Rate (as defined in the Term Loan
Agreement); and shall be secured by this Assignment and all other security for
the Obligations.
5. Power of Attorney. Assignee is hereby appointed Assignor's true and
-----------------
lawful attorney-in-fact (coupled with an interest) for and on behalf of
Assignor, whether in the name of Assignor or Assignee or otherwise, to take any
of the actions permitted to it under Paragraph 4. The power of attorney given
herein is a power coupled with an interest and shall be irrevocable until all
the Obligations have been fully paid and performed. Assignee shall have the
option, but not any duty, to exercise any power given to it hereunder.
6. Event of Default; Remedies; Assignee's Right to Perform.
-------------------------------------------------------
6.1 Event of Default. The occurrence of any of the following
----------------
events or conditions shall constitute an Event of Default:
6.1.1 A default or violation shall occur under any of
the provisions of Paragraph 7.1 or 7.2;
6.1.2 A default or violation in the performance of
Assignor's Obligations under this Assignment (other than
those referred to elsewhere in this Paragraph 6.1) which
continues unremedied (a) for a period of five (5) Business
Days (as defined in the Term Loan Agreement) after notice
of such default or violation to Assignor in the case of
any default or violation which can be cured by the payment
of money alone or (b) for a period of twenty (20) Business
Days after notice to Assignor in the case of any other
default or violation;
6.1.3 Any representation or warranty of Assignor
contained herein or in any certificate furnished to
Assignee hereunder by or on behalf of Assignor proves to
be, in any material respect, false or misleading as of the
date deemed made;
6.1.4 Assignor shall (a) generally not be paying its
debts as they become due, (b) file, or consent by answer
or otherwise to the filing against it of, a petition for
relief or reorganization, arrangement or liquidation or
any other petition in bankruptcy or insolvency under the
laws of any jurisdiction, (c) make an assignment for the
benefit of its creditors, (d) consent to the
-4-
<PAGE>
appointment of a custodian, receiver, trustee or other officer with
similar powers for itself, the Contract (as defined in Paragraph
7.4) or any substantial part of its property, (e) be adjudicated
insolvent, (f) dissolve or commence to wind-up its affairs or (g)
take any action for purposes of the foregoing; or a petition for a
relief or reorganization, arrangement or liquidation or any other
petition in bankruptcy or insolvency or the appointment of a
custodian, receiver, trustee or other officer with similar powers
under the laws of any jurisdiction is filed against it or a
custodian, receiver, trustee or other officer with similar power is
appointed for Assignor or the Contract and such proceeding is not
dismissed and/or appointment vacated within ninety (90) days
thereafter;
6.1.5 Any levy, execution or seizure of any portion of the
Collateral or the institution of any legal action or proceeding
adversely affecting Assignor's or Assignee's interest in the
Contract; or
6.1.6 An "Event of Default" as defined elsewhere in any of the
Credit Facilities Documents.
6.2 Remedies. At any time after an Event of Default has occurred and
--------
while it is continuing, Assignee may exercise any and all rights and
remedies which Assignee may have under the Credit Facilities
Documents, including, without limitation, this Assignment, and/or are
otherwise available to it at law, in equity or by statute.
6.3 Assignee's Right to Perform. Without limiting Assignee's rights
---------------------------
under any other Paragraph, if Assignor fails or refuses to pay or
perform any Obligation (including, without limitation, any obligations
to maintain insurance) hereunder, then at any time thereafter, and
without notice to or demand upon Assignor and without waiving or
releasing any other right, remedy or recourse Assignee may have,
Assignee may (but shall not be obligated to) pay or perform such
obligation in the manner Assignee determines to be necessary or
appropriate for the account of and at the expense of Assignor. All sums
expended by Assignee pursuant to this Paragraph 6.3 shall be payable by
Assignor to Assignee upon demand, together with interest thereon from
the date of expenditure until paid at the Default Rate; and shall be
secured by this Assignment and all other security for the Obligations.
7. Representations Warranties and Covenants of Assignor. Assignor
----------------------------------------------------
represents, warrants and covenants as follows (all of such representations,
warranties and covenants to remain in full force and effect until all of the
Obligations have been fully paid and performed):
7.1 No Assignments or Encumbrances. Assignor is the owner of good,
------------------------------
legal and beneficial title to the Collateral free and clear of all
liens, security interests, encumbrances and claims of any kind, except
as expressly permitted in the Term Loan Agreement; no assignments,
pledges,
-5-
<PAGE>
encumbrances or other transfers whatsoever of the Collateral or any
interest therein or any rights or privileges or monies due and/or to
become due and payable thereunder have been made. Assignor will not
assign, pledge, encumber or otherwise transfer in any way, so long as
this Assignment shall remain in effect, the whole or any part of the
Collateral to anyone other than Assignee; and Assignor will not permit
or suffer to exist any lien, security interest, encumbrance or claim of
any kind upon the Collateral, except those in favor of Assignee or
except as expressly permitted in the Term Loan Agreement.
7.2 Contract in Full Force and Effect. The Contract is in full force
---------------------------------
and effect, and Assignor has not executed any other instrument and is
not subject to any restriction which might prevent or limit Assignee
from operating under the terms of this Assignment; except as otherwise
expressly permitted in the Term Loan Agreement, Assignor will maintain
the Contract in full force and effect; and Assignor will not, without
prior written consent of Assignee, which may be withheld in Assignee's
discretion, modify, waive, terminate or alter in any material way any
of the material terms of the Contract.
7.3 Performance and Benefits. Assignment hereby authorizes Sellers,
------------------------
Sellers' Representative and Escrow Agent to accept this Assignment.
Assignor hereby authorizes and directs Sellers, Sellers' Representative
and Escrow Agent that, upon written notice to such third party from
Assignee reciting the occurrence of an Event of Default and the
revocation of the License, all rights, benefits or monies due
thereunder, or in any way respecting the same, shall be made directly
to Assignee or its nominee as they become due. Assignor hereby relieves
Sellers, Sellers' Representative and Escrow Agent from any liability to
Assignor by reason of such delivery of benefits or payments being made
to Assignee or its nominee. Nevertheless, subject to the provisions of
Paragraph 4, until Assignee notifies Sellers, Sellers' Representative
or Escrow Agent in writing to render performance to Assignee or its
nominee, Assignor shall be entitled to collect all payments and receive
all benefits and performances pursuant to the License, but in all
events excluding any payments and distributions which Assignee is
entitled to retain pursuant to Paragraph 3.2. Assignor hereby directs
Sellers, Sellers' Representative and Escrow Agent to accept from
Assignee any tender of performance of any of Assignor's obligations
under the Contract and any exercise of Assignor's rights under the
Contract.
8. Mutual Agreements of Assignor and Assignee. Assignor and Assignee
------------------------------------------
mutually agree as follows:
8.1 Effect of Assignment. Assignee, by accepting this
--------------------
Assignment:
8.1.1 Shall not be subject to any obligation or liability under
the Contract arising prior to its delivering to Assignor and the third
party obligated to perform thereunder or benefitted thereby its written
election ("Assumption Election") that it assumes
-6-
<PAGE>
Assignor's obligations, duties and liabilities under the Contract, but
any and all such obligations and liabilities (except for obligations
and liabilities arising after Assignee's Assumption Election) shall
remain Assignor's as though this Assignment had not been made; and
8.1.2 Shall not be under any obligation to exercise any of the
rights, remedies, or powers hereby granted to it, and no failure or
delay in exercising any of such rights, remedies, or powers shall
constitute a waiver thereof or of any default by Assignor.
8.2 No Limitation of Assignee's Rights. The rights, remedies and powers
----------------------------------
granted herein shall not be limited or otherwise affected by the value of the
Collateral as compared to amounts, if any, owed by Assignor to Assignee and may
be exercised by Assignee either independently of or concurrently with any other
right, remedy or power contained herein or in any of the other Credit Facilities
Documents or by law. The taking of this Assignment by Assignee shall not effect
the release of any other collateral now or hereafter held by Assignee as
security for the Obligations, and the taking of additional security for the
performance of the Obligations hereafter shall not effect a release or
termination of this Assignment or any terms or provisions hereof.
8.3 Assignee May Assign. All of Assignor's right, title, and interest
-------------------
assigned hereunder may be reassigned by Assignee and any subsequent Assignee,
and the term "Assignee," as used herein, includes any subsequent Assignee. This
Assignment and the power of attorney contained herein are solely for the benefit
and protection of Assignee, its successors and assigns and are not intended to
confer upon any person other than the parties hereto and their successors and
assigns any right or remedies under or by reason of this instrument.
8.4 Additional Documents. At any time, and from time to time, Assignor
--------------------
will promptly and duly execute and deliver any and all such further assignments
and instruments as Assignee may deem advisable in its reasonable discretion in
order to obtain the full benefits of this Assignment and the rights and powers
herein contained.
8.5 Indemnification and Reimbursement. Assignee shall not be obligated
---------------------------------
to perform or discharge, and it does not hereby undertake to perform or
discharge, any obligation, duty, or liability under the Collateral, or under or
by reason of this Assignment, and Assignor shall and does hereby agree to
indemnify and defend Assignee against and hold it harmless from (a) any and all
liability, loss, or damage which it may or might incur under or by reason of
this Assignment and (b) any and all claims and demands whatsoever which may be
asserted against it by reason of any alleged obligation or undertaking on its
part to perform or discharge any of the terms or conditions contained in the
Collateral; provided, however, that the foregoing shall apply only to acts and
omissions occurring prior to the Assumption Election and any acts of Assignor
after such Assumption Election, and the foregoing shall not apply
-7-
<PAGE>
to the gross negligence or willful misconduct of Assignee. Should
Assignee incur any such liability, loss, or damage under the
Collateral, or under or by reason of this Assignment, or in the defense
against any such claims or demands, or in prosecuting any claim under
this Assignment, the amount thereof, including reasonable costs,
expenses, and any reasonable attorneys' fees, shall be payable by
Assignor to Assignee immediately upon demand, together with interest
thereon at the Default Rate, until paid, and the same shall be secured
by this Assignment and all other security for the Obligations.
8.6 Termination of Assignment. Upon the full payment and
-------------------------
performance of all the Obligations, this Assignment shall become and be
void and of no effect, and Assignee shall execute and deliver to
Assignor a release of this Assignment.
9. No Waiver. No delay or omission on the part of Assignee in
---------
exercising any power, right, or remedy hereunder shall operate as a waiver of
any such power or right nor shall any single or partial exercise of any such
power or right preclude any other or further exercise thereof or the exercise of
any other power, right, or remedy of Assignee under this instrument or which may
be provided by law, it being understood that any extension or indulgence at any
time allowed by Assignee to Assignor shall be in reliance upon the understanding
that such shall not affect or prejudice the rights, powers, and remedies of
Assignee except to the extent specifically set forth in writing by Assignee and,
in that regard, that even any waiver granted in writing shall not be construed
as a waiver of any breach or default thereafter occurring.
10. Time of the Essence. In the construction and performance of this
-------------------
Assignment, time shall be deemed of the essence.
11. Binding Effect. This Assignment shall inure to the benefit of and
--------------
be binding upon the parties hereto and their respective heirs, personal
representatives, successors, and assigns.
12. Notices. All notices, demands, documents, or other writings which
-------
are required or permitted to be given or served hereunder shall be given, and
shall be deemed delivered in accordance with the provisions of the Term Loan
Agreement.
13. Other Security. This assignment is in addition to, and not in
--------------
limitation of, any rights in and to the Collateral which Assignee may acquire
under any of the other Credit Facilities Documents; and to the extent of any
ambiguity or inconsistency between this Assignment and any such other Credit
Facilities Documents, the provisions imposing the greatest obligation upon
Assignor and granting the most expansive rights to Assignee shall control.
14. CHOICE OF LAW: JURISDICTION: VENUE: AND WAIVER OF JURY TRIAL. THE
------------------------------------------------------------
CHOICE OF LAW, VENUE, JURISDICTION AND WAIVER OF JURY PROVISIONS OF THE TERM
LOAN AGREEMENT SHALL BE EQUALLY APPLICABLE TO THIS AGREEMENT AND ARE
INCORPORATED HEREIN BY THIS REFERENCE.
-8-
<PAGE>
15. Security Agreement: Sale of Collateral. If necessary for Assignee
--------------------------------------
to acquire or perfect a security interest in the Collateral, this Agreement
shall be deemed a security agreement under the Uniform Commercial Code, and
Assignor hereby grants to Assignee a security interest in the Contract. In such
an event, Assignee shall be entitled to sell the Collateral at public or private
sale and/or to the exercise of all other rights and remedies under the Uniform
Commercial Code if an Event of Default exists, in addition to all the other
rights and remedies available to it pursuant to Paragraph 6.2. Any notice of
sale or other disposition of the Collateral given not less than ten (10)
Business Days prior to such proposed action in connection with the exercise of
Assignee's rights and remedies shall constitute reasonable and fair notice of
such action. Assignee may postpone or adjourn any such sale from time to time by
announcement at the time and place of sale stated on the notice of sale or by
announcement of any adjourned sale, without being required to give a further
notice of sale. Any such sale may be for cash or, unless prohibited by
applicable law, upon such credit or installment as Assignee may determine. The
net proceeds of such sale shall be credited to the Obligations only when such
proceeds are actually received by Assignee in good current funds. All proceeds
realized by Assignee from the Collateral after termination of the License and
through and including a sale of the Collateral, net of the costs of any such
sale, shall be applied by Assignee to the Obligations in such order and manner
as may be provided in the Term Loan Agreement or, if not so provided, in such
order and manner as Assignee may determine. Assignor shall be liable for any
deficiency remaining after application of such proceeds to the Obligations.
16. Attorneys' Fees. Without limiting the generality of any other
---------------
provision in this Assignment, in the event of any arbitration or litigation
(including any appeal) concerning the interpretation or enforcement of this
Assignment, the prevailing party in such litigation shall be entitled to
reimbursement and/or award of its attorneys' fees, costs and any other expenses
incurred in connection therewith.
IN WITNESS WHEREOF, Assignor and Assignee have executed this
instrument as of the day and year first hereinabove written.
ASSIGNOR: CPS ACQUISITION CORP.,
a Georgia corporation
By: /s/ Paul E. Kana
-------------------------
Paul E. Kana, President
-9-
<PAGE>
ASSIGNEE: GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Patricia Murray
----------------------------------
Patricia Murray, Vice President
-10-
<PAGE>
EXHIBIT 10.14
STOCK PLEDGE AND SECURITY AGREEMENT
-----------------------------------
(WITH IRREVOCABLE PROXY)
-----------------------
THIS STOCK PLEDGE AND SECURITY AGREEMENT (WITH IRREVOCABLE PROXY)
("Agreement"), is entered into as of the 29th day of December, 1994, by and
between CPS ACQUISITION CORP., a Georgia Corporation ("Pledgor"), and GREYHOUND
FINANCIAL CORPORATION, a Delaware corporation ("Secured Party").
A. Pledgor has requested that Secured Party extend to it a loan ("Term
Loan") in an amount not to exceed One Million Five Hundred Thousand Dollars
($1,500,000) pursuant to a Term Loan Agreement between Pledgor and Secured Party
dated as of even date herewith (as it may be from time to time renewed, amended,
restated or replaced, "Term Loan Agreement") and evidenced by a promissory note
(as from time to time renewed, amended, restated or replaced, "Term Loan Note").
B. CPS Systems Inc., a Texas corporation ("Company"; and Pledgor and
Company collectively, "Borrowers"), has requested that Secured Party extend to
it in the form a revolving line of credit a loan ("Revolver Loan"; and the Term
Loan and Revolver Loan collectively, "Loans") in a principal amount not to
exceed One Million Dollars ($1,000,000) pursuant to a Revolver Loan and Security
Agreement between Company and Secured Party dated as of even date herewith (as
it may be from time to time renewed, amended, restated or replaced, "Revolver
Loan Agreement"; and the Term Loan Agreement and the Revolver Loan Agreement
collectively, "Loan Agreements") and evidenced by a promissory note (as from
time to time renewed, amended, restated or replaced, "Revolver Loan Note"; and
the Term Loan Note and the Revolver Loan Note collectively, "Notes").
C. The Loan Agreements, Notes, and all other documents now or hereafter
evidencing and/or securing the Loans are hereinafter referred to as the "Credit
Facilities Documents."
D. The Term Loan will be used to pay a part of the acquisition costs of
Pledgor for all of the capital stock of Company. Under the terms of the Credit
Facilities Documents, Acquisition Corp. is required to merge into Company. Upon
such merger, the term "Borrowers" will include only Company.
E. Pledgor owns all the shares of capital stock of Company (such shares,
together with any of the shares of capital stock of Company into which such
shares may be converted upon consummation of the merger, "Shares").
F. In order to induce Secured Party to make the Loans, Pledgor desires to
grant a security interest in, pledge, assign and
<PAGE>
transfer to Secured Party, as additional security for the Loans and other
obligations, all of Pledgor's right, title and interest in and to the Shares.
AGREEMENT:
---------
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants, conditions, representations and warranties contained herein, the
parties hereto do hereby agree as follows:
1. Security Interest. Pledgor hereby grants a security interest to Secured
-----------------
Party in and to the Shares, together with all rights thereof or arising
therefrom, all certificates, options or warrants associated therewith, all
additions thereto, dividends and payments arising thereunder, all substitutions
therefor and the proceeds (including, without limitation, all accounts, chattel
paper, contract rights, documents, general intangibles, instruments, and
equipment, inventory and other goods) of all of the foregoing (collectively,
"Collateral"), as security for all of the following (collectively,
"Obligations"): the obligations of Borrowers, or either of them, to Secured
Party under the Loan Agreements and any and all of the other Credit Facilities
Documents (including, without limitation, the obligations of Pledgor under its
Guaranty and Subordination of even date herewith), all obligations of Pledgor
under this Agreement, and all other obligations now or hereafter owed to Secured
Party by Borrowers, or either of them, or their respective successors and/or
assigns to Secured Party. Upon execution of this Agreement, Pledgor shall
deliver to Secured Party the certificates evidencing the Shares together with
stock power(s) and assignment(s) separate from certificate for the certificates
representing the Shares, endorsed in blank, with signature guaranteed as
required by the transfer agent for the Shares, and the books of Pledgor of such
Shares shall contain a legend to reflect such pledge of the Shares hereunder.
2. Covenants, Representations and Warranties. Pledgor covenants,
-----------------------------------------
represents and warrants to Secured Party, with the understanding that Secured
Party is relying on such representations and warranties, that:
(a) the Collateral is the sole and separate Property of Pledgor, and
Pledgor has title to the Collateral and is the legal and beneficial owner
of the Collateral, free from any liens, security interests, assignments,
encumbrances or claims of any kind, other than the security interest
created by this Agreement and, subject to the provisions of the
Subordination Agreement (as defined in the Term Loan Agreement), and the
Subordinated Indebtedness Liens (as defined in the Term Loan Agreement);
2
<PAGE>
(b) Except for the Subordinated Indebtedness Liens, so long as it is
subject to the terms and conditions of the Subordination Agreement, Pledgor will
not assign, pledge, encumber or otherwise transfer in any way, so long as this
Agreement shall remain in effect, the whole or any part of the Collateral;
(c) Except for the Subordinated Indebtedness Liens, so long as it is
subject to the terms and conditions of the Subordination Agreement, Pledgor will
not permit or suffer to exist any lien, security interest, encumbrance or claim
of any kind upon the Collateral, except those in favor of Secured Party;
(d) Pledgor shall deliver to Secured Party and Secured Party shall retain
physical possession of all stock certificates and other instruments and
documents representing or evidencing any of the Collateral, which stock
certificates shall be duly endorsed for transfer to Secured Party;
(e) Pledgor will not amend or waive or consent to any amendment or waiver
of the instruments or documents constituting the Collateral or make any
compromise, adjustment, settlement or termination in connection therewith, and
Pledgor will preserve and enforce all of its rights under the corporate
governance documents establishing the rights of holders of shares of stock of
the class held by Pledgor, unless failure to do so would not adversely affect
the Collateral;
(f) Pledgor will accept no payments, distributions or dividends on the
Collateral, Pledgor will hold any such payment, distribution or dividend
received by Pledgor in trust for Secured Party and not commingle it with its
general funds, and Pledgor will immediately remit to Secured Party any payment,
distribution or dividend received by it;
(g) The execution and delivery of this Agreement, and the performance of
its terms, will not result in any violation of or constitute a default under the
terms of any agreement, or other instrument, license, judgment, order, statute,
ordinance or other governmental rule or regulation, applicable to Pledgor or the
Collateral;
(h) Upon its execution and delivery, this Agreement shall create an
enforceable and valid lien upon and security interest in the Collateral;
(i) Pledgor has full power and authority to enter into this Agreement and,
if Pledgor is other than a natural person,
3
<PAGE>
the person executing this Agreement on behalf of Pledgor have been duly
authorized to act on behalf of Pledgor in the execution thereof;
(j) The capitalization of the Pledgor consists of ten thousand
(10,000) authorized and issued shares of common stock and upon the merger
of Pledgor into Company will convert into ten thousand (10,000) shares of
common stock of Company; the capitalization of Company consists of five
thousand six hundred (5,600) authorized and issued shares of common stock
and except for the warrants described in schedule 2 (j), there are no
agreements in effect which require or obligate Pledgor or Company to issue
any additional shares of stock of Pledgor or Company and there are no
outstanding warrants, options of other rights to purchase any shares of
stock of Pledgor;
(k) Other than Pledgor and the other stockholders of Pledgor listed in
schedule 2(k), there are no persons who assert any type of ownership
interest or control (whether by virtue of voting rights or otherwise)
whatsoever in Pledgor; and other than Pledgor, there are no other persons
who assert any type of ownership interest in Company.
(1) Other than this Agreement and the pledge agreement creating the
Subordinated Indebtedness Liens on the Collateral, there is no agreement
which imposes any conditions or restrictions on the Shares, and Pledgor
shall take no action to impose any such restrictions prior to full
satisfaction of all of Borrowers' Obligations under the Credit Facilities
Documents;
(m) All of the Shares have been duly authorized, validly issued and
are fully paid and non--assessable;
(n) The granting by Pledgor to Secured Party of the security interest
in the Collateral as evidenced by this Agreement complies with all
applicable federal and state securities laws or qualifies for an exemption
from such registration;
(o) Pledgor will promptly (but not later than three (3) days after
receipt thereof) deliver to Secured Party copies of any notices received
with respect to matters materially affecting the Collateral; and
(p) Pledgor's principal place of business, chief executive office
and/or (if it is a natural person) residence is located at the mailing
address set forth in paragraph 15(m) below, and Pledgor will not change the
location of its principal place of business or chief executive office or
(if
4
<PAGE>
it is a natural person) residence without ten (10) days prior written
notice to Secured Party.
3. Default. The occurrence of any of the following shall constitute an
-------
event of default ("Event of Default") under this
Agreement:
(a) A default or violation shall occur in the performance of any of the
obligations of Pledgor under Section 2;
(b) A default or violation in the performance of Pledgor's obligations
under this Agreement or any of the other Loan Documents (other than a
default or violation referred to elsewhere in this Section 3) which
continues unremedied (i) for a period of five (5) Business Days (as defined
below) after notice of such default or violation to Pledgor in the case of
any default or violation which can be cured by the payment of money alone
or (ii) for a period of twenty (20) Business Days after notice to Pledgor
in the case of any other default or violation;
(c) An "Event of Default," as defined elsewhere in any of the other
Credit Facilities Documents.
As used herein, the term "Business Day" means any day other than a Saturday,
Sunday or a day on which banks in, Los Angeles, California, or New York, New
York, are required to close.
4. Remedies. Upon the occurrence of any Event of Default, Secured Party
--------
may, at its option and without further notice to Pledgor, do one or more of the
following:
(a) Sell, assign and deliver any or all of the Collateral or any rights
or interest therein at public or private sale, at Secured Party's option;
(b) Collect any and all dividends or proceeds due from the Collateral
and apply such to all costs and expenses of Secured Party and to all
obligations secured hereby; and
(c) Take such other action and remedies as are provided in the
applicable Uniform Commercial Code or as otherwise allowed by law.
With respect to any sale of the Collateral by Secured Party, whether public or
private, under the UCC or otherwise, notice of such sale shall be deemed
commercially reasonable if given to Pledgor at least ten (10) Business Days
prior to the date of the intended disposition. Any and all remedies conferred
upon Secured
5
<PAGE>
Party shall be deemed cumulative with and non--exclusive of any other remedies
allowed by law. The exercise of any one remedy by Secured Party shall not
preclude the exercise of any other. Secured Party may delay exercising a right
or remedy hereunder without waiving that, or any other past, present or future
right or remedy.
5. Maintenance of Priority of Security Interest. Except for the
--------------------------------------------
Subordinated Indebtedness Liens, so long as it is subject to the terms and
conditions of the Subordination Agreement, Pledgor will not, and will it not
attempt to or permit a third party to, assign, pledge, mortgage, lease,
hypothecate or otherwise encumber, sell or otherwise dispose of the Collateral,
and Pledgor will not suffer or permit to be incurred any liens on or security
interests in the Collateral or permit the Collateral to be subjected to any
unpaid charges whatsoever. In addition, Pledgor agrees that it will defend the
Collateral against the claims and demand of all parties; provided, that, at
Secured Party's option, Secured Party may do so at Pledgor's expense. Pledgor
agrees, at its sole cost and expenses, to execute, re--execute, deliver and re--
deliver all documents requested by Secured Party to enable Secured Party to
perfect, preserve and protect its security interest in and on the Collateral,
and does hereby authorize Secured Party to file and record any such documents
for such purposes. If Pledgor declares any share dividend, reclassification,
readjustment, makes any other change in the structure of Pledgor or if any
subscription, warrants or other options are exercisable with respect to the
Collateral, of if Pledgor is a party to any merger or consolidation, all new,
substituted, or additional shares or other securities, issued by reason of such
change or option, shall be subject to the security interest of Secured Party
described herein, and all references to the word "Collateral" shall
automatically be deemed to include such new, substituted or additional shares or
other securities (notwithstanding the fact that such action on the part of
Pledgor may constitute an Event of Default under this Agreement) and immediately
upon the issuance of such new, substituted or additional shares or other
securities, Pledgor shall deliver such shares or other securities to Secured
Party, accompanied by a stock power and assignment apart from certificate (or
other comparable assignment instrument in the case of the issuance of securities
other than stock) endorsed in blank.
6. Taxes. Pledgor will pay promptly, when due, any and all property taxes,
-----
excise taxes (however called) and other taxes, assessments, duties and other
charges, which, if unpaid, might by law or otherwise become a lien or charge
upon the Collateral (including any and all interest, penalties and related
provisional fees) imposed, levied or assessed against the Collateral, or upon or
measured by the use, ownership, possession or operation thereof, or in respect
of this Agreement or incident to the security
6
<PAGE>
interest in the Collateral granted and conveyed herein; provided, however, that
Pledgor shall have the right to contest in good faith by appropriate proceedings
promptly initiated, the validity, amount or imposition of such fee or tax if
such contest, in Secured Party's determination, does not have any material
adverse impact on Secured Party's interest under this Agreement or any other
Loan Document or on the Collateral.
7. Pledgor's Failure to Pay Taxes and Other Items. If Pledgor fails to
----------------------------------------------
make any payment or do any act required of it under this Agreement, then Secured
Party shall have the right, but not the obligation, upon three (3) Business Days
notice to Pledgor, and without releasing Pledgor from any obligation under this
Agreement, to make or do the same, and to pay, purchase, contest or compromise
any lien which in Secured Party's judgment places its security interest in the
Collateral or Pledgor's title to the Collateral in jeopardy, and in exercising
any such rights, to expend whatever reasonable amounts Secured Party in its sole
discretion may deem necessary therefor. Any amounts expended by Secured Party
pursuant to this Section 7 shall be a demand obligation owing by Pledgor, which
shall bear interest at the Default Rate (as defined in the Term Loan Agreement)
from the date Secured Party expends such amount until repaid.
8. Indemnification. Pledgor agrees to indemnify, defend and hold harmless
---------------
Secured Party for, from and against all losses, claims, demands and expenses,
including, without limitation, expert witness fees and attorneys' fees, incurred
by Secured Party and arising out of: (a) a misrepresentation or breach of
warranty contained in this Agreement; (b) failure of Debtor to establish or
maintain in favor of Lender a first priority security interest in the Collateral
in favor of Lender subject only to the restrictions set forth in the
Subordination Agreement; or (c) any contest by Debtor of the exercise of any of
Secured Party's rights or remedies under this Agreement, at law or in equity.
9. Unregistered Securities. Pledgor acknowledges that the Shares
-----------------------
constitute unregistered securities subject to legal restrictions upon the
transfer thereof which will render a public sale of the Shares unavailable, and
that Secured Party has no obligation to register the Collateral under federal
and/or state securities laws. If, upon an Event of Default, Secured Party
exercises its right to sell the Shares, Pledgor waives all right to a public
sale and agrees to the private placement of the Shares to any qualified third
party buyer at a commercially reasonable price therefor. Secured Party may in
its discretion at any such sale, restrict the prospective bidders or purchasers
as to their number, nature of business and investment intention and may require
that the persons making such purchases represent and agree to the satisfaction
of Secured Party that they are purchasing the
7
<PAGE>
Collateral for their account, for investment, and not for distribution or resale
or place any other restrictions on sale that are necessary to satisfy any
securities law restrictions. Pledgor further acknowledges that the legal
restrictions upon transfer of the Shares adversely affect the marketability of
the Shares and any commercially reasonable price of the Shares will include a
discount from the proportionate part of the net asset value of Pledgor
represented by the Shares to reflect those restrictions upon marketability.
10. Irrevocable Proxy. Pledgor does hereby irrevocably constitute and
-----------------
appoint Secured Party and Secured Party's successors and assigns as its proxy,
with full power, in the same manner, to the same extent, and with the same
effect as if they were to do the same:
(a) To attend all meetings of Pledgor and Company held from the date
hereof, and to vote the Collateral at any such meeting in such manner as
Secured Party shall, in its sole discretion deem appropriate; and
(b) To consent, in the sole discretion of Secured Party, to any and
all actions by or with respect to Pledgor and Company for which the consent
of the Pledgor is or may be necessary or appropriate; and
(c) Without limitation, to do all things which Pledgor can or could do
as a shareholder of Pledgor and Company, giving to Secured Party full power
of substitution and revocation;
provided, however, that this proxy shall not be exercisable by Secured Party,
and Pledgor alone shall have the foregoing powers, so long as no Event of
Default exists, and provided further that this proxy shall terminate at such
time as this Agreement is terminated as provided in Section 11 below. Except for
the proxy of Paul Kana which expires not later than thirty (30) days from the
date hereof, Pledgor hereby revokes any proxy or proxies heretofore given to any
person or persons and agrees not to give any other proxy in derogation hereof
until such time as this Agreement is terminated as provided below. Pledgor and
Secured Party hereby specifically agree that the proxy granted hereunder shall
be deemed to be valid and irrevocable until this Agreement shall be terminated
as provided below.
11. Attorney-in-Fact. Pledgor hereby appoints Secured Party as Pledgor's
----------------
attorney-in-fact with full power of substitution (without imposing any
obligations on Secured Party), to perform all acts which Secured Party deems
appropriate to perfect and continue the security interest granted hereunder. The
power of attorney
8
<PAGE>
granted herein is coupled with an interest and is irrevocable until this
Agreement is terminated as provided below.
12. Termination. Subject to the provisions of the Subordination Agreement
-----------
with respect to the delivery of the Collateral to Lender, this Agreement shall
terminate upon full satisfaction of the indebtedness hereby secured, and, upon
such termination, Secured Party shall return to Pledgor any of the Collateral
held by Secured Party pursuant to this Agreement, and the original executed copy
of this Agreement which contains an irrevocable proxy.
13. Acknowledgment. Pledgor acknowledges that Secured Party would not
--------------
agree to make the Loans to Borrower without the execution, delivery and
performance of this Agreement by Pledgor. Pledgor further acknowledges that it
has received good and sufficient consideration for the execution, delivery and
performance of this Agreement.
14. No Duty to Protect. This is a pledge and assignment of Pledgor's
------------------
rights and benefits in the Collateral without an assumption by Secured Party of
any of Pledgor's duties or obligations attendant thereto. Except for physical
safeguarding of the stock certificate(s) included in the Collateral delivered to
Secured Party, Secured Party shall have no duty to protect, insure, collect or
realize upon the Collateral or any proceeds therefrom. Secured Party shall not
have any obligation to any third party by virtue of Secured Party's possession
of the Collateral.
15. Miscellaneous.
-------------
(a) This Agreement and all other Credit Facilities Documents shall
constitute the entire agreement among the parties hereto with respect to
the subject matter hereof and shall supersede all other prior agreements,
written or oral, with respect thereto.
(b) This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns; provided,
however that Pledgor shall not have the right to assign or transfer its
respective rights or obligations under this Agreement except with the prior
written consent of Secured Party. Secured Party, at any time, may sell,
assign, grant or otherwise transfer, in whole or in part, the indebtedness
secured hereby and Secured Party's rights, interest and obligations under
this Agreement or the Collateral and in such event, the transferee shall
have the same rights, powers and authority with respect to this Agreement
and the Collateral so transferred as are hereby given to Secured Party.
9
<PAGE>
(c) This Agreement may be amended, modified, renewed or extended but only
by a written instrument, executed by all of the parties hereto in the manner of
the execution of this Agreement.
(d) THIS AGREEMENT AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES
THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS
OF THE STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE,
THE LAWS OF THE UNITED STATES.
(e) PLEDGOR (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS,
JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY,
AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE SUBJECT MATTER
HEREOF OR, IF SECURED PARTY INITIATES SUCH ACTION, ANY COURT IN WHICH SECURED
PARTY SHALL INITIATE SUCH ACTION AND THE CHOICE OF SUCH VENUE SHALL IN ALL
INSTANCES BE AT SECURED PARTY'S ELECTION; AND (B) WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF
MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM
THAT PLEDGOR IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED
COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM
OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. PLEDGOR HEREBY
WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER
FORUM.
(f) SECURED PARTY AND PLEDGOR ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS AGREEMENT WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING WITHOUT A JURY, AND PLEDGOR HEREBY
KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY SUCH PROCEEDING.
(g) ALL OF THE PROVISIONS SET FORTH IN THIS PARAGRAPHS 15(d) - (g),
INCLUSIVE, ARE MATERIAL INDUCEMENTS FOR SECURED PARTY'S MAKING THE LOANS TO
BORROWERS.
[Pledgor's initials _______]
(h) All parties hereto shall, from time to time, do and perform such other
and further actions and execute and deliver any and all such other and further
instruments as may be required or reasonably requested by any other party to
establish, maintain and protect the respective rights and
10
<PAGE>
remedies of such other party and to carry out and effect the intents and
purposes of this Agreement.
(i) All documents, agreements, certificates and instruments herein required
shall be in form and substance satisfactory in all respects to Secured Party in
its sole discretion and shall be provided at the sole cost and expense of
Pledgor.
(j) The representations and warranties hereunder shall survive the
execution hereof and Secured Party may enforce such representations and
warranties at any time. Pledgor's covenants shall survive the execution hereof
and shall be performed fully and faithfully by Pledgor at all times. The
indemnities of Pledgor shall survive repayment of the indebtedness secured
hereby.
(k) If any term or provision of this Agreement, or the application thereof
to any circumstances, shall be invalid, illegal or unenforceable to any extent,
such term or provision shall not invalidate or render unenforceable any other
term or provision of this Agreement, or the application of such term or
provision to any other circumstance. To the extent permitted by law, the parties
hereto hereby waive any provision of law that render any term or provision
hereof invalid or unenforceable in any respect.
(1) Time is of the essence of this Agreement.
(m) All notices, requests or demands required or permitted to be given
hereunder shall be in writing, and shall be deemed effective (a) upon hand
delivery, if hand delivered; (b) one (1) Business Day after such are deposited
for delivery via Federal Express or other nationally recognized overnight
courier service; or (c) three (3) Business Days after such are deposited in the
United States mails, certified or registered mail, all with delivery charges
and/or postage prepaid, and addressed as shown below, or to such other address
as either party may, from time to time, designate in writing. Written notice may
be given by telecopy to the telecopier number shown below or such other
telecopier number as either party may designate, from time to time, in writing,
provided that such notice shall not be deemed effective unless it is confirmed
within twenty-four (24) hours by hand delivery, courier delivery or mailing of a
copy of such notice in accordance with the requirements set forth above.
11
<PAGE>
If to Secured Party: Greyhound Financial Corporation
Dial Tower
Dial Corporate Center
1850 North Central Avenue
Phoenix, Arizona 85077
Attn: Vice-President - Law
Telecopy: (602) 207-5036
CPS Acquisition Corp.
c/o CPS Systems, Inc.
3400 Carlisle St., Suite 500
Dallas, Texas 75204
Attn: Vice-President - Law
Telecopy: (214) 720-1380
Greyhound Financial Corporation
311 So. Wader, Suite 2725
Chicago, IL 60606
Attn: Portfolio Manager
Telecopy: (312) 322-7250
one copy marked "Attention: Vice
President - Law" and the other
marked "Attention: Vice President -
Operation Management"
If to Pledgor: CPS Acquisition Corp.
3400 Carlisle St., Suite 500
Dallas, Texas 75204
(n) This Agreement may be executed in any number of counterparts, each of
which, when so executed and delivered, shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same instrument.
(o) The headings of the sections and paragraphs of this Agreement have been
inserted for convenience of reference only and shall in no way restrict or
otherwise modify any of the terms or provisions hereof.
(p) All references to the singular shall include the plural and vice versa
and all references to the masculine shall include the neuter or feminine and
vice versa. This Agreement has been reviewed and negotiated by counsel for each
party and no ambiguity in this Agreement shall be construed against any party
based upon its having prepared the same.
16. Waiver of Suretyship Defenses and Rights.
-----------------------------------------
12
<PAGE>
(a) Neither (i) the exercise or the failure to exercise by Secured Party of any
rights of remedies conferred on it under any of the other Credit Facilities
Documents, hereunder or existing at law or otherwise, or against any other
security for performance of Obligations, (ii) the commencement of an action
at law or the recovery of a judgment at law against Company or other
obligor ("Third Party Obligor") for the Obligations and the enforcement
thereof through levy or execution or otherwise, (iii) the taking or
institution or any other action or proceeding against Company or any other
Third Party Obligor nor (iv) any delay in taking, pursuing or exercising
any of the foregoing actions, rights, powers or remedies (even though
requested by Pledgor) of Secured Party or anyone acting for Secured Party
shall extinguish or affect the obligations of Pledgor hereunder. Pledgor
shall be and remain liable hereunder until all Obligations are fully paid
and performed, notwithstanding the previous discharge (total or partial)
from further liability of Company or any Third Party Obligor.
(b) Borrower hereby expressly waives: (i) notice of the existence, creation or
non-payment of all or any of the Obligations except as otherwise provided
in this Agreement; (ii) presentment, protest, demand, dishonor, notice of
dishonor, protest and all notices whatsoever with respect to the
Obligations; (iii) all diligence in collection or protection of or
realization on the Obligations or any part thereof, an Obligation
hereunder, or any security for or guarantee of any of the foregoing; (iv)
any right or defense based upon an election of remedies by Secured Party or
marshalling of assets; (v) any defense arising because of Secured Party's
election under Section 1111(b)(2) of the United States Bankruptcy Code
("Bankruptcy Code") in any proceeding instituted under the Bankruptcy Code;
(vi) any defense based on post-petition borrowing or the grant of a
security interest by a Borrower under Section 365 of the Bankruptcy Code;
(vii) any duty on the part of Secured Party to disclose to Pledgor any
facts Secured Party may know or hereafter know about a Borrower, regardless
of whether Secured Party has reason to believe that any such facts
materially increase the risk beyond that which Pledgor intends to assume or
has reason to believe that such facts are known to Pledgor or
13
<PAGE>
has a reasonable opportunity to communicate such facts to Pledgor, because
Pledgor represents and warrants that it is fully responsible for being and
keeping informed of the financial condition of each Borrower and of all
circumstances bearing on the risk of non-payment or any obligation
guaranteed hereby; and (viii) any and all suretyship defenses and defenses
in the nature thereof under Arizona and/or any other applicable law,
including, without limitation, the benefits of the provisions of Sections
12-1641 through 12-1646, of the Arizona Revised Statues, Sections 17 and
21, A.R.C.P., and all other laws and procedural rules of similar import.
(c) Without limiting the generality of the foregoing, Pledgor will not assert
against Secured Party any defense of waiver, release, discharge in
bankruptcy, statute of limitation, res judicata, statute of frauds, anti-
deficiency statute, fraud, usury, illegality or unenforceability which may
be available to Borrower with respect to the other Credit Facilities
Documents, or any setoff available to a Borrower against Secured Party,
whether or not on account of a related transaction.
(d) Anything else contained herein to the contrary notwithstanding, Secured
Party, from time to time, without notice to Pledgor, may take all or any of
the following actions without in any manner affecting or impairing the
obligations of Pledgor hereunder: (i) obtain a lien on or a security
interest in any property to secure any of the Obligations; (ii) retain or
obtain the secondary liability of any party or parties, in addition to
Pledgor, with respect to any of the Obligations; (iii) renew, extend or
otherwise change the time for payment or performance of any of the
Obligations for any period; (iv) release or compromise any liability of a
Borrower or any liability of any nature of any other party or parties with
respect to any of the Obligations; (v) exchange, enforce, waive, release
and apply any security for the performance of any of the Obligations and
direct the order or manner of sale thereof as Secured Party may in Secured
Party's discretion determine; (vi) resort to the Collateral for payment of
any Obligations, whether or not Secured Party shall proceed against any
other party primary or secondarily against any other party
14
<PAGE>
primarily or secondarily liable on any of the Obligations; (vii) agree to
any amendment (including, without limitation, any amendment which changes
the amount of interest to be paid under the Credit Facilities Documents or
extends the period of time during which a Borrower may obtain advances of a
Loan), any alteration of any of the Credit Facilities Documents or any
waiver of any of the provision of any of the Credit Facilities Documents
and/or exercise Secured Party's rights to consent to any action or non-
action of a Borrower which may violate the covenants and agreements
contained in the Credit Facilities Documents, with or without consideration
and on such terms and conditions as may be acceptable to Secured Party; or
(h) exercise any of Secured Party's rights conferred by the Credit
Facilities Documents or by law.
(e) Notwithstanding anything herein to the contrary, if at any time or any part
of any payment theretofore applied by Secured Party to any of the
Obligations is or must be rescinded or returned by Secured Party for any
reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of a Borrower), such Obligations, for purposes
of this Section 16, to the extent that such payment is or must be rescinded
or returned, shall be deemed to have never been performed; and this Section
16 shall continue to be effective or be reinstated, as the case may be, as
to such Obligations, all as though such application by Secured Party had
not been made.
(f) Borrower shall have no right of subrogation with respect to the Obligations
or any right of indemnification reimbursement or contribution from a
Borrower or from any other Third Party Obligor with respect to the
Obligations regardless of any payment thereon resulting from the provisions
of this Section 16 until the Obligations have been paid and performed in
full and Borrower hereby unconditionally waives any such right of
subrogation, indemnification, reimbursement or arbitration.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first hereinabove written.
PLEDGOR: CPS ACQUISITION CORP., a
Georgia corporation
By: /s/ Paul E. Kana
--------------------------------
Print/Type Name: Paul E. Kana
Title: President
SECURED PARTY: GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Patricia Murray
--------------------------------
Print/Type Name: Patricia Murray
-------------------
Title: Vice President
-----------------------------
<PAGE>
EXHIBIT 10.15
ASSUMPTION AGREEMENT
BY THIS ASSUMPTION AGREEMENT ("Assumption Agreement") dated as of
December 29, 1994, CPS SYSTEMS, INC., a Texas corporation ("CPS"), and GREYHOUND
FINANCIAL CORPORATION, a Delaware corporation ("Lender"), for good and valuable
consideration, the receipt of which is hereby acknowledged, hereby confirm and
agree as follows:
ARTICLE I - INTRODUCTION
1.1 CPS Acquisitions, Inc., a Georgia corporation ("Acquisition"), as
borrower, and Lender, as lender, entered into a Term Loan Agreement (as from
time to time renewed, amended, restated or replaced, "Term Loan Agreement")
dated as of December 29, 1994, pursuant to which Assignee has loaned to
Acquisition a principal sum not to exceed One Million Five Hundred Thousand
Dollars ($1,500,000) ("Term Loan"). As contemplated by the terms of the Term
Loan Agreement, Acquisition has merged into Debtor and, by operation of law,
Debtor has assumed all of the obligations and succeeded to all of the rights,
title and interest of Acquisition in, to and under the Term Loan Agreement and
the documents which pertain thereto.
1.2 Lender has required that Acquisition assume all of the obligations
of Acquisition under and agree to be bound by all of the terms and conditions of
the Term Loan Agreement and all other documents evidencing, securing or
otherwise pertaining to the Term Loan.
1.3 Borrower, as borrower, and Lender, as lender, entered into a
Revolver Loan and Security Agreement (as from time to time renewed, amended,
restated or replaced, "Revolver Loan Agreement") dated as of December 29, 1994,
pursuant to which Assignee has agreed to loan to Company in a form of Revolving
Line of Credit a principal sum not to exceed One Million Dollars ($1,000,000)
("Revolver Loan") at any time.
ARTICLE II - AGREEMENT
2.1 Assumption by Borrower. Borrower hereby assumes and agrees to pay
----------------------
and perform all the obligations ("Assumed Obligations") of Acquisition at the
times, in the amounts, and in the manner as provided in the Term Loan Documents,
and to comply and be bound by all the terms and conditions of the Term Loan
Documents, as amended hereby, upon the same terms and with the same effect as
though Borrower had originally joined in the execution of the Term Loan
Documents. No payment or discharge of any of the Assumed Obligations or of any
lien or security interest securing the Assumed Obligations is intended by this
Assumption Agreement and all security for the Assumed Obligations shall continue
in full force, unimpaired from the date of the execution, attachment and
perfection of the Term Loan Documents pertaining thereto. Nothing
1
<PAGE>
contained herein and nothing done pursuant hereto shall affect or be construed
to affect any warranties of title granted in the Term Loan Documents (except
that any warranty that Acquisition is the owner of any collateral given to
Lender as security for the Obligations shall be deemed to be changed so as to
warrant that Borrower is the owner of such collateral) or to subordinate the
priority of the liens, security interests, assignments and charges granted under
the Term Loan Documents to other liens, security interests, assignments and
charges of any kind.
2.2 Representations and Warranties of Borrower.
------------------------------------------
(a) Borrower makes to Lender as of the date hereof all of the
representations and warranties made by Acquisitions and set forth in
the Term Loan Documents.
(b) Borrower represents and warrants to Lender as follows:
(i) it has good right and power to execute and
deliver this Assumption Agreement and to perform its
obligations hereunder;
(ii) all action necessary and required by its
governing documents and all applicable laws for the execution
and delivery of this Assumption Agreement has been duly and
effectively taken;
(iii) this Assumption Agreement is and shall be
legal, binding and enforceable against it in accordance with
its terms;
(iv) the execution and delivery of this Assumption
Agreement and the performance of all its obligations under
such this Assumption Agreement do not violate, constitute a
default under, result in the creation or imposition of any
lien, charge or encumbrance upon any of its property or assets
pursuant to, the terms of any provision of: any law,
regulation, judgment, decree, order, franchise or permit
applicable to it; its governance documents; or any contract or
instrument to which it is a party or by which it or its assets
are bound;
(v) no consent of any government or agency thereof,
or any other person, firm or entity not a party hereto is or
will be required as a condition to the execution and delivery
of this Assumption Agreement;
(vi) there does not exist any Incipient Default or
Event of Default (as such terms are defined in the Term Loan
Documents); and
2
<PAGE>
(vii) Lender has performed and is not in default of
its obligations under the Term Loan Documents, and there are
no offsets, defenses or counterclaims with respect to any of
the Obligations of Borrower under the Term Loan Documents.
2.3 Further Assurances. Borrower will execute and deliver such further
------------------
instruments and do such things as in the sole and absolute judgment of Lender
are necessary or desirable to effect the intent of this Assumption Agreement and
to secure to Lender the benefits of all rights and remedies conferred upon
Lender by the terms of this Assumption Agreement and the Term Loan Documents.
2.4 Confirmation by Borrower of Liens, Etc. Borrower confirms in favor
---------------------------------------
of Lender all liens, security interests, assignments and charges granted to
Lender under the Term Loan Documents, including, without limiting the generality
of the foregoing, mortgages, grants, conveys and assigns, and grants a security
interest in the Collateral (as defined in the Term Loan Agreement) to Lender.
Borrower shall deliver and perfect in Lender such liens, security interests and
assignments and other charges as are required pursuant to the terms of the Term
Loan Agreement.
2.5 No Modification or Waiver. This Assumption Agreement may not be
-------------------------
modified or any of its terms waived except in a writing duly executed by the
parties sought to be charged with the effect thereof.
2.6 Severability. If any one or more of the provisions of this
------------
Assumption Agreement is held to be invalid, illegal or unenforceable in any
respect or for any reason (all of which invalidating laws are waived to the
fullest extent possible), the validity, legality and enforceability of any
remaining portions of such provision(s) in every other respect and of the
remaining provision(s) of this Assumption Agreement shall not be in any respect
impaired.
2.7 Entire Agreement. This Assumption Agreement constitutes the entire
----------------
agreement and understanding of the parties with respect to the subject matter
hereof and supersedes all prior written or oral understandings and agreements
between the parties in connection therewith.
2.8 Schedules and Exhibits. All schedules and exhibits referred to
----------------------
herein are herein incorporated by this reference.
2.9 Counterpart Execution. This Assumption and Amendment may be
---------------------
executed in one or more counterparts, and any number of which having been signed
by all the parties hereto shall be taken as one original.
2.10 Governing Law; Waiver of Jury Trial. This Assumption and
-----------------------------------
Amendment has been delivered to Lender in the State of Arizona and
3
<PAGE>
shall be governed by the choice of law, process, jurisdiction and venue set
forth in the Term Loan Agreement.
2.11 Ratification of Documents. Borrower and Lender hereby ratify and
-------------------------
confirm the Term Loan Documents, as amended hereby, and, except as expressly
amended hereby, the Term Loan Documents shall remain in full force and effect.
2.12 Conflict. In the event of a conflict between the representations,
--------
warranties and covenants of Company contained in the Term Loan Agreement and the
representations, warranties and covenants set forth in the Revolver Loan
Agreement, the provisions imposing the greatest obligations upon Borrower in
granting the most expansive rights to Lender shall control.
IN WITNESS WHEREOF this instrument is executed to be effective as of
the date set forth above
"Borrower" CPS SYSTEMS, INC. TEXAS
corporation
By: /s/ Paul E. Kana
-------------------------------
Type/Print Name: Paul E. Kana
------------------
Title: President
----------------------------
"LENDER" GREYHOUND FINANCIAL CORPORATION,a
Delaware corporation
By: /s/ Patricia Murray
-------------------------------
Type/Print Name: Patricia Murray
------------------
Title: Vice President
----------------------------
4
<PAGE>
EXHIBIT 10.16
REVOLVER LOAN AND SECURITY AGREEMENT
------------------------------------
THIS REVOLVER LOAN AND SECURITY AGREEMENT is entered into as of
December 29, 1994, by and between CPS SYSTEMS, INC., a Texas corporation and
GREYHOUND FINANCIAL CORPORATION, a Delaware corporation.
R E C I T A L S:
---------------
A. CPS Systems, Inc., desires to borrow from Greyhound Financial
Corporation in the form of a revolving line of credit a principal amount not to
exceed One Million Dollars ($1,000,000) at any time, the proceeds of which will
be used to provide working capital to Borrower.
B. Greyhound Financial Corporation desires to grant the credit
accommodation requested by CPS Systems Inc., subject to the terms and conditions
set forth herein.
C. Greyhound Financial Corporation has entered into a Term Loan
Agreement with CPS Acquisition Corp., a Georgia corporation. In connection with
such transaction, CPS Systems, Inc. has executed a Guaranty and Subordination.
Furthermore, CPS Acquisition Corp. is obligated to merge into CPS Systems, Inc.,
but that merger has not yet occurred.
A G R E E M E N T:
-----------------
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound,
the parties agree as follows:
ARTICLE 1
---------
DEFINITIONS AND DETERMINATIONS
------------------------------
1.1 Definitions. As used in this Revolver Loan Agreement and in the
-----------
other Revolver Loan Documents (as hereinafter defined), unless otherwise
expressly indicated herein or therein, the following terms shall have the
following meanings (such meanings to be applicable equally to both the singular
and plural forms of the terms defined):
1
<PAGE>
Account Debtor: any Person who is or may become obligated under any
--------------
Account.
Accountants: an independent certified public accounting firm selected
-----------
by Borrower and satisfactory to Lender.
Accounting Changes: changes in generally accepted accounting
------------------
principles required by the promulgation of any rule, regulation, pronouncement
or opinion by the Financial Accounting Standards Board of the American Institute
of Certified Public Accountants (or any successor thereto) or other appropriate
authoritative body.
Accounts: all presently existing and hereafter arising accounts,
--------
contract rights, and all other forms of obligations owing to Borrower arising
out of the sale or lease of Goods or the rendition of services by Borrower,
whether or not earned by performance, and any and all credit insurance,
guaranties or security therefor.
Acquisition: the transaction pursuant to which Parent has acquired all
-----------
of Borrower's Stock.
Acquisition Documents: that Stock Purchase Agreement dated as of
---------------------
November 11, 1994 between PHF Associates, Inc. (to whose interest Parent has
succeeded), as buyer, and Clayton O. Callaway, Gary P. Caldwell, Robert F.
Kiesling, Janice H. McCord, James K. Hoofard, Jr., Katherine M. Williamson,
Richard G. Bingham, II and Stanton W. Galbraith, as sellers, and any and all
other documents, instruments or agreements pursuant to which the Acquisition has
been effected.
ADA: the Americans with Disabilities Act of 1990 (42 U.S.C. 12101, et
--- --
seq.) and all applicable rules, regulations, codes, ordinances and guidance
- ---
documents promulgated or published thereunder.
Affiliate: as to any Person, any other Person who directly or
---------
indirectly controls, is under common control with, or is controlled by such
Person. As used in this definition, "control" (including with its correlatives
"controlled by" and "under common control with") shall mean possession, directly
or indirectly, of the power to direct (or cause the direction of) the management
and policies of another Person, whether through ownership of securities,
partnership or other ownership interests, by contract or otherwise), provided
that, in any event: (a) any Person who owns directly or indirectly, five percent
(5%) or more of the securities having ordinary voting power for the election of
directors or other governing body of a corporation or five percent (5%) or more
of the partnership or other ownership interests of any other such Person (other
than as a limited partner of such other Person),
2
<PAGE>
whether voting or non-voting will be deemed to "control" such corporation or
other Person, and (b) each director and officer of Borrower or any Subsidiary of
Borrower shall be deemed to be an Affiliate of Borrower.
Assignment of Contracts, Intangibles, Licenses and Permits: the
-----------------------------------------------------------
assignment of contracts, intangibles, licenses and permits, for security
purposes, executed by Borrower in favor of Lender, as it may be from time to
time amended, restated or replaced.
Assignment of Trademarks: the assignment of trademarks for security
------------------------
purposes, executed by Borrower in favor of Lender as it may be from time to time
amended, restated or replaced.
Assignment of Life Insurance: the assignment required pursuant to
----------------------------
subsection 6.7.2, as it may be from time to time amended, restated or replaced.
Authorized Officer: any of the following officers of Borrower: Chief
------------------
Executive Officer, Chief Financial Officer/Treasurer/Controller or Assistant
Controller.
Average Unused Portion: as of any date, the Maximum Amount, less the
---------------------- ----
result of (a) the sum of all Daily Balances outstanding during the immediately
preceding month or portion thereof, divided by (b) the number of days included
in such month or portion thereof.
Bailee Letter: a bailee letter to be delivered by each of the bailees
--------------
in each warehouse where any Inventory of Borrower is stored, each of which shall
be in a form acceptable to Lender.
Bank Agency Agreement: the Bank Agency Agreement to be executed by and
---------------------
between Borrower and Lender in a form acceptable to Lender, which Bank Agency
Agreement shall be agreed to by each bank in which a Blocked Account or a
Dominion Account is maintained.
Bankruptcy Code: the United States Bankruptcy Code and any successor
---------------
statute thereto, and the rules and regulations issued thereunder, as in effect
from time to time.
Base Rate: the per annum rate of interest publicly announced, from
----------
time to time, by Citibank, N.A., New York, New York ("Citibank"), as the base
(or equivalent") rate of interest charged by Citibank to its largest and most
creditworthy commercial borrowers notwithstanding the fact that some borrowers
of Citibank may borrower from Citibank at rates less than the announced base
rate, or if Citibank ceases
3
<PAGE>
to publish its base rate, then such other published rate as the holder of the
Note shall determine to be comparable.
Base Revolver Loan Fee: the meaning given to it in subsection 2.12.1.
----------------------
Blocked Account: the meaning given to it in subsection 2.4.3.
---------------
Books: all of the books and records of Borrower, including, without
-----
limitation, Borrower's: (a) ledgers, (b) records indicating, summarizing or
evidencing any of the (i) liabilities of Borrower or (ii) the Property of
Borrower constituting part of the Collateral, (c) all information relating to
the Business, operations or financial condition of Borrower, (d) computer
programs, disk or tape files, printouts, runs or other computer-prepared
information, and (e) the Equipment containing any of the foregoing.
Borrower: CPS Systems Inc., a Texas corporation, and, subject to the
--------
restrictions on assignment and transfer contained in this Loan Agreement, the
successors and assigns of such corporation.
Borrower's Collateral: that portion of the Collateral which is owned
---------------------
by Borrower or in which Borrower otherwise has an interest.
Borrower's Stock: all of the present and (subject to the limitations
----------------
on the issuance of such stock contained herein) future issued and outstanding
stock of Borrower.
Borrower's Stockholders: the Persons listed in Schedule 1.1
-----------------------
(Borrower's Stockholders).
Borrower's Stockholders Pledge Agreement: a pledge of the Borrower's
----------------------------------------
Stock, executed by Borrower's Stockholders in favor of Lender, as it may be from
time to time amended, restated or replaced.
Borrower's Warrantholders: the Persons listed in Schedule 1.1
-------------------------
(Borrower's Warrantholders).
Business: the business conducted by Borrower of designing, installing,
--------
licensing and maintaining proprietary computer software; providing customer
assistance with respect to such software; and selling and maintaining computer
hardware.
4
<PAGE>
Business Day: any day other than a Saturday, Sunday or other day on
------------
which banks in Los Angeles, California, or New York, New York, are required to
close.
