SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8 - K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
September 12, 1996
------------------
(Date of Report)
SofTech, Inc.
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(Exact name of registrant as specified in its charter)
Massachusetts 0-10665 #04-2453033
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(State or other jurisdic- (Commission (IRS Employer
tion of Incorporation or file number) Identification Number)
organization
3260 Eagle Park Drive, N.E., Grand Rapids, MI 49505
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(Address of principal executive offices) (Zip Code)
(616) 957-2330
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(Registrant's telephone number, including area code)
Item 2. Disposition of assets.
On September 12, 1996, SofTech, Inc. and its subsidiaries, Information
Decisions, Incorporated and System Constructs, Inc. (collectively, the
"Company") completed the disposition of its Network Systems Group ("NSG") to
Data Systems Network Corporation (NASDAQ Small Cap: DSYS, Pacific Stock
Exchange: DSY) of Farmington Hills, MI ("Data Systems" or "DSN"). The
Company had announced on June 19, 1996 that it had signed a letter of intent
to sell this division to Data Systems.
Data Systems purchased certain assets and assumed certain liabilities
of NSG with a net book value of approximately $200,000 in exchange for
$890,000 in cash and 540,000 shares of DSN common stock. The tangible assets
acquired totaled approximately $1.7 million and were primarily composed of
fixed assets and service inventory for maintaining the NSG installed base of
hardware and software. Liabilities assumed included deferred revenue
associated with maintenance contracts and other accrued expenses with a
total book value of about $1.5 million. In addition, Data Systems assumed
all NSG lease obligations. SofTech retained NSG assets that had a tangible
book value of approximately $5.0 million, composed primarily of accounts
receivable and inventory. It is expected that those receivables will be
collected and that inventory sold over the next three months. The
transaction was closed using a July 31, 1996 balance sheet. The Asset
Purchase Agreement ("Agreement") provides for a post-closing purchase price
adjustment within 30 days for differences between the July 31, 1996 balance
sheet and that of September 3, 1996, the transaction date for purposes of
the Agreement.
The Company filed its Form 10-K with the Securities and Exchange
Commission on August 29, 1996 and presented the NSG as a discontinued
operation. Included in the results for the fiscal year ended May 31, 1996
was an estimated loss of $700,000 from the disposal of NSG, as more fully
described in "Note I. Discontinued Operations" in the Company's Form 10-K
filed on August 29, 1996.
In connection with the acquisition of 540,000 shares of common stock
of DSN, the Company entered into certain restrictions on transfer and
certain other agreements set forth in the Asset Purchase Agreement and
Registration Rights Agreement included as exhibits to this report. The
Company has also agreed, subject to obtaining appropriate regulatory
approval, to distribute the shares of DSN common stock to the Company's
shareholders, and the Company has entered into various agreements relating
to the voting of such shares prior to such a distribution to the Company's
shareholders and certain other agreements relating to the holding of such
shares by the Company. Under the Asset Purchase Agreement, the Company has
also made various customary representations and warranties to DSN regarding
its corporate status and authority, title to the assets, and various other
matters, and has agreed to indemnify DSN with respect to breaches of such
representations and warranties and other covenants made by the Company in
the Asset Purchase Agreement. The Company's potential liability for
indemnification is generally limited to claims asserted by June 30, 1997 and
is subject to certain minimum and maximum amounts set forth in the Asset
Purchase Agreement. The Company has also agreed not to compete with DSN in
the network integration business for a period of three years.
The foregoing is not intended to be a complete description of the
terms and provisions of the Asset Purchase Agreement or the Registration
Rights Agreement entered into in connection with the transaction described
above, and is subject in its entirety to the terms and provisions of such
agreements, copies of which are filed as exhibits to this report.
On August 13, 1996, the Company's Board of Directors approved a
preliminary plan for distributing the proceeds from the NSG sale and
transitioning management and the Board of Directors ("Transition Plan"). The
preliminary plans for the distribution of the net proceeds expected to be
realized from the proposed sale of certain NSG assets and the liquidation of
the NSG balance sheet primarily involves the collection of receivables, sale
of the North Carolina facility and payment of trade payables. The plan
anticipates the accumulation of the proceeds from the sale following the
transaction, determination of the amount to be distributed to the Company's
stockholders, establishment of a record date and completion of the
distribution. It is expected that this can be completed in calendar 1996.
Sufficient resources would be retained to fund the working capital needs of
the remaining CAD Division. On August 15, 1996 the Company entered into a
"Memorandum of Understanding" with senior management of the remaining
operating Division. This plan and the Memorandum were summarized in the 1996
Financial Statements in "Note L. Subsequent Events:" filed as part of the
Form 10-K. The terms are summarized as follows:
* Immediately following the NSG sale, Norman Rasmussen, the Company's CEO,
would resign that position and the Board of Directors will elect Mark
Sweetland CEO of the Company. This occurred on September 16, 1996;
* Mr. Sweetland and Timothy Weatherford, a senior manager of the CAD
Division, would be elected to the Company's Board of Directors. This
occurred on September 16, 1996;
* Immediately following the record date for payment of the dividend to
shareholders, Messrs. Sweetland and Weatherford would each receive
204,750 shares of the Company's common stock;
* The Company would lend to Messrs. Sweetland and Weatherford amounts equal
to their tax liability for the stock issuance, pursuant to notes maturing
in three years. Such notes would bear interest at the lowest rate allowed
to avoid imputed interest under the Internal Revenue Code and shall be
collateralized by the shares; and
* Immediately following the distribution of the NSG proceeds, Messrs.
Strehle and McNay would resign from the Board of Directors after electing
at least a comparable number of outside directors to replace them.
On September 16, 1996, Norman Rasmussen retired as President and CEO
of SofTech, Inc. and the Board of Directors appointed Mark Sweetland to
those positions. Mr. Sweetland and Timothy Weatherford, a senior manager in
the remaining CAD Division, were elected to the Company's Board of
Directors. These actions were contemplated by the Transition Plan and were
part of the disclosure in Note L to the Consolidated Financial Statements
included in the Company's Form 10-K.
All of the proposed actions described above, including without
limitation the proposed distribution of cash and shares of stock of Data
Systems Network Corporation, the resignation and election of directors and
officers, the granting of shares of the Company's common stock to continuing
management and the loans to be made in conjunction therewith, are subject to
the successful collection of accounts receivable and other assets retained
by the Company and not sold as part of the transaction, and the continuing
review and oversight of the Board of Directors of the Company.
Item 7. (b) Pro forma financial statements
The net assets and operating results of the Network Systems Group were
presented as a discontinued operation in the Company's financial statements
for the year ended May 31, 1996 filed as part of its Annual Report on Form
10-K with the Securities and Exchange Commission on August 29, 1996. Prior
year financial statements have been restated to reflect this classification.
Pro forma financial statements are therefore not required because the NSG
disposition is fully reflected in the Form 10-K filing.
Item 7. (c) Exhibits
2.1 Asset Purchase Agreement dated September 12, 1996 by and among Data
Systems Network Corporation, Information Decisions, Incorporated,
System Constructs, Inc., and SofTech, Inc.
2.2 Registration Rights Agreement dated September 12, 1996 between Data
Systems Network Corporation and SofTech, Inc.
List of Omitted Exhibits and Schedules
Pursuant to Item 601 (b) (2) of Regulation S-k, SofTech, Inc. agrees
to furnish supplementally a copy of any omitted exhibit or Schedule to the
Securities and Exchange Commission upon request.
Exhibit A Assumption Agreement
Exhibit B Bill of Sale
Exhibit C Opinion of Seller's Counsel
Exhibit D Opinion of Buyer's Counsel
Exhibit F Voting Agreement
Exhibit G IDI License
Exhibit H New York Local Counsel Opinion
Exhibit I Michigan Local Counsel Opinion
Schedule 1.1(a) Administrative Assets
Schedule 1.1(b) Excluded Assets
Schedule 1.2(b) Excluded Liabilities
Schedule 3.2 Location of Business and Assets
Schedule 3.3 Authorizations, Approvals and Consents
Schedule 3.4 Subsidiaries and Investments
Schedule 3.6A Seller Financial Statements
Schedule 3.6B Preclosing Balance Sheet
Schedule 3.7 Material Adverse Change in Seller or Business
Schedule 3.10 Permitted Leins
Schedule 3.11 Leased Items
Schedule 3.13 Plans
Schedule 3.15 Authorizations
Schedule 3.16 Patents, Trademarks, Licenses, etc.
Schedule 3.17 Litigation
Schedule 3.18 Noncompliance
Schedule 3.19 Insurance Coverage
Schedule 3.20 Contracts
Schedule 3.21 Products Liability and Warranty Claims
Schedule 3.22 Employee Relations
Schedule 3.23 Insider Interests
Schedule 3.25 Purchase Commitments and Outstanding Bids
Schedule 3.26 Customers, Distributors and Suppliers
Schedule 4.2 Authorization, Consent and Enforceability
Schedule 5.8 Inventory
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SofTech, Inc.
(Registrant)
By /s/ Joseph P. Mullaney
Joseph P. Mullaney
Vice President and CFO
ASSET PURCHASE AGREEMENT
by and among
DATA SYSTEMS NETWORK CORPORATION,
a Michigan corporation,
INFORMATION DECISIONS, INCORPORATED
a Michigan corporation
SYSTEM CONSTRUCTS, INC.,
a New York corporation
and
SOFTECH, INC.,
a Massachusetts corporation
September 12, 1996
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF ACQUIRED ASSETS
<TABLE>
<CAPTION>
Page
<S> <S> <C>
Section 1.1 Purchase and Sale 1
Section 1.2 Assumption of Certain Liabilities 3
Section 1.3 Defined Terms 6
ARTICLE II
PURCHASE PRICE
Section 2.1 Purchase Price 12
Section 2.2 Payment of Purchase Price 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
SELLERS AND SHAREHOLDER
Section 3.1 Organization 15
Section 3.2 Qualification; Location of Business and Assets 15
Section 3.3 Authorization, Consent and Enforceability 15
Section 3.4 Subsidiaries and Investments 16
Section 3.5 No Conflict or Violation 16
Section 3.6 Financial Condition and Liabilities 16
Section 3.7 Absence of Certain Changes 17
Section 3.8 Investment Representation 18
Section 3.9 Inventories 19
Section 3.10 Title 19
Section 3.11 Properties 19
Section 3.12 Condition of Acquired Assets 20
Section 3.13 Benefit Plans 20
Section 3.14 Tax Returns and Taxes 21
Section 3.15 Authorizations 22
Section 3.16 Patents, Trademarks, Licenses, etc. 22
Section 3.17 Litigation and Proceedings 23
Section 3.18 Compliance with Laws 23
Section 3.19 Insurance Coverage 24
Section 3.20 Contracts 24
Section 3.21 Product Liability and Warranty Claims 25
Section 3.22 Employee Relations 25
Section 3.23 Insider Interests 26
Section 3.24 No Other Agreements to Sell the Acquired Assets 26
Section 3.25 Purchase Commitments and Outstanding Bids 26
Section 3.26 Customers, Distributors and Suppliers 27
Section 3.27 Payments 27
Section 3.28 Conduct of Business 28
Section 3.29 Brokers and Finders 28
Section 3.30 Minutes 28
Section 3.31 Disclaimer 28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1 Organization 28
Section 4.2 Authorization, Consent and Enforceability 29
Section 4.3 No Conflict or Violation 29
Section 4.4 Shares Issued 29
Section 4.5 Brokers and Finders 29
Section 4.6 SEC Filings 29
Section 4.7 Disclaimer 30
ARTICLE V
POST-CLOSING OBLIGATIONS
Section 5.1 Covenant Not to Compete; Nonsolicitation 31
Section 5.2 Taxes 31
Section 5.3 Bulk Transfer Laws 32
Section 5.4 Employee Matters 32
Section 5.5 Third Party Consents 33
Section 5.6 Press Releases 34
Section 5.7 Regulatory Filings; Financial Statements 34
Section 5.8 Post-Closing Inventory Purchases and Sales 34
Section 5.9 Current Litigation 35
Section 5.10 Retention of Shares by Shareholder 36
Section 5.11 Change in Name 36
Section 5.12 Nasdaq Filing 37
ARTICLE VI
CLOSING
Section 6.1 Closing Date 37
Section 6.2 Transactions to be Effected at the Closing 37
Section 6.3 Further Assurances 38
ARTICLE VII
INDEMNIFICATION
Section 7.1 Indemnification by Sellers and Shareholder 39
Section 7.2 Indemnification by Buyer 41
Section 7.3 Claims 41
Section 7.4 Survival 43
Section 7.5 Limitations on Indemnification by Sellers and Shareholder 43
Section 7.6 Mitigation of Losses 44
Section 7.7 Remedies 44
ARTICLE VIII
GENERAL
Section 8.1 Arbitration 44
Section 8.2 Exhibits and Schedules 45
Section 8.3 Amendment 46
Section 8.4 Extension; Waiver 46
Section 8.5 Entire Agreement; No Third Party Beneficiaries 46
Section 8.6 Choice of Law 46
Section 8.7 Notices 46
Section 8.8 Counterparts; Headings 47
Section 8.9 Expenses 47
Section 8.10 Successors and Assigns 47
Section 8.11 Severability 47
Section 8.12 Reference to Sellers; IDI as Agent 47
EXHIBITS:
Exhibit A Assumption Agreement
Exhibit B Bill of Sale
Exhibit C Opinion of Seller's Counsel
Exhibit D Opinion of Buyer's Counsel
Exhibit E Registration Rights Agreement
Exhibit G IDI License
Exhibit H New York Local Counsel Opinion
Exhibit I Michigan Local Counsel Opinion
SCHEDULES:
Schedule 1.1(a) Administrative Assets
Schedule 1.1(b) Excluded Assets
Schedule 1.2(b) Excluded Liabilities
Schedule 3.2 Location of Business and Assets
Schedule 3.3 Authorizations, Approvals and Consents
Schedule 3.4 Subsidiaries and Investments
Schedule 3.6A Seller Financial Statements
Schedule 3.6B Preclosing Balance Sheet
Schedule 3.7 Material Adverse Change in Seller or Business
Schedule 3.10 Permitted Liens
Schedule 3.11 Leased Items
Schedule 3.13 Plans
Schedule 3.15 Authorizations
Schedule 3.16 Patents, Trademarks, Licenses, etc.
Schedule 3.17 Litigation
Schedule 3.18 Noncompliance
Schedule 3.19 Insurance Coverage
Schedule 3.20 Contracts
Schedule 3.21 Products Liability and Warranty Claims
Schedule 3.22 Employee Relations
Schedule 3.23 Insider Interests
Schedule 3.25 Purchase Commitments and Outstanding Bids
Schedule 3.26 Customers, Distributors and Suppliers
Schedule 4.2 Authorization, Consent and Enforceability
Schedule 5.8 Inventory
</TABLE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of September
12, 1996, by and among DATA SYSTEMS NETWORK CORPORATION, a Michigan corporation
("Buyer"), INFORMATION DECISIONS, INCORPORATED, a Michigan corporation ("IDI"),
SYSTEM CONSTRUCTS, INC., a New York corporation ("SCI") (each a "Seller" and
collectively, the "Sellers"), and SOFTECH, INC., a Massachusetts corporation,
the sole shareholder of Sellers ("Shareholder").
A. Sellers own certain assets which they use in the conduct of the
business of the SofTech Network Systems Group (the "Business"). Shareholder is
the sole owner, of record and beneficially, of all of Sellers' issued and
outstanding capital stock.
B. Sellers wish to sell to Buyer, and Buyer wishes to purchase from
Sellers, the Acquired Assets, upon the terms and subject to the conditions of
this Agreement.
NOW THEREFORE, in consideration of the foregoing premises and the
respective covenants, representations, warranties and conditions hereinafter set
forth, and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties agree as follows:
I. PURCHASE AND SALE OF ACQUIRED ASSETS
1.1 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, Sellers and Shareholder agree to sell, assign, transfer, convey
and deliver, or cause to be sold, assigned, transferred, conveyed and delivered,
to Buyer and Buyer agrees to purchase, at the Closing, all the Acquired Assets
free and clear of all liens, encumbrances, liabilities or obligations, except
Permitted Liens and those expressly assumed by Buyer pursuant to Section 1.2(a).
(a) Acquired Assets. The term "Acquired Assets" means the business,
properties, assets, goodwill and rights of Sellers as a going concern, tangible
or intangible, as of the Effective Date, used by Sellers either exclusively or
primarily in connection with the Business (other than the Excluded Assets) set
forth below:
(i) all tangible personal property, including without limitation,
manufactured and purchased parts, machinery, furniture, equipment, tools,
vehicles, trailers, office furnishings and supplies of Sellers as of the
Effective Date;
(ii) all Intellectual Property Rights, including all such items listed on
Schedule 3.16;
(iii) cash and cash equivalents received in connection with activities
occurring on or after the Effective Date, and accounts receivable and
notes receivable accrued on or after the Effective Date relating
exclusively or primarily to the Business;
(iv) all right, title and interest of Sellers in, to and under all
executory Contracts that are listed on Schedule 3.20, all unfilled
purchase and customer orders and all other executory Contracts that are
not required to be listed in such Schedule and which were entered into in
the ordinary course of the Business relating exclusively or primarily to
the Business;
(v) all rights, claims, deposits, prepayments, refunds (including, but not
limited to, co-op reimbursements and similar manufacturer rebates), rights
of recovery, rights of recoupment, causes of action and choses in action
(including, but not limited to, rights of collection, set-off and
indemnification) of Sellers existing on the Effective Date relating
exclusively or primarily to the Business, but excluding claims set forth
on Schedule 1.1(b);
(vi) the administrative, support and other infrastructure relating to
services supplied by a Seller or Shareholder to the Business set forth on
Schedule 1.1(a); and
(vii) all of the goodwill and all other intangible property of whatever
nature or description relating exclusively or primarily to the Business.