Capital Expenditure: with respect to any Person, any payment that is
-------------------
made or liability that is incurred by such Person for the lease, purchase,
improvement, construction or use of any Property, the value or cost of which
under GAAP is required to be capitalized and appears on such Person's balance
sheet in the category of property, plant or equipment, without regard to the
manner in which such payment or liability or the instrument pursuant to which it
is made is characterized by such Person or any other Person.
Capitalized Lease: with respect to any Person, any lease of Property
-----------------
by such Person as lessee, the obligation for rental of which is required to be
capitalized under GAAP.
Chattel Paper: all of Borrower's present and future chattel paper, as
-------------
the term "chattel paper" is defined in the Uniform Commercial Code.
Chief Executive Officer: the chief executive officer of Borrower
-----------------------
appointed to such duties by Borrower's Board of Directors.
Chief Financial Officer: the chief financial officer of Borrower
-----------------------
appointed to such duties by Borrower's Board of Directors.
Closing: the disbursement of the initial Revolver Advance.
-------
Closing Date: the date of the Closing.
------------
Collateral: (a) all Property of Borrower, whether now owned or
----------
hereafter acquired, together with all additions thereto and accessions thereof,
including, without limitation: (i) Accounts, (ii) Books, (iii) Equipment, (iv)
General Intangibles, (v) Goods, (vi) Inventory, (vii) Negotiable Collateral,
(viii) any money or other Property of Borrower, which hereafter comes into the
possession, custody or control of Lender, and (ix) Real Estate; (b) the
Borrower's Stock; (c) subject to the provisions of 6.17, the Parent's Stock; (d)
the Life Insurance; (e) any other Property in which Lender is granted a Security
Interest; and (f) the proceeds and products, whether tangible or intangible, of
any of the foregoing.
5
<PAGE>
Controlled Group: with respect to any Person, all members of a
----------------
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with such Person, are treated
as a single employer under Section 414(b) and 414(c) of the IRC.
Credit Facilities Documents: the Revolver Loan Documents and the Term
---------------------------
Loan Documents.
Daily Balance: as of the end of any particular day, the Revolver Loan
-------------
Principal Balance.
Default Rate: a per annum rate equal to the Interest Rate in effect
------------
plus four hundred fifty (450) basis points.
Depreciation: with respect to any period, all depreciation on Property
------------
taken during such period, as determined in accordance with GAAP.
Documents: all Borrower's present and future documents, as the term
---------
"documents" is defined in the UCC.
Dominion Account: the meaning given to it in subsection
----------------
2.4.3.
Eligible Accounts: Accounts arising in the ordinary course of the
-----------------
Business from the sale of goods or rendition of services or services to be
rendered ("Pre--Billed Services") hardware and software maintenance and customer
assistance which Lender shall determine to be eligible based on such
considerations as Lender may from time to time determine to be appropriate.
Without limiting the foregoing, an Account shall not be deemed to be an Eligible
Account if (a) the Account Debtor has failed to pay the Account within a period
of ninety (90) days after invoice date, to the extent of any amount remaining
unpaid after such period; (b) the Account Debtor has failed to pay more than
twenty-five percent (25%) of all outstanding Accounts owed by it to Borrower
within ninety (90) days after invoice date; (c) the Account Debtor is an
Affiliate of Borrower; (d) the goods relating thereto are placed on consignment,
guaranteed sale or other terms pursuant to which payment by the account debtor
may be conditional; (e) the Account Debtor is not located in the United States
or Canada, unless the Account is supported by a letter of credit or other form
of guaranty or security, in each case in form and substance satisfactory to
Lender; (f) the Account Debtor is the United States or any department, agency or
instrumentality thereof or any State, city or municipality of the United States
if Borrower has not provided Lender with evidence satisfactory to Lender that
Borrower has complied with the Federal Assignment of Claims Act, if applicable,
and any other applicable federal or state laws of similar import;
6
<PAGE>
(g) Borrower is or may become liable to the Account Debtor for goods sold or
services rendered by the Account Debtor to Borrower; (h) the Account Debtor's
total obligations to Borrower, exclusive of all Accounts for initial software
licensing fees and hardware sales which (i) are less than sixty-one (61) days
after the invoice date and (ii) are evidenced by invoices and other
documentation satisfactory to Lender ("Excluded Accounts"), exceed fifteen
percent (15%) of all Accounts, to the extent of such excess; (i) the Account
Debtor's total obligations to Borrower (inclusive of Excluded Accounts), exceed
thirty percent (30%) of all Accounts, to the extent of such excess; (j) the
Account Debtor disputes liability or makes any claim with respect thereto (up to
the amount of such liability or claim), or is subject to any insolvency or
bankruptcy proceeding, or becomes insolvent, fails or goes out of a material
portion of its business; (k) the amount thereof consists of late charges or
finance charges; or (1) the amount thereof consists of a credit balance more
than ninety (90) days past due.
Environmental Laws: any and all federal, state and local laws that
------------------
relate to or impose liability or standards of conduct concerning public or
occupational health and safety or the environment, as now or hereafter in effect
and as have been or hereafter may be amended or reauthorized, including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act (42 U.S.C. (S)9601 et seq.), the Hazardous Materials Transportation Act (42
-- ---
U.S.C. (S)1802 et seq.), the Resources Conservation and Recovery Act (42 U.S.C.
-- ---
(S)6901 et seq.), the Federal Water Pollution Control Act (33 U.S.C. (S)1251 et
-- --- --
seq.), the Toxic Substances Control Act (14 U.S.C. (S)2601 et seq.), the Clean
- --- -- ---
Air Act (42 U.S.C. (S)7401 et seq.), the National Environmental Policy Act (42
-- ---
U.S.C. (S)4321 et seq.), the Refuse Act (33 U.S.C. (S)407 et seq.), the Safe
-- --- -- ---
Drinking Water Act (42 U.S.C. (S)300(f) et seq.), the Occupational Safety and
-- ---
Health Act (29 U.S.C. (S)651 et seq.), and all rules, regulations, codes,
-- ---
ordinances and guidance documents promulgated or published thereunder, and the
provisions of any licenses, permits, orders and decrees issued pursuant to any
of the foregoing.
Equipment: all of Borrower's present and future equipment, as the term
---------
"equipment" is defined in the UCC.
7
<PAGE>
ERISA: the Employee Retirement Income Security Act of 1974, as
-----
amended, and any successor statute thereto, and the rules and regulations issued
thereunder, as in effect from time to time.
ERISA Affiliates: as to any Person, any trade, business or other
----------------
entity, whether or not incorporated, which, together with such Person, is
treated as a single employer under Section 414(c) of the IRC.
Event of Default: any of the Events of Default set forth in Section
----------------
8.1.
Excluded Trade Payables: Borrower's normal and customary trade
-----------------------
payables incurred in the ordinary course of business and paid within 90 days
from the date incurred [or, if not paid within ninety (90) days from the date
incurred, payment is being disputed pursuant to a Permitted Protest or the
normal terms offered to Borrower by the trade creditor provide that payment is
due more than ninety (90) days from the incurrence of the trade payable].
Existing Leases: the real property leases (if any) so described in
---------------
Schedule 1.1 (Leases).
Existing Operating Agreements: the agreements (if any) so described in
-----------------------------
Schedule 1 (Existing Operating Agreements).
Fees: the Revolver Loan Fees and the Term Loan Fees.
----
Fiscal Year: with respect to Borrower, the twelve (12) month period
-----------
beginning on each January 1 and ending on the following December 31.
GAAP: generally accepted accounting principles in the United States as
----
in effect from time to time during the period in which such principles are to be
applied, which shall include the official interpretations thereof by the
Financial Accounting Standards Board, or any successor thereto, and Accounting
Changes.
General Intangibles: all of Borrower's present and future General
-------------------
Intangibles, as the term "general intangibles" is defined in the UCC, and other
personal Property (including, without limitation, any and all rights of Borrower
to all choses or things in action, contract rights, credits, claims (including,
without limitation, tax refund claims), demands, goodwill, licenses, franchise
agreements, subscription costs, patents, copyrights, trademarks, service marks,
trade names, rights to royalties, blueprints, drawings, customer lists, purchase
orders, computer programs, computer discs, computer tapes, literature, reports,
catalogs, methods, sales literature, video tapes, confidential information and
trade
8
<PAGE>
secrets, consulting agreements, employment agreements, leasehold interests in
real and personal Property, insurance policies, deposits with insurers relating
to workmen's compensation liabilities, deposit accounts, tax refunds and
proprietary rights in any Equipment), other than Goods, (including, without
limitation, Equipment and Inventory), Negotiable Collateral and Accounts, as
well as the Books relating to any of the foregoing.
Good Funds: United States Dollars available to Lender in federal funds
----------
at or before 1:00 p.m. Chicago time on a Business Day by virtue of receipt by
Union Bank, in accordance with Section 2.10.
Goods: all of Borrower's present and future Goods, as the term "goods"
-----
is defined in the UCC.
Governmental Body: any foreign, federal, state, municipal or other
-----------------
government, or any department, commission, board, bureau, agency, public
authority or instrumentality thereof or any court or arbitrator.
Hazardous Materials: any pollutant (including, without limitation,
-------------------
petroleum, or any portion thereof), hazardous, toxic or dangerous waste,
substance or material defined as such in or for purposes of any Environmental
Law.
Incipient Default: any event or condition which, with the giving of
-----------------
notice or the lapse of time, or both, would become an Event of Default.
Indebtedness: with respect to any Person, all liabilities, obligations
------------
and reserves of such Person, contingent or otherwise, which in accordance with
GAAP, would be reflected as a liability on a balance sheet or would be required
to be disclosed in a financial statement, including, without limitation or
duplication, the following: (a) all Indebtedness for Borrowed Money; (b) all
obligations secured by any Lien upon Property of the Person for whom such
determination is being made, whether or not such obligation or liability is
assumed by such Person; (c) all guaranties, letters of credit and other
contingent obligations, including, without limitation, obligations to repurchase
or reimburse; (d) obligations with respect to the capital stock of the Person
for whom such determination of Indebtedness is being made, which capital stock
is subject either to mandatory redemption or redemption at the option of the
holder of such stock, whether such mandatory or optional redemption is in whole
or in part; and (e) liabilities with respect to unfunded, vested benefits under
any Plan and with respect to withdrawal liabilities incurred under ERISA with
respect to any Multi-employer Plan by any member of a Controlled Group.
9
<PAGE>
Indebtedness for Borrowed Money: with respect to any Person, without
-------------------------------
duplication, all Indebtedness of such Person (a) with respect to borrowed money,
(b) evidenced by a note, debenture or other like written obligation to pay money
(including, without limitation, with respect to Borrower, all of Borrower's
Obligations), (c) with respect to obligations under Capitalized Leases or for
the deferred purchase price of Property, or (d) pertaining to obligations under
conditional sales or other title retention agreements, and all guaranties of any
or all of the foregoing.
Instruments: all of Borrower's present and future instruments, as the
-----------
term "instruments" is defined in the UCC.
Insured Persons: Paul E. Kana and James K. Hoofard, Jr.
---------------
Intellectual Property: the patent, copyrights trademarks, service
---------------------
marks, trade names, and applications for any of the foregoing so described in
Section 1.1 (Intellectual Property).
Inventory: all of Borrower's present and future inventory, as the term
---------
"inventory" is defined in the UCC.
Investment: with respect to any Person, the amount paid or committed to
----------
be paid or the value of Property or wages contributed or committed to be
contributed by the Person making the Investment on its account for or in
connection with the acquisition by such Person of any stock, partnership or
other ownership interest, bonds, notes, debentures, or any other security of the
Person in whom such investment is made, or any evidence of Indebtedness by
reason of a loan advance, extension of credit, guaranty or other similar
obligation of any debt, liability or Indebtedness of such Person in whom the
Investment is made; provided, however, that the term "Investment" shall not
-------- -------
include (a) trade and customer accounts receivable of such Person for inventory
sold by it or services rendered by it in the ordinary course of business and
payable in accordance with customary trade terms, or any letters of credit or
other instruments securing the same, or (b) reasonable advances by such Person
in the ordinary course of business to its employees for travel expenses, drawing
accounts and similar expenditures.
IRC: the Internal Revenue Code of 1986, as amended, and any successor
---
statute thereto, and the rules, regulations and interpretations issued
thereunder, as in effect from time to time.
10
<PAGE>
Leasehold Property: the real property which is the subject of the
------------------
Leases.
Leases: the Existing Leases and, without implying Lender's consent to
------
the formation of any such lease except in accordance with the terms of this
Revolver Loan Agreement, any and all future leases or subleases under which
Borrower has a leasehold or subleasehold interest in real property.
Lender: Greyhound Financial Corporation, a Delaware corporation, and
------
its successors and assigns.
Lien: any mortgage, pledge, assignment, lien, charge, encumbrance or
----
security interest of any kind, or the interest of a vendor or lessor under any
conditional sale agreement, or other title retention agreement.
Loans: collectively, the Revolver Loan and the Term Loan.
-----
Loan Year: a period from the Closing Date through the first
---------
anniversary of the Closing Date and, thereafter, each twelve (12) month period
following such anniversary.
Material Adverse Effect: with respect to any set of circumstances or
-----------------------
events and their effect on a Person, the reasonable likelihood of a material and
adverse effect on (i) such Person's financial condition, operations, prospects
or profits, (ii) the validity or enforceability against such Person of any
Revolver Loan Document or any of the transactions contemplated thereby, (iii)
the ability of such Person to perform its obligations under any of the Revolver
Loan Documents to which such Person is a party, (iv) the priority against such
Person of the Security Interests (other than Permitted Prior Liens), or (v) with
respect to Borrower only, the value of the Collateral.
Maturity Date: the fourth anniversary of the Closing Date.
-------------
Maximum Amount: as defined in subsection 2.1.
--------------
Merger: the merger of Parent into Borrower.
------
Merger Documents: that Plan of Merger between Borrower and Parent, and
----------------
after the Merger, the Certificate of Merger issued by the Georgia and Texas
Secretaries of State.
11
<PAGE>
Multi-employer Plan: a "multi-employer plan" as defined in Section
--------------------
4001(a)(3) of ERISA under which Borrower is an employer.
Negotiable Collateral: all of Borrower's present and future letters of
---------------------
credit, notes, drafts, Instruments, Documents, personal property leases (where
such Person is the lessor) and Chattel Paper.
Net Worth: at any time with respect to a Person, all amounts which in
---------
accordance with GAAP should be included in shareholder's equity of such Person.
Notes: collectively, the Revolver Loan Note and the Term Loan Note.
-----
Obligations: collectively, the Revolver Loan Obligations and the Term
-----------
Loan Obligations.
Operating Agreement: any lease, license, equipment lease, collective
-------------------
bargaining agreement, servicing agreement, service mark, trademark, patent,
copyright, permit, Governmental Body approval or other agreement relating to the
operation of the Business of Borrower.
Operating Cash Flow: for any period, the net income or loss of
-------------------
Borrower (excluding the effect of any changes in GAAP and extraordinary gains or
losses), plus depreciation, amortization, interest expense, the Term Loan
Maintenance Fee, the Unused Line Fee, accrued but unpaid federal and state
income taxes and other non-cash expenses and minus its actual state and federal
-----
income taxes paid, other non-cash income, actual Capital Expenditures.
Parent: CPS Acquisition Corp., a Georgia corporation.
------
Parent's Stockholders Pledge Agreement: A pledge of the Parent's
--------------------------------------
Stock, executed prior to the Merger by Parent's Stockholders in favor of Lender,
as it may be from time to time amended, restated or replaced.
PBGC: the Pension Benefit Guaranty Corporation or any Governmental
----
Body succeeding to its functions.
Permitted Liens: any of the following Liens:
---------------
(a) the Security Interests;
12
<PAGE>
(b) Liens for taxes or assessments and similar charges, which
either are (i) not delinquent or (ii) being contested
diligently and in good faith by appropriate proceedings,
and as to which Borrower has set aside reserves on its
books which are satisfactory to Lender;
(c) statutory Liens, such as mechanic's, materialman's,
warehouseman's, carrier's or other like Liens, incurred in
good faith in the ordinary course of business, provided
--------
that the underlying obligations relating to such Liens are
----
paid in the ordinary course of business or the repayment of
such obligations is otherwise secured in a manner
satisfactory to Lender;
(d) zoning ordinances and, to the extent acceptable to Lender,
easements, licenses, reservations, provisions, covenants,
conditions and other title exceptions;
(e) Liens to secure payment of insurance premiums (i) to be
paid in accordance with applicable laws in the ordinary
course of business relating to payment of worker's
compensation, or (ii) that are required for the
participation in any fund in connection with worker's
compensation, unemployment insurance, old--age pensions or
other social security programs;
(f) Liens arising out of adverse judgments or awards against
Borrower on appeal, provided that (i) no Event of Default
-------- ----
would exist with respect thereto pursuant to subsection
8.1.6 and (ii) Borrower diligently is pursuing such appeal
pursuant to a Permitted Protest;
(g) subject to the terms of the Subordination Agreement, the
Subordinated Indebtedness Liens; and
(h) the security interest retained by International Business
Machines Corporation pursuant to that Value Added Reseller
Agreement between it and Borrower, a copy of which is
attached as Exhibit 1.1 (IBM Agreement), or by another
hardware manufacturer under any similar agreement between
it and Borrower.
13
<PAGE>
Permitted Protest: the right of Borrower to protest any Lien, tax or
-----------------
other charge, other than any such Lien or charge which constitutes a portion of
the Borrower's Obligations, provided (a) at the option of Lender, either (i) the
repayment of the obligations which gave rise to such Liens, taxes or other
charges is secured in a manner satisfactory to Lender within sixty (60) days
after such obligations become due and owing or (ii) a reserve with respect to
such obligations is established on the Books in an amount which is satisfactory
to Lender, (b) any such protest is instituted and diligently prosecuted by
Borrower in good faith and (c) Lender is satisfied that, while any such protest
is pending, there will be no impairment of the enforceability, validity or
priority of any of the Security Interests.
Person: any individual, firm, corporation, business enterprise, trust,
------
association, joint venture, partnership, Governmental Body or other entity,
whether acting in an individual, fiduciary or other capacity.
Plan: with respect to any Person, any employee pension benefit plan
----
subject to Title IV of ERISA, established or maintained by such Person, or any
such Plan to which such Person is required to contribute on behalf of any of its
employees.
Property: all types of real, personal or mixed property and all types
--------
of tangible or intangible property.
Qualified Depository: a member bank of the Federal Reserve System
--------------------
having a combined capital and surplus of at least One Hundred Million Dollars
($100,000,000).
Real Property: all legally or beneficially owned estates in real
-------------
property, except leasehold estates in the Leasehold Property.
Revolver Advance: an advance of a portion of the proceeds of the
----------------
Revolver Loan.
Revolver Loan Audit Fee: the meaning given to it in subsection 2.11.2.
-----------------------
Revolver Interest Rate: a variable rate per annum equal to the Base
----------------------
Rate plus two hundred basis points, which rate shall be adjusted as and when the
Base Rate changes.
Revolver Loan: the revolving loan described in subsection 2.1.1.
-------------
14
<PAGE>
Revolver Loan Agreement: this Revolver Loan and Security Agreement, as
-----------------------
it may be from time to time renewed, amended, restated or replaced.
Revolver Loan Documents: the Revolver Loan Documents (Closing) and all
-----------------------
other documents now or hereafter executed in connection with the Revolver Loan.
Revolver Loan Documents (Closing): the following loan documents:
---------------------------------
(a) this Revolver Loan Agreement;
(b) the Revolver Loan Note;
(c) the Security Documents;
(d) the Environmental Certificate;
(e) the Solvency Certificate (Borrower);
(f) UCC financing statements executed by debtors with
respect to the Collateral;
(g) the Revolver Loan Guaranty;
(h) the Subordination Agreement; and
(i) such other instruments and documents as Lender may
require at Closing to evidence the Revolver Loan and
to evidence and perfect the Security Interests.
Revolver Loan Fees: the Unused Line Fee and the Revolver Audit Fee.
------------------
Revolver Loan Guaranty: an agreement, executed by Parent, pursuant to
----------------------
which Parent (subject to the provisions of Section 6.17) shall unconditionally
guarantee full payment and performance of the Revolver Loan Obligations and
fully subordinate and Indebtedness now or hereafter owing by Borrower to Parent
and the Liens pertaining to such Indebtedness.
Revolver Loan Note: the promissory note executed by Borrower in a form
------------------
acceptable to Lender in the principal amount of $1,000,000 to evidence the
Revolver Loan.
15
<PAGE>
Revolver Loan Obligations: the covenants, agreements, obligations and
-------------------------
conditions to be performed by Borrower under the Revolver Loan Documents.
Revolver Loan Principal Balance: the principal balance of the Revolver
-------------------------------
Loan which is outstanding from time to time.
Revolver Loan Prepayment Premium: the meaning given to in subsection
--------------------------------
2.7.1(b).
Securities Act: the Securities Act of 1933, as amended, or any similar
--------------
federal statute, and the rules and regulations of the Securities and Exchange
Commission promulgated thereunder, as in effect from time to time.
Security Documents: this Revolver Loan Agreement, the Assignment of
------------------
Contracts, Intangibles, Licenses and Permits, the Assignment of Trademarks, the
Assignment of Life Insurance, the Borrower's Stockholders Pledge Agreement, the
Parent's Stockholders Pledge Agreement, the Assignment of Stock Purchase
Agreement executed pursuant to the Term Loan Agreement and any and all other
documents now or hereafter executed to evidence or perfect the Security
Interests in the Collateral.
Security Interests: the Liens in the Collateral granted to Lender
------------------
pursuant to the Revolver Loan Documents.
Senior Contractual Debt Service: for any period, the sum of: (a)
-------------------------------
payments made or required to be made by Borrower during such period for
principal and interest on the Term Loan, interest only on the Revolver Loan, the
Term Loan Maintenance Fee, and the Unused Line Fee due, excluding, however, any
Excess Cash Flow prepayments made or required to be made pursuant to subsection
2.8.3 of the Term Loan Agreement; and (b) without implying Lender's consent to
any such Capitalized Lease, payments due on Capitalized Leases of Borrower.
Shareholder Debt: long-term debt as of December 28, 1994 in the
----------------
principal amount of Eight Hundred Sixty-Three Thousand Fifty-Three and 03/100
Dollars ($863,053.03) owing to the following former shareholders of Borrower:
Paul A. Hughes and Gloria P. Schlab.
Solvency Certificate (Borrower): a certificate executed by the Chief
-------------------------------
Executive Officer and Chief Financial Officer of Borrower with respect to the
solvency of Borrower and related matters.
16
<PAGE>
Solvency Certificate (Current): a certificate executed by the Chief
------------------------------
Executive Officer and Chief Financial Officer of Parent with respect to the
Solvency of Parent and related matters.
Solvent: with respect to any Person, as of the date as to which such
-------
Person's solvency is to be measured:
(a) the "fair saleable value" (defined below) of the assets
of such Person is in excess of the total amount of the liabilities of
such Person (including contingent liabilities) as they become absolute
and matured;
(b) such Person has sufficient capital to conduct its
business; and
(c) such Person is able to meet its debts as they mature.
For purposes of this definition, the phrase "fair saleable value" shall mean the
amount which may be realized within a reasonable time through a sale of such
Person as a going concern in a transaction between a willing and able buyer
under no compulsion to buy and a willing and able seller under no compulsion to
sell.
Subordinated Indebtedness: the Indebtedness owed by Parent to
-------------------------
Subordinated Lender in the current principal amount of Two Million One Hundred
Thousand Dollars ($2,100,000), and which will be assumed by Borrower upon
consummation of the Merger.
Subordinated Indebtedness Documents: all loan documents executed and
-----------------------------------
delivered by Borrower, Parent or their respective Affiliates related to the
Subordinated Indebtedness.
Subordinated Indebtedness Liens: the liens granted to Subordinated
-------------------------------
Lender pursuant to the Subordinated Indebtedness Documents and junior to the
Security Interests.
Subordinated Lender: Hanifen Imhoff Mezzanine Fund, L.P., a Colorado
-------------------
limited partnership.
Subordination Agreement: that Subordination and Intercreditor
-----------------------
Agreement to be executed by Lender, Subordinated Lender, Parent, Parent's
Stockholders, Borrower and Borrower's Stockholders simultaneously with Closing.
Subsidiary: with respect to any Person, any corporation, association,
----------
partnership, joint venture or other business entity of which such Person,
directly or indirectly, either
17
<PAGE>
(a) with respect to a corporation, owns or controls fifty percent (50%) or more
of the voting power and has the ability to elect at least a majority of the
board of directors or similar managing body, whether or not a class or classes
shall or might have voting power by reason of the happening of any contingency,
or (b) with respect to an association, partnership, joint venture or other
business entity, is entitled to share in fifty percent (50%) or more of the
profits and losses, however determined, and has voting control with respect
thereto.
Term Loan: the term loan in the principal amount not to exceed One
---------
Million Five Hundred Thousand Dollars ($1,500,000).
Term Loan Agreement: that Term Loan Agreement entered into between
-------------------
Parent and Lender simultaneously with the closing, as it may be from time to
time renewed, amended restated or replaced.
Term Loan Documents: the Term Loan Agreement, the Term Loan Guaranty
-------------------
and the other documents now or hereafter executed in connection with the Term
Loan.
Term Loan Fees: the meaning given to it in the Term Loan Agreement.
--------------
Term Loan Guaranty: an agreement, executed by Borrower, pursuant to
------------------
which Borrower (subject to the provisions of Section 6.17) has unconditionally
guarantied full payment and performance of the Term Loan Obligations and fully
subordinate and Indebtedness now or hereafter owing by Borrower to Parent and
the Liens pertaining to such Indebtedness.
Term Loan Maintenance Fee: the meaning given to it in the Term Loan
-------------------------
Agreement.
Term Loan Note: the promissory note executed by Parent pursuant to the
--------------
Term Loan Agreement.
Term Loan Obligations: the covenants, agreements, obligations and
---------------------
conditions to be performed by Parent or Borrower under the Term Loan Documents.
Term Loan Principal Balance: the principal balance of the Term Loan
---------------------------
which is outstanding from time to time.
Term Loan Success Fee: the meaning given to it in the Term Loan
---------------------
Agreement.
Total Contractual Debt Service: for any period, the sum of Senior
------------------------------
Contractual Debt Service and payments made on the Subordinated Indebtedness to
the extent such payments are not
18
<PAGE>
prohibited pursuant to the terms of the Subordination Agreement.
Total Debt: at any time, the sum of the unpaid principal
----------
balance of (a) the Revolver Loan, (b) the Term Loan, (c) the
Subordinated Indebtedness and (d) without implying Lender's consent to
any such Indebtedness, all other Indebtedness for Borrowed Money of
Borrower and Parent.
Transaction Documents: the Revolver Loan Documents, the Term
---------------------
Loan Documents, the Acquisition Documents and the Merger Documents.
UCC: the Uniform Commercial Code, as from time to time
---
adopted in the State of Arizona.
Unused Line Fee: the meaning given to it in subsection
---------------
2.12.1.
1.2 Time Periods. In this Revolver Loan Agreement and the other
------------
Revolver Loan Documents, in the computation of periods of time from a specified
date to a later specified date, (a) the word "from" means "from and including,"
(b) the words "to" and "until" each mean "to, but excluding" and (c) the words
"through," "end of" and "expiration" each mean "through and including." Unless
otherwise specified, all references in this Revolver Loan Agreement and the
other Revolver Loan Documents to (a) a "month" shall be deemed to refer to a
calendar month, (b) a "quarter" shall be deemed to refer to a calendar quarter,
and (c) a "year" shall be deemed to refer to a calendar year.
1.3 Accounting Terms and Determinations. All accounting terms not
-----------------------------------
specifically defined herein shall be construed, all accounting determinations
hereunder shall be made, and all financial statements required to be delivered
pursuant hereto shall be prepared, in accordance with GAAP. If any Accounting
Changes occur and such changes result in a change in the method of calculation
of financial covenants, standards or terms contained in this Revolver Loan
Agreement, then Borrower and Lender agree to enter into negotiations to amend
such provisions of this Revolver Loan Agreement so as to reflect such Accounting
Changes with the desired result that the criteria for evaluating the financial
condition of Borrower shall be the same after such Accounting Changes as if such
Accounting Changes had not been made.
1.4 References. All references in this Revolver Loan Agreement to
----------
"Article," "Section," "subsection," "subparagraph," "clause," "Exhibit," or
"Schedule," unless otherwise indicated, shall be deemed to refer to an Article,
Section, subsection, subparagraph, clause, Exhibit or Schedule, as applicable,
of this Loan Agreement.
19
<PAGE>
1.5 Schedules and Exhibits. All of the schedules and exhibits attached
----------------------
to this Revolver Loan Agreement shall be deemed to be incorporated herein by
reference.
1.6 Lender's Discretion. Whenever the terms "satisfactory to Lender,"
-------------------
"determined by Lender," "acceptable to Lender," "consent of Lender," "Lender
shall elect," "Lender shall request," "in Lender's judgment," or similar terms
are used in the Revolver Loan Documents, except as otherwise specifically
provided therein, such terms shall mean satisfactory to, at the election of,
determined by, acceptable to, requested by, or judged by, as applicable, Lender
in its sole and unlimited discretion.
1.7 Borrower's Knowledge. Any statements, representations or
--------------------
warranties that are based upon the knowledge of Borrower shall be deemed to have
been made after due inquiry by Borrower with respect to the matter in question.
1.8 Payments in Kind. For purposes of this Revolver Loan Agreement,
----------------
any payment of Indebtedness or interest accrued on Indebtedness which is made
through the delivery of a promissory note or other instrument evidencing
additional Indebtedness, shall not be considered to have been "made" or "paid"
hereunder until such time as the obligor with respect to such promissory note or
other instrument makes payment on the same in cash or other form of legal
tender, and until such time as payment is so made the Indebtedness represented
by such promissory note or other instrument shall be considered "due" hereunder.
ARTICLE 2
---------
REVOLVER LOAN AND TERMS OF PAYMENT
----------------------------------
2.1 Amount of Revolver Loan.
-----------------------
2.1.1 Advance Rates. Subject to the provisions of subsection
-------------
2.1.2, the Revolver Principal Balance shall at no time be in an
amount which exceeds the lesser of (a) $1,000,000 (the "Maximum
Amount") or (b) the sum of (A) the product of (A) seventy percent
(70%) multiplied by (B) all Eligible Accounts which exist as of
the date upon which a request is made by Borrower for a Revolver
Advance, (the amount described in clause (b) of this subsection
2.1.1 hereinafter is referred to as the "Borrowing Base"), subject
to deduction of reserves for accrued interest and such other
reserves as Lender determines to be proper from time to time, and
less amounts Lender may be obligated to pay in the future on
behalf of Borrower.
2.1.2 Reduction of Advance Rates. Notwithstanding anything to the
--------------------------
contrary in subsection 2.1.1, Lender may
20
<PAGE>
reduce its advance rates against Eligible Accounts at Lender's reasonable
discretion without declaring an Event of Default.
2.1.3 Reborrowing. Subject to the limitation and conditions set forth
-----------
in Section 2.2 and except where the provisions of subsection 2.7.1(b) apply,
from time to time Borrower may reborrow all or any portion of any Revolver
Advance which has been repaid or prepaid.
2.1.4 Loan Account. All Revolver Advances shall be added to and deemed
------------
part of the Revolver Loan Obligations when made. Lender may from time to time
charge all Obligations of Borrower to Borrower's Revolver Loan account with
Lender.
2.1.5 Monthly Accountings. Lender shall provide Borrower monthly with
-------------------
an account of Revolver Advances, charges, expenses and payments made pursuant to
this Revolver Loan Agreement. Such account shall be deemed correct, accurate and
binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by Lender),
unless Borrower notifies Lender in writing to the contrary within thirty days
after each account is rendered describing the nature of any alleged errors or
omissions.
2.2 Procedure for Borrowing of Revolver Advances.
--------------------------------------------
2.2.1 Notice. Borrower shall notify Lender not later than 11:00 a.m.
------
Central Standard time on the Business Day upon which a Revolver Advance is to be
made, specifying the amount of the proposed Revolver Advance, which shall be not
less than $10,000 or multiples of $1,000 in excess thereof. Borrower shall
deliver to Lender a Borrowing Base Certificate concurrently with any such
notice.
2.2.2 General Conditions Precedent to Subsequent Revolver Advances.
------------------------------------------------------------
Lender shall not be required to make a Revolver Advance if (a) any Event of
Default or Incipient Default exists or would be created if such Revolver Advance
is made; (b) the amount of such Revolver Advance, when added to all other
Revolver Advances which are outstanding as of the date of any such request,
would cause an Overline to exist; (c) the representations and warranties of
Borrower set forth in this Revolver Loan Agreement and/or the other Revolver
Loan Documents are not accurate in all material respects, before and after
giving effect to such Revolver Advance; (d) any circumstance or event has
occurred which (i) has or could have a Material Adverse Effect on Borrower or
(ii) has or could have a Material Adverse Effect on the ability of any Person to
perform its obligations under any of the Revolver Loan Documents; or (e) the
making of the such Revolver Advance would be usurious, before giving effect to
any usury savings clause.
21
<PAGE>
2.2.3 Authorization. Lender is authorized to make Revolver Advances
-------------
either (a) based upon telephonic or other instructions received form anyone
purporting to be an Authorized Officer or acting on behalf of Borrower; or (b)
without instructions from Borrower, provided the proceeds of such Revolver
Advance are applied to the payment of the Obligations, including, without
limitation, payment of all fees and expenses incurred by Lender with respect to
any of the accounts described in subsections 2.2.4 and 2.4.3.
2.2.4 Commercial Account. Borrower shall establish and maintain a
------------------
single designated commercial account (separate and distinct from any Blocked
Account or Dominion Account) for the purpose of receiving the proceeds of the
Revolver Advances requested by Borrower and made by Lender. Borrower may change
such single designated commercial account upon delivery of written notice to
Lender. Unless otherwise agreed by Lender and Borrower, any Revolver Advance
requested by Borrower and made by Lender hereunder shall be made to such
designated deposit account.
2.3 Interest.
--------
2.3.1 Interest Rate. Except as provided in Section 2.6 or elsewhere in
-------------
the Loan Documents, the Revolver Loan shall bear interest at the Revolver Loan
Interest Rate.
2.3.2 Interest Computation. Interest shall be computed on the basis of
--------------------
a year consisting of three hundred sixty (360) days and charged for the actual
number of days during the period for which interest is being charged.
2.3.3 Maximum Interest. Notwithstanding any provision to the contrary
----------------
herein contained, Lender shall not collect a rate of interest on any obligation
or liability due and owing by Borrower to Lender in excess of the maximum
contract rate of interest permitted by applicable law. Lender and Borrower have
agreed that the interest laws of the State of Arizona shall govern the
relationship between them, but in the event of a final adjudication to the
contrary, Borrower shall be obligated to pay, nunc pro tunc, to Lender only such
interest as then shall be permitted by the laws of the state found to govern the
contract relationship between Lender and Borrower. All interest found in excess
of that rate of interest allowed and collected by Lender shall be applied to the
principal balance in such manner as to prevent the payment and collection of
interest in excess of the rate permitted by applicable law.
2.4 Payment of Principal and Interest.
---------------------------------
22
<PAGE>
2.4.1 Contractual Interest Payments. Subject to the provisions of
-----------------------------
Section 2.8, that portion of the Revolver Loan Obligations consisting of
interest payable on account of the Revolver Loan (if any) shall be payable by
Borrower to Lender immediately upon the receipt by Lender to Borrower of any
proceeds of any of the Collateral, to the extent of such proceeds; provided,
however, that accrued and unpaid interest on the outstanding the Revolver Loan
Balance shall be due and payable commencing on February 1, 1995, and continuing
on the first day of each month thereafter through and including December 1,
1998.
2.4.2 Principal Payments. Subject to the provisions of Section 2.8,
------------------
that portion of the Revolver Loan Obligations consisting of principal payable on
account of the Revolver Loan (if any) shall be payable by Borrower to Lender
immediately upon the receipt by Lender to Borrower of any proceeds of any of the
Collateral, to the extent of such proceeds; provided, however, that any Overline
-------- -------
shall be payable to Lender on demand.
2.4.3 Periodic Payments - Blocked Accounts, Dominion Accounts. All
-------------------------------------------------------
cash proceeds of the Collateral, at the direction of Lender, shall be deposited
by Borrower into a lockbox account, which lockbox account, at the option of
Lender, may be the lockbox account currently established by Borrower for the
benefit of Borrower, or such other blocked account as Lender may require (each,
a "Blocked Account") pursuant to an arrangement with such bank as may be
selected by Borrower and shall be acceptable to lender. Borrower shall deliver
to such Bank either the Lockbox Agreement or a Bank Agency Agreement and shall
cause such bank to acknowledge receipt thereof. All funds deposited in a Blocked
Account immediately shall become the sole property of Lender. Instead of a
Blocked Account, Lender may establish depository accounts in the name of Lender
at a bank or banks for the deposit of such funds (each, a "Dominion Account")
and Borrower shall deposit all cash proceeds of the Collateral or cause the same
to be deposited, in the form in which received by Borrower, in such Dominion
Accounts of Lender in lieu of depositing the same to Blocked Accounts. Lender
has elected until further notice to Borrower to utilize a Dominion Account; and
from after the Closing until the Dominion Account is established and Borrower
has been notified of the location of such Dominion Account, Borrower shall, at
Lender's request, deposit or cause all such proceeds to be deposited in Lender's
account no. 0700-470377 established at Union Bank, 445 So. Figueroa St., Los
Angeles, California, ABA 122000496.
2.4.4 Additions to Revolver Principal Balance. There shall be added to
---------------------------------------
the Revolver Loan Principal Balance (a) when incurred by Lender any expenses or
other charges which constitute a portion of Revolver Loan Obligations and (b) on
23
<PAGE>
the first Business Day of each month the following amounts, but only
to the extent the same are not otherwise paid by Borrower prior to
such date: (x) all late charges, Fees and expenses and other charges
due to Lender under the Credit Facilities Documents; (y) all interest
which has accrued on the Revolver Loan Principal Balance during the
immediately preceding month or the Revolver Loan Principal Balance
during the immediately preceding month or portion thereof; and (y) the
payment of principal and interest which is due and owing with respect
to the Term Loan for the period in question. The first such addition
described in clause (b) hereof shall be made on the first Business Day
of the second month following the month in which the Closing Date
occurs. Lender will notify Borrower within two (2) Business Days after
any such addition has been made.
2.4.5 Final Payment. Unless renewed with the consent of
-------------
Lender, the Revolver Loan Principal Balance, together with any accrued
interest and other sums which are due and owing pursuant to the
Revolver Loan, shall be paid in full to Lender upon the Maturity Date.
2.5 Late Charges. If a payment of principal or interest to be made
------------
pursuant to this Revolver Loan Agreement becomes past due for a period in excess
of ten (10) Business Days, Borrower shall pay on demand to Lender a late charge
of two percent (2%) of the amount of such overdue payment.
2.6 Default Rate. Payments of principal, interest and any other
------------
amounts due and payable under the Revolver Loan Documents shall, at the option
of Lender, earn interest after they are due at the Default Rate. At the option
-----
of Lender, while an Event of Default exists, and in all events after an
acceleration of Revolver Loan Obligations by Lender, interest shall accrue on
the entire outstanding principal balance of the Revolver Loan at the Default
Rate.
2.7 Prepayments.
-----------
2.7.1 Voluntary Termination of the Revolver Loan. Borrower may
------------------------------------------
voluntarily terminate the Revolver Loan at any time, subject to the
following conditions:
(a) Notice of Termination and Prepayment. Not less than
------------------------------------
thirty (30) days prior to the date upon which Borrower desires to
terminate and prepay the Revolver Loan, Borrower shall deliver to
Lender written notice of its intention to terminate and to prepay,
which notice shall be irrevocable and state the termination and
prepayment date;
24
<PAGE>
(b) Revolver Loan Prepayment. Borrower shall pay to Lender a
------------------------
prepayment premium (the "Revolver Loan Prepayment Premium") equal to
(i) the product of (A) the sum of all Daily Balances which were
outstanding during the twelve (12) month period immediately preceding
the date of prepayment divided by 360 multiplied by (B) the applicable
percentage determined according to the following chart:
<TABLE>
<CAPTION>
======================================================================
Prepayment Premium Percentage(s)
======================================================================
<S> <C>
If Prepaid In Percentage
----------------------------------------------------------------------
Loan Year 1 5%
----------------------------------------------------------------------
Loan Year 2 4%
----------------------------------------------------------------------
Loan Year 3 3%
----------------------------------------------------------------------
Loan Year 4 2%
======================================================================
</TABLE>
(c) Term Loan Prepayment. Concurrently with the termination
--------------------
of the Revolver Loan, Borrower shall prepay the Term Loan in
accordance with the terms and conditions of the Term Loan Agreement.
(d) Additional Payments. Borrower shall pay to Lender any and
-------------------
all reasonable out-of-pocket expenses incurred by Lender in connection
with such termination and prepayment, including, without limitation,
reasonable attorneys' fees and other costs of preparing, filing and/or
recording documents releasing the Collateral.
2.7.2 Mandatory Prepayment of Life Insurance Proceeds. Proceeds
-----------------------------------------------
received by Lender from the Life Insurance shall be applied as a prepayment of
the Obligations in such order or manner as Lender may determine. Lender shall
notify Borrower promptly of the receipt by Lender of the proceeds from the Life
Insurance.
2.7.3 Overadvances. If, at any time, the Revolver Loan Principal
------------
Balance exceeds the lesser of (a) the Maximum Amount or (b) the Borrowing Base
(any such excess hereinafter being referred to as an "Overline"), Borrower
immediately shall pay to Lender the amount of such Overline; provided, however,
that for so long as such Overline shall remain outstanding, such Overline shall
be (x) deemed to constitute a portion of the Revolver Loan Obligations and (y)
secured by the Security Interests.
2.7.4 Collections. Until Lender notifies Borrower to the contrary,
-----------
Borrower may make collection of Accounts for Lender and shall receive all
payment as trustee of Lender and
25
<PAGE>
immediately deliver all payments to Lender in their original form as
set forth below, duly endorsed in blank. Lender or its designee may,
at any time, notify Account Debtors that the Accounts have been
assigned to Lender and of Lender's Security Interest therein, and may
collect the Accounts directly and charge the collection costs and
expenses to Borrower's loan account. Borrower agrees that, in
computing the charges under this Revolver Loan Agreement, all items of
payment shall be deemed applied by Lender on account of the Revolver
Loan Obligations two (2) Business Days after the receipt by Lender of
good funds which have been finally credited to Lender's account,
whether such funds are received directly from Borrower or from the
Blocked Account bank or the Dominion Account bank pursuant to
subsection 2.2.3. Lender is not, however, required to credit
Borrower's account for the amount of any item of payment which is
unsatisfactory to Lender and Lender may charge Borrower's Revolver
Loan account for the amount of any item of payment which is returned
to Lender unpaid.
2.7.5 No Prepayment Premium. No Prepayment Premium shall be
---------------------
payable with respect to any prepayment received by Lender pursuant to
subsection 2.7.2, 2.7.3 or 2.7.4.
2.7.6 Involuntary Prepayment. Any payment of the principal
----------------------
balance received by Lender resulting from the exercise by Lender of
any remedy available to Lender subsequent to the occurrence of an
Event of Default and the acceleration of the Revolver Loan Obligations
shall be deemed to be a prepayment subject to the provision of this
Section 2.7, and the applicable Prepayment Premium [calculated in
accordance with subsection 2.7.1(b)] and any other payment (including,
without limitation, the unpaid Revolver Loan Fees) required under
subsection 2.7.1(b) shall be payable on demand with respect to such
payment.
2.8 Application of Prepayments. Subject to Lender's rights under
--------------------------
this Revolver Loan Agreement or any of the other Credit Facilities Documents to
apply such proceeds in a different manner, any proceeds of the Collateral
received by Lender when no Event of Default exists shall be applied by Lender in
the following order of priority:
2.8.1 Late Charges and Fees. First, to the payment of any and
---------------------
all late charges, all fees (including the Fees) and expenses due to
Lender under the Credit Facilities documents;
2.8.2 Revolver Loan Interest. Second, to the payment of the
----------------------
interest which shall be due and payable on the Revolver Loan Principal
Balance at the time of such payment;
26
<PAGE>
2.8.3 Term Loan Interest. Third, to the payment of interest
------------------
which shall be due and payable on the Term Loan Principal Balance at
the time of such payment;
2.8.4 Term Loan Principal. Fourth, to the payment of the Term
-------------------
Loan principal due on the Term Loan Note;
2.8.5 Revolver Loan Principal. Fifth, to the payment of the
-----------------------
Revolver Loan Principal Balance; and
2.8.6 Borrower. Sixth, any surplus to the Borrower or such other
--------
Person(s) as may be entitled thereto.
2.9 Payments after Event of Default. All payments received by Lender
-------------------------------
during the existence of an Event of Default shall be applied in accordance with
Section 8.6.
2.10 No Setoff: Good Funds.
---------------------
2.10.1 Method of Payment. Except as provided in Section 2.4.4
-----------------
of this Revolver Loan Agreement, all payments to be made by Borrower
pursuant to the Revolver Loan Documents shall be made to Lender by
wire transfer to the account of Lender at Union Bank, 445 So. Figueroa
St., Los Angeles, California, Credit Greyhound Financial Corporation,
Credit Account No. 0700-470377, ABA 122000496 reference: CPS Systems
(Revolver), or to such other address as Lender shall notify Borrower.
2.10.2 No Setoff. All payments hereunder and under the other
---------
Revolver Loan Documents made by or on behalf of day of Borrower shall
be made without setoff or counterclaim and free and clear of, and
without deduction or withholding for or on account of, any federal,
state or local taxes.
2.10.3 Good Funds. Payment shall not be deemed to have been
----------
received by Lender until Lender is in receipt of Good Funds.
2.11 Payment of Revolver Loan Fees. Borrower shall pay to Lender each
-----------------------------
of the following fees with respect to the Revolver Loan:
2.11.1 Base Revolver Loan Fee. Borrower will pay a loan fee in
----------------------
the amount of Ten Thousand Dollars ($10,000) on or before the
execution of the Revolver Loan Documents ("Base Revolver Loan Fee")
2.11.2 Unused Line Fee. A fee ("Unused Line Fee") in an
---------------
amount equal to the product of (a) twenty-five (25) basis points
(.0025) per annum, multiplied by (b) the Average Unused Portion, which
fee shall be payable monthly in arrears on the first day of each month
commencing with the second month
27
<PAGE>
immediately following the month on which the Closing Date occurs.
Until the Maturity Date and a final payment of the Unused Line Fee
shall be made on the Maturity Date.
2.11.3 Revolver Audit Fee. A fee ("Revolver Loan Audit Fee")
------------------
in an amount equal to Five Hundred Dollars ($500) per day per person
for each audit of the records of Borrower which may be conducted by
Lender, which Revolver Loan Audit Fee, together with reimbursement by
Borrower to Lender of all fees and expenses incurred by Lender in
conducting any such audit, shall be paid by Borrower to lender when
the same are incurred by Lender, except that, provided no Event of
Default then exists (a) no such Audit Fee shall be payable with
respect to more than two (2) persons for each such audit and (b) there
shall not be more than four (4) audits conducted during any year.
ARTICLE 3
---------
NOTE, SECURITY AND GUARANTIES
-----------------------------
3.1 Note. The Revolver Loan will be evidenced by the Revolver
----
Loan Note.
3.2 Grant of Security Interest: Intercreditor Agreement. Borrower
--------------------------
hereby grants to Lender a continuing Security Interest in all currently existing
and hereafter acquired or arising Borrower's Collateral in order to secure
prompt repayment and performance of any and all of the Obligations. The
Obligations shall be secured by the Security Interests, which shall be superior
and prior to all other liens except the Permitted Prior Liens. Lender's Security
Interest in Borrower's Collateral shall attach to all of Borrower's Collateral
without further act on the part of Lender or Borrower.
3.3 Negotiable Collateral. If any Collateral, including proceeds,
---------------------
is evidenced by or consists of Negotiable Collateral, Borrower shall endorse and
assign such Negotiable Collateral to Lender and deliver physical possession of
such Negotiable Collateral to Lender.
3.4 Collection of Accounts, General Intangibles and Negotiable
----------------------------------------------------------
Collateral. Lender retains the right at all times to notify Borrower's
- ----------
customers, Account Debtors, and other obligors on the Accounts, General
Intangibles and Negotiable Collateral that Lender has been granted a Security
Interest in the Accounts, General Intangibles and Negotiable Collateral and if
an Event of Default exists, to collect such Collateral in its own name or in
Borrower's name, directly or through a lockbox, to charge the collection costs
and expenses, including attorneys' fees, to Borrower and the Loan Account, to
send verification requests to any customer, and to receive, open and dispose of
all mail addressed to Borrower. Lender shall additionally have all rights of
stoppage in transit, replevin, reclamation and other rights of an unpaid seller
28
<PAGE>
and/or lienor under the UCC. As a convenience to Lender, and not as a condition
of perfection, Borrower will provide Lender with a pledge and assignment of all
the Accounts, General Intangibles and Negotiable Collateral and all related
documents as Lender may require. Borrower agrees to hold in trust for Lender, as
Lender's trustee, any cash receipts, checks, and other items of payment received
on account of the Accounts, General Intangibles, or Negotiable Collateral and
immediately shall deliver such cash receipts, checks, and other items of payment
to Lender (or the Blocked Account) in their original form as received by
Borrower.
3.5 Power of Attorney. Borrower hereby irrevocably makes,
-----------------
constitutes, and appoints Lender (and any of Lender's officers, employees, or
agents designated by Lender) as its true and lawful attorney, with power to: (a)
sign the name of Borrower on any of the documents described in Section 3.4 or on
any other similar documents to be executed, recorded, or filed in order to
perfect or continue perfected the Security Interests; (b) sign Borrower's name
on any invoice or bill of lading relating to any Account, drafts against Account
Debtors, schedules and assignments of Accounts, verifications of Accounts of
Borrower, and notices to Account Debtors; (c) send requests for verification of
Accounts; (d) endorse Borrower's name on any checks, notices, acceptances, money
orders, drafts, or other item of payment or security that may come into Lender's
possession; (e) at any time that an Incipient Default or an Event of Default has
occurred or Lender deems itself insecure, notify the post office authorities to
change the address for delivery of Borrower's mail to an address designated by
Lender, to receive and open all mail addressed to Borrower, and to retain all
mail relating to the Collateral and forward all other mail to Borrower; (f) at
any time that an Incipient Default or an Event of Default has occurred or Lender
deems itself insecure, make, settle, and adjust all claims under Borrower's
policies of insurance and make all determinations and decisions with respect to
such policies of insurance; and (g) at any time that an Incipient Default or an
Event of Default has occurred or Lender deems itself insecure, settle and adjust
disputes and claims respecting Accounts directly with the Account Debtors, for
amounts and upon terms which Lender determines to be reasonable, and Lender may
cause to be executed and delivered any documents and releases which Lender
determines to be necessary. Borrower agrees that the appointment of Lender as
Borrower's attorney, and each and every one of Lender's rights and powers, being
coupled with an interest, is irrevocable until all of the Obligations have been
fully repaid and performed and Lender's obligations hereunder are terminated.
3.6 Right to Inspect. Subject to the provisions of subsection 2.11.2,
----------------
Lender (through any of its officers, employees, or agents) shall have the right,
from time to time hereafter, to inspect Borrower's Books and to check, test, and
appraise Borrower's Collateral in order to verify Borrower's financial condition
or the amount, quality, value, condition of, or any other matter relating to,
the Borrower's Collateral.
29
<PAGE>
3.7 Borrower's Stockholders Pledge Agreement. In consideration for
----------------------------------------
Lender's providing financing to Borrower and to secure payment and performance
of all of Borrower's Obligations, the Borrower's Stockholders shall pledge to
Lender the Borrower's Stock pursuant to Borrower's Stockholders Pledge
Agreement.
3.8 Maintenance of Security Documents; Releases Upon Termination.
------------------------------------------------------------
Borrower shall maintain the Security Documents or cause the Security Documents
to be maintained in full force effect until full and permanent satisfaction of
the Obligations. Upon the full and permanent satisfaction of and payment in full
of all of the Obligations, Lender shall deliver to Borrower, after receipt of
request therefor and at Borrower's expense, releases and satisfactions of all
financing statements, mortgages, notices of assignment and other registrations
of security.
3.9 Recourse to Security. Recourse to security shall not be required
--------------------
for any of the Obligations hereunder nor shall Lender be required to first
marshal, dispose of, or realize upon the Collateral or any other security.
ARTICLE 4
CONDITIONS OF CLOSING
Lender's obligation to make the initial Revolver Advance Loan shall be
subject to the satisfaction at Borrower's expense of all of the following
conditions on or before the Closing Date, but not later than December 31, 1994,
in a manner, form and substance satisfactory to Lender, and if such conditions
are not so satisfied on or before such date, Lender's commitment hereunder to
make the Loan shall expire:
4.1 Representations and Warranties. On the Closing Date the
------------------------------
representations and warranties of Borrower set forth in the Revolver Loan
Documents shall be true and correct when made and at and as of the time of the
Closing, except to the extent that such representations and warranties expressly
relate to an earlier date.
4.2 Delivery of Transaction Documents. The following shall have been
---------------------------------
delivered to Lender, each duly authorized and executed, where applicable, all of
which shall be acceptable in form and substance to Lender:
4.2.1 the Revolver Loan Documents (Closing);
4.2.2 a certificate of the respective Secretaries (or an
Assistant Secretary) of Borrower and Parent, which delivers to Lender
the following and certifies as to the true and complete nature of the
following:
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<PAGE>
(a) a certificate of incumbency for Borrower and
Parent;
(b) a certificate of good standing for Borrower and
Parent in each state in which it is organized and/or
qualified to do business;
(c) certified copies of the corporate charter and
bylaws of Borrower and Parent together with all effective and
proposed amendments thereto;
(d) certified copies of resolutions adopted by the
board of directors of Borrower and Company authorizing the
execution and delivery of the Revolver Loan Documents to
which they are a party and the consummation of the
transactions contemplated therein;
4.2.3 certified or executed original true and
complete copies of:
(a) Existing Leases;
(b) any other Existing Operating Agreements of
Borrower, including, without limitation,
employment and non-competition agreement
of Borrower's employees and other
instruments, documents, certificates,
consents, waivers and opinions as Lender
may reasonably request;
(c) the Subordinated Indebtedness Documents;
(d) the Acquisition Documents; and
(e) the Merger Documents;
4.2.4 share certificates representing the
Borrower's Stock; and
4.2.5 a Request for Advance, Certification and Disbursement
Instructions in form and substance identical to Exhibit 4.2.5,
properly completed.
4.3 Representations and Warranties; Performance; No Default. The
-------------------------------------------------------
representations and warranties of Borrower set forth in this Revolver Loan
Agreement and in each of the other Revolver Loan Documents shall be true and
complete in all respects. Borrower shall have performed and complied with all
agreements and conditions contained in the Revolver Loan Documents to be
performed by or complied with by prior to or at the Closing, and no Event of
Default or Incipient Default shall then exist or result from the making of the
Revolver Loan.
31
<PAGE>
4.4 Opinions of Counsel. Lender shall have received a favorable legal
-------------------
opinion dated the Closing Date from counsel to Borrower, and other parties to
the Revolver Loan Documents, which counsel are satisfactory to Lender. The
opinions described shall cover the due authorization, execution, delivery,
enforceability, validity and binding effect of the Revolver Loan Documents and
Security Interests and the other Revolver Loan Documents, compliance with
applicable usury laws, the enforceability under the laws of Texas of the choice
of Borrower, Parent and Lender that Arizona law shall govern the Loan and the
Revolver Loan Documents, together with opinions that the Revolver Loan is not
usurious under Texas law (without reliance on any usury savings clause) and with
respect to such other matters as Lender may require. Each opinion of counsel
described in this Section 4.4 shall confirm, to the satisfaction of Lender, that
such opinion is being delivered to Lender at the instruction of the party
represented by such counsel, that Lender is entitled to rely on such opinion and
that, for purposes of such reliance, Lender is deemed to be in privity with each
such opining counsel.
4.5 Approval of Revolver Loan Documents and Security Interests. Lender
----------------------------------------------------------
shall have received evidence that there have been obtained all approvals and/or
consents of, or other action by, any shareholder, Governmental Body or other
Person whose approval or consent is necessary or required to enable Borrower and
Parent to (a) enter into and perform their respective Obligations under the
Revolver Loan Documents to which they are parties and (b) grant to Lender the
Security Interests.
4.6 Security Interests. All filings of UCC financing statements and
------------------
all other filings and actions necessary to perfect and maintain the Security
Interests as first, valid and perfected Liens in the Property covered thereby,
subject only to Permitted Prior Liens, shall have been filed or taken and
confirmation thereof shall have been received by Lender.
4.7 INTENTIONALLY LEFT BLANK
4.8 Financial Statements and Projections. Lender shall have received
------------------------------------
such financial statements, reports and tax returns relating to the operations of
Borrower as Lender shall request, including, without limitation, pro-forma
balance sheets and operating projections, indicating that from and after the
Closing Date, and after giving effect to the transactions contemplated by the
Transaction Documents, based on the projections contained therein, Borrower and
Parent shall remain solvent and retain sufficient capital to carry on the
Business and pay its debts as they mature, including the Loans.
4.9 Material Adverse Change. No circumstance or event shall have
-----------------------
occurred which (a) has or could have a Material Adverse Effect on Borrower or
Parent, or (b) has or could have a Material Adverse Effect on (i) the ability of
any Person to perform its obligations
32
<PAGE>
under any of the Revolver Loan Documents to which such Person is a party, or
(ii) the projections for financial performance of the Business of Borrower as
set forth in any of the documents or papers furnished to Lender by Borrower or
its representatives.
4.10 Payment of Base Revolver Loan Fees. Borrower shall pay to Lender
----------------------------------
the Base Revolver Loan Fee. Borrower acknowledges that this fee is
non-refundable and has been earned.
4.11 Proceedings and Documents. All corporate and other proceedings in
-------------------------
connection with the transactions contemplated by the Revolver Loan Documents and
all documents and instruments incident to such transactions shall be
satisfactory to Lender and its counsel, and Lender and its counsel shall have
received all such counterpart originals or certified or other copies as Lender
or its counsel may request. Lender shall have received such documents as Lender
may require to establish (a) the proper organization and good standing of
Borrower and its authority to transact business in any jurisdiction in which the
failure to be so authorized would have a Material Adverse Effect on Borrower and
(b) the authority of Borrower to execute the Revolver Loan Documents.