(b) Excluded Assets. The term "Excluded Assets" means:
(i) minute books, stock records, articles of incorporation, bylaws, tax
returns and similar corporate records of Sellers and Shareholder;
(ii) the rights of Sellers and Shareholder to any of their claims for any
federal, state, local or foreign Tax refunds;
(iii) Sellers' and Shareholder's rights under this Agreement;
(iv) real property owned by a Seller or Shareholder;
(v) cash and cash equivalents (other than cash and cash equivalents
included in Section 1.1(a)(iii)), accounts receivable and notes receivable
accrued prior to the Effective Date;
(vi) all inventory of the Business;
(vii) all assets of Sellers and Shareholder not used exclusively or
primarily in connection with the Business, including in particular all
assets of the computer-aided design ("CAD") division of Sellers and
Shareholder;
(viii) all books of account, general, financial and accounting records,
files, invoices, customers and suppliers lists and all other data owned or
used by a Seller relating to the Business or the Acquired Assets;
(ix) all right, title and interest of Sellers in, to and under all
Authorizations relating exclusively or primarily to the Business; and
(x) the assets, properties or rights set forth on Schedule 1.1(b).
1.2 Assumption of Certain Liabilities.
(a) Certain Liabilities Assumed. Upon the terms and subject to the
conditions of this Agreement, and subject to Section 1.2(b), Buyer shall execute
and deliver to Sellers on the Closing Date an Assumption Agreement pursuant to
which Buyer shall assume and agree to pay, perform and discharge in accordance
with sound business practice and the terms of the liabilities set forth below,
the following, and only the following, liabilities, which shall be referred to
herein collectively as the "Assumed Liabilities":
(i) all obligations and liabilities of a Seller under the Contracts which
are acquired by Buyer pursuant to the provisions of this Agreement, and
with respect to which Buyer succeeds to the rights of a Seller thereunder,
to the extent that such obligations and liabilities accrue from and after
the Effective Date, together with all reserves accrued by a Seller with
respect to such obligations and liabilities as set forth on the Closing
Balance Sheet;
(ii) accrued liabilities set forth on the Closing Balance Sheet relating
to accrued vacation pay, bonuses and other employee benefits with respect
to employees of the Business who become employees of Buyer on the Closing
Date (but not including liabilities retained by Sellers and Shareholder
under Section 5.4); and
(iii) liabilities of the Sellers relating exclusively or primarily to the
Business which accrue on or after the Effective Date.
(b) Liabilities Not Assumed. Except as set forth in Section 1.2(a), Buyer
shall not assume or agree to pay, perform or discharge any obligations,
liabilities, Contracts or commitments of a Seller or Shareholder of any kind or
nature whatsoever (such obligations, liabilities, Contracts and commitments
other than those set forth in Section 1.2(a) are referred to herein as the
"Excluded Liabilities"). Without limiting the foregoing, Buyer shall not assume
or become liable to pay, perform or discharge, any of the following:
(i) any liability or obligation of a Seller or Shareholder arising or
incurred in connection with the negotiation, preparation and execution of
this Agreement and the transactions contemplated hereby, including,
without limitation, fees and expenses of counsel, accountants, advisers,
brokers and others (including without limitation any brokers, finders or
originators fees or commissions);
(ii) any product liability, property damage, personal injury, product
warranty or similar claim for injury to person or property, regardless of
when made or asserted, which arises out of or is based upon any express or
implied representations, warranty, agreement or guarantee made by a Seller
or Shareholder, or alleged to have been made by a Seller or Shareholder,
or which is imposed or asserted to be imposed by operation of law, in
connection with any service performed or product sold or leased by or on
behalf of a Seller or Shareholder on or prior to the Effective Date,
including without limitation any claim relating to any product delivered
in connection with the performance of such service and any claim seeking
recovery for consequential damage, lost revenue or income; provided that
the foregoing is not intended to exclude Buyer's assumption of obligations
of Sellers pursuant to Section 1.2(a) to provide services under Contracts
included in the Acquired Assets;
(iii) except as provided in Section 1.2(a)(ii), any obligations or
liabilities of a Seller or Shareholder arising under or in connection with
any Plans (whether or not legally binding) providing benefits to any
present or former employee of a Seller or Shareholder (including, without
limitation, any liability retained by Sellers and Shareholder under
Section 5.4 of this Agreement);
(iv) any obligations or liabilities of a Seller or Shareholder for any
present or past employees, agents or independent contractors of a Seller
or Shareholder, including, without limitation, any employee severance or
termination claims, any liabilities under any "plant closing" laws or
other similar claims, or any claims for commissions with respect to any
sales occurring on or before the Effective Date;
(v) any liability with respect to the litigation, investigations and other
similar matters set forth on Schedule 3.17 or otherwise pending or
threatened with respect to the conduct of the Business on or prior to the
Effective Date;
(vi) except as provided in Section 5.2(c), any obligations or liabilities
of a Seller or Shareholder which result from any Taxes, including, without
limitation, any Taxes or expenses arising from or associated with the
conveyance and transfer from Sellers and Shareholder to Buyer of the
Acquired Assets;
(vii) any obligations or liabilities of a Seller or Shareholder for
worker's compensation claims or unemployment compensation claims;
(viii) any obligations or liabilities of a Seller or Shareholder under any
Environmental Laws;
(ix) any obligations or liabilities of a Seller or Shareholder for
borrowed money or liabilities, other than the Assumed Liabilities, to
creditors of Seller;
(x) any obligations or liabilities of a Seller or Shareholder relating to
the Excluded Assets;
(xi) any obligations or liabilities of a Seller or Shareholder which are
undisclosed, which are contingent and not an obligation or liability under
a Contract to be acquired pursuant to the provisions of this Agreement or
which are contingent obligations relating to purchase orders or discrete
projects under a Contract which contemplates multiple orders or projects
and for which orders or projects a Seller has received payment or accrued
an account receivable;
(xii) any obligation or liability owed to a Seller or Shareholder or any
of their affiliates; and
(xiii) any obligation or liability set forth in Schedule 1.2(b).
1.3 Defined Terms. As used herein, the terms below shall have the
following meanings. Any of these terms, unless the context otherwise requires,
may be used in the singular or plural depending upon the reference.
"Acquired Assets" shall have the meaning set forth in Section 1.1(a) of
this Agreement.
"Adjusted Amount" shall have the meaning set forth in Section 2.2(d) of
this Agreement.
"Assumed Liabilities" shall have the meaning set forth in Section 1.2(a)
of this Agreement.
"Assumption Agreement" shall mean an agreement in the form attached to
this Agreement as Exhibit A.
"Authorizations" shall mean all franchises, licenses, permits, consents,
easements, rights, applications, filings, registrations and other authorizations
from any foreign, domestic, federal, state or local governmental authority
relating exclusively or primarily to the conduct of the Business.
"Average Period" shall have the meaning set forth in Section 2.2(d) of
this Agreement.
"Average Price" shall have the meaning set forth in Section 2.2(d) of this
Agreement.
"Balance Sheet Date" shall mean May 31, 1996.
"Bill of Sale" shall mean a general assignment and bill of sale in the
form attached to this Agreement as Exhibit B.
"Business" shall have the meaning set forth in Recital A to this
Agreement.
"Buyer" shall have the meaning set forth in the Preamble to this
Agreement.
"Buyer Documents" shall mean this Agreement, the Assumption Agreement, the
Registration Rights Agreement, the IDI License and all other agreements related
thereto to be delivered by Buyer.
"Buyer's Common Stock" shall mean the Common Stock, $.01 par value, of
Data Systems Network Corporation.
"CAD" shall have the meaning set forth in Section 1.1(b) of this
Agreement.
"Claim" shall have the meaning set forth in Section 7.3 of this Agreement.
"Claimant" shall have the meaning set forth in Section 7.3 of this
Agreement.
"Closing" shall have the meaning set forth in Section 6.1 of this
Agreement.
"Closing Balance Sheet" shall mean a statement of accounts prepared by
Sellers and Shareholder as of the close of business on the Effective Date
reflecting the book value of the Acquired Assets and the Assumed Liabilities as
of such date, in each case prepared in accordance with generally accepted
accounting principles and consistent with the Preclosing Balance Sheet and
Sellers' and Shareholder's financial records, which have been maintained in
accordance with generally accepted accounting principles, except as agreed to by
the Buyer and Sellers and set forth in the notes thereto.
"Closing Date" shall have the meaning set forth in Section 6.1 of this
Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of
1985 (including any amendments thereof, and the regulations and published
interpretations thereunder).
"Contracts" shall mean contracts, leases, mortgages, indentures,
agreements, Plans, instruments, undertakings, commitments, obligations, purchase
and customer orders, insurance policies, warranties and all other legally
binding arrangements, whether oral or written, to which a Seller or Shareholder
is a party and which relate exclusively or primarily to the Business.
"Defending Party" shall have the meaning set forth in Section 7.3(b) of
this Agreement.
"Effective Date" shall mean September 3, 1996.
"Environmental Laws" shall mean (i) any federal, state and local law,
statute, ordinance, rule, regulation, license, permit, Authorization, approval,
consent, court order, judgment, decree, injunction, code, requirement or
agreement with any governmental entity, relating to pollution (or the cleanup of
the environment), human health or the protection of air, water vapor, surface
water, groundwater, drinking water supply, land (including its surface and
subsurface), plant and animal life or any other natural resource, or concerning
exposure to, or the use, storage, recycling, treatment, generation,
transportation, processing, handling, labeling, production or disposal of
Hazardous Substances, in each case as amended, and as now or hereafter in
effect, and (ii) any common law or equitable doctrine (including, without
limitation, injunctive relief and tort doctrines such as negligence, nuisance,
trespass and strict liability) that may impose liability or obligations for
injuries or damages due to or threatened as a result of the presence of,
exposure to, or ingestion of, any Hazardous Substance. The term Environmental
Law includes, without limitation, the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980; the Superfund Amendments and
Reauthorization Act; the Federal Water Pollution Control Act; the Federal Clean
Air Act; the Federal Clean Water Act; the Federal Resource Conservation and
Recovery Act of 1976 (including the Hazardous and Solid Waste Amendments
thereto); the Federal Solid Waste Disposal Act; the Federal Toxic Substances
Control Act; the Federal Insecticide, Fungicide and Rodenticide Act; the Federal
Occupational Safety and Health Act of 1970; the Michigan Air Pollution Act; the
Michigan Environmental Protection Act; the Michigan Environmental Response Act;
the Michigan Goemaere-Anderson Wetland Protection Act; the Michigan Hazardous
Waste Management Act; the Michigan Inland Lakes and Streams Act; the Michigan
Leaking Underground Storage Tank Act; the Michigan Liquid Industrial Wastes Act;
the Michigan Polychlorinated Biphenyls Compounds Act; the Michigan Safe Drinking
Water Act; the Michigan Solid Waste Management Act; the Michigan Underground
Storage Tank Regulatory Act; and the Michigan Water Resources Commission Act; in
the case of each, as amended and as now or hereafter in effect.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974
(including any amendments thereof, and the regulations and published
interpretations thereunder).
"Excluded Assets" shall have the meaning set forth in Section 1.1(b) of
this Agreement.
"Excluded Liabilities" shall have the meaning set forth in Section 1.2(b)
of this Agreement.
"Hazardous Substance" means any substance presently listed, defined,
designated, considered or classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any Environmental Law, whether by type
or by quantity, including any substance containing any such substance as a
component. Hazardous Substance includes, without limitation, any toxic waste,
pollutant, contaminant, hazardous substance, toxic substance, hazardous waste,
special waste, industrial substance or waste, petroleum, petroleum product, or
petroleum-derived substance or waste, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl.
"IDI" shall have the meaning set forth in the Preamble to this Agreement.
"IDI License" shall mean an agreement substantially in the form attached
to this Agreement as Exhibit G.
"Indemnitor" shall have the meaning set forth in Section 7.3 of this
Agreement.
"Intellectual Property Rights" shall mean all of Sellers' and
Shareholder's right, title and interest in, to and under all domestic and
foreign patents (including all reissues, divisions, continuations, and
extensions thereof), patent applications, patent rights, inventions,
improvements to inventions, drawings, designs, proprietary information or other
rights with respect thereto, trademarks, trademark registrations, service marks,
service mark applications, trademark registration applications, tradenames used
by a Seller or Shareholder either exclusively or primarily in connection with
the Business, all other names and slogans embodying business, product or service
goodwill (excluding the names "Information Decisions, Incorporated" and
"SofTech, Inc."), all variations of such names, copyrights, computer software,
specifications, data, designs, trade secrets, technology, know-how, processes
and confidential and proprietary information used by a Seller or Shareholder
either exclusively or primarily in connection with the Business (including any
being developed) and all goodwill associated therewith, whether or not subject
to statutory registration, and all license agreements to which a Seller or
Shareholder is a party (as licensor or licensee) relating to any of the
foregoing.
"IRC" shall mean the Internal Revenue Code of 1986 (including any
amendments thereof, and the regulations and published interpretations
thereunder).
"IRS" shall mean the Internal Revenue Service.
"Issued Rights and Applications" shall have the meaning set forth in
Section 3.16 of this Agreement.
"Knowledge" shall mean actual knowledge of senior management of the
respective party, after reasonable investigation.
"Laws" shall mean all laws, ordinances, orders, regulations and other
governmental requirements.
"License Agreements" shall have the meaning set forth in Section 3.16 of
this Agreement.
"Litigation" shall have the meaning set forth in Section 5.9 of this
Agreement.
"Losses" shall have the meaning set forth in Section 7.1 of this
Agreement.
"M.C.L.A." shall mean the Michigan Compiled Laws Annotated.
"MESC" shall have the meaning set forth in Section 5.2(b) of this
Agreement.
"MESC Form 1027" shall have the meaning set forth in Section 5.2(b) of
this Agreement.
"Michigan Tax Certificate" shall have the meaning set forth in Section
5.2(a) of this Agreement.
"Net Asset Value" shall have the meaning set forth in Section 2.2(c) of
this Agreement.
"1933 Act" shall have the meaning set forth in Section 3.8 of this
Agreement.
"Notice" shall mean a written notification describing, with reasonable
specificity, a breach of representation or warranty or any other claim for
indemnity.
"Permitted Liens" shall have the meaning set forth in Section 3.10 of this
Agreement.
"Plans" shall mean all plans, contracts, programs and arrangements with
respect to employees engaged in the Business, including, but not limited to
employment agreements, union contracts and supplemental agreements, pensions,
profit sharing arrangements, bonuses, deferred compensation, retirement, stock
option, restricted stock, phantom stock, disability, death benefit, severance,
medical and hospitalization, insurance, vacation, dependent care, salary
continuation, and other employee benefit plans, programs or arrangements, now or
at any time maintained by a Seller or Shareholder or under which a Seller or
Shareholder has or had any obligations in respect of any employee engaged in the
Business.
"Preclosing Balance Sheet" shall mean the unaudited statement of accounts
of the Business as of the close of business on July 31, 1996 reflecting the book
value of the Acquired Assets and Assumed Liabilities as of such date, in each
case prepared in accordance with generally accepted accounting principles and
consistent with Sellers' and Shareholder's financial records, which have been
maintained in accordance with generally accepted accounting principles, except
as agreed to by the Buyer and Sellers and set forth in the notes thereto.
"Purchase Price" shall have the meaning set forth in Section 2.1 of this
Agreement.
"Registration Rights Agreement" shall mean an agreement substantially in
the form attached to this Agreement as Exhibit E.
"SCI" shall have the meaning set forth in the Preamble to this Agreement.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC Reports" shall have the meaning set forth in Section 4.6 of this
Agreement.
"Securities Laws" shall have the meaning set forth in Section 4.6 of this
Agreement.
"Seller" and "Sellers" shall have the meaning set forth in the Preamble to
this Agreement.
"Seller Documents" shall mean this Agreement, the Bill of Sale, the IDI
License, the Registration Rights Agreement and all other agreements, conveyances
and assignments related thereto to be delivered by a Seller or Shareholder.
"Seller Financial Statements" shall mean unaudited, internal statements of
revenues and contribution margin for the fiscal year ended May 31, 1996, and
related unaudited, internal statements of assets and liabilities at May 31,
1996, relating to the Business, prepared by Sellers and Shareholder in the
normal course of business, which statements were derived from Sellers' and
Shareholder's books and records.
"Shareholder" shall have the meaning set forth in the Preamble to this
Agreement.
"Taxes" shall mean any federal, state, local or foreign taxes,
assessments, interest, penalties, deficiencies, fees and other governmental
charges or impositions (including without limitation all income tax,
unemployment compensation, social security, payroll, sales and use, excise,
privilege, property, ad valorem, franchise, license, school and any other tax or
similar governmental charge or imposition under the laws of the United States or
any state or municipal or political subdivision thereof or any foreign country
or political subdivision thereof).