4.12 Title; Use of Assets. Lender shall be satisfied that Borrower has
--------------------
good, marketable and legal title to its Property and that Borrower at all times
shall be entitled to the use and quiet enjoyment of all assets necessary and
desirable for the continued ownership and operation of the Business and its
Property at each location at which the Business presently is conducted,
including, without limitation, the use of Equipment, Inventory, fixtures,
Operating Agreements, offices, warehouses and means of ingress and egress
thereto, including any easements or rights-of-way necessary to reach any
Equipment or other items necessary for the operation of the Business.
4.13 Compliance with Americans with Disabilities Act. Evidence
-----------------------------------------------
satisfactory to Lender that, as of the Closing Date, Borrower are in compliance
with the ADA, or, if any renovations of a Borrower's facilities or modifications
of Borrower's prior employment practices shall be required to bring them into
compliance with the ADA, review and approval by Lender of Borrower's proposed
plan to come into such compliance.
4.14 Broker Fees. If services of a broker have been performed in
-----------
connection with the Revolver Loan, Borrower shall pay all fees for such services
and deliver to Lender evidence of such payment (evidence that Broker has
released any claims against Lender), and such fees shall not be included within
transaction costs to be paid/reimbursed with Revolver Loan proceeds.
4.15 Operating Agreements and Leases. Existing Leases and other
-------------------------------
material Operating Agreements shall be satisfactory to Lender. If required by
lender, each lessor under the Existing
33
<PAGE>
Leases shall have delivered to Lender a consent and lien waiver, in form and
substance satisfactory to Lender.
4.16 Searches and References. Lender shall have received searches of
-----------------------
the records of the U.S. Bureau of Patents and Trademarks and the U.S. Copyright
Office with respect to the Intellectual Property (if required) and shall have
received UCC, tax lien, litigation, judgment and bankruptcy searches on Borrower
and Parent and any other entities which owned any of Borrower's Property. Such
searches, reports and references shall be acceptable to Lender. Lender shall
have received credit references, and customer supplier and bank references
acceptable to Lender for Borrower as Lender may require.
4.17 Releases. Borrower shall provide all other documents necessary to
--------
evidence the release of any and all Liens, other than the Permitted Liens on the
Collateral, including, without limitation, termination of financing statements.
4.18 Insurance. Lender shall have received, at least one Business Day
---------
prior to the Closing Date, evidence satisfactory to Lender that all insurance
coverage required pursuant to Section 6.7.1 is in full force and effect,
including originals or certified copies of the policies of such insurance.
4.19 Life Insurance. Lender shall have received a completed and signed
--------------
application for the Life Insurance, together with evidence that an application
has been made for such insurance.
4.20 Transaction Costs. Lender shall have reviewed and approved, on or
-----------------
before the Closing Date, an itemized list of the transaction costs incurred by
Borrower in connection with the incurring by Borrower of the Indebtedness
represented by the Transaction which are to be consummated on the Closing Date,
together with appropriate backup documentation required by, and satisfactory to,
Lender.
4.21 Shareholder Debt. Lender has received evidence that the
----------------
Shareholder Debt has been discharged in consideration of a payment not to exceed
the par value of such debt.
4.22 Subordinated Indebtedness. The terms and conditions of the
-------------------------
Subordinated Indebtedness and the Subordinated Indebtedness Documents shall be
satisfactory to Lender.
4.23 Acquisition Documents. The terms and conditions of the
---------------------
Acquisitions and the Acquisition Documents shall be satisfactory to Lender.
4.24 Merger Documents. The terms and conditions of the Merger and the
----------------
Merger Documents shall be satisfactory to Lender.
34
<PAGE>
4.25 Employment Agreements. Lender shall have reviewed and approved
---------------------
the terms and conditions of all employment agreements between Borrower and its
employees.
4.26 Equity Investment. Lender shall have received evidence
-----------------
satisfactory to it that on or before Closing, the stockholders of Parent shall
have made a cash equity investment in Parent of not less than Nine Hundred Fifty
Thousand Dollars ($950,000).
4.27 Other Information. Borrower shall have furnished Lender such
-----------------
other information concerning itself and the transactions contemplated hereby as
Lender may reasonably require.
4.28 Term Loan. The Term Loan Documents shall have been executed and
---------
delivered to Lender, and Borrower shall have satisfied all conditions precedent
to the disbursement of the Term Loan.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender as follows:
5.1 Corporate Existence and Power. Borrower is a corporation duly
-----------------------------
organized, validly existing and in good standing under the laws of Texas;
Borrower has all requisite corporate power and authority to own its respective
Property and to carry on its Business; Borrower is in good standing and
authorized to do business in each jurisdiction in which the failure so to
qualify would have a Material Adverse Effect on Borrower; and, in any event,
Borrower is in good standing and authorized to do business in each jurisdiction
in which each site of the Business is now located.
5.2 Authority. Borrower has full corporate power and authority to
---------
enter into, execute, deliver and carry out the terms of the Revolver Loan
Documents to which it is a party and to incur Obligations under the Revolver
Loan Documents, all of which have been duly authorized by all proper and
necessary corporate action (including the consent of shareholders where
required) and are not prohibited by the corporate charter or by-laws of
Borrower. There is no provision in the articles of incorporation or bylaws of
Borrower, or in the laws of the state of incorporation of Borrower, requiring
any vote or consent of shareholders to authorize the creation of Security
Interests granted by Borrower, which power is vested exclusively in Borrower's
board of directors.
5.3 Capital Stock and Related Matters; Subsidiaries.
------------------------------------------------
5.3.1 Capitalization. Exhibit 5.3.1 sets forth a complete
---------------
description of the capitalization of Borrower. All of Borrower's Stock
is validly issued, fully paid and non-assessable, and has been issued
in compliance with all
35
<PAGE>
applicable federal and state securities laws, rules and regulations.
All of the shares of the Borrower's Stock are owned beneficially and
of record by Borrower's Stockholders, free and clear of all Liens
except as described in Schedule 5.3.1. There is no other Person which
directly or indirectly owns (beneficially or of record) any interest
in Borrower.
5.3.2. Other Restrictions. Except as set forth on Schedule
------------------
5.3.2 or for Liens which will be removed at Closing, Borrower (a) is
not a party to or has no knowledge of any agreements restricting the
transfer of any shares of Borrower's Stock; (b) has no outstanding
stock or securities convertible into or exchangeable or exercisable for
any shares of Borrower's Stock, or any rights to subscribe for or to
purchase, or any options for the purchase of, or any agreements
providing for the issuance (contingent or otherwise) of, or any calls,
commitments or claims of any character relating to, any shares of the
Borrower's Stock or any securities convertible into or exchangeable or
exercisable for any shares of the Borrower's Stock; and (c) is not
subject to any obligation to acquire or retire any shares of Borrower's
Stock or any convertible securities, rights or options for any shares
of Borrower's Stock. Borrower is not required to file, and Borrower has
not filed, pursuant to Section 12 of the Securities Exchange Act of
1934, as amended, a registration statement relating to any class of
debt or equity securities.
5.3.3 Subsidiaries. Schedule 5.3.3 sets forth a complete
------------
list of the Subsidiaries of Borrower.
5.4 Binding Agreements. This Revolver Loan Agreement and the other
------------------
Revolver Loan Documents, when executed and delivered, shall constitute the valid
and legally binding obligations of Borrower to the extent it is a party thereto,
enforceable against Borrower in accordance with their respective terms, except
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by equitable principles (whether or not any
action to enforce such document is brought at law or in equity).
5.5 Solvency; Bankruptcy; Creditors.
-------------------------------
5.5.1 Solvency. Borrower is Solvent.
--------
5.5.2 No Contemplated Bankruptcy. Borrower does not contemplate
--------------------------
the filing of a petition in bankruptcy or for a reorganization under
the U.S. Bankruptcy Code (or other applicable laws) and has no
knowledge of any threatened bankruptcy or insolvency proceeding against
Borrower.
36
<PAGE>
5.5.3 Hindering Creditors. Borrower, by executing, delivering or
-------------------
performing the transactions contemplated by the Revolver Loan
Documents, or by taking any action with respect thereto, does not
intend to hinder, delay or defraud either its present or future
creditors.
5.6 Location of principal Place of Business; Other Facility Sites.
-------------------------------------------------------------
5.6.1 Principal Place of Business. The chief executive office and
---------------------------
principal place of business of Borrower is located at 3400 Carlisle
Street, Suite 500, Dallas, Texas 75204.
5.6.2 Location of Goods and Offices. All Inventory, Equipment,
-----------------------------
other Goods and offices that now used and contemplated to be used
after the Closing Date in the operation of the Business of Borrower
are located at the sites listed in Schedule 5.6.2.
5.7 Title to Property, Liens. Schedule 5.7 sets forth a complete list
------------------------
of the Equipment (including, without limitation, motor vehicles) and (by type
and cost) Inventory. Borrower has (a) good and marketable title to all of its
Property, except the portion thereof consisting of the Leasehold Properties and
Borrower's leased Equipment, all of which has been leased in the ordinary course
of Borrower's business, and (b) a valid leasehold estate in Leasehold Properties
and lesses's interest in all leased Equipment. All of such Property is free and
clear of all Liens, except Permitted Liens. The applicable Security Documents
shall create valid and perfected first Liens in the Property of Borrower,
subject only to Permitted Prior Liens.
5.8 Projections and Financial Statements.
------------------------------------
5.8.1 Financial Statements. Borrower has delivered to Lender
--------------------
financial statements described in Schedule 5.8.1. Such financial
statements (a) comport with the Books of Borrower; (b) are complete
and correct in all material respects, subject to normal year-end
adjustments; and (c) fairly present in all material respects, subject
to normal year-end adjustments, the financial condition and the
results of operations as of the dates and for the periods described
therein with respect to Borrower.
5.8.2 Pro Forma Balance Sheet. Borrower has delivered to Lender
-----------------------
pro-forma balance sheets as of the Closing Date (which assume the
consummation of the transactions contemplated by the terms of the
Revolver Loan Documents). Such pro-forma balance sheets present fairly
the anticipated financial condition of the Borrower as of the Closing
Date, except that such pro-forma balance sheet (a) does not reflect any
year-end adjustments, provided that, to the best of the
37
<PAGE>
knowledge of Borrower, there will be no material adjustments to such
pro-forma balance sheet and (b) has not been audited.
5.8.3 Forecasts. Borrower has delivered to Lender forecasts of
---------
the future operations of Borrower, consisting of balance sheets, cash
flow statements and income statements of Borrower, together with a
statement of the underlying assumptions upon which such forecasts are
based. Such forecasts (a) have been prepared in good faith and (b)
represent the good faith opinion of Borrower and its senior management
as to the course of Borrower's business.
5.9 Litigation. Except as set forth in Schedule 5.9, there are no
----------
actions, suits, arbitration proceedings or claims pending or, to the best
knowledge of Borrower, threatened against Borrower or maintained by Borrower at
law or in equity or before any Governmental Body. None of the matters set forth
in Schedule 5.9 (if any), if adversely determined, could have a Material Adverse
Effect on Borrower; and none of such matters calls into question the validity or
enforceability of any of the Revolver Loan Documents or any of the transactions
contemplated thereby or the priority of the Security Interests.
5.10 Conflicting Agreements; Consents. Borrower is not in default
---------------------------------
under any agreement to which it is a party or by which it or any of its Property
is bound, and there is no event or condition which, with the giving of notice or
the lapse of time, or both would become a default under any agreement to which
it is a party or by which it or any of its Property is bound, the effect of
which default might have a Material Adverse Effect on Borrower or the validity
or enforceability of any of the Revolver Loan Documents or any of the
transactions contemplated thereby or the priority of the Security Interests. No
authorization, consent, approval or other action by, and no notice to or filing
with, any shareholder, any Governmental Body or any other Person which has not
already been obtained, taken or filed, as applicable, is required (a) for the
due execution, delivery or performance by Borrower of any of the Revolver Loan
Documents to which it is a party or (b) as a condition to the validity or
enforceability of any of the Revolver Loan Documents to which it is a party or
any of the transactions contemplated thereby or the priority of the Security
Interests, except for certain filings to establish and perfect the Security
Interests. No provision of any mortgage, indenture, contract, agreement,
statute, rule, regulation, judgment, decree or order binding on Borrower, or
affecting the Business or Property of Borrower, conflicts with, or requires any
consent which has not already been obtained or is anticipated to be obtained as
described above, or in any way would prevent the execution, delivery or
performance of the terms of any of the Revolver Loan Documents to which Borrower
is a party. The execution, delivery or performance of the terms of the Revolver
Loan Documents shall not constitute a default under, or result in the creation
or imposition of, or obligation to create, any Lien upon the Property of
Borrower
38
<PAGE>
pursuant to the terms of any such mortgage, indenture, contract or agreement.
5.11 Taxes. Borrower has filed or caused to be filed all tax returns
-----
required to be filed, and has paid, or has made adequate provision for the
payment of, all taxes due and payable on such returns or to become due and
payable upon the filing of such returns or in any assessments made against it
and any of its Property; and no tax liens have been filed and, to the best
knowledge of Borrower, no claims are being asserted in respect of such taxes
which (a) (i) are required by GAAP to be reflected in its financial statements
or (ii) would have a Material Adverse Effect on Borrower, and (b) are not so
reflected therein. The charges, accruals and reserves on the books of Borrower
with respect to all federal, state, local and other taxes are considered by the
management of Borrower to be adequate, and Borrower has no knowledge of any
unpaid assessment which is or might be due and payable against it or any of its
Property, except such assessments as are being contested in good faith and by
appropriate proceedings diligently conducted, and for which adequate reserves
have been set aside in accordance with GAAP.
5.12 Compliance with Applicable Laws. Borrower is not in default with
--------------------------------
respect to any judgment, order, writ, injunction, decree or decision of any
Governmental Body, which default would have a Material Adverse Effect on
Borrower. Borrower is in compliance in all material respects with all applicable
statutes and regulations, including Environmental Laws, of all Governmental
Bodies, a violation of which would have a Material Adverse Effect on Borrower or
the validity or enforceability of any of the Loan Documents or any of the
transactions contemplated thereby or the priority of the Security Interests.
5.13 Regulatory Matters. Borrower has duly and timely filed all
------------------
material reports and other filings which are required to be filed by it under
any rules or regulations promulgated by any Governmental Body or other Person
having jurisdiction over the operation of its Business. All information provided
by or on behalf of Borrower in any filing with any Governmental Body or other
Person having jurisdiction over the operation of its Business was, at the time
of filing, true, complete and correct in all material respects when made, and
the appropriate Person has been notified of any substantial or significant
changes in such information as may be required in accordance with applicable
laws, rules and regulations.
5.14 Environmental Matters. Except to the extent set forth in the
---------------------
Disclosure Schedule to the Environmental Certificate, (a) Borrower is in
compliance in all material respects with all applicable Environmental Laws and
(b) there currently are not any known Hazardous Materials generated,
manufactured, released, stored, buried or deposited over, beneath, in or on (or
used in the
39
<PAGE>
construction and/or renovation of) the Property in violation of applicable
Environmental Laws.
5.15 Application of Certain Laws and Regulations. Neither
-------------------------------------------
Borrower nor any Affiliate of Borrower is:
5.15.1 Investment Company Act. an "investment company," or a
----------------------
company "controlled" by an "investment company," within the meaning of
the Investment Company Act of 1940, as amended;
5.15.2 Holding Company Act. a "holding company," or a
-------------------
"subsidiary company" of a "holding company," or an "affiliate" of a
"holding company" or of a "subsidiary company" of a "holding company,"
as such terms are defined in the Public Utility Holding Company Act of
1935, as amended;
5.15.3 Regulations as to Borrowing. subject to any statute
---------------------------
or regulation which regulates the incurrence of any Indebtedness for
Borrowed Money, including, without limitation, statutes or regulations
relative to common or interstate carriers or to the sale of
electricity, gas, steam, water, telephone, telegraph or other public
utility services;
5.15.4 Foreign or Enemy Status. (a) an "enemy" or an "ally of
-----------------------
an enemy" within the meaning of Section 2 of the Trading With the
Enemy Act, (b) a "national" of a foreign country designated in
Executive Order No. 8389, as amended, or of any "designated enemy
country" as defined in Executive Order No. 9095, as amended, of the
President of the United States of America, in each case within the
meaning of such Executive Orders, as amended, or of any regulation
issued thereunder, (c) a "national of any designated foreign country"
within the meaning of the Foreign Assets Control Regulations or of the
Cuban Assets Control Regulations of the United States of America (Code
of Federal Regulations, Title 31, Chapter V, Part 515, Subpart B, as
amended), or (d) an alien or a representative of any alien or foreign
government within the meaning of Section 310 of Title 47 of the United
States Code.
5.16 Margin Regulations. None of the transactions contemplated by
------------------
this Revolver Loan Agreement or any of the other Revolver Loan Documents,
including the use of the proceeds of the Revolver Loan, have violated or shall
violate or result in a violation of Section 7 of the Securities Exchange Act of
1934, as amended, or any regulations issued pursuant thereto, including, without
limitation, Regulations G, T, U and X, and Borrower does not own or intend to
carry or purchase any "margin security" within the meaning of such Regulation G
or U.
5.17 Other Indebtedness. There is no, and upon Closing and for the
------------------
merge there will be no, Indebtedness for Borrowed Money
40
<PAGE>
owed by Borrower to any Person, except the Loans and the Subordinated
Indebtedness.
5.18 Certain Agreements. Borrower (a) has not committed to make any
------------------
Investment, (b) is not a party to any indenture, agreement, contract, instrument
or lease or subject to any charter, bylaw or other corporate restriction or any
injunction, order, restriction or decree, which is so unusual or burdensome so
as to cause, in the foreseeable future, a Material Adverse Effect on Borrower,
(c) is not a party to any "take or pay" contract under which it is the
purchaser, (d) does not have any contingent or long-term liability or
commitment, including management contracts (excluding employment contracts of
full-time individual officers or employees) except those set forth in Schedule
5.19, and (e) has not assumed, guaranteed or endorsed, or otherwise become
directly or contingently liable in connection with any liability of any other
Person, except for the endorsement of checks and other negotiable instruments
for collection in the ordinary course of business.
5.19 Business and Property of Borrower.
---------------------------------
5.19.1 Business and Property. After the Closing, Borrower does
---------------------
not propose to engage in any business or activity other than the
Business. Borrower owns or has the right to use all Property which is
necessary for the conduct of the Business, as the Business is proposed
to be conducted following the Closing Date.
5.19.2 Real Property; Leases. There is set forth in Schedule
---------------------
1.1 (Existing Real Property) a description of all existing Real
Property of Borrower. There is set forth in Schedule 1.1 (Leases) a
list of all existing Leases of Borrower. Each Lease is in full force
and effect, there has been no material default in the performance of
any of its terms or conditions by Borrower or, to Borrower's
knowledge, by any landlord thereunder, and no claims of default have
been asserted with respect thereto. The present and contemplated use
of Borrower's Real Property and Leasehold Property is in compliance
with all applicable zoning ordinances and regulations and other laws
and regulations.
5.19.3 Operation and Maintenance of Equipment. Neither
--------------------------------------
Borrower nor, to Borrower's knowledge, any other Person owning or
operating any Equipment necessary for the operation of the Business
has used, operated or maintained the same in a manner which now or
hereafter could result in the cancellation or termination of the right
of Borrower to use the same or which could result in any material
liability of Borrower for damages in connection therewith. All of the
Equipment and other tangible personal property owned by the Borrower
is in good operating condition and repair, reasonable wear and tear
from ordinary usage excepted, and has been used,
41
<PAGE>
operated and maintained in compliance with all applicable laws, rules
and regulations.
5.19.4 Intellectual Property. There is set forth in Schedule
---------------------
1.1 (Intellectual Property) a list of all existing patents,
copyrights, trademarks and trade names owned by Borrower and
applications therefor submitted by Borrower. There is set forth in
Schedule 1.1 (Existing Operating Agreements) a list of all existing
Operating Agreements of Borrower. Borrower has not been charged with
any material infringement of any patent, copyright, trademark, or
service mark, or notified or advised of any such claim. Borrower owns,
possesses or has the right to use all Operating Agreements, and all
rights with respect thereto, necessary for the conduct of its Business
as heretofore conducted and as proposed to be conducted after the
Closing Date, without any known conflict with the rights of others
and, in each case, free of any Liens other than Permitted Liens. No
event has occurred that could result in the cancellation or
termination of any Operating Agreement or the imposition thereunder of
any liability upon Borrower, and there is no reason to believe that
any Operating Agreement will not be renewed in the ordinary course
except when the failure to renew would not have a Material Adverse
Effect on Borrower. Except as set forth in Schedule 5.19, Borrower
does not have any Operating Agreement which consists of a license to
use patents, copyrights, trademarks, service marks, trade names, or
other similar items of intellectual property. The consummation of the
transaction contemplated hereby will not alter or impair any right,
title or interest of Borrower in any of its Operating Agreements,
except for Security Interests in favor of Lender and the Subordinated
Indebtedness Liens.
5.20 No Misrepresentation. No representation or warranty made by
--------------------
Borrower and contained herein or in the other Revolver Loan Documents, and no
certificate, information or report furnished or to be furnished by or on behalf
of Borrower in connection with any of the Revolver Loan Documents or any of the
transactions contemplated hereby or thereby, contains or shall contain a
misstatement of material fact, or omits or shall omit to state a material fact
required to be stated in order to make the statements contained herein or
therein not misleading in the light of the circumstances under which such
statements were made. There is no fact known to or reasonably foreseen by
Borrower that shall have a Material Adverse Effect on Borrower other than facts
which generally are known to the public, that has not expressly been disclosed
to Lender in writing.
5.21 Plans. Borrower is not a member of any Multi--employer Plan.
-----
Each Plan maintained by Borrower is in material compliance with the applicable
provisions of ERISA and the IRC, and Borrower has filed all reports required to
be filed by ERISA and the IRC in respect of such Plan. Borrower and each of its
ERISA Affiliates
42
<PAGE>
has met all requirements imposed by ERISA and the IRC in respect of the funding
of all Plans, including, without limitation, the making when due of all required
installment contributions to such Plans. There has not been, with respect to any
Plan maintained by Borrower, any prohibited transaction, reportable event, or
accumulated funding deficiency, as those terms are defined in ERISA.
5.22 Employee Matters.
----------------
5.22.1 Union Activities. None of the employees of Borrower is
----------------
subject to any collective bargaining agreement, and there are no
strikes, work stoppages or controversies pending or, to the best
knowledge of Borrower, threatened against Borrower by any of its
employees, other than employee grievances arising in the ordinary
course of business which do not in the aggregate have a Material
Adverse Effect on Borrower.
5.22.2 Claims Relating to Employment. Neither Borrower nor
-----------------------------
any employee is subject to any employment agreement or
non-competition agreement with any former employer or any other
Person, which agreement would (a) prohibit Borrower from using any
material information which Borrower would not otherwise be prohibited
from using or (b) raise any legal considerations relating to unfair
competition, trade secrets or propriety information.
5.23 Use of Revolver Loan Proceeds. The proceeds of the Revolver Loan
-----------------------------
will be used by Borrower to provide working capital, which uses are proper
corporate purposes in accordance with the provisions of this Revolver Loan
Agreement.
5.24 Good Consideration. The Revolver Loan Documents and the
------------------
transactions contemplated thereby have been or will be executed, delivered and
performed in good faith and in exchange for reasonably equivalent value.
5.25 No Default. There is neither an Event of Default nor Incipient
----------
Default under the Revolver Loan Documents.
5.26 Accounts. Borrower represents and warrants that each Account
--------
covers and shall cover a bona fide sale or lease and delivery by it of goods or
the rendition by it of services in the ordinary course of its business, and
shall be for a liquidated amount and Lender's Security Interest shall not be
subject to any offset, deduction, counterclaim, rights of return or
cancellation, lien or other condition. If any representation or warranty herein
is breached as to any Account or any Account ceases to be an Eligible Account
for any reason other than payment thereof, then Lender may, in addition to its
other rights hereunder, designate any and all Accounts owing by that Account
Debtor as not Eligible
43
<PAGE>
Accounts, without affecting Lender's Security Interest in such Accounts.
5.27 Additional Representations and Warranties. The representations,
-----------------------------------------
warranties and covenants contained in this Article 5 are in addition to, and not
in derogation of, the representations, warranties and covenants contained
elsewhere in the Revolver Loan Documents and shall be deemed to be made and
reaffirmed prior to the making of each Revolver Advance; and without limiting
the generality of the foregoing, shall be deemed affirmed by Borrower upon each
request by Borrower for a Revolver Advance.
ARTICLE 6
---------
AFFIRMATIVE COVENANTS
---------------------
Until all of the Revolver Loan Obligations are paid and performed in
full (other than those Revolver Loan Obligations arising under Section 9.2 with
respect to which there is no pending or threatened event or situation known to
Borrower which could give rise to an indemnity obligation of Borrower under
Section 9.2), Borrower agrees that:
6.1 Legal Existence; Good Standing. Borrower shall maintain its
------------------------------
corporate existence and its good standing in the jurisdiction of its
incorporation and maintain qualification in each jurisdiction in which the
failure to qualify would have a Material Adverse Effect on Borrower.
6.2 Inspection. Borrower shall permit representatives of Lender to
----------
(a) visit its offices, (b) examine its Books and Accountants' reports relating
thereto, (c) make copies or extracts therefrom, (d) discuss the Business and
affairs of Borrower with the employees of Borrower, (e) examine and inspect the
Property of Borrower, and (f) meet and discuss the Business and affairs of
Borrower with the Accountants, all at reasonable times and upon reasonable prior
notice. Borrower hereby acknowledges that the provisions of this Section 6.2
shall permit Lender to conduct (x) an annual inspection of some or all of the
Collateral and (y) an audit of the Books of Borrower at such times as Lender may
require or may be otherwise expressly provided herein.
6.3 Financial Statements and Other Information. Borrower shall
------------------------------------------
maintain a standard system of accounting in accordance with GAAP and furnish or
cause to be furnished to Lender:
6.3.1 Monthly Statements. Within thirty (30) days after the
------------------
end of each month:
(a) a statement of profit and loss, a balance sheet, and a
statement of cash flows for Borrower as of the end of
each month, showing
44
<PAGE>
operating results for such month and for the period
from the beginning of the then Fiscal Year through the
end of such month, and for the comparable period of the
preceding Fiscal Year;
(b) a detailed accounts receivables aging report;
(c) a detailed accounts payable aging report;
(d) a perpetual inventory listing;
(e) a detailed trial balance;
(f) monthly reconciled bank statements; a reconciliation of
the Borrowing Base Reports to the Borrower's month end
financial statements, accounts receivable aging report
and perpetual inventory listing.
6.3.2 Annual Statements. As soon as available and in any
-----------------
event within ninety (90) days after the close of each Fiscal Year; a statement
of profit and loss, a balance sheet, and a statement of cash flows for Borrower,
as of the end of such Fiscal Year, setting forth in each case in comparison form
the corresponding figures for the preceding year. Such annual financial
statements shall be audited and accompanied by an opinion of the Accountants
stating that (i) the examination by the Accountants in connection with such
financial statements has been made in accordance with generally accepted
auditing standards and, accordingly, included such tests of the accounting
records and such other procedures as were considered necessary under the
circumstances, (ii) such financial statements have been prepared in accordance
with GAAP, and (iii) such financial statements fairly present the financial
position and results of operations of Borrower; and
6.3.3 Officer's Certificates. The financial statements of
----------------------
Borrower described in subsections 6.3.1 and 6.3.2 shall be accompanied by a
certificate of the Chief Financial Officer of Borrower in the form of Exhibit
6.3.3. reasonable detail (a) certifying that no condition or event has occurred
or exists which constitutes an Incipient Default or an Event of Default, or, if
so, specifying in any such certificate such violations, conditions and events,
and the nature and status thereof, and what actions Borrower proposes to take
with respect thereto, and (b) showing all calculations necessary to demonstrate
compliance with the provisions of Article 6 of this Loan Agreement.
Simultaneously with the delivery of the annual audited financial statements,
Borrower also shall deliver to Lender a certificate from its Chief Executive
Officer, certifying that, to the best of the
45
<PAGE>
knowledge of such Chief Executive Officer, Borrower is in compliance with all
applicable Environmental Laws and confirming the absence of matters which would
require notice to Lender pursuant to the provisions of Section 6.7.
6.3.4 Accountants' Certificate. Simultaneously with the
------------------------
delivery of the certified statements required by subsection 6.3.2, copies of a
certificate of the Accountants for Borrower stating that, (a) in making the
examination necessary for their audit of the financial statements of Borrower
for such year, nothing came to their attention of a financial or accounting
nature that caused them to believe that (i) Borrower was not in compliance with
the terms, covenants, provisions or conditions of any of the Loan Documents or
(ii) there had occurred an Incipient Default or Event of Default, or (b)
specifying all such instances of noncompliance and the nature of the status
thereof.
6.3.5 Audit Reports. Within five (5) Business Days after
-------------
receipt thereof, a copy of each report, other than the reports referred to in
subsection 6.3.3, including any so- called "Management Letter" or similar
report, submitted to Borrower by the Accountants in connection with any annual,
interim or special audit made by the Accountants of the Books of Borrower.
6.3.6 Notice of Change of Accountants; Accountants'
---------------------------------------------
Cooperation. At least thirty (30) days prior to any change of Accountants of
- -----------
Borrower, notice that such change is to occur together with the name of the new
Accountants and an appropriate letter of the type described below in this
subsection addressed to such new Accountants. Such new Accountants shall be an
independent, public accounting firm satisfactory to Lender. Borrower authorizes
Lender to communicate directly with its officers and employees and with its
Accountants. Borrower authorizes the Accountants to disclose to Lender any and
all financial statements, work papers and other information of any kind that
they may have with respect to Borrower and the Business and financial and other
affairs. Lender shall treat information so obtained as confidential, except
Lender shall be permitted to disclose such information on a need-to-know basis
to such Persons as Lender reasonably deems necessary. Upon the request of
Lender, Borrower shall deliver a letter addressed to such Accountants
instructing them to comply with the provisions of this Section.
6.3.7 Notice of Defaults; Loss. Within five (5) Business Days
------------------------
after the occurrence of any such event, written notice if: (a) any Indebtedness
of Borrower is declared or shall become due and payable prior to its declared or
stated maturity, or called and not paid when due; (b) an event has occurred that
enables the holder of any Indebtedness of
46
<PAGE>
Borrower or of any note, certificate or security evidencing any such
Indebtedness of Borrower to declare such Indebtedness due and payable prior to
its stated maturity; (c) there shall occur and be continuing an Incipient
Default or Event of Default, accompanied by a statement of the Chief Executive
Officer of Borrower setting forth what action Borrower (and any other obligor
with respect to which the Incipient Default or Event of Default has occurred)
proposes to take in respect thereof; or (d) any event shall occur causing loss
or depreciation in the value of assets having a Material Adverse Effect on
Borrower, including the amount or the estimated amount of any such loss or
depreciation or adverse effect.
6.3.8 Notice of Suits. Adverse Events. Within five (5)
-------------------------------
Business Days after the occurrence of any such event, written notice of: (a) any
citation, summons, subpoena, order to show cause or other order naming Borrower
a party to any proceeding before any Governmental Body which may have a Material
Adverse Effect on Borrower, and including with such notice a copy of such
citation, summons, subpoena, order to show cause or other order; (b) any lapse
or other termination of any license, permit, franchise, agreement or other
authorization issued to Borrower by any Governmental Body or any other Person or
the refusal to renew or extend any such license, permit, franchise, agreement or
other authorization; and (c) any dispute between Borrower and any Governmental
Body or any other Person; provided that notice shall not be required pursuant to
clauses (b) or (c) above unless the lapse, termination, refusal or dispute
referred to in such clauses may have a Material Adverse Effect on Borrower.
6.3.9 Reports to Security Holders, Creditors and Governmental
-------------------------------------------------------
Bodies.
- ------
(a) Within five (5) Business Days after becoming available,
copies of (i) all financial statements, reports, notices and proxy
statements sent or made available generally by Borrower to its
security holders, (ii) all regular and periodic reports and all
registration statements and prospectuses filed by Borrower with any
securities exchange or with the Securities and Exchange Commission or
any Governmental Body succeeding to any of its functions, and (iii)
all statements generally made available by Borrower or others
concerning material developments in the Business.
(b) Within five (5) Business Days after becoming available,
copies of any periodic or special reports filed by Borrower with any
Governmental Body or Person, if such reports indicate any material
change in the financial condition, operations, Business, profits,
prospects or Property of Borrower, or if copies thereof are requested
by Lender, and copies of any material
47
<PAGE>
notices and other communications from any Governmental Body or Person
which specifically relate to Borrower.
6.3.10 ERISA Notices and Requests.
--------------------------
(a) Within five (5) Business Days after the occurrence of any
such event, written notice if (i) Borrower shall fail to make any
payments when due and payable under any Plan, or (ii) Borrower shall
receive notice from the Internal Revenue Service or the Department of
Labor that it shall have failed to meet the minimum funding
requirements of any Plan, and include therewith a copy of such notice,
or (iii) Borrower gives or is required to give notice to the PBGC of
any "reportable event" (as defined in Title IV of ERISA) in respect of
any Plan which might constitute grounds for a termination of such Plan
under Title IV of ERISA, or knows that the plan administrator of any
Plan has given or is required to give notice of any such reportable
event, or (iv) a notice of intent to terminate any Plan is filed with
the PBGC, or (v) proceedings are instituted by the PBGC under Section
4042 of ERISA to terminate, or to appoint a trustee to administer, any
Plan of Borrower, or (vi) any prohibited transaction occurs involving
the assets of any Plan, or (vii) Borrower or any of its ERISA
Affiliates fails to make a required installment or other payment to
any Plan if such failure would result in the imposition of a Lien upon
the Property of Borrower pursuant to Section 412(n) of the IRC.
(b) Copies of any request for a waiver of the funding
standards or any extension of the amortization periods required by
Sections 303 and 304 of ERISA or Section 412 of the IRC within five
(5) Business Days after any such request is submitted to the
Department of Labor or the Internal Revenue Service, as the case may
be.
6.3.11 Shareholder List Simultaneously with the delivery of
----------------
the certified statement required by subsection 6.3.2, a complete listing of all
holders of record of each class of equity security of Borrower and of warrants
and/or options to acquire such equity securities, and (to the best of Borrower's
knowledge) all beneficial holders of such equity securities, warrants and
options, together with the exercise price applicable to any warrants and
options.
6.3.12 Deposit Accounts List. Simultaneously with the delivery
---------------------
of the certified statement required by Section 6.3.2 and at any other time upon
Lender's request, a list of all deposit accounts of Borrower, containing the
name and address of the depository financial institution with respect to
Borrower's deposit accounts. Borrower shall also promptly
48
<PAGE>
(but in no event more than ten (10) days after opening or closing a deposit
account) notify Lender of each deposit account which from time to time is opened
or closed.
6.3.13 Annual Budget. Not later than the end of each of its
-------------
Fiscal Years, its operating budget for the succeeding Fiscal Year.
6.3.14 Accounts. Within five (5) Business Days after Borrower
--------
becomes aware of any matter materially, adversely affecting an Account,
including disputes or claims and the return of any Inventory, notice of such
matter and any information required pursuant to Section 6.19.3.
6.3.15 Other Information.
-----------------
(a) Within five (5) Business Days after the occurrence of
any such event, notice: (i) if any officer of Borrower or any key
employee will no longer be actively involved in the Business of
Borrower or if the functions of such officer or employee will be
performed by a different person, (ii) change of location of the
Collateral, (iii) any change in the name of Borrower or the name(s)
under which it is conducting business, or (iv) any sale or purchase of
Property outside the ordinary course of business; and
(b) Within five (5) Business Days after Lender's request
therefor, and so long as reasonably available, such other information
concerning the financial condition, operations, Business, prospects or
Property of Borrower as Lender may from time to time reasonably
request.
6.4 Taxes; Tax Returns.
------------------
6.4.1 Payment. Borrower shall pay in full, before delinquency
-------
or before the expiration of any extension period, all assessments and taxes,
whether real, personal or otherwise, due or payable by, or imposed, levied or
assessed against Borrower or any of its Property; provided; however, that
-------- ------
Borrower shall not be required to pay or discharge any such assessment or tax if
the payment thereof is being contested pursuant to a Permitted Protest.
6.4.2 Tax Returns. Borrower shall furnish to Lender true,
-----------
complete and correct copies of its income tax returns filed with the Internal
Revenue Service annually, within thirty (30) days following such filing (but no
later than August 30). If Borrower files its tax returns for any year after
March 15, it shall provide Lender with a copy of its request for or extension of
the time in which to file federal income tax returns.
49
<PAGE>
6.5 Reports to Governmental Bodies and Other Persons.
------------------------------------------------
Borrower shall timely file all reports, applications, documents, instruments and
information required to be filed pursuant to all rules, regulations or requests
of any Governmental Body or other Person having jurisdiction over Borrower,
including, without limitation, such of the Revolver Loan Documents as are
required to be filed with any such Governmental Body or other Person pursuant to
applicable rules and regulations promulgated by such Governmental Body or other
Person.
6.6 Maintenance of Licenses and Other Operating Agreements.
-------------------------------------------------------
Borrower shall maintain in force at all times, and apply in a timely manner for
renewal of, all its licenses, approvals, permits, franchises, patents,
copyrights, trademarks, service marks, trade names, and other Operating
Agreements necessary for the continuation of the operation of the Business,
unless the loss thereof would not have a Material Adverse Effect on Borrower.
Borrower shall give Lender at least thirty (30) days prior written notice of the
proposed material amendment of any of its Operating Agreements, including,
without limitation, any amendment thereto, which would result in the loss of any
material benefit or the incurrence of any material detriment by Borrower under
the terms of such agreement, substantially impair the value of the Collateral or
otherwise have a Material Adverse Effect on Borrower.
6.7 Insurance.
---------
6.7.1 General. Borrower shall obtain, maintain and deliver
-------
to Lender at all times and in full force and effect such casualty,
hazard, business interruption, public liability, product liability,
and other insurance as is required by Lender, written by insurers and
in amounts and forms satisfactory to Lender. Except in the case of any
minor casualty which in no event involves a loss of more than Ten
Thousand Dollars ($10,000) and subject to the rights of holders of
Permitted Prior Liens, in case of loss, Lender shall be entitled to
receive all insurance proceeds from policies required to be maintained
hereunder. Lender may apply such proceeds to the payment of the
Obligations (including the unpaid Fees) in such order and manner as it
may elect or, at its option, apply such proceeds to restoration and
repair of the damaged Property upon such conditions as Lender may
impose. Application of insurance proceeds by Lender, regardless of the
manner or order, shall not waive full and timely performance of any of
the Obligations, cure or waive any default by Borrower in the full and
timely performance of any of the Obligations, or invalidate or affect
any act hereunder because of such default. Lender shall not be
obligated to see to the proper application of any insurance proceeds
paid over to Borrower. Borrower shall promptly notify Lender of
substantial loss or damage to the Property and make proof of loss if
loss or damage occurs that is covered by insurance. Borrower hereby
appoints Lender as
50
<PAGE>
its attorney-in-fact to do any of the following at Lender's option: make proof
of loss, adjust or compromise in the name of Borrower any loss covered by an
insurance policy on the Collateral and collect and receipt for the proceeds from
such policies. If Lender acquires title to the Collateral or the Collateral is
sold pursuant to subsection 8.3.3., then Lender or the purchaser at foreclosure,
as the case may be, shall become the owner of the insurance policies required
pursuant to this subsection, the unearned premiums on the policies and insurance
proceeds relating to prior damage to the Collateral.
6.7.2 Life Insurance. Prior to February 28, 1995, Borrower shall
--------------
assign the Life Insurance to Lender pursuant to an assignment form ("Assignment
of Life Insurance"), in form and substance substantially identical to Exhibit
6.7.2, subject to such reasonable changes thereto as Lender may make to such
form for its use after the date of this Revolver Loan Agreement. Borrower hereby
grants to Lender a Security Interest in the Life Insurance, all replacements and
proceeds thereof, any supplementary contract issued in connection therewith and
the proceeds thereof (including without limitation, the beneficiary's interest
therein, collectively referred to as the "Life Insurance Collateral") to secure
payment and performance of all of the Obligations. The insurer under the Life
Insurance and the terms and conditions of the Life Insurance are subject to the
approval of Lender. Replacement policies as to each policy compromising the Life
Insurance shall be delivered to Lender not later than thirty (30) days before
the expiration date of each insurance policy as evidence of the renewal of such
Life Insurance. The Life Insurance shall require the insurer to provide Lender
with thirty (30) days advance written notice of any cancellation and/or any
material change in coverage. On or before delivery of the Assignment of Life
Insurance, Borrower shall execute in favor of Lender a UCC-1 financing
statement reflecting Lender's Security Interest in the Life Insurance.
Notwithstanding anything herein to the contrary, upon the maturity of the Life
Insurance or upon the death of the Insured Persons, the proceeds of the Life
Insurance shall be paid directly to Lender, shall be treated as a prepayment and
shall be applied against the Obligations (including any unpaid Fees) in such
order and manner as Lender may determine. No prepayment premium shall be due and
owing in connection with such prepayment. To the extent that the proceeds of the
Life Insurance exceed the amount of Borrower's Obligations, any such excess
shall be promptly paid by Lender directly to Borrower. Upon the payment in full
and performance of all of Borrower's Obligations hereunder, Lender shall
reassign and deliver the Life Insurance Collateral to Borrower. In the event of
the termination or other cessation of employment by any Insured Person with
Borrower not resulting from the death of any Insured Person, Lender shall
reassign and deliver the Insurance Collateral to Borrower upon delivery to
Lender of
51
<PAGE>
replacement Insurance Collateral, in form and substance satisfactory
to Lender, insuring such of Borrower's then existing officers and
other key employees as Lender shall determine, provided, however, that
in no event shall the aggregate of insurance required to be provided
by Borrower exceed the aggregate amount of insurance required to be
maintained hereunder with respect to the Insured Persons.
6.8 Environmental Matters. Borrower shall, within three (3) Business
---------------------
Days after receipt thereof, provide Lender with a copy of (a) any notice of any
violation or administrative or judicial complaint or order having been filed or
about to be filed against Borrower, its Real Property or Leasehold Property or
any other real property used by Borrower alleging violations of any law,
ordinance and/or regulation requiring Borrower to take any action in connection
with the release, transportation and/or clean-up of any Hazardous Materials, or
(b) any notice from any Governmental Body or any other Person alleging that
Borrower is or may be liable for costs associated with a response or clean-up of
any Hazardous Materials or any damages resulting from a release or
transportation of Hazardous Materials. Borrower, at its sole cost and expense,
shall comply in all material respects (or comply in all respects if the failure
to do so could have a Material Adverse Effect on Borrower) with the foregoing
notices or diligently contest in good faith by appropriate proceedings any
demands set forth in such notices and, in all events, shall at all times comply
in all material respects with, and be responsible for, all Environmental Laws
applicable to Borrower's Property.
6.9 Leases.
------
6.9.1 Future Leases. Concurrently with the execution by Borrower as
-------------
lessee under any Lease pertaining to real property, shall deliver to
Lender: (a) notice of the execution of such Lease, together with a
conformed copy thereof, (b) at the option of Lender, either a (i)
collateral assignment of such Operating Lease in favor of Lender or
(ii) leasehold mortgage or deed of trust with respect to the leases
interest in the Leasehold Property which is the subject of such Lease,
except that, if such lease pertains to a warehouse facility where only
Inventory of Borrower will be stored, Borrower shall be required only
to provide to Lender a Bailee Letter, (c) an estoppel letter and
consent from the lessor under such Lease and (d) if Lender has elected
to obtain a leasehold mortgage or deed of trust on such Property, a
lender's policy of title insurance, which policy shall be in an amount
and contain such endorsements as shall be required by Lender, all of
which items described in clauses (b)-(d) shall be in form and content
satisfactory to Lender.
52
<PAGE>
6.9.2 Existing Leases. On or before April 1, 1995, unless
---------------
Borrower has replaced such Lease with another Lease as to which
Borrower has satisfied the requirements of Section 6.9.1, Borrower
shall deliver to Lender (a) a collateral assignment of that Existing
Lease covering its chief executive office in Dallas, Texas, and (b) an
estoppel letter, consent and lien waiver from the lessor under such
Lease.
6.10 Future Acquisitions of Real Property. Borrower, concurrently with
------------------------------------
the (a) execution by Borrower of any contract relating to the purchase by
Borrower of real property, shall deliver to Lender notice of the execution of
such contract, together with a conformed copy of such contract and (b) closing
of the purchase of such real property, deliver to Lender, in form and content
satisfactory to Lender (i) a first mortgage or deed of trust in favor of Lender
on such real property, (ii) a lender's policy of title insurance on such real
property, which policy of title insurance shall be in an amount and contain such
endorsements as may be required by Lender, and (iii) such other documents and
assurances with respect to such real property as Lender may require.
6.11 Compliance with Laws. Borrower shall comply with all laws,
--------------------
regulations, judgments, orders, injunctions, decrees and decisions of all
Governmental Bodies applicable to Borrower and its operations.
6.12 Maintenance of properties. Borrower shall maintain in good
-------------------------
working order and condition, subject to normal wear and tear from ordinary
usage, all of Borrower's Property.
6.13 Payment of Indebtedness. Borrower shall promptly pay when due all
-----------------------
Indebtedness of Borrower.
6.14 Infringement Actions. Borrower shall maintain, defend and
--------------------
prosecute fully all infringement actions with respect to all patents,
copyrights, trademarks, service marks, trade names, and other intellectual
property of Borrower.
6.15 Senior Debt Service Coverage Covenants. Borrower shall maintain
--------------------------------------
after the Closing Date an Operating Cash Flow of at least One Hundred Fifty
percent (150%) of Contractual Debt Service. Compliance with this covenant will
be measured throughout the term of the Revolver Loan quarterly on a trailing
twelve (12) month basis, except for the first three (3) calendar quarters during
the term of the Revolver Loan, during which the covenant shall be measured with
reference back to the Closing Date.
6.16 Total Debt Service Coverage Covenants. Borrower shall maintain
-------------------------------------
after the Closing Date an Operating Cash Flow of at least (a) One Hundred Five
percent (105%) of the Total Contractual Debt Service through December 31, 1995,
and (b) thereafter One Hundred Ten percent (110%). Compliance with this covenant
will be measured
53
<PAGE>
quarterly throughout the term of the Revolver Loan on a trailing twelve (12)
month basis, except for the first three (3) calendar quarters during the term of
the Revolver Loan, during which the covenant shall be measured with reference
back to the Closing Date.
6.17 Merger; Delivery of Assumption Agreement. Borrower shall cause
----------------------------------------
the merger to be consummated not later than the next Business Day after Closing
and to cause Company to execute the Assumption Agreement immediately upon
consummation of the Merger.
6.18 Source Code On or before March 1, 1995, Borrower shall cause
-----------
Company to enter into an escrow agreement among Company, Lender and an escrow
agent satisfactory to Lender pursuant to which the source code(s) described in
Schedule 6.18 shall be escrowed. Borrower shall cause Company to escrow
modifications to the source code(s) from time to time not to exceed one time per
year at Lender's request.
6.19 Minimum Current Ratio. Borrower shall maintain a current ratio of
---------------------
at least 1.15 to 1.0, tested quarterly. As used herein, "current ratio" means at
any time the ratio of current assets, as determined in accordance with GAAP, to
current liabilities as determined in accordance with GAAP but excluding the
Revolver Loan Principal Balance.
6.20 Assignment of Claims Act Compliance. Borrower, in the event that
-----------------------------------
Lender delivers written notice to Borrower requiring compliance by Borrower with
the requirements of the Federal Assignment of Claims Act of 1940 as such
requirements relate to the assignment of any Accounts to Lender, shall promptly
take all actions reasonably necessary to comply with such requirements and will
furnish Lender with proof satisfactory to Lender indicating such compliance.
6.21 Additional Covenants With Respect to Collateral.
-----------------------------------------------
6.21.1 Disputes on Accounts; Returns. Borrower shall notify
-----------------------------
Lender of any disputes or claims with respect to Accounts and settle
or adjust such disputes or claims at no expense to Lender, subject to
the provisions of Section 7.1.10. So long as no Event of Default has
occurred and is continuing and subject to the provisions of Section
7.1.10, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the
reason for such return and promptly issue a credit memorandum to the
Account Debtor (sending a copy to Lender) in the appropriate amount.
In the event any attempted return occurs after the occurrence of any
Event of Default, Borrower shall (a) hold the returned Inventory in
trust for Lender, (b) segregate all returned Inventory from all of
Borrower's other property, (c) conspicuously label the returned
Inventory as Lender's property, and (d) immediately notify Lender of
the return of
54
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any Inventory, specifying the reason for such return, the location and
condition of the returned Inventory, and on Lender's request deliver
such returned Inventory to Lender. Borrower shall not consign any
Inventory.
6.21.2 Other Obligations. Borrower shall (a) deliver to Lender
-----------------
Bailee Letters covering any portion of the located in warehouses or
for which warehouse receipts are issued and transfer Inventory to
warehouses designated by Lender, (b) place notations on Borrower's
books of Account to disclose Lender's Security Interest therein, (c)
maintain complete perpetual and stock records and (d) deliver to
Lender all letters of credit on which Borrower is the named
beneficiary. If any Collateral is at any time in the possession or
control of any warehouseman, bailee or any of Borrower's agents or
processors, Borrower shall notify such person of Lender's Security
Interest in such Collateral and, upon Lender's request, instruct them
to hold all such Collateral for Lender's Account subject to Lender's
instructions.
ARTICLE 7
---------
NEGATIVE COVENANTS
------------------
7.1 Borrower Covenants. Until all of the Obligations are paid and
------------------
performed in full, Borrower shall not:
7.1.1 Indebtedness. Create, incur, assume or suffer to exist any
------------
liability for Indebtedness, except (a) Borrower's Obligations, (b) the
Subordinated Indebtedness, and (c) Excluded Trade Payables.
7.1.2 Liens. Create, incur, assume or suffer to exist any Lien
-----
upon any of its Property, whether now owned or hereafter acquired,
except Permitted Liens.
7.1.3 Consolidation, Merger and Acquisition. Subject to the
-------------------------------------
Provisions of Section 6.17, consolidate with or merge with or into any
Person, or acquire directly or indirectly all or substantially all of
the capital stock or Property of any Person.
7.1.4 Limitation on Other Liabilities. Assume, guarantee,
-------------------------------
endorse, contingently agree to purchase, become liable in respect of
any letter of credit, or otherwise become liable upon the obligation
of any Person; provided, however, the foregoing shall not prohibit the
-------- -------
negotiation of Negotiable Collateral of Borrower for deposit or
collection or similar transactions in the ordinary course of business.
7.1.5 Dividends and Purchase of Stock; Distributions. Declare or
----------------------------------------------
pay any dividends or apply any of its Property to the purchase,
redemption or other retirement of, or set apart
55
<PAGE>
any sum for the payment of any dividends on, or make any other
distribution by reduction of capital or otherwise in respect of, any
shares of Borrower's Stock.
7.1.6 Investments. Purchase or otherwise acquire, hold or invest
-----------
in the capital stock of, or any other interest in, any arrangement for
the purpose of providing funds or credit to, or make any other
Investment, whether by way of capital contribution or otherwise, in or
with any Person, including, without limitation, any of its Affiliates,
except for the following Investments having a maturity not exceeding
ninety (90) days: (a) Investments in direct obligations of, or
instruments unconditionally guaranteed by, the United States of
America or in certificates of deposit issued by a Qualified
Depository; (b) Investments in commercial or finance paper which is
rated either "AAA" or "AAA" or better by Moody's Investors Services,
Inc., or Standard & Poor's Corporation, respectively, or at the
equivalent rate by any of their respective successors; or (c) any
interests in any money market account maintained with a Qualified
Depository, the Investments of which are restricted to the types
specified in clause (a) above.
7.1.7 Capital Structure Changes. Issue or sell any additional
-------------------------
shares of the capital stock of Borrower or any securities convertible
into or exercisable for any shares of such capital stock or otherwise
allow for the change in control of Borrower.
7.1.8 Corporate Offices; Name; Records. Transfer its chief
--------------------------------
executive office or principal place of business, establish new offices
or locations or change or relocate existing offices or locations,
change its corporate name, add any new fictitious business name or
maintain records (including computer printouts and programs) with
respect to Accounts or keep Inventory or Equipment at any locations
other than those at which the same currently are kept or maintained
and transfers of Inventory in the ordinary course of business, except
with the prior written consent of Lender and after the delivery to and
filing by Lender of financing statements in form satisfactory to
Lender; provided that in connection with any addition to or change in
the location of any office or place of business, Borrower shall give
at least ten (10) days prior written notice of such event, together
with the address of the new location.
7.1.9 Management. Enter into any management contract permitting a
----------
third party to manage any portion of its Business.
7.1.10 Sales Practices. Sell Goods on the basis of any of the
---------------
following: a sale on extended terms, "dating," a bill-and-hold sale,
a consignment sale, a sale and return, a
56
<PAGE>
"guaranteed sale" (i.e., one in which Borrower guarantees resale by
----
vendee or agrees to accept return of the Goods), or any other sale
pursuant to which Borrower agrees to accept the return of Goods, or to
exchange the same upon the happening of any event other than failure
to conform with quality specifications except where Lender first has
been advised of such proposed transaction and consented thereto in
writing.
7.1.11 Fundamental Business Changes. Engage in any business
----------------------------
other than its Business or a business substantially related to its
Business or materially change the nature of its Business.
7.1.12 Fiscal Year. Change its fiscal year.
-----------
7.1.13 Sale or Transfer of Assets. Sell, lease, assign, transfer
--------------------------
or otherwise dispose of its Property except for (a) sales or leases of
Inventory in the ordinary course of business and (b) dispositions of
(i) Property which is not material to or necessary for the continued
operation of the Business, provided, however, that the proceeds from
-------- -------
such disposition shall remain subject to the Security Interests, or
(ii) unusable items or Equipment which promptly are replaced with new
items or Equipment of like function and comparable value to the
unusable items or Equipment when the same were new; provided, however,
-------- -------
that such replacement items and Equipment shall become subject to the
Security Interests.
7.1.14 Payments on Subordinated Indebtedness. Make any payment
-------------------------------------
on the Subordinated Indebtedness, except as provided in the
Subordination Agreement.
7.1.15 Amendment of Charter and By-laws. Amend, modify or waive
--------------------------------
any term or provision of its corporate charter or by-laws, unless
required by law.
7.1.16 Amendment of the Acquisition Documents or Subordinated
------------------------------------------------------
Indebtedness Documents. Amend, modify or waive any term or provision
----------------------
any of the Acquisition Documents or the Subordinated Indebtedness
Documents.
7.1.17 Transactions with Affiliates. Sell, lease, assign,
----------------------------
transfer or otherwise dispose of any of its Property to any of its
Affiliate, or lease Property, render or receive services or purchase
assets from any such Affiliate, unless such transaction is on terms
and at rates no more favorable than those that would have been
provided in an arms-length transaction between Borrower and an
unrelated third party.
7.1.18 Bank Deposits. Change the banks or savings institutions
-------------
where Borrower maintains any deposit account without at least ten (10)
days prior notification to Lender.
57
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7.1.19 Compliance with ERISA. (a) Terminate, or permit any member
---------------------
of a Controlled Group of which Borrower is a part to terminate, or
take any other action with respect to, any Plan (including, without
limitation, a substantial cessation of operations within the meaning
of Section 4068(f) of ERISA) which would result in any material
liability of Borrower or any member of a Controlled Group of which
Borrower is a part, to the PBGC or to any Plan, or (b) permit the
occurrence of any "reportable event" (as defined in Title IV of
ERISA), or any other event or condition, which presents a risk of such
a termination by the PBGC of any Plan, or (c) permit the present value
of all benefit liabilities under all Plans to exceed the current value
of the assets of such Plans allocable to such benefit liabilities, or
(d) permit any unfunded benefit liabilities within the meaning of
Section 4001(a)(18) of ERISA allocable to Borrower or its ERISA
Affiliates.
7.1.20 Salaries; Bonuses. During any of its Fiscal Years, pay
-----------------
annual compensation including, without limitation, salaries, bonuses
and consulting fees, to Borrower's Stockholders in excess of the sum
of Three Hundred Thousand Dollars ($300,000) on a combined basis per
each of its Fiscal Years; provided that no compensation shall be paid
to a Borrower's Stockholder who ceases to be actively engaged in the
Business of Borrower and compensation shall be paid only to the extent
reasonable; and provided further the limitation on total compensation
to Borrower's Stockholders shall not apply to the incentive
compensation paid to Borrower's Stockholders actively engaged in the
Business of Borrower pursuant to a plan which has been adopted by the
board of directors of Company and has been approved by Lender, such
approval not to be unreasonably withheld.
7.1.21 Proxy Recognition. Recognize or give effect to any proxy
-----------------
given in violation of Borrower's Stockholders Pledge Agreement.
7.1.22 Capital Expenditures. Without Lender's prior written
--------------------
consent, make Capital Expenditures in a twelve (12) month period in
excess of Three Hundred Thousand Dollars ($300,000).
7.1.23 Limitation on Rental Payments. Become obligated, as lessee,
-----------------------------
under any Lease if, at the time of entering into such Lease and after
giving effect thereto, the aggregate rentals payable by Parent and
Borrower in any one fiscal year under all real property leases would
exceed $300,000 plus 5% of Net Revenues for such fiscal year; and for
such purpose, "Net Revenues" shall mean the net revenue of Parent and
Borrower on a combined basis before deducting costs and expenses.
58
<PAGE>
7.1.24 Collateral. Borrower shall not re-date any invoice or
----------
sale from the original date thereof or make sales on extended terms
beyond those standard for the industry.
ARTICLE 8
---------
DEFAULT AND REMEDIES
--------------------
8.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default under the Revolver Loan Documents:
8.1.1 Default in Payment. If Lender shall fail to receive when
------------------
due and payable (a) any amount payable under the Revolver Note or (b)
any other payment due under this Revolver Loan Agreement or any of the
other Revolver Loan Documents, except for the payment due at the
Maturity Date of the Note for which no grace period is allowed.
8.1.2 Breach of Covenants.
-------------------
(a) If Borrower shall fail to observe or perform any covenant
or agreement made by Borrower contained in Section 6.1, 6.2, 6.4,
6.5, 6.6, 6.7.1, 6.7.2, 6.8, 6.9, 6.10, 6.16, 6.17, 6.18, 6.19 or
7.1; or
(b) If Borrower shall fail to observe or perform any covenant
or agreement (other than those referred to elsewhere in this
Section 8.1) made by Borrower in any of the Revolver Loan
Documents to which Borrower is a party, and such failure shall
continue unremedied (i) for a period of five (5) Business Days
after notice of such failure to Borrower in the case of any
failure which can be cured by the payment of money alone, or (ii)
for a period of twenty (20) Business Days after notice to Borrower
in the case of any other default or violation.