"Tax Returns" shall mean all federal, state, local and foreign tax
returns, reports, statements and other similar filings required to be filed by a
Seller or Shareholder.
II. PURCHASE PRICE
2.1 Purchase Price. The purchase price for the Acquired Assets shall be
540,000 shares of Buyer's Common Stock and $890,000 (collectively, the "Purchase
Price") subject to the post-closing adjustments described in Section 2.2.
2.2 Payment of Purchase Price. The Purchase Price shall be paid as
follows:
(a) At the Closing, Buyer shall pay to Sellers the sum of $890,000 by wire
transfer of immediately available federal funds to such account(s) as
Seller shall designate;
(b) At the Closing, Buyer shall deliver to Shareholder a certificate
representing the shares of Buyer's Common Stock to be conveyed pursuant to
Section 2.1;
(c) A post-closing adjustment to the Purchase Price shall be made as
follows:
(i) Within thirty (30) days after the Closing, a Closing Balance
Sheet will be prepared by Sellers and Shareholder and shall be
furnished to Buyer. With respect to the preparation of the Closing
Balance Sheet, Sellers and Shareholder agree that the Buyer and the
Buyer's independent public accountants and other representatives
shall have the right to review and observe the taking of a physical
inventory of the tangible Acquired Assets and shall have full and
complete access during regular business hours to all books and
account, workpapers and other records and files of Sellers and
Shareholder in the possession or under the control of Sellers and
Shareholder, and Sellers and Shareholder shall use their reasonable
best efforts to cause their independent public accountants to
provide such access to all workpapers (including, without
limitation, workpapers relating to the audit of Shareholder's
consolidated financial statements as of and for the fiscal years
ended May 31, 1995 and 1996) and supporting collateral documents of
or in the possession of such accountants. Sellers will provide Buyer
with written notice at least five business days prior to the taking
of such physical inventory of the time and place at which such
physical inventory will be taken. The Closing Balance Sheet,
together with notes thereto, shall (A) be in accordance with the
books and records of Sellers and Shareholder, (B) present fairly the
financial information it purports to present regarding the Business
as of such date, and (C) except as agreed to by Buyer and Sellers
and disclosed in the notes thereto, be prepared in accordance with
generally accepted accounting principles on a basis consistent with
the Preclosing Balance Sheet, the Sellers' and Shareholder's
financial records and the information disclosed in the Shareholder's
consolidated financial statements and notes thereto filed as part of
Shareholder's Annual Report on Form 10-K for the fiscal year ended
May 31, 1996 with respect to the Acquired Assets and the Assumed
Liabilities. The Closing Balance Sheet shall be reviewed by Buyer
within thirty (30) days of the date it is furnished to Buyer. If any
questions should arise during such review which Sellers and Buyer
cannot resolve between themselves, such questions shall be referred
to the independent accountants representing each of the parties, who
shall within fifteen (15) days thereafter attempt to resolve such
questions, and any decision mutually agreeable to such accountants
shall be binding upon both Seller and Buyer. If, after fifteen (15)
days, the independent accountants of Sellers and Buyer are unable to
arrive at a resolution of any issue relating to the Closing Balance
Sheet, such independent accountants will appoint a third accounting
firm satisfactory to each of them, which shall be directed to
resolve such questions within thirty (30) days thereafter, and whose
decision shall be final and binding on both parties. One-half of the
cost of such third accounting firm shall be paid by Sellers and
one-half of such cost shall be paid by Buyer.
(ii) If the value of the Acquired Assets less the value of the
Assumed Liabilities shown on the Closing Balance Sheet (the "Net
Asset Value") is less than $200,000, Sellers shall pay the amount of
such deficiency in cash (without interest) to Buyer within ten (10)
days after the date on which Buyer and Sellers shall have indicated
their agreement to the Closing Balance Sheet (or the date on which
any disputes relating to the Closing Balance Sheet shall have been
resolved as provided in (i) above). If the Net Asset Value is
greater than $200,000, Buyer shall pay the amount of such excess in
cash (without interest) to Sellers within ten (10) days after the
date on which Buyer and Sellers shall have indicated their agreement
to the Closing Balance Sheet (or the date on which any disputes
relating to the Closing Balance Sheet shall have been resolved as
provided in (i) above).
(d) A further post-closing adjustment to the Purchase Price shall be made
as follows:
(i) If the average price per share of the Buyer's Common Stock (the
"Average Price") during the "Average Period" is less than $4.50,
then Buyer, no later than the 7th day after the last day of the
Average Period, shall provide Shareholder with a schedule setting
forth the calculation of the Average Price and shall pay to
Shareholder by wire transfer in cash (without interest) an amount
("Adjusted Amount") equal to the product of (A) $4.50 less the
Average Price, multiplied by (B) 540,000; provided, that Buyer shall
not be required to pay more than a total of $540,000 pursuant to
this Section 2.2(d); further provided, that if the Average Price is
$4.50 or greater for the 30-day period ending on the date
Shareholder distributes the shares of Buyer Common Stock it receives
pursuant to this Agreement pro rata to its stockholders, Buyer shall
not be required to make any payment pursuant to this Section 2.2(d).
(ii) For purposes of determining the Average Price, (A) the price
per share on any day on which the Buyer's Common Stock is traded on
the Nasdaq Stock Market shall be the average of the reported high
and low sales prices for such day; (B) the Average Price shall be
equal to the sum of such daily average prices divided by the number
of days during such 30-day period on which the Buyer's Common Stock
was traded on the Nasdaq Stock Market; and (C) any day on which the
Buyer's Common Stock is not traded on the Nasdaq Stock Market during
such 30-day period shall be disregarded.
(iii) "Average Period" shall mean the 30-day period beginning on the
181st day following the Closing Date; provided, that if Shareholder
distributes the shares of Buyer's Common Stock it receives pursuant
to this Agreement pro rata to its stockholders and if the
distribution date for such distribution occurs less than 90 days
prior to the 210th day following the Closing Date, the Average
Period shall not begin until the 60th day after such distribution
date and shall continue for 30 days thereafter.
III. REPRESENTATIONS AND WARRANTIES OF SELLERS AND SHAREHOLDER
Each Seller and Shareholder hereby, jointly and severally, represents and
warrants to Buyer as follows:
3.1 Organization. Each Seller and Shareholder is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation. Each Seller and Shareholder has all requisite power and
authority to own or lease its properties and assets as now owned or leased and
to carry out its business as and where now being conducted. The copies of each
Seller's charter and bylaws, as amended to date, and Shareholder's charter and
bylaws, as amended to date, which have been delivered to Buyer, are correct and
complete and are in full force and effect.
3.2 Qualification; Location of Business and Assets. Each Seller and
Shareholder is duly licensed or qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the properties owned or leased or the nature of activities conducted therein by
Sellers or Shareholder, as the case may be, require such qualification except
where the failure to be so licensed or qualified would not have a material
adverse effect on the conduct of the Business. Set forth on Schedule 3.2 is each
location where a Seller or Shareholder has a place of business or owns or leases
property used in the operation of the Business. All of the employees engaged
exclusively or primarily in the conduct of the Business are located in the
States of Michigan, New York and North Carolina.
3.3 Authorization, Consent and Enforceability. The execution, delivery and
performance of the Seller Documents have been duly authorized by all necessary
corporate and shareholder action on the part of Sellers and Shareholder. Except
as set forth on Schedule 3.3, no authorization, approval or consent of, and no
registration or filing with, any governmental or regulatory official, body or
authority or of any party to any material Contract to which a Seller or
Shareholder is a party or to which any of the Acquired Assets is subject, is
required for the execution, delivery and performance of this Agreement by
Sellers and Shareholder. This Agreement and the other Seller Documents have been
duly executed and delivered by Sellers and Shareholder and constitute the legal,
valid and binding obligations of Sellers and Shareholder, enforceable against
them in accordance with their respective terms. All of each Seller's capital
stock is owned by Shareholder.
3.4 Subsidiaries and Investments. Except as set forth on Schedule 3.4,
Sellers and Shareholder hold no stock or other interest, either of record,
beneficially or equitably, in any firm, venture, corporation, partnership or
other entity and have no subsidiaries.
3.5 No Conflict or Violation. Neither the execution nor delivery of this
Agreement or the other Seller Documents, nor the consummation by Sellers or
Shareholder of the transactions contemplated hereby or thereby, nor the
compliance with and fulfillment of the terms and provisions hereof or thereof by
Sellers and Shareholder will violate any provision of the charter or bylaws of a
Seller or Shareholder or violate, conflict with or result in a breach of or
constitute a default under, any term, condition, or provision of (a) any
existing Law to which a Seller or Shareholder is subject, (b) any order,
judgment, injunction, award or decree of any court, arbitrator, or governmental
or regulatory official, body or authority which is applicable to a Seller or
Shareholder, or (c) any material Contract to which a Seller or Shareholder is a
party, by which any of them may have rights or by which any of the Acquired
Assets may be bound or affected, or give any party with rights thereunder the
right to terminate, modify, accelerate or otherwise change the existing rights
or obligations of a Seller or Shareholder thereunder, or result in the creation
of any lien, charge or encumbrance on any of the Acquired Assets.
3.6 Financial Condition and Liabilities. The Seller Financial Statements
and the Preclosing Balance Sheet, attached hereto as Schedules 3.6A and 3.6B,
respectively, (a) are correct and complete and consistent with the books and
records of Sellers and Shareholder; (b) have been prepared in accordance with
Sellers' and Shareholder's internal accounting practices and procedures with
respect to the preparation of the Shareholder's consolidated financial
statements, which consolidated financial statements are prepared in accordance
with generally accepted accounting principles consistently applied throughout
the periods involved in conformity with past practice, except as stated therein;
(c) fairly present the information they purport to present for the periods
indicated; and (d) with respect to the Seller Financial Statements, subject to
the proviso at the end of the following sentence, reflect all costs incurred in
the operation of the Business. Sellers and Shareholder have no liability or
obligation of any nature, whether due or to become due, absolute, contingent or
otherwise relating to the Business, the Acquired Assets or the Assumed
Liabilities except (x) to the extent fully reflected as a liability in the
Seller Financial Statements (to the extent required by generally accepted
accounting principles) and (y) liabilities incurred in the ordinary course of
business since the date of the Seller Financial Statements; provided, however,
that such statements do not represent separate financial statements for the
Business as a stand-alone entity nor do Sellers or Shareholder maintain such
separate financial statements for the Business, and such statements include (to
the extent indicated therein) allocations of certain shared services (e.g.,
telecommunications) but do not include allocations of corporate overhead and
certain other charges and expenses of Shareholder reported in its consolidated
financial statements. The Closing Balance Sheet will fairly present the Acquired
Assets and the Assumed Liabilities as of the Effective Date in accordance with
the books and records of Sellers and Shareholder and will be prepared on a basis
consistent with the preparation of the Preclosing Balance Sheet and the Seller
Financial Statements.
3.7 Absence of Certain Changes. Except as set forth on Schedule 3.7, since
the Balance Sheet Date, there has not been any material adverse change in the
business, condition (financial or otherwise), results of operations or assets of
any Seller or Shareholder with respect to the Business. Without limiting the
generality of the foregoing, since that date, Sellers and Shareholder have not
with respect to the Business:
(a) incurred any liabilities, other than liabilities incurred in the
ordinary course of business consistent with past practice, or discharged or
satisfied any lien or encumbrance, or paid any liabilities, other than in the
ordinary course of business consistent with past practice, or failed to pay or
discharge when due any liabilities of which the failure to pay or discharge has
caused or will cause any damage or risk of material loss to it or any of its
assets or properties;
(b) created, incurred, assumed or guaranteed any indebtedness for money
borrowed, or mortgaged, pledged or subjected any of its assets to any mortgage,
lien, pledge, security interest, conditional sales Contract or other encumbrance
of any nature whatsoever, except for Permitted Liens;
(c) made or suffered any amendment or termination of any agreement,
Contract, commitment, lease or Plan to which it is a party or by which it is
bound, or cancelled, modified or waived any substantial debts or claims held by
it or waived any rights of substantial value, whether or not in the ordinary
course of business;
(d) suffered any damage, destruction or loss, whether or not covered by
insurance, (i) adversely affecting its business, operations, assets, properties
or prospects, or (ii) of any item or items carried on its books of account
individually or in the aggregate at more than $10,000, or suffered any repeated,
recurring or prolonged shortage, cessation or interruption of supplies or
utility or other services required to conduct its business and operations;
(e) made commitments or agreements for capital expenditures or capital
additions or betterments exceeding in the aggregate $10,000, except such as may
be involved in ordinary repair, maintenance or replacement of its assets;
(f) increased the salaries or other compensation of, or made any advance
(excluding advances for ordinary and necessary business expenses) or loan to,
any of its employees or made any increase in, or any addition to, other benefits
to which any of its employees may be entitled;
(g) changed any of the accounting principles followed by it or the methods
of applying such principles;
(h) entered into any transaction, Contract or extension other than in the
ordinary course of business consistent with past practice; or
(i) operated the Business other than in the ordinary course consistent
with past practice so as to preserve the Business intact, to keep available to
the Business the services of employees of the Sellers and preserve the goodwill
of its suppliers, customers, distributors and others having business relations
with it.
3.8 Investment Representation. Shareholder is acquiring shares of Buyer's
Common Stock pursuant to this Agreement for its own account for investment
purposes and not with a view to or for the transfer, assignment, resale or any
unregistered distribution (as that term is defined under the Securities Act of
1933, as amended, or the regulations promulgated thereunder (collectively, the
"1933 Act")) thereof, in whole or in part, except in compliance with the
provisions of the 1933 Act or an exemption from registration thereunder.
Shareholder has no present plans to enter into any such contract, undertaking,
agreement or arrangement in violation of the 1933 Act. Shareholder understands
that a stop-transfer order will be placed on the stock-transfer books of Buyer
respecting the certificates evidencing any shares of Buyer's Common Stock issued
pursuant to this Agreement and that such certificates shall bear, until such
time as such shares have been registered under the 1933 Act or shall have been
transferred by means of an exemption therefrom in accordance with an opinion of
counsel satisfactory to Buyer that such registration is not required, the
following legend or one substantially similar thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO DATA SYSTEMS NETWORK CORPORATION THAT SUCH
REGISTRATION IS NOT REQUIRED. TRANSFER OF THE SHARES
REPRESENTED BY THIS CERTIFICATE IS ALSO SUBJECT TO AN ASSET
PURCHASE AGREEMENT AND A REGISTRATION RIGHTS AGREEMENT, EACH
DATED AS OF SEPTEMBER 12, 1996. VOTING RIGHTS OF THE SHARES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO SUCH ASSET
PURCHASE AGREEMENT. A COPY OF THE ASSET PURCHASE AGREEMENT AND
THE REGISTRATION RIGHTS AGREEMENT ARE ON FILE AT THE
REGISTERED OFFICE OF DATA SYSTEMS NETWORK CORPORATION.
plus any legend that may be required under any applicable state law.
3.9 Inventories. (a) All inventory of Sellers included in Schedule 5.8:
(i) was acquired and has been maintained in the ordinary course of the Business;
(ii) is of good and merchantable quality; (iii) consists substantially of a
quality, quantity and condition usable, leasable or saleable in the ordinary
course of the Business; and (iv) is valued at the lower of cost (determined on a
first in, first out basis) or market value on a basis consistent with that
reflected in the Seller Financial Statements and the audited May 31, 1996
consolidated financial statements of Shareholder.
3.10 Title. Sellers own outright all of the Acquired Assets (to the extent
each Acquired Asset is capable of being owned), free and clear of all mortgages,
claims, security interests, easements, rights of way, liens or other
encumbrances of any nature whatsoever, except for liens set forth on Schedule
3.10 ("Permitted Liens").
3.11 Properties. Set forth on Schedule 3.11 is a correct list of all real
and personal properties leased by Sellers in the Business. There is no pending
condemnation, expropriation, eminent domain or similar proceeding affecting all
or any portion of any of such real properties and, to the Knowledge of Sellers
and Shareholder, no such proceeding is contemplated. Sellers and Shareholder
have not received any notice of any violation of, or default under, any Law
relating to leased properties used in the Business which remains uncured or has
not been dismissed. All leases and licenses pursuant to which Shareholder and
Sellers lease or license real or personal property from others and which are
included in the Acquired Assets are valid and effective in accordance with their
respective terms, and there is not, under any of such leases or licenses, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default, or would constitute a basis of force
majeure or other claim of excusable delay or nonperformance). Sellers and
Shareholder have received no notice of any state of facts that reasonably causes
them to believe that such properties do not conform in all material respects to
all applicable Laws or contractual requirements relating to their construction,
use or operation.
3.12 Condition of Acquired Assets. All of the buildings, structures and
fixtures leased by a Seller or Shareholder for use in the Business and included
in the Acquired Assets are in good operating condition and repair, subject only
to ordinary wear and maintenance and are usable in the regular and ordinary
course of business. All of the personal property owned or leased by Sellers and
Shareholder which is material to the Business, and included in the Acquired
Assets is in good operating condition and repair, subject only to ordinary wear
and maintenance, and is usable in the regular and ordinary course of business.
No Person other than Sellers owns any equipment or other tangible assets or
properties situated on the premises of Sellers and Shareholder used exclusively
or primarily in the Business or necessary to the operation of the Business,
except for leased items disclosed on Schedule 3.11 and for items of immaterial
value.
3.13 Benefit Plans.
(a) Schedule 3.13 contains a true and complete list of all Plans.