8.1.3 Breach of Warranty. If any representation or warranty
------------------
which is made by a Person other than Lender and is contained in the
Revolver Loan Documents or in any certificate furnished to Lender
under the Revolver Loan Documents by or on behalf of Borrower proves
to be, in any material adverse respect, false or misleading as of the
date deemed made.
8.1.4 Other Revolver Loan Documents. If an "Event of Default"
-----------------------------
occurs, as the term may be defined herein or in the other Revolver
Loan Documents.
8.1.5 Default Under Any Indebtedness. If (a) Borrower at any time
------------------------------
shall be in default (as principal or guarantor or other surety) in the
payment of any principal of or premium or interest on any Indebtedness
for Borrowed Money (other than Borrower's Obligations) beyond the
greater of (i)
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fifteen (15) days or (ii) the grace period, if any, applicable thereto
and the aggregate amount of such payments then in default beyond such
grace period shall exceed Twenty Thousand Dollars ($20,000) with
respect to Borrower, or (b) any default shall occur in respect of any
issue of Indebtedness for Borrowed Money (other than Borrower's
Obligations) outstanding in a principal amount of at least Twenty
Thousand Dollars ($20,000) with respect to Borrower, or in respect of
any agreement or instrument relating to any such issue of Indebtedness
for Borrowed Money, and such default shall continue beyond the greater
of (x) thirty (30) days or (y) the grace period, if any, applicable
thereto.
8.1.6 Bankruptcy, Etc.
---------------
(a) If Borrower shall (i) generally not be paying its debts as
they become due, (ii) file, or consent, by answer or otherwise, to
the filing against Borrower of a petition for relief or
reorganization or arrangement or any other petition in bankruptcy
or insolvency under the laws of any jurisdiction, (iii) make an
assignment for the benefit of creditors, (iv) consent to the
appointment of a custodian, receiver, trustee or other officer
with similar powers for Borrower or any of the Borrower's
Collateral, (v) be adjudicated insolvent, or (vi) take corporate
action for the purpose of any of the foregoing.
(b) If a petition for relief or reorganization, arrangement or
liquidation, or any other petition in bankruptcy or insolvency, or
the appointment of a custodian, receiver, trustee or other officer
with similar powers under the laws of any jurisdiction is filed
against Borrower or any of Borrower's Collateral or a custodian,
receiver, trustee or other officer with similar powers is
appointed for any of Borrower's Collateral, and such proceeding is
not dismissed and/or appointment vacated within ninety (90) days
thereafter.
8.1.7 Judgments. If there shall exist a final judgment or award
---------
against Borrower which shall have been outstanding for a period of
thirty (30) days or more from the date of the entry thereof and shall
not have been discharged in full or stayed pending appeal provided
that the aggregate amount of all such judgments and awards exceeds
Twenty Thousand Dollars ($20,000) for Borrower.
8.1.8 Impairment of Licenses. If (a) any Governmental Body shall
----------------------
(i) revoke, terminate, suspend or adversely modify any license,
permit, approvals, or trademark, service mark or trade name of
Borrower, the continuation of which is material to the continuation of
Business, or (ii) commence proceedings to suspend, revoke, terminate
or
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<PAGE>
adversely modify any such license, permit, approvals, trademark, service mark,
or trade name and such proceedings shall not be dismissed or discharged within
sixty (60) days, or (iii) schedule or conduct a hearing on the renewal of any
such license, permit, trademark, service mark or trade name and the staff of the
Governmental Body having jurisdiction over such hearing issues a report
recommending the termination, revocation, suspension or material or adverse
modification of such license, permit, approvals, trademark, trade name, service
mark or service name, (b) there shall exist any violation or default in the
performance of, or (c) an Operating Agreement shall cease to be in full force
and effect unless an event occurring under (a), (b) or (c) does not have a
Material Adverse Effect on Borrower.
8.1.9 Collateral. If any material portion of the Collateral shall be
----------
seized or taken by a Governmental Body, or Borrower shall fail to maintain the
Security Interests and priority of the Revolver Loan Documents as against any
Person, or the title and rights of Borrower or any other entity to any material
portion of the Collateral shall have become the subject matter of litigation
which might, in the reasonable opinion of Lender, upon final determination
result in impairment or loss of the security provided by the Revolver Loan
Documents.
8.1.10 Plans. If an event or condition specified in subsection 6.3.13
-----
hereof shall occur or exist with respect to any Plan and, as a result of such
event or condition, together with all other such events or conditions, Borrower
or any of its ERISA Affiliates shall incur, or, in the opinion of Lender,
reasonably be likely to incur, a liability to a Plan or the PBGC (or both)
which, in the reasonable judgment of Lender, would have a Material Adverse
Effect on Borrower.
8.1.11 Surety Defaults. If any of the events enumerated in subsection
---------------
8.1.2, 8.1.5, 8.1.6, 8.1.7 or 8.1.10 occurs with respect to Parent or any other
surety (other than a stockholder of Parent and after the Merger, Borrower) for
the performance of the Obligations or the Collateral given by such surety.
8.1.12 Material Adverse Effect. If any act or event has occurred or
-----------------------
circumstance exists which act, event or circumstance is not enumerated in this
Section 8.1 and has a Material Adverse Effect on Borrower.
8.1.13 Term Loan. If any "Event of Default" shall occur, as the term is
---------
defined in any of the Term Loan Documents.
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<PAGE>
8.1.14 Change of Control. If less than fifty-one percent (51%) of the
-----------------
Borrower's Stock ceases to be owned by one or more of the Borrower's
Stockholders.
8.2 Acceleration of Borrower's Obligations.
---------------------------------------
8.2.1 Upon the occurrence of any Event of Default described in
clauses (ii), (iii), (iv) and (v) of subsection 8.1.5(a) or in 8.1.5(b),
all of the Revolver Loan Obligations at that time outstanding automatically
shall mature and become due and payable in full.
8.2.2 Upon the occurrence of any other Event of Default not described
in subsection 8.2.1, Lender, at any time (unless such Event of Default
shall have been waived in writing or remedied), at its option, without
further notice or demand, may declare all of the Revolver Loan Obligations
due and payable.
8.2.3 If the Revolver Obligations are accelerated pursuant to either
subsection 8.2.1 or 8.2.2, the Revolver Loan Obligations immediately shall
mature and become due and payable, all without presentment, demand, protest
or notice, all of which hereby are waived.
8.3 Remedies on Default. In addition to acceleration under paragraph 8.2,
-------------------
upon the occurrence of an Event of Default, Lender, at its option, may:
8.3.1 Enforcement of Security Interests. Enforce its rights and
---------------------------------
remedies under the Revolver Loan Documents in accordance with their
respective terms.
8.3.2 Appointment of a Receiver. Have a Receiver appointed for
-------------------------
Borrower and/or any of the Collateral.
8.3.3 Possession of Collateral. Without further notice or demand and
------------------------
without legal process, take possession of the Collateral wherever found
and, for this purpose, enter upon any property occupied by or in the
control of Borrower; and Borrower, upon demand by Lender, shall at its sole
cost and expense assemble or cause the Collateral to be assembled and
deliver or cause the Collateral to be delivered to Lender or to a place
designated by Lender that is reasonably convenient to Borrower and Lender.
8.3.4 Sale of Collateral. After notice to Borrower, sell all or any
------------------
portion of the Collateral at public or private sale either with or without
having such Collateral at the place of sale.
8.3.5 Right to Deal with Accounts. Any of the actions permitted
---------------------------
to Lender pursuant to Section 3.8.
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<PAGE>
8.3.6 Other Remedies. Enforce any of the other rights or remedies
--------------
accorded to Lender at equity or law, by virtue of statute (including,
without limitation, the UCC) or otherwise.
8.4 No obligation to Preserve; License. Borrower agrees that Lender has no
----------------------------------
obligation to preserve any Collateral for the benefit of any Person. Lender is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, name, trade secrets, trade names, trademarks and
advertising matter, or any similar property, in completing production,
advertising or selling any Collateral and Borrower's rights under all licenses
and all franchise agreements shall inure to Lender's benefit.
8.5 Sale. Any notice of sale or other disposition of the Collateral given
----
not less than ten (10) Business Days prior to such proposed action in connection
with the exercise of Lender's rights and remedies shall constitute commercially
reasonable and fair notice of such action. For such purpose, notice of public
sale describing the Collateral to be sold in general non-specific terms and
published once no later than ten (10) business days prior to the public sale
shall be deemed commercially reasonable and fair notice of such public sale. No
notice of any public or private sale need be given if the Collateral is
perishable or threatens to decline speedily in value or is of a type customarily
sold on a recognized market. Borrower expressly agrees that, with respect to any
disposition of Accounts, Instruments and General Intangibles, it shall be
commercially reasonable for Lender to direct any prospective purchaser thereof
to ascertain directly from Borrower any and all information concerning such
Collateral, including, but not limited to, the terms of payment, aging and
delinquency, if any, the financial condition of any Account Debtor or other
obligor thereon or guarantor thereof, and any collateral therefor. Lender may
postpone or adjourn any such sale from time to time by announcement at the time
and place of sale stated on the notice of sale or by announcement of any
adjourned sale, without being required to give a further notice of sale. Lender,
so far as may be lawful, may purchase all or any part of the Collateral offered
at any sale made in the enforcement of Lender's rights hereunder. Any such sale
may be for cash or, unless prohibited by applicable law, upon such credit or
installment as Lender may determine. The net proceeds of such sale shall be
credited to the Obligations only when such proceeds are actually received by
Lender in good current funds.
8.6 Application of Funds. Any funds received by Lender pursuant to the
exercise of any rights accorded to Lender pursuant to, or by the operation of
any of the terms of, any of the Revolver Loan Documents, including, without
limitation, insurance proceeds, condemnation proceeds or proceeds from the sale
of Borrower's Collateral, shall be applied by Lender in the following order of
priority:
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<PAGE>
8.6.1 Expenses. First, to the payment of (a) all fees and expenses,
--------
including, without limitation, court costs, fees of appraisers, title
charges, costs of maintaining and preserving the Collateral, costs of sale,
and all other costs incurred by Lender in exercising any rights accorded to
Lender pursuant to the Credit Facilities Documents or by applicable law,
including, without limitation, attorneys' fees, and (b) all Liens superior
to the Liens of Lender except such superior Liens subject to which any sale
of the Collateral may have been made.
8.6.2 Obligations. Next, to the payment of the remaining portion of
-----------
the Obligations, including, without limitation, the unpaid balance of the
Fees, in such order and manner as Lender may determine.
8.6.3 Surplus. Any surplus, to the Person or Persons entitled
-------
thereto.
Borrower shall be liable for any deficiency remaining on its obligation after
application of such proceeds to the Obligations.
8.7 Lender's Right to Perform. Lender may, at its option, and without any
-------------------------
obligation to do so, pay, perform and discharge any and all obligations
(including, without limitation, the Borrower's Obligations under Section 6.7.1
agreed to be paid or performed in the Revolver Loan Documents by Borrower or any
surety for the performance of the Borrower's Obligations if such Person has
failed to do so and either (a) an Event of Default exists or (b) Lender in its
judgment deems such action necessary to protect any of the Collateral or its
value. For such purposes, Lender may use the proceeds of the Collateral. All
amounts expended by Lender in so doing or in exercising any of its remedies
following an Event of Default shall become part of the Revolver Loan
Obligations, shall be immediately due and payable by Borrower to Lender upon
demand, and shall bear interest at the Default Rate from the dates of such
expenditure until paid.
ARTICLE 9
---------
EXPENSES AND INDEMNITY
----------------------
9.1 Attorneys' Fees and Other Fees, Expenses, and Charges. Whether or not
-----------------------------------------------------
any of the transactions contemplated by this Revolver Loan Agreement shall be
consummated, Borrower agrees to pay to Lender on demand all reasonable expenses
incurred by Lender in connection with the negotiation, preparation, execution,
delivery, administration and enforcement of each of the Revolver Loan Documents
(including, without limitation, any appraisal fees, title insurance premiums,
recording charges and environmental report charges and expenses) and in
connection with any amendments, modifications or waivers (whether or not the
same become effective)
64
<PAGE>
under or in respect of any of the Revolver Loan Documents, including, without
limitation:
9.1.1 Fees and Expenses for Preparation of Revolver Loan
--------------------------------------------------
Documents. All expenses, disbursements and attorneys' fees (including,
---------
without limitation, charges for required lien searches, reproduction of
documents, long distance telephone calls and overnight express carriers) of
special counsel and other counsel retained by Lender in connection with the
preparation and negotiation of any of the Revolver Loan Documents or any
amendments, modifications or waivers hereto or thereto (whether or not the
same become effective).
9.1.2 Fees and Expenses in Enforcement of Rights or Defense of
--------------------------------------------------------
Revolver Loan Documents. Any expenses or other costs, including attorneys'
-----------------------
fees and expert witness fees, incurred by Lender in connection with the
enforcement or collection against Borrower of any provision of any of the
Revolver Loan Documents, and in connection with or arising out of any
litigation, investigation or proceeding instituted by any Governmental Body
or any other Person with respect to any of the Revolver Loan Documents,
whether or not suit is instituted, including, without limitation, such
costs or expenses arising from the enforcement or collection against any
Obligor of any provision of any of the Term Loan Documents in any state or
federal bankruptcy or reorganization proceeding.
9.1.3 Administrative Matters Charges. Borrower shall also pay to
------------------------------
Lender on demand all Lender's charges and expenses in connection with bank
wire transfers, forwarding of Revolver Loan proceeds, deposits of checks
and other items of payment, returned checks, establishment and maintenance
of lockboxes and other Blocked Accounts, and all other bank and
administrative matters, in accordance with Lender's schedule of bank and
administrative fees and charges in effect from time to time.
9.2 Indemnity. Borrower agrees to indemnify and save Lender harmless to
---------
and from the following:
9.2.1 Brokerage Fees. The fees, if any, of brokers and finders.
--------------
9.2.2 Securities Violations, Matters Relating to Bankruptcy. Any
-----------------------------------------------------
loss, cost, liability, damage or expense (including attorneys' fees)
incurred by Lender in investigating, preparing for, defending against, or
providing evidence, producing documents or taking other action in respect
of any commenced or threatened litigation, administrative proceeding, suit
instituted by any creditors of Borrower or investigation under any federal
securities law, the Bankruptcy Code, any relevant state corporate statute
or
65
<PAGE>
any other securities law, bankruptcy law or law affecting creditors
generally of any jurisdiction, or any regulation pertaining to any of the
foregoing, or at common law or otherwise, relating, directly or indirectly,
to the transactions contemplated by the Revolver Loan Documents, except
that nothing herein shall require Borrower to indemnify and save Lender
harmless from liability for losses, costs, damages or expenses, the sole
and proximate cause of which is (a) Lender's own gross negligence or
willful misconduct or (b) Lender's violation of its corporate charter or
by-laws or of laws or regulations applicable to Lender.
9.2.3 Operation of Collateral; Joint Venturers. Any loss, cost,
----------------------------------------
liability, damage or expense (including attorneys' fees) incurred in
connection with the ownership, operation or maintenance of the Collateral,
the construction of Lender and Borrower as having the relationship of joint
venturers or partners or the determination that Lender or Borrower has
acted as agent for the other.
9.2.4 Environmental Indemnity. Any and all claims, losses, damages,
-----------------------
response costs, clean-up costs and expenses suffered and/or incurred at
any time by Lender arising out of or in any way relating to the existence
at any time of any Hazardous Materials in, on, under, at, transported to or
from, or used in the construction, and/or renovation of, any of the
Property of Borrower, and/or the failure of Borrower to perform its
obligations and covenants hereunder with respect to environmental matters,
including, but not limited: (a) claims of any Persons for damages,
penalties, response costs, clean-up costs, injunctive or other relief, (b)
costs of removal and restoration, including fees of attorneys and experts,
and costs of reporting the existence of Hazardous Materials to any
Governmental Body, and (c) any expenses or obligations, including
attorneys' fees and expert witness fees, incurred at, before and after any
trial or other proceeding before any Governmental Body or appeal therefrom
whether or not taxable as costs, including, without limitation, witness
fees, deposition costs, copying and telephone charges and other expenses,
all of which shall be paid by Borrower to Lender when incurred by Lender.
ARTICLE 10
----------
MISCELLANEOUS
-------------
10.1 Notices. All notices, requests or demands required or permitted
-------
to be given under the Revolver Loan Documents shall be in writing, and shall be
deemed effective (a) upon hand delivery, if hand delivered; (b) one (1) Business
Day after such are deposited for delivery via Federal Express or other
nationally recognized overnight courier service; or (c) three (3) Business Days
after such are deposited in the United States mails, certified or
66
<PAGE>
registered mail, all with delivery charges and/or postage prepaid, and addressed
as shown below, or to such other address as the party being notified may have
requested in writing to the other party. Written notice may be given by telecopy
to the telecopier number shown below or to such other number as the party being
notified may have requested in writing to the other party, provided that such
notice shall not be deemed effective unless it is confirmed within twenty--four
(24) hours by hand delivery, courier delivery or mailing of a copy of such
notice in accordance with the requirements set forth above.
If to Borrower: CPS Systems, Inc.
3400 Carlisle Street, Suite 500
Dallas, Texas 75204
Attn: Paul E. Kana
Telecopy No.: (214) 720-1380
If to Lender: Greyhound Financial Corporation
(two copies) Dial Corporate Center
1850 North Central Avenue
Phoenix, Arizona 85077-1141
Telecopy No. (602) 207-5036
and
Greyhound Financial Corporation
311 So. Wacker, Suite 2725
Chicago, Illinois 60606
Attn: Portfolio Manager
Telecopy No.: (312) 322-7250
10.2 Survival of Revolver Loan Agreement; Indemnities. All covenants,
------------------------------------------------
agreements, representations and warranties made in the Revolver Loan Documents
and in the certificates delivered pursuant hereto shall survive the making by
Lender of the Revolver Loan and the execution and delivery to Lender of the
Revolver Loan Note and of all other Revolver Loan Documents and shall continue
in full force and effect so long as any of the Obligations remain outstanding,
unperformed or unpaid. Notwithstanding the repayment of all amounts due under
the Revolver Loan Documents, the cancellation of the Notes and the release
and/or cancellation of any and all of the Revolver Loan Documents or the
foreclosure of any Liens on the Collateral, the obligations of Borrower to
indemnify Lender with respect to the expenses, damages, losses, costs and
liabilities described in Section 9.2 shall survive until all applicable statute
of limitations periods with respect to actions which may be brought against
Lender have run.
10.3 Further Assurance. Borrower shall execute and deliver, or cause to be
-----------------
executed and delivered to Lender, prior to or concurrently with its execution
and delivery of this Revolver Loan Agreement and at any time thereafter at the
request of Lender, all financing statements, continuation financing statements,
fixture
67
<PAGE>
filings, security agreements, chattel mortgages, pledges, assignments,
endorsements of certificates of title, applications for title, affidavits,
reports, notices, schedules of accounts, letters of authority, and all other
documents that Lender may reasonably request, in form satisfactory to Lender, to
perfect and continue perfected the Security Interests in the Collateral and in
order to fully consummate all of the transactions contemplated under the
Revolver Loan Documents.
10.4 Taxes and Fees. Should any tax (other than taxes based upon the net
--------------
income of Lender), recording or filing fees become payable in respect of any of
the Revolver Loan Documents, or any amendment, modification or supplement
thereof, Borrower agrees to pay the same to Lender on demand, together with any
interest or penalties thereon attributable to any delay by Borrower in meeting
Lender's demand, and agrees to hold Lender harmless with respect thereto.
10.5 Severability. In the event that any provision of any
------------
Revolver Loan Document is deemed to be invalid by reason of the operation of any
law, or by reason of the interpretation placed thereon by any court or other
Governmental Body, as applicable, such Revolver Loan Document shall be construed
as not containing such provision and the invalidity of such provision shall not
affect the validity of any other provisions thereof, and any and all other
provisions thereof which otherwise are lawful and valid shall remain in full
force and effect. In lieu of each such unenforceable provision there shall be
added automatically as a part of such Revolver Loan Document, a provision that
is legal, valid and enforceable and is in similar in terms to such unenforceable
provisions as may be possible.
10.6 Waiver. No delay on the part of Lender in exercising any right, power
------
or privilege hereunder shall operate as a waiver thereof, and no single or
partial exercise of any right, power or privilege hereunder shall preclude other
or further exercise thereof, or be deemed to establish a custom or course of
dealing or performance between the parties hereto, or preclude the exercise of
any other right, power or privilege.
10.7 Modification of Revolver Loan Documents. No modification
---------------------------------------
or waiver of any provision of any of the Revolver Loan Documents shall be
effective unless the same shall be in writing and executed by the person to be
charged with the effect thereof, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any of Borrower in any case shall entitle Borrower to any
other or further notice or demand in the same, similar or other circumstances.
10.8 Captions. The headings in this Revolver Loan Agreement
--------
are for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
68
<PAGE>
10.9 Successors and Assigns. This Revolver Loan Agreement shall be binding
----------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, provided, however, that neither this Revolver
Loan Agreement nor any rights or obligations hereunder shall be assignable by
Borrower without the prior express written consent of Lender, and any purported
assignment made in contravention hereof shall be void. No standard of
reasonableness shall attach to Lender's discretion in consenting or not
consenting to any assignment.
10.10 Remedies Cumulative. All rights and remedies of Lender pursuant to
-------------------
this Revolver Loan Agreement, any other Revolver Loan Documents or otherwise
shall be cumulative and non-exclusive, and may be exercised singularly or
concurrently. Lender shall not be required to prosecute collection, enforcement
or other remedies against Borrower before proceeding to enforce or resort to any
Collateral .
10.11 Entire Agreement; Conflict. This Revolver Loan Agreement and the
--------------------------
other Revolver Loan Documents, all executed prior or pursuant hereto, constitute
the entire agreement between the parties hereto with respect to the transactions
contemplated hereby or thereby and supersede any prior agreements, whether
written or oral, relating to the subject matter hereof. In the event of a
conflict between the terms and conditions set forth in one Revolver Loan
Document and the terms and conditions set forth in any other Revolver Loan
Document, the provisions imposing the greatest obligations upon Borrower, Parent
and/or other sureties for the Revolver Loan Obligations and granting the most
expansive rights to Lender shall control.
10.12 Participation. Lender shall have the right without the consent of or
-------------
notice to Borrower to grant participating interests in the Revolver Loan. If
Borrower receives notice from Lender of the grant of a participation interest,
Borrower shall comply with any request set forth in such notice as to the
payment directly to the participant of such participant's proportionate share of
payments due from Borrower with respect to the Revolver Loan.
10.13 Joint and Several Liability. Any obligations of more than one party
---------------------------
hereunder, including, without limitation, any obligations of Borrower, shall be
joint and several obligations of such parties.
69
<PAGE>
10.14 Choice of Law; Jurisdiction; Venue; Waiver of Jury Trial.
--------------------------------------------------------
10.14.1 THIS REVOLVER LOAN AGREEMENT AND THE OTHER
REVOLVER LOAN DOCUMENTS AND THE RIGHTS, DUTIES AND OBLIGATIONS
OF THE PARTIES THERETO SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF ARIZONA AND
TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS OF
THE UNITED STATES.
10.14.2 BORROWER: (A) HEREBY IRREVOCABLY SUBMITS
ITSELF TO THE PROCESS, JURISDICTION AND VENUE OF THE COURTS OF
THE STATE OF ARIZONA, MARICOPA COUNTY, AND TO THE PROCESS,
JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION
OR OTHER PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
REVOLVER LOAN AGREEMENT OR THE SUBJECT MATTER HEREOF OR, IF
LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL
INITIATE SUCH ACTION AND THE CHOICE OF SUCH VENUE SHALL IN ALL
INSTANCES BE AT LENDER'S ELECTION; AND (B) WITHOUT LIMITING
THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT
TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH
SUIT, ACTION OR PROCEEDING ANY CLAIM THAT BORROWER IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED
COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR
PROCEEDING IS IMPROPER. BORROWER HEREBY WAIVES THE RIGHT TO
COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
10.14.3 LENDER AND BORROWER ACKNOWLEDGE AND AGREE THAT
ANY CONTROVERSY WHICH MAY ARISE UNDER ANY OF THE REVOLVER LOAN
DOCUMENTS WOULD BE BASED UPON DIFFICULT AND COMPLEX ISSUES AND
THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF
ANY SUCH CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING WITHOUT
A JURY, AND BORROWER HEREBY KNOWINGLY AND VOLUNTARILY WAIVES
TRIAL BY JURY IN ANY SUCH PROCEEDING.
10.14.4 ALL OF THE PROVISIONS SET FORTH IN THIS PARAGRAPH ARE A
MATERIAL INDUCEMENT FOR LENDER'S MAKING REVOLVER ADVANCES TO BORROWER.
[INITIALS
APPEAR
HERE]
[Borrower's initials ________]
10.15 Written Credit Agreement. THIS REVOLVER LOAN AGREEMENT AND THE OTHER
------------------------
REVOLVER LOAN DOCUMENTS HEREIN COLLECTIVELY CONSTITUTE THE WRITTEN CREDIT
AGREEMENT WHICH IS THE COMPLETE AND FINAL EXPRESSION OF THE CREDIT AGREEMENT
BETWEEN BORROWER AND LENDER WITH REGARD TO THE EXTENSION OF CREDIT AND/OR
FINANCIAL ACCOMMODATION REFERRED TO HEREIN AS THE SAME EXISTS TODAY AND SUCH
WRITTEN CREDIT AGREEMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR ORAL
OR WRITTEN CREDIT AGREEMENT OR OF ANY CONTEMPORANEOUS ORAL CREDIT AGREEMENT
BETWEEN BORROWER AND LENDER. BORROWER AGREES THAT ALL NON-STANDARD TERMS OF THE
CREDIT AGREEMENT BETWEEN
70
<PAGE>
BORROWER AND LENDER WITH RESPECT TO THE EXTENSION OF CREDIT REFERRED TO HEREIN
AND ALL PRIOR ORAL CREDIT AGREEMENTS AND CONTEMPORANEOUS ORAL AND WRITTEN CREDIT
AGREEMENTS BETWEEN THEM WITH RESPECT TO THE EXTENSION OF CREDIT REFERRED TO
HEREIN ARE SUFFICIENTLY SET FORTH HEREIN AND IN THE OTHER REVOLVER LOAN
DOCUMENTS, WITHOUT EXCEPTION. BY SIGNING AND/OR ACCEPTING THIS REVOLVER LOAN
AGREEMENT, BORROWER AND LENDER AFFIRM THAT NO UNWRITTEN ORAL CREDIT AGREEMENT
BETWEEN BORROWER AND LENDER WITH REGARD TO THE AFORESAID EXTENSION OF CREDIT OR
OTHER FINANCIAL ACCOMMODATION EXISTS.
10.16 Time of Essence. TIME IS OF THE ESSENCE FOR THE PERFORMANCE BY
---------------
BORROWER AND THE OTHER OBLIGORS OF THE OBLIGATIONS SET FORTH IN THIS REVOLVER
LOAN AGREEMENT AND THE OTHER REVOLVER LOAN DOCUMENTS.
10.17 Counterparts. This Revolver Loan Agreement may be executed by the
------------
parties hereto in several counterparts and each such counterpart shall be deemed
to be an original, but all such counterparts shall together constitute but one
and the same agreement.
10.18 Waiver of Suretyship Rights and Defenses. To the extent that any of
----------------------------------------
the Security Documents secures the Obligations of Parent, Borrower hereby agrees
that all of its agreements set force in the Term Loan Guaranty with respect to
suretyship rights and defenses by virtue of its status as a guarantor are and
shall be applicable to all suretyship rights and defenses Borrower may have by
virtue of it being a surety in any other capacity for the Obligations of Parent.
71
<PAGE>
IN WITNESS WHEREOF, this Revolver Loan Agreement has been executed and
delivered by each of the parties hereto by a duly authorized officer of each
such party on the date first set forth above.
LENDER: GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation
By: /s/ Patricia Murray
----------------------------------
Patricia Murray, Vice President
CPS SYSTEMS, INC.,
a Texas corporation
By: /s/ Paul E. Kana
--------------------------------
Paul E. Kana President
72
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Schedule 1.1 (Borrower's Stockholders)
Schedule 1.1 (Borrower's Warrantholders)
Schedule 1.1 (Leases)
Schedule 1.1 (Intellectual Property)
Schedule 1.1 (Existing Operating Agreements)
Schedule 5.3.1 (Liens on Borrower's Stock)
Schedule 5.3.2 (Other Restrictions on Borrower's Stock)
Schedule 5.3.3 (Subsidiaries of Borrower)
Schedule 5.6.2 (Location of Borrower's Goods and Offices)
Schedule 5.8.1 (Borrower's Financial Statements)
Schedule 5.9 (Litigation)
Schedule 5.19 (Operating Agreements)
Schedule 6.18 (Source Codes)
Exhibit 1.1 (IBM Agreement)
Exhibit 4.2.5 (Request for Advance, Certification and Disbursement
Instructions)
Exhibit 5.3.1 (Capitalization of Borrower)
Exhibit 6.3.3 (Certificate of Chief Financial Officer)
Exhibit 6.7.2 (Assignment of Life Insurance)
73
<PAGE>
SCHEDULE 1.1
------------
(BORROWER'S STOCKHOLDERS)
Paul E. Kana, Sidney H. Courdier, Brian R. Wilson, G. Dean Booth, and James K.
Hooford, Jr.
<PAGE>
SCHEDULE 1.1
------------
(BORROWER'S WARRANTHOLDERS)
Hanifen Imhoff Mezzanine Fund, L.P. and Percival Hudgins & Company, Inc.
<PAGE>
SCHEDULE 1.1
------------
(LEASES)
1. Office Lease dated April 30, 1991 between Sovereign Center Company and
Company for lease of office at 9720 Town Park Drive, Suite 115, Houston,
Texas. Now on a month-to-month basis.
2. Lease Agreement dated July 1993 between West Texas Investors #103 and
Company for lease of office at 3311 - 81st Street, Lubbock, Texas. Now on
a month-to-month basis.
3. Lease Agreement dated May 1, 1992, between Life and Casualty Insurance
Company and Company for lease of office at 900 Isom, Suite 102, San
Antonio, Texas. Expiration: 12-31-94.
4. Lease Agreement dated February 18, 1990, between Aetna Life Insurance
Company and Company for lease of principal executive offices at 3400
Carlisle, Suite 500, Dallas. Expiration: April 30, 1995.
5. Lease dated October 18, 1990 between Kroger Properties and Company for
office lease at 3840 S. 103, East Avenue, Tulsa, OK. Expiration:
November 30, 1994.
6. Agreement to Lease dated February 18, 1994 between Spectrum Real Estate
Service, Inc. and Company for office lease at 5205 West Laurel, Tampa, FL.
Expiration: April 30, 1997.
7. Equipment Lease dated January 28, 1994 between Third Century Leasing and
Company for lease of three Mita copiers. Expiration: January 31, 1997.
8. Pitney Bowes Credit Corporation: Four equipment leases for postage meters
and scales.
<PAGE>
SCHEDULE 1.1
------------
(INTELLECTUAL PROPERTY)
1. Oklahoma trademark "INFOTRIEV".
2. Texas trademark or service mark "INFOTRIEV"
3. U.S. Trademark reg. no. 1288749 for "INFOTRIEV"
4. Copyright protection claimed on all Company Products and materials;
however, no copyrights have been registered.
<PAGE>
SCHEDULE 1.1
(EXISTING OPERATING AGREEMENTS)
CPS BUSINESS SYSTEMS, INC.
OKLAHOMA SHERIFF SYSTEM
-----------------------
<TABLE>
<CAPTION>
ITEM # DESCRIPTION ILF MLF MCA MSM IC ATH
- ------ ----------- --- --- --- --- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
810370 Basic Law Enforcement System 15,000+ po $7,500 $138 $37 $74 $50 5/6/8
w/ Uniform Crime Reporting (UCR) includes:
*General Offense System
*Employee/Security System
*Name File/Known Offenders
*Night-Emergency Listing
*Fingerprint/Single Fingerprint File
*Calls for Service
*Warrants System/Civil Process
*Method of Operations (MO File)
*Criminal History
*Arrests
Basic Law - Less than 15,000 pop 6,000 138 37 74 50 5/6/8
810390 Field Interview System (FIR) 1,500 33 10 20 50 1/2/2.5
810400 Pawn Shop System 2,000 40 11 22 50 1/2/2.5
810360 Juvenile System with UCR Reporting 1,500 33 10 20 50 1/3/4
810410 Small Jail Management 3,750 83 22 44 50 6/8/12
(Book-in for under 60 inmates)
810411 Large Jail Management 5,100 115 31 62 50 6/8/12
810420 Small Country Computer Aided 10,400 260 70 139 50 6/8/12
Dispatching (Population of under
40,000 people)
810345 Property Room Management 1,100 25 10 20 50 1/2/3
810230 Bogus Checks 3,500 75 20 40 50 8/12/16
810270 Fleet/Equipment Management 5,000 118 32 64 50
</TABLE>
NOTE: No training is provided by CPS Systems. DPS in Atlanta is the only
authorized training facility. For any IBM system, ADD 20% to the Initial License
Fee.
February 11, 1991 Page 19-4
<PAGE>
CPS BUSINESS SYSTEMS, INC.
COMMERCIAL ACCOUNTING
---------------------
<TABLE>
<CAPTION>
ITEM # DESCRIPTION ILF MLF MCA MSM IC ATH
- ------ ----------- --- --- --- --- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
500012 Integrated General Ledger with $2,200 $55 $15 $29 $50
Fixed Budget Reporting
500860 Financial Report Writer 500 13 10 20 50
500052 Integrated Accounts Payable 1,700 43 12 23 50
500060 Accounts Receivables 2,500 63 17 35 50
(Open Items)
500061 Accounts Receivables 1,200 30 10 20 50
(Balance Forward)
500042 Integrated Payroll 2,000 50 13 27 50
500043 After-the-Fact Payroll with 1,000 25 10 20 50
941's & W2's
500720 Depreciation (Tax & Book) 1,800 45 12 24 50
500112 Inventory by Warehouse 3,000 75 20 40 50
500022 Purchase Orders 3,000 75 20 40 50
500270 Fleet/Equipment Management 4,750 118 32 64 50
</TABLE>
NOTE:
For any IBM system, ADD 20% to the Initial License Fee.
February 11, 1991 Page 20-1
<PAGE>
CPS BUSINESS SYSTEMS, INC.
OIL AND GAS PRODUCERS
---------------------
<TABLE>
<CAPTION>
ITEM # DESCRIPTION ILF MLF MCA MSM IC ATH
- ------ ----------- --- --- --- --- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
600012 General Ledger with YTD $3,500 $88 $23 $46 $50
& Comparison Statements
600860 Financial Report Writer 500 13 10 20 50
600052 Accounts Payable 3,200 50 21 43 50
600570 Joint-Interest Billing 3,500 88 23 46 50
(Requires 600061 or 600060)
600061 Accounts Receivables 1,750 -- 12 24 50
(Balance Forward)
600060 Accounts Receivables 3,000 75 20 40 50
(Open Item)
600580 Revenue Distribution 2,750 69 18 36 50
(Royalty Payable)
600590 WPT Module (Rev. Dist.) 1,200 30 10 20 50
600600 Revenue Accounting with 3,500 88 23 46 50
WPT Module
600042 Payroll 3,000 75 20 40 50
600044 Expanded Drilling Payroll 3,000 75 20 40 50
600043 After-the-Fact Payroll with 500 13 10 20 50
941's and W2's
600710 Lease Reporting 2,400 60 16 32 50
600610 Production Cost Report 2,400 60 16 32 50
(8/8 Information)
600620 Reserves and Economics 3,000 75 20 40 50
Evaluation
</TABLE>
NOTE:
For any IBM system, ADD 20% to the Initial License Fee.
Page 20-2a
<PAGE>
CPS BUSINESS SYSTEMS, INC.
OIL AND GAS PRODUCERS
---------------------
<TABLE>
<CAPTION>
ITEM # DESCRIPTION ILF MLF MCA MSM IC ATH
- ------ ----------- --- --- --- --- -- ---
<S> <C> <C> <C> <C> <C> <C> <C>
600630 Monthly Production Reporting $1,500 $38 $10 $20 $50
(P1 & P2)
600640 Depletion (Requires 6000012) 2,400 60 16 32 50
600720 Depreciation (Tax & Book) 2,400 60 16 32 50
(Requires 600012)
600660 Authorization for Expenditures 1,500 38 10 20 50
600670 Basic Land Management System 3,500 88 23 46 50
600680 Delay Rentals (Requires 6000670) 2,000 50 13 26 50
600690 Land Joint Billing 2,000 50 13 26 50
(Requires 6000670 & 600680)
600700 Lease Equipment Inventory 2,400 60 16 32 50
600790 Production Accounting 3,500 88 23 46 50
(Run, Ticket, Gas, Water)
600870 Partnership Accounting 2,500 63 17 34 50
600022 Purchase Orders 3,000 75 20 40 50
600270 Fleet/Equipment Management 4,750 118 32 64 50
</TABLE>
NOTE:
For any IBM system, ADD 20% to the Initial License Fee.
February 11, 1991 Page 20-2b
<PAGE>
SCHEDULE 5.3.1
--------------
(LIENS ON BORROWER'S STOCK)
Pledge of 7,132 shares of CPS Systems, Inc. treasury stock to secure
indebtedness to Paul A. Hughes and Gloria P. Schlab, which pledge will be
released at closing.
<PAGE>
SCHEDULE 5.3.2
--------------
(OTHER RESTRICTIONS ON BORROWER'S STOCK)
Subordination Pledge to Hanifen Imhoff Mezzanine Fund, L.P.
<PAGE>
SCHEDULE 5.3.3
--------------
(SUBSIDIARIES OF BORROWER)
CPS Systems, Inc. is a subsidiary of CPS Acquisition Corp. until those entities
are merged.
<PAGE>
SCHEDULE 5.6.2 P19
LOCATION OF GOODS AND OFFICES
CPS OFFICES
CPS - DALLAS (214)855-5277
3400 Carlisle, Suite 500 after hours (214)855-5278
Dallas, TX 75204 toll free (800)858-5277
fax (214)720-1380
CPS - HOUSTON (713)981-4076
9720 Town Park Dr., Suite 115 fax (713)981-4077
Houston, TX 77036
CPS - LUBBOCK (806)791-2406
3311 81st Street, Suite S
Lubbock, TX 79423
CPS - OKLAHOMA CITY (405)942-7696
1300 South Meridan, Suite 103
Oklahoma City, OK 73108
CPS - SAN ANTONIO (210)366-0263
900 Isom Rd., Suite 310 fax (210)366-0247
San Antonio, TX 78216
CPS - TAMPA (813)288-9880
5005 West Laurel, Suite 215 toll free (800)858-5276
Tampa, FL 33607 fax (813)288-9791
CPS - TULSA (918)665-6755
3840 South 103rd Ave., Suite 216 after hours (918)665-6757
Tulsa, OK 74146 or (918)665-6590
fax (918)665-6758
CPS - WICHITA FALLS Jim Purdie (817)696-1733
3508 McNeil, Suite D Neil Hull (817)696-1724
Wichita Falls, TX 76308 fax (817)696-2058
<PAGE>
SCHEDULE 5.8.1
--------------
(BORROWER FINANCIAL STATEMENTS)
Audited year end financial statements for CPS Systems, Inc. for years 1990
through 1993 and unaudited interim 1994 financial statement for CPS Systems,
Inc. through November 30, 1994.
<PAGE>
SCHEDULE 5.9
------------
(LITIGATION)
A complaint alleging discrimination based on sex was filed in Tampa,
Florida, with the EEOC by Dea Knapp. Mrs. Knapp was terminated shortly following
her return from pregnancy leave, based on her substandard performance before and
after the leave. Such finding was upheld by the investigator for the Florida
Human Relations Department; however, the Department issued a conflicting finding
of just cause for Mrs. Knapp's complaint. No suit has been filed by Mrs. Knapp,
and efforts toward settlement have been unsuccessful.
A charge of discrimination based on sex and sexual harassment was filed
September 14, 1994, with the EEOC in Dallas by Kathy S. Shoults. Ms. Shoults
alleged that he was harassed on the day she resigned. The Company strongly deny
the claim. No further action has been taken by any party on such complaint.
<PAGE>
SCHEDULE 5.19
-------------
(OPERATING AGREEMENTS)
NONE
<PAGE>
SCHEDULE 6.18
-------------
(SOURCE CODES)
Source Codes of current products being marketed by Company.
<PAGE>
EXHIBIT 1.1
(IBM AGREEMENT)
You agree to pay amounts equal to any applicable taxes resulting from any
transaction under this Agreement. This does not include taxes based on our
net income. You are responsible for personal property taxes for each
Product from the date we ship it to you or the End User.
You agree to provide us with valid reseller-exemption documentation for
each applicable taxing jurisdiction. Otherwise, we will charge you all
applicable taxing jurisdiction. Otherwise, we will charge you all
applicable state and local taxes or duties. You agree to notify us promptly
if this documentation is revoked or modified. You are liable for any claims
or assessments that result from any taxing jurisdiction refusing to
recognize your exemption.
Failure to Pay Any Amounts Due
If your account becomes delinquent, you agree that we may do one or more of
the following:
1. impose a finance charge, up to the maximum permitted by law, on the
delinquent portion of the balance due;
2. repossess any Products. If we do so, you agree to pay all expenses
associated with repossession and collection, including reasonable
attorney's fees. You agree to make the Products available to us at a
site that is mutually convenient;
3. terminate this Agreement; or
4. pursue any other remedy available at law.
In addition, if your account with any of our subsidiaries becomes
delinquent, we may terminate this Agreement.
12. Title
As an Aggregator, when you order a Machine from us, we do not transfer
title to you. As any other remarketer, when you order a Machine, we
transfer title to you when the Machine is shipped by us or your Aggregator.
Any prior transfer of title to a Machine to you is void from it inception
when 1) it is accepted as a returned Machine or 2) you deliver it under the
IBM Employee Sales Program.
If an End User orders a Machine from us (and not from you) and we pay you a
fee to deliver that Machine, we transfer title to the End User (and not to
you) when you deliver the Machine.
Purchase Money Security Interest
We reserve a purchase money security interest in a Machine, and you grant
us a purchase money security interest in your proceeds from the sale of,
and your accounts receivable for, a Product, until we receive the amounts
due. For a feature, conversion, or upgrade involving the removal of parts
that become our property, we reserve the security interest until we receive
the amounts due and the removed parts. You agree to sign an appropriate
document (for example, a "UCC-1") to permit us to perfect our purchase
money security interest.
End User Lease Financing
If an End User obtains a lease for a Machine for legitimate financing
purposes, you may transfer title to the Machine to the lessor. You may
finance End Users' Product acquisitions.
13. Risk of Loss
We bear the risk of loss for a Product until its initial delivery from us.
<PAGE>
EXHIBIT 4.2.5
-------------
(REQUEST FOR ADVANCE, CERTIFICATION
AND DISBURSEMENT INSTRUCTIONS)
REQUEST FOR ADVANCE, CERTIFICATION
AND DISBURSEMENT INSTRUCTIONS
1. The undersigned ("Borrower") requests Greyhound Financial
Corporation ("Lender") to disburse loan proceeds in the amount of
________________________________ Dollars ($___________) upon receipt hereof,
pursuant to the Revolver Loan and Security Agreement between such parties dated
as of December 30, 1994 (with all amendments, "Agreement").
2. Borrower certifies that all conditions required by the Agreement to
be satisfied prior to the requested disbursement have been satisfied.
3. Borrower hereby instructs Lender to disburse the advance as
follows:
(i) Amount: $
-----------------
Name:
----------------------------------
Bank:
----------------------------------
Bank Address:
--------------------------
---------------------------------------
ABA Routing No.:
-----------------------
Credit:
--------------------------------
Account No.:
---------------------------
(ii) Amount: $
-----------------
Name:
----------------------------------
Bank:
----------------------------------
Bank Address:
--------------------------
---------------------------------------
ABA Routing No.:
-----------------------
Credit:
--------------------------------
Account No.:
---------------------------
(iii) Amount: $
-----------------
Name:
----------------------------------
Bank:
----------------------------------
Bank Address:
--------------------------
---------------------------------------
ABA Routing No.:
-----------------------
Credit:
--------------------------------
Account No.:
---------------------------
(iv) Amount: $
-----------------
Name:
----------------------------------
Bank:
----------------------------------
Bank Address:
--------------------------
---------------------------------------
ABA Routing No.:
-----------------------
Credit:
--------------------------------
Account No.:
---------------------------
<PAGE>
4. Borrower acknowledges and agrees that, even though all or a portion
of the disbursements described above are to be directed to entities other than
Borrower, receipt of such disbursements by such payees shall constitute receipt
of the undersigned.
5. Except as otherwise defined herein otherwise requires, all
capitalized terms used meaning given to them in the Agreement.
DATED: ______________________, 1994
BORROWER CPS SYSTEMS, INC,
a Texas corporation
By:
-------------------------------------------
Type/Print Name:
------------------------------
Title:
----------------------------------------
-2-
<PAGE>
EXHIBIT 5.3.1 (POST MERGER)
-------------
(CAPITALIZATION OF BORROWER)
SHAREHOLDER NUMBER OF SHARES
- ----------- ----------------
Paul E. Kana 2918
CPS Systems, Inc.
3400 Carlisle
Suite 500
Dallas, TX 75204
Sid H. Cardier 2918
Weybourne
#10 WRAY Park Rd.
Reigate, Surrey
England RH2 ODD
Brian R. Wilson 2918
22 Avnall Road
London, England
N51DP
James K. Hoofard 623
CPS Systems, Inc.
3400 Carlisle
Suite 500
Dallas, TX 75204
G. Dean Booth 623
Booth, Wade & Campbell
3100 Cumberland Cir
Suite 1500
Atlanta, GA 30339
<PAGE>
EXHIBIT 6.3.3
-------------
(TO BE PROVIDED POST-CLOSING)
<PAGE>
EXHIBIT 6.7.2
-------------
(ASSIGNMENT OF LIFE INSURANCE)
To be on life insurer's form, subject to Lender's approval, which approval shall
not unreasonably be withheld.
<PAGE>
EXHIBIT 10.17
REVOLVER LOAN
PROMISSORY NOTE
U.S. $1,000,000 December 29, 1994
FOR VALUE RECEIVED, the undersigned CPS SYSTEMS, INC., a Texas
corporation ("Maker"), promises to pay to GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation ("Lender"), or order, at its principal offices in Dial
Corporate Center, Dial Tower, Phoenix, Arizona 85077, or at such other place as
the holder of this Note ("Holder") may from time to time designate in writing,
in lawful money of the United States of America, the principal sum of ONE
MILLION UNITED STATES DOLLARS (U.S. $1,000,000) ("Loan"), together with interest
on the unpaid principal balance from time to time outstanding from the date
hereof until paid, as more fully provided for below. All payments hereunder
shall be made in immediately available funds.
This Revolver Loan Promissory Note ("Note") is executed pursuant to a
Revolver Loan and Security Agreement dated as of even date herewith between
Maker and Lender (together with any and all extensions, renewals, modifications
and restatements thereof, "Loan Agreement") and evidences the loan made pursuant
to the Loan Agreement.
Except as otherwise provided herein, interest ("Basic Interest") shall
accrue on the unpaid principal balance of the Loan from time to time outstanding
at a variable interest rate per annum equal to the Base Rate (as hereinafter
defined) plus two hundred fifty (250) basis points, which rate shall be adjusted
as and when the Base Rate changes. The term "Base Rate" as used herein shall
mean the per annum rate of interest publicly announced, from time to time, by
Citibank, N.A., New York, New York ("Citibank"), as the base (or equivalent")
rate of interest charged by Citibank to its largest and most creditworthy
commercial borrowers notwithstanding the fact that some borrowers of Citibank
may borrower from Citibank at rates less than the announced base rate, or if
Citibank ceases to publish its base rate, then such other published rate as
Holder shall deem comparable in its sole and absolute discretion. Interest shall
be calculated on the basis of the actual number of days elapsed during the
period for which interest is being charged predicated on a year consisting of
three hundred sixty (360) days.
Payments of principal, interest and any other amounts due and payable
hereunder shall, at the option of Holder, earn interest after they are due at a
-----
rate ("Default Rate") equal to (a) four hundred (400) basis points above the
rate of Basic Interest otherwise payable hereunder, or (b) the maximum contract
rate permitted under the law ("Applicable Usury Law") which has been chosen
below to govern this Note or may otherwise be applicable, whichever of (a) or
(b) is lesser. At the option of Holder, while an Event of Default (as that term
is defined in the Loan Agreement) exists, and in all events after an
acceleration of the Note by Holder, interest shall accrue on the entire
outstanding principal
<PAGE>
balance of this Note at the Default Rate.
The contracted for rate of interest of the Loan contemplated hereby,
without limitation, shall consist of the following: (i) Basic Interest,
calculated in accordance with the provisions of this Note; (ii) the Default
Rate, calculated and applied to the principal balance of this Note in accordance
with the provisions hereof; (iii) the late charge calculated and applied to an
overdue payment in accordance with the provisions hereof; (iv) the Revolver
Prepayment Premium (as defined in the Loan Agreement); (v) the Unused Line Fee
(as defined in the Loan Agreement); (vi) the Audit Fee (as defined in the Loan
Agreement); (vii) the Return Fee (as defined in the Loan Agreement); and (viii)
all Additional Sums (as hereinafter defined), if any. Makers agree to pay an
effective contracted for rate of interest which is the sum of the
above-referenced elements but in no event to exceed the maximum contract rate
permitted under the Applicable Usury Law. All fees, charges, goods, things in
action or any other sums or things of value [other than amounts described in
(i), (ii), (iii), (iv), (v), (vi) and (vii) hereof], pursuant to this Note, the
Loan Agreement, the other Loan Documents or any other documents or instruments
in any way pertaining to this lending transaction, or otherwise with respect to
this lending transaction, that under any applicable law may be deemed to be
interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction (the "Additional Sums"), shall be payable by
Maker as, and shall be deemed to be, additional interest, and for such purposes
only, the agreed upon and "contracted for rate of interest" of this lending
transaction shall be deemed to be increased by the rate of interest resulting
from the Additional Sums.
Accrued and unpaid interest on the outstanding principal balance of
the Loan shall be due and payable commencing on February 1, 1995, and continuing
on the first day of each month thereafter through and including December 1,
1998. On December 30, 1998, the entire unpaid principal balance of this Note,
all accrued and unpaid Basic Interest, and all other charges or amounts owing in
connection with the Loan shall be due and payable in full.
Maker is also required to make to Lender additional payments of
principal and interest, as more fully provided pursuant to the terms of the Loan
Agreement.
All payments under this Note shall be applied first to any late charge
or other fees, then to accrued but unpaid Basic Interest, then to any other
amounts due and payable hereunder or under the Loan Agreement, and the balance,
if any, to outstanding principal.
If any installment of principal, interest or any other payment
required to be made in connection with the Loan is not paid when
2
<PAGE>
due, or upon the occurrence of any other Event of Default, Holder may at its
option, without notice or demand, declare immediately due and payable the entire
unpaid principal balance hereof, all accrued and unpaid Basic Interest thereon,
any prepayment premium required under the Loan Agreement, and all other
obligations owing in connection with the Loan. This Note shall also be
immediately due and payable:
(a) if Maker shall (i) file, or consent, by answer or otherwise, to
the filing against Maker of a petition for relief or reorganization or
arrangement or any other petition in bankruptcy or insolvency under the laws of
any jurisdiction, (ii) make an assignment for the benefit of creditors, (iii)
consent to the appointment of a custodian, receiver, trustee or other officer
with similar powers for Maker, or for any substantial part of the property owned
by Maker, or (iv) be adjudicated insolvent; or
(b) if a petition for relief or reorganization, arrangement or
liquidation, or any other petition in bankruptcy or insolvency, or the
appointment of a custodian under the laws of any jurisdiction is filed against
Maker or a custodian is appointed for properties of Maker, and such proceeding
is not dismissed and/or appointment vacated within ninety (90) days thereafter.
In the event that any monthly installment of principal and interest
shall not be paid within ten (10) days of the date when due, a "late charge" of
two percent (2.0%) of the late payment may be charged by the Holder for the
purposes of defraying the expense incident to handling such delinquent payments.
Such late charge represents the reasonable estimate of Maker and Lender of a
fair average compensation for the loss which may be sustained by Holder due to
the failure of Maker to make timely payments. All late charges shall be due and
payable monthly on the same dates provided herein for the payment of
installments.
Except as expressly provided in the Loan Agreement, prepayment of this
Note will not be permitted in whole or in part.
---
Holder shall not by any act or omission be deemed to have waived any
of its rights or remedies hereunder unless such waiver be in writing and signed
by an authorized officer of Holder and then only to the extent specifically set
forth therein; a waiver on one occasion shall not be construed as continuing or
as a bar to or waiver of such right or remedy on any other occasion. All
remedies conferred upon Holder by this Note, the Loan Agreement, or any other
instrument or agreement related hereto shall be cumulative and none is
exclusive, and such remedies may be exercised concurrently or consecutively at
Holder's option.
If Holder undertakes to collect this Note, Maker will pay to Holder in
addition to any indebtedness due and unpaid, all costs and expenses of
collection, including, without limitation, attorneys' fees and expert witnesses'
fees, whether or not legal
3
<PAGE>
proceedings shall be instituted. In the event Holder institutes legal
proceedings to enforce this Note, the award of costs of collection, including
attorneys' fees, shall be made by the court (and not by a jury).
Maker and every person or entity at any time liable for the payment of
the indebtedness evidenced by this Note, hereby absolutely waive: presentment
for payment, protest and demand; notice of dishonor, protest, demand and
nonpayment of this Note; and each and every other notice of any kind except for
notices expressly provided in this Note or in any of the other documents
securing payment of, or otherwise related to, this Note. Maker and every such
person or entity further consent to renewals or extensions of the payment of any
sums to be paid under this Note at any time and from time to time, without limit
as to the number or aggregate period of such renewals or extensions, at the
request of any other person or entity liable for them. Any such renewals or
extensions may be made without notice to any person or entity liable for the
payment of the indebtedness evidenced by this Note.
This Note is given and accepted as evidence of indebtedness only and
not in payment or satisfaction of any indebtedness or obligation.
Time is of the essence with respect to all of Maker's obligations and
agreements under this Note.
This Note and all its provisions, conditions, promises and covenants
shall be binding upon Maker, and its respective successors and assigns, provided
nothing herein shall be deemed Holder's consent to any assignment restricted or
prohibited by the terms of the Loan Agreement. If more than one person or entity
has executed this Note as Maker, the obligations of such persons and entities
shall be joint and several.
If any one or more of the provisions contained in this Note shall be
held invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby; provided that where the provisions of any invalidating law
may be waived, they are waived by Maker to the fullest extent possible.
THIS NOTE AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES HERETO
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE
STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT THE LAWS OF SUCH STATE, THE LAWS
OF THE UNITED STATES.
MAXER: (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS,
JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY,
AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS NOTE OR THE SUBJECT MATTER HEREOF
OR, IF HOLDER
4
<PAGE>
INITIATES SUCH ACTION, ANY COURT IN WHICH HOLDER SHALL INITIATE SUCH ACTION AND
THE CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT HOLDER'S ELECTION; AND (B)
WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, HEREBY WAIVES AND AGREES NOT
TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN ANY SUCH SUIT, ACTION OR
PROCEEDING ANY CLAIM THAT MAKER IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
THE ABOVE-NAMED COURTS, THAT SUCH SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE OF SUCH SUIT, ACTION OR PROCEEDING IS
IMPROPER. MAKER HEREBY WAIVES THE RIGHT TO COLLATERALLY ATTACK ANY JUDGMENT OR
ACTION IN ANY OTHER FORUM.
ANY CONTROVERSY WHICH MAY ARISE UNDER THIS NOTE WOULD BE BASED UPON
DIFFICULT AND COMPLEX ISSUES AND THEREFORE ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING WITHOUT A JURY, AND MAKER HEREBY
KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY SUCH PROCEEDING.
ALL OF THE PROVISIONS SET FORTH ABOVE ARE A MATERIAL INDUCEMENT FOR
LENDER'S MAKING THE LOAN TO MAKER.
____ MAKER'S Initials
Maker warrants and represents that the Loan is for business purposes.
This Note is secured by property owned by Maker.
MAKER: CPS SYSTEMS, INC.,
a Texas corporation
By: /s/ Paul E. Kana
-------------------------------------
Paul E. Kana, President
5
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 30th day of
December, 1994, by Paul E. Kana, the President of CPS Systems, Inc., a Texas
corporation, on behalf of the corporation.
IN WITNESS WHEREOF, I hereunto set my hand and official seal.
/s/ Tonya M. Moore
------------------------------------------
Type/Print Name: Tonya M. Moore
--------------------------
Notary Public, State of Arizona
My commission expires:
- ----------------------
[SEAL APPEARS HERE]
6
<PAGE>
EXHIBIT 10.18
ASSIGNMENT OF CONTRACTS, INTANGIBLES, LICENSES AND PERMITS
----------------------------------------------------------
THIS ASSIGNMENT OF CONTRACTS, INTANGIBLES, LICENSES AND PERMITS
("Assignment") is entered into as of December 29, 1994 by and between CPS
SYSTEMS, INC., a Texas corporation ("Assignor"), and GREYHOUND FINANCIAL
CORPORATION, a Delaware corporation ("Assignee").
RECITALS
A. Assignor, as borrower, and Assignee, as lender, have entered into a
Revolver Loan and Security Agreement (as from to time renewed, amended, restated
or replaced, "Revolver Loan Agreement") dated as of December 29, 1994, pursuant
to which Assignee has agreed to lend to Assignor a sum not to exceed One Million
Dollars ($1,000,000) ("Revolver Loan").
B. CPS Acquisition Corp., a Georgia corporation ("Parent"), as borrower,
and Assignee, as lender, have entered into a Term Loan Agreement (as from time
to time, renewed, amended, restated or replaced, "Term Loan Agreement"; and the
Revolver Loan Agreement and Term Loan Agreement collectively, "Credit Facilities
Loan Agreements"), pursuant to which Assignee has agreed to lend to Parent a sum
not to exceed One Million Five Hundred Thousand Dollars ($1,500,000) ("Term
Loan"; and the Revolver Loan and Term Loan collectively, "Loans").