(b) Except as specifically set forth in Schedule 3.13 with respect to any
and all of the Plans: (i) Sellers and Shareholder are in compliance in all
material respects with the requirements prescribed by any and all statutes,
orders or governmental rules or regulations applicable to such Plans, including
but not limited to ERISA and the IRC; (ii) neither Sellers and Shareholder nor
any other "disqualified person" or "party in interest," within the meanings of
Section 4975 of the IRC and Section 3(14) of ERISA, respectively, has engaged in
any "prohibited transactions," as such term is defined in Section 4975 of the
IRC or Section 406 of ERISA, which could, following the Closing Date, subject
any Plan (or its related trust), the Buyer or any officer, director or employee
of the Buyer, to any tax or penalty imposed under the IRC or ERISA; (iii) there
are no actions, suits or claims pending (other than routine claims for benefits)
or, to the Knowledge of Sellers and Shareholder, threatened against any Plan or
against the assets of any Plan; and (iv) there are no leased employees (as
defined in IRC Section 414(n)) that must be taken into account under any Plan
pursuant to IRC Section 414(n)(3).
(c) No Plan is a "multiple employer plan," within the meaning of the IRC
or ERISA, or a "multiemployer plan," within the meaning of Section 3(37) of
ERISA.
(d) Sellers and Shareholder have complied with the reporting and
disclosure requirements of ERISA and with applicable federal and state
securities laws.
(e) Sellers and Shareholder have made or will make by the time required by
applicable law all required employer contributions, including any salary
deferrals and matching contributions, to each Plan which is a defined
contribution plan (as defined in ERISA Section 3(34)) for all prior plan years
and for the current plan year through the Closing Date.
3.14 Tax Returns and Taxes.
(a) All Tax Returns with respect to any Taxes have been filed with the
appropriate governmental agencies in all jurisdictions in which such Tax Returns
are required to be filed, and all such Tax Returns properly reflect the
liabilities of Sellers and Shareholder for Taxes for periods, property or events
covered thereby.
(b) All Taxes, including without limitation, those which are called for by
the Tax Returns, or heretofore or hereafter claimed to be due by any taxing
authority from Sellers or Shareholder, have been properly accrued or paid.
(c) There are no Tax liens (other than any lien for current Taxes not yet
due and payable) on any of the assets or properties of Sellers or Shareholder.
(d) Sellers and Shareholder have no Knowledge of any basis for any
additional assessment of any Taxes.
(e) Sellers and Shareholder have made all deposits required by Law to be
made with respect to employees' withholding and other employment Taxes,
including without limitation the portion of such deposits relating to Taxes
imposed upon Sellers and Shareholder.
3.15 Authorizations. Sellers own, hold, possess or lawfully use in the
operation of the Business all Authorizations which are necessary to conduct the
Business as now conducted or for the ownership and use of the Acquired Assets,
free and clear of all liens, charges, restrictions and encumbrances and in
material compliance with all Laws. All such Authorizations are listed on
Schedule 3.15. Sellers are not in default, nor have they received any notice of
any claim of default, with respect to any such Authorization. To the Knowledge
of Sellers and Shareholder, all such Authorizations are in full force and effect
and are renewable by their terms or in the ordinary course of business without
the need to comply with any special qualification procedures or to pay any
amounts other than routine filing fees. Except as set forth on Schedule 3.15, no
notice to, declaration, filing or registration with, or Authorization, consent
or approval of, or Authorization from, any governmental or regulatory body or
authority, or any other person or entity, is necessary to be made or obtained by
Sellers or Shareholder in connection with the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated by the Agreement.
3.16 Patents, Trademarks, Licenses etc. Set forth on Schedule 3.16 is a
correct and complete list of: (a) all domestic and foreign (i) patents and
registered trademarks, tradenames and service marks held, owned or used by a
Seller or Shareholder exclusively or primarily in the Business, and (ii) patent,
trademark, tradename and service mark applications filed in connection with the
Business ((i) and (ii) collectively referred to herein as the "Issued Rights and
Applications"), (b) all license and other agreements allowing a Seller or
Shareholder to use intellectual property rights of third parties in the United
States or foreign countries entered into by a Seller or Shareholder exclusively
or primarily for use in the Business (the "License Agreements"), and (c) all
other individually identifiable Intellectual Property Rights which are material
to the Business. Except as set forth on Schedule 3.16, (x) no other Intellectual
Property Rights are required or necessary for Sellers to conduct the Business in
the normal course in accordance with past practice, (y) Sellers have and own all
right, title and interest in and to or have the right to use all of the
Intellectual Property Rights that are material to the Business (including the
exclusive right to use, sell, license or dispose of such rights and to bring
actions for infringement thereof) free and clear of any claims, liens, licenses
or encumbrances and (z) no person or entity has a right to receive a royalty or
similar payment in respect of any of the Intellectual Property Rights of the
Sellers relating exclusively or primarily to the Business. Sellers and
Shareholder have taken appropriate actions and made appropriate applications and
filings pursuant to applicable federal and state law to perfect, protect and
maintain its interests in the Issued Rights and Applications that are material
to the Business. Except as set forth in Schedule 3.16, neither Sellers nor
Shareholder have Knowledge of any infringements of, or claims or assertions of
infringement of, any of the Intellectual Property Rights owned by a Seller, and
no Seller or Shareholder has taken or, to Sellers' and Shareholder's Knowledge,
omitted to take, any action which would have the effect of waiving any of their
respective rights relating to any of such Intellectual Property Rights that are
material to the Business. There have been no claims, and, to the Knowledge of
Sellers and Shareholder, there is no reasonable basis for any material claim,
challenging the scope, validity or enforceability of any of the Intellectual
Property Rights that are material to the Business. To the Knowledge of Sellers
and Shareholder, the manufacture, sale or use of any products now or heretofore
manufactured or sold by the Business did not and does not infringe (nor has any
claim been made that any such action infringes) the intellectual property rights
of others. Each of the License Agreements is in full force and effect and there
has occurred no default on the part of a Seller which is continuing in respect
of any License Agreement.
3.17 Litigation and Proceedings. Except as set forth on Schedule 3.17,
there is no litigation, investigation, arbitration or proceeding pending or, to
the Knowledge of Sellers and Shareholder, threatened against any of the Sellers
or the Shareholder or affecting the Business, the result of which could
materially adversely affect the Business, the Acquired Assets or the
transactions contemplated hereby. There are presently pending no outstanding
judgments, decrees, orders or assessments of fines or penalties of any court or
any governmental or administrative agency against or affecting the Acquired
Assets or the Business. Schedule 3.17 lists all fines (civil and criminal),
penalties, written claims (other than short or long-term disability or medical
claims), actions, suits, settlement agreements, administrative or arbitration
proceedings or investigations completed and any final order, writ, judgment,
injunction, decree, determination or other award of any court or any
governmental agency issued, which is related to the Business or the Acquired
Assets, from January 1, 1994 to the date hereof, in each case to the extent that
any one of the foregoing items involves an amount in excess of $10,000.
3.18 Compliance with Laws. Except as set forth on Schedule 3.18, (a) the
Business has been conducted in compliance in all material respects with all
applicable Laws, whether federal, state, local or foreign, and (b) Sellers and
Shareholder are not in default under or in violation of any Law promulgated by
any governmental agency having authority over them which default or violation
would have material adverseeffect on the Business or the Acquired Assets. No
notice, citation, summons or order has been issued and no investigation or
review is pending or, to the Knowledge of Sellers and Shareholder, threatened by
any governmental or other entity with respect to any alleged violation by a
Seller or Shareholder of any such Laws with respect to the Business or the
Acquired Assets nor, to the Knowledge of Sellers and Shareholder, is there any
event or condition presently existing which would reasonably be expected to
constitute a material default or violation. Sellers have given to the employees
listed on Schedule 3.22 any written notice required by M.C.L.A. [SECTION]
423.506 and have complied with M.C.L.A. [SECTION] 423.507 with respect to the
release of information from personnel records and have complied with all other
Laws with respect to the release of information from personnel records.
3.19 Insurance Coverage. Set forth on Schedule 3.19 is a complete and
correct list of all policies of insurance relating to the Business, or covering
any of the Acquired Assets, indicating for each policy the carrier, risks
insured against, coverage limits, deductible amounts, premium rate, expiration
date, all outstanding claims thereunder and whether the terms of such policy
provide for retrospective premium adjustments. All such policies are outstanding
and in full force and effect and shall be kept in full force and effect by
Sellers and Shareholder through the Closing Date.
3.20 Contracts. Except as set forth on Schedule 3.20, none of the Sellers
nor Shareholder is or currently proposes to become a party to any of the
following exclusively or primarily relating to the Business:
(a) Contract involving the provision of products and/or services by
a Seller or Shareholder in exchange for consideration of $10,000 or more;
(b) Contract to lease real or personal property or;
(c) Any other Contract to be transferred or assigned hereunder.
Except as set forth on Schedule 3.20, each of the Contracts listed on Schedule
3.20 in response to this Section under which Buyer is to acquire rights or
obligations hereunder is valid and enforceable in accordance with its terms and
sets forth in writing all obligations of Sellers and Shareholder thereunder
except as otherwise arising by operation of Law; Sellers and Shareholder are,
and to the Knowledge of Sellers and Shareholder all other parties thereto are,
in compliance in all material respects with the provisions thereof; Sellers and
Shareholder are not, and to their Knowledge no other partythereto is, in default
in the performance, observance or fulfillment of any material obligation,
covenant or condition contained therein; and no event has occurred which with or
without the giving of notice or lapse of time, or both, would constitute a
default thereunder. Except as set forth on Schedule 3.20, no Contract described
in Schedule 3.20 requires the consent of any party to its assignment in
connection with the transactions contemplated hereby. True and complete copies
of all Contracts listed on Schedule 3.20 have been delivered to Buyer.
3.21 Product Liability and Warranty Claims. Except as set forth on
Schedule 3.21, there are no liabilities of or claims against a Seller or
Shareholder and, to the Knowledge of Sellers and Shareholder, no liabilities or
claims are threatened against a Seller or Shareholder, with respect to any
product liability (or similar claim) of a Seller or Shareholder or product
warranty (or similar claim) of a Seller or Shareholder that relates to any
product manufactured or sold by a Seller or Shareholder in the Business, except
for standard warranty and maintenance obligations made in the ordinary course of
the Business to purchasers of its products and services. To the Knowledge of
Sellers and Shareholder, there are no facts or circumstances which might
reasonably give rise to any such material liabilities or claims, except for such
standard warranty and maintenance obligations.
3.22 Employee Relations. Except as set forth on Schedule 3.22, no Seller
or Shareholder is a party to any labor agreement with respect to their
respective employees with any labor organization, union, group or association,
and no employee unions (nor any other similar labor or employee organizations
under local statutes, custom or practice) exist or have existed during the past
three years covering employees of a Seller or Shareholder engaged in the
Business. In the past three years, except as set forth on Schedule 3.22, Sellers
and Shareholder have not experienced and are not experiencing any attempt by
organized labor or its representatives to make a Seller or Shareholder conform
to demands of organized labor relating to its employees or to enter into a
binding agreement with organized labor that would cover such employees. Except
as disclosed on Schedule 3.22, there is no labor strike or labor disturbance
pending or, to the Knowledge of Sellers and Shareholder, threatened against a
Seller or Shareholder nor is any grievance currently being asserted by any past
or present employee, and in the past five years, Sellers and Shareholder have
not experienced a work stoppage or other labor difficulty other than routine
grievances in the ordinary course of business which are no longer pending.
Except as set forth on Schedule 3.22 (including, without limitation, any equal
employment or similar claim), with respect to the employment of employees
engaged in the Business, Sellers and Shareholder arein compliance in all
material respects with all applicable Laws respecting employment practices,
terms and conditions of employment and wages and hours and are not engaged in
any unfair labor practice. There is no unfair labor practice charge or complaint
against a Seller or Shareholder pending or to the knowledge of Seller or
Shareholder, threatened before the National Labor Relations Board or any other
domestic or foreign governmental agency with respect to employees engaged in the
Business and Sellers and Shareholder do not have any Knowledge of any facts or
information which would give rise to any material such charge or complaint. To
the Knowledge of Sellers and Shareholder (but without the obligation to conduct
an independent investigation with regard thereto), the services of all employees
of Sellers and Shareholder engaged in the Business and listed on Schedule 3.22
will continue to be available for the continuation of the Business after
consummation of the transactions contemplated hereby. Schedule 3.22 lists the
names, positions and current pay rates of all employees of a Seller or
Shareholder engaged exclusively or primarily in the Business and a summary of
all compensation paid to such employees (including bonus and incentive
compensation, stated separately) for the fiscal year ended May 31, 1996 and
estimated for the current fiscal year.
3.23 Insider Interests. Except as set forth on Schedule 3.23, (i) no
officer or director of a Seller or Shareholder has any interest in any property,
real or personal, tangible or intangible, including, without limitation, the
Intellectual Property Rights used in or pertaining to the Business, (ii) no such
person has any business relationship with a Seller, except as an officer,
employee or director and except for Shareholder's rights as a shareholder of
Sellers, and (iii) none of the Sellers, their officers and directors,
Shareholder or its officers and directors owns directly or indirectly or has any
controlling investment in any corporation or other entity which is a competitor
of or which does business, directly or indirectly with the Business.
3.24 No Other Agreements to Sell the Acquired Assets. Neither Sellers nor
Shareholder have any commitment or legal obligation, absolute or contingent, to
any other person or firm other than Buyer to sell, assign, transfer or effect a
sale of the Acquired Assets, to sell or effect a sale of all or substantially
all of the assets of a Seller, to sell or effect a sale of a majority of the
capital stock of a Seller, to effect any merger, consolidation or other
reorganization of a Seller, or to enter into any agreement or cause the entering
into an agreement with respect thereto.
3.25 Purchase Commitments and Outstanding Bids. All accepted and
unfulfilled orders for the sale of merchandise or services entered into by a
Seller or Shareholder exclusively orprimarily in the Business, and the aggregate
of all Contracts or commitments for the purchase of merchandise or supplies by
them exclusively or primarily in the Business, were made in the ordinary course
of business consistent with past practice. Except as set forth on Schedule 3.25,
as of the date of this Agreement, there are no claims against a Seller or
Shareholder to return merchandise by reason of alleged overshipments, defective
merchandise or otherwise, or of merchandise in the hands of customers under an
understanding that such merchandise would be returnable. Except as set forth on
Schedule 3.25, there is no outstanding bid, proposal, Contract or unfilled order
which relates to the Acquired Assets which is or would, if accepted, reasonably
be expected to result in a net loss to a Seller or Shareholder. Except as
reflected on Schedule 3.25, Sellers and Shareholder have no prepayments or
deposits from customers for products to be shipped, or services to be performed
in the Business, by a Seller or Shareholder after the Closing Date.
3.26 Customers, Distributors and Suppliers. Schedule 3.26 sets forth a
complete and accurate list of the names and addresses and nature of the
relationship between a Seller and (i) customers, distributors and other agents
and representa- tives of the Business with annual sales greater than $100,000
during the fiscal year ended May 31, 1996, showing the approximate total sales
in dollars by Sellers and Shareholder to each such customer during such fiscal
year with respect to the Business; and (ii) suppliers of the Business with
purchases greater than $100,000 during the fiscal year ended May 31, 1996,
showing the approximate total purchases in dollars by Sellers and Shareholder
from each supplier during such fiscal year. Except as set forth on Schedule
3.26, since May 31, 1996, there has been no material adverse change in the
business relationship of Sellers and Shareholder with any customer, distributor
or supplier named in Schedule 3.26. Except as set forth on Schedule 3.26,
Sellers and Shareholder have not received direct communication from any
customer, distributor or supplier named on Schedule 3.26 of any intention to
terminate or materially reduce purchases from or supplies to Sellers and
Shareholder. As a result of the transactions contemplated hereby, no payment,
penalty, or other similar obligation or remuneration may or will be required to
be made or paid by Buyer or Sellers to any such customer, distributor, agent or
other representative under any of the Contracts being assumed by Buyer as part
of the Acquired Assets.
3.27 Payments. Neither the Sellers nor the Shareholder has directly, nor
has any current agent, current representative or current employee of any of them
has, directly or indirectly, paid or delivered any fee, commission or other sum
of money or item or property, however characterized, to any finder, agent,
government official or other party, in theUnited States or any other country,
which is in any manner related to the Business, the Acquired Assets or the
operations of Sellers and Shareholder relating thereto, which is, or may be with
the passage of time or discovery, illegal under any federal, state or local Law
(including, without limitation, the U.S. Foreign Corrupt Practices Act) or any
other country having jurisdiction; and Sellers and Shareholder have not
participated, directly or indirectly, in any boycotts or other similar practices
affecting any of its actual or potential customers and Sellers and Shareholder
have at all times done business in an open and ethical manner.
3.28 Conduct of Business. The Acquired Assets and the assets described in
Section 1.1(b) hereto (with the exception of Section 1.1(b)(vii)) are all of the
assets used exclusively or primarily by Sellers and Shareholder to conduct the
Business as currently being conducted.
3.29 Brokers and Finders. No Seller or Shareholder has employed any broker
or finder or incurred any liability for any financial advisory fees, brokerage
fees, commissions or finders' fees, and no broker or finder has acted directly
or indirectly for a Seller or Shareholder, in connection with this Agreement or
the transactions contemplated herein, except for Covington Associates, whose
fees shall be paid by Sellers and Shareholder.