C. To facilitate repayment of the obligations of Assignee under the Credit
Facilities Loan Agreements and all other documents now or hereafter evidencing,
securing or otherwise pertaining to the Loans ("Credit Facilities Documents"),
Assignor has agreed to assign to Assignee, inter alia, all of Assignor's right,
----- ----
title, and interest in and to the contracts ("Contracts"), licenses and permits
("Licenses and Permits") and other intangibles ("Intangibles") now or hereafter
owned or held by Assignor and used in connection with the Business (as defined
in the Revolver Loan Agreement), including without limitation, the Contracts,
Intangibles, Licenses and Permits, if any, specifically described on Exhibit A,
and any benefits due and to become due or arising from the use or enjoyment of
such items (which, together with any additions, extensions or modifications
thereto, and any future contracts, intangibles, licenses and permits of the
nature described above, and all products and proceeds thereof are herein
referred to as the "Collateral").
D. All capitalized terms used but not defined herein shall have the same
meaning ascribed to such terms in the Revolver Loan Agreement.
A G R E E M E N T
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Assignor and Assignee agree as follows:
1. The Assignment. Assignor hereby absolutely, irrevocably and
--------------
unconditionally grants, assigns, and transfers to Assignee all of Assignor's
<PAGE>
right, title, and interest in and to the Collateral, including but not limited
to any and all benefits arising thereunder. The interest of Assignee by virtue
of this Assignment is deemed to be vested as of the date hereof, and shall
extend to and cover any and all modifications, extensions, renewals and
replacements of the Collateral.
2. Purpose. This Assignment is made for the purpose of securing all
-------
obligations of Assignor to Assignee ("Obligations"), including, without
limitation, the following:
2.1 Payment of the Revolver Loan, the advances of which shall be
evidenced by a Revolver Loan Promissory Note dated as of even date herewith and
made payable by Assignor to Assignee in the original face amount of One Million
Dollars ($1,000,000), and any renewals, amendments, restatements or replacements
of such promissory note (such promissory note, as from time to time renewed,
amended, restated or replaced, "Revolver Loan Note"), together with accrued
interest, according to the terms of the Revolver Loan Note;
2.2 Payment of the Term Loan, the advance of which is evidenced by a
Term Loan Promissory Note dated as of even date herewith and made payable by
Parent to Assignee in the original face amount of One Million Five Hundred
Thousand Dollars ($1,500,000) and any renewals, amendments, restatements or
replacements of such promissory note (such promissory note, as from time to time
renewed, amended, restated or replaced, collectively, "Term Loan Note"; and the
Revolver Loan Note and Term Loan Note, collectively, "Notes"), together with
accrued interests, according to the terms of the Term Loan Note;
2.3 Payment, performance, observance and satisfaction of all
representations, warranties, covenants (including, without limitation, the
covenants to pay Fees (as defined in the Revolver Loan Agreement)], and
conditions contained in the Credit Facilities Documents, including, without
limitation, this Assignment, on the part of Assignor and/or Parent;
2.4 The repayment of all monies expended by Assignee pursuant to the
provisions of the Credit Facilities Documents, together with interest thereon
from the date of expenditure at the Default Rate (as defined in the Revolver
Loan Agreement ) ; and
2.5 Any and all other liabilities or obligations of Assignor and/or
Parent to Assignee, direct or indirect, absolute or contingent, due or to become
due, whether now existing or which may hereafter arise in any manner.
3. License. Subject to the terms and conditions of this Assignment,
-------
Assignee confers upon Assignor a license to utilize, collect and retain the
benefits of the Collateral until the occurrence of an Event of Default (as
defined in Paragraph 6.1 ). Upon the occurrence of an Event of Default, such
license may be revoked by written notice of revocation to Assignor and
immediately upon such revocation, Assignee may utilize, collect and retain the
benefits of the Collateral without further notice.
-2-
<PAGE>
4. Protection of Security. Notwithstanding anything herein to the
----------------------
contrary, if an Event of Default exists or (except with respect to Contracts
between Assignor and its customers) Assignee determines such action to be
necessary in order to prevent the termination of the Contracts, Intangibles,
Licenses or Permits with regard to which the action is taken, the loss of any
material benefit to Assignor or Assignee under the Contracts, Intangibles,
Licenses or Permits with regard to which the action is taken, or the incurrence
of any material detriment to Assignor or Assignee under the Contracts,
Intangibles, Licenses or Permits with regard to which the action is taken, or to
be necessary in order to protect and preserve the right, title and interest of
Assignee hereunder in and to the Contracts, Intangibles, Licenses or Permits
with regard to which the action is taken, Assignee may, but without obligation
to do so:
4.1 Execution of Loan Documents. Execute, acknowledge, obtain and
---------------------------
deliver all documents (including, without limitation, notices, requests and
instructions) or things necessary or required as a term, covenant or condition
of any of the Contracts, Intangibles, Licenses and Permits or which may be
necessary or proper under any of the Contracts, Intangibles, Licenses and
Permits;
4.2 Performance of Assignor's Obligations. Perform any obligation
-------------------------------------
which Assignor has failed to perform when due under any of the Contracts,
Intangibles, Licenses and Permits or satisfy any condition of any of the
Contracts, Intangibles, Licenses and Permits;
4.3 Enforcement of Other Party's Obligations. Demand and receive all
----------------------------------------
performances due under or with respect to the Contracts, Intangibles, Licenses
and Permits, take all lawful actions for the enforcement thereof (including,
without limitation, the filing of claims and the commencement of arbitration,
litigation or other lawful proceedings), compromise and settle any claim or
cause of action in Assignor arising from any of the Contracts, Intangibles,
Licenses and Permits and give acquittances and other sufficient discharges
relating thereto;
4.4 Make Concessions. Make concessions to other parties to the
----------------
Contracts, Intangibles, Licenses and Permits; and
4.5 Exercise Assignor's Rights Under Contracts, etc. Exercise any and
-----------------------------------------------
all other rights and remedies to which Assignor may have under the Contracts,
Intangibles, Licenses and Permits and/or are otherwise available to Assignor at
law, in equity or by statute.
All sums expended by Assignee pursuant to this Paragraph 4 shall be payable by
Assignor to Assignee upon demand, together with interest thereon from the date
of expenditure until paid at the Default Rate (as defined in the Revolver Loan
Agreement); and shall be secured by this Assignment and all other security for
the Obligations.
5. Power of Attorney. Assignee is hereby appointed Assignor's true and
-----------------
lawful attorney-in-fact (coupled with an interest) for and on behalf of
Assignor,
-3-
<PAGE>
whether in the name of Assignor or Assignee or otherwise, to take any of the
actions permitted to it under Paragraph 4. The power of attorney given herein is
a power coupled with an interest and shall be irrevocable until all the
Obligations have been fully paid and performed. Assignee shall have the option,
but not any duty, to exercise any power given to it hereunder.
6. Event of Default, Remedies: Assignee's Right to Perform.
--------------------------------------------------------
6.1 Event of Default. The occurrence of any of the following events
----------------
or conditions shall constitute an Event of Default:
6.1.1 A default or violation shall occur under any of the
provisions of Paragraph 7.1 or 7.2;
6.1.2 A default or violation in the performance of Assignor's
Obligations under this Assignment (other than those referred to elsewhere in
this Paragraph 6.1) which continues unremedied (a) for a period of five (5)
Business Days (as defined in the Revolver Loan Agreement) after notice of such
default or violation to Assignor in the case of any default or violation which
can be cured by the payment of money alone or (b) for a period of twenty (20)
Business Days after notice to Assignor in the case of any other default or
violation;
6.1.3 Any representation or warranty of Assignor contained
herein or in any certificate furnished to Assignee hereunder by or on behalf of
Assignor proves to be, in any material respect, false or misleading as of the
date deemed made;
6.1.4 Assignor shall (a) generally not be paying its debts as
they become due, (b) file, or consent by answer or otherwise to the filing
against it of, a petition for relief or reorganization, arrangement or
liquidation or any other petition in bankruptcy or insolvency under the laws of
any jurisdiction, (c) make an assignment for the benefit of its creditors, (d)
consent to the appointment of a custodian, receiver, trustee or other officer
with similar powers for itself, any of the Material Contracts, Intangibles,
Licenses and Permits (as defined in Paragraph 7.4) or any substantial part of
its property, (e) be adjudicated insolvent, (f) dissolve or commence to wind--up
its affairs or (g) take any action for purposes of the foregoing; or a petition
for a relief or reorganization, arrangement or liquidation or any other petition
in bankruptcy or insolvency or the appointment of a custodian, receiver, trustee
or other officer with similar powers under the laws of any jurisdiction is filed
against it or a custodian, receiver, trustee or other officer with similar
powers is appointed for Assignor, any of the Material Contracts, Intangibles,
Licenses and Permits or any substantial part of its properties and such
proceeding is not dismissed and/or appointment vacated within ninety (90) days
thereafter;
6.1.5 Any levy, execution or seizure of any portion of the
Collateral or the institution of any legal action or proceeding adversely
affecting Assignor's or Assignee's interest in the Material Contracts,
Intangibles, Licenses and Permits; or
-4-
<PAGE>
6.1.6 An "Event of Default" as defined elsewhere in any of the
Credit Facilities Documents.
6.2 Remedies. At any time after an Event of Default has occurred and
--------
while it is continuing, Assignee may exercise any and all rights and remedies
which Assignee may have under the Credit Facilities Documents, including,
without limitation, this Assignment, and/or are otherwise available to it at
law, in equity or by statute.
6.3 Assignee's Right to Perform. Without limiting Assignee's rights
---------------------------
under any other Paragraph, if Assignor fails or refuses to pay or perform any
Obligation (including, without limitation, any obligations to maintain
insurance) hereunder, then at any time thereafter, and without notice to or
demand upon Assignor and without waiving or releasing any other right, remedy or
recourse Assignee may have, Assignee may (but shall not be obligated to) pay or
perform such obligation in the manner Assignee determines to be necessary or
appropriate for the account of and at the expense of Assignor. All sums
expended by Assignee pursuant to this Paragraph 6.3 shall be payable by Assignor
to Assignee upon demand, together with interest thereon from the date of
expenditure until paid at the Default Rate; and shall be secured by this
Assignment and all other security for the Obligations.
7. Representations, Warranties and Covenants of Assignor. Assignor
-----------------------------------------------------
represents, warrants and covenants as follows (all of such representations,
warranties and covenants to remain in full force and effect until all of the
Obligations have been fully paid and performed):
7.1 No Assignments or Encumbrances. Assignor is the owner of good,
------------------------------
legal and beneficial title to the Collateral free and clear of all liens,
security interests, encumbrances and claims of any kind, except as expressly
permitted in the Revolver Loan Agreement; no assignments, pledges, encumbrances
or other transfers whatsoever of the Collateral or any interest therein or any
rights or privileges or monies due and/or to become due and payable thereunder
have been made. Assignor will not assign, pledge, encumber or otherwise transfer
in any way, so long as this Assignment shall remain in effect, the whole or any
part of the Collateral to anyone other than Assignee; and Assignor will not
permit or suffer to exist any lien, security interest, encumbrance or claim of
any kind upon the Collateral, except those in favor of Assignee or except as
expressly permitted in the Revolver Loan Agreement.
7.2 Contracts, Intangibles, Licenses and Permits in Full Force and
--------------------------------------------------------------
Effect. The Contracts, Intangibles, Licenses and Permits are in full force and
- ------
effect, and Assignor has not executed any other instrument and is not subject to
any restriction which might prevent or limit Assignee from operating under the
terms of this Assignment; except as otherwise expressly permitted in the Loan
Agreement, Assignor will maintain in full force and effect the Material
Contracts, Intangibles, Licenses and Permits; and Assignor will not, without
prior written consent of Assignee, which may be withheld in Assignee's
discretion, modify, waive, terminate or alter in any material way any of the
material terms of the Material Contracts, Intangibles, Licenses and Permits.
-5-
<PAGE>
7.3 Performance and Benefits. Assignment hereby authorizes all third
------------------------
parties obligated to perform under the Contracts, Intangibles, Licenses and
Permits to accept this Assignment. Assignor hereby authorizes and directs each
third party obligated to perform under the Contracts, Intangibles, licenses and
Permits that, upon written notice to such third party from Assignee reciting the
occurrence of an Event of Default and the revocation of the license granted
pursuant to Paragraph 3, all rights, benefits or monies due thereunder, or in
any way respecting the same, shall be made directly to Assignee or its nominee
as they become due. Assignor hereby relieves all third parties obligated to
perform under the Contracts, Intangibles, Licenses and Permits from any
liability to Assignor by reason of such delivery of benefits or payments being
made to Assignee or its nominee. Nevertheless, subject to the provisions of
Paragraph 4, until Assignee notifies a third party obligated to perform under
the Contracts, Intangibles, Licenses and Permits in writing to render
performance to Assignee or its nominee, Assignor shall be entitled to collect
all payments and receive all benefits and performances pursuant to the license
granted under Paragraph 3. Assignor hereby directs all third parties to the
Contracts, Intangibles, Licenses and Permits to accept from Assignee any tender
of performance of any of Assignor's obligations thereunder and any exercise of
Assignor's rights thereunder.
7.4 Material Contracts, Intangibles, Licenses or Permits. As used
----------------------------------------------------
herein, the term "Material" when used to describe any of the Contracts,
Intangibles, Licenses or Permits shall mean a Contract, Intangible, License or
Permit, which if terminated or suspended, would have a Material Adverse Effect
(as defined in the Loan Agreement) on Borrower.
8. Mutual Agreements of Assignor and Assignee. Assignor and Assignee
------------------------------------------
mutually agree as follows:
8.1 Effect of Assignment. Assignee, by acceptinq this Assignment:
--------------------
8.1.1 Shall not be subject to any obligation or liability under
a Contract, Intangible, License or Permit, as the case may be, arising prior to
its delivering to Assignor and the third party obligated to perform thereunder
or benefitted thereby its written election ("Assumption Election") that it
assumes Assignor's obligations, duties and liabilities under such Contract,
Intangible, License or Permit, but any and all such obligations and liabilities
(except for obligations and liabilities arising after Assignee's (Assumption
Election) shall remain Assignor's as though this Assignment had not been made;
and
8.1.2 Shall not be under any obligation to exercise any of the
rights, remedies, or powers hereby granted to it, and no failure or delay in
exercising any of such rights, remedies, or powers shall constitute a waiver
thereof or of any default by Assignor.
8.2 No Limitation of Assignee's Rights. The rights, remedies and
----------------------------------
powers granted herein shall not be limited or otherwise affected by the value of
the Collateral as compared to amounts, if any, owed by Assignor to Assignee and
may be exercised by Assignee either independently of or concurrently with any
-6-
<PAGE>
other right, remedy or power contained herein or in any of the other Credit
Facilities Documents or by law. The taking of this Assignment by Assignee shall
not effect the release of any other collateral now or hereafter held by Assignee
as security for the Obligations, and the taking of additional security for the
performance of the Obligations hereafter shall not effect a release or
termination of this Assignment or any terms or provisions hereof.
8.3 Assignee May Assign. All of Assignor's right, title, and interest
-------------------
assigned hereunder may be reassigned by Assignee and any subsequent Assignee,
and the term "Assignee," as used herein, includes any subsequent Assignee. This
Assignment and the power of attorney contained herein are solely for the benefit
and protection of Assignee, its successors and assigns and are not intended to
confer upon any person other than the parties hereto and their successors and
assigns any right or remedies under or by reason of this instrument.
8.4 Additional Documents. At any time, and from time to time,
--------------------
Assignor will promptly and duly execute and deliver any and all such further
assignments and instruments as Assignee may deem advisable in its reasonable
discretion in order to obtain the full benefits of this Assignment and the
rights and powers herein contained.
8.5 Indemnification and Reimbursement. Assignee shall not be
---------------------------------
obligated to perform or discharge, and it does not hereby undertake to perform
or discharge, any obligation, duty, or liability under the Collateral, or under
or by reason of this Assignment, and Assignor shall and does hereby agree to
indemnify and defend Assignee against and hold it harmless from (a) any and all
liability, loss, or damage which it may or might incur under or by reason of
this Assignment and (b) any and all claims and demands whatsoever which may be
asserted against it by reason of any alleged obligation or undertaking on its
part to perform or discharge any of the terms or conditions contained in the
Collateral; provided, however, that the foregoing shall apply only to acts and
omissions occurring prior to the Assumption Election and any acts of Assignor
after such Assumption Election, and the foregoing shall not apply to the gross
negligence or willful misconduct of Assignee. Should Assignee incur any such
liability, loss, or damage under the Collateral, or under or by reason of this
Assignment, or in the defense against any such claims or demands, or in
prosecuting any claim under this Assignment the amount thereof, including
reasonable costs, expenses, and any reasonable attorneys' fees, shall be payable
by Assignor to Assignee immediately upon demand, together with interest thereon
at the Default Rate, until paid, and the same shall be secured by this
Assignment and all other security for the Obligations.
8.6 Termination of Assignment. Upon the full payment and performance
-------------------------
of all the obligations, this Assignment shall become and be void and of no
effect, and Assignee shall execute and deliver to Assignor a release of this
Assignment.
9. No Waiver. No delay or omission on the part of Assignee in exercising
---------
any power, right, or remedy hereunder shall operate as a waiver of any such
power or right nor shall any single or partial exercise of any such power or
right
-7-
<PAGE>
preclude any other or further exercise thereof or the exercise of any other
power, right, or remedy of Assignee under this instrument or which may be
provided by law, it being understood that any extension or indulgence at any
time allowed by Assignee to Assignor shall be in reliance upon the understanding
that such shall not affect or prejudice the rights, powers, and remedies of
Assignee except to the extent specifically set forth in writing by Assignee and,
in that regard, that even any waiver granted in writing shall not be construed
as a waiver of any breach or default thereafter occurring.
10. Time of the Essence. In the construction and performance of this
-------------------
Assignment, time shall be deemed of the essence.
11. Binding Effect. This Assignment shall inure to the benefit of and be
--------------
binding upon the parties hereto and their respective heirs, personal
representatives, successors, and assigns.
12. Notices. All notices, demands, documents, or other writings which are
-------
required or permitted to be given or served hereunder shall be given, and shall
be deemed delivered in accordance with the provisions of the Revolver Loan
Agreement.
13. Other Security. This assignment is in addition to, and not in
--------------
limitation of, any rights in and to the Collateral which Assignee may acquire
under any of the other Credit Facilities Documents; and to the extent of any
ambiguity or inconsistency between this Assignment and any such other Credit
Facilities Documents, the provisions imposing the greatest obligation upon
Assignor and granting the most expansive rights to Assignee shall control.
14. CHOICE OF LAW: JURISDICTION: VENUE: AND WAIVER OF JURY TRIAL. THE
------------------------------------------------------------
CHOICE OF LAW, VENUE, JURISDICTION AND WAIVER OF JURY PROVISIONS OF THE REVOLVER
LOAN AGREEMENT SHALL BE EQUALLY APPLICABLE TO THIS AGREEMENT AND ARE
INCORPORATED HEREIN BY THIS REFERENCE.
15. Security Agreement; Sale of Collateral. If necessary for Assignee to
--------------------------------------
acquire or perfect a security interest in the Collateral, this Agreement shall
be deemed a security agreement under the Uniform Commercial Code, and Assignor
hereby grants to Assignee a security interest in the Contracts, Intangibles,
Licenses and Permits. In such an event, Assignee shall be entitled to sell the
Collateral at public or private sale and/or to the exercise of all other rights
and remedies under the Uniform Commercial Code if an Event of Default exists, in
addition to all the other rights and remedies available to it pursuant to
Paragraph 6.2. Any notice of sale or other disposition of the Collateral given
not less than ten (10) Business Days prior to such proposed action in connection
with the exercise of Assignee's rights and remedies shall constitute reasonable
and fair notice of such action. Assignee may postpone or adjourn any such sale
from time to time by announcement at the time and place of sale stated on the
notice of sale or by announcement of any adjourned sale, without being required
to give a further notice of sale. Any such sale may be for cash or, unless
prohibited by applicable law, upon such credit or installment as Assignee may
determine. The net proceeds of such sale shall be credited to the Obligations
only when such proceeds are actually received by Assignee in good current funds.
-8-
<PAGE>
All proceeds realized by Assignee from the Collateral after termination of the
license granted under Paragraph 3 and through and including a sale of the
Collateral, net of the costs of any such sale, shall be applied by Assignee to
the Obligations in such order and manner as may be provided in the Loan
Agreement or, if not so provided, in such order and manner as Assignee may
determine. Assignor shall be liable for any deficiency remaining after
application of such proceeds to the Obligations.
16. Attorneys' Fees. Without limiting the generality of any other
---------------
provision in this Assignment, in the event of any arbitration or litigation
(including any appeal) concerning the interpretation or enforcement of this
Assignment, the prevailing party in such litigation shall be entitled to
reimbursement and/or award of its attorneys' fees, costs and any other expenses
incurred in connection therewith.
17. Termination of Contract For Cause. Assignee agrees to notify Assignor
---------------------------------
that Assignee is giving or withholding its consent to the termination of any
Material Contract Intangible, License or Permit for cause within ten (10)
Business Days after Assignee has actually received from Assignor a written
request to allow Assignor to terminate such Contract, Intangible, License or
Permit for cause which sets forth with reasonable specificity the reasons for
the action Assignor proposes to take.
IN WITNESS WHEREOF, Assignor and Assignee have executed this instrument as
of the day and year first hereinabove written.
ASSIGNOR: CPS SYSTEMS, INC.,
a Texas corporation
By: /s/ Paul E. Kanr
---------------------------------------
Print/Type Name: Paul E. Kanr
--------------------------
Title: President
------------------------------------
ASSIGNEE: GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Patricia Murray
---------------------------------------
Print/Type Name: Patricia Murray
--------------------------
Title: Vice President
------------------------------------
-9-
<PAGE>
EXHIBIT 10.19
GUARANTY AND SUBORDINATION
--------------------------
(Revolver Loan)
This GUARANTY AND SUBORDINATION ("Guaranty") is made as of the 29th day of
December, 1994, by CPS ACQUISITION CORP., a Georgia Corporation ("Guarantor"),
in favor of GREYHOUND FINANCIAL CORPORATION, a Delaware corporation ("Lender").
R E C I T A L S:
---------------
A. Lender has to made to CPS Systems, Inc., a Texas corporation
("Borrower"), pursuant to a Revolver Loan Agreement of even date herewith (as
from time to time renewed, amended, restated or replaced, the "Revolver Loan
Agreement") a loan in the form of a revolving line of credit in a principal
amount not to exceed One Million Dollars ($1,000,000) ("Revolver Loan"). The
Revolver Loan will be evidenced by a promissory note in the original face amount
up to One Million Dollars ($1,000,000) (as from time to time renewed, amended,
restated or replaced, "Revolver Loan Note").
B. The Revolver Loan Agreement, the Revolver Loan Note, and all other
documents now or hereafter executed in connection with the Revolver Loan are
hereinafter referred to as the "Revolver Loan Documents".
C. In order to induce Lender to make the Revolver Loan, Guarantor has
agreed to execute and deliver this Guaranty. Lender has agreed to make the
Revolver Loan only if the Guaranty is executed by Guarantor and delivered to
Lender.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Guarantor hereby unconditionally
covenants and agrees as follows:
ARTICLE 1
---------
GUARANTY
--------
1.1 Guarantor absolutely, unconditionally, irrevocably, and jointly and
severally guarantees the full, prompt, complete and faithful performance,
payment, observance and fulfillment by Borrower of all the obligations,
covenants and conditions of the Revolver Loan Documents (collectively
"Obligations"), including, but not limited to, the payment when due of any and
all sums that may become due to Lender from Borrower under the Revolver Loan
Documents. Guarantor further agrees to pay all expenses (including reasonable
attorneys' fees and legal expenses) incurred by Lender in endeavoring to collect
or secure performance of all or any part of the Obligations or in enforcing this
Guaranty.
<PAGE>
1.2 Guarantor hereby covenants and agrees unconditionally that within (a)
five (5) days of the receipt of written notice from or on behalf of Lender to
the effect that there exists a breach or default of the Obligations which
Borrower has failed to pay or perform or (b) such unexpired grace period, if
any, as Borrower may then have under the Revolver Loan Documents to cure the
breach or default before it becomes an Event of Default (as defined in the
Revolver Loan Documents), which ever period is longer, Guarantor will pay the
entire unpaid amount thereof to Lender at its offices at Dial Corporate Center,
Dial Tower, Phoenix, Arizona 85077 or such other address as Lender may by notice
direct or will provide Lender with evidence of the performance of the
Obligations which Borrower has failed to perform. If Guarantor fails to pay any
sums properly due Lender hereunder within the period applicable pursuant to
terms of the preceding sentence, then, as to Guarantor, such sums shall bear
interest at the Default Rate (as defined in the Revolver Loan Agreement), in
lieu of the interest rate otherwise applicable thereunder. Further, if Guarantor
shall fail to pay any amount or perform any obligations due Lender hereunder,
Lender may institute and pursue any action or proceeding to judgment or final
decree and may enforce any such judgment or final decree against Guarantor and
collect in the manner provided by law out of its property, wherever situated,
the monies adjudged or decreed to be payable.
ARTICLE 2
---------
GENERAL COVENANTS AND WAIVERS OF
--------------------------------
GUARANTOR; REMEDIES AND RIGHTS OF LENDER
----------------------------------------
2.1 Neither failure to give, nor defect in, any notice to the Borrower or
Guarantor and/or any other guarantor or surety of the Obligations ("Obligor")
concerning a default in the performance of the Obligations, an Event of Default
or any event which might mature into an Event of Default shall extinguish or in
any way affect the obligations of Guarantor hereunder. Neither demand on, nor
the pursuit of any remedies against, Borrower or any other Guarantor shall be
required as a condition precedent to, and neither the pendency nor the prior
termination of any action, suit or proceeding against Borrower or any other
Obligor (whether for the same or a different remedy) shall bear on or prejudice
the making of a demand on Guarantor by Lender and commencement against Guarantor
after such demand, of any action, suit or proceeding, at law or in equity, for
the specific performance of any covenant or agreement contained herein or for
the enforcement of any other appropriate legal or equitable remedy.
2.2 Guarantor's liability hereunder is primary, direct, immediate, and
joint and several with that of Borrower and each and every other Obligor.
Neither (a) the exercise or the failure to exercise by Lender of any rights or
remedies conferred on it under
2
<PAGE>
the Revolver Loan Documents, hereunder or existing at law or otherwise, or
against any security for performance of the Obligations, (b) the commencement of
an action at law or the recovery of a judgment at law against Borrower or any
other Obligor and the enforcement thereof through levy or execution or
otherwise, (c) the taking or institution or any other action or proceeding
against Borrower or any other Obligor nor (d) any delay in taking, pursuing or
exercising any of the foregoing actions, rights, powers or remedies (even though
requested by Guarantor) by Lender or anyone acting for Lender, shall extinguish
or affect the obligations of Guarantor hereunder. Subject to the provisions of
paragraph 4.6, Guarantor shall be and remain liable for all the Obligations
until fully paid and performed and for one year and one day after such payment
and performance of all the Obligations (and without limiting Guarantor's
obligations under paragraph 2.8), notwithstanding the previous discharge (total
or partial) from further liability of Borrower or any other Obligor.
2.3 Guarantor hereby expressly waives: (a) notice of acceptance by Lender
of this Guaranty; (b) notice of the existence, creation or non-payment of all
or any of the Obligations, except as provided in paragraph 1.2; (c) presentment,
protest, demand, dishonor, notice of dishonor, protest and all notices
whatsoever; (d) all diligence in collection or protection of or realization on
the Obligations or any part thereof, any obligation hereunder, or any security
for or guarantee of any of the foregoing; (e) any defense based upon an election
of remedies by Lender or marshalling of assets; (f) any defense arising because
of Lender's election under Section 1111(b) (2) of the United States Bankruptcy
Code ("Bankruptcy Code") in any proceeding instituted under the Bankruptcy Code;
(g) any defense based on post-petition borrowing or the grant of a security
interest by Borrower under Section 364 of the Bankruptcy Code; (h) any duty on
the part of Lender to disclose to Guarantor any facts Lender may now or
hereafter know about Borrower, regardless of whether Lender has reason to
believe that any such facts materially increase the risk beyond that which
Guarantor intends to assume or has reason to believe that such facts are known
to Guarantor or has a reasonable opportunity to communicate such facts to
Guarantor, because Guarantor represents and warrants that it is fully
responsible for being and keeping informed of the financial condition of
Borrower and of all circumstances bearing on the risk of non-payment of any
obligation guaranteed hereby; and (i) any and all suretyship defenses and
defenses in the nature thereof under Arizona and/or any other applicable law,
including, without limitation, the benefits of the provisions of Sections
12-1641 through 12-1646, of the Arizona Revised Statutes, Sections 17 and 21,
A.R.C.P., and all other laws of similar import.
2.4 Without limiting the generality of the foregoing, Guarantor will not
assert against Lender any defense of waiver, release, discharge in bankruptcy,
statute of limitations, res
3
<PAGE>
judicata, statute of frauds, anti-deficiency statute, fraud, usury, illegality
or unenforceability which may be available to Borrower with respect to the
Revolver Loan Documents (or the Revolver Loan), or any setoff available to
Borrower against Lender, whether or not on account of a related transaction.
2.5 The benefits, remedies and rights provided or intended to be provided
hereby for Lender are in addition to and without prejudice to any rights,
benefits, remedies or security to which Lender might otherwise be entitled.
2.6 Anything else contained herein to the contrary notwithstanding,
Lender, from time to time, without notice to Guarantor, may take all or any of
the following actions without in any manner affecting or impairing the
obligations of Guarantor hereunder: (a) obtain a lien on or a security interest
in any property to secure any of the Obligations; (b) retain or obtain the
primary or secondary liability of any party or parties, in addition to
Guarantor, with respect to any of the Obligations; (c) renew, extend or
otherwise change the time for payment or performance of any of the Obligations
for any period; (d) release or compromise any liability of Guarantor hereunder
or any liability of any nature of any other party or parties with respect to the
Obligations; (e) exchange, enforce, waive, release and apply any security for
the performance of the Obligations and direct the order or manner of sale
thereof as Lender may in Lender's discretion determine; (f) resort to Guarantor
for payment of any of the Obligations, whether or not Lender shall proceed
against any other party primarily or secondarily liable on any of the
Obligations; (g) agree to any amendment (including, without limitation, any
amendment which changes the amount of interest to be paid under the Revolver
Loan Documents or extends the period of time during which Borrower may obtain an
advance of the Revolver Loan), any alteration of the Revolver Loan Documents or
any waiver of any provisions of the Revolver Loan Documents and/or exercise
Lender's rights to consent to any action or non-action of Lender which may
violate the covenants and agreements contained in the Revolver Loan Documents
with or without consideration, on such terms and conditions as may be acceptable
to Lender in Lender's sole and absolute discretion; or (h) exercise any of
Lender's rights conferred by the Revolver Loan Documents or by law.
2.7 No delay on the part of Lender in the exercise of any right or remedy
under this Guaranty shall operate as a waiver thereof, and no single or partial
exercise by Lender of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy; nor shall any
modification or waiver of any of the provisions of this Guaranty be binding on
Lender except as expressly set forth in writing, duly signed and delivered on
behalf of Lender. No action of Lender permitted hereunder shall in any way
affect or impair the rights of Lender or the obligations of Guarantor under this
Guaranty.
4
<PAGE>
2.8 If at any time all or any part of any payment theretofore applied by
Lender to any of the Obligations is or must be rescinded or returned by Lender
for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of Borrower), such Obligations, for purposes of
this Guaranty, to the extent that such payment is or must be rescinded or
returned, shall be deemed to have never been paid; and this Guaranty shall
continue to be effective or be reinstated, as the case may be, as to such
Obligations, all as though such application by Lender had not been made.
2.9 Guarantor shall have no right of subrogation with respect to the
Obligations or any right of indemnification, reimbursement or contribution from
Borrower or from any other Obligor with respect to the Obligations regardless of
any payment made by Guarantor pursuant to the provisions of this Guaranty until
the Obligations have been paid and performed in full, and Guarantor hereby
unconditionally waives any and all rights of subrogation, indemnification,
reimbursement or contribution.
2.10 It is not necessary for Lender to inquire into the powers of Borrower
or Borrower's officers, directors, partners or agents purporting to act on its
behalf and the Obligations are hereby guaranteed notwithstanding the lack of
power or authority on the part of Borrower or anyone acting on the Borrower's
behalf to incur the Obligations.
2.11 If Guarantor shall (a) generally not be paying its debts as they
become due, (b) file, or consent by answer or otherwise to the filing against it
of a petition for relief or reorganization, arrangement or any other petition in
bankruptcy or insolvency under the laws of any jurisdiction, (c) make an
assignment for the benefit of its creditors, (d) consent to the appointment of a
custodian, receiver, trustee or other officer with similar powers for itself or
any substantial part of its property, (e) be adjudicated insolvent (f) dissolve
or commence to wind-up its affairs, or (g) take any action for purposes of the
foregoing, Guarantor will pay to Lender forthwith the whole then unpaid amount
of the Revolver Loan Note (which amount, together with any other sums due under
the Revolver Loan Documents is herein called the "Unpaid Amount") as if such
Unpaid Amount were then due and payable; and in any such event Lender,
irrespective of whether any demand shall have been made on Guarantor, Borrower
or any Obligor by intervention in or initiation of judicial proceedings relative
to Guarantor, its creditors or its property, may file and prove a claim or
claims for the whole or any portion of the Unpaid Amount or any portion thereof
and file such other papers or documents as may be necessary or advisable in
order to have such claim allowed in such judicial proceedings and to collect and
receive any monies or other property payable or deliverable on any such claim,
and to distribute the same; and any receiver, assignee or trustee in
5
<PAGE>
bankruptcy or reorganization is hereby authorized to make such payments to
Lender.
ARTICLE 3
---------
SUBORDINATION
-------------
3.1 Guarantor subordinates to the Obligations all present and future
indebtedness of Borrower to Guarantor ("Subordinated Obligations") and all
liens, security interests, claims and right of any kind that Guarantor may now
have or hereafter acquire against Borrower and/or the property of Borrower
("Borrower's Property") which secure, result from Borrower's or otherwise
pertain to present and future indebtedness to the Subordinated Obligations.
Guarantor agrees that all liens, security interests, claims and rights of any
kind that Guarantor may now have or hereafter acquire against Borrower and
Borrower's Property which secure, result from or otherwise pertain to the
Subordinated Obligations shall be subordinate, inferior and subject to the
liens, security interests, claims and rights of Lender against Borrower and/or
Borrower's Property under the terms of any of the Revolver Loan Documents or at
law, whether direct or contingent or whether now or hereafter created, including
but not limited to, any renewals, extensions or modifications thereof. Guarantor
agrees that Guarantor may not accept payments on the Subordinated Obligations.
Any payment received by Guarantor shall be deemed received in trust for Lender
and shall be immediately remitted to Lender. Lender shall be entitled to receive
full payment and performance of the Obligations before the holder(s) thereof
is/are entitled to receive any payment of the Subordinated Obligations.
Guarantor grants to Lender a security interest in the Subordinated Obligations
as security for performance of Guarantor's obligations under this Guaranty, and
Guarantor shall remain liable for any deficiency following any foreclosure of
such security interest.
3.2 Guarantor does not have and will not take or accept any lien upon
security interest in, assignment of or other charge upon Borrower's Property as
security for the Subordinated Indebtedness. Guarantor will not take any action
which will either (a) force the sale of Borrower's Property in order to satisfy
the Subordinated Obligations or (b) affect in any manner any and all of Lender's
liens, security interests, claims or rights of any kind that Lender may now have
or hereafter acquire against Borrower and/or Borrower's Property. Guarantor will
refrain from taking any action which is in any way inconsistent with or in
derogation of this subordination or of the rights of Lender hereunder and
covenants to perform such further acts as necessary or appropriate to giving
effect to this subordination. Without limiting the generality of the foregoing,
Guarantor will not assign any portion of the Subordinated Obligations, except
expressly subject to the terms of this Guaranty; and Guarantor will cause all
evidence of the
6
<PAGE>
Subordinated Obligations to set forth the provisions hereof and shall cause any
instrument representing the Subordinated Obligations to be endorsed with the
following legend: "The indebtedness evidenced by this instrument is
subordinated, pursuant to a Guaranty and Subordination ("Guaranty") dated as of
December ____, 1994, by CPS Acquisition Corp. in favor of Greyhound Financial
Corporation, to the prior payment in full of the Obligations (as defined in the
Guaranty)."
ARTICLE 4
---------
MISCELLANEOUS PROVISIONS
------------------------
4.1 All the covenants, stipulations, promises and agreements contained in
this Guaranty by or on behalf of Guarantor are for the benefit of Lender, its
successors or assigns and shall bind Guarantor, and Guarantor's heirs,
executors, personal representatives, successors and assigns. Lender, without
notice of any kind, may sell, assign or transfer the Revolver Loan Documents,
and in such event each and every immediate and successive assignee or transferee
thereof may be given the right by Lender to enforce this Guaranty in full, by
suit or otherwise, for Lender's own benefit. Guarantor agrees for the benefit of
any such assignee or transferee that Guarantor's obligations hereunder shall not
be subject to any reduction, abatement, defense, setoff, counterclaim or
recoupment for any reason whatsoever.
4.2 All notices, requests or demands required or permitted to be given
hereunder shall be in writing, and shall be deemed effective (a) upon hand
delivery, if hand delivered; (b) one (1) Business Day after such are deposited
for delivery via Federal Express or other nationally recognized overnight
courier service; or (c) three (3) Business Days after such are deposited in the
United States mails, certified or registered mail, all with delivery charges
and/or postage prepaid, and addressed as shown below, or to such other address
as either party may, from time to time, designate in writing. Written notice may
be given by telecopy to the telecopier number shown below as either party may
designate, from time to time, in writing, provided that such notice shall not be
deemed effective unless it is confirmed within 24 hours by hand delivery,
courier delivery or mailing of a copy of such notice in accordance with the
requirements set forth above.
7
<PAGE>
If to Lender: Greyhound Financial Corporation
(two copies) Dial Tower
Dial Corporate Center
1850 North Central Avenue
Phoenix, Arizona 85077-1141
Attn: Vice President - Law
Telecopy: (602) 207-5036
and
Greyhound Financial Corporation
311 So. Wacker, Suite 2725
Chicago, Illinois 60606
Attn: Portfolio Manager
Telecopy: (312) 322-7250
If to Guarantor: CPS Acquisition Corp.
3400 Carlisle St., Suite 500
Dallas, Texas 75204
Attn: Paul E. Kana
Telecopy: (214) 720-1380
As used herein the term "Business Day" means any day other than a Saturday,
Sunday or other day on which banks in Los Angeles, California or New York, New
York are require to close.
4.3 Terms used and not otherwise defined herein shall have the same
meanings given thereto in the Revolver Loan Documents. The recitals set forth
above are incorporated herein by this reference.
4.4 CHOICE OF LAW; JURISDICTION; VENUE; AND WAIVER OF JURY TRIAL.
------------------------------------------------------------
(a) THIS GUARANTY AND THE RIGHTS, DUTIES AND OBLIGATIONS OF THE
PARTIES THERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF ARIZONA AND TO THE EXTENT THEY PREEMPT THE LAWS OF
SUCH STATE, THE LAWS OF THE UNITED STATES.
(b) GUARANTOR: (A) HEREBY IRREVOCABLY SUBMITS ITSELF TO THE PROCESS,
JURISDICTION AND VENUE OF THE COURTS OF THE STATE OF ARIZONA, MARICOPA COUNTY,
AND TO THE PROCESS, JURISDICTION, AND VENUE OF THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA, FOR THE PURPOSES OF SUIT, ACTION OR OTHER
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE SUBJECT MATTER
HEREOF, OR, IF LENDER INITIATES SUCH ACTION, ANY COURT IN WHICH LENDER SHALL
INITIATE SUCH ACTION AND THE CHOICE OF SUCH VENUE SHALL IN ALL INSTANCES BE AT
LENDER'S ELECTION; AND (B) WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
HEREBY WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION, DEFENSE OR OTHERWISE IN
ANY SUCH SUIT, ACTION OR PROCEEDING ANY CLAIM THAT GUARANTOR IS NOT
8
<PAGE>
PERSONALLY SUBJECT TO THE JURISDICTION OF THE ABOVE-NAMED COURTS, THAT SUCH
SUIT, ACTION OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE
OF SUCH SUIT, ACTION OR PROCEEDING IS IMPROPER. GUARANTOR HEREBY WAIVES THE
RIGHT TO COLLATERALLY ATTACK ANY JUDGMENT OR ACTION IN ANY OTHER FORUM.
(c) LENDER AND GUARANTOR ACKNOWLEDGE AND AGREE THAT ANY CONTROVERSY
WHICH MAY ARISE UNDER THIS GUARANTY WOULD BE BASED UPON DIFFICULT AND COMPLEX
ISSUES AND THEREFORE, THE PARTIES AGREE THAT ANY LAWSUIT ARISING OUT OF ANY SUCH
CONTROVERSY SHALL BE TRIED BY A JUDGE SITTING WITHOUT A JURY, AND GUARANTOR
HEREBY KNOWINGLY AND VOLUNTARILY WAIVES TRIAL BY JURY IN ANY SUCH PROCEEDING.
(d) ALL OF THE PROVISIONS SET FORTH IN THIS PARAGRAPH ARE A MATERIAL
INDUCEMENT FOR LENDER'S MAKING THE REVOLVER LOAN TO BORROWER.
[INITIALS APPEAR HERE] GUARANTOR's Initials
----------------------
4.5 Any provision of this Guaranty which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and no such prohibition or unenforceability shall invalidate
or render unenforceable such provision in any other jurisdiction.
4.6 Notwithstanding anything herein to the contrary, this Guarantee shall
terminate upon the merger of Guarantor into Borrower.
4.7 Guarantor, at its sole cost and expense, agrees to deliver and supply
Lender with a favorable opinion of its independent legal counsel, which counsel
must be acceptable to Lender, confirming and substantiating, to the best of such
counsel's knowledge, the truth and accuracy of all its warranties and
representations.
4.8 In the event litigation or any other type of proceeding is commenced
to enforce or interpret this Guaranty, to recover damages for breach of this
Guaranty, to obtain declaratory relief in connection with this Guaranty, or
otherwise to obtain judicial relief in connection herewith, the prevailing party
shall be entitled to recover reasonable attorneys' fees as set by the court
sitting without a jury and all of the reasonable costs of that litigation or
proceeding, and any and all appeals therefrom, including, but not limited to,
taxable and nontaxable costs, together with interest on those attorneys' fees
and costs at the Default Rate.
9
<PAGE>
4.9 This Guaranty may be executed in any number of counterparts. Each
such counterpart shall be deemed to be an original instrument but all such
counterparts together shall constitute but one Guaranty.
4.10 This Guaranty sets forth the entire agreement of Guarantor and Lender
with respect to the subject matter hereof and supersedes all prior oral and
written agreements and representations by Lender to Guarantor. No modification
or waiver of any provision of this Guaranty or any right of Lender hereunder and
no release of Guarantor from any obligation hereunder shall be effective unless
in a writing executed by an authorized officer of Lender.
IN WITNESS WHEREOF, this Guaranty is executed to be effective as of that
date first appearing above.
GUARANTOR:
CPS ACQUISITION CORP.,
a Georgia corporation
By: /s/ Paul E. Kana
-----------------------------
Paul E. Kana, President
STATE OF ARIZONA )
) ss.
County of Maricopa )
This instrument was acknowledged before me this 30th day of December, 1994,
by Paul E. Kana, the President of CPS ACQUISITION CORP., a Georgia corporation,
on behalf of such corporation.
/s/ Tonja M. Moore
--------------------------------
Type/Print Name: Tonja M. Moore
----------------
Notary Public, State of Arizona
[SEAL OF TONJA M. MOORE APPEARS HERE]
My commission expires:
- ------------------------------
[SEAL OF TONJA M. MOORE APPEARS HERE]
10
<PAGE>
Lender hereby accepts this Guaranty and Subordination.
LENDER: GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
BY: /s/ Patricia Murray
----------------------------
Its: Vice President
11
<PAGE>
Schedule 1
NONE
12
<PAGE>
EXHIBIT 10.20
SUBORDINATION AND INTERCREDITOR AGREEMENT
-----------------------------------------
This Subordination and Intercreditor Agreement is made as of
this 29th day of December, 1994, among GREYHOUND FINANCIAL CORPORATION, a
Delaware corporation ("Senior Lender"), HANIFEN IMHOFF MEZZANINE FUND, L.P., a
Colorado limited partnership ("Subordinated Lender"), CPS ACQUISITION CORP., a
Georgia corporation ("Acquisition") and CPS SYSTEMS, INC., a Texas corporation
(the "Company"; Acquisition and Company being hereinafter collectively referred
to as "Borrower").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Senior Lender and Borrower have entered into a Term
Loan Agreement, and Senior Lender and the Company have entered into a Revolving
Loan and Security Agreement (as from time to time modified, extended, renewed,
or restated, the "Term Loan Agreement" and the "Revolving Loan Agreement,"
respectively, all of which shall be referred to collectively herein as the "Loan
Agreement"), each dated December 29, 1994, together with the other Credit
Facilities Documents (as defined in the Loan Agreement), whereby Senior Lender
has made and shall make available to Borrower the credit facilities
(collectively, the "Senior Loan") therein set forth, which Senior Loan is
secured by certain assignments of and security interests in the assets of
Borrower, now or hereafter existing, and the pledge of 100% of the issued and
outstanding common capital stock in each Borrower, all as more fully set forth
in the Credit Facilities Documents; and
WHEREAS, Subordinated Lender and the Company have entered into
a Note Agreement dated December 29, 1994 (the "Subordinate Debt Loan Agreement")
pursuant to which the Company has issued to Subordinated Lender its Senior
Subordinated Secured Note due December 31 in the principal amount of $2,100,000
(the "Subordinate Note"; the Subordinate Debt Loan Agreement, the Subordinate
Note, and all other documents or instruments executed in connection therewith,
as from time to time modified, extended, renewed or restated, collectively the
"Subordinated Loan Documents"); and
WHEREAS, as set forth in Section 19, Subordinated Lender shall
benefit from the execution and delivery of the Loan Agreement and the making of
the Senior Loan; and
WHEREAS, as a condition of the financial accommodations under
the Credit Facilities Documents, the parties hereto are required to enter into
this Agreement to establish the priority of the repayment of the Borrower's
debt, and to address certain related matters; and
WHEREAS, Subordinated Lender and Borrower desire to enter into
this Agreement in order to induce Senior Lender to enter into the Loan Agreement
with Borrower and to make the Senior Loan.
NOW, THEREFORE, for good and valuable consideration, the
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Definitions.
-----------
Except as otherwise provided herein, all capitalized terms
used in this Agreement shall have the meanings ascribed to such terms in the
Loan Agreement, provided that the following terms shall have the meanings set
--------
forth below:
<PAGE>
"Borrower's Property" means all assets, property and property
rights, of any kind or nature, tangible or intangible, now or hereafter
existing, in which Borrower owns, asserts or maintains an interest.
"Finally Paid" or "Final Payment," when used in connection
with the Senior Indebtedness shall mean the full, final and indefeasible payment
of all of the Senior Indebtedness and the irrevocable termination of Senior
Lender's obligation to make loans or other advances under the Revolving Loan
Agreement.
"Insolvency Proceeding" shall mean any proceeding commenced by
or against any Person under any provision of the Bankruptcy Code, or under any
other bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors, or proceedings seeking reorganization, arrangement, or other
similar relief.
"Liens" shall mean any mortgage, deed of trust, pledge, lien,
security interest, charge, set-off right or other encumbrances, whether now
existing or hereafter created, acquired or arising.
"Senior Indebtedness" means all principal, interest and other
obligations at any time due and owing by Borrower to Senior Lender arising out
of or incurred in connection with the Credit Facilities Documents or other
documents executed in connection with the Senior Loan (and any indebtedness
which refinances such principal, interest or other obligations), subject to the
provisions of Section 15, as modified, extended, renewed or restated, whether
direct or contingent, and whether now existing or hereafter created; provided,
--------
however, that for purposes hereof the term "Senior Indebtedness" shall not
- -------
include any obligations of Borrower to Senior Lender in respect of loans which
are not currently provided for in the Credit Facilities Documents. The foregoing
limitation shall not however result in the exclusion from Senior Indebtedness of
any capitalization of interest due under the Credit Facilities Documents as
currently in effect or the payment of default interest due under the Credit
Facilities Documents as currently in effect. Senior Indebtedness shall include,
without limitation, all interest which accrues on the principal amount of the
Senior Indebtedness subsequent to the commencement of a proceeding under Chapter
11 of the Bankruptcy Code, irrespective of whether or not such interest would be
allowed as a claim in such proceedings.
"Subordinated Indebtedness" means (i) all indebtedness of
Borrower to Subordinated Lender pursuant to the Subordinated Loan Documents and
all present and future loans, advances, debts, liabilities, obligations, and
indebtedness owing by Borrower to the Subordinated Lender, whether evidenced by
any note, or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any participation by the Subordinated Lender in
Borrower's debts owing others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees and any other sums chargeable to Borrower and (ii) any payments to the
Subordinated Lender in redemption or purchase of warrants, capital stock,
partnership interest, ownership interest or equity of the Borrower held by such
Subordinated Lender or any other payment in respect of warrants, capital stock,
partnership interest, ownership interest or equity of the Borrower.
"UCC" shall mean Article 9 of the Uniform Commercial Code, as
in effect in the State of Arizona from time to time, unless the context
otherwise requires.
2. Subordination.
-------------
Subordinated Lender hereby postpones and subordinates, to the
extent and in the manner provided in this Agreement, all of the Subordinated
Indebtedness to the Final Payment of all of
-2-
<PAGE>
the Senior Indebtedness. Subordinated Lender hereby agrees that all claims and
rights of any kind Subordinated Lender may now have or hereafter acquire against
Borrower and Borrower's Property resulting from Subordinated Indebtedness shall
be subordinate and subject to the claims and rights against Borrower and/or
Borrower's Property of Senior Lender arising from or out of the Senior
Indebtedness, to the extent and in the manner set forth in this Agreement. If
Borrower issues any instrument or document evidencing the Subordinated
Indebtedness each such instrument and document shall bear a conspicuous legend
that it is subordinated to the Senior Indebtedness in accordance with the terms
of this Agreement. Borrower's books shall be marked to evidence the
subordination of all of the Subordinated Indebtedness to the holder of Senior
Indebtedness, in accordance with the terms of this Agreement. Senior Lender is
authorized to examine such books from time to time and to make any notations
required by this Agreement.
3.(A). Warranties and Representations of Borrower and
---------- --- --------------- -- -------- ---
Subordinated Lender.
- ------------ ------
Borrower and Subordinated Lender each hereby severally
represents and warrants to the Senior Lender that the Senior Lender has been
furnished with a true and correct copy of all instruments and securities
evidencing or pertaining to the Subordinated Indebtedness. Borrower hereby
represents and warrants to the Senior Lender that this Agreement has been duly
executed and delivered by Borrower and constitutes a legal, valid and binding
obligation of Borrower enforceable in accordance with its terms except to the
extent that the enforceability thereof may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting generally the enforcement of creditors' rights and
remedies and general principles of equity. Subordinated Lender represents and
warrants to the Senior Lender: (A) that this Agreement has been duly executed
and delivered by Subordinated Lender and constitutes a legal, valid and binding
obligation of Subordinated Lender enforceable against the Subordinated Lender in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws from time to time in effect affecting generally the
enforcement of creditors' rights and remedies and general principles of equity;
(B) that Subordinated Lender is a limited partnership duly formed, validly
existing and in good standing under the laws of Colorado, and in good standing
and authorized to do business in each jurisdiction in which a failure to so
qualify would have a material adverse effect on the financial condition,
operations, prospects, profits, business or property of Subordinated Lender; (C)
that the execution, delivery, and performance by Subordinated Lender of this
Agreement do not and will not conflict with or contravene any law, rule,
regulation, judgment, order or decree of any government, governmental
instrumentality or court having jurisdiction over Subordinated Lender or
conflict with, or result in any default under Subordinated Lender's charter,
articles of incorporation or similar instrument or any agreement or instrument
of any kind to which Subordinated Lender is a party or by which Subordinated
Lender or the properties of Subordinated Lender are bound, except for those as
to which consents have been obtained and are in full force and effect, and
except where such conflict or contravention will not have a material adverse
effect on the financial condition, operations, prospects, profits, business or
property of Subordinated Lender; (D) that Subordinated Lender is the holder and
owner of all of the Subordinated Indebtedness, together with all claims and
rights in connection therewith, arising therefrom or evidenced thereby; (E) that
neither the execution and delivery by Subordinated Lender of this Agreement nor
the performance by Subordinated Lender hereunder requires the consent, approval,
order, or authorization of, or registration with, or the giving of notice to any
governmental authority, domestic or foreign, or any other person or entity,
except such consents as have been obtained by Subordinated Lender and are in
full force and effect, and except where the failure to obtain such consent will
not have a material adverse effect on the financial condition, operations,
prospects, profits, business or property of Subordinated Lender; and (F) that it
has not relied and shall not rely on any representation or information of any
nature made by or received from Senior Lender relative to Borrower in deciding
to execute this Agreement or to permit it to continue in effect.
-3-
<PAGE>
3(B). Warranties and Representations of Senior Lender.
---------- --- --------------- -- ------ ------
Senior Lender represents and warrants to the Subordinated
Lender: (A) that this Agreement has been duly executed and delivered by Senior
Lender and constitutes a legal, valid and binding obligation of Senior Lender
enforceable against the Senior Lender in accordance with its terms, except to
the extent that the enforceability hereof may be limited by any applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws from time to
time in effect affecting generally the enforcement of creditors' rights and
remedies and general principles of equity; (B) that Senior Lender is a
corporation duly formed, validly existing and in good standing under the laws of
Delaware; (C) that all necessary corporate actions have been taken by Senior
Lender to authorize the execution and delivery by Senior Lender of this
Agreement and the performance of its obligations hereunder; (D) that the
execution, delivery, and performance by Senior Lender of this Agreement do not
and will not conflict with or result in any default under Senior Lender's
articles of incorporation, bylaws or other governing instrument, or any
agreement or instrument of any kind to which Senior Lender is a party or by
which Senior Lender or its properties are bound, except for those as to which
consents have been obtained and are in full force and effect, and except where
such conflict or contravention will not have a material adverse effect on the
financial condition, operations, prospects, profits, business or property of
Senior Lender; (E) that Senior Lender is the holder and owner of all of the
Senior Indebtedness, together with all claims and rights in connection
therewith, arising therefrom or evidenced thereby; and (F) that it has not
relied and shall not rely on any representation or information of any nature
made by or received from Subordinated Lender relative to Borrower in deciding to
execute this Agreement or to permit it to continue in effect.
4. Negative Covenants.
-------- ---------
Until all of the Senior Indebtedness has been fully and
finally paid: (A) Borrower shall not, directly or indirectly, grant a security
interest in, mortgage, pledge, assign or transfer any properties, to secure or
satisfy all or any part of the Subordinated Indebtedness, except for a Lien on
the Collateral (as defined in the Term Loan Agreement) which is junior to the
Lien in favor of Lender on such Collateral and is subject to the terms of this
Subordination Agreement; (B) Subordinated Lender shall not demand or accept from
Borrower or any other person any such collateral, except for a Lien on the
Collateral (as defined in the Term Loan Agreement) which is junior to the Lien
in favor of Lender on such Collateral and is subject to the terms of this
Subordination Agreement; (C) Borrower shall not discharge the Subordinated
Indebtedness other than in accordance with its terms; (D) Subordinated Lender
shall not demand or accept from Borrower or other person any consideration which
would result in a discharge of the Subordinated Indebtedness other than in
accordance with its terms; (E) Subordinated Lender shall not hereafter give any
subordination in respect of the Subordinated Indebtedness or convert any or all
of the Subordinated Indebtedness to capital stock, equity, ownership interest or
other securities of Borrower; (F) Subordinated Lender shall not transfer or
assign any of the Subordinated Indebtedness to any person, except upon the
condition that such transferee or assignee shall have agreed in writing to be
bound by the terms of this Agreement as a Subordinated Lender hereunder; (G)
Borrower shall not hereafter issue any instrument, security or other writing
evidencing any part of the Subordinated Indebtedness, and Subordinated Lender
shall not receive any such writing, except upon the condition that such security
shall bear the legend referred to in Section 2 above and a true copy thereof
shall be furnished to Senior Lender; (H) Borrower shall not directly or
indirectly redeem or purchase any warrants, capital stock, ownership interest or
other equity interest in Borrower held by Subordinated Lender; (I) Subordinated
Lender shall not demand or accept from Borrower or any other person, any
payments in redemption or purchase of any warrants, capital stock, ownership
interest or other equity interest in Borrower held by Subordinated Lender; (J)
neither Borrower nor Subordinated Lender otherwise shall take any action
contrary to Senior Lender's priority position over Subordinated Lender that is
created by this Agreement; and (K) Subordinated Lender agrees not to exercise
any warrants to purchase any capital stock of Borrower.
-4-
<PAGE>
5. Payments of Subordinated Indebtedness.
-------- -- ------------ ------------
Until all of the Senior Indebtedness has been Finally Paid,
Borrower shall not make and Subordinated Lender shall not accept any direct or
indirect payment in cash, property or securities, by set-off or otherwise, with
respect to any Subordinated Indebtedness, including, without limitation, any
principal or interest payments, except to the extent permitted in this Section 5
or Section 6. Borrower shall be permitted to make payments of interest only in
respect of the Subordinated Indebtedness in accordance with the provisions of
the Subordinated Debt Loan Agreement, and to pay the expenses described in
Sections 5.1(e) and 6.17 of the Subordinate Debt Loan Agreement provided that
(i) no Event of Default under Section 8.1 of the Term Loan Agreement or Section
8.1 of the Revolving Loan Agreement, each as in effect on the date hereof,
exists at the time of such payment or (ii) such payment does not occur during
any Standstill Period, as described in Section 6 hereof. Notwithstanding the
foregoing, Subordinated Lender may demand, receive and retain such payments
until the Senior Lender has given a Default Notice as described in Section 6
hereof.
6. Prohibition on Payments.
----------- -- --------
(A) The foregoing provisions of Section 5 to the contrary
notwithstanding, upon the happening of any Event of Default or any Incipient
Default under Section 8.1.6 of the Loan Agreement under and as defined in the
Loan Agreement and upon receipt by Subordinated Lender of written notice (the
"Default Notice") from the Senior Lender, no direct or indirect payment in cash,
property or securities, by setoff or otherwise, shall be made or agreed to be
made by the Borrower or accepted by the Subordinated Lender on account of the
principal of, premium or interest on or any other amounts due under the
Subordinated Loan Documents or in respect of any redemption, retirement or
acquisition of any of the indebtedness evidencing or due under the Subordinated
Loan Documents and the Borrower shall not segregate or hold in trust money for
any such payment or distribution, unless and until the earliest of the following
to occur has occurred: (i) Subordinated Lender has received a written notice
from the Senior Lender that the default referred to in such Default Notice has
been cured or waived by Senior Lender, or (ii) the expiration of 180 days
following the giving of the Default Notice (the period from the date the Default
Notice is given to the earlier to occur of the events described in clauses (i)
and (ii) of this sentence shall be referred to as the "Standstill Period").