3.30 Minutes. Sellers and Shareholder acknowledge that Buyer had no
opportunity to review the minute books of Sellers or Shareholder prior to the
Closing. Sellers and Shareholder affirm that such minute books contain no
information that would be in any way inconsistent with the representations and
warranties made in this Article III.
3.31 Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
CONTAINED HEREIN, SELLERS AND SHAREHOLDER DISCLAIM ALL WARRANTIES,
EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION, ANY WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE.
IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers and Shareholder as
follows:
4.1 Organization. Buyer is a corporation duly organized, validly existing
and in good standing under the laws of the state of its incorporation. Buyer has
all requisite power and authority to own or lease its properties and assets as
now owned or leased and to carry out its business as and where now being
conducted. The copies of Buyer's articles ofincorporation and bylaws, as amended
to date, which have been delivered to Sellers and Shareholder, are correct and
complete and are in full force and effect.
4.2 Authorization, Consent and Enforceability. The execution, delivery and
performance of the Buyer Documents have been duly authorized by all necessary
corporate and shareholder action on the part of Buyer. Except as set forth on
Schedule 4.2, no authorization, approval or consent of, and no registration or
filing with, any governmental or regulatory official, body or authority or of
any party to any material contract to which Buyer is a party or to which any of
its property or assets is subject, is required for the execution, delivery and
performance of this Agreement and the other Buyer Documents by Buyer. This
Agreement and the other Buyer Documents have been duly executed and delivered by
Buyer and constitute the legal, valid and binding obligation of Buyer
enforceable in accordance with their terms.
4.3 No Conflict or Violation. Neither the execution nor the delivery of
this Agreement or the other Buyer Documents, nor the consummation by Buyer of
the transactions contemplated hereby or thereby, nor the compliance with and
fulfillment of the terms and provisions hereof or thereof by Buyer will violate
any provision of the articles of incorporation or bylaws of Buyer or violate,
conflict with or result in a breach of or constitute a default under, any term,
condition, or provision of (a) any existing Law to which Buyer is subject, (b)
any order, judgment, injunction, award or decree of any court, arbitrator or
governmental or regulatory official, body or authority which is applicable to
Buyer, or (c) any material agreement or instrument to which Buyer is a party or
by which it is bound.
4.4 Shares Issued. The shares of Buyer's Common Stock issued pursuant to
this Agreement are duly authorized and will, upon issuance in accordance with
this Agreement, be validly issued, fully paid and non-assessable.
4.5 Brokers and Finders. Buyer has not employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finders' fees, and no broker or finder has acted directly or
indirectly for Buyer, in connection with this Agreement or the transactions
contemplated herein.
4.6 SEC Filings. (a) Buyer has filed all required forms, reports and
documents with the SEC since June 30, 1995 (collectively, the "SEC Reports"),
all of which were prepared in accordance with the applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Securities Laws"). Asof their respective dates (or,
if such SEC Report was amended, as of the date of such amendment), the SEC
Reports (i) complied as to form in all material respects with the applicable
requirements of the Securities Laws and (ii) did not contain 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 made therein, in light of the
circumstances under which they were made, not misleading. Each of the
consolidated balance sheets of Buyer included in or incorporated by reference
into the SEC Reports (including the related notes and schedules) fairly presents
the consolidated financial position of Buyer on a consolidated basis as of its
date and each of the consolidated statements of income, stockholders' equity and
cash flows of Buyer included in or incorporated by reference into the SEC
Reports (including any related notes and schedules) fairly presents the results
of operations, stockholders' equity or cash flows, as the case may be, of Buyer
on a consolidated basis for the periods set forth therein (subject, in the case
of unaudited statements, to normal year-end audit adjustments which would not be
material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein and except, in the case of the unaudited
statements, as permitted by the Securities Laws. All registration statements
filed by Buyer with the SEC since its Common Stock became registered under the
Securities Laws complied as to form in all material respects with the applicable
requirements of the 1933 Act and the rules and regulations promulgated
thereunder. Buyer is, and will use its reasonable best efforts to remain, during
the period required by the Registration Rights Agreement, eligible to use Form
S-3 to register, on behalf of the Shareholder, the shares of Buyer's Common
Stock issued pursuant to this Agreement. There are currently 2,715,000 shares of
Buyer Common Stock issued and outstanding.
(b) Buyer has furnished to Sellers and Shareholder true and complete
copies of (i) its Form 10-K annual report for the year ended December 31, 1995,
as filed with the SEC, (ii) its notice of annual meeting of shareholders and
related proxy statement, dated May 30, 1996 as sent to shareholders for use in
connection with the 1996 annual meeting of shareholders, and (iii) its Form 10-Q
quarterly reports and any Form 8-K current reports filed with the SEC subsequent
to December 31, 1995.
4.7 Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES CONTAINED
HEREIN, BUYER DISCLAIMS ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY.
V. POST-CLOSING OBLIGATIONS
5.1 Covenant Not to Compete; Nonsolicitation. Until the third anniversary
of the Closing Date, Sellers and Shareholder shall not, (a) in any geographic
location in which Buyer currently does business or in which the Business is
currently conducted by a Seller or Shareholder, engage or participate in or
assist others in engaging or participating in the network integration business
as an owner, general partner, controlling shareholder of a privately-held
corporation or shareholder to the extent of five percent (5%) or more of the
outstanding shares of a publicly-held corporation, either directly or
indirectly, or (b) without Buyer's prior written consent, which consent will not
be unreasonably withheld, directly or indirectly, solicit for employment, hire
as an employee, consultant or contractor or otherwise engage any employee who
was employed by a Seller or Shareholder in connection with the operation of the
Business on the Closing Date or within six months prior to the Closing Date.
Notwithstanding the foregoing, nothing shall restrict Sellers and Shareholder in
any way from pursuing opportunities relating to and conducting its business that
is not being sold to Buyer, principally its CAD division.
5.2 Taxes.
(a) State Taxes. Except as otherwise provided in this Agreement, Sellers
and Shareholder shall comply with, and pay all taxes, interest, and penalties as
may be due and unpaid under all state laws (including, without limitation, the
laws of Michigan, Massachusetts, North Carolina and New York) for periods prior
to the close of business on the Closing Date and which relate to the Business,
the Acquired Assets or the employees of a Seller or Shareholder engaged in the
Business, including, without limitation, the provisions of M.C.L.A. [SECTION]
205.27a, and IDI shall deliver to the Buyer the receipt or certificate
contemplated under M.C.L.A. [SECTION] 205.27a from the applicable Michigan
taxing authority showing that such taxes, including sales, use, withholding and
single business tax, interest, and penalties have been paid or are not due (the
"Michigan Tax Certificate").
(b) Unemployment Contributions; MESC Form 1027. IDI has completed a
Business Transferor's Notice to Transferee of Unemployment Tax Liability and
Rate ("MESC Form 1027") and has delivered such MESC Form 1027 in accordance with
the provisions of M.C.L.A. [SECTION] 421.15(g) to Buyer at least two (2)
business days prior to the date hereof and such notice is true and correct in
all material respects. IDI shall honor and make all applicable unemployment
contributions and interest due to the Michigan Employment Security Commission
(the "MESC") with respect to its employees under all Michigan laws. Sellers and
Shareholdershall make all applicable unemployment contributions and interest
payments under all other applicable state Laws (including, without limitation,
the laws of North Carolina and New York) and shall timely provide all
certificates and notices required under such Laws relating to unemployment
contributions, including, without limitation, delivery to Buyer of a receipt or
certificate showing that such unemployment contributions and interest have been
paid or are not due, pursuant to N.C. Gen. Stat. 96-10.
(c) Sales or Transfer Taxes. Buyer and Sellers shall each pay one-half of
any and all transfer taxes and transfer document recording fees, if any,
assessed on or applicable to the conveyance of personal property hereunder.
5.3 Bulk Transfer Laws. Buyer hereby waives com- pliance by Sellers and
Shareholder with the provisions of any so-called "bulk transfer law" of any
jurisdiction in connection with the sale of the Acquired Assets to Buyer.
Sellers and Shareholder, jointly and severally, agree to indemnify and hold
harmless Buyer, in accordance with Article VII of this Agreement, from and
against any and all liabilities that may be asserted by third parties against
Buyer as a result of noncompliance with any such bulk transfer law except with
respect to the Assumed Liabilities.
5.4 Employee Matters.
(a) Employment Offer to Certain Employees. The employment by Sellers of
all of the employees listed on Schedule 3.22 shall cease at the Closing and
Buyer shall simultaneously offer employment to such employees. Effective as of
the Closing, Buyer shall make available to such employees the group medical and
other welfare plans (within the meaning of Section 3(1) of ERISA) as are
provided to Buyer's employees. Buyer shall waive any preexisting condition
restrictions and treat service time with a Seller as service time with the Buyer
for purposes of determining eligibility and satisfying waiting period
requirements to participate in any such employee benefit plans of Buyer. Nothing
contained in this Agreement shall confer upon any employee of a Seller or
Shareholder any right with respect to continuance of employment with Buyer, nor
shall anything herein interfere with the right of Buyer to terminate the
employment of an employee at any time, with or without cause, or modify the
terms and conditions of the employment, if any, of any such employee.
(b) Employee Benefit Plans. Buyer, Sellers and Shareholder agree as
follows with respect to the employee benefit plans of Sellers and Shareholder:
(i) COBRA Benefits. Sellers and Shareholder shall offer COBRA
benefits, and will maintain Plans necessary to provide such benefits for
the periods required by COBRA, to all of the employees of a Seller or
Shareholder engaged in the Business as and to the extent required by
COBRA.
(ii) Assumed Plans. Buyer shall not assume any Plans of Sellers or
Shareholder.
(iii) Multiemployer Plans. Buyer shall have no obligation with
respect to any multiemployer Plan or any multiemployer welfare Plan. Buyer
shall not assume any liability or obligation with respect to any
withdrawal liability that may result from the sale of assets to Buyer
pursuant to this Agreement.
(c) Accruals for Vacation Pay, Bonuses, Etc. Buyer shall provide to the
employees listed in Schedule 3.22 the benefits relating to the reserves
transferred to Buyer pursuant to Section 1.2(a)(ii).
(d) Obligations of Sellers and Shareholder. Effective as of the Closing
Date, except as otherwise specifically provided in this Section 5.4 and in
Section 1.2(a), Sellers and Shareholder shall retain the liability for, and the
responsibility for administration of, the accumulated benefit obligations of the
employees of Sellers and/or Shareholder under all Plans of Sellers and/or
Shareholder, and Sellers and Shareholder shall indemnify and hold harmless Buyer
from and against all such liabilities.
5.5 Third Party Consents. To the extent that rights of Sellers under any
Contract or other Acquired Asset to be assigned to Buyer hereunder may not be
assigned without the consent of another person which has not been obtained, this
Agreement shall not constitute an agreement to assign the same if an attempted
assignment would constitute a breach thereof or be unlawful, and Sellers and
Shareholder, at their expense, shall use their reasonable best efforts to obtain
any such required consent(s) as promptly as possible; provided, that in use of
their reasonable best efforts under this Section 5.5, Sellers and Shareholder
will not be obligated to pay any additional consideration or provide any
guarantee in order to obtain any consent, approval or waiver. If any such
consent shall not be obtained or if any attempted assignment would be
ineffective or would impair Buyer's rights under the asset in question so that
Buyer would not in effect acquire the benefit of all such rights, Sellers and
Shareholder, to the maximum extent permitted by Law and the asset, shall act
after the Closing as Buyer's agents in order to obtain for it the benefits
thereunder and cooperate with Buyer in any otherreasonable arrangement designed
to provide such benefits to Buyer. To the maximum extent permitted by Law and
any Contract for which such a consent or assignment shall not have been
obtained, Shareholder and Sellers agree to subcontract the Contract to Buyer,
and Buyer agrees to perform the Contract in accordance with its terms.
5.6 Press Releases. Except as required by applicable Law, no party to this
Agreement shall give notice to third parties or otherwise make any public
statement or releases concerning this Agreement or the transactions contemplated
hereby except for such written information as shall have been approved as to
form and content by the other parties, which approval shall not be unreasonably
withheld.
5.7 Regulatory Filings; Financial Statements. The parties hereto shall
prepare and give or make any necessary notices or filings under any other
federal, state or local Laws (including, without limitation, reports on Form 8-K
in accordance with the requirements of the Securities Laws) that may be required
in connection with this Agreement and the transactions hereby contemplated.
Sellers and Shareholder, at their own cost, as soon as reasonably practicable
and in no event later than fifty (50) days after the Closing Date, shall (a)
provide to Buyer such financial statements of the Business, with a report
thereon by the independent public accountants of Shareholder, as are required by
Rule 3-05(b)(iv) of the SEC's Regulation S-X (or such shorter period as may be
required by Rule 3-05 as determined by Buyer in good faith), and (b) use their
reasonable best efforts to obtain the consent of Shareholder's independent
public acountants to the use of such financial statements and report in the
Current Report on Form 8-K to be filed by Buyer with the SEC.
5.8 Post-Closing Inventory Purchases and Sales. Sellers and Shareholder
represent that Schedule 5.8 is a true, complete and correct list of the
inventory of the Business owned by and in the possession of the Sellers on the
Effective Date and, for each item of such inventory, an amount representing the
lower of Sellers' cost (determined on a first in, first out basis) or market
value on a basis consistent with that reflected in the Seller Financial
Statements and the audited May 31, 1996 consolidated financial statements of
Shareholder. Buyer agrees that it will assist Sellers and Shareholder after the
Closing Date in liquidating the inventory listed on Schedule 5.8. To this end,
with respect to each purchase order received by Buyer pursuant to the provisions
of this Agreement or after the Closing Date until all of the items on Schedule
5.8 have been sold or have been returned to vendors for credit, Buyer agrees to
first determine whether the corresponding items identified in the purchase order
are included on Schedule 5.8 and remain unsold or unreturned bySellers at such
time, and if such is the case and such items are in good and merchantable
condition, Buyer agrees to purchase from Sellers and Sellers agree to sell to
Buyer such items of Sellers' inventory at a price equal to the amount for such
item set forth on Schedule 5.8 (f.o.b. Sellers' shipping point). The purchase
price for such items will be paid by Buyer in cash no later than the fifth
business day after such items are shipped. In addition, Buyer agrees (a) to
assist Sellers and Shareholder in returning items of inventory listed on
Schedule 5.8 to vendors for credit; (b) to cooperate with Sellers in good faith
in their attempts to arrange the sale or return of items which, after the
Closing Date, are no longer in good and merchantable condition; (c) to provide
Shareholder with a complete and correct report of all shipments of such items on
a bi-weekly basis; (d) not to remove the inventory from its current location
except in connection with such shipments; (e) to provide Shareholder with full
access to such inventory during regular business hours upon reasonable advance
notice; (f) to execute, at Shareholder's expense, such documentation as may be
reasonably requested by Shareholder to acknowledge Sellers' ownership of such
inventory, including Uniform Commercial Code notice filings; and (g) to the
extent such inventory is in Buyer's possession, to take reasonable care of the
inventory equivalent to the care Buyer takes with regard to its own inventory.
Sellers and Shareholder agree to provide Buyer with an updated Schedule 5.8 on a
bi-weekly basis listing those items which continue to be available for sale and
are in good and merchantable condition, and with such updated Schedule 5.8 shall
separately list on a supplemental schedule (x) items which have been shipped
pursuant to an order from Buyer since the most recent report, (y) items which
have been removed from Schedule 5.8 since the most recent report because they
are no longer in good and merchantable condition and (z) items which are
otherwise no longer available for sale since the most recent report.
5.9 Current Litigation. Sellers and Shareholder agree to continue the
current litigation captioned "Information Decisions, Inc. vs. Robert L. Mock et
al.", C.A. No. 96-83930-CK (State Of Michigan, Ingham County) (the
"Litigation"), to consult with Buyer on a regular basis after the Closing Date
regarding the status and progress of such litigation and any related settlement
negotiations and to use their reasonable best efforts to obtain preliminary
injunctive relief in such case prohibiting Robert Mock from directly or
indirectly engaging in any competing business transaction or relationship with
the State of Michigan or any of its offices, departments, agencies or bureaus
for a period of time to be mutually determined and agreed upon by Shareholder,
Sellers and Buyer based upon the facts and circumstances known at the time such
determination is made. In the event Sellers and Shareholder determine not to
pursue the Litigation further,Sellers and Shareholder agree promptly to assign
to Buyer for $1.00 their claims against the defendants for breach of contract,
breach of fiduciary duty, breach of the common law obligation not to compete,
misappropriation of proprietary and confidential information, tortious
interference with contractual relationships, unjust enrichment and any other
claims for relief arising out of the defendants' actions as described in the
complaint, dated July 1, 1996, filed with respect to such case.
5.10 Retention of Shares by Shareholder. Shareholder agrees not to sell,
assign, transfer, distribute or otherwise dispose of the shares of Buyer's
Common Stock received at the Closing pursuant to Section 2.1 of this Agreement
except as provided in the Registration Rights Agreement and Shareholder agrees
to distribute such shares at the time and in the manner provided in the
Registration Rights Agreement. After the Closing Date until the earlier of three
years from the date hereof or such time as Shareholder shall have distributed or
sold all such shares (including any shares acquired from Buyer pursuant to a
stock split, stock dividend, recapitalization or otherwise), Shareholder agrees
not to (i) acquire "beneficial ownership" (as such term is defined in Section
13(d) of the Securities Laws) of any shares of Buyer's Common Stock other than
from Buyer, (ii) participate in any "solicitation" of "proxies" (as such terms
are used in the proxy rules of the SEC) to vote any voting securities of Buyer;
(iii) form, join or participate in a "group" (as defined in the Securities Laws)
or otherwise act, alone or in concert with others, to seek to control or
influence the management, Board of Directors or policies of Buyer; (iv) vote
such shares other than in the same manner and proportion (whether for, against
or abstaining on any proposal) as the other shareholders of Buyer vote shares
with respect to any matter submitted to the shareholders of Buyer (or, if the
board of directors of Shareholder determines in good faith that its fiduciary
duties so require, not to vote such shares in any manner on such a proposal); or
(v) transfer voting rights with respect to such shares.
5.11 Change in Name. Not later than the 15th day following the Closing
Date, SCI shall make such filings and pay such fees as are required to change
its corporate name on the date of such filing to another name bearing no
similarity to "System Constructs, Inc.", including but not limited to a charter
amendment filed with the New York Secretary of State and an appropriate name
change notice for each state where SCI is qualified to do business. After the
Closing Date, neither Sellers nor Shareholder shall do business as, or use in
the conduct of any of their businesses or otherwise, the foregoing name or any
similar name.
5.12 Nasdaq Filing. Not later than the fifth business day following the
Closing Date, Buyer shall file with the Nasdaq Stock Market the required notice
of issuance of the shares of Buyer's Common Stock pursuant to this Agreement.
VI. CLOSING
6.1 Closing Date. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Dykema Gossett
PLLC, 400 Renaissance Center, Detroit, Michigan 48243, at the time and date this
Agreement is signed (such time and date being herein called the "Closing Date").
6.2 Transactions to be Effected at the Closing. At the Closing:
(a) Sellers and Shareholder shall deliver to Buyer:
(i) a duly executed Bill of Sale and such other assignments or
instruments of conveyance (including, without limitation, those described
in Sections 1.1(a) and 3.16) sufficient to convey to Buyer outright
ownership of the Acquired Assets (to the extent such Acquired Assets are
capable of being owned), free and clear of all liens, claims and
encumbrances except as set forth on Schedule 3.10 as of the Closing Date
in form and substance reasonably satisfactory to Buyer and its counsel;
(ii) an opinion of Goodwin, Procter & Hoar LLP, counsel to Sellers
and Shareholder, in form and substance of that attached hereto as Exhibit
C;
(iii) certificates from each lessor of any leased real property
listed in Schedule 3.11 consenting to the assignment of such lease to
Buyer;
(iv) a duly executed Registration Rights Agreement;
(v) a Michigan Tax Certificate;
(vi) a duly executed IDI License;
(vii) a true and complete electronic (i.e. floppy disk) copy of all
electronic records and data owned or used by a Seller or Shareholder
relating primarily or exclusively to the Business or the Acquired Assets
(except that no personnel records pertaining to disciplinary reports,
letters of reprimand or other records of disciplinary action which are
dated more than four years prior to the date hereof shall be delivered);
(viii) a true and complete copy of all personnel records relating to
the employees listed on Schedule 3.22 (provided that no personnel records
pertaining to disciplinary reports, letters of reprimand or other records
of disciplinary action dated more than four years prior to the date hereof
shall be delivered);
(ix) written assignments in recordable form of all Issued Rights and
Applications, if any;
(x) an opinion of Kleinburg, Kaplan, Wolff & Cohen, P.C. in the form
attached hereto as Exhibit H;
(xi) an opinion of May, Simpson & Strote in the form attached hereto
as Exhibit I; and
(xii) such other documents as Buyer or its counsel may reasonably
request to demonstrate satisfaction of the conditions and compliance with
the agreements set forth in this Agreement.
(b) Buyer shall deliver to Sellers and Shareholder:
(i) the payment of the Purchase Price as provided in Section 2.2;
(ii) an appropriately executed Assumption Agreement, IDI License and
Registration Rights Agreement;
(iii) an opinion, dated the Closing Date, from Dykema Gossett PLLC,
counsel for Buyer, in form and substance of that attached hereto as
Exhibit D;
(iv) a letter from the Pacific Stock Exchange approving the listing
of the shares of Buyer's Common Stock to be issued pursuant to Section 2.1
of this Agreement; and
(v) such other documents as Sellers or Shareholder or their counsel
may reasonably request to demonstrate satisfaction of the conditions and
compliance with the agreements set forth in this Agreement.
6.3 Further Assurances. (a) Sellers and Shareholder from time to time
after the Closing, at Buyer's request, will execute, acknowledge and deliver to
Buyer such otherinstruments of conveyance and transfer, and will take such other
actions (including, without limitation, the institution and prosecution of legal
proceedings) and execute and deliver such other documents, certifications and
further assurances, as Buyer may reasonably require in order to vest more
effectively in Buyer, or to put Buyer more fully in possession of, any of the
Acquired Assets, or to better enable Buyer to complete, perform or discharge any
of the Assumed Liabilities. Each of the parties hereto will cooperate with the
other and execute and deliver to the other parties hereto such other instruments
and documents and take such other actions as may be reasonably requested from
time to time by any other party hereto as necessary to carry out, evidence and
confirm the intended purposes of this Agreement.
(b) Sellers and Shareholder agree to retain (i) all books of
account, general, financial and accounting records, files, invoices, customers
and suppliers lists, and all other data owned or used by a Seller or Shareholder
relating to the Business or the Acquired Assets, and (ii) all tax returns,
related schedules and workpapers, and all records and other documents relating
thereto (collectively, the "Tax Documents") until the fifth anniversary of the
date hereof, or, with respect to the Tax Documents, until the expiration of the
applicable statute of limitations (including extensions). Sellers and
Shareholder will afford duly authorized employees and representatives of Buyer
free and full access during regular business hours to all such records and will
permit such employees and representatives to make abstracts from or to take
copies of any such records or to obtain temporary possession of any such
records, all as may be reasonably required by Buyer.
(c) After the Closing, Buyer agrees to make available to Shareholder
and Sellers the field service and system engineers of the Business to provide
services in connection with implementations occurring prior to the date hereof
at Buyer's standard rates for such employees.
VII. INDEMNIFICATION
7.1 Indemnification By Sellers and Shareholder. Sellers and Shareholder
hereby, jointly and severally, shall indemnify and hold harmless Buyer and its
officers, directors, employees, shareholders, agents and affiliates from and
against any and all claims, liabilities, obligations, losses, costs, expenses
(including without limitation, reasonable legal, accounting and similar fees and
expenses), litigation, proceedings, fines (civil or criminal), taxes, levies,
imposts, duties, deficiencies, assessments, charges, penalties, allegations,
demands, damages (including but not limited to direct, incidental and actual
punitive damages foreseen orunforeseen, known or unknown, fixed or contingent,
and matured or unmatured), civil and criminal violations of law, settlements and
judgments of any kind or nature whatsoever (individually a "Loss" and
collectively "Losses"), which any of them may incur arising out of any one or
more of the following:
(a) any breach of any representation or warranty of a Seller or
Shareholder contained in this Agreement or the other Seller Documents for
which a Notice is given pursuant to Section 7.3 within the period set
forth in Section 7.4;
(b) any breach or violation of any of the covenants made by a Seller
or Shareholder in this Agreement;
(c) any and all liabilities of a Seller or Shareholder of any
nature, whether due or to become due, whether accrued, absolute,
contingent or otherwise, existing on the Closing Date or arising out of
any transactions entered into, or any state of facts existing, on or prior
to such date, except the Assumed Liabilities;
(d) any litigation, claim or proceeding relating to (x) the conduct
of the Business by a Seller or Shareholder on or prior to the Closing
Date, or (y) the ownership, use and possession of the Acquired Assets in
the conduct of the Business on or prior to the Closing Date;
(e) the operations of Sellers and Shareholder prior to the Closing
Date and not related to the Business;
(f) any actions, judgments, costs and expenses (including reasonable
attorneys' and accountants' fees and all other expenses incurred in
investigating, preparing or defending any litigation or proceeding,
commenced or threatened) incident to any of the foregoing or the
enforcement of this Section 7.1;
(g) any liabilities arising out of noncompliance with any bulk
transfer or other similar laws; and
(h) any outstanding claims against the lessee under any lease
assigned to the Buyer in connection with this Agreement, any outstanding
defaults or events which, but for the giving of notice or the passage of
time, or both, would constitute defaults and the failure of the copy of
each such lease provided to Buyer to be a true, accurate and complete copy
of such lease.
7.2 Indemnification by Buyer. Buyer hereby agrees to indemnify and hold
harmless Sellers and Shareholder from and against all Losses which any of them
may incur arising out of any one or more of the following:
(a) any breach of any representation or warranty of Buyer contained
in this Agreement or the other Buyer Documents for which a Notice is given
pursuant to Section 7.3 within the period set forth in Section 7.4;
(b) any breach or violation of any of the covenants made by Buyer in
this Agreement;
(c) any actions, judgments, costs and expenses (including reasonable
attorneys' fees and all other expenses incurred in investigating,
preparing or defending any litigation or proceeding commenced or
threatened) incident to any of the foregoing or the enforcement of this
Section 7.2;
(d) the Assumed Liabilities;
(e) any litigation, claim or proceeding relating to (x) the conduct
of the Business by Buyer after the Closing Date, or (y) the ownership, use
and possession of the Acquired Assets in the conduct of the Business after
the Closing Date; and
(f) the operations of Buyer after the Closing Date and not related
to the Business.
7.3 Claims. If either party desires to make a claim against the other
under Sections 7.1 or 7.2 hereof which does not involve a claim by any person
other than the parties, then such party shall make such claim by promptly
delivering Notice to the other. If either party (the "Claimant") desires to make
a claim for indemnity against the other (the "Indemnitor") under this Agreement
which involves a demand, claim or threat of litigation or the actual institution
of any action, suit or proceeding (collectively, a "Claim") by a person other
than the parties, then such Claim will be made in the following manner and be
subject to the following terms and conditions unless otherwise provided for in
this Agreement:
(a) Notice. The Claimant will give prompt Notice (and, if served
with a complaint, not later than seven days after such service) to the
Indemnitor of any Claim at any time served on or instituted against the
Claimant with respect to which the Claimant believes it would have a right
of indemnification under this Agreement, setting forth in reasonable
detail the facts relating to such claim and the basis for its alleged
right of indemnification under this Agreement; provided, that failure to
give Notice as provided above shall not relieve Indemnitor of its
obligations under this Article VII except to the extent Indemnitor is
actually prejudiced thereby. In providing such Notice, the Claimant shall
only state the existence of such Claim and shall not admit or deny the
validity of the facts or circumstances out of which such Claim arises.
Solely for purposes of determining whether the Claimant is entitled to
indemnification under this Agreement, the alleged facts or circumstances
on which such Claim is based shall be deemed to be true.
(b) Responsibility for Defense. Within thirty (30) days after
receipt of any such Notice, but not less than five (5) business days prior
to the time the Claimant is required to respond to a Claim (subject to the
proviso contained in Section 7.3(a)), the Indemnitor will, by giving
written notice to the Claimant, have the right to assume responsibility
for the defense of the Claim in the name of the Claimant or otherwise as
the Indemnitor may elect; provided, however, that the Indemnitor's
determination to conduct the defense of a Claim shall in no way be deemed
a conclusive admission of an obligation to indemnify hereunder. Otherwise,
the Claimant will have responsibility for the defense of the Claim.
Subject to the provisions of subsections (c) and (d) below, the party
having responsibility for defense of a Claim (the "Defending Party") will
have the full authority to defend, cure, adjust, compromise, or settle
such Claim or appeal any judgment or ruling of a court or other tribunal
in connection with such Claim in its own name and/or in the name of the
other party.
(c) Right to Participate. Notwithstanding a Defending Party's
responsibility for the defense of a Claim, the other party shall have the
right to participate, at its own expense and with its own counsel, in the
defense of a Claim and the Defending Party will consult with the other
party from time to time on matters relating to the defense of such Claim.
The Defending Party shall provide the other party with copies of all
pleadings and material correspondence relating to such Claim.
(d) Settlement. A Defending Party will provide the other party with
timely written notice of any proposed adjustment, compromise, or other
settlement, including equitable or injunctive relief, of a Claim which the
Defending Party intends to propose or accept. If the other party fails to
provide the Defending Party with timely written notice of objection to
such settlement, then the Defending Party shall have the authority to
propose or accept such settlement and enter into any agreement, in its own
name and/or in the name of the other party, giving legal effect to all
aspects of such settlement. If the other party objects to such settlement,
then the Defending Party may, if it so elects, tender the defense to the
other party by paying to such other party the amount of money proposed to
be paid in settlement of the Claim, in which case the Defending Party
shall have no further liability to the other party hereunder with respect
to such Claim and the other party shall have full authority for the future
defense of such Claim and full responsibility for any and all liabilities,
obligations, costs and expenses resulting therefrom.
7.4 Survival. The representations and warranties of each party contained
in this Agreement shall survive the Closing Date until June 30, 1997. Any claim
for indemnity under Sections 7.1(a) or 7.2(a) shall be asserted within the
foregoing period, except that any claim relating to Taxes may be asserted until
the 60th day after the running of the applicable statute of limitations with
respect to the taxable period to which the particular claim relates and except
that no time limitation applies to Losses relating to Assumed Liabilities or
Excluded Liabilities.
7.5 Limitations on Indemnification by Sellers and Shareholder.
Notwithstanding the foregoing Section 7.1, the right of the Buyer to
indemnification under Section 7.1 shall be subject to the following provisions:
(a) No indemnification shall be payable to Buyer by a Seller or
Shareholder pursuant to Section 7.1 unless the total of all Losses for
which indemnification is or has been claimed pursuant to Section 7.1 shall
exceed $47,000 in the aggregate (whereupon Buyer will be entitled to
indemnification from and against all Losses relating back to the first
dollar).
(b) No indemnification shall be payable to the Buyer pursuant to
Section 7.1 for Losses in excess of $1,500,000 in the aggregate (exclusive
of Losses relating to Excluded Liabilities and the failure of Sellers and
Shareholder to comply with applicable bulk sales laws, as to which there
shall be no such limitation and which shall not be counted toward such
limitation).
7.6 Mitigation of Losses. A Claimant shall be entitled to recover the full
amount of any Losses incurred due to the matter for which indemnification is
sought, including reasonable attorney's fees incurred in connection therewith,
but any recovery shall be net of any economic benefit to which the Claimant is
entitled due to such Losses, including, without limitation, (a) any tax refund
reduction or benefit, (b) any insurance proceeds (excluding self-insured amounts
and deductible amounts) and (c) any warranty reimbursements. Notwithstanding the
foregoing, insurance proceeds to which a Claimant may be entitled shall not
reduce the Losses recoverable from the Indemnifying Party if the Claimant shall
determine, in good faith, that filing a claim therefore would be likely either
to result in (x) a significant increase in the premiums payable with respect to
the continuation of such insurance coverage or (y) the cancellation of the
applicable policy.
7.7 Remedies. The rights and remedies of each party hereto arising by
reason of the breach of any representation or warranty, or the default in any
covenant, condition or undertaking by any other party hereto, shall be limited
to those set forth in this Agreement, provided that any party may seek specific
performance or other equitable relief with respect to the breach or default in
any covenant, undertaking or agreement by the other party hereto.
VIII. GENERAL
8.1 Arbitration. Subject to Section 2.2(c), in the event that the parties
are unable to agree on any matter, including any controversy arising out of or
relating to this Agreement, the unresolved matter shall be resolved by
arbitration if a request for arbitration, as provided herein, is given.
Arbitration shall be initiated by one party's making a written demand on the
other party and simultaneously filing copies of said written demand with the
American Arbitration Association ("AAA") in the county in which the respondent
in such arbitration resides. Within ten (10) business days after receipt of such
written demand, each party shall designate one arbitrator. These two arbitrators
shall, within ten (10) business days after their appointment, select a third
arbitrator. In the event that the first two arbitrators are unable to agree upon
a third arbitrator, then the arbitrators shall apply to the AAA to designate and
appoint the third arbitrator. In the event the party upon whom the original
arbitration demand was served shall fail to designate its arbitrator within the
ten (10) business day period, the arbitrator designated by the party requesting
arbitration shall act as the sole arbitrator and shall be deemed to be the
single, mutually approved arbitrator to resolve the matter. The arbitrator shall
cause a hearing to be held within sixty (60) calendar days after a party gives
notice of its intention to arbitrate and shall render an award within ninety
(90) calendar days of such notice.
The place of arbitration shall be the county in which the respondent
resides. Arbitration shall be conducted under the auspices of the AAA, and the
AAA Rules shall govern all proceedings unless otherwise provided herein. In case
of conflict between the AAA Rules and this Agreement, the provisions of this
Agreement shall govern.
The parties shall have the right of discovery in accordance with the
Federal Rules of Civil Procedure except that discovery may commence immediately
upon the service of the demand for arbitration. A party's unreasonable refusal
to cooperate in discovery shall be deemed to be refusal to proceed with
arbitration, and, until the arbitration panel is complete, the parties may
enforce their rights (including the right of discovery) in the circuit courts of
the county in which the respondent resides. Such enforcements in the courts
shall not constitute a waiver of a party's right to arbitration. Upon the
completion of the appointment of the arbitration panel, the arbitrators shall
have the power to enforce the parties' discovery rights. It is expressly agreed
that material subject to discovery shall include written documents that must be
created from information that currently exists only in machine-readable form.