Senior Lender shall not be entitled to give a Default Notice more than one time
in any 360 day period. Upon the expiration of the Standstill Period, the
Subordinated Lender shall be entitled, notwithstanding anything herein to the
contrary, to the immediate payment in full of all suspended payments of the
Subordinated Indebtedness to the fullest extent permitted by Section 5, and the
Subordinated Lender shall further be entitled to seek enforcement, collection,
or realization on such suspended payments of the Subordinated Indebtedness if
said suspended payments are not immediately so paid by Borrower.
(B) In the event that the Borrower shall make or Subordinated
Lender shall collect any payment on account of the principal of, premium or
interest on or any other amounts due under the Subordinated Indebtedness in
contravention of this Section 6, such payments shall be held in trust and paid
over and delivered to the Senior Lender.
(C) In the event that any failure of the Borrower to make or
the Subordinated Lender to receive any payment with respect to the Subordinated
Indebtedness as a result of the provision of this Section 6 shall be deemed a
default under the Subordinated Loan Documents, such event shall not give rise to
any right of Subordinated Lender to exercise any remedies otherwise available to
it, any provision of the Subordinated Loan Documents to the contrary
notwithstanding, until the expiration of the Standstill Period (unless earlier
permitted as provided in Section 7).
(D) Before Senior Lender shall be entitled to give a Default
Notice on account of an Event of Default or an Incipient Default (except for an
Event of Default or Incipient Default arising
-5-
<PAGE>
pursuant to Section 8.1.6 or any other Event of Default or Incipient Default
which is not reasonably susceptible to cure by Subordinated Lender), Senior
Lender shall first give Subordinated Lender a notice (which shall not be deemed
a Default Notice) of the Event of Default or Incipient Default and its intention
to give a Default Notice on account of such default and Subordinated Lender
shall have ten (10) days after receipt of such notice within which to cure
payment defaults and twenty (20) Business Days (as defined in the Term Loan
Agreement) to cure non-payment defaults.
7. Forbearance of Legal Remedies.
----------- -- ----- --------
(A) Subordinated Lender shall not exercise any remedies it may
have for an Event of Default under the Subordinated Loan Documents, except as
permitted below. The Subordinated Lender may exercise any of its rights and
remedies (in each case, subject at all times to the payment subordination and
lien subordination provisions set forth in this Agreement), at any time,
including, without limitation, accelerating the Subordinated Indebtedness;
provided, however, that the Subordinated Lender may not exercise any of its
remedies (including, without limitation, accelerating the Subordinated
Indebtedness) during a Standstill Period unless: (a) an Insolvency Proceeding
shall occur, (b) the Senior Lender commences legal proceedings against the
Borrower, or (c) payment of the Senior Indebtedness is accelerated.
(B) Nothing in this Agreement shall impair the right of
Subordinated Lender to foreclose any security interest in and sell or otherwise
dispose of any collateral securing the Subordinated Indebtedness which is not
then subject to a Lien granted in favor of the Senior Lender.
The Subordinated Lender agrees to provide the Senior Lender
with not less than ten (10) days prior written notice of its intent to exercise
any legal remedies (the "Subordinate Debt Notice Period"), which notice may be
given during a Standstill Period. In the event that Subordinated Lender has
commenced to sell, foreclose upon or liquidate any of the Borrower's Property
that is subject to a Lien securing Senior Indebtedness, Subordinated Lender will
permit Senior Lender to control such sale, foreclosure or liquidation if the
Senior Lender gives Subordinated Lender notice of its election to control such
sale, foreclosure or liquidation prior to the later to occur of the end of the
Subordinated Debt Notice Period or the expiration of any Standstill Period which
may be or become in effect, for so long as Senior Lender continues to diligently
pursue such sale, foreclosure, or liquidation in a commercially reasonable
manner in accordance with (S) 47-9504 of the UCC.
8. Subordinated Indebtedness Subordinated to Prior Payment of
------------ ------------ ------------ -- ----- ------- --
All Senior Indebtedness on Dissolution, Liquidation or Reorganization of the
- --- ------ ------------ -- ----------- ----------- -- -------------- -- ---
Borrower.
- --------
Upon any distribution of assets of the Borrower in any
dissolution, winding up, liquidation or reorganization of the Borrower (whether
in bankruptcy, insolvency or receivership proceedings or upon an assignment for
the benefit of creditors or otherwise) tending toward liquidation of the
business and assets of Borrower:
(A) the holder of all Senior Indebtedness shall first be
entitled to receive payment in full (or to have such payment duly provided for
in a manner previously agreed upon or otherwise satisfactory to it) of the
principal thereof, and premium and interest due thereon, and other amounts
payable comprising such Senior Indebtedness, before the Subordinated Lender is
entitled to receive any payment on account of the principal of, premium or
interest on or any other amounts due under the Subordinated Indebtedness; and
(B) any payment or distribution of assets of the Borrower of
any kind or character, whether in cash, property or securities, to which the
Subordinated Lender would be entitled except for these provisions, shall be paid
by the liquidating trustee or agent or other person making such payment or
-6-
<PAGE>
distribution directly to the holder of the Senior Indebtedness, to the extent
necessary to make payment in full of all Senior Indebtedness remaining unpaid,
after giving effect to any concurrent payment or distribution or provision
therefor to the holders of such Senior Indebtedness.
The Borrower shall give prompt written notice to the Senior
Lender and the Subordinated Lender of any dissolution, winding up, liquidation
or reorganization of the Borrower or any assignment for the benefit of any of
the creditors of the Borrower tending toward the liquidation of the business and
assets of the Borrower.
9. Obligation of Borrower Unconditional.
---------- -- -------- -------------
Nothing contained herein or in the Credit Facilities Documents
is intended to or shall impair, as between the Borrower and the Subordinated
Lender only, the obligation of the Borrower, which is absolute and
unconditional, to pay to the holder of the Subordinated Indebtedness the
principal of, premium (if any) and interest on the Subordinated Indebtedness as
and when the same shall become due and payable in accordance with their terms,
or to affect the relative rights of the Subordinated Lender and creditors of the
Borrower other than the Senior Lender.
10. Subordination Rights Not Impaired by Acts or Omissions of
------------- ------ --- -------- -- ---- -- --------- --
Borrower or Holder of Senior Indebtedness.
- -------- -- ------ -- ------ ------------
No right of any present or future holder of any Senior
Indebtedness to enforce subordination as provided herein shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Borrower, by any act or failure to act, in good faith, by any such holder,
by any act or failure to act by the other holder or by any noncompliance by the
Borrower with the terms hereof, regardless of any knowledge thereof which any
such holder may have or be otherwise charged with. This subordination shall
continue and shall be irrevocable until the date all of the Senior Indebtedness
has been fully and finally paid by Borrower or otherwise discharged and released
by the Senior Lender. Subordinated Lender shall not be released, nor shall
Subordinated Lender's obligation hereunder be in anyway diminished, by any of
the following: (A) the exercise or the failure to exercise by Senior Lender of
any rights or remedies conferred on it or them under the Credit Facilities
Documents hereunder or existing at law or otherwise, or against any of
Borrower's Property; (B) the commencement of an action at law or the recovery of
a judgment at law against Borrower or any obligor ("Obligor") for the
performance of the Senior Indebtedness and the enforcement thereof through levy
or execution or otherwise; (C) the taking or institution or any other action or
proceeding against Borrower or any Obligor; or (D) any delay in taking,
pursuing, or exercising any of the foregoing actions, rights, powers, or
remedies (even though requested by Subordinated Lender) by Senior Lender or
anyone acting for Senior Lender. Without limiting the generality of the
foregoing, and anything else contained herein to the contrary notwithstanding,
Senior Lender, from time to time, without notice to Subordinated Lender, may
take all or any of the following actions without in any manner affecting or
impairing the obligation or liability of Subordinated Lender hereunder: (I)
obtain a lien or a security interest in any property to secure any of the Senior
Indebtedness; (II) obtain the primary and secondary liability of any party or
parties with respect to any of the Senior Indebtedness; (III) renew, extend, or
otherwise change the time for payment of the Senior Loan or any installment
thereof for any period, subject to the provisions of Section 15; (IV) release or
compromise any liability of any nature of any person or entity with respect to
the Senior Indebtedness; (V) exchange, enforce, waive, release, and apply any of
Borrower's Property and direct the order or manner of sale thereof as Senior
Lender may in its discretion determine; (VI) enforce their rights hereunder,
whether or not Senior Lender shall proceed against any other person or entity;
(VII) agree to any amendment, modification, or alteration of the Credit
Facilities Documents and/or exercise its rights to consent to any action or
non-action of Borrower which may violate the covenants and agreements contained
in the Credit Facilities Documents with or
-7-
<PAGE>
without consideration, on such terms and conditions as may be acceptable to it;
or (VIII) exercise any of its rights conferred by the Credit Facilities
Documents or by law.
11. Authority to Act for Subordinated Lender.
--------- -- --- --- ------------ ------
Until the Senior Indebtedness has been Finally Paid, in the
event an Insolvency Proceeding shall occur and be continuing, if the
Subordinated Lender is within ninety (90) days of a final bar on exercising its
right to present a proof of debt, proof of claim, suit or other similar right
available for the purpose of protecting the Senior Lender's rights created by
the subordination herein (to the extent that any of the foregoing proofs,
procedures, or rights are relevant in the context of the particular Insolvency
Proceeding involved) and at least than 30 days have elapsed since the
establishment of such bar date, Subordinated Lender shall advise Senior Lender
prior to the date sixty (60) days before such final bar occurs whether
Subordinated Lender intends to exercise its rights and present a proof of debt,
proof of claim, file suit, or preserve such other rights as are available to
Subordinated Lender prior to the expiration of such rights. In the event that
Subordinated Lender advises Senior Lender of its intention to let any such
rights lapse, Senior Lender shall thereupon immediately have the right to act as
Subordinated Lender's attorney-in-fact for the purposes specified in the
remainder of this Section 11 (but solely to the extent that any of the actions
on behalf of Senior Lender authorized hereby are relevant in the context of the
particular Insolvency Proceeding involved). In the event Subordinated Lender,
regardless of whether Subordinated Lender notified Senior Lender of its
intention to preserve its rights or not, is within thirty (30) days of a final
bar on exercising its right to present a proof of debt, proof of claim, file
suit or exercise such other similar rights as are available to Subordinated
Lender, then upon five (5) days notice to Subordinated Lender, which notice can
be given commencing on the forty-fifth (45th) day prior to the date a final bar
would prevent Subordinated Lender from exercising its rights described above,
unless the Subordinated Lender within the five (5) day notice period presents
its proof of debt, proof of claim, suit or preserves such other similar right,
Senior Lender shall have the right to act as Subordinated Lender's
attorney-in-fact for the purposes specified herein, and Subordinated Lender
hereby irrevocably appoints Senior Lender its true and lawful attorney, with
full power of substitution, in the name of Subordinated Lender or in the name of
Senior Lender, for the use and benefit of Senior Lender, without further or
additional notice to Subordinated Lender or any of its representatives,
successors or assigns, to perform the following acts, at Senior Lender's option,
in such Insolvency Proceeding:
(A) To enforce or vote claims comprising the Subordinated
Indebtedness, either in its own name or in the name of Subordinated Lender, by
proof of debt, proof of claim, suit or otherwise; provided, however,
-------- -------
Subordinated Lender may preserve its right to vote claims comprising the
Subordinated Indebtedness in a manner not inconsistent with this Agreement if
Subordinated Lender has presented its proof of debt, proof of claim, or is
otherwise pursuing its claim, or if in circumstances where Senior Lender has
presented proof of debt, proof of claim, or otherwise filed suit to preserve
claims comprising the Subordinated Indebtedness pursuant to this Section 11, if
Subordinated Lender notifies Senior Lender of Subordinated Lender's intention to
pursue such claims within five (5) Business Days following the filing of any
such proof of debt, proof of claim, or suit by Senior Lender in respect of the
Subordinated Indebtedness; and
(B) To collect any assets of Borrower distributed, divided or
applied by way of dividend or payment, or any securities issued, on account of
the Subordinated Indebtedness and to apply the same, or the proceeds of any
realization upon the same that Senior Lender in its discretion elects to effect,
to the Senior Indebtedness until all of the Senior Indebtedness has been paid in
full, rendering any surplus to Subordinated Lender if and to the extent
permitted by law.
In no event shall Senior Lender be liable to Subordinated Lender for any failure
to prove the Subordinated Indebtedness, to exercise any right with respect
thereto or to collect any sums payable
-8-
<PAGE>
thereon. In the event that Senior Lender shall exercise its rights hereunder and
act as Subordinated Lender's attorney-in-fact, Senior Lender shall give notice
to Subordinated Lender of any of the foregoing actions within five (5) Business
Days following such act; provided, however, that the failure of Senior Lender to
give such notice to Subordinated Lender shall not invalidate or otherwise limit
the effectiveness of any act undertaken by Senior Lender as attorney-in-fact for
Subordinated Lender hereunder, or otherwise provide any rights to Subordinated
Lender hereunder.
12. Waivers.
-------
Borrower and Subordinated Lender each hereby waives any
defense based on the adequacy of a remedy at law which might be asserted as a
bar to the remedy of specific performance of this Agreement in any action
brought therefor by Senior Lender. To the fullest extent permitted by law and
except as otherwise expressly provided in Section 6(A) hereof, Borrower and
Subordinated Lender each hereby further waives: presentment, demand, protest,
notice of protest, notice of default or dishonor, notice of payment or
nonpayment and any and all other notices and demands of any kind in connection
with all negotiable instruments evidencing all or any portion of the Senior
Indebtedness or the Subordinated Indebtedness to which Borrower or Subordinated
Lender may be a party; notice of any loans made, extensions granted subject to
the provisions of Section 15 or other action taken in reliance thereon; and all
other demands and notices of every kind in connection with this Agreement, the
Senior Indebtedness or the Subordinated Indebtedness; prior notice of and
consent to any loans made, extension granted or other action taken in reliance
thereon; and all other demands and notices of every kind in connection with this
Agreement or the Senior Indebtedness. Senior Lender shall give notice to
Subordinated Lender of any of the foregoing acts within five (5) Business Days
following such act, provided, however, that the failure of Senior Lender to give
such notice to Subordinated Lender shall not invalidate or otherwise limit the
effectiveness of any act undertaken by Senior Lender or provide any rights to
Subordinated Lender hereunder. Subject to the provisions of Section 15,
Subordinated Lender assents to any release, renewal, extension, compromise or
postponement of the time of payment of the Senior Indebtedness, to any
substitution, exchange or release of collateral therefor and to the addition or
release of any person primarily or secondarily liable thereon.
13. Indulgences Not Waivers.
----------- --- -------
Neither the failure nor any delay on the part of Senior Lender
to exercise any right, remedy, power or privilege hereunder shall operate as a
waiver thereof or give rise to an estoppel, nor be construed as an agreement to
modify the terms of this Agreement, nor shall any single or partial exercise of
any right, remedy, power or privilege with respect to any occurrence be
construed as a waiver of such right, remedy, power or privilege with respect to
any other occurrence. No waiver by a party hereunder shall be effective unless
it is in writing and signed by the party making such waiver, and then only to
the extent specifically stated in such writing.
14. Reliance on Judicial Order or Certificate of
-------- -- -------- ----- -- ----------- --
Liquidating Agent.
- ----------- -----
Upon any payment or distribution of assets of the Borrower
referred to in this Agreement, the Subordinated Lender shall be entitled to rely
upon any order or decree entered by any court of competent jurisdiction in which
such insolvency, bankruptcy, receivership, liquidation, reorganization,
dissolution, winding up or similar case or proceeding is pending, or a
certificate of a trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee for the benefit of creditors, agent or other person making
such payment or distribution, delivered to the Subordinated Lender, for the
purpose of ascertaining the persons entitled to participate in such payment or
distribution, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto.
-9-
<PAGE>
15. Amendment of the Credit Facilities Documents and the
--------- -- --- ------ ---------- --------- --- ---
Subordinated Loan Documents.
- ------------ ---- ---------
Notwithstanding anything herein to the contrary, the Senior
Lender agrees that it will not, without the prior written consent of the
Subordinated Lender, amend the Credit Facilities Documents so as to increase the
financial terms thereof [including, without limitation, the amount of principal,
rate of interest (other than with respect to fluctuations in a variable rate of
interest in accordance with the terms of the Loan Agreement or with respect to
the application of the Default Rate of interest, as provided in the Loan
Agreement], fees, annual cash flow recapture prepayments, and prepayment
premiums, if any), extend the maturity of the Loan, add or change any covenants
in a manner materially more restrictive to the Borrower. Subordinated Lender
agrees that it will not, without the consent of the Senior Lender, amend the
Subordinated Loan Documents so as to increase the financial terms thereof
(including, without limitation, the amount of principal, rate of interest,
dividends, fees and prepayment premiums, if any), extend the maturity thereof,
add or change any covenants in a manner materially more restrictive to the
Borrower, or effect any other modification to the Subordinated Loan Documents,
which would be materially adverse to the Senior Lender.
16. Inconsistent or Conflicting Provisions.
------------ -- ----------- ----------
In the event any provision of the Credit Facilities Documents
or the Subordinated Loan Documents is inconsistent with the provisions of this
Agreement, the provisions of this Agreement shall govern and prevail.
17. Default.
-------
Subject to applicable notice and/or grace periods, if any, if
any representation or warranty of Borrower or Subordinated Lender in this
Agreement or in any instrument evidencing, securing or relating to the Senior
Indebtedness proves to have been materially false when made, or, in the event of
a breach by either the Borrower or Subordinated Lender in the performance of any
of the material terms of this Agreement, or any instrument or agreement
evidencing, securing or relating to the Senior Indebtedness, all of the Senior
Indebtedness shall, at the option of Senior Lender, become immediately due and
payable without presentment, demand, protest, or notices of any kind,
notwithstanding any time or credit otherwise allowed. At any time Subordinated
Lender fails to comply with any material term of this Agreement that is
applicable to Subordinated Lender, Senior Lender may demand specific performance
of this Agreement, whether or not Borrower has complied with this Agreement, and
may exercise any other remedy available at law or equity.
18. Notices.
-------
All notices, requests, demands and other communications
required or permitted under this Agreement or by law shall be in writing and
shall be deemed to have been duly given, made and received only when delivered
against receipt or when deposited in the United States mails, certified or
registered mail, return receipt requested, postage prepaid, addressed as set
forth below, and actually presented at the address of the notice party.
(A) If to Senior Lender:
((two copies)
Greyhound Financial Corporation
1850 North Central Avenue
Phoenix, Arizona 85007
Attention: Vice President - Law
-10-
<PAGE>
and
Greyhound Financial Corporation
311 So. Wacker, Suite 2725
Chicago, Illinois 60606
Attn: Portfolio Manager
(B) If to Subordinated Lender:
Hanifen Imhoff Mezzanine Fund, L.P.
1125 17th Street, Suite 2520
Denver, Colorado 80202
Attention: Edward C. Brown, Managing Partner
With a Copy to:
Holme, Roberts & Owen, LLC
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Jim Owen, Jr.
(C) If to Borrower:
CPS Systems, Inc.
3400 Carlisle, Suite 500
Dallas, Texas 75204
Attention: Ken Hoofard
With a Copy To:
Booth, Wade & Campbell
Cumberland Center II
3100 Cumberland Circle, Suite 1500
Atlanta, Georgia 30339
Attention: Larry D. Ledbetter, Esq.
Any addressee may alter the address to which communications
are to be sent by giving notice of such change of address in conformity with the
provisions of this Section for the giving of notice.
19. Benefit.
-------
Each of Subordinated Lender and Senior Lender represents and
warrants to the other that the making of the Senior Loan will benefit
Subordinated Lender and the making of the Subordinated Loan will benefit Senior
Lender; and each of Subordinated Lender and Senior Lender acknowledges to the
other that the other would not make the its loan(s) but for the execution of
this Agreement. Therefore, each of Senior Lender and Subordinated Lender has
received good, sufficient and adequate consideration for the making of this
Agreement.
-11-
<PAGE>
20. Entire Agreement.
------ ---------
This Agreement constitutes and expresses the entire
understanding between the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements and
understandings, inducements or conditions, whether express or implied, oral or
written. Neither this Agreement nor any portion or provision hereof may be
changed, waived or amended orally or in any manner other than by an agreement in
writing signed by Senior Lender, Borrower and Subordinated Lender.
21. Additional Documentation.
---------- -------------
Borrower and Subordinated Lender shall execute and deliver to
Senior Lender such further instruments and shall take such further action as
Senior Lender may at any time or times reasonably request in order to carry out
the provisions and intent of this Agreement.
22. Expenses.
--------
Borrower agrees to pay Senior Lender on demand all expenses of
every kind, including reasonable attorney's fees, that Senior Lender may
reasonably incur in enforcing any of its rights against Borrower under this
Agreement. As between Senior Lender and the Subordinated Lender, the
non-prevailing party shall pay to the prevailing party all expenses incurred by
the prevailing party in enforcing its rights against the nonprevailing party
under this Agreement.
23. Successors and Assigns.
---------- --- -------
This Agreement shall inure to the benefit of Senior Lender and
Subordinated Lender, their respective successors and assigns, and shall be
binding upon the parties hereto and their respective successors and assigns,
including, without limitation, any subsequent holders of the Subordinate Note.
Senior Lender, without notice of any kind, may sell, assign or transfer the
Senior Indebtedness, and in such event each and every immediate and successive
assignee or transferee thereof may be given the right by Senior Lender to
enforce this Agreement in full against Borrower and Subordinated Lender, by suit
or otherwise, for its own benefit. Subordinated Lender agrees, for the benefit
of any such assignee or transferee, that Subordinated Lender's obligations
hereunder shall not be subject to any reduction, abatement, defense, set-off,
counterclaim or recoupment for any reason whatsoever.
24. Covenant Not to Challenge.
-------- --- -- ---------
This Agreement has been negotiated by the parties with the
expectation and in reliance upon the assumption that the instruments and
documents evidencing the Senior Indebtedness are valid and enforceable. In
determining whether to enter into this Agreement, Subordinated Lender has
assumed such validity and enforceability, and has agreed to the provisions
contained herein, without relying upon any reservation of a right to challenge
or call into question such validity or enforceability. Except as otherwise
permitted by the UCC, as between Senior Lender and Subordinated Lender,
Subordinated Lender hereby covenants and agrees that it shall not initiate in
any proceeding a challenge to the validity or enforceability of the documents
and instruments evidencing the Senior Indebtedness, nor shall Subordinated
Lender instigate other parties to raise any such challenges, nor shall
Subordinated Lender participate in or otherwise assert any such challenges which
are raised by other parties. The foregoing notwithstanding, in the event that
any other party is independently successful in establishing the invalidity or
unenforceability of any of the documents or instruments evidencing the Senior
Indebtedness, then Subordinated Lender shall be entitled to the benefit of such
result, and Subordinated Lender shall not be bound by the subordination
provisions of this Agreement to the extent of such invalidity or enforceability.
-12-
<PAGE>
25. Subrogation.
-----------
Subject to the foregoing provisions hereof, provided that the
Senior Indebtedness has been paid in full (and shall not be subject to avoidance
under Section 547 of the Bankruptcy Code) the Subordinated Lender shall be
subrogated, to the extent of such Senior Indebtedness so paid, to the rights of
the holder of such Senior Indebtedness to receive payments or distributions or
assets of the Borrower that secure such Senior Indebtedness until all amounts
owing on the Subordinated Indebtedness shall be paid in full. For the purpose of
such subrogation no payments or distributions to the holder of the Senior
Indebtedness by or on behalf of the Borrower or by or on behalf of Subordinated
Lender by virtue of the provisions hereof which otherwise would have been made
to the Subordinated Lender shall, as between the Borrower, a creditor of the
Borrower (other than Subordinated Lender and the Senior Lender) and the
Subordinated Lender, be deemed to be payment by the Borrower to or on account of
the Senior Indebtedness, it being understood that the provisions of this
Agreement are, and are intended solely, for the purpose of defining the relative
rights of Subordinated Lender on the one hand, and Senior Lender on the other
hand. In the event that Subordinated Lender turns over to any Senior Lender any
payment or contributions received by it in accordance with this Agreement,
Subordinated Lender shall, for purposes of determining whether an a default
under the Subordinated Loan Documents has occurred, be deemed never to have
received such payment or distribution. In the event that Borrower fails to make
any payment on account of the Subordinated Indebtedness by reason of any
provision contained herein, such failure shall, notwithstanding such provision
contained herein, constitute a default with respect to the Subordinated
Indebtedness if and to the extent such failure would otherwise constitute such a
default in accordance with the terms of the Subordinated Indebtedness.
26. Termination of Subordination: Turn Over of Collateral.
----------- -- ------------- ---- ---- -- ----------
This subordination shall continue and shall be irrevocable
until the date all of the Senior Indebtedness has been Finally Paid by Borrower
or otherwise discharged and released by the Senior Lender. Upon or subsequent to
the termination of this Agreement, the Senior Lender shall, upon Subordinated
Lender's request, turn over to Subordinated Lender any of Borrower's Property
then in the Senior Lender's possession, to the extent that Subordinated Lender
holds any Lien on or security interest in such Property of Borrower, including
but not limited to the certificates for shares of Acquisition and the Company
held by the Senior Lender pursuant to the Stock Pledge Agreements and related
stock powers. In determining whether Subordinated Lender holds any Lien on or
security interest in any Property of Borrower in Senior Lender's possession,
Senior Lender shall be entitled to rely upon the certification of any officer of
Subordinated Lender confirming the existence of Lien in favor of Subordinated
Lender, and Borrower hereby releases Senior Lender from any liability or
obligation arising as the result of Senior Lender's reliance upon such
certification and compliance with the terms of this Section requiring delivery
of such property to Subordinated Lender.
27. Reinstatement.
-------------
The obligations of Subordinated Lender under the Agreement
shall continue to be effective, or be reinstated, as the case may be, if at any
time any payment in respect of any Senior Indebtedness is rescinded or must
otherwise be restored or returned by Senior Lender by reason of any bankruptcy,
reorganization, arrangement, composition or similar proceeding or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, Borrower or any substantial part of its property, or
otherwise, all as though such payment had not been made.
28. Governing Law.
--------- ---
THE VALIDITY, CONSTRUCTION AND ENFORCEMENT OF THIS AGREEMENT
SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE STATE OF
-13-
<PAGE>
ARIZONA. BORROWER AND SUBORDINATED LENDER HEREBY AGREE THAT ALL ACTIONS OR
PROCEEDINGS INITIATED BY EITHER BORROWER OR SUBORDINATED LENDER AND ARISING
DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT SHALL BE LITIGATED IN A MARICOPA
COUNTY, ARIZONA SUPERIOR COURT OR THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF ARIZONA OR, IF SENIOR LENDER INITIATES SUCH ACTION, IN ADDITION TO
THE FOREGOING COURTS, ANY COURT IN WHICH SENIOR LENDER SHOULD INITIATE SUCH
ACTION, TO THE EXTENT SUCH COURT HAS JURISDICTION. EACH OF BORROWER AND
SUBORDINATED LENDER HEREBY EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED BY SENIOR LENDER AND HEREBY
WAIVES ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT FORUM OR AN IMPROPER FORUM
BASED UPON LACK OF VENUE. THE EXCLUSIVE CHOICE OF FORUM AS SET FORTH IN THIS
SECTION SHALL NOT BE DEEMED TO PRECLUDE THE ENFORCEMENT, BY SENIOR LENDER, OF
ANY JUDGMENT OBTAINED IN ANY OTHER FORUM OR THE TAKING, BY SENIOR LENDER, OF ANY
ACTION TO ENFORCE THE SAME IN ANY OTHER APPROPRIATE JURISDICTION, AND EACH OF
BORROWER AND SUBORDINATED LENDER HEREBY WAIVE THE RIGHT TO COLLATERALLY ATTACK
SUCH JUDGMENT OR ACTION.
29. Jury Trial.
---- -----
SENIOR LENDER, SUBORDINATED LENDER AND BORROWER WAIVE TRIAL BY
JURY IN ANY DISPUTE ARISING FROM, UNDER OR IN CONNECTION WITH THIS AGREEMENT,
EACH ACKNOWLEDGING AND AGREEING THAT ANY CONTROVERSY THAT MAY ARISE HEREUNDER
WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, WOULD BE BETTER
PRESENTED TO AND RESOLVED BY A COURT OF COMPETENT JURISDICTION BY A JUDGE
SITTING WITHOUT A JURY.
30. Severability.
------------
The provisions of this Agreement are independent of and
separable from each other. If any provision hereof shall for any reason be held
invalid or unenforceable, it is the intent of the parties that such invalidity
or unenforceability shall not affect the validity or enforceability of any other
provision hereof, and that this Agreement shall be construed as if such invalid
or unenforceable provision had never been contained herein.
31. Counterparts.
------------
This Agreement may be executed in any number of separate
counterparts, all of which, when taken together, shall constitute one and the
same instrument, notwithstanding the fact that all parties did not sign the same
counterpart.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GREYHOUND FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Patricia Murray
-----------------------------------
Name: Patricia Murray
------------------------------
Title: Vice President
-----------------------------
CPS ACQUISITION CORP., a Georgia
corporation
By: /s/ Paul E. Kana
-----------------------------------
Name: Paul E. Kana
------------------------------
Title: President
-----------------------------
CPS SYSTEMS, INC., a Texas
corporation
By: /s/ Paul E. Kana
-----------------------------------
Name: Paul E. Kana
------------------------------
Title: President
-----------------------------
HANIFEN IMHOFF MEZZANINE FUND,
L.P., a Colorado limited
partnership
By: HANIFEN IMHOFF CAPITAL
PARTNERS, a Colorado
general partnership,
General Partner
By: /s/ E. C. Brown
-----------------------------------
Name: E. C. Brown
------------------------------
Title: MANAGING PARTNER
-----------------------------
<PAGE>
EXHIBIT 10.22
SECURITY AGREEMENT (GENERAL)
------------------
THIS SECURITY AGREEMENT (the "Agreement"), is made as of the 29th day of
December, 1994, by CPS Systems, Inc., a Texas corporation having an address at
3400 Carlisle, Suite 500, Dallas, Texas 75204 ("Debtor"), in favor of Hanifen
Imhoff Mezzanine Fund, L.P., a Colorado limited partnership having an office at
1125 17th Street, Suite 2520, Denver, Colorado 80202 (which, together with its
successors, endorsees, transferees and assignees, is hereinafter referred to as
"Secured Party").
RECITALS
--------
A. Secured Party has agreed to make certain financing in an amount not to
exceed $2,100,000 available to Debtor and CPS Acquisition Corp, a Georgia
corporation, ("CPS Acquisition"), which will be merged into Debtor. Such
financing will be evidenced by a promissory note ("Note") of even date herewith
from Debtor and CPS Acquisition to Secured Party and advanced pursuant to the
terms and provisions of the Note Agreement ("Note Agreement") of even date
herewith by and among Debtor, CPS Acquisition and Secured Party. The Note, the
Note Agreement, this Agreement and all other documents evidencing, securing or
in any way related to the indebtedness evidenced by the Note, together with any
and all amendments, modifications, extensions and renewals of any of the
foregoing are collectively referred to herein as the "Financing Documents."
B. As further security for all amounts now or hereafter owing on the Note,
and for all obligations, liabilities and indebtedness of CPS Acquisition and/or
Debtor to Secured Party arising under, out of, pursuant to or in connection
with, the Note, the Note Agreement and the other Financing Documents, and as
further security for the performance of all agreements, covenants, terms and
conditions contained in the foregoing documents and instruments, Debtor has
agreed to grant to Secured Party a security interest in all of the personal
property described in Exhibit A attached hereto and by this reference made a
part hereof, whether now owned by Debtor or hereafter acquired, and all
substitutions or replacements thereof (such personal property, and the proceeds
of any sale, exchange, collection or other transfer thereof, is hereinafter
referred to as the "Collateral").
-1-
<PAGE>
C. Secured Party is willing to enter into the financing transaction
described in the Note Agreement only if Debtor executes and delivers this
Agreement.
D. Debtor acknowledges and agrees that the financing provided by Secured
Party in favor of CPS Acquisition and Debtor that is evidenced by the Note will
directly benefit Debtor.
NOW, THEREFORE, in reliance on the recitals above and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows:
AGREEMENT
---------
1. Creation of Security Interest. Debtor hereby grants to Secured Party a
-----------------------------
continuing security interest in, and does hereby sell, assign, convey, confirm,
pledge, mortgage and set over unto Secured Party, the Collateral and all of
Debtor's present and hereafter acquired right, title and interest in and to the
Collateral, for the purpose of securing payment of all indebtedness, obligations
and liabilities of CPS Acquisition and/or Debtor to Secured Party arising under,
out of, pursuant to, or in connection with, the Note, the Note Agreement and the
other Financing Documents and for the purpose of securing the performance of all
agreements, covenants, terms and conditions contained in the foregoing documents
and instruments.
2. Warranties, Representations and Covenants of Debtor. Debtor hereby
---------------------------------------------------
warrants, represents and covenants as follows:
(a) Debtor is, and as to portions of the Collateral to be acquired after
the date hereof, will be, the sole owner of the Collateral, free from any lien,
security interest, encumbrance or adverse claim of any kind whatsoever thereon
other than the lien in favor of Greyhound Financial Corporation ("Greyhound"),
granted pursuant to a Security Agreement and certain other security instruments
of even date herewith given by Debtor to Greyhound to secure two loans from
Greyhound in the aggregate principal amount of not more than $2,500,000 (the
"Greyhound Financing"). Except as otherwise provided herein, Debtor will not
permit any financing statement to be filed with respect to the Collateral or any
portion thereof or interest therein except in favor of Secured Party and
Greyhound. Debtor will notify Secured Party of, and
-2-
<PAGE>
all persons (other than Greyhound) at any time claiming the same or any interest
therein.
(b) The Collateral is not used or bought for personal, family or household
purposes.
(c) Debtor will, from time to time, upon the request of Secured Party,
execute and deliver one or more financing statements pursuant to the Uniform
Commercial Code as enacted in the jurisdictions in which all or any portion of
the Collateral and Debtor are located (the "UCC") and such additional security
instruments in form reasonably satisfactory to Secured Party and will pay the
cost of filing the same in all public offices wherever filing is deemed by
Secured Party to be reasonably necessary or desirable, and Debtor hereby
authorizes Secured Party and grants to Secured Party an irrevocable power of
attorney to the extent Debtor may lawfully do so to execute in the name and on
behalf of Debtor any such UCC financing statements or other security instruments
if Debtor fails to do so upon the request of Secured Party.
(d) Debtor will not, without the prior written consent of Secured Party,
sell, offer to sell, transfer, exchange, dispose of, lease, or otherwise deal
with the Collateral or any portion or interest therein, unless simultaneously
therewith new items of Collateral, which items shall be similar to those
proposed to be disposed of and which shall be of equal or greater replacement
value, are substituted therefor. All after-acquired personal property covered
hereby and all additions or replacements acquired pursuant to the provisions of
this paragraph shall immediately be and become a part of the Collateral, without
any other act, conveyance or mortgage on the part of Debtor, and not subject to
any other act, conveyance or mortgage on the part of Debtor, and not subject to
any other security interest or lien on such addition or replacement whether
senior or subordinate thereto, unless expressly recited or provided to the
contrary in this Agreement or in the other Financing Documents. If the
Collateral or any part thereof is sold, transferred, exchanged, or otherwise
disposed of, including as provided above, the security interest of Secured Party
shall extend to the proceeds of such sale, transfer, exchange or other
disposition.
(e) Debtor will cause the Collateral at
-3-
<PAGE>
all times to be kept insured at its own expense under one or more policies with
such companies, for such periods and amounts, against such risks and
liabilities, and in such form as are reasonably satisfactory from time to time
to Secured Party, with Secured Party as a named insured and with loss payable to
Secured Party and mortgagee clauses attached to all policies in favor of and in
form satisfactory to Secured Party. Such insurance policies shall provide, at a
minimum, for at least thirty (30) days prior written notice to Secured Party of
cancellation, termination, lapse, reduction in amount or material change in
coverage of such policies. Debtor will provide certificates of insurance to
Secured Party, together with evidence of payment of premiums thereon. Debtor
will promptly notify Secured Party of any loss or damage to the Collateral and
will not adjust or settle any such loss or damage without the written consent of
Secured Party. In the event of foreclosure of or sale under this Agreement, all
right, title and interest of Debtor in and to any insurance policies then in
force shall pass to the purchaser at any sale, and Secured Party is hereby
appointed attorney-in-fact for Debtor to assign and transfer the policies.
(f) Debtor will keep the Collateral free from any lien, security interest
or encumbrance (other than with regard to the Greyhound Financing or as
otherwise permitted in the Note Agreement) and in good condition, repair and
operating order and from time to time will promptly make needful and proper
repairs, replacements, renewals, additions, and betterments which may be
required by reason of use, wear, obsolescence, damage or destruction, however
caused, to the end that the good operation, condition and efficiency of the
Collateral shall not be impaired, and will not misuse, abuse, allow to
deteriorate, waste or destroy the Collateral or any part thereof, except for
ordinary wear and tear in the course of its normal and expected use. Debtor will
not use the Collateral in violation of any statute or governmental rule,
regulation or ordinance.
(g) Debtor will pay prior to delinquency all taxes and assessments assessed
against, levied upon, or placed against the Collateral or on account of its
ownership, use or operation, or upon this Agreement, and will deliver to Secured
Party, within ten (10) days after Secured Party's request, a receipt or other
evidence satisfactory to Secured Party of the payment thereof.
-4-
<PAGE>
(h) Debtor will execute, alone or with Secured Party, any document, will
procure any document and will do all other acts and pay all related costs, in a
timely and proper manner, which, either pursuant to the terms and provisions of
this Agreement or from the character or use of the Collateral may be reasonably
necessary or advisable to protect the Collateral, against the rights, claims or
interests of third persons, and will otherwise preserve and perfect the
Collateral as security hereunder. The specific undertakings required of Debtor
in this Agreement shall not be construed to exclude the aforementioned general
obligation.
(i) Debtor will furnish promptly to Secured Party such information
concerning the Collateral as Secured Party may from time to time reasonably
request, including, but not limited to accurate and detailed inventories of the
Collateral, and shall permit, and hereby authorizes, Secured Party, its
employees, agents and designees to examine and inspect the Collateral or any
portion thereof at any reasonable time wherever the same may be located and
shall at the request of Secured Party assemble the Collateral or such portion
thereof as may be designated by Secured Party, together with all documents and
records pertaining thereto, at such mutually convenient place as Secured Party
may designate.
3. Preservation of Collateral by Secured Party. Should Debtor refuse to
-------------------------------------------
make any payment, perform or observe any other covenants, conditions or
obligations, or take any other action which Debtor is obligated hereunder to
make, perform, observe, take or do, at the time or in the manner herein
provided, then Secured Party may, at Secured Party's sole discretion, without
notice to or demand upon Debtor and without releasing Debtor from any
obligation, covenant or condition hereof, make, perform, observe, take or do the
same in such manner and to such extent as Secured Party may deem necessary to
protect its security interest in or the value of the Collateral. Furthermore,
Secured Party may commence, defend, appeal or otherwise participate in any
action or proceeding purporting to affect its security interest in or the value
of the Collateral. Debtor hereby agrees to reimburse Secured Party on demand for
any payment made, or any expense incurred by Secured Party pursuant to the
foregoing authorization (including court costs and reasonable attorneys' fees
and disbursements), and agrees further to pay interest thereon at the default
rate of interest provided for in the Note, from the date of such payment or
expenditure.
-5-
<PAGE>
4. Use of Collateral by Debtor. Until an Event of Default (as defined
---------------------------
below) shall have occurred hereunder, Debtor may have possession of the
Collateral and use it in any lawful manner contemplated in the Financing
Documents and not inconsistent with this Agreement and not inconsistent with any
policy of insurance therefor.
5. Default. The occurrence of any event of default, as defined in the Note
-------
Agreement, shall constitute an "Event of Default" hereunder.
6. Remedies Upon Default. Upon the occurrence of an Event of Default,
---------------------
Secured Party may, in addition to exercising those remedies specified in any
other Financing Document, at any time, at its election, without further notice,
and to the extent permitted by law:
(a) Foreclose this Agreement and the security interest granted hereby,
as herein provided, or in any manner permitted by law, either personally,
through agents or by means of a court appointed receiver, in its sole
discretion, and take possession of all or any of the Collateral and exclude
therefrom Debtor and all others claiming through or under Debtor, and exercise
any and all of the rights and remedies conferred upon Secured Party by the Note,
the Note Agreement and the other Financing Documents or by applicable law,
either concurrently or in such order as Secured Party may determine, and sell,
lease or otherwise dispose of, or cause to be sold, leased or otherwise disposed
of in such order as Secured Party may determine, as a whole or in such parcels
as Secured Party may determine, the Collateral described in this Agreement, or
exercise any of the rights conferred upon the Secured Party by this Agreement,
the Note Agreement, the Note, or the other Financing Documents without affecting
in any way the rights or remedies to which Secured Party may be entitled under
any other Financing Document;
(b) Make such payments and do such acts as Secured Party may deem
reasonably necessary to protect its security interest in the Collateral,
including without limitation, paying, purchasing, contesting or compromising any
encumbrance, charge, claim or lien which is prior to or superior to the security
interest granted hereunder, and, in exercising any such powers or authority, pay
all expenses incurred in connection therewith, and all funds expended by
-6-
<PAGE>
Secured Party in protecting its security interest shall be deemed additional
indebtedness secured by this Agreement;
(c) Require Debtor to assemble the Collateral, or any portion thereof,
at any place or places designated by Secured Party, and promptly to deliver such
Collateral to Secured Party, or an agent or representative designated by it;
(d) Publicly or privately sell, lease or otherwise dispose of the
Collateral, without necessarily having the Collateral at the place of sale,
lease or disposition, and upon terms and in such manner as Secured Party may
determine. Secured Party may be a purchaser at any public sale. Unless the
Collateral is perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market, Secured Party will give Debtor
reasonable notice of the time and place of any public sale thereof or of the
time after which any private sale or any other intended disposition thereof is
to be made, and such notice, if given to Debtor pursuant to the provisions of
Paragraph 8 hereof at least ten (10) days prior to the date of any public sale
or disposition or the date after which any private sale or disposition may
occur, shall constitute reasonable notice of such sale, lease or other
disposition;
(e) Notify any account debtor or any other party obligated on or with
respect to any of the Collateral to make payment to Secured Party or its nominee
of any amounts due or to become due thereunder or with respect thereto and
otherwise perform its obligations with respect to the Collateral on behalf of
and for the benefit of Secured Party, and Secured Party may enforce collection
and performance with respect to any of the Collateral by suit or otherwise, in
its own name or in the name of Debtor or a nominee, and surrender, release or
exchange all or any part thereof; and compromise, extend or renew (whether or
not for longer than the original period) or transfer, assign or endorse for
collection or otherwise, any indebtedness or obligation with respect to the
Collateral, or evidenced thereby; and this Agreement shall constitute a
direction of full authority to any person obligated on or with respect to any of
the Collateral who has heretofore dealt or may hereafter deal with Debtor or
Secured Party, at the request and direction of Secured Party, to make payment
and performance directly to, in the name of, and on behalf of Secured Party of
any amounts or performance due or
-7-
<PAGE>
to become due thereunder or with respect thereto without proof of the default
relied upon, and any such person is hereby irrevocably authorized to rely upon
and comply with (and shall be fully protected by Debtor in so doing) any
request, notice or demand by Secured Party for the payment to Secured Party of
any payments which may be or may thereafter become due, or for the performance
of any undertakings, and shall have no duty to inquire as to whether any default
hereunder or under the Financing Documents has actually occurred or is then
existing; or
(f) Exercise any remedies of a Secured Party under the UCC or any other
applicable law.
To effectuate the foregoing, Debtor hereby agrees that if the Secured Party
demands or attempts to take possession of the Collateral or any portion thereof
in exercise of its rights and remedies hereunder or under any other Financing
Document, Debtor will promptly turn over and deliver possession thereof to
Secured Party, and Debtor authorizes, to the extent Debtor may now or hereafter
lawfully grant such authority, Secured Party, its employees and agents, and
potential bidders or purchasers to enter upon any or all of the premises where
the Collateral or any portion thereof may at the time be located (or believed to
be located) and Secured Party may (i) remove the same therefrom or render the
same inoperable (with or without removal from such location), (ii) repair,
operate, use or manage the Collateral or any portion thereof, (iii) maintain,
repair or store the Collateral or any portion thereof, (iv) view, inspect and
prepare for sale, lease or disposition the Collateral or any portion thereof,
(v) sell, lease, dispose of or consume the same or bid thereon, or (vi)
incorporate the Collateral or any portion thereof into any real estate owned by
Debtor.
In the event of an Event of Default and the exercise by Secured Party of
any of its rights hereunder, Debtor hereby agrees to indemnify and hold harmless
Secured Party and its employees, officers and agents, from and against any and
all liabilities, claims and obligations which may be incurred, asserted or
imposed upon them or any of them as a result of or in connection with any use,
operation, lease or consumption of any of the Collateral or as a result of
Secured Party's seeking after the occurrence of an Event of Default to obtain
performance of any of the obligations due with respect to the Collateral, except
such liabilities, claims or
-8-
<PAGE>
obligations as result from the gross negligence or intentional misconduct of
Secured Party, its employees, officers or agents.
The proceeds of any sale under this Paragraph 6 shall be applied by Secured
Party to the payment or reduction of the principal and interest under the Note
in such order, priority and proportions as Secured Party shall deem appropriate
in its sole and absolute discretion.
Secured Party shall have the right to enforce one or more remedies
hereunder or under the Financing Documents, successively or concurrently, and
such action shall not operate to estop or prevent Secured Party from pursuing
any further remedy which it may have, and any repossession or retaking or sale
of the Collateral pursuant to the terms hereof shall not operate to release
Debtor until full payment of any deficiency has been made in cash.
7. Remedies Cumulative. Any and all remedies herein expressly conferred
-------------------
upon Secured Party shall be deemed cumulative with, and not exclusive of, any
other remedy conferred hereby or by law or equity on Secured Party, and the
exercise of any one remedy shall not preclude the exercise of any other.
8. Notices. Any notice, request, demand, statement, authorization,
-------
approval, consent or acceptance made hereunder shall be in writing and shall be
hand delivered, sent by facsimile, sent by Federal Express or other reputable
overnight courier service, or by registered or certified mail, return receipt
requested, postage prepaid and shall be deemed given (i) when received, if hand
delivered, (ii) when a confirmation slip indicates the facsimile was received,
if sent by facsimile, or (iii) the next business day when sent by Federal
Express or other reputable overnight courier service for next day delivery. All
such notices shall be sent to Debtor and Secured Party as follows:
If to Debtor: CPS Systems, Inc.
3400 Carlisle, Suite 500
Dallas, Texas 75204
Attention: Paul E. Kana
Facsimile No. (214) 720-1380 or
(214) 855-1354
-9-
<PAGE>
with a copy to: Booth, Wade & Campbell
3100 Cumberland Circle
Suite 1500
Atlanta, Georgia 30339-5939
Attn: Larry D. Ledbetter, Esq.
Facsimile No. (404) 850-5079
If to Secured Party: Hanifen Imhoff
Mezzanine Fund, L.P.
c/o Hanifen Imhoff
Capital Partners
1125 17th Street
Suite 2520
Denver, Colorado 80202
Attn: Edward C. Brown
Facsimile No. (303) 291-5327
with a copy to: Holme Roberts & Owen LLC
1700 Lincoln Street
Suite 4100
Denver, Colorado 80203
Attn: Paul V. Franke, Esq.
Facsimile No. (303) 866-0200
Each party may designate a change of address by notice to the other party, given
as provided above.
9. Waivers. Secured Party may at any time and from time to time waive any
-------
one or more of the conditions contained herein, but any such waiver shall be
deemed to be made in pursuance hereof and not in modification thereof, and any
such waiver in any instance or under any particular circumstance shall not be
effective unless in writing and shall not be considered a waiver of such
condition in any other instance or any other circumstance.
10. Affixed Collateral. The inclusion in this Security Agreement of any
------------------
Collateral which may now be, or hereafter become, affixed or in any manner
attached to any real property given as security for the Note shall be without
prejudice to any claim at any time made by Secured Party that such Collateral
is, or has become, a part of such real property, or an accession to such real
property.
11. Time of Essence. Time is of the essence of this Agreement and all of
---------------
its provisions.
-10-
<PAGE>
12. Binding Upon Successors. All agreements, covenants, conditions and
-----------------------
provisions of this Agreement shall inure to and bind the successors and assigns
of all parties hereto (except as otherwise prohibited by this Agreement). The
term "Secured Party" shall also include any and all successors of Secured Party
and any endorsees, transferees, and assigns of the indebtedness secured hereby.
13. Construction of Agreement. The titles and headings of the paragraphs of
-------------------------
this Agreement have been inserted for convenience of reference only and are not
intended to summarize or otherwise describe the subject matter of such
paragraphs and shall not be given any consideration in the construction of this
Agreement.
14. Modification. This Agreement may not be modified, amended or
------------
terminated, except by an agreement in writing executed by the parties hereto.
Debtor acknowledges that this Agreement and the other Financing Documents set
forth the entire agreement and understanding of Secured Party, CPS Acquisition
and Debtor with respect to the financing evidenced by the Note and that no oral
or other agreements, understanding, representations or warranties exist with
respect to such financing other than those set forth in this Agreement and the
other Financing Documents.
15. Severability. If any term, covenant or provision of this Agreement
------------
shall be held to be invalid, illegal or unenforceable in any respect, this
Agreement shall be construed without such term, covenant or provision.
16. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED AND CONSTRUED UNDER THE
-------------
LAWS OF THE STATE OF COLORADO WITHOUT REGARD TO COLORADO'S CONFLICTS OF LAW
PRINCIPLES, EXCEPT AS REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE
EXTENT THAT PERFECTION OR THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE
SECURITY INTEREST CREATED HEREBY IS GOVERNED BY THE LAW OF A JURISDICTION OTHER
THAN THE STATE OF COLORADO.
17. Obligations Absolute. Debtor acknowledges that this Agreement and
--------------------
Debtor's obligations under this Agreement are and shall at all times continue to
be absolute and unconditional in all respects, and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature which might otherwise constitute a
-11-
<PAGE>
defense to this Agreement and the obligations of Debtor under this Agreement or
the obligations of any other person or party relating to this Agreement or the
obligations of Debtor hereunder or otherwise with respect to the financing
evidenced by the Note. This Agreement sets forth the entire agreement and
understanding of Secured Party and Debtor, and Debtor absolutely,
unconditionally and irrevocably waives any and all right to assert any defense,
setoff, counterclaim or crossclaim of any nature whatsoever with respect to this
Agreement or the obligations of Debtor under this Agreement or the obligations
of any other person or party relating to this Agreement or otherwise with
respect to the financing evidenced by the Note in any action or proceeding
brought by Secured Party to collect the indebtedness secured hereby, or any
portion thereof, or to enforce, foreclose and realize upon the liens and
security interests created by this Agreement and the other Financing Documents.
18. Jurisdiction. Debtor agrees to submit to personal jurisdiction in the
------------
State of Colorado in any action or proceeding arising out of this Agreement and,
in furtherance of such agreement, Debtor hereby agrees and consents that without
limiting other methods of obtaining jurisdiction, personal jurisdiction over
Debtor in any such action or proceeding may be obtained within or without the
jurisdiction of any court located in Denver, Colorado and that any process or
notice of motion or other application to any such court in connection with any
such action or proceeding may be served upon Debtor by registered or certified
mail to or by personal service at the address set forth above whether such
address be within or without the jurisdiction of any such court.
19. Authority. Debtor represents that Debtor (and the undersigned
---------
representative of Debtor, if any) has full power, authority and legal right to
execute and deliver this Agreement.
20. Conflict with Greyhound Financing/Intercreditor Agreement. This
----------------------------------------------------------
Agreement and all Financing Documents are subject to the following:
(a) TO THE EXTENT THAT ANY REQUIREMENT, COVENANT OR AGREEMENT CONTAINED
HEREIN IS ALSO REQUIRED BY OR REFERRED TO IN THE DOCUMENTS SETTING OUT THE
GREYHOUND FINANCING, COMPLIANCE WITH SUCH REQUIREMENT, COVENANT OR
-12-
<PAGE>
AGREEMENT IN THE GREYHOUND FINANCING SHALL BE DEEMED TO BE COMPLIANCE WITH SUCH
REQUIREMENT, COVENANT OR AGREEMENT IN THIS SECURITY AGREEMENT AND/OR THE OTHER
FINANCING DOCUMENTS, EVEN IF THERE IS NO ACTUAL COMPLIANCE UNDER THE FINANCING
DOCUMENTS; AND
(b) UNTIL THE GREYHOUND FINANCING IS FULLY SATISFIED, SECURED PARTY
AGREES TO FORBEAR FROM THE EXERCISE OF ANY REMEDY IT HAS HEREUNDER, UNDER THE
OTHER FINANCING DOCUMENTS OR BY LAW TO THE EXTENT BUT ONLY TO THE EXTENT
REQUIRED IN THE SUBORDINATION AND INTERCREDITOR AGREEMENT, DATED AS OF THE DATE
HEREOF, AMONG SECURED PARTY, GREYHOUND, DEBTOR AND CPS ACQUISITION.
21. Waiver of Jury Trial. Debtor hereby irrevocably and unconditionally
--------------------
waives, and Secured Party by its acceptance of this Agreement irrevocably and
unconditionally waives, any and all right to trial by jury in any action, suit
or counterclaim arising in connection with, out of or otherwise relating to this
Agreement, the Note Agreement or the other Financing Documents.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
DEBTOR:
------
CPS SYSTEMS, INC., a
Texas corporation
By: /s/ Paul E. Kana
------------------------------
Name: Paul E. Kana
----------------------------
Title: President
---------------------------
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<PAGE>
STATE OF ARIZONA )
) ss.
COUNTY OF MARICOPA )
The foregoing instrument was acknowledged before me this 30th day of
December, 1994, by Paul E. Kana as President of CPS Systems, Inc., a Texas
corporation, on behalf of said corporation.
WITNESS my hand and official seal.
(SEAL) /s/ Tonja M. Moore
-------------------------------------
Notary Public
My commission expires: ------[NOTARY PUBLIC SEAL APPEARS HERE]
-14-
<PAGE>
EXHIBIT A
---------
(Attached to and forming part of a Security Agreement, dated as
of December 29, 1994, by and between Hanifen Imhoff Mezzanine
Fund, L.P., a Colorado limited partnership ("Secured Party") and
CPS Systems, Inc. ("Debtor")
DESCRIPTION OF PERSONAL PROPERTY
--------------------------------
All of the following property now or at any time hereafter owned by Debtor
or in which the Debtor may now or at any time hereafter have any interest or
rights, together with all of Debtor's rights, title and interest therein and
thereto:
1. All goods of Debtor, including, without limitation, all machinery,
apparatus, equipment, fittings, fixtures, appliances, furnishings, inventory,
supplies and articles of personal property of every kind and nature whatsoever,
including, but not limited to, all customer lists, business records, supplies,
alarm systems, security systems, electronic monitoring equipment and devices,
all office furniture, equipment and supplies, all computer equipment, including,
without limitation, hard drives, printers, modems, terminals and connecting
blocks, cable and jacks, all communications equipment, studio equipment and
stereo equipment, all equipment used in the operation and/or maintenance of
Debtor's business, all cars, trucks, forklifts and other motor vehicles of any
kind and nature whatsoever owned or leased by Debtor and used in connection with
the operation of Debtor's business, all other supplies and inventories, all of
Debtor's right, title and interest as lessee or purchaser under any lease or
installment purchase arrangement for any televisions, telephones, communications
equipment, computer equipment and other equipment of any kind and nature
whatsoever used in connection with the operation of Debtor's business, and all
other tangible personal property and intangibles of any kind or character as
such term is defined in and subject to the provisions of the Colorado Uniform
Commercial Code.
2. All governmental or administrative permits, licenses, certificates,
consents and approvals relating to Debtor's business.
A-1
<PAGE>
3. All proceeds of or any payments due to or for the account of Debtor
under any policy of insurance (or similar agreement) insuring, covering or
payable upon loss, damage, destruction or other casualty or occurrence of or
with respect to any of the foregoing described Collateral, whether or not such
policy or agreement is owned or was provided by Debtor or names Debtor or
Secured Party as beneficiary or loss payee and all refunds of unearned premiums
payable to Debtor on or with respect to any such policies or agreements.
4. All goodwill, trademarks, trade names, names, option rights, purchase
contracts and agreements, books and records and general intangibles of Debtor
including, without limitation, all accounts, accounts receivable, deposit
accounts, money, contract rights, chooses in action, instruments, chattel paper,
documents and other rights of Debtor for payment of money for property sold or
leased, for services rendered, for money lent, or for advances or deposits made,
and any other intangible property of Debtor including, without limitation, any
and all rights of Debtor in, to or with respect to any and all accounts
maintained with Secured Party or any other party in which are held funds
relating to the indebtedness of Debtor to Secured Party and any and all of
Debtor's right, title and interest in and to any judgment, award, remuneration,
settlement, compensation, recovery or proceeds heretofore or hereafter made by
any governmental authority including those for any condemnation or right of
eminent domain, and all rights, privileges, authority and benefits therein (but
under no circumstances any of the liabilities, obligations or responsibilities
thereto).
5. All proceeds of, substitutions and replacement for, accessions to and
products of any of the foregoing in whatever form, including, without
limitation, cash, checks, drafts and other instruments for the payment of money
(whether intended as payment or credit items), chattel paper, security
agreements, documents of title and all other documents and instruments.
A-2
<PAGE>
EXHIBIT 10.23
SECURITY AGREEMENT (STOCK)
------------------
THIS SECURITY AGREEMENT (STOCK), dated as of December 29, 1994, is from
PAUL E. KANA ("Shareholder") to and for the benefit of HANIFEN IMHOFF MEZZANINE
FUND, L.P. (which, together with its successors, assigns, endorsees, transferees
and assignees, is hereinafter referred to as "Secured Party").