The fees and expenses of arbitration (including reasonable attorneys'
fees) shall be paid by the party that does not prevail on all issues presented
in the arbitration proceeding; provided that if neither party shall prevail on
all issues presented to the arbitrators, then the arbitrators shall allocate
such fees and expenses in accordance with each party's pro rata share, based on
the extent to which each party prevailed on the issues presented. The parties
expressly covenant and agree to be bound by the decision of the arbitration
panel and accept any such decision as the final determination of the matter in
dispute. A judgment of any court with proper jurisdiction may be rendered upon
any award, which award may include equitable relief, made pursuant to this
Agreement. In no event shall any demand for arbitration be made after the date
that institution of legal or equitable proceedings based upon the claims,
dispute or other matter would be barred by the applicable statute of limitations
or otherwise barred by this Agreement.
8.2 Exhibits and Schedules. All exhibits and schedules referred to herein
are intended to be and hereby are specifically made a part of this Agreement.
References to the Agreement herein shall be construed as references to the
Agreement together with all exhibits and schedules.
8.3 Amendment. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. The parties hereto may (a) extend the time for the
performance of any of the obligations or other acts of the other party hereto,
(b) waive any inaccuracies in the representations and warranties of the other
party contained herein or in any document delivered pursuant hereto and (c)
waive compliance by the other party with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
8.5 Entire Agreement; No Third Party Beneficiaries. This Agreement (a)
constitutes the entire Agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous agreements,
understandings, negotiations and discussions, whether oral or written, of the
parties, and (b) is not intended to confer upon any person other than the
parties hereto any rights or remedies hereunder.
8.6 Choice of Law. This Agreement shall be governed by, construed,
interpreted and the rights of the parties determined in accordance with the Laws
of the State of Michigan without giving effect to any choice or conflict of law
provision or rule that would cause the application of the Laws of any
jurisdiction other than the State of Michigan.
8.7 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail, postage prepaid, return receipt requested (such
mailed notice to be effective on the date such receipt is acknowledged) as
follows:
If to Buyer, addressed to:
Data Systems Network Corporation
34705 W. 12 Mile Road, Suite 300
Farmington Hills, Michigan 48331
Attention: President
With a copy to:
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243-1668
Attention: Aleksandra A. Miziolek, Esq.
If to a Seller or Shareholder, addressed to:
c/o Information Decisions, Incorporated
3260 Eagle Park Drive, N.E.
Grand Rapids, MI 49505
Attention: President
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
Attention: Jeffrey D. Plunkett, Esq.
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
8.8 Counterparts; Headings. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. The headings of the
several Articles and Sections herein are inserted for convenience of reference
only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.
8.9 Expenses. Regardless of whether the transactions contemplated hereby
are consummated, each party hereto shall pay its or their own expenses incident
to this Agreement and all action taken in preparation for carrying this
Agreement into effect.
8.10 Successors and Assigns. This Agreement, and all rights and powers
granted hereby, will bind and inure to the benefit of the parties hereto and
their respective successors and assigns.
8.11 Severability. If at any time subsequent to the date hereof, any
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other provision of
this Agreement.
8.12 Reference to Sellers; IDI as Agent. For purposes of this Agreement,
all references to Sellers shall include references to both IDI and SCI and each
representation, warranty, covenant and other obligation of Sellers shall be
deemed to be a representation, warranty, covenant or obligation of both IDI and
SCI, jointly and severally. Whenever any action is to be taken or withheld by
Sellers, or notice or other document is to be delivered to Sellers, it shall be
deemed taken or withheld and such delivery is deemed to have been given if
taken, withheld by or given to IDI.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
DATA SYSTEMS NETWORK CORPORATION
By:
Its:
INFORMATION DECISIONS, INCORPORATED
By:
Its:
SYSTEM CONSTRUCTS, INC.
By:
Its:
SOFTECH, INC.
By:
Its:
9/11/96
=======
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of September 12, 1996 by Data Systems Network Corporation, a Michigan
corporation (the "Company"), and SofTech, Inc., a Massachusetts corporation
("SofTech"), for itself and on behalf and for the benefit of its successors,
assigns, distributees and transferees (collectively, the "Holders" and each a
"Holder").
WHEREAS, the Company is a party to a certain Asset Purchase Agreement (the
"Asset Purchase Agreement"), of even date herewith, with SofTech, Information
Decisions, Incorporated ("IDI"), a Michigan corporation, and System Constructs,
Inc. ("SCI"), a New York corporation;
WHEREAS, as part of the purchase price for the assets to be acquired
pursuant to the Asset Purchase Agreement, the Company will issue to SofTech
540,000 shares (the "Shares") of its Common Stock, $.01 par value (the "Common
Stock");
WHEREAS, SofTech intends to distribute the Shares at the time and in the
manner provided in this Agreement;
WHEREAS, in order to induce SofTech, IDI and SCI to enter into the Asset
Purchase Agreement, the Company has agreed to provide certain registration
rights to the Holders with respect to the Shares;
NOW, THEREFORE, the Company for the benefit of the Holders agrees as
follows:
Section 1. Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
Advice: As set forth in Section 4(d).
Cut-Off Period: As set forth in Section 2(c).
Division: The Division of Corporation Finance of the SEC.
Exchange Act: The Securities Exchange Act of 1934, as amended from time to
time.
Favorable No-Action Letter: As set forth in Section 2(a)(1).
Holder: As set forth in the preamble.
Holder's Questionnaire: A questionnaire in the form attached hereto as
Exhibit A.
Majority Holders: At any time, Holders of Registrable Securities who would
then hold a majority of the Registrable Securities.
NASD: The National Association of Securities Dealers, Inc.
No-Action Request: As set forth in Section 2(a)(1).
Person: Any individual, partnership, corporation, trust or other entity.
Public Registration Event: As set forth in Section 2(a)(2).
Prospectus: A prospectus included in the Shelf Registration Statement,
including any preliminary prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the Shelf
Registration Statement, and by all other amendments and supplements to such
prospectus, including post-effective amendments, and in each case including all
material incorporated by reference therein.
Registrable Securities: The Shares, excluding Shares which have been sold
or otherwise disposed of under the Shelf Registration Statement.
Registration Expenses: Any and all expenses incident to performance of or
compliance with this Agreement, including, without limitation: (i) all SEC,
stock exchange or NASD registration and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of counsel in connection with blue
sky qualification of any of the Registrable Securities and the preparation of a
Blue Sky Memorandum) and compliance with the rules of the NASD, (iii) all
expenses of any Persons in preparing or assisting in preparing, word processing,
printing and distributing the Shelf Registration Statement, Prospectus,
certificates and other documents relating to the performance of and compliance
with the Agreement, (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable Securities on any securities exchange
or exchange pursuant to Section 3(h) hereof, and (v) the fees and disbursements
of counsel for the Company and of the independent publicaccountants of the
Company, including the expenses of any special audits or "cold comfort" letters,
if any, required by or incident to such performance and compliance. Registration
Expenses shall specifically exclude underwriting discounts and commissions,
brokerage or dealer fees, the fees and disbursements of counsel, accountants or
other representatives of a selling Holder, and transfer taxes, if any relating
to the sale or disposition of Registrable Securities by such Holder, all of
which shall be borne by such Holder in all cases.
Registration Notice: As set forth in Section 2(c)(ii) hereof.
Rule 144: Rule 144 promulgated under the Securities Act, as such rule may
be amended from time to time.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from time to time.
Shareholder Registration Event: As set forth in Section 2(a)(2)(iii).
Shares: As set forth in the recitals.
Shelf Registration: A registration required to be effected pursuant to
Section 2 hereof.
Shelf Registration Statement: A "shelf" registration statement of the
Company and any other entity required to be a registrant with respect to such
shelf registration statement pursuant to the requirements of the Securities Act
which covers all of the Registrable Securities on an appropriate form under Rule
415 under the Securities Act, or any similar rule that may be adopted by the
SEC, and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all materials incorporated by
reference therein.
SofTech Registration Event: As set forth in Section 2(a)(2)(ii).
Suspension Notice: As set forth in Section 4(d).
Section 2. Shelf Registration Under the Securities Act.
(a)(1) Filing of No-Action Request. As soon as practicable and not later
than the 30th day after the date of this Agreement, the Company shall cause to
be filed with theSEC, on behalf of itself and SofTech, a request for a
"no-action" letter from the Division (the "No-Action Request") stating that it
will not recommend enforcement action if SofTech distributes the Shares pro rata
to its shareholders as a dividend without registration under the Securities Act
and that the Shares received by SofTech shareholders will not be "restricted
securities" within the meaning of Rule 144 (a "Favorable No-Action Letter"). The
cost of preparing the No-Action Request will be borne equally by the Company and
SofTech. The parties agree to respond to any requests from the Division for
additional information as promptly as reasonably possible so as to expedite the
Division's response to the No-Action Request to the extent practicable. To that
end, the parties will promptly and fully inform each other of correspondence
with the Division, whether written or oral, concerning the No-Action Request.
Promptly following the filing of the No-Action Request, the Company agrees to
begin preparation of the Shelf Registration Statement; provided, that the
Company shall not be required to file the Shelf Registration Statement with the
SEC or any other regulatory authority unless and until required to do so
pursuant to Section 2(a)(2).
(2) Filing of Shelf Registration Statement; Distribution of Shares. The
Company's obligation to file a Shelf Registration Statement and SofTech's
obligation to distribute the Shares shall be determined in accordance with
clauses (i), (ii), (iii), (iv) and (v) below. The Company's obligation to file a
Shelf Registration Statement shall also be subject to Sections 2(c) and 4
hereof.
(i) Upon receipt of a Favorable No-Action Letter from the
Division, the parties to this Agreement shall have no further obligation
under this Agreement, except that (A) SofTech shall promptly distribute
the Shares pro rata to its shareholders and (B) the parties shall pay bear
the costs of preparing the No-Action Request and pay the Registration
Expenses and other expenses in accordance with Sections 2(a)(1) and 2(b).
If the Division indicates in writing that it will not recommend
enforcement action if SofTech distributes the Shares pro rata to its
shareholders as a dividend without registration under the Securities Act,
an opinion of counsel shall not be required to be delivered pursuant to
Section 3.8 of the Asset Purchase Agreement or otherwise in connection
with such distribution.
(ii) If, after the No-Action Request is filed, (A) the Division
determines not to issue a Favorable No-Action Letter and indicates that it
is unable to concur that the proposed distribution by SofTech would not
involve a sale within the meaning of Section 2(3) of the Securities Act,
or (B) the Company withdraws the No-Action Request or (C) the Division
fails to make any determination with respect to the No-Action Request
within a period of 60 days after the filing of the No-Action Request ((A),
(B) and (C) are referred to herein as a "SofTech Registration Event"),
then not later than (x) the earlier of (I) the 30th day after the earlier
of the Company's receipt of written notice of such determination in (A)
above or the withdrawal by the Company of the No-Action Request or (II)
the 75th day after the date the No-Action Request is filed, or (y) the
14th day after the Company's receipt of a Holder's Questionnaire from
SofTech, whichever is later, the Company shall cause to be filed with the
SEC a Shelf Registration Statement on behalf of SofTech registering the
pro rata distribution of the Shares by SofTech to its shareholders in
accordance with the terms hereof and will use its reasonable best efforts
to cause such Shelf Registration Statement to be declared effective by the
SEC as soon as reasonably practicable. Promptly after the Shelf
Registration Statement has been declared effective by the SEC and SofTech
has been notified by the Company that the Registrable Securities have been
registered or qualified, or are exempt from registration or qualification,
in each state in which a shareholder of record of SofTech on the record
date for such distribution resides, SofTech shall distribute the Shares
pro rata to its shareholders.
(iii) If, after the No-Action Request is filed, the Division
determines not to issue a Favorable No-Action Letter and indicates that
although it will not recommend enforcement action if SofTech distributes
the Shares pro rata to its shareholders as a dividend without registration
under the Securities Act, it does not concur that the Shares received by
SofTech shareholders will not be "restricted securities" within the
meaning of Rule 144 (a "Shareholder Registration Event"), then not later
than (x) the 30th day after the Company's receipt of written notice of
such determination or (y) the 14th day after the Company's receipt of
Holder's Questionnaires from the Majority Holders, whichever is later, the
Company shall cause to be filed with the SEC a Shelf Registration
Statement providing for the sale by the Holders of all of the Registrable
Securities in accordance with the terms hereof and will use its reasonable
best efforts to cause such Shelf Registration Statement to be declared
effective by the SEC as soon as reasonably practicable. SofTech shall
distribute the Shares pro rata to its shareholders promptly following the
Company's receipt of such notice of effectiveness.
(iv) If the making of the distribution at the time required in
clauses (i), (ii) or (iii) above would have a material adverse effect on
SofTech and if a delay in the making of the distribution would materially
reduce such effect on SofTech, Buyer shall, upon the written request of
SofTech, permit SofTech to delay the making of the distribution for a
reasonable time to be mutually determined and agreed to by Buyer and
SofTech and SofTech shall reimburse Buyer for any expenses incurred as a
result of such delay.
(v) If (A) at the time a distribution of the Shares by SofTech is
required due to the occurrence of a SofTech Registration Event or a
Shareholder Registration Event, SofTech's Board of Directors reasonably
determines in good faith that the financial condition of SofTech has
deteriorated since the closing of the Asset Purchase Agreement to the
extent that a pro rata distribution of the Shares to its shareholders
would be materially detrimental to SofTech's ability to continue its
operations or (B) the Division's written determination with respect to the
No-Action Request permits neither the distribution of the Shares by
SofTech pro rata to its shareholders without registration under the
Securities Act nor the registration of such distribution under the
Securities Act ((A) and (B) are referred to herein as a "Public
Registration Event"), then not later than (x) the 30th day after the
earlier of the Company's receipt of written notice of such determination
or (y) the 14th day after the Company's receipt of a Holder's
Questionnaire from SofTech, whichever is later, the Company shall cause to
be filed with the SEC a Shelf Registration Statement on behalf of SofTech
registering the sale of the Shares by SofTech to the public in accordance
with the terms hereof and will use its reasonable best efforts to cause
such Shelf Registration Statement to be declared effective by the SEC as
soon as reasonably practicable.
(3) Period of Effectiveness. The Company agrees to use its reasonable
efforts to keep the Shelf Registration Statement continuously in effect under
the Securities Act until paragraph (k) of Rule 144 is available for the sale of
the Registrable Securities by the Holder(s) thereof (assuming for such purpose
that no such Holder is an "affiliate" as defined in Rule 144) or, if the Shelf
Registration Statement is filedin response to a Public Registration Event, the
date which constitutes the earliest date SofTech could have sold all of the
Registrable Securities in accordance with Section 4(h) hereof following the
effective date of the Shelf Registration Statement. Such Shelf Registration
Statement shall be available for the sale of the Registrable Securities in
accordance with the intended method or methods of distribution by the selling
Holders thereof and shall comply as to form in all material respects with the
requirements of the applicable form.
(b) Expenses. Registration Expenses in connection with the registration
pursuant to Section 2(a) shall be paid by SofTech to the extent of the first
$20,000 of such Expenses. The amount of Registration Expenses exceeding $20,000
shall be borne equally by SofTech and the Company. Each Holder shall pay all
underwriting discounts and commissions, brokerage or dealer fees, the fees and
disbursements of counsel, accountants or other representatives of such Holder
and transfer taxes, if any, relating to the sale or disposition of the Holder's
Registrable Securities.
(c) Inclusion in Shelf Registration Statement After a Shareholder
Registration Event. (i) Following a Shareholder Registration Event, SofTech
shall, within seven days after such Event, cause to be delivered to its
shareholders a form of Holder's Questionnaire at the time the Shares are
distributed by SofTech to its shareholders. Following a Shareholder Registration
Event, any Holder who desires to be eligible to make offers and sales of its
Registrable Securities at the time the Shelf Registration Statement becomes
effective shall deliver a completed and executed Holder's Questionnaire to the
Company no later than fourteen (14) days prior to the filing of the Shelf
Registration Statement with the SEC. Any Holder who does not deliver a Holder's
Questionnaire (completed and executed) to the Company prior to such date shall
not be eligible to make offers or sales pursuant to the Shelf Registration
Statement at the time it becomes effective, but shall have the right thereafter
to deliver to the Company a Registration Notice as contemplated by Section
2(c)(ii).
(ii) Following a Shareholder Registration Event, if the Company
receives a Holder's Questionnaire and a written notice from a Holder that such
Holder desires to make offers and sales of Registrable Securities under the
Shelf Registration Statement (a "Registration Notice") at any time during the
30-day period (the "Cut-Off Period") beginning on the date provided in Section
2(c)(i) above, the Company will prepare and file with the SEC on or before the
30th day after the end of the Cut-Off Period, a post-effective amendment to the
Shelf Registration Statement or a supplement to the Prospectus (whichever may be
required by the Securities Act andthe related rules and regulations of the SEC)
to permit each Holder delivering a Registration Notice and Holder's
Questionnaire within the time prescribed above to make offers and sales under
the Shelf Registration Statement; provided, that the Company shall not be
required to file more than a total of one such post-effective amendment or
Prospectus supplement; further provided, that such Holders shall not be eligible
to make offers and sales pursuant to the Shelf Registration Statement until such
amendment or supplement is filed (and, in the case of an amendment, has become
effective with the SEC and all relevant state securities authorities); and
further provided, that the Company shall have no obligation under this Section
2(c)(ii) unless the Shelf Registration Statement has been declared effective and
remains in effect on such date. Any Holder who does not provide the Company with
a Registration Notice and a Holder's Questionnaire before the end of the Cut-Off
Period and who was not eligible to make offers and sales under the Shelf
Registration Statement at the time it became effective shall not be permitted to
make offers and sales pursuant to the Shelf Registration Statement.