Recitals
--------
A. Shareholder is the owner of 2918 shares (the "Stock") of issued and
outstanding common stock of CPS Systems, Inc., a Texas corporation (the
"Company"), successor by merger to CPS Acquisition Corp., a Georgia corporation
("Acquisition Corp."), evidenced by Stock Certificates bearing the numbers set
forth on Exhibit A attached hereto, standing in the name of Shareholder on the
books of the Company.
B. Secured Party has made certain financing available to Acquisition Corp.
and the Company in the principal face amount of $2,100,000 (the "Indebtedness")
on and subject to the terms and conditions of a Note Agreement (the "Note
Agreement") of even date herewith by and between Acquisition Corp., the Company
and Secured Party. The Indebtedness is evidenced by a Promissory Note (the
"Note") of even date herewith in the principal face amount of $2,100,000 from
Acquisition Corp. and the Company payable to the order of Secured Party.
C. The funds comprising the Indebtedness were used by Acquisition Corp. in
connection with the purchase of all outstanding stock of the Company.
Immediately after such purchase, Acquisition Corp. was merged into the Company.
D. Such Indebtedness will directly benefit Shareholder, a shareholder of
the Company.
E. In order to more fully secure repayment of the Indebtedness, Shareholder
has agreed to grant a security interest in the Stock to Secured Party.
Agreement
---------
IN CONSIDERATION of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which
-1-
<PAGE>
are hereby acknowledged, Shareholder agrees with Secured Party as follows:
SECTION 1. Grant of Security. Shareholder hereby assigns and grants to
-----------------
Secured Party a lien on and security interest in, all of Shareholder's right,
title and interest in and to the Stock and, subject to Section 7 below, (a) all
rights of Shareholder to receive monies due or to become due with respect to any
or all of the Stock, (b) all dividends, cash, instruments and other property
from time to time received, receivable or otherwise distributed in respect of or
in exchange for or in connection with any or all of the Stock, c) all
additional shares of stock of the Company from time to time acquired by
Shareholder in respect of or in exchange for any or all of the Stock, and the
certificates representing such additional shares, and all dividends, cash,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the Stock,
and (d) to the extent not included in the foregoing, all proceeds of any or all
of the Stock (collectively the "Collateral").
SECTION 2. Security for Obligations. This Agreement secures the payment of
------------------------
all obligations of Acquisition Corp. and the Company to Secured Party now or
hereafter existing under this Agreement, the Note, the Note Agreement or any
other document, instrument or agreement evidencing, securing, or in any way
relating to the Indebtedness, including any extensions, replacements,
modifications, substitutions, amendments and renewals of this Agreement, the
Note, the Note Agreement or such other agreement (collectively the "Financing
Documents"), whether for principal, interest, fees, expenses or otherwise (all
such obligations being the "Obligations").
SECTION 3. Delivery of Collateral. Subject to the Greyhound Security
----------------------
Interest (as defined below), all certificates or instruments representing or
evidencing the Collateral shall be delivered to and held by or on behalf of
Secured Party pursuant hereto, and shall be in suitable form for transfer by
delivery, or shall be accompanied by duly executed instruments of transfer or
assignment in blank, all in form and substance acceptable to Secured Party.
Subject to the Greyhound Security Interest, Secured Party shall have the right,
at any time after the occurrence of an Event of Default, as defined herein, in
its discretion and without notice to Shareholder, to transfer to or to register
in the name of Secured Party or any of its nominees any or all of the
Collateral.
-2-
<PAGE>
SECTION 4. Release of Collateral. Upon payment in full of the entire
---------------------
outstanding amount of the Indebtedness and all accrued but unpaid interest and
all amounts due Secured Party hereunder, Shareholder shall be entitled to a
release of the Collateral.
SECTION 5. Representations and Warranties. Shareholder represents and
------------------------------
warrants as follows:
(a) Shareholder is the legal and beneficial owner of the Collateral free
and clear of any lien, claim, security interest, option, charge or encumbrance
whatsoever other than the security interest (the "Greyhound Security Interest")
granted in favor of Greyhound Financial Corporation, a Delaware corporation
("Greyhound"), which security interest is prior and superior to the security
interest granted herein and which is being given by Shareholder as security for
two loans from Greyhound to the Company in the original aggregate principal
amount of not more than $2,500,000 (the "Greyhound Financing"). The Collateral
is not subject to any trust or similar arrangement.
(b) Shareholder has legal title to and all necessary right and authority to
assign the Collateral and to deliver the Collateral, subject to the Greyhound
Security Interest. Except for the Greyhound Security Interest, the Collateral is
not subject to any restrictions on the sale or other transfer thereof.
(c) The Stock is duly authorized, validly issued and is fully paid and
nonassessable. The Stock is registered in the name of Shareholder on the
transfer records of the Company.
(d) There has been no transfer of ownership (record or otherwise) of the
Stock since the Stock was acquired by Shareholder.
(e) All of the Stock has been paid in full (and not subject to any short
position, put or other option to sell), and Shareholder has beneficially owned
(under the meaning of Rule 144 of the Securities Act of 1933) the Stock since
the date of the closing of the transaction described in Recital B above.
-3-
<PAGE>
(f) Upon the occurrence of an Event of Default, Secured Party may sell the
stock pursuant to and in accordance with (i) Rule 144(k) of the Securities Act
of 1933 and (ii) the terms of this Agreement.
(g) The Stock is common stock of the Company.
(h) Shareholder's social security identification number is ###-##-####.
(i) The delivery of the Collateral to Secured Party or its designee
pursuant to this Agreement will create a valid and perfected security interest
in the Collateral securing the payment of the Obligations.
(j) This Agreement constitutes a legal, valid and binding obligation of
Shareholder, enforceable against Shareholder in accordance with its terms.
(k) The execution, delivery and performance of this Agreement by
Shareholder does not and will not (i) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination or award
currently in effect having applicability to Shareholder or the Collateral or
(ii) violate, conflict with or result in a breach of or constitute a default
under any document, agreement, lease or instrument to which Shareholder is a
party or by which Shareholder or the Stock may be bound or affected.
(l) Except for the Greyhound Security Interest, Shareholder has made no
contract or arrangement of any kind, the performance of which contract or
arrangement by another party could give rise to a lien on the Collateral. Except
for the Greyhound Security Interest, Shareholder has not performed any acts or
entered into any agreement or contract of any kind which might prevent the
Secured Party from enforcing any of the terms and conditions of this Agreement
or selling the Collateral following foreclosure or which would limit the Secured
Party in any such enforcement. Except for the Greyhound Security Interest,
Shareholder is not a party to any agreement and no agreement exists which would
restrict or limit Shareholder's ability to grant a security interest in the
Collateral.
(m) None of the proceeds of the Indebtedness will be used for the purpose
of purchasing or carrying any
-4-
<PAGE>
"margin stock" as defined in Regulations U and G of the Board of Governors of
the Federal Reserve System (12 C.F.R. Parts 221 and 207), or for the purpose of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry a margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulations U and G.
Shareholder is not engaged in the business of extending credit for the purpose
of purchasing or carrying margin stock. Neither Shareholder nor any party acting
on behalf of Shareholder has taken or will take any action which might cause the
Note or any of the Financing Documents, including this Agreement, to violate
Regulations U or G or any other regulation of the Board of Governors of the
Federal Reserve System or to violate Section 7 of the Securities Exchange Act of
1934 or any rule or regulation thereunder, in each case as now in effect or as
the same may hereinafter be in effect.
SECTION 6. Covenants/Further Assurances.
----------------------------
(a) Shareholder agrees that, at any time and from time to time,
Shareholder will promptly execute and deliver all further instruments and
documents and take all further action that may be reasonably necessary or
desirable, or that Secured Party may reasonably request, in order to perfect and
protect the assignment and security interest granted or purported to be granted
hereby or to enable Secured Party to exercise and enforce its rights and
remedies hereunder with respect to any Collateral.
(b) Subject to Section 7 below and except as otherwise provided to the
contrary in the Greyhound Security Interest, Shareholder agrees to deliver all
cash, instruments and other property described in Section 1 above and all
additional shares of stock described in Section 1 above to Secured Party within
five days after receipt by Shareholder and to execute all security agreements,
stock powers and all other documents required to grant Secured Party a valid,
perfected security interest in such stock.
SECTION 7. Voting, Dividends and Other Payments.
------------------------------------
(a) So long as there exists no Event of Default hereunder:
-5-
<PAGE>
(i) Shareholder shall be entitled to exercise any and all voting and/or
consensual rights and powers relating or pertaining to the Stock for any purpose
not inconsistent with the terms hereof;
(ii) Shareholder shall be entitled to receive dividends made in the
ordinary course of business on the Stock; and
(iii) Subject to the Greyhound Security Interest, any and all stock or
liquidating dividends, distributions in property, returns of capital or other
distributions and payments made on or in respect of the Collateral, whether
resulting from a subdivision, combination or reclassification of the outstanding
Collateral or received in exchange therefor or for any part thereof or as a
result of any merger, consolidation, acquisition or other exchange of assets to
which any such issuer may be a party or otherwise, and any and all cash and
other property received in exchange for or redemption of any Collateral, shall
be and become part of the Collateral and, if received by Shareholder, shall be
held in trust by Shareholder for the benefit of Secured Party and shall
forthwith be delivered by Shareholder to Secured Party (registered in the name
of the Secured Party, or accompanied by proper instruments of assignment
executed by Shareholder, in accordance with the Secured Party's instructions) to
be held subject to the terms hereof.
(b) Upon the occurrence of an Event of Default all rights of Shareholder to
exercise the voting and/or consensual rights and powers which it is entitled to
exercise pursuant to Section 7(a) and to receive dividends pursuant to Section
7(a) shall, at Secured Party's option, immediately and without notice to
Shareholder, cease, and all such rights shall thereupon become vested in Secured
Party, subject to the Greyhound Security Interest, who shall have the sole and
exclusive right and authority, but shall not be obligated, to exercise such
voting and/or consensual rights and powers. Upon the occurrence of an Event of
Default, Secured Party shall, subject to the Greyhound Security Interest, be
entitled to receive dividends on the Collateral, which dividends shall be held
as additional collateral hereunder.
SECTION 8. Transfers and Other Liens. Shareholder shall not, without the
-------------------------
prior written consent of Secured Party:
-6-
<PAGE>
(a) Sell, assign or otherwise dispose of any of the Collateral; or
(b) Create or suffer to exist any lien, security interest or other charge
or encumbrance upon or with respect to any of the Collateral, except for the
assignments and security interests created by this Agreement and the Greyhound
Security Interest.
SECTION 9. Events of Default. The occurrence of an event of default,
-----------------
however defined, under any Financing Document shall constitute an event of
default ("Event of Default") under this Agreement and all other Financing
Documents.
SECTION 10. Remedies. Upon the occurrence of an Event of Default hereunder:
--------
(a) All rights of Debtor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to Section 7 and to
receive the distributions which it would otherwise be authorized to receive and
retain pursuant to Section 7 shall cease, and all such rights shall, at the
option of Secured Party, and subject to the Greyhound Security Interest,
thereupon become vested in Secured Party, who shall thereupon have the sole
right to exercise such voting and other consensual rights and to receive and
hold as Collateral such distributions.
(b) Subject to the Greyhound Security Interest, all payments received by
Shareholder under or in connection with the Collateral shall be received in
trust for the benefit of Secured Party, shall be segregated from other funds of
Shareholder and shall be forthwith paid over to Secured Party in the same form
as so received (with any necessary endorsement), to the extent of the
Obligations then due.
(c) Subject to the Greyhound Security Interest, Secured Party may exercise
in respect of the Collateral, in addition to other rights and remedies provided
for herein or otherwise available to it, all the rights and remedies of a
secured party on default under the Uniform Commercial Code (the "Code") in
effect in the State of Colorado at that time (whether or not the Code applies to
the affected Collateral) and also may without notice, except as specified below,
sell the Collateral or any part thereof in one or more parcels at
-7-
<PAGE>
public or private sale, at any of Secured Party's offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as Secured
Party may deem commercially reasonable. Shareholder agrees that, to the extent
notice of sale shall be required by law, at least five days' notice to
Shareholder of the time and place of any public sale or the time after which any
private sale is to be made shall constitute reasonable notification, but notice
given in any other reasonable manner or at any other reasonable time shall be
sufficient. Without precluding any other methods of sale, the sale of Collateral
shall have been made in a commercially reasonable manner if conducted in
conformity with reasonable commercial practices of banks disposing of similar
property, but in any event, the Secured Party may sell at its option on such
terms as it may choose without assuming any credit risk and without obligation
to advertise. Secured Party shall not be obligated to make any sale of
Collateral, regardless of notice of sale having been given. Secured Party may
adjourn any public or private sale from time to time by announcement at the time
and place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
(d) If Secured Party in good faith believes that the Securities Act of 1933
or any other state or federal law prohibits or restricts the customary manner of
sale or distribution of any of the Collateral, Secured Party may sell such
Collateral privately or in any other manner deemed advisable by Secured Party at
such price or prices as Secured Party determines in its sole discretion.
Shareholder recognizes that such prohibition or restriction may cause the
Collateral to have less value than it otherwise would have and that,
consequently, such sale or disposition by Secured Party may result in a lower
price than if the sale were otherwise held.
(e) Upon the occurrence of an Event of Default, subject to the Greyhound
Security Interest, the Company will pay to the Secured Party, as soon as
incurred, all costs and expenses, including attorneys' fees, related or
incidental to the care, retaking, preparing f or sale, selling or collection of
or realization upon any of the Collateral or relating or incidental to the
establishment or preserving or enforcement of the rights of the Secured Party
hereunder or in respect of any of the property, and obtaining legal advice
related to any of the foregoing. Further, that net proceeds of the
-8-
<PAGE>
Collateral, resulting from sale, collection or otherwise, and other available
moneys coming into the hands of the Secured Party may be applied by it, before
or after default, to the satisfaction or reduction of such of the Obligations or
costs and expenses as it may see fit, whether or not matured, in such order as
Secured Party determines, subject, however, to the Greyhound Security Interest.
(f) Subject to the Greyhound Security Interest, Secured Party shall have
the right, at any time after the occurrence of an Event of Default hereunder, in
its discretion and without notice to Shareholder, to transfer to or to register
in the name of Secured Party or any of its nominees any or all of the
Collateral.
(g) Subject to the Greyhound Security Interest, without any notice to
Shareholder, Secured Party may instruct the depository, transfer agent, trustee
or other holder of the Collateral to immediately pay over the Collateral to
Secured Party or sell the Collateral and pay the proceeds to Secured Party.
Shareholder hereby authorizes and instructs the depository, trustee, transfer
agent or holder of the Collateral to immediately pay over the Collateral to
Secured Party or sell the Collateral and pay the proceeds to Secured Party upon
notice from Secured Party without the need for any acknowledgement or consent by
Shareholder or further action on the part of Shareholder and Shareholder hereby
agrees to indemnify and hold harmless the depository, transfer agent, trustee or
other holder of the Collateral from and against any and all claims, demands,
causes of action, losses or expenses as a result of the depository, transfer
agent, trustee or other holder of the Collateral delivering the Collateral to
Secured Party or liquidating the Collateral and paying the proceeds to Secured
Party.
(h) Subject to the Greyhound Security Interest, Secured Party may exercise
all of the remedies set forth herein at any time and from time to time upon the
occurrence of any Event of Default and may exercise the remedies set forth
herein separately in connection with the occurrence of each Event of Default.
The exercise of any remedies herein in connection with one Event of Default
shall not prevent Secured Party from exercising any and all remedies set forth
herein in connection with any subsequent Event of Default.
-9-
<PAGE>
(i) In exercising its rights hereunder, Secured Party shall use reasonable
efforts, to the extent practical, to liquidate only so much of the Collateral as
is required to repay the Indebtedness and all other amounts due Secured Party.
SECTION 11. Secured Party Appointed Attorney-in-Fact. Upon the occurrence
----------------------------------------
of an Event of Default, and subject to the Greyhound Security Interest,
Shareholder irrevocably appoints Secured Party as Shareholder's attorney-in-
fact, with full authority in the place and stead of Shareholder and in the name
of Shareholder or otherwise, from time to time in Secured Party's discretion, to
take any action and to execute any instrument that Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement, including,
without limitation:
(a) to ask, demand, collect, sue for, recover, compromise, receive and give
acquittance and receipts for moneys due and to become due under or in respect of
any of the Collateral;
(b) to receive, endorse and collect any drafts or other instruments,
documents and chattel paper, in connection with clause (a) above;
(c) to file any claims or take any action or institute any proceedings
which Secured Party may deem necessary or desirable f or the collection of any
of the Collateral or otherwise to enforce the rights of Secured Party with
respect to any of the Collateral; and
(d) at Secured Party's option, to effect the transfer of record of the
Collateral in and to the name of Secured Party and to sell or otherwise transfer
the Collateral in accordance with the terms of this Agreement.
SECTION 12. Security Interest Absolute. Subject to Greyhound Security
--------------------------
Interest, Shareholder agrees that all rights of Secured Party and the assignment
and security interest hereunder and all obligations of Shareholder hereunder and
under the Financing Documents shall be absolute and unconditional, irrespective
of and Shareholder hereby consents to:
-10-
<PAGE>
(a) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations or any other amendment or
waiver of or any consent to any departure from the Financing Documents;
(b) any amendment, modification or restatement of the Financing
Documents;
(c) any exchange, release or nonperfection of any other collateral,
or any release or amendment or waiver of or consent to departure from any
guaranty, for all or any of the Obligations; or
(d) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, which might otherwise constitute a defense
available to, or a discharge of, Shareholder or a third-party grantor of a
security interest.
SECTION 13. Notices. Except as otherwise expressly provided herein, any
-------
notice required to be given to any party pursuant to any provision of this
Agreement, shall be (i) hand delivered, (ii) sent by Federal Express or other
nationally recognized overnight courier service, or (iii) sent by facsimile
transmission, and, if hand delivered shall be deemed received when delivered, if
sent by Federal Express or other nationally recognized overnight courier service
shall be deemed received one day after having been deposited with Federal
Express or other nationally recognized overnight courier service if designated
for next-day delivery, and if sent by facsimile transmission, when a
confirmation slip indicates the transmission was received, addressed as follows:
(a) If to Shareholder:
Paul E. Kana
Chairman and CEO
CPS Systems, Inc.
3400 Carlisle, Suite 500
Dallas, Texas 75204
Facsimile No. (214) 720-1380 or 855-1354
Phone No. (214) 855-5277
-11-
<PAGE>
With a copy to:
Larry D. Ledbetter, Esq.
Booth, Wade & Campbell
Cumberland Center II
3100 Cumberland Circle, Suite 1500
Atlanta, Georgia 30339-5939
Facsimile No. (404) 850-5079
Phone No. (404) 850-5000
(b) If to Secured Party:
Hanifen Imhoff Mezzanine Fund, L.P.
c/o Hanifen Imhoff Capital Partners
1125 17th Street, Suite 2520
Denver, Colorado 80202
Attention: Edward C. Brown
Facsimile No. (303) 291-5327
Phone No. (303) 291-5209
with a copy to:
Holme Roberts & Owen LLC
1700 Lincoln, Suite 4100
Denver, Colorado 80203
Attention: Paul V. Franke, Esq.
Facsimile No. (303) 866-0200
Phone No. (303) 861-7000
Any party may change its address for the giving of notice by notice
hereunder.
SECTION 14. Continuing Security Interest; Transfer of Note; Release of
----------------------------------------------------------
Collateral. This Agreement shall create a continuing security interest in the
- ----------
Collateral and shall (a) remain in full force and effect until the payment in
full of the Obligations, (b) be binding upon and inure to the benefit of
Shareholder, its heirs and assigns and (c) be binding upon and inure, together
with the rights and remedies of Secured Party hereunder, to the benefit of
Secured Party, its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (c), Secured Party may assign or otherwise
transfer the Note, or any other Financing Document, or any portion thereof to
any other person or entity and such other person or entity shall thereupon
become vested with all the benefits in respect thereof granted to Secured
-12-
<PAGE>
Party herein or otherwise. Shareholder shall be entitled to a release of the
Collateral only upon payment in full and satisfaction of all of the Obligations.
SECTION 15. INTERCREDITOR AGREEMENT. Shareholder acknowledges and agrees
-----------------------
that, pursuant to a Subordination and Intercreditor Agreement (the
"Intercreditor Agreement") of even date herewith by and between Secured Party,
Greyhound, Acquisition Corp. and the Company, upon the Company's repayment of
the loans made by Greyhound (which loans are more particularly described in the
Intercreditor Agreement), Greyhound has agreed to immediately terminate the
Greyhound Security Interest and deliver the Collateral directly to Secured Party
upon such termination. If, in the event of such termination, the Collateral is
delivered to Shareholder, Shareholder hereby covenants and agrees to immediately
deliver the Collateral to Secured Party and execute all other documents and
instruments necessary to provide Secured Party with a first perfected security
interest in the Collateral and to undertake all other actions which may be
reasonably necessary to effectuate the terms and provisions of the Intercreditor
Agreement relating to Secured Party's security interest in the Collateral.
SECTION 16. CONFLICT WITH GREYHOUND FINANCING/INTERCREDITOR AGREEMENT.
---------------------------------------------------------
This Agreement and all Financing Documents are subject to the following:
(a) TO THE EXTENT THAT ANY REQUIREMENT, COVENANT OR AGREEMENT
CONTAINED HEREIN IS ALSO REQUIRED BY OR REFERRED TO IN THE DOCUMENTS SETTING OUT
THE GREYHOUND FINANCING, COMPLIANCE WITH SUCH REQUIREMENT, COVENANT OR AGREEMENT
IN THE GREYHOUND FINANCING SHALL BE DEEMED TO BE COMPLIANCE WITH SUCH
REQUIREMENT, COVENANT OR AGREEMENT IN THIS SECURITY AGREEMENT AND/OR THE OTHER
FINANCING DOCUMENTS, EVEN IF THERE IS NO ACTUAL COMPLIANCE UNDER THE FINANCING
DOCUMENTS; AND
(b) UNTIL THE GREYHOUND FINANCING IS FULLY SATISFIED, SECURED
PARTY AGREES TO FORBEAR FROM THE EXERCISE OF ANY REMEDY IT HAS HEREUNDER, UNDER
THE OTHER FINANCING DOCUMENTS OR BY LAW TO THE EXTENT BUT ONLY TO THE EXTENT
REQUIRED IN THE INTERCREDITOR AGREEMENT.
-13-
<PAGE>
SECTION 17. Miscellaneous.
-------------
(a) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF COLORADO WITHOUT REGARD TO
COLORADO'S CONFLICTS OF LAW PRINCIPLES.
(b) Entire Agreement. This Agreement and the Financing Documents
----------------
constitute and incorporate the entire agreement between Secured Party and
Shareholder concerning the subject matter of this Agreement and supersede any
prior agreements between Secured Party and Shareholder concerning the subject
matter thereof.
(c) Jurisdiction and Venue. Any action concerning this Agreement
----------------------
or any other Financing Document may be brought in (i) the United States District
Court for the District of Colorado, or (ii) any other court where venue and
jurisdiction are proper, and Shareholder hereby consents to nonexclusive venue
and jurisdiction in any of the courts described above and hereby irrevocably
waives the defense of inconvenient forum to the maintenance of any such action
or proceeding. Shareholder hereby irrevocably agrees that the summons and
complaint or any other process in any action in any jurisdiction may be served
by mailing in accordance with Section 13. Such service will be complete on the
date such process is so mailed or delivered, and Shareholder will have 30 days
from such completion of service in which to respond in the manner provided by
law. Shareholder may also be served in any other manner permitted by law, in
which event Shareholder's time to respond shall be the time provided by law.
(d) Waiver of Jury Trial. Shareholder and Secured Party hereby
--------------------
waive any right to jury trial of any claim, cross-claim or counterclaim relating
to or arising out of or in connection with this Agreement or any of the other
Financing Documents.
(e) Right of Offset. Upon the occurrence of any Event of Default
---------------
under this Agreement, Secured Party is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held by Secured Party to or for the credit or the account of
Shareholder against any and all of the Obligations, irrespective of whether or
not Secured Party
-14-
<PAGE>
shall have made any demand under the Financing Documents and although such
Obligations may be unmatured. The rights of Secured Party under this section are
in addition to other rights and remedies (including, without limitation, other
rights of setoff) Secured Party may have.
(f) Provisions Several/Illegality. The unenforceability or
-----------------------------
invalidity of any provision or provisions hereof shall not render any other
provision or provisions herein contained unenforceable or invalid and in lieu of
each such illegal, invalid or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid, and enforceable.
(g) Time of the Essence. Time is of the essence hereof with
-------------------
respect to the dates, terms and conditions of this Agreement.
(h) Amendments and Waivers. No amendment or waiver of any
----------------------
provision of this Agreement nor consent to any departure by Shareholder
herefrom, shall in any event be effective unless the same shall be in writing
and signed by Secured Party, and then such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which given.
(i) Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Shareholder has caused this Agreement to be duly
executed and delivered as of the date first above written.
SHAREHOLDER:
/s/ Paul E. Kana
-----------------------------------
Paul E. Kana
-15-
<PAGE>
CPS Systems, Inc., a Texas corporation, hereby accepts and agrees to be
bound by the terms and conditions of this Security Agreement (Stock) as of the
29th day of December, 1994.
CPS SYSTEMS, INC., a Texas
corporation
By: /s/ Paul E. Kana
-----------------------------------
Name: PAUL E. KANA
---------------------------------
Title: PRESIDENT
--------------------------------
-16-
<PAGE>
EXHIBIT A
CPS Systems, Inc. No. of Shares
Stock Certificate No. 31 2918
-17-
<PAGE>
EXHIBIT 10.24
- --------------------------------------------------------------------------------
Agreement
for
Ongoing Maintenance & Enhancement (OME)
of software products
Entered into between
CPS Systems, Inc.
3400 Carlisle, Suite 500
Dallas, TX 75204
and
Majesco Software, Inc.
4699 Old Ironsides Dr., #350
Santa Clara, CA 95054
January 1997
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
I. FORM OF AGREEMENT 2
- --------------------------------------------------------------------------------
II. TERMS AM) CONDITIONS 3
- --------------------------------------------------------------------------------
1. TERMS OF CONTRACT 3
2. OME TEAM 3
3. OME ACTIVITY 3
4. OME SITE 4
5. CHARGES 4
6. BILLING 4
7. AUTHORIZED REPRESENTATIVE 5
8. RESPONSIBILITIES OF THE CUSTOMER 5
9. PATENTS AND COPYRIGHTS 6
10. OWNERSHIP OF SOFTWARE 6
11. CONFIDENTIALITY 7
12. RESTRICTION ON EMPLOYMENT 8
13. LIMITATION OF LIABILITIES 8
14. CLAIMS 9
15. NOTICES 9
16. FORCE MAJEURE 9
17. TERMINATION WITH CAUSE 10
18. TERMINATION WITHOUT CAUSE 10
19. GENERAL 10
20. ENTIRE AGREEMENT 11
- --------------------------------------------------------------------------------
Page 1
<PAGE>
- --------------------------------------------------------------------------------
I. FORM OF AGREEMENT
THIS AGREEMENT made the ____ day of January 1997 BETWEEN CPS Systems, Inc.
located at 3400 Carlisle, Suite 500, Dallas, TX - 75204 (hereinafter called
the Customer) of the one part and Majesco Software, Inc. located at 4699
Old Ironsides Dr., #350 Santa Clara, CA 95054 (hereinafter called the
Vendor) of the other part.
WHEREAS the Customer requires Ongoing Maintenance and Enhancement services
for its multiple software packages (hereinafter called the OME) in
accordance with the terms and conditions herein and has accepted Proposal
from the Vendor for the supply of the same.
NOW IT IS HEREBY AGREED as follows:
1. In consideration of the payments to be made by the Customer to the
Vendor as hereinafter mentioned the Vendor hereby agrees to
provide the OME mentioned in the Agreement in conformity in all
respects with the provisions of the Agreement.
2. The Customer hereby agrees to pay to the Vendor in consideration
of the provision of the OME and the performance of the services
mentioned in the Agreement the contract price mentioned in the
Agreement at the times and in the manner prescribed by the
Agreement.
IN WITNESS whereof the parties hereto have by their respective duly
authorized representatives have hereunto set their respective hands the day
and year first above written.
Signed by James K. Hoofard, Jr., President & COO
for and on behalf of CPS Systems, Inc.
In the presence of
Signature : /s/ James K. Hoofard, Jr.
-----------------------------
Witness :
-----------------------------
Signed by R Sundar, President
for and on behalf of Majesco Software
In the presence of
Signature : /s/ R Sundar
-----------------------------
Witness : [SIGNATURE APPEARS HERE]
-----------------------------
- --------------------------------------------------------------------------------
Page 2
<PAGE>
- --------------------------------------------------------------------------------
II. TERMS AND CONDITIONS
1. TERMS OF CONTRACT
This Agreement shall remain in force from ____________ to ___________
or as mutually agreed in an amended Agreement unless it is terminated
in accordance with the provisions of the section on Termination:
2. OME TEAM
(a) Vendor shall create a OME team of 3 Developers and 1 Project Leader
------------ ----------------
(Coordinator). Each member of the OME team shall devote his or her
-------------
full time efforts to the OME team. Upon selection of any member of OME
team, Vendor shall inform Customer of that member's name and
qualifications.
(b) Customer may request an increase in the size of the OME team for a
specified duration. Vendor shall effect such increases within 4 weeks
-------
from the date of such request by Customer. Customer could change the
specified duration of the team by providing a 4 week notice:
------
(c) In any event, the Customer cannot request a reduction in the size of
the OME team below the 4 persons specified in section 2(a) above:
(d) Customer shall have the right to direct Vendor to replace any member
of the OME team who is felt to be performing below expectations: In
such event, Vendor shall remove such member from the OME team
immediately and provide a replacement within 4 weeks. Such a
----------- - -----
replacement shall at no time be deemed a decrease in the size of the
OME team
3. OME ACTIVITY
(a) The scope of activities of the OME team shall include Maintenance,
Enhancement and Customization of software provided by the Customer:
(b) The OME activities shall be carried out in the Informix on Unix / NT
software development environment: This environment may change from
time to time: Any such change shall be discussed and decided at least
8 weeks ahead of the said change:
-------
(c) Customer shall provide detailed specifications, from time to time, for
the work to be done by the OME team: All OME activities shall be
performed in conformance with such specifications.
- --------------------------------------------------------------------------------
Page 3
<PAGE>
- --------------------------------------------------------------------------------
(d) The OME activities shall be performed by skilled and qualified
developers in a good and workmanlike manner:
(e) All software, information, media and materials provided by Vendor to
Customer shall be free of viruses, trap doors, security lockouts, time
bombs or similar software intended to disable or disrupt the operation
of the software.
(f) Vendor also shall prepare and submit to Customer each month a written
report setting forth the status of such work in a format to be
mutually agreed upon by Vendor and Customer:
4. OME SITE
For purposes of this Agreement, all OME activity shall take place at one of
the two following sites: For activity outside these sites, Customer shall
bear all travel and related expenses incurred in performing the activity at
these outside locations: The site for all the developers of the OME team
shall be the Vendor's Offshore Development Center (ODC) located at the
following address :
Unit 106, SDF IV
SEEPZ, Andheri (E)
BOMBAY - 400 096, INDIA
The site for the Project Leader (Coordinator) of the OME team shall be
the Customer's office located at the following address :
3400 Carlisle, Suite 500,
Dallas, TX - 75204
5. CHARGES
(a) The Customer shall pay the Vendor an hourly charge for each person on
the OME team as per the schedule provided below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Location First 6 months 7+ Months
-------------------------------------------------------------------
<S> <C> <C>
Onsite (Dallas) $ 60 per hour $ 60 per hour
-------------------------------------------------------------------
Offshore (India) $ 30 per hour $ 25 per hour
-------------------------------------------------------------------
</TABLE>
(b) In addition, Customer shall pay Vendor for all expenses related to
courier, telecommunication, travel and associated expenses.
(c) In case any member of the OME is required to travel outside India,
Customer shall pay, at actual, the following expenses : air fare,
accommodation and per diem at $100 per person per day.
(d) The offshore rates provided in sections 5(a) through 5(c) above are
based on the current exchange rates of USD 1 = INR 35 (approx.). If
the value of the USD falls below INR 30, the above rates shall be
revised to provide an equivalent billing expressed in INR.
- --------------------------------------------------------------------------------
Page 4
<PAGE>
- --------------------------------------------------------------------------------
6. BILLING
(a) The Vendor shall on the 1st and 16th of each month, submit an invoice
for all charges, for the previous period, as set out in section 5
above.
(b) Each invoice shall be paid in full by the Customer within 30 calendar
-----------
days from the date of invoice whether formally demanded or not. In the
----
event of any default in payment as aforesaid, interest at the rate of
15.0 percent per annum (1:25 % per month) shall be charged on the
----------------------------------------
amount as stated on the invoice or any part thereof remaining unpaid
from the date of the invoice to the date of payment or until the
expiration of the notice to terminate given by the Vendor in
accordance with Section 17(a) of this agreement:
(c) Without prejudice to Section 6(b) aforesaid and in addition thereto,
if any of the invoices is not paid within 60 calendar days of the date
----------------
thereof including any interest accrued thereon, then the Vendor may by
notice in writing to the Customer suspend the performance of this
agreement until the invoice and all interest accrued thereon are paid
in full: In the event the Customer fails, neglects or refuses to pay
the invoice and interest in full within 90 calendar days of the due
----------------
date, this shall be deemed a material breach of this agreement and the
Vendor shall be entitled at its opinion to terminate this agreement
pursuant to Section 17(a) hereof without prejudice to the Vendor's
rights and remedies against the Customer for recovery of any money and
or interest then remaining due or any part thereof or in respect of
any antecedent breach of this agreement:
7. AUTHORIZED REPRESENTATIVE
The following shall have the authority to deal with the Vendor for and on
behalf of the Customer:
name of person(s)
-------------------------------------
-------------------------------------
The representatives of both parties shall meet as often as shall reasonably
be requested by either party hereto to review the performance of this
Agreement for the purpose of resolving any dispute or negotiating any
adjustment to this Agreement:
8. RESPONSIBILITIES OF THE CUSTOMER
In connection with this Agreement, the Customer shall, at its own costs
and expenses, assume the responsibilities as set out below :
(a) Customer shall provide all special Hardware (anything other than one
workstation per developer -- having minimum configuration of i486/DX2,
66 MHz, 8 MB RAM 200 MB Hard Drive and running MS-Windows 3.11 or
higher, networked and connected to the internet -- is considered
special) required for the OME:
- --------------------------------------------------------------------------------
Page 5
<PAGE>
- --------------------------------------------------------------------------------
(b) Customer shall provide all software licenses required for the
development to Vendor, on a loaner basis. These licenses would be
returned to Customer at the conclusion of the Agreement. Customer
would also provide upgrades to the software license from time to time,
as needed.
(c) Customer shall nominate a Project Coordinator, who would be the main
contact for all Vendor personnel during the course of this project.
(d) Customer shall provide directions for work to be carried out by the
OME team from time to time: Customer shall ensure that the OME team
has sufficient work load to keep them occupied for the base hours
allotted each month for each person:
9. PATENTS AND COPYRIGHTS
(a) All copyright and proprietary rights in all software first designed,
developed and/or implemented (hereinafter referred to as "the
product") under this contract belong entirely to the Customer, except
when explicitly agreed to in writing by the Vendor and the Customer.
(b) Vendor represents and warrants to Customer that neither Vendor, in
performing the OME, nor the software produced by Vendor will infringe
any patent, copyright, trademark, trade secret or other proprietary
right of any person: Vendor further represents and warrants to
Customer that Vendor will not use any trade secrets or confidential or
proprietary information owned by any third party in performing the
OME. Vendor further represents and warrants to Customer that neither
Vendor nor any individual performing OME pursuant to this Agreement is
under any obligation to assign or give any work done under this
Agreement to any third party.
10. OWNERSHIP OF SOFTWARE
(a) Customer will own all right, title and interest in all software,
including any source code, object code, enhancements and
modifications, all files, including input and output materials, all
documentation related to such computer programs and files, all media
upon which any such computer programs, files and documentation are
located (including tapes, disks and other storage media) and all
related material that are used by, developed for, or paid for by
Customer in connection with the performance of any OME provided by
Vendor before or after the date set forth above.
- --------------------------------------------------------------------------------
Page 6
<PAGE>
- --------------------------------------------------------------------------------
(b) In no way limiting paragraph (a) above, Vendor agrees that all
copyrights and other proprietary rights in software, files,
documentation and related materials that are paid for by Customer or
developed by Vendor in connection with this Agreement are works-made-
for-hire and will be owned by Customer. To the extent that such works
are not works-made-for-hire, Vendor hereby assigns to Customer all
right, title and interest in such copyrights and other proprietary
rights.
(c) Customer shall have unrestricted access to all computer media
containing Customer data from time to time in connection with the
performance of the services. Vendor, at the request of Customer,
promptly shall deliver to Customer either, as Customer may request (1)
all computer programs, including source code, files, media,
documentation and related materials, concerning any OME provided by
Vendor or (2) true and correct copies of the items listed in clause
(1):
(d) Should Customer or any of its agents or representatives seek to obtain
letters patent, trademarks or copyrights in any country of the world
on all or part of the OME or the resulting software, Vendor agrees to
cooperate fully without compensation in providing information,
completing forms, performing actions and obtaining the necessary
signatures or assignments required to obtain such letters patent,
trademarks or copyrights. If Customer is unable for any reason to
obtain Vendor's signature on any document necessary for any purpose
set forth in the foregoing sentence, Vendor hereby irrevocably
designates and appoints each of Customer and its duly authorized
officers and agents as Vendor's agent and Vendor's attorney-in-fact to
act for and in Vendor's behalf and stead to execute and file any such
document and to do all other lawfully permitted acts to further any
such purpose with the same force and effect as if executed and
delivered by Vendor.
(e) Upon expiration or termination of this Agreement, Vendor shall
promptly return to Customer all computer programs, files,
documentation, media, related material and any other material that,
pursuant to paragraph (a) above, is owned by Customer.
(f) Notwithstanding the foregoing provisions, (1) if Vendor uses any of
its proprietary software programs in performing the OME and so
notifies Customer, Customer shall not acquire any proprietary rights
to such programs and (2) if Vendor produces any ideas, processes, know
how or the technology that relates to data processing generally, and
not primarily to Customer's business applications, Customer hereby
grants Vendor a royalty free, worldwide, fully paid, irrevocable
license to use such technology.
- --------------------------------------------------------------------------------
Page 7
<PAGE>
- --------------------------------------------------------------------------------
11. CONFIDENTIALITY
Both parties agree to treat as confidential all information received from
the other party which the other party has indicated in writing to be
confidential except if such information already exists in the public
domain, is already in the Vendor's possession, is independently developed
by the Vendor outside the scope of this agreement, or is rightfully
obtained from third parties. Both parties agree to disclose this
information only to those of its employees and any third party who need to
know it for the performance of this Agreement, and to ensure that such
employees and the relevant third party are informed and agree to keep such
information confidential. Both parties further agree that they and their
employees and the relevant third party shall observe all security
requirements in effect from time to time at the other party's premises, and
shall comply with the other party's security procedure for confidential
material. This section shall survive termination of this Agreement. Any
action for breach of confidentiality must be brought within one (1) year
after either party knew or should have reasonably known of the breach, or
such longer period as the parties may in writing agree. However, Customer
shall not have any obligation under this section, with respect to
information which is owned by Customer as provided in Section 10.
12. RESTRICTION ON EMPLOYMENT
Each party agrees that for the duration of the Agreement and 12 months
---------
after its termination, it shall not without the other party's prior
agreement in writing employ or engage on any basis or offer such employment
or engagement to any of the other party's staff who have been associated
with the subject of this Agreement.
13. LIMITATION OF LIABILITIES
(a) The Vendor's liability for damages for any cause whatsoever related to
the subject matter of this Agreement, and regardless of the form of
action whether in contract or in tort, including negligence shall be
limited to $10,000.
-------
(b) In no event will the Vendor be liable for any damage caused by the
Customer's failure to perform its responsibilities or for any indirect
or consequential damages, including, but not limited to, loss of
profits, anticipated savings, or for any claim made against the
Customer by any other party, even if the Vendor has been advised of
the possibility of such damages, loss or claim except for claims or
liabilities related to Section 9, "Patents and Copyrights". In
addition, the Vendor will not be liable for any damages claimed by the
Customer based on any third party claim.
(c) Save as is expressly provided above, the Vendor's limitation as to
liabilities shall not include liabilities arising from injury to any
person or damage to property resulting directly from and/or as a
consequence of the willful default of the Vendor.
- --------------------------------------------------------------------------------
Page 8
<PAGE>
- --------------------------------------------------------------------------------
14. CLAIMS
(a) Vendor shall indemnify Customer and hold Customer harmless from any
loss, claim or damage to persons or property, arising out of this
Agreement, the OME provided, including attorney's fees, to the extent
that such loss, claim or damage is caused by grossly negligent acts or
misconduct of Vendor or from Vendor's breach of any term of this
Agreement. This indemnity survives any termination of this Agreement.
(b) Any claims of any nature whatsoever by either party against the other
party shall be made in writing within 60 days of any matter which
-------
gives rise to said claim and any action against the other party must
be commenced within 60 calendar days of the matter which gave rise to
----------------
the said claim, following which the aggrieved party shall have no
further claim whatsoever against the other party.
15. NOTICES
(a) Any notice required or permitted by this Agreement shall be in
writing, and shall be deemed given to the intended party when copies
are delivered personally to the party, or 5 calendar days after a copy
---------------
has been sent by registered mail addressed to the party at the address
set forth below :
CPS Systems, Inc.
3400 Carlisle, Suite 500,
Dallas, TX 75204
Majesco Software, Inc.
4699 Old Ironsides Dr., Suite 350
Santa Clara, CA 95054
(b) Either party may change its address as set forth above by a written
notice to the other party given in the manner specified by this
section.
16. FORCE MAJEURE
Neither party shall be liable for any failure to perform its obligations
under this Agreement if the failure results from events beyond the
reasonable control of either party. For the purpose of this Agreement, such
events shall include, but not limited to strikes, lock-outs, or other labor
disputes, riots, civil disturbances, actions or inaction of government
authorities or suppliers, epidemics, wars, embargoes, acts of God or other
catastrophes: In cases of such events, the time for performance required by
either party under this Agreement shall be extended for any period during
which the performance is prevented by the event. However, the other party
may terminate this Agreement by notice in writing if such event preventing
performance continues for more than 30 days.
-------
- --------------------------------------------------------------------------------
Page 9
<PAGE>
- --------------------------------------------------------------------------------
17. TERMINATION WITH CAUSE
(a) This Agreement may be terminated by either party upon 15 days notice
-------
in the event of a material breach by the other party of any of the
terms of this Agreement unless the other party fully cures the breach
within 30 days of notice being provided about the breach.
-------
(b) If either party, being a company, shall pass a resolution or the
Courts shall make an order that the company be wound up otherwise than
for the purpose of reconstruction or amalgamation or if a receiver or
manager on behalf of a creditor shall be appointed, the other party
shall be entitled to terminate this Agreement by notice.
(c) In the event that this Agreement is terminated by either party, both
parties shall negotiate the winding up of the obligations and
responsibilities including payment, failing which the parties will
refer to arbitration.
18. TERMINATION WITHOUT CAUSE
(a) This Agreement may be terminated by the Customer upon 30 Calendar days
----------------
notice without assigning any cause for the termination.
19. GENERAL
(a) No amendments or modifications of this Agreement or any provisions of
this Agreement shall be effective unless such amendments/modifications
be in writing and signed by the both parties.
(b) No waiver of any rights arising under this Agreement shall be
effective unless in writing and signed by the party against whom the
waiver is to be enforced. No waiver of any breach of the Agreement
shall be deemed to be waiver of any other or any subsequent breach.
The failure of either party to enforce at any time of the provisions
of the Agreement shall in no way be interpreted as a waiver of such
provision, except as specifically provided in this section.
(c) This Agreement shall not be assigned or subcontracted by either party
without the prior written consent of the other, such consent not to be
unreasonably withheld. This Agreement shall be binding upon and inure
to the benefit of the heirs, successors and assigns of the parties
hereto.
(d) If any term or provision of this Agreement shall be held to be
invalid, illegal or unenforceable, the remaining terms and provisions
of this Agreement shall remain in force and effect and such invalid,
illegal or unenforceable term or provision shall be deemed not to be
part of this Agreement.
(e) This Agreement shall be deemed to be a contract made in the State of
--------
California and shall be subject to, governed by and interpreted in
----------
accordance with the laws of the State of California for every purpose.
-------------------
- --------------------------------------------------------------------------------
Page 10
<PAGE>
- --------------------------------------------------------------------------------
(f) The parties may choose to resolve any controversy or claim arising out
of, in connection with or relating to this Agreement or a breach of
performance thereof, by binding arbitration according to the
Arbitration norms of the American Arbitration Association.
--------------------------------
(g) The rights and obligations of the parties under the Section 11,
"Confidentiality", Section 10, "Ownership of Software", Section 9
"Patents and Copyrights" and the obligation to pay under Section 5,
"Charges" shall survive and continue after expiration or termination
of this Agreement and shall bind the parties, their successors and
assigns.
(h) Vendor is and shall at all times be an independent contractor and
shall not be deemed an employee or agent of Customer. Nothing in this
Agreement is intended to, or shall be deemed to, constitute a
partnership or joint venture between the parties.
20. ENTIRE AGREEMENT
This Agreement constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and there are no
representations, understandings or agreements relative hereto which are
not fully expressed herein.
- --------------------------------------------------------------------------------
Page 11
<PAGE>
EXHIBIT 10.25
ADDENDUM TO
VALUE ADDED RESELLER AGREEMENT
Reseller: CPS Systems Effective Date: ______________
3400 Carlisle, Suite 500
Dallas, Texas 75204
NCR Business Unit:
Imaging and Payment Systems
842 Bennie Road
Cortand, NY 13045
This Reseller Addendum between CPS Systems ("you" and/or "Reseller") and NCR
Corporation ("NCR") contains the terms on which Reseller may acquire certain
PRISM and CAPRS software programs from NCR and remarket those products to
others. This Addendum is an attachment to the Terms and Conditions of an NCR
Corporation Value Added Reseller Agreement signed by CPS Systems on April 1,
1993.
PAGES 1 THROUGH 8 AND EXHIBITS A AND B ARE PART OF THIS RESELLER ADDENDUM. This
Addendum states additional terms and conditions between us concerning PRISM and
CAPRS Software and supersedes all prior oral and written communications between
us concerning this subject. In consideration of the execution of this Addendum
by NCR and of the sale of PRISM and CAPRS software programs to you under this
Addendum, you hereby release NCR from all claims and demands you may have
against either of them as of the date you sign this Addendum.
CPS SYSTEMS, INC. NCR CORPORATION
(Reseller)
By: /s/ James K. Hoofard Jr. By: /s/ Mark J. Helland
---------------------------------- ------------------------------------
Printed: James K. Hoofard Jr. Printed: Mark J. Helland
-----------------------------
Title: President & COO Title: General Manager
------------------------------
Date: June 14, 1996 Date: June 13, 1996
--------------------------------
================================================================================
FOR NCR USE ONLY
- --------------------------------------------------------------------------------
Addendum Number:
================================================================================
<PAGE>
1.0 DEFINITIONS
-----------
1.1 Refer to your Value Added Reseller Agreement
--------------------------------------------
1.2 Refer to your Value Added Reseller Agreement
--------------------------------------------
1.3 Refer to your Value Added Reseller Agreement
--------------------------------------------
1.4 "Programs" in this Addendum means the NCR PRISM and CAPRS software
listed in Exhibit A and other related NCR Programs which support PRISM and CAPRS
software.
1.5 Refer to your Value Added Reseller Agreement
--------------------------------------------
1.6 Refer to your Value Added Reseller Agreement
--------------------------------------------
1.7 "NCR Confidential Materials" means this Addendum, NCR PRISM and CAPRS
software, other related NCR Programs and all copies of or information contained
in NCR Software, and all other material that NCR furnishes to you that NCR has
marked "Confidential" or the like.
1.8 "NCR Software" means all computer programs and related documentation
that NCR furnishes to you -- whether those programs are referred to as
"software", "firmware", "object code", "microcode", or otherwise; wherever
resident and on whatever media; and whether separately licensed, furnished as
part of Equipment, provided as a result of software services, or otherwise
furnished. NCR Software may include computer programs and related documentation
that third parties own and that NCR furnishes under license from the owner.
Source code to Programs listed in Exhibit A shall not be a part of this
Addendum.
1.9 Refer to your Value Added Reseller Agreement
--------------------------------------------
1.10 Refer to your Value Added Reseller Agreement
--------------------------------------------
1.11 "Support Services" means all the supporting services not provided by
you following the sale of the NCR Products including but not restricted to:
preparation, installation, annual maintenance, updates, customization,
documentation and future sales of NCR Products.
1.12 "Value Added Reseller Agreement" means the master Agreement signed on
April 1, 1993 by Reseller. (This agreement is an Addendum to the Value Added
Reseller Agreement.)
1.13 "Targeted Market" is the specific market of high-end imaging products
for financial institutions of total assets in excess of $2 billion dollars.
Resellers are restricted from competing against NCR for end-users in this
Market.
-----------------------------------------------
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<PAGE>
2.0 AUTHORIZATION OF RESELLER
-------------------------
2.1 Under the terms of this Addendum, NCR authorizes you as a Reseller of
NCR PRISM and CAPRS software Programs and related NCR Programs and grants you
the right to purchase for resale (or license for sublicense, as applicable)
those Programs.
2.2 Refer to your Value Added Reseller Agreement
--------------------------------------------
2.3 Refer to your Value Added Reseller Agreement
--------------------------------------------
2.4 Refer to your Value Added Reseller Agreement
--------------------------------------------
3.0 DUTIES OF RESELLER
------------------
Refer to your Value Added Reseller Agreement
- --------------------------------------------
4.0 CONDITIONS ON THE RESALE OF NCR PROGRAMS
----------------------------------------
4.1 Refer to your Value Added Reseller Agreement
--------------------------------------------
4.2 Refer to your Value Added Reseller Agreement
--------------------------------------------
4.3 Except with NCR's prior written consent, you will not remarket
Products -- either directly or through an intermediary -- to federal government
agencies or NCR Targeted Market.
4.4 Refer to your Value Added Reseller Agreement
--------------------------------------------
4.5 Refer to your Value Added Reseller Agreement
--------------------------------------------
4.6 You will offer and provide to your End-user customers adequate Support
Services for the Programs you furnish, in a manner reasonably calculated to
ensure a high level of customer satisfaction
4.6.1 All End-Users must be informed in advance of the sale the name
of the authorized NCR Reseller providing Support Services.
4.6.2 The Support Services provider(s) must (i) receive all Product
information from you before the sale; and (ii) the Support Services
provider must receive all applicable Program and End-User system
information following the sale.
4.6.3 You will contract directly with the authorized NCR Support
Services provider(s) concerning any services required to complete the
sale and installation of the Products.
-----------------------------------------------
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<PAGE>
4.6.4 The NCR Support Services provider(s) will contract directly
with the End-User concerning on-going Program's Support Services.
4.6.5 NCR will supply you, upon request, with the current list of
NCR Support Services providers and update the list as applicable.
4.7 If you make any Alteration to a Product bearing an NCR Mark, then
before furnishing that Product to your customer, you agree to notify that
customer in writing (i) of the nature of the Alteration, (ii) that NCR's
warranties do not cover the Alteration, and (iii) that NCR may not maintain or
support the altered Product. The Programs listed in Exhibit A may or may not
contain an NCR Mark.
4.8 Refer to your Value Added Reseller Agreement
--------------------------------------------
4.9 You agree to make no warranty of any kind to your customers on behalf
of NCR, and to include in your written terms and conditions of sale a
conspicuous statement that the manufacturer of the Programs disclaims all
implied warranties, including the implied warranties of merchantability and
fitness for a particular purpose. NCR does not warrant, maintain or support
Programs listed in Exhibit A.
4.10 Refer to your Value Added Reseller Agreement
--------------------------------------------
4.11 You are responsible for the sale of all Products and Programs
necessary to support the Programs listed in Exhibit A which are provided by
third parties. You are responsible whether or not you recommended them or
assisted in their evaluation, selection, or supervision. The failure of those
third party products and programs or their suppliers to meet End-user's
requirements will not effect your obligations under this Addendum. Third party
software provided with the NCR licensed software must be sold by you and
supported by the Support Services provider(s).
4.12 NCR shall provide NCR Programs listed in Exhibit A to you for your
End-Users as follows:
4.12.1 Orders: You must mail or FAX a copy of the End-user order to
a designated NCR Image and Payment Systems-Cortland (see Section 15.7)
order representative in order to calculate the appropriate royalty on
NCR Programs based on Exhibit A.
4.12.2 Prices: You may market the NCR Program listed in Exhibit A at
your own prices to your End-users. Exhibit A lists the suggested
retail price. If you change the list price or its entire pricing
model, which you may do at your own discretion, you will still be
responsible for the same royalty payment per license sold. All
licenses granted under this Addendum are subject to the payment of the
royalty prices. All prices are calculated and payable in US dollars
and do not include any applicable sales, use, transfer, excise,
customs, or similar taxes.
-----------------------------------------------
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<PAGE>
4.12.3 Payment: Exhibit A lists the appropriate royalty payment
schedule per license. Royalties are due to NCR Image and
Payments-Cortland (see Section 15.7) thirty (30) days after the last
day of the installation of the NCR Programs on the Equipment. The
unsuccessful operation of the Programs by the End-user will not
prevent the payment of the appropriate license royalties once the
Programs have been installed.
4.12.4 Expenses: In general, each party will bear its own expenses
related to this Addendum. However, if you have NCR personnel provide
training or consulting services, except for purposes of your training
(see Section, 2.0), NCR will invoice Reseller time and material
charges plus reasonable travel and lodging expenses not to exceed
NCR's standard expense policy then in effect.
4.12.5 Record keeping and audit: You will implement and maintain the
accounting and record keeping procedures necessary to demonstrate
compliance with its financial obligations under this Addendum. NCR
may, at its expense and through its independent auditors, audit the
other's records to determine the audited party's compliance with its
financial obligations. Such audits may take place on reasonable notice
(not less than 30 days), during normal business hours, not more than
once in a calendar year, covering a period no greater than 2 years
immediately preceding the date of audit, and may not interfere
unreasonably with the audited party's business. The audited party may
require the auditor to sign a confidentiality agreement on
substantially the terms of the confidentiality section 12 of this
Addendum, for information received under the audit. This section will
survive for two (2) years any termination of this Addendum.
4.13 You will remarket NCR Programs at the prices you choose.
5.0 RE-LICENSING NCR SOFTWARE
-------------------------
Refer to your Value Added Reseller Agreement
- --------------------------------------------
6.0 YOUR PURCHASE/LICENSE OF NCR PRODUCTS
-------------------------------------
Refer to your Value Added Reseller Agreement
- --------------------------------------------
7.0 PRODUCT DISCONTINUANCE AND CHANGES TO PRODUCT LINE
--------------------------------------------------
Refer to your Value Added Reseller Agreement
- --------------------------------------------
8.0 CONFIDENTIAL INFORMATION
------------------------
Refer to Value Added Reseller Agreement
- ---------------------------------------
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<PAGE>
9.0 TRADEMARKS
----------
Refer to Value Added Reseller Agreement
- ---------------------------------------
10.0 PATENT, COPYRIGHT, AND TRADE SECRET INFRINGEMENT
------------------------------------------------
Refer to Value Added Reseller Agreement
- ---------------------------------------
11.0 WARRANTIES
----------
11.1 Equipment: Refer to Value Added Reseller Agreement
---------------------------------------
11.2 NCR Programs:
11.2.1 Refer to Value Added Reseller Agreement
---------------------------------------
11.2.2 Refer to Value Added Reseller Agreement
---------------------------------------
11.2.3 Refer to Value Added Reseller Agreement
---------------------------------------
11.3 Exhibit A Programs: Except as provided in Section 4.0, NCR licenses
the Programs listed in Exhibit A to you under this Addendum as is, with no
warranties or representation of any kind.
11.4 EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN OR REFERENCED IN THIS
ADDENDUM, NCR (AND ITS LICENSORS, IF APPLICABLE) DISCLAIM ALL WARRANTIES,
EXPRESS AND IMPLIED, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND THOSE ARISING FROM A COURSE OF
PERFORMANCE, A COURSE OF DEALING, OR TRADE USAGE. NCR DOES NOT WARRANT THAT THE
OPERATION OF THE PRODUCTS WILL BE UNINTERRUPTED OR ERROR FREE OR THAT ALL
DEFICIENCIES OR ERRORS WILL BE CORRECTED.
12.0 LIMITATIONS OF LIABILITY
------------------------
Refer to your Value Added Reseller Agreement
- --------------------------------------------
13.0 TERMINATION
-----------
13.1 Refer to your Value Added Reseller Agreement
--------------------------------------------
13.2 Refer to your Value Added Reseller Agreement
--------------------------------------------
13.3 Refer to your Value Added Reseller Agreement
--------------------------------------------
13.4 Refer to your Value Added Reseller Agreement
--------------------------------------------
-----------------------------------------------
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<PAGE>
13.5 If you fail to provide satisfactory Program Support Services (see Section
4.6) for your End-Users, and NCR should receive written notice containing a
legitimate complaint from an End-User or a NCR authorized Support Services
provider, you grant NCR the right to investigate such a notice and take the
appropriate action concerning that customer or the Addendum as a whole. In such
cases, the Addendum may be altered, amended or otherwise changed within thirty
(30) days. In the event that NCR receives several legitimate complaints, the
Addendum may be terminated as provided in Section 13.0.
14.0 DISPUTES
--------
Refer to Value Added Reseller Agreement
- ---------------------------------------
15.0 GENERAL
-------
15.1 Refer to your Value Added Reseller Agreement
--------------------------------------------
15.2 Refer to your Value Added Reseller Agreement
--------------------------------------------
15.3 Refer to your Value Added Reseller Agreement
--------------------------------------------
15.4 Refer to your Value Added Reseller Agreement
--------------------------------------------
15.5 Refer to your Value Added Reseller Agreement
--------------------------------------------
15.6 Refer to your Value Added Reseller Agreement
--------------------------------------------
15.7 All notices required or permitted under this Addendum and all requests
for approvals, consents, and waivers must be in writing and must be delivered by
a method providing for proof of delivery. Any notice or request will be deemed
to have been given on the date of receipt. Notices and requests must be
delivered to the parties at the addresses set forth on the first page of this
Addendum until a different address has been designated by notice to the other
party.
Notices should be sent to:
NCR: NCR Corporation
Imaging and Payment Systems Division
Attn: Contracts Administration
842 Bennie Road
Cortland, New York 13045
Reseller: CPS Systems
3400 Carlisle, Suite 500
Dallas, Texas 75204
-----------------------------------------------
Page 7
<PAGE>
15.8 Refer to your Value Added Reseller Agreement
--------------------------------------------
15.9 Non-solicitation. You and NCR agree not to solicit employees or
independent contractors of the other for employment who are knowledgeable in the
NCR Programs listed in Exhibit A for 12 months after that person last performed
work under this Addendum. However, this provision does not bar a party from such
solicitation after termination of this Addendum if termination is due to the
other party's bankruptcy or the like. In the event that an employment
opportunity is initiated by the employee, you and NCR agree to promptly notify
each other for proper consideration and coordination.
-----------------------------------------------
Page 8
<PAGE>
EXHIBIT A
---------
NCR PROGRAMS*
The following NCR Programs are provided to the Reseller under the above terms
and conditions. The prices represent the discounts mutually agreed for this
Reseller. All payments will be per licensed copy of the software and paid in US
dollars.
<TABLE>
<CAPTION>
SUGGESTED ROYALTY
LIST PER PER COPY
COPY TO PAYMENT
END-USER TO NCR
PRODUCT DESCRIPTION
CODE
<S> <C> <C> <C>
7770 S/W Products
0100-0010-0000 CAPRS 7,800 3,120
0100-0012-0000 CAPRS - Florida Tax Package 7,800 3,120
0100-0020-0000 EIP 1,500 600
0100-0030-0000 Reformatter 2,000 800
0100-0040-0000 Report Writer 1,700 680
0100-0050-0000 Consolidation 1,500 600
0100-0080-0000 Consolidation Delete 2,000 800
7780 S/W Products
0120-0010-0000 PRISM-CV - Conventional 12,000 8,000
0120-0020-0000 PRISM-HS - High Speed 15,000 10,000
0120-0022-0000 PRISM-FTP - Florida Tax Package 15,000 10,000
0120-0031-0000 PRISM-IC - Image Capture 20,000 8,000
0120-0040-0000 PRISM SERVER ND - No Database 10,000 6,670
</TABLE>
The sale of two or more identical licenses to the same End-user will reduce the
total royalty payment on those licenses by 12.5%.
*The above NCR Programs are supplied to Reseller through an authorized third
party who has responsibility for the reasonable maintenance of the source code
on behalf of NCR.
-----------------------------------------------
Page 9
<PAGE>
EXHIBIT B
---------
END-USER PROGRAM LICENSE AGREEMENT
This Agreement is entered into as of this ___________ day of _____________,19__
by and between ____________________________________________("Reseller")
and_____________________________ ("Customer").
1.0 Background
----------
1.1 The term "NCR Licensed Program Materials" shall include the
programs and related documentation described on the signature page of this
Agreement, as well as any other programs of NCR Corporation ("NCR") furnished to
Customer by Reseller, whether referred to as "software", "firmware" or
otherwise, wherever resident and on whatever media, whether separately licensed,
furnished as part of equipment, or provided as a result of software services.
NCR Licensed Program Materials may include programs and related documentation
that are owned by third parties and distributed by NCR under license from the
owner.
1.2 Reseller has obtained from NCR the right to sublicense NCR
Licensed Program Materials to its customers. Reseller and Customer have entered
into a separate agreement for the purchase or lease of certain NCR equipment
described on the signature page ("Designated Equipment"), and Customer desires
to obtain a license from Reseller to use the NCR Licensed Program Materials in
connection with the Designated Equipment. This Agreement sets forth the terms
and conditions under which Customer may possess and use the NCR Licensed Program
Materials.
2.0 License
-------
Reseller hereby grants Customer a non-exclusive and non-transferable license to
use the NCR Licensed Program Materials only on or in connection with the
Designated Equipment, for the term as agreed to between Reseller and Customer,
subject to the following restrictions:
2.1 Customer may not make any copies of the NCR Licensed Program
Materials, except one copy solely for archival purposes. On any copy of the NCR
Licensed Program Materials Customer is permitted to make, Customer must
reproduce all copyright notices and any other proprietary legends.
2.2 Customer must at all times use reasonable efforts to maintain the
confidentiality of the NCR Licensed Program Materials (and any other NCR
material relating to the NCR Licensed Program Materials or the Designated
Equipment) and may not sublicense, transfer, sell, rent, disclose, make
available or otherwise communicate the NCR Licensed Program Materials to any
other person, nor use the NCR Licensed Program Materials except as expressly
authorized under this Agreement.
-----------------------------------------------
Page 10
<PAGE>
2.3 The NCR Licensed Program Materials may only be used in connection
with the single unit of the Designated Equipment unless the Designated Equipment
becomes temporarily inoperative, in which case the NCR Licensed Program
Materials may be used temporarily on back-up equipment while the Designated
Equipment is inoperative.
2.4 The NCR Licensed Program Materials may only be used by Customer,
and Customer shall not permit the Licensed Program Materials to be used by or
for the benefit of any other party, nor use the NCR Licensed Program Materials
at any time after the term of the license expires.
2.5 Customer shall destroy NCR Licensed Program Materials, or
immediately return the NCR Licensed Program Materials to Reseller in the event
(i) Customer ceases to use the NCR Licensed Program Materials, or (ii) the term
of the license expires.
2.6 The NCR Licensed Program Materials, including copies thereof,
shall at all times remain the sole and exclusive property of NCR or its
licensor.
2.7 If Customer sells or otherwise disposes of Customer-owned media on
which the NCR Licensed Program Materials are resident, that media must be erased
before such sale or disposal.
2.8 Customer may modify or make derivatives of the NCR Licensed
Program Materials for its own use, but any such modifications or derivatives
must include the copyright notice and any other proprietary legend of NCR or its
licensor. In addition, upon termination of this Agreement or expiration of
Customer's license, the NCR Licensed Program Material and any portion thereof
contained in the modifications or derivatives must be immediately removed and
destroyed, or returned to Reseller.
2.9 Customer may not disassemble, decompile, or reverse engineer the
NCR Licensed Program Materials.
2.10 Customer may not use, nor ship, transmit or otherwise transfer,
directly or indirectly, the NCR Licensed Program Materials outside of the United
States.
3.0 Warranties
----------
THE NCR LICENSED PROGRAM MATERIALS ARE NOT WARRANTED BY NCR OR ITS LICENSOR, AND
ARE PROVIDED ONLY ON AN "AS IS" BASIS BY NCR. NCR DISCLAIMS ANY EXPRESS OR
IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF
MERCHANTABILITY OR FITNESS, OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE
OR OTHERWISE. Under no circumstances shall NCR or its licensor be responsible
for any warranties made by Reseller or for any agreements made by Reseller for
maintenance or support of the NCR Licensed Program Materials.
-----------------------------------------------
Page 11
<PAGE>
4.0 Modifications Of This License Agreement
---------------------------------------
This Agreement may not be modified, amended, canceled or waived, in whole or in
part, except by a written instrument signed by NCR and Reseller.
5.0 Other Agreements
----------------
Reseller and Customer may have entered into other agreements concerning the
license fees to be paid by Customer for the NCR Licensed Program Materials, the
maintenance and other obligations of Reseller to Customer for the NCR Licensed
Program Materials, and the sale or lease to Customer of equipment with which the
NCR Licensed Program Materials are to be used. However, this Agreement shall
take precedence over any other agreements with respect to NCR Licensed Program
Materials, Customer's use of them, and NCR's obligations in connection with
them.
6.0 This Agreement For The Benefit Of NCR
-------------------------------------
Reseller and Customer agree that the provisions of this Agreement are for the
benefit of NCR, and NCR shall be entitled to directly enforce this Agreement as
if it were a named party. NCR shall be entitled to injunctive relief, as well as
such further rights and remedies as it may have at law or equity, against
unauthorized disclosure or use of the Licensed Program Materials, or against
other breach or threatened breach of this Agreement.
7.0 Term And Termination
--------------------
The term of the license under this Agreement shall be for such period as agreed
to between Reseller and Customer. Notwithstanding such term, however, the
license shall automatically terminate if Customer breaches any provision of this
Agreement.
8.0 Limitations
-----------
The maximum liability of NCR or NCR's licensor for damages sustained by Customer
in connection with the possession or use of NCR Licensed Program Materials shall
not exceed the amount of the license fees received by NCR or NCR's licensor. IN
NO EVENT SHALL NCR OR ITS LICENSOR BE LIABLE FOR ANY LOST REVENUES OR PROFITS,
OR OTHER SPECIAL, INDIRECT AND CONSEQUENTIAL DAMAGES, EVEN IF NCR OR RESELLER
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Customer acknowledges that
these limitations permit NCR and NCR's licensor to provide NCR Licensed Program
Material at lower rates than they otherwise could and that such limitations are
reasonable.
9.0 Arbitration
-----------
Any controversy or claim, including any claim of misrepresentation, arising out
of or related to this Agreement, or to the Customer's acquisition of any
equipment or service or NCR Licensed Program Materials by Customer, shall be
settled by arbitration. The
-----------------------------------------------
Page 12
<PAGE>
arbitration shall be conducted at the location of Customer's principal place of
business by a single arbitrator under the then current rules and supervision of
the American Arbitration Association. The arbitrator shall be chosen from a
panel of persons knowledgeable in business information and data processing
systems. The decision and award of the arbitrator shall be final and binding and
the award so rendered may be entered in any court having jurisdiction. The
arbitrator shall not be authorized to award punitive damages to either party.
All claims subject to this Paragraph 9 must be commenced within one (1) year
after such claim has accrued, or such claim shall be deemed waived and released
and the claimant shall be barred from asserting such claim. This Agreement shall
be construed and interpreted under the substantive laws of the State of New
York, except that the Federal Arbitration Act will govern the interpretation and
enforcement of this Paragraph 9.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized representatives.
Customer: Reseller:
---------------------------- --------------------------------
Address: Address:
----------------------------- ----------------------------------
City/State/Zip: City/State/Zip:
---------------------- ---------------------------
NCR ID No.: Date: NCR ID No.: Date:
----------- ---------- ------------- -------------
By: By:
---------------------------------- ---------------------------------------
Printed: Printed:
----------------------------- ----------------------------------
Title: Title:
------------------------------- -----------------------------------
-----------------------------------------------
Page 13
<PAGE>
Attachment A: NCR Programs Documentation (Attach applicable program materials
covered by this Addendum)
-----------------------------------------------
Page 14
<PAGE>
EXHIBIT 10.26
[LOGO
OF
IBM] International Business Machines Corporation
- -------------------------------------------------------------------------------
Industry Remarketer Affiliate Document of Understanding
We may approve your relationship, with the IBM authorized managing industry
remarketer (called "Remarketer") named below, as an industry remarketer
affiliate, based on either the description of your value-added enhancement or
other information in the application package, or both. If approved, you agree
that you will not 1) market the same Products under the terms of another IBM
Business Partner relationship unless we approve that relationship in writing, 2)
enter into the same relationship with another Remarketer for the same Products.
If we do not approve your application, the Remarketer will not provide IBM
products to you and we will not return this document to you.
If you are approved, we will sign and return this document along with
advertising guidelines for our logos, trade and service marks, trade names,
emblems, and titles (collectively called "Trademarks"). You will be authorized
to refer to yourself as an IBM Industry Remarketer Affiliate. You may also use
the IBM Business Partner emblem associated with that title. You may use
Trademarks only as described in the guidelines and only in association with the
IBM products the Remarketer is approved to market to you.
On our request, you agree to change or stop using any advertising or promotional
material that does not comply (as we determine) with our guidelines or this
document. When this document is no longer in effect, you agree to promptly stop
using our Trademarks. If you do not, you agree to pay any expenses and fees that
we incur in getting you to stop.
You agree that any goodwill attaching to our Trademarks as a result of your use
of them belongs to us. You agree not to register or use any mark that is
confusingly similar to any of our Trademarks.
Your rights under this document are not property rights and, therefore, you
cannot transfer them to anyone else or encumber them in any way. For example,
you may not sell your right to use our Trademarks.
You agree to report applicable warranty and product installation information to
the Remarketer and to inform end users of any available IBM warranty service
options. You also agree to obtain, where applicable, the end users' signatures
on our license agreements before providing either machines that have Licensed
Internal Code or programs to them.
You agree that any agreement you have with the Remarketer concerning this
relationship is not in conflict with the terms of the Remarketer's agreement
with us. Included in these terms are the Remarketer's agreement to 1) market
only certain products to you, and 2) ensure that you market such products only
to end users in the United States and Puerto Rico (the IBM RISC System/6000 may
also be marketed in Canada), and only with your value-added enhancement approved
by us, unless it is a Product we specify which is not required to be marketed
with a value-added enhancement. However, you may provide up to 25% of the
personal computer system units, including associated features and options, in
each transaction without such enhancement. The Remarketer must sponsor any
application for our approval of any additional value-added enhancement.
If we authorize you as an Industry Remarketer affiliate of mid-range computer
products, we allow you to acquire certain of those products which you are
approved to market, for your own internal use within your remarketing operations
only. Your value-added enhancement is not required on such acquisitions. You
agree not to remarket such products for 24 months from their date of
installation.
<PAGE>
IBM International Business Machines Corporation
- --------------------------------------------------------------------------------
To assist you in the successful installation, and your ongoing end user support
requirements for the products you market as an industry remarketer affiliate,
you may contract for the necessary skills with an IBM Authorized Business
Partner who may perform such activities directly for your end user. However, you
are responsible for your end users' satisfaction with such activities. You agree
to indemnify IBM from any liability for the activities performed by such
parties. Additionally, you may select IBM to perform such activities. In that
event IBM will assume customer satisfaction responsibilities.
If you are approved to market the IBM RISC System/8000, you agree that such
Products must be purchased in the country in which they are to be installed.
If you agree to these terms, please sign and submit a copy of this document to
the Remarketer. This document becomes effective on the date we sign it. It will
be in effect as long as the Remarketer is approved by us to market to you or
until the relationship between you and the Remarketer is terminated. You may
terminate this document for any reason on one month's written notice to us. We
may terminate this approval with or without cause on one month's written notice
to you. You agree to give us prompt written notice of any material change, or
anticipate material change, in your financial condition, business structure or
operating environment. Such changes include information supplied to us in your
application. Such change, or failure to give notice, may result in termination
of this Agreement. Certain acts or omissions are so serious as to warrant
immediate termination. If you materially breach any of the terms of this
document, or make any material misrepresentation to us, we may terminate this
approval at any time, on written notice to you.
<TABLE>
<S> <C>
IBM Managing Industry Remarketer name: Canadian IBM Managing Industry Remarketer name:
Pro America, Inc. (for IBM RISC System/8000)
Agreed to: (Industry Remarketer Affiliate name) Agreed to:
International Business Machines Corporation
By /s/ James K. Hoofard, Jr. By /s/ Terry Webb
------------------------------------------------ ----------------------------------------------
Authorized signature Authorized signature
Name (type or print): James K. Hoofard, Jr. Name (type or print): Terry Webb
Date: April 22, 1996 Date: 9/12/96
Industry Remarketer Affiliate address: CPS Systems, Inc.
3400 Carlise, Suite 500
Dallas TX 75204
</TABLE>
Industry Remarketer Affiliate
Value-Added Enhancement Description
(The value-added enhancement we approve on your industry remarketer
affiliate application, is to be attached to this document).
<PAGE>
IBM International Business Machines Corporation
- --------------------------------------------------------------------------------
Industry Remarketer Affiliate
Value-Added Enhancement Description
(The value-added enhancement we approve on your industry remarketer
affiliate application, is to be attached to this document).
"CPS SYSTEM'S ACCOUNTING OF CITY AND STATE GOVERNMENT" THE CPS SYSTEM'S CITY AND
COUNTY GOVERNMENT ACCOUNTING FOR THE CITY AND COUNTY GOVERNMENT INDUSTRY WHICH
OPERATES ON THE IBM RISC SYSTEM/6000 INCLUDES AT A MINIMUM THE FOLLOWING
MODULES, ACCOUNTING: MAINTAINS DETAILED CHART OF ACCOUNTS FOR EACH CITY/COUNTY
FUND WITH REPORTING BY RANGE ACCOUNTS. MAINTAINS FUND BALANCES FOR ACTUAL,
BUDGET, PRIOR YEAR BALANCES BY MONTH, QUARTER, AND YEAR. MAINTAINS MULTIPLE
REQUIRED FUND GENERAL LEDGERS, APPROPRIATE/EXPENDITURES, INVESTMENTS, AND
REVENUE LEDGERS, AND INTERFACES WITH FINANCIAL SUPPORT SYSTEMS COLLECTING AND
REPORTING DATA ASSOCIATED WITH DAY-TO-DAY FINANCIAL ACTIVITIES: ACCOUNTS
PAYABLE: PAYROLL; AND PURCHASE ORDERS - RECORDS PURCHASE ORDER REQUESTS AND
POSTS TO G/L. AUTOMATICALLY ENCUMBERS FUNDS WITH COMPLETE INTERFACE TO ACCOUNTS
PAYABLE, OR TAX MANAGER WHICH INCLUDES COMPUTER ASSISTED TAX APPRAISAL. TAX
BILLING AND COLLECTIONS INCLUDING TAX ROLLS, TAX STATEMENTS AND NOTICES OF
CURRENT AND PRIOR YEAR ASSETS VALUE; INTEGRATION TAX COLLECTIONS; PROPERTY
VALUATION PROTEST SYSTEMS; AUTOMATED DEED PLOTTING; AND G/L INCLUDING BUDGET
WORKSHOP OR ACTUAL. BUDGET AND ENCUMBERED BALANCES.
"CPS SYSTEM'S CITY AND COUNTY GOVERNMENT SYSTEM"
THE CPS SYSTEM'S CITY AND COUNTY GOVERNMENT SYSTEM FOR THE IBM RISC SYSTEM/6000
INCLUDES AT A MINIMUM THE FOLLOWING MODULES. THE COMPUTERIZED REPORTING
INFORMATION MANAGEMENT SYSTEM (CRIME) WHICH INCLUDES AT A MINIMUM: BASIC LAW
ENFORCEMENT SYSTEM WITH UNIFORM CRIME REPORTING (UCR): TRAFFIC ACCIDENT SYSTEM;
FIELD INTERVIEW SYSTEM; PAWN SHOW SYSTEM: JUVENILE SYSTEM WITH UCR; JAIL
MANAGEMENT/BOOK-IN:COMPUTER-AIDED DISPATCH; VEHICLE MANAGEMENT; PARKING TICKETS
AND MUNICIPLE/JP COURT.
THE UTILITY BILLING SYSTEM WHICH INCLUDES AT A MINIMUM: UTILITY BILLING WITH UP
TO 15 SERVICES PER ACCOUNT; USER DEFINE RATE TABLES; ACCOUNT HISTORY FOR EACH
BILLING AND METER; AND ROUTE MANAGEMENT.
"CPS SYSTEM'S THE CAD (COUNTY APPRAISAL DISTRICT)"
THE CPS SYSTEM'S COUNTY APPRAISAL DISTRICT MANAGER FOR THE CITY AND COUNTY
GOVERNMENT INDUSTRY WHICH OPERATES ON THE IBM RISC SYSTEM/6000 INCLUDES AT A
MINIMUM THE FOLLOWING MODULES, COMPUTER ASSISTED TAX APPRAISAL WITH PARCEL
VALUATION/IMPROVEMENTS; DIVISION ORDER (MINERAL) SYSTEM: APPRAISAL REVIEW BOARD
SYSTEM; ON-LINE TAXING JURISDICTION COLLECTIONS: AND BUILDING DIAGRAMS AND
SQUARE FOOT CALCULATION.
OR
GOVERNMENT FUND ACCOUNTING SYSTEM WHICH INCLUDES FUND ACCOUNTING - MAINTAINS
DETAILED CHART OF ACCOUNTS FOR EACH CITY/COUNTY FUND WITH REPORTING BY RANGE
ACCOUNTS, MAINTAINS FUND BALANCES FOR ACTUAL, BUDGET, PRIOR YEAR BALANCES BY
MONTH, QUARTER, AND YEAR. MAINTAINS MULTIPLE REQUIRED FUND GENERAL LEDGERS,
APPROPRIATE/EXPENDITURES, INVESTMENTS, AND REVENUE LEDGERS, AND INTERFACES WITH
FINANCIAL SUPPORT
Page 3 of 4
<PAGE>
Exhibit 10.27
LOCK UP AGREEMENT
CRUTTENDEN ROTH INCORPORATED
As Representative of the several Underwriters
18301 Von Karman, Suite 100
Irvine, California 92612
Re: CPS Systems, Inc. (the "Company")
Ladies & Gentlemen:
The undersigned is a record or beneficial owner of certain shares of
the Company's common stock, $.01 par value (the "Common Stock"), or securities
convertible into or exchangeable or exercisable for Common Stock. The Company
proposes to carry out a public offering of Common Stock (the "Offering") for
which Cruttenden Roth Incorporated will act as the representative of the
underwriters. The undersigned recognizes that the Offering will be of benefit to
the undersigned and will benefit the Company by, among other things, raising
additional capital for its operations. The undersigned acknowledges that you and
the other underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that
the undersigned will not, without the prior written consent of Cruttenden Roth
Incorporated (which consent may be withheld in its sole discretion), directly or
indirectly, sell, offer, contract or grant any option to sell (including without
limitation, any short sale), pledge, transfer, establish an open "put
equivalent position" within the meaning of Rule 16a-1(h) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or otherwise dispose of
any shares of Common Stock, options or warrants to acquire shares of Common
Stock, or securities exchangeable or exercisable for or convertible into
shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under the Exchange Act) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing to a date
one year after the date of the final prospectus for the Offering (the "Effective
Date"). In addition, the Representative shall have the right of first refusal
for a period of three years after the Effective Date to be the sole
broker/dealer for any sales made under Rule 144 of the Securities Act (or
similar provisions enacted subsequent to the date of this agreement). The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
This agreement is irrevocable and will be binding on the undersigned
and the respective successors, heirs, personal representatives and assigns of
the undersigned; provided, however, that this agreement will be deemed
terminated, and will have no further force and effect, if, for any reason
whatsoever, the Offering is not completed prior to March 31, 1998.
Dated:_______________________, 1997
- ----------------------------------------------------
Printed Name of Holder
By:
-------------------------------------------------
Signature
- ----------------------------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if signing
as custodian, trustee, or on behalf of an entity)
<PAGE>
EXHIBIT 10.28
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of , 1997,
--------- --------
between CPS SYSTEMS, INC., a Texas corporation (the "Company"), and JAMES K.
-------
HOOFARD, JR. (the "Executive").
---------
1. Employment. The Company hereby agrees to employ the Executive, and the
----------
Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
----
Section 1 will commence on January 1, 1998 and will terminate at 12:01 a.m. on
January 1, 2000 (the "Expiration Date") unless automatically extended or sooner
terminated as hereinafter provided (such period, the "Employment Period").
Unless terminated by the Executive or the Company prior to January 1, 2000, this
Agreement shall automatically renew on the terms set forth herein for a two-year
period. If so renewed no later than December 31, 1999, the Company shall notify
the Executive by written notice as to whether the Company intends to further
renew or extend the Agreement (including proposals for such further renewal or
extension which the Executive may accept, reject or negotiate, at his
discretion).
3. Position, Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as President, Chief
--------
Operating Officer and a member of the Board of Directors of the Company. The
Executive shall devote his best efforts and substantially full business time and
attention to the performance of services to the Company in his capacity as an
officer thereof and as may reasonably be requested by the Board. The Company
shall retain full direction and control of the means and methods by which the
Executive performs the above services.
(b) Place of Employment. Initially during the term of this Agreement,
-------------------
the Company's headquarters shall be located in Dallas, Texas and will not be
moved without the prior approval of the Executive.
(c) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, or (ii) engage, directly or indirectly, in any other
business activity (whether or not pursued for pecuniary advantage) that is or
may be competitive with, or that might place him in a competing position to,
that of the Company or any of its affiliates. Notwithstanding the foregoing, the
Company agrees that the Executive (or affiliates of the Executive) shall be
permitted (i) to undertake the activities set forth in Section 8, (ii) to make
any other passive personal investment that is not in a business activity that is
directly or indirectly competitive with the Company, (iii) to participate in
industry organizations, and (iv) to participate in charitable or educational
activities.
<PAGE>
4. Compensation and Related Matters.
--------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $150,000 during the first full year and at
such salary (to be not less than $150,000 per year) as determined by the
Compensation Committee of the Board during the second and subsequent years of
the Executive's employment with the Company. All salary is to be paid consistent
with the standard payroll practices of the Company (e.g., timing of payments and
----
standard employee deductions, such as income tax withholdings, social security,
etc.). The Executive's performance and salary shall be subject to review at the
end of each fiscal year consistent with the standard practices of the Company.
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time.
(c) Other Benefits. The Executive shall be entitled to participate in
--------------
or receive health, welfare, life insurance, long-term disability insurance,
bonus plan and similar benefits as the Company provides from time to time to its
executives. The Company shall cause to be issued a long-term disability
insurance policy for the Executive providing for benefits to be agreed upon by
the Company and Executive, the premiums thereof to be paid for by the Company
during the term of this Agreement. The Company shall pay the expense of
Executive participation in the Company's health plan including the expense of
dependent coverage.
(d) Bonus. The Compensation Committee of the Board shall establish,
-----
monitor, and oversee an incentive bonus program for the Executive, if certain
performance objectives established by the Compensation Committee for the
Executive (such as specified targets of growth in revenues and earnings per
share) are achieved. Such incentive program would provide for specific partial
bonus achievement hurdles in connection with this program as well. Each
subsequent year thereafter, the Compensation Committee of the Board will
monitor, review and modify this program as necessary to reflect the Executive's
contributions to the Company.
(e) Fringe Benefits. The Executive will be entitled to fringe benefits
---------------
as may be determined or granted from time-to-time by the Board, including but
not limited to an appropriate automobile.
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 business days) in each calendar year on a pro-rated basis. The Executive
will be entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Board
-------------------
will review the Executive's job performance and will provide the Executive a
written review of the Executive's job performance during the prior year and
implement any Board determined revisions to the Executive's base salary, the
Executive's merit bonus, the Executive's prospective incentive compensation
package (including the Executive's participation in the Option Plan), the
Executive's title and/or the Executive's responsibility at the Company;
provided, however, that the provisions set forth in this Agreement with respect
to the Executive's compensation, the
2
<PAGE>
Option Agreement and the terms and conditions of the Executive's employment at
the Company cannot be modified by the Board in a manner which would result in
less favorable or beneficial terms or conditions thereof being imposed on the
Executive without the Executive's full concurrence and consent.
5. Termination. The Executive's employment hereunder shall be, or may
-----------
be, as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon
-----
his death.
(b) Disability. The Executive's employment hereunder shall terminate
----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent physician selected by the Board, renders the Executive
unable to perform his duties under this Agreement for more than 120 days during
any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any
-----
of the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding the
---------------------------------------------
term of this Agreement having a duration of two years of this Agreement and the
annual salary to be paid to the Executive during each of the first two full
years of his employment with the Company, nothing in this Agreement should be
construed as to confer any right of the Executive to be employed by the Company
for a fixed or definite term. Subject to Section 6 hereof, the Executive hereby
agrees that the Company may dismiss him under this Section 5(d) without regard
(i) to any general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to any
statements made to the Executive, whether made orally or contained in any
document, pertaining to the Executive's relationship with the Company.
Notwithstanding anything to the contrary contained herein, including Sections 2
and 4, the Executive's employment with the Company is not for any specified
term, is at will and may be terminated by the Company at any time by delivery of
a notice of termination to the Executive, for any reason, with or without cause,
without liability except with respect to the payments provided for by Section 6.
(e) Voluntary Resignation. The Executive may voluntarily resign his
---------------------
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this
3
<PAGE>
Agreement, a "Notice of Termination" shall mean a notice that shall indicate the
---------------------
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all personal
property and equipment furnished to or prepared by the Executive in the course
of or incident to his employment, belongs to the Company and shall be promptly
returned to the Company upon termination of the Employment Period. "Personal
--------
property" includes, without limitation, all books, manuals, records, reports,
- --------
notes, contracts, lists, blueprints, and other documents, or materials, or
copies thereof (including computer files), and all other proprietary information
relating to the business of the Company. Following termination, the Executive
will not retain any written or other tangible material containing any
proprietary information of the Company.
(ii) Upon termination of the Employment Period, the Executive
shall be deemed to have resigned from all offices and directorships then held
with the Company or any affiliate.
(iii) The representations and warranties contained herein and the
Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18 shall
survive termination of the Employment Period and the expiration of this
Agreement. Nothing herein shall modify Employee's mediation and other rights
under this Agreement.
(i) Release. In exchange for the Company entering into the Agreement
-------
and the payment of Severance Payments provided for in Sections 6(b) and 6(d)
herein, the Executive agrees that, at the time of his resignation or termination
from the Company, he will execute a release acceptable to the Company of all
liability of the Company and its directors, officers, shareholders, employees,
agents and attorneys to the Executive in connection with or arising out of his
employment with the Company except for wilful behavior or gross negligence,
except with respect to any then-vested rights under the Company's Option Plan
and except with respect to any Severance Payments under Sections 6(b) or 6(d)
which may be payable to him under the terms of the Agreement.
4
<PAGE>
6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay the Executive his base salary payable
pursuant to Section 4(a) and any accrued bonus payable pursuant to Section 4(d)
through the Date of Termination. At the Executive's own expense, the Executive's
dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive his
base salary payable and any accrued bonus pursuant to Section 4(a) up to the
Date of Termination and for 180 days thereafter; provided that payments so made
to the Executive during the disability shall be reduced by the sum of the
amounts, if any, payable to the Executive at or prior to the time of any such
payment under any disability benefit plan of the Company. At the Executive's own
expense, the Executive and his dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated for Cause
-----
pursuant to Section 5(c) hereof, the Company shall pay the Executive his base
salary and any accrued bonus then payable pursuant to Section 4(d)) through the
Date of Termination. At the Executive's own expense, the Executive and his
dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(d) Other Terminations. If the Company shall terminate the Executive's
------------------
employment without cause pursuant to Section 5(d) hereof or if the Executive
shall terminate for "Good Cause" pursuant to Section 6(e) hereof, then the
Company shall pay the Executive his then current base salary at the Date of
Termination for a period of two (2) years from the Date of Termination. The
Executive and his dependents shall also be entitled to any continuation of
health insurance coverage rights under any applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(e) hereof without "Good Cause," the
Company shall have no obligation to compensate the Executive following the Date
of Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by Executive to the Company that he intends to terminate
his employment hereunder for one of the reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities and status of Executive's position; or
(ii) the occurrence of a "Change in Control."
5
<PAGE>
As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Executive or his affiliates, (the "Principals"),
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of
more than 50% of the total voting power of the total outstanding voting stock of
the Company on a fully diluted basis, (iii) the consummation of the first
transaction (including, without limitation, any merger or consolidation) the
result of which is that any person or group, other than the Principals, becomes
the beneficial owner (as defined above), directly or indirectly, of more than
50% of the total voting power of the total outstanding voting stock of the
Company, or (iv) a change of more than three members of the Board of Directors
of the Company without the approval of the Executive.
(f) If the termination is for any reason other than without cause or
without Good Cause pursuant to Section 5(d) hereof the Company will be entitled
to offset and reduce each month the amount of the monthly Severance Payment
otherwise payable if any to the Executive hereunder by the amount of the
Executive's prior month's earnings (if any) from post-Company full time
employment (including both salary, bonus and other cash or cash equivalent
compensation) at a subsequent full time employer or in connection with a full
time consulting practice or other self-employment or any full time venture
founded by the Executive; provided, however, that the Company shall not be
entitled to any Severance Payment offset or reduction as a result of any
earnings or income generated by the Executive from part-time consulting work,
unless and until such consulting work becomes a full-time endeavor. If the
termination is without cause pursuant to Section 5(d) hereof, there shall be no
such off sets by the Company.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit A hereto that have vested
as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 7 and
8 of this Agreement following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
Company, all Confidential Information in his possession that is in written or
other tangible form
6
<PAGE>
(together with all copies or duplicates thereof, including computer files) shall
be returned to the Company and shall not be retained by the Executive or
furnished to any third party, in any form except as provided herein; provided,
however, that the Executive shall not be obligated to treat as confidential, or
return to the Company copies of any Confidential Information that (i) was
publicly known at the time of disclosure to the Executive, (ii) becomes publicly
known or available thereafter other than by any means in violation of this
Agreement or any other duty owed to the Company by any person or entity or (iii)
is lawfully disclosed to the Executive by a third party. As used in this
Agreement the term "Confidential Information" means: information disclosed to
------------------------
the Executive or known by the Executive as a consequence of or through his
relationship with the Company, about the owners, customers, employees, business
methods, public relations methods, organization, procedures or finances,
including, without limitation, information of or relating to owner or customer
lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and for eighteen (18) months thereafter, regardless
of the reason or circumstances of termination of employment with the Company,
the Executive will not, either on his own account or jointly with or as a
manager, agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of like goods or provision of services as offered by the
Company to its customers at the Date of Termination, (ii) endeavor directly or
indirectly to canvas or solicit in competition with Company or to interfere with
the supply of orders for goods or services from or by any person, firm or
corporation which during the Employment Period has been or is a supplier of
goods or services to Company or (iii) directly or indirectly solicit or attempt
to solicit away from Company any of its officers or employees or offer
employment to any person who, on or during the 6 months immediately preceding
the date of such solicitation or offer, is or was an officer or employee of
Company.
8. Covenant Not to Compete.
-----------------------
The Executive agrees that during the Employment Period he will devote
substantially full-time to the business of the Company and not engage in any
type of transient computer hardware or software development and all other
related businesses, including but not limited to all aspects of the systems
consulting business. Subject to such full-time requirement and the restrictions
set forth below in this Section 8 and Section 3(c) above, the Executive shall be
permitted to continue his existing business investments and activities, and may
pursue additional business investments; provided that the Executive not serve as
officer of any public company resulting from such business investments. The
Executive agrees that he shall not (i) invest in, manage, consult or participate
in any way in any other software business (in either an active or passive
manner), (ii) participate in or advise any business wherein software is a
relevant business segment or (iii) act for or on behalf of any business that
intends to enter or participate in the software business, in each case unless
the independent members of the Company's Board of Directors determine that such
action is in the best interest of the Company. Notwithstanding the foregoing,
the Executive may purchase stock as a stockholder in any publicly traded
company, including any company which is involved in the public sector software
business in California, Colorado, Florida, Georgia, North Carolina, Oklahoma and
Texas;
7
<PAGE>
provided that the Executive does not own (together or separately or through his
affiliates) more than 5% of any company (other than the Company) in the
software business. In addition, the Executive shall not invest (directly or
indirectly) in any software business unless the independent members of the
Company's Board of Directors determine that such an investment is in the best
interest of the Company.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: James K. Hoofard, Jr.
6715 Glendora Avenue
Dallas, TX 75230
If to the Company: CPS SYSTEMS, INC.
3400 Carlisle
Suite 500
Dallas, Texas 75204
Attention: G. Dean Booth, Jr.
With a copy to: Schreeder, Wheeler & Flint, LLP
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Attention: Chester J. Hosch, Esq.
8
<PAGE>
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
----------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Texas (without reference to the choice of law provisions of Texas, except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Arbitration. Subject to any irreparable injury being suffered by the
-----------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by final and binding arbitration in Dallas, Texas under the rules of
the American Arbitration Association. Any award issued as a result of such
arbitration shall be final and binding between the parties thereto, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought. The fees and expenses relating to such arbitration (with
the exception of the Executive's attorneys' fees, if any) or any action to
enforce a arbitration award shall be shared equally by the Company and the
Executive.
17. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
9
<PAGE>
18. The Executive's Acknowledgment. The Executive acknowledges (a) that he
------------------------------
has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date and year first above written.
CPS SYSTEMS, INC. EXECUTIVE
- ---------------------------------- -----------------------------
Name: JAMES K. HOOFARD, JR.
Title:
10
<PAGE>
EXHIBIT 10.29
EXECUTION COPY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is dated as of __________ , 1997,
---------
between CPS SYSTEMS, INC., a Texas corporation (the "Company"), and PAUL E.
-------
KANA (the "Executive").
----------
1. Employment. The Company hereby agrees to employ the Executive, and the
----------
Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein.
2. Term. The employment of the Executive by the Company as provided in
----
Section 1 will commence on January 1, 1998 and will terminate at 12:01 a.m. on
January 1, 2000 (the "Expiration Date") unless automatically extended or sooner
---------------
terminated as hereinafter provided (such period, the "Employment Period").
-----------------
Unless terminated by the Executive or the Company prior to January 1, 2000, this
Agreement shall automatically renew on the terms set forth herein for a two-year
period. If so renewed no later than December 31, 1999, the Company shall notify
the Executive by written notice as to whether the Company intends to further
renew or extend the Agreement (including proposals for such further renewal or
extension which the Executive may accept, reject or negotiate, at his
discretion).
3. Position. Duties and Responsibilities.
-------------------------------------
(a) Position. The Executive hereby agrees to serve as Chairman and
--------
Chief Executive Officer and a member of the Board of Directors of the Company.
The Executive shall devote his best efforts and substantially full business time
and attention to the performance of services to the Company in his capacity as
an officer thereof and as may reasonably be requested by the Board. The Company
shall retain full direction and control of the means and methods by which the
Executive performs the above services.
(b) Place of Employment. Initially during the term of this Agreement,
-------------------
the Company's headquarters shall be located in Dallas, Texas and will not be
moved without the prior approval of the Executive.
(c) Other Activities. Except with the prior written approval of the
----------------
Board (which the Board may grant or withhold in its sole and absolute
discretion), the Executive, during the Employment Period, will not (i) accept
any other employment, or (ii) engage, directly or indirectly, in any other
business activity (whether or not pursued for pecuniary advantage) that is or
may be competitive with, or that might place him in a competing position to,
that of the Company or any of its affiliates. Notwithstanding the foregoing, the
Company agrees that the Executive (or affiliates of the Executive) shall be
permitted (i) to undertake the activities set forth in Section 8, (ii) to make
any other passive personal investment that is not in a business activity that is
directly or indirectly competitive with the Company, (iii) to participate in
industry organizations, and (iv) to participate in charitable or educational
activities.
<PAGE>
4. Compensation and Related Matters.
---------------------------------
(a) Salary. During the Employment Period, the Company shall pay the
------
Executive a salary of not less than $110,000 during the first full year and at
such salary (to be not less than $110,000 per year) as determined by the
Compensation Committee of the Board during the second and subsequent years of
the Executive's employment with the Company. All salary is to be paid consistent
with the standard payroll practices of the Company (e.g., timing of payments and
standard employee deductions, such as income tax withholdings, social security,
etc.). The Executive's performance and salary shall be subject to review at the
end of each fiscal year consistent with the standard practices of the Company.
(b) Business Expenses. The Company shall reimburse the Executive in
-----------------
connection with the conduct of the Company's business upon presentation of
sufficient evidence of such expenditures consistent with the Company's policies
as in place from time to time.
(c) Other Benefits. The Executive shall be entitled to participate in
--------------
or receive health, welfare, life insurance, long-term disability insurance,
bonus plan and similar benefits as the Company provides from time to time to its
executives. The Company shall cause to be issued a long-term disability
insurance policy for the Executive providing for benefits to be agreed upon by
the Company and Executive, the premiums thereof to be paid for by the Company
during the term of this Agreement. The Company shall pay the expense of
Executive participation in the Company's health plan including the expense of
dependent coverage.
(d) Bonus. The Compensation Committee of the Board shall establish,
-----
monitor, and oversee an incentive bonus program for the Executive, if certain
performance objectives established by the Compensation Committee for the
Executive (such as specified targets of growth in revenues and earnings per
share) are achieved. Such incentive program would provide for specific partial
bonus achievement hurdles in connection with this program as well. Each
subsequent year thereafter, the Compensation Committee of the Board will
monitor, review and modify this program as necessary to reflect the Executive's
contributions to the Company.
(e) Fringe Benefits. The Executive will be entitled to fringe benefits
---------------
as may be determined or granted from time-to-time by the Board, including but
not limited to an appropriate automobile.
(f) Vacation. The Executive shall be entitled to four vacation weeks
--------
(20 business days) in each calendar year on a pro-rated basis. The Executive
will be entitled to all Company holidays.
(g) Performance Reviews. At the end of each fiscal year, the Board
-------------------
will review the Executive's job performance and will provide the Executive a
written review of the Executive's job performance during the prior year and
implement any Board determined revisions to the Executive's base salary, the
Executive's merit bonus, the Executive's prospective incentive compensation
package (including the Executive's participation in the Option Plan), the
Executive's title and/or the Executive's responsibility at the Company;
provided, however, that the provisions set forth in this Agreement with respect
to the Executive's compensation, the
2
<PAGE>
Option Agreement and the terms and conditions of the Executive's employment at
the Company cannot be modified by the Board in a manner which would result in
less favorable or beneficial terms or conditions thereof being imposed on the
Executive without the Executive's full concurrence and consent.
5. Termination. The Executive's employment hereunder shall be, or may be,
-----------
as the case may be, terminated under the following circumstances:
(a) Death. The Executive's employment hereunder shall terminate
-----
upon his death.
(b) Disability. The Executive's employment hereunder shall terminate
-----------
on the Executive's physical or mental disability or infirmity which, in the
opinion of a competent physician selected by the Board, renders the Executive
unable to perform his duties under this Agreement for more than 120 days during
any 180-day period.
(c) Cause. The Company may terminate the Executive's employment
-----
hereunder for "Cause." Cause shall mean (i) Employee's material breach of any of
------
the terms of this Agreement, (ii) his conviction of a crime involving moral
turpitude or constituting a felony under the laws of any state, the District of
Columbia or of the United States, or (iii) his gross negligence, willful
misconduct or fraud in the performance of his duties hereunder.
(d) Employment-At-Will/Termination for Any Reason. Notwithstanding the
---------------------------------------------
term of this Agreement having a duration of two years of this Agreement and the
annual salary to be paid to the Executive during each of the first two full
years of his employment with the Company, nothing in this Agreement should be
construed as to confer any right of the Executive to be employed by the Company
for a fixed or definite term. Subject to Section 6 hereof, the Executive hereby
agrees that the Company may dismiss him under this Section 5(d) without regard
(i) to any general or specific policies (whether written or oral) of the Company
relating to the employment or termination of its employees, or (ii) to any
statements made to the Executive, whether made orally or contained in any
document, pertaining to the Executive's relationship with the Company.
Notwithstanding anything to the contrary contained herein, including Sections 2
and 4, the Executive's employment with the Company is not for any specified
term, is at will and may be terminated by the Company at any time by delivery of
a notice of termination to the Executive, for any reason, with or without cause,
without liability except with respect to the payments provided for by Section 6.
(e) Voluntary Resignation. The Executive may voluntarily resign his
position and terminate his employment with the Company at any time by delivery
of a written notice of resignation to the Company (the "Notice of Resignation").
The Notice of Resignation shall set forth the date such resignation shall become
effective (the "Date of Resignation"), which date shall, in any event, be at
least ten (10) days and no more than thirty (30) days from the date the Notice
of Resignation is delivered to the Company. At its option, the Company may
reduce such notice period to any length, upon thirty (30) days written notice to
the Executive.
(f) Notice. Any termination of the Executive's employment by the
------
Company shall be communicated by written Notice of Termination to the Executive.
For purposes of this
3
<PAGE>
Agreement, a "Notice of Termination" shall mean a notice that shall indicate the
---------------------
specific termination provision in this Agreement relied upon and shall set forth
in reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated.
(g) "Date of Termination" shall mean (i) if the Executive's employment
-------------------
is terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated by reason of his disability, the date of the opinion of
the physician referred to in Section 5(b), above, (iii) if the Executive's
employment is terminated by the Company for Cause pursuant to subsection 5(c)
above, or without Cause by the Company pursuant to subsection 5(d) above, the
date specified in the Notice of Termination and (iv) if the Executive
voluntarily resigns pursuant to subsection 5(e) above, the date of the Notice of
Resignation.
(h) Termination Obligations.
-----------------------
(i) The Executive hereby acknowledges and agrees that all personal
property and equipment furnished to or prepared by the Executive in the course
of or incident to his employment, belongs to the Company and shall be promptly
returned to the Company upon termination of the Employment Period. "Personal
--------
property" includes, without limitation, all books, manuals, records, reports,
- --------
notes, contracts, lists, blueprints, and other documents, or materials, or
copies thereof (including computer files), and all other proprietary information
relating to the business of the Company. Following termination, the Executive
will not retain any written or other tangible material containing any
proprietary information of the Company.
(ii) Upon termination of the Employment Period, the Executive shall be
deemed to have resigned from all offices and directorships then held with the
Company or any affiliate.
(iii) The representations and warranties contained herein and the
Executive's obligations under Sections 5(h), 7, 8, 9 and 15 through 18 shall
survive termination of the Employment Period and the expiration of this
Agreement. Nothing herein shall modify Employee's mediation and other rights
under this Agreement.
(i) Release. In exchange for the Company entering into the Agreement
-------
and the payment of Severance Payments provided for in Sections 6(b) and 6(d)
herein, the Executive agrees that, at the time of his resignation or termination
from the Company, he will execute a release acceptable to the Company of all
liability of the Company and its directors, officers, shareholders, employees,
agents and attorneys to the Executive in connection with or arising out of his
employment with the Company except for wilful behavior or gross negligence,
except with respect to any then-vested rights under the Company's Option Plan
and except with respect to any Severance Payments under Sections 6(b) or 6(d)
which may be payable to him under the terms of the Agreement.
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6. Compensation Upon Termination.
-----------------------------
(a) Death. If the Executive's employment shall be terminated pursuant
-----
to Section 5(a), the Company shall pay the Executive his base salary payable
pursuant to Section 4(a) and any accrued bonus payable pursuant to Section 4(d)
through the Date of Termination. At the Executive's own expense, the Executive's
dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(b) Disability. If the Executive's employment shall be terminated by
----------
reason of disability pursuant to Section 5(c), the Executive shall receive his
base salary payable and any accrued bonus pursuant to Section 4(a) up to the
Date of Termination and for 180 days thereafter; provided that payments so made
to the Executive during the disability shall be reduced by the sum of the
amounts, if any, payable to the Executive at or prior to the time of any such
payment under any disability benefit plan of the Company. At the Executive's own
expense, the Executive and his dependents shall also be entitled to any
continuation of health insurance coverage rights under any applicable law.
(c) Cause. If the Executive's employment shall be terminated for Cause
-----
pursuant to Section 5(c) hereof, the Company shall pay the Executive his base
salary and any accrued bonus then payable pursuant to Section 4(d)) through the
Date of Termination. At the Executive's own expense, the Executive and his
dependents shall also be entitled to any continuation of health insurance
coverage rights under any applicable law.
(d) Other Terminations. If the Company shall terminate the Executive's
------------------
employment without cause pursuant to Section 5(d) hereof or if the Executive
shall terminate for "Good Cause" pursuant to Section 6(e) hereof, then the
Company shall pay the Executive his then current base salary at the Date of
Termination for a period of two (2) years from the Date of Termination. The
Executive and his dependents shall also be entitled to any continuation of
health insurance coverage rights under any applicable law.
(e) Voluntary Resignation. If the Executive terminates his employment
---------------------
with the Company pursuant to Section 5(e) hereof without "Good Cause," the
Company shall have no obligation to compensate the Executive following the Date
of Resignation. In any event, at the Executive's own expense, the Executive and
his dependents shall be entitled to any continuation of health insurance
coverage rights under any applicable law.
For purposes of this Agreement, "Good Cause" shall mean, without the
express written consent of Executive, the occurrence of any of the following
events unless such events are substantially corrected within 30 days following
written notification by Executive to the Company that he intends to terminate
his employment hereunder for one of the reasons set forth below:
(i) Any material alteration, reduction or diminution in the duties,
responsibilities and status of Executive's position; or
(ii) the occurrence of a "Change in Control."
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As used in this Agreement, "Change of Control" means the occurrence of
any of the following: (i) the adoption of a plan relating to the liquidation or
dissolution of the Company, (ii) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person or group, other than the Executive or his affiliates, (the "Principals"),
becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule
13d-5 under the Securities Exchange Act of 1934), directly or indirectly, of
more than 50% of the total voting power of the total outstanding voting stock
of the Company on a fully diluted basis, (iii) the consummation of the first
transaction (including, without limitation, any merger or consolidation) the
result of which is that any person or group, other than the Principals, becomes
the beneficial owner (as defined above), directly or indirectly, of more than
50% of the total voting power of the total outstanding voting stock of the
Company, or (iv) a change of more than three members of the Board of Directors
of the Company without the approval of the Executive.
(f) If the termination is for any reason other than without cause or
without Good Cause pursuant to Section 5(d) hereof the Company will be entitled
to offset and reduce each month the amount of the monthly Severance Payment
otherwise payable if any to the Executive hereunder by the amount of the
Executive's prior month's earnings (if any) from post-Company full time
employment (including both salary, bonus and other cash or cash equivalent
compensation) at a subsequent full time employer or in connection with a full
time consulting practice or other self-employment or any full time venture
founded by the Executive; provided, however, that the Company shall not be
entitled to any Severance Payment offset or reduction as a result of any
earnings or income generated by the Executive from part-time consulting work,
unless and until such consulting work becomes a full-time endeavor. If the
termination is without cause pursuant to Section 5(d) hereof, there shall be no
such off sets by the Company.
(g) In the event of any Termination pursuant to Section 5, the
Executive shall be entitled to retain any and all options to purchase capital
stock of the Company granted to the Executive pursuant to the terms and
conditions of the Option Agreement attached as Exhibit A hereto that have vested
as of the date of such Termination.
(h) Any Severance Payment made pursuant to this Section 6 shall be
payable in equal monthly installments over the required duration set forth in
Sections 6(a) through 6(e).
(i) The continuing obligation of the Company to make the Severance
Payment to the Executive is expressly conditioned upon the Executive complying
and continuing to comply with his obligations and covenants under Sections 7 and
8 of this Agreement following termination of employment with the Company.
7. Confidentiality and Non-Solicitation Covenants.
----------------------------------------------
(a) Confidentiality. In addition to the agreements set forth in
---------------
Section 5(h)(i), the Executive hereby agrees that the Executive will not, during
the Employment Period or at any time thereafter directly or indirectly disclose
or make available to any person, firm, corporation, association or other entity
for any reason or purpose whatsoever, any Confidential Information (as defined
below). The Executive agrees that, upon termination of his employment with the
Company, all Confidential Information in his possession that is in written or
other tangible form
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(together with all copies or duplicates thereof, including computer files) shall
be returned to the Company and shall not be retained by the Executive or
furnished to any third party, in any form except as provided herein; provided,
however, that the Executive shall not be obligated to treat as confidential, or
return to the Company copies of any Confidential Information that (i) was
publicly known at the time of disclosure to the Executive, (ii) becomes publicly
known or available thereafter other than by any means in violation of this
Agreement or any other duty owed to the Company by any person or entity or (iii)
is lawfully disclosed to the Executive by a third party. As used in this
Agreement the term "Confidential Information" means: information disclosed to
------------------------
the Executive or known by the Executive as a consequence of or through his
relationship with the Company, about the owners, customers, employees, business
methods, public relations methods, organization, procedures or finances,
including, without limitation, information of or relating to owner or customer
lists of the Company and its affiliates.
(b) Non-Solicitation. In addition, the Executive hereby agrees that
----------------
during the Employment Period and for eighteen (18) months thereafter, regardless
of the reason or circumstances of termination of employment with the Company,
the Executive will not, either on his own account or jointly with or as a
manager, agent, officer, employee, consultant, partner, joint venturer, owner or
shareholder or otherwise on behalf of any other person, firm or corporation, (i)
carry on or be engaged or interested directly or indirectly in, or solicit, the
manufacture or sale of like goods or provision of services as offered by the
Company to its customers at the Date of Termination, (ii) endeavor directly or
indirectly to canvas or solicit in competition with Company or to interfere with
the supply of orders for goods or services from or by any person, firm or
corporation which during the Employment Period has been or is a supplier of
goods or services to Company or (iii) directly or indirectly solicit or attempt
to solicit away from Company any of its officers or employees or offer
employment to any person who, on or during the 6 months immediately preceding
the date of such solicitation or offer, is or was an officer or employee of
Company.
8. Covenant Not to Compete.
-----------------------
The Executive agrees that during the Employment Period he will devote
substantially full-time to the business of the Company and not engage in any
type of transient computer hardware or software development and all other
related businesses, including but not limited to all aspects of the systems
consulting business. Subject to such full-time requirement and the restrictions
set forth below in this Section 8 and Section 3(c) above, the Executive shall be
permitted to continue his existing business investments and activities, and may
pursue additional business investments; provided that the Executive not serve as
officer of any public company resulting from such business investments. The
Executive agrees that he shall not (i) invest in, manage, consult or participate
in any way in any other software business (in either an active or passive
manner), (ii) participate in or advise any business wherein software is a
relevant business segment or (iii) act for or on behalf of any business that
intends to enter or participate in the software business, in each case unless
the independent members of the Company's Board of Directors determine that such
action is in the best interest of the Company. Notwithstanding the foregoing,
the Executive may purchase stock as a stockholder in any publicly traded
company, including any company which is involved in the public sector software
business in California, Colorado, Florida, Georgia, North Carolina, Oklahoma and
Texas;
7
<PAGE>
provided that the Executive does not own (together or separately or through his
affiliates) more than 5% of any company (other than the Company) in the
software business. In addition, the Executive shall not invest (directly or
indirectly) in any software business unless the independent members of the
Company's Board of Directors determine that such an investment is in the best
interest of the Company.
9. Injunctive Relief and Enforcement. In the event of breach by the
---------------------------------
Executive of the terms of Sections 5(h)(i), 7 or 8, and only following mediation
or attempted mediation as set forth in Section 16 below (unless the Company is
suffering irreparable injury, in which case Section 16 will not prevent the
Company from seeking injunctive relief against the Executive in any court or
forum), the Company shall be entitled to institute legal proceedings to enforce
the specific performance of this Agreement by the Executive and to enjoin the
Executive from any further violation of Sections 5(h)(i), 7 or 8 and to exercise
such remedies cumulatively or in conjunction with all other rights and remedies
provided by law and not otherwise limited by this Agreement. The Executive
acknowledges, however, that the remedies at law for any breach by him of the
provisions of Sections 5(h)(i), 7 or 8 may be inadequate. In addition, in the
event the agreements set forth in Sections 5(h)(i), 7 or 8 shall be determined
by any court of competent jurisdiction to be unenforceable by reason of
extending for too great a period of time or over too great a geographical area
or by reason of being too extensive in any other respect, each such agreement
shall be interpreted to extend over the maximum period of time for which it may
be enforceable and to the maximum extent in all other respects as to which it
may be enforceable, and enforced as so interpreted, all as determined by such
court in such action.
10. Notice. For the purposes of this Agreement, notices, demands and all
------
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when personally delivered when
transmitted by telecopy with receipt confirmed, or one day after delivery to an
overnight air courier guaranteeing next day delivery, addressed as follows:
If to the Executive: Paul E. Kana
1834 Highway 16 West
Jackson, GA 30233
If to the Company: CPS SYSTEMS, INC.
3400 Carlisle
Suite 500
Dallas, Texas 75204
Attention: G. Dean Booth, Jr.
With a copy to: Schreeder, Wheeler & Flint, LLP
1600 Candler Building
127 Peachtree Street, N.E.
Atlanta, Georgia 30303-1845
Attention: Chester J. Hosch, Esq.
8
<PAGE>
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
11. Severability. The invalidity or unenforceability of any provision or
------------
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect; provided, however, that if any one or more of the terms contained in
Sections 5(h), 7 or 8 hereto shall for any reason be held to be excessively
broad with regard to time, duration, geographic scope or activity, that term
shall not be deleted but shall be reformed and constructed in a manner to enable
it to be enforced to the extent compatible with applicable law.
12. Assignment. This Agreement may not be assigned by the Executive, but
------------
may be assigned by the Company to any successor to its business and will inure
to the benefit and be binding upon any such successor.
13. Counterparts. This Agreement may be executed in several counterparts,
------------
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
14. Headings. The headings contained herein are for reference purposes
--------
only and shall not in any way affect the meaning or interpretation of this
Agreement.
15. Choice of Law. This Agreement shall be construed, interpreted and the
-------------
rights of the parties determined in accordance with the laws of the State of
Texas (without reference to the choice of law provisions of Texas, except with
respect to matters of law concerning the internal corporate affairs of any
corporate entity which is a party to or the subject of this Agreement, and as to
those matters the law of the jurisdiction under which the respective entity
derives its powers shall govern.
16. Arbitration. Subject to any irreparable injury being suffered by the
-----------
Company giving rise to the right of the Company to seek injunctive relief
against the Executive pursuant to Section 9 hereof, in the event that there
shall be a dispute among the parties arising out of or relating to this
Agreement, or the breach thereof, the parties agree that such dispute shall be
resolved by final and binding arbitration in Dallas, Texas under the rules of
the American Arbitration Association. Any award issued as a result of such
arbitration shall be final and binding between the parties thereto, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought. The fees and expenses relating to such arbitration (with
the exception of the Executive's attorneys' fees, if any) or any action to
enforce a arbitration award shall be shared equally by the Company and the
Executive.
17. Entire Agreement. This Agreement contains the entire agreement and
----------------
understanding between the Company and the Executive with respect to the
employment of the Executive by the Company as contemplated hereby, and no
representations, promises, agreements or understandings, written or oral, not
herein contained shall be of any force or effect. This Agreement shall not be
changed unless in writing and signed by both the Executive and the Board of
Directors of the Company.
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18. The Executive's Acknowledgment. The Executive acknowledges (a) that he
------------------------------
has had the opportunity to consult with independent counsel of his own choice
concerning this Agreement, and (b) that he has read and understands the
Agreement, is fully aware of its legal effect, and has entered into it freely
based on his own judgment.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as
of the date and year first above written.
CPS SYSTEMS, INC. EXECUTIVE
- ------------------------------- --------------------------------
Name: PAUL E. KANA
Title:
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<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated October 31, 1997 (except for the third
paragraph of Note D, as to which the date is December 3, 1997) accompanying the
consolidated financial statements and schedule of CPS Systems, Inc. and
subsidiary contained in the Form SB-2, Registration Statement under the
Securities Act of 1933 (the "Registration Statement") and in the Prospectus
which forms a part of that Registration Statement. We consent to the use of the
aforementioned reports in the Registration Statement and Prospectus, and to the
use of our name as it appears under the caption "Experts".
/s/ Grant Thornton, LLP
- ----------------------
Grant Thornton, LLP
Atlanta, Georgia
January 12, 1998