Section 3. Registration Procedures.
In connection with the obligations of the Company with respect to the
Shelf Registration Statement pursuant to Section 2 hereof, and subject to
Sections 3(a) and 4, the Company shall do the following during the period in
which the Shelf Registration Statement is required to be kept effective:
(a) Amendments; Comment Responses. (i) Prepare and file with the SEC such
amendments and post-effective amendments to the Shelf Registration Statement as
may be necessary to keep the Shelf Registration Statement effective for the
applicable period; (ii) upon the occurrence of any event contemplated by Section
3(d)(iv) hereof, use its reasonable efforts promptly to prepare and file a
supplement or prepare, file and obtain effectiveness of a post-effective
amendment to the Shelf Registration Statement or a related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain 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; (iii) cause each Prospectus to be supplemented
by any required Prospectus supplement, and as so supplemented to be filed
pursuant to Rule 424 or any similar rule that may be adopted under the
Securities Act; and (iv) respond promptly to any comments received from the SEC
with respect to the Shelf Registration Statement, or any amendment,
post-effective amendment or supplement relating thereto.
(b) Copies of Prospectus. Furnish to each Holder of Registrable Securities
who is eligible to make offers and sales under the Shelf Registration Statement,
without charge, as many copies of each applicable Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto and such other
documents as such Holder may reasonably request in order to facilitate the
public sale or other disposition of the Registrable Securities.
(c) Blue Sky. Use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of, in the case of a SofTech Registration Event, such states in which the
shareholders of SofTech of record on the record date for the distribution of the
Shares by SofTech reside or, in the case of a Shareholder Registration Event, in
such states as any Holder of Registrable Securities who is eligible to make
offers and sales under the Shelf Registration Statement shall reasonably request
in writing, keep each such registration or qualification effective during the
period in which the Shelf Registration Statement is required to be kept
effective or during the period offers or sales are being made by a Holder that
has delivered a Registration Notice to the Company, whichever is shorter, and do
any and all other acts and things which may be reasonably necessary or advisable
to enable such Holder to consummate the disposition of such Registrable
Securities owned by such Holder in each such state; provided, however, that the
Company shall not be required (i) to qualify generally to do business in any
jurisdiction or to register as a broker or dealer in such jurisdiction where it
would not be required so to qualify or register but for this Section 3(c), (ii)
to subject itself to taxation in any such jurisdiction, (iii) to submit to the
general service of process in any such jurisdiction or (iv) to register or
qualify the Registrable Securities in any jurisdiction in which an exemption for
such Registrable Securities or for the offer and sale thereof by such Holder is
available.
(d) Notification. Promptly notify each Holder who is eligible to make
offers and sales under the Shelf Registration Statement when the Shelf
Registration Statement has become effective and when the Registrable Securities
have been registered or qualified in each state requested (or that an exemption
from registration or qualification is available) and promptly notify each such
Holder and each Holder of Registrable Securities who subsequently becomes
eligible to make offers and sales under the Shelf Registration Statement (i)
when any post-effective amendments and supplements to the Shelf Registration
Statement become effective with the SEC or any state securities authority, (ii)
of the issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of the Shelf Registration Statement or
theinitiation of any proceedings for that purpose, (iii) if the Company receives
any notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation of any
proceeding for such purpose and (iv) of the happening of any event during the
period the Shelf Registration Statement is effective as a result of which the
Shelf Registration Statement or a related Prospectus contains any untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein (in the case of the
Prospectus, in light of the circumstances under which they were made) not
misleading.
(e) Stop Orders. Make every reasonable effort to obtain the withdrawal of
any order by the SEC or any state securities authority suspending the
effectiveness of the Shelf Registration Statement at the earliest possible
moment.
(f) Copies of Shelf Registration Statement and Amendment. Furnish to each
Holder of Registrable Securities who is eligible to make offers and sales under
the Shelf Registration Statement, without charge upon request of such Holder,
one conformed copy of the Shelf Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested).
(g) Stock Certificates. Cooperate with the selling Holders of Registrable
Securities to facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold and not bearing any Securities
Act legend and enable certificates for such Registrable Securities to be issued
for such numbers of shares and registered in such names as the selling Holders
may reasonably request.
(h) Earnings Statement. Make available to its security holders, as soon as
reasonably practicable, an earnings statement covering at least 12 months which
shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) Other Agreements. Refrain from entering into any agreement which would
prohibit the Company from filing and gaining the effectiveness of the Shelf
Registration Statement in accordance with the terms hereof.
Section 4. Restrictions on Public Sale by Holders of Registrable
Securities.
In connection with and as a condition to the Company's obligations with
respect to the Shelf Registration Statement pursuant to Sections 2 and 3 hereof,
each Holder agrees as follows:
(a) Offers and Sales. The Holder will not offer or sell its Registrable
Securities under the Shelf Registration Statement unless (i) the Shelf
Registration Statement has become effective and has not been terminated and such
Holder is eligible to make offers and sales under the Shelf Registration
Statement pursuant to Section 2(c) hereof, (ii) such Holder has received copies
of the Prospectus (as it may be supplemented or amended as contemplated by
Section 3(a) hereof), and (iii) if any post-effective amendment has been filed
with the SEC of which filing such Holder has received notice, such Holder has
received notice that any such post-effective amendment has become effective.
(b) Need to Use Updated Prospectus. Upon receipt of a written notice from
the Company of the happening of any event of the kind described in Section
3(d)(iv) hereof, such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Shelf Registration Statement until such
Holder receives copies of the supplemented or amended Prospectus contemplated by
Section 3(a) hereof and receives notice that any post-effective amendment has
become effective, and, if so directed by the Company, such Holder will deliver
to the Company all copies in its possession, other than permanent file copies
then in such Holder's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In the event that any
Holder uses a Prospectus in connection with the offer and sale of Registrable
Securities covered by such Prospectus, such Holder will use only the latest
version of such Prospectus provided to it by the Company.
(c) Notification of Sales. Upon the sale or disposition of any of its
Registrable Securities pursuant to the Shelf Registration Statement, the Holder
will promptly notify the Company in writing of the number of Registrable
Securities then being sold or disposed of.
(d) Moratorium. If the Company determines in its good faith judgment,
after consultation with counsel, that the filing of the Shelf Registration
Statement under Section 2 hereof or the use of any Prospectus would require the
disclosure of important information which the Company has a bona fide business
purpose for preserving as confidential or the disclosure of which would impede
the Company's ability to consummate a significant transaction, upon written
notice of such determination by the Company (a "Suspension Notice"), the rights
of the Holders to offer, sell or distribute any Registrable Securities pursuant
to the Shelf Registration Statement or to require the Company to take action
with respect to the registration or sale of any Registrable Securities pursuant
to the Shelf Registration Statement (including any action contemplated by
Sections 2 or 3 hereof) will besuspended until the date upon which the Company
notifies the Holder in writing that suspension of such rights for the grounds
set forth in this Section 4(d) is no longer necessary (the "Advice"); provided,
however, that the Company shall not give more than three Suspension Notices
during any period of twelve consecutive months and in no event shall the period
from the date on which any Holder receives a Suspension Notice to the date on
which any Holder receives the Advice exceed 45 days. In the event that the
Company shall give any Suspension Notice, the Company shall use its reasonable
best efforts and take such actions as are reasonably necessary to render the
Advice as promptly as practicable.
(e) Offering by Company. In the case of the registration of any
underwritten equity offering proposed by the Company, SofTech shall, if
requested in writing by the managing underwriter or underwriters administering
such offering after the 90th day following the date hereof, not effect any
offer, sale or distribution of Registrable Securities (or any option or right to
acquire Registrable Securities) during the period commencing on the 10th
business day prior to the expected effective date (which date shall be stated in
such notice) of the registration statement covering such underwritten equity
offering and ending on the date specified by such managing underwriter in such
written request to SofTech, which date shall not be later than six months after
such expected date of effectiveness. In this regard, the Company represents that
it has no current intention to effect an underwritten equity offering.
(f) Additional Information. In addition to the information set forth in
the Holder's Questionnaire, the Holder of Registrable Securities shall furnish
to the Company in writing such additional information regarding the proposed
distribution by such Holder as the Company may from time to time reasonably
request in writing.
(g) Distribution. Each Holder shall comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by the
Shelf Registration Statement during the applicable period in accordance with the
intended method or methods of distribution stated in the then-current version of
the Prospectus.
(h) Sales by SofTech. If SofTech is permitted to make sales of Shares to
the public because a Public Registration Event has occurred, SofTech agrees (i)
that all such sales shall comply with the manner of sale restrictions set forth
in paragraphs (f) and (g) of Rule 144 and (ii) not to sell Shares in any one
month period in excess of the limit imposed by paragraph (e) of Rule 144 for any
three month period (without regard to the holding period, public information and
notice requirements of such Rule).
Section 5. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify and
hold harmless each Holder and its officers and directors and each person, if
any, who controls the Holder within the meaning of Section 15 of the Securities
Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus, including all
documents incorporated therein by reference, or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading:
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, if such settlement is effected with
the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including
reasonable fees and disbursements of counsel), reasonably incurred in
investigating, preparing or defending against any litigation, or
investigation or proceeding by any governmental agency or body, commenced
or threatened, in each case whether or not a party, or any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense
is not paid under clause (i) or (ii) above;
provided, however, that the indemnity provided pursuant to this Section 5(a)
does not apply to any Holder with respect to any loss, liability, claim, damage
or expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in conformity
with written information furnished to the Company by such Holder expressly for
use in the Shelf Registration Statement (or any amendment thereto) or any
Prospectus.
(b) Indemnification by Holder. Each Holder severally and not jointly
agrees to indemnify and hold harmless the Company and the other selling Holders
and each of their directors and officers (including each director and officer of
the Company who signed the Shelf Registration Statement), and each person, if
any, who controls the Company within the meaning of Section 15 of the Securities
Act, to the same extent as the indemnity contained in Section 5(a) hereof
(except that any settlement described in Section 5(a)(ii) shall be effected with
the written consent of such Holder), but only insofar as such loss, liability,
claim, damage or expense arises out of or is based upon any untrue statement or
omission, or alleged untrue statement or omission, made in the Shelf
Registration Statement (or any amendment thereto) or any Prospectus in reliance
upon and in conformity with written information furnished to the Company by such
selling Holder expressly for use in the Shelf Registration Statement (or any
amendment thereto) or such Prospectus; provided, however, that such Holder shall
not be obligated to provide such indemnity to the extent that such losses,
liabilities, claims, damages or expenses result from the failure of the Company
to promptly amend or take action to correct or supplement any such Registration
Statement or Prospectus on the basis of corrected or supplemental information
provided in writing by such Holder to the Company expressly for such purpose. In
no event shall the liability of any Holder under this Section 5(b) be greater in
amount than the dollar amount of the proceeds received by the Holder upon the
sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Notice. Each indemnified party shall give reasonably prompt notice to
the indemnifying party of any action or proceeding commenced against it in
respect of which indemnity may be sought hereunder, but failure so to notify an
indemnifying party (i) shall not relieve it from any liability which it may have
under the indemnity agreement provided in Section 5(a) or (b) unless and to the
extent it did not otherwise learn of such action and the lack of notice by the
indemnified party results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided under Section 5(a) or (b). If the
indemnifying party so elects within a reasonable time after receipt of such
notice, the indemnifying party may assume the defense of such action or
proceeding at such indemnifying party's own expense with counsel chosen by the
indemnifying party; provided, however, that, if such indemnified party
reasonably determines that a conflict of interest exists where it is advisable
for such indemnified party to be represented by separate counsel or that, upon
advice of counsel, there may be legal defenses available to them which are
different from or inaddition to those available to the indemnifying party, then
the indemnifying party shall not be entitled to assume such defense and the
indemnified party shall be entitled to one separate counsel at the indemnifying
party's expense. If an indemnifying party is not so entitled to assume the
defense of such action or does not assume such defense, after having received
the notice referred to in the first sentence of this Section 5(c), the
indemnifying party will pay the reasonable fees and expenses of counsel for the
indemnified party. In such event however, the indemnifying party will not be
liable for any settlement effected without the written consent of such
indemnifying party but, if settled with such consent, the indemnifying party
agrees to indemnify the indemnified party or parties from and against any loss
or liability by reason of such settlement upon the terms and subject to the
conditions set forth in this Agreement. 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 such indemnified party is a
party, and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding. If an indemnifying party is entitled to assume, and assumes, the
defense of such action or proceeding in accordance with this paragraph, such
indemnifying party shall not be liable for any fees and expenses of counsel for
the indemnified parties incurred thereafter in connection with such action or
proceeding.
(d) Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in this Section 5
is for any reason held to be unenforceable although applicable in accordance
with its terms, the Company and the selling Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the Company and the selling
Holders, in such proportion as is appropriate to reflect the relative fault of
the Company on the one hand and the selling Holders on the other (in such
proportions that the selling Holders are severally, not jointly, responsible for
the balance), in connection with the statements or omissions which resulted in
such losses, liabilities, claims, damages or expenses, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether the action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
the indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action.
The Company and the Holders agree that it would not be just or equitable
if contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the foregoing, no Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 5(d), each Person, if
any, who controls a Holder within the meaning of Section 15 of the Securities
Act and directors and officers of a Holder shall have the same rights to
contribution as such Holder, and each director of the Company, each officer of
the Company who signed the Shelf Registration Statement and each Person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
shall have the same rights to contribution as the Company.
Section 6. Rule 144 Sales. The Company covenants that it will file the
reports required to be filed by the Company under the Securities Act and the
Exchange Act, so as to enable any Holder to sell Registrable Securities pursuant
to Rule 144 under the Securities Act after the Holder has satisfied the holding
period requirement set forth therein.
Section 7. Miscellaneous.
(a) Amendments. The provisions of this Agreement, including the provisions
of this sentence, may not be amended, modified or supplemented without the
written consent of the Company and Holders constituting Majority Holders. Notice
of any amendment, modification or supplement to this Agreement adopted in
accordance with this Section 7(a) shall be provided by Company to each Holder of
Registrable Securities at least thirty (30) days prior to the effective date of
such amendment, modification or supplement.
(b) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telecopier or any courier guaranteeing overnight delivery, (i)
if to a Holder, at the most current address given by such Holder to the Company
by means of a notice given in accordance with the provisions of this Section
7(b) or provided in a Holder's Questionnaire, which address initially is, with
respect to each Holder, the address set forth in the Asset Purchase Agreement,
or (ii) if to the Company, at 34705 W. 12 Mile Road, Suite 300, Farmington
Hills, Michigan 48331, Attention: President.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when receipt
is acknowledged, if telecopied; or at the time delivered if delivered by an air
courier guaranteeing overnight delivery.
(c) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors, assigns and transferees of each of the
Company and the Holders, including without limitation subsequent Holders. If any
successor, assignee or transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities such Person
shall be deemed a party hereto, shall be entitled to receive the benefits hereof
and shall be conclusively deemed to have agreed to be bound by all of the terms
and provisions hereof.
(d) Entire Agreement. This Agreement represents the entire agreement and
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any and all prior oral and written agreements, arrangements and
understandings among the parties hereto with respect to such subject matter.
(e) Paragraph and Section Headings. The paragraph and section headings
contained in this Agreement are for general reference purposes only and shall
not affect in any manner the meaning, interpretation or construction of the
terms or other provisions of this Agreement.
(f) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN, APPLICABLE TO
CONTRACTS TO BE MADE, EXECUTED, DELIVERED AND PERFORMED WHOLLY WITHIN SUCH
STATE, AND, IN ANY CASE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES OF
SUCH STATE.
(g) Severability. If at any time subsequent to the date hereof, any
provision of this Agreement shall be held by any court of competent jurisdiction
to be illegal, void or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such provision shall have no
effect upon and shall not impair the enforceability of any other provision of
this Agreement.
(h) Specific Performance. The Company and the Holders acknowledge that
there would be no adequate remedy at law if any party fails to perform any of
its obligations hereunder, and accordingly agree that the Company and
eachHolder, in addition to any other remedy to which it may be entitled at law
or in equity, shall be entitled to compel specific performance of the
obligations of another under this Agreement in accordance with the terms and
conditions of this Agreement in any court of the United States or any State
thereof having jurisdiction.
(i) No Waiver. The failure of any party at any time or times to require
performance of any provision hereof shall not affect the right at a later time
to enforce the same. No waiver by any party of any condition, and no breach of
any provision, term, covenant, representation or warranty contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term, covenant,
representation or warranty of this Agreement.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute but one and the same original instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
DATA SYSTEMS NETWORK CORPORATION
By: _____________________________________
Name:
Title:
SOFTECH, INC.
By: _____________________________________
Name:
Title:
