AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH , 2000
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
VERAMARK TECHNOLOGIES, INC.
(Exact name of registrant as specified in charter)
DELAWARE 16-1192368
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3750 Monroe Avenue
Pittsford, New York 14534
(716) 381-6000
(Address, including zip coda, and
telephone number, including area code, of
registrant's principal executive offices)
Robert L. Boxer
Vice President, General Counsel and Secretary
Veramark Technologies, Inc.
3750 Monroe Avenue
Pittsford, New York 14534
(716) 381-6000
(Name, address, including zip code,
and telephone number, including area
code, of agent for service)
Approximate date of commencement of proposed sale to public: At such
time or times after the effective date of this Registration Statement as the
selling shareholders shall determine.
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If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_|
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. |X|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. |_| _____________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. |_| _____________
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. |_|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
========================== ======================== ======================= ======================== =======================
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of
Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Share (1) Price (2)
- -------------------------- ------------------------ ----------------------- ------------------------ -----------------------
<S> <C> <C> <C> <C>
Common Stock, 374,185 shares $7.50 $2,806,388 $741
par value $.10
========================== ======================== ======================= ======================== =======================
</TABLE>
(1) The proposed maximum offering price per share will be determined from
time to time by Registrant in connection with the issuance of such securities.
(2) The proposed maximum aggregate offering price has been estimated solely
for purposes of calculating the registration fee as provided in General
Instruction II.D to Form S-3.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION - MARCH __, 2000
PROSPECTUS
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VERAMARK TECHNOLOGIES, INC.
374,185 SHARES OF
COMMON STOCK
($.10 PAR VALUE)
----------------
This Prospectus relates to an aggregate of 374,185 shares (the
"Shares") of common stock, par value $.10 per share (the "Common Stock"), of
Veramark Technologies, Inc., a Delaware corporation ("Veramark" or the
"Company"), which may be sold from time to time by certain stockholders of the
Company (the "Selling Shareholders"). See "Selling Shareholders". 360,850 of the
Shares were originally issued by the Company in connection with its acquisition
of The Angeles Group, Inc. ("TAG"). See "Recent Developments - Recent
Acquisition". In connection with the acquisition of TAG, the Company has agreed
to register the Shares. The remaining 13,335 Shares offered by this Prospectus
are shares of Common Stock which have been requested to be registered by warrant
holders of the Company who are entitled to "piggyback" registration rights. The
Company will not receive any of the proceeds from the sale of the Shares. The
Company has agreed to pay the expenses of registration of the Shares, including
certain legal and accounting fees.
The Selling Shareholders may sell all or a portion of the Shares from
time to time in transactions on the Nasdaq National Market, in brokerage
transactions at prevailing market prices or in transactions at negotiated
prices. See "Plan of Distribution".
The Shares have not been registered under the blue sky securities laws
of any jurisdiction, any broker or dealer should assure existence of an
exemption from registration or effectuate such registration in connection with
the offer and sale of the Shares.
The Common Stock is traded on the Nasdaq National Market under the
symbol "VERA". On March 16, 2000, the last reported sale price of the Common
Stock reported on the Nasdaq National Market was $7.50 per share.
----------------
For information concerning certain risks related to this offering, see
"Risk Factors" beginning on page 3 of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is March __, 2000
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED OR INCORPORATED
BY REFERENCE IN THIS PROSPECTUS, AND ANY INFORMATION OR REPRESENTATION NOT
CONTAINED OR INCORPORATED HEREIN MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS
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PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER
TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH
PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY DATE
SUBSEQUENT TO THE DATE HEREOF.
--------------------------
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), 450 Fifth Street, N.W., Washington, D.C. 20549, a Registration
Statement on Form S-3 under the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations promulgated thereunder, with
respect to the securities offered pursuant to this Prospectus. This Prospectus,
which is part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement and the exhibits thereto.
For further information with respect to the Company and such securities,
reference is made to the Registration Statement and such exhibits, copies of
which may be examined without charge at, or obtained upon payment of prescribed
fees from, the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. Such
information is also be available for inspection and copying at the regional
offices of the Commission located at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports and proxy statements and other information
with the Commission. Such reports, proxy statements and other information can be
inspected and copied at the locations described above. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates or from the
Commission's worldwide web site at http://www.sec.gov. In addition, the Common
Stock is listed on the Nasdaq National Market and similar information concerning
the Company can be inspected at the offices of the National Association of
Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents, which have been filed by the Company under the
Exchange Act with the Commission, are incorporated in this Prospectus by
reference: the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 and the Company's Current Reports on Form 8-K filed on October
20, 1999, January 13, 2000 and March 16, 2000.
All reports and other documents subsequently filed by the Company
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act, prior to
the filing of a post-effective amendment which indicates that all securities
offered hereby have been sold or which deregisters all securities then remaining
unsold, shall be deemed to be incorporated by reference in and to be a part of
this Prospectus from the date of filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in the Registration Statement containing this Prospectus or in any other
subsequently filed documents which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
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modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to those documents. Requests should be directed to: Robert
L. Boxer, Vice President, General Counsel and Secretary, Veramark Technologies,
3750 Monroe Avenue, Pittsford, New York 14534 (716) 381-6000.
RISK FACTORS
The following risk factors should be considered carefully in addition
to the other information contained in or incorporated by reference into this
Prospectus before purchasing the Common Stock offered by this Prospectus. This
Prospectus, including the information incorporated by reference, may contain
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. A variety of factors could cause actual results to differ
from the anticipated results expressed in such forward-looking statements. These
may include but are not necessarily limited to changes in general economic
conditions in the United States and overseas, technological changes in the
telecommunications or computer industries, the impact of competition, or changes
in the marketing strategies of major distributors. Veramark cautions that these
statements are further qualified by important factors that could cause actual
results to differ materially from those projected in the forward-looking
statements as a result, in part, of the risk factors set forth below. In
connection with the forward-looking statements which appear in this Prospectus,
including the information incorporated by reference, prospective purchasers of
Veramark Common Stock should carefully review the factors set forth below.
CUSTOMER CONCENTRATION
Approximately 67% of Veramark's revenues for 1999 were derived from
sales to Lucent Technologies, Inc. of OEM products that were resold by Lucent.
Veramark anticipates that its results of operations in any given period will
continue to depend to a significant extent upon sales to Lucent and to a limited
number of customers. There can be no assurance that Lucent or other principal
customers of Veramark will continue to purchase product from Veramark at current
levels, if at all. The loss of one or more major customers in any segment of
Veramark's business could have a material adverse effect on Veramark's business,
financial condition and results of operations. On March 1, 2000 Lucent
Technologies announced its intention to spin off its PBX, business cabling and
LAN-based data businesses into a new company. All of the OEM products sold to
Lucent by Veramark are part of the business units expected to be spun off by
Lucent. Accordingly, after the spin-off, Veramark's business will be with the
new company. There is no assurance that business with the new company will
continue at the past levels.
RAPID TECHNOLOGICAL CHANGE AND IMPORTANCE OF NEW PRODUCTS
The telecommunications equipment industry is characterized by rapidly
changing technology, evolving industry standards, changing market conditions and
frequent new product introductions and enhancements. The introduction of
products embodying new technologies or the emergence of new industry standards
can render existing products or products under development obsolete or
unmarketable. Veramark's ability to anticipate changes in technology and
industry standards and successfully to develop and introduce new products on a
timely basis
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will be a significant factor in Veramark's ability to grow and remain
competitive. New product development often requires long-term forecasting of
market trends, development and implementation of new technologies and processes
and a substantial capital commitment. Development and customer acceptance of new
products is inherently uncertain, and there can be no assurance that Veramark
will successfully complete the development of new products on a timely basis or
that such products will be commercially successful. Any failure by Veramark to
anticipate or respond on a cost-effective and timely basis to technological
developments, changes in industry standards or customer requirements, or any
significant delays in product development or introduction, could have a material
adverse effect on Veramark's business, operating results and financial
condition.
COMPETITION
The telecommunications management industry is highly competitive and
highly fragmented. The number of domestic suppliers of telemanagement systems
for business users is estimated to exceed 100 companies. The vast majority of
those are regional firms with limited product lines and limited sales and
development resources. Several competitors are established companies that are
able to compete with Veramark on a national basis. There are fewer competitors
in the market for billing systems for telephone service providers. Competition
in this market is expected to increase as the market matures. In addition,
several existing competitors are substantially larger than Veramark and devote
significantly more resources to this market on a worldwide basis. Some competing
firms have greater name recognition and more financial, marketing and
technological resources than Veramark. Competition in the industry is based on
price, product performance, depth of product line and customer service. Veramark
believes its products are priced competitively based upon their performance and
functionality. However, Veramark does not strive to be consistently the lowest
priced supplier in its markets. In common with other information industries, the
markets into which Veramark sells have recently been characterized by rapid
shift toward the software component of product content and away from the
hardware element. Historically, prices for application software have declined
rapidly in the face of competition. Increased competition for Veramark's
software products could adversely affect Veramark's volume and profits. There
can be no assurance that Veramark will be able to compete successfully with its
existing or new competitors or that competitive pressures faced by Veramark will
not materially and adversely affect its business, operating results and
financial condition.
FLUCTUATIONS IN OPERATING RESULTS
Veramark's operating results may fluctuate significantly from quarter
to quarter due to several factors, including, without limitation, the volume and
timing of orders from, and shipments to, major customers, the timing of and the
ability to obtain new customer contracts, the timing of new product
announcements and the availability of product by Veramark or its competitors,
overall level of capital expenditures by public network providers, market
acceptance of new and enhanced versions of Veramark's products, variations in
the mix of products Veramark sells or its sales channels, and the availability
and cost of key components. In addition, Veramark has experienced rapid growth
for the past two years, and its recent results of operations may not be
indicative of results to be achieved in future periods. Veramark's expense
levels are based in part on expectations of future revenues. If revenue levels
in a particular period do not meet expectations, operating results will be
adversely affected.
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INTERNATIONAL OPERATIONS
International sales accounted for approximately 18% of Veramark's total
revenues in 1999. International sales have fluctuated in absolute dollars and as
a percentage of revenues, and are expected to continue to fluctuate in future
periods. Veramark is subject to the risks of conducting business
internationally, including unexpected changes in, or impositions of, legislative
or regulatory requirements, fluctuations in the U.S. dollar, which could
materially and adversely affect U.S. dollar revenues or operating expenses,
tariffs and other barriers and restrictions, potentially longer payment cycles,
greater difficulty in accounts receivable collection, potentially adverse taxes
and the burdens of complying with a variety of foreign laws and
telecommunications standards. Veramark also is subject to general geopolitical
risks, such as political and economic instability and changes in diplomatic and
trade relationships, in connection with its international operations. There can
be no assurance that such factors will not materially and adversely affect
Veramark's operations in the future or require Veramark to modify significantly
its current business practices. In addition, the laws of certain foreign
countries may not protect Veramark's proprietary technology to the same extent
as do the laws of the United States.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Veramark's future success depends in part upon its proprietary
technology. Although Veramark attempts to protect its proprietary technology
through patents, copyrights and trade secrets, it also believes that its future
success will depend upon product development, technological expertise and
distribution channels. There can be no assurance that Veramark will be able to
protect its technology, or that competitors will not be able to develop similar
technology independently. Veramark has received and may in the future receive
from third parties, including some of its competitors, notices claiming that it
is infringing third-party patents or other proprietary rights. There can be no
assurance that Veramark would prevail in any litigation over third-party claims,
or that it would be able to license any valid and infringed patents on
commercially reasonable terms. Furthermore, litigation, regardless of its
outcome, could result in substantial cost to and diversion of effort by
Veramark. Any litigation or successful infringement claims by third parties
could materially and adversely affect Veramark's business, operating results and
financial condition.
DEPENDENCE ON KEY PERSONNEL
Veramark's success depends to a significant extent upon a number of key
technical and management employees. The loss of the services of any of these
persons could have a material adverse effect on Veramark's business, financial
condition and results of operations. Competition for highly qualified employees
is intense and the process of locating key technical and management personnel
with the combination of skills and attributes required to execute Veramark's
strategy is often lengthy. Tim Stassi, former Vice President of Sales and
Marketing of TAG, and Director of Sales for Veramark, left employment with
Veramark effective February 29, 2000. There can be no assurance that Veramark
will be successful in retaining its other existing key personnel or in
attracting and retaining the additional employees it may require.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
An important element of Veramark's strategy is to review acquisition
prospects that would complement its existing product offerings, augment its
market coverage or enhance its
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technological capabilities or that may otherwise offer growth opportunities.
While Veramark has no current agreements or negotiations underway with respect
to any such acquisitions, it recently acquired The Angeles Group (see "Recent
Developments - Recent Acquisitions") and may make additional acquisitions of
businesses, products or technologies in the future. Future acquisitions by
Veramark could result in potentially dilutive issuances of equity securities,
the incurrence of debt and contingent liabilities and amortization expenses
related to goodwill and other intangible assets, any of which could materially
adversely affect Veramark's business, financial condition and results of
operations and/or the price of Veramark's common stock. Acquisitions entail
numerous risks, including difficulties in the assimilation of acquired
operations, technologies and products, diversion of management's attention to
other business concerns, risks of entering markets in which Veramark has no or
limited prior experience and potential loss of key employees of acquired
organizations. No assurance can be given as to the ability of Veramark to
successfully integrate the business of The Angeles Group or any other
businesses, products, technologies or personnel that might be acquired in the
future, and the failure of Veramark to do so could have a material adverse
effect on Veramark's business, financial condition and results of operations.
VOLATILITY OF STOCK PRICE
Based on the trading history of its stock, Veramark believes factors
such as announcements of new products by Veramark or its competitors, quarterly
fluctuations in Veramark's financial results, customer contract awards,
developments in telecommunications regulation and general conditions in the
telecommunications software industry have caused and are likely to continue to
cause the market price of Veramark's common stock to fluctuate substantially. In
addition, telecommunications software company stocks have experienced
significant price and volume fluctuations that often have been unrelated to the
operating performance of such companies. This market volatility may adversely
affect the market price of Veramark's common stock.
THE COMPANY
Veramark Technologies, Inc. (Nasdaq:VERA) produces telecommunication
management systems and billing systems for users and providers of telephone,
wireless, and network services in the global market. Veramark's products consist
primarily of software running under Windows 98, Windows 2000 and Windows NT.
Since its founding in 1983, Veramark has been the world's leading
supplier of telecommunications management systems having sold over 85,000 such
systems to customers in over 85 countries. These software products provide a
variety of reports to help manage the use of telecommunications and Internet
services and assets for single or multi-site organizations with as few as 20 or
as many as 100,000 system users. The telemanagement software modules available
from Veramark include: basic call accounting, service and work orders,
directory, cable management, toll fraud, and phone bill reconciliation.
The VeraBill billing and customer care system is the leading Windows NT
based billing and customer care systems for wireline and wireless telephone
service providers. VeraBill provides telephone companies around the world with
the capability to bill for multiple services on a single bill and also provide
vital customer support services. The VeraBill system is designed specifically
for the small to mid-size operator market, from fast growth start-up companies
to incumbent national carriers.
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In 2000, Veramark will begin marketing the VeraWeb series of network
resource management software products. These products allow businesses to easily
track, manage, and allocate costs for use of the Internet and other network
resources. VeraBill's easy and flexible reports help businesses maximize the
productivity of both their networks and their employees.
The key to Veramark's success has been excellence in product development
and marketing relationships with several of the world's leading and largest
telecommunications equipment firms. Veramark is very proud of its marketing
relationships with Alcatel, AT&T, Lucent Technologies, Nokia, Nortel and
Siemens, all of which resell, market or use Veramark products.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
Except for the historical information contained herein, the matters
discussed in this report are forward-looking statements, which involve risks and
uncertainties including, but not limited to, economic, competitive, governmental
and technological factors, affecting the Company's operations, markets,
products, services and prices, as well as other factors discussed in the
Company's filings with the Securities and Exchange Commission.
The following management discussion is based upon the supplemental
audited consolidated financial statements, as included in the Company's 8-KA
report filed March 16, 2000.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
- -----------------------
Sales of $29,396,688 for the year ended December 31, 1999 established a
Company record for annual sales achievement and represents an increase of 32%
from the $22,329,113 of sales achieved for the year ended December 31, 1998.
The Company's record sales were attained as a result of gains in
virtually all major product categories for 1999 as compared to 1998. Sales of
the Company's core telemanagement products and services, which accounted for
approximately 60% of total 1999 revenues, increased 24% from 1998 results.
Telemanagement products are used by organizations to optimize the usage of
telecommunications services and equipment, and to control telephone expenses.
The Company's telemanagement products are sold through leading manufacturers and
resellers of telephone systems, including Lucent Technologies, SBC/Ameritech,
Philips and Siemens.
Sales of VeraBill, the Company's billing and customer care offering,
increased 144% from 1998 levels and accounted for 12% of the Company's total
1999 sales, versus 7% of the Company's 1998 sales. VeraBill is sold through
distributors including Alcatel, and Ericsson Telecom, as well as on a direct
sale basis. For 1999, approximately 48% of VeraBill revenues were generated from
distributor relationships.
Sales of INFO/MDR, the Company's central office telemanagement product,
increased by 43% from 1998 levels, accounting for 5% of 1999 total sales.
Telephone companies use INFO/MDR to enhance the appeal of centrex and virtual
private network services.
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Sales of DNT (formerly called TMS for Windows), the Company's
client/server enterprise product, increased by 63% from 1998 sales and accounted
for 4% of the Company's total sales for 1999. During the fourth quarter of 1999,
the Company completed a new release of DNT, which enhances the product's
reliability and functionality. As a result of this new release, the Company
expects sales of DNT to increase significantly again in 2000.
Sales of Quantum, the Company's comprehensive telemanagement system for
larger enterprises, were approximately $5.2 million dollars for both 1999 and
1998, representing 18% and 23% of total sales for those years, respectively.
Quantum, which is produced by the Company's Angeles Group Division, features
integrated modules with full capability for call accounting, directory, bill
reconciliation, cable management, inventory and PBX intruder alert capabilities.
For the year ended December 31, 1999, shipment of product accounted for
66% of total sales, with the remaining 34% of sales being derived from services
such as maintenance and support, training, and installation services. During
1998 product sales accounted for 67% of sales, and services accounted for 33% of
the total. Overall product sales for 1999 increased 29% from 1998 levels and
1999 service revenues increased 38% over 1998.
In 1999, the Company generated a gross margin of $25,600,479 or 87% of
sales versus a gross margin of $19,094,663 or 86% of sales for the year ended
December 31, 1998. The higher margin reflects a combination of lower direct
product costs associated with the increasing content of software based
applications in the Company's product mix, and a reduction in the amortization
of previously capitalized development costs as a percentage of total sales.
For the year ended December 31, 1999, the Company incurred $5,942,262
of engineering and development expenses, net of costs capitalized. This
represented a 63% increase from the net engineering and development costs
incurred for the year ended December 31, 1998. Gross expenditures for research
and development, before the effects of capitalization, were $6,336,169 for 1999,
an increase of 29% from the 1998 expense level of $4,913,882.
The following table depicts the overall financial impact of engineering
and development efforts on the Company's results, for 1999 and 1998, by
highlighting gross expenditures, amounts capitalized, net engineering and
development expense, and the amount of previously capitalized expenditures
charged to cost of sales:
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1999 1998
---- ----
Gross Expenditures for Engineering and $6,336,169 $4,913,882
Software Development
Less: Costs Capitalized 393,907 1,269,019
------- ---------
Net Expenditures for Engineering and 5,942,262 3,644,863
Software Development
Plus: Amounts Amortized and Charged 1,095,642 983,945
--------- -------
to Cost of Sales
Total Expense Recognized $7,037,904 $4,628,808
========== ==========
During 1999 the Company's development efforts resulted in a number of
notable accomplishments including:
* New releases of VeraBill and DNT, both of which contained upgrades in
features and functionality, allowing the Company to expand the addressable
markets available.
* A significant upgrade to Emerald, the Company's flagship telemanagement
product, designed, not only to broaden the appeal of this product to
existing channels, but also to open new potential areas of distribution.
Private label versions of Emerald XP are now being sold by Lucent
Technologies and Philips. Emerald XP is also designed to be an
international product, supporting worldwide call rating, all world
currencies, date schemes and privacy practices.
* Development of the Company's new Internet accounting product (VeraWeb) and
the integration of that product into a number of the Company's existing
call management offerings. These network products will allow businesses to
easily track, manage and allocate costs for use of the Internet and other
network resources.
Selling, general and administrative expenses of $17,209,307 for the
year ended December 31, 1999 were 26% higher than the expenses incurred for the
year ended December 31, 1998 of $13,612,451. The higher expenses are
attributable to an increase in employment level from 202 employees at December
31, 1998 to 266 employees at December 31, 1999. The chart below breaks down the
increased employment by function:
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1999 1998
---- ----
Manufacturing/Materials 15 12
Engineering/ Development 80 61
Marketing/Project Management 27 17
Support/Service/Implementation 86 61
Sales 34 32
Administration 24 19
-- --
266 202
=== ===
The increased staffing in the support, service, and implementation area
is deemed necessary, to not only enhance the prospects of future sales growth
and opportunity, especially in support of the Company's network products, DNT
and VeraBill, but to provide the proper level of service and trained personnel
in anticipation of the Company's first quarter 2000 launch of its Internet
accounting product offerings.
The Company also invested heavily during 1999 to augment its product
and project management functions. This investment has strengthened the Company's
abilities to gather competitive market data, and more efficiently manage product
releases.
For the year ended December 31, 1999, the Company realized a 21%
increase in net income to $2,398,586 representing 8.2% of sales, from $1,989,005
or 8.9% of sales for the twelve months ended December 31, 1998.
Earnings per share for the year ended December 31, 1999 were $0.27 per
diluted share versus $0.24 per diluted share earned for 1998, an increase of
12.5%.
As shown in the chart below, EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization) rose as well, increasing from $3,217,382 for 1998
to $4,250,653 for the twelve months ended December 31, 1999, an increase of 32%.
1999 1998
---- ----
Net Income $2,398,586 $1,989,005
Net Interest Income (47,883) (167,456)
Income Taxes 98,207 15,800
Depreciation and Amortization 1,801,743 1,380,033
--------- ---------
$4,250,653 $3,217,382
EBITDA as a % of Sales 14.5% 14.4%
===== =====
EBITDA is not intended to represent cash flows for the period, nor has
it been presented as an alternative to either operating income, as determined by
generally accepted accounting principles (GAAP), nor as an indicator of
operating performance or cash flows from operating, investing and financing
activities, as determined by GAAP, and thus is susceptible to varying
calculations. EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
12
<PAGE>
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
- -----------------------
Sales for the year ended December 31, 1998 were $22,329,113,
representing an increase of 36% from the sales of $16,395,988 realized for the
year ended December 31, 1997. The Company's net income of $1,989,005 or $0.24
per share for the year ended December 31, 1998 compared to a net loss for the
year ended December 31, 1997 of $5,186,131, or $0.67 per share.
The increase in 1998 sales resulted from a combination of significant
growth in the Company's traditional call accounting markets, including the
enterprise-wide Quantum series, and contributions from the Company's newer
network product offerings, VeraBill and DNT.
For the year ended December 31, 1998 sales of core call accounting
products and services increased by 28% over the level realized during 1997,
representing 62% of Company sales for 1998 versus 68% of Company sales during
1997. Subsequent to December 31 1998, the Company announced that it has begun
shipping CAS NT, a new enterprise call accounting system to Lucent Technologies,
the Company's largest distributor. CAS NT is a 32 bit call accounting
application specifically designed to run on computers utilizing the Microsoft
Windows NT operating system and contains new features and functionality that
exceed the capabilities and range of Veramark's previous call accounting
systems.
Sales of Quantum, the Company's comprehensive telemanagement system for
larger enterprises, increased 31% from 1997 levels and accounted for 23% of 1998
Company sales.
Sales of VeraBill, the Company's billing and customer care product more
than doubled over 1997 sales, and accounted for 7% of total 1998 revenues.
VeraBill is a comprehensive system for wireline, wireless, and other network
providers, with up to 400,000 subscriber access lines. Through the end of 1998
twenty-two VeraBill systems are installed, providing billing and customer care
services for carriers on five continents. VeraBill is currently marketed by a
number of the world's leading wireline and wireless switch vendors including
Alcatel, Nokia, and Lucent Technologies.
Sales of TMS, the Company's mid to high-end telemanagement product,
while below Company expectations for 1998, accounted for 3% of the Company's
total sales. Customer interest and quote activity however, remains high and the
Company expects sales of TMS to increase significantly in 1999.
For the year ended December 31, 1998, 27% of Company sales were derived
from previously deferred billings for a variety of services, including training,
installation, and custom rate updates. This compared with 21% of sales for the
year ended December 31, 1997. During 1998, approximately 6% of Company sales
were from previously deferred billings for services, which have not been, and
are not expected to be utilized by customers, based on historical experience.
The gross margin earned on sales for the year ended December 31, 1998
was 86% compared to the 78% gross margin earned on sales for the year ended
December 31, 1997. The increased gross margin reflects significantly lower
direct product and associated overhead cost as the product mix continues to
shift to software based products and away from older hardware
13
<PAGE>
based product offerings. In addition, the amortization expense charged to cost
of sales related to previously capitalized development costs continues to
decline as a percentage of the total Company sales.
Net engineering and software development expenses of $3,644,863 for the
year ended December 31, 1998 were 7% higher than the net engineering and
software development expenses of $3,398,509 incurred for the year ended December
31, 1997. The table presented below summarizes the impact on the Company's
operations of it's engineering and development efforts for the years ended
December 31, 1998 and 1997, by detailing engineering and development expenses on
both a gross and net of capitalization basis, and adding back charges to cost of
sales resulting from the amortization of previously capitalized development
costs.
1998 1997
---- ----
Gross Expenditures for Engineering and
Software Development $4,913,882 $4,722,355
Less: Cost Capitalized 1,269,019 1,323,846
--------- ---------
Net Expenditures for Engineering and
Software Development 3,644,863 3,398,509
Plus: Amounts Amortized and Charged
to Cost of Sales 983,945 1,360,676
------- ---------
Total Expense Recognized $4,628,808 $4,759,185
========== ==========
Engineering and development efforts for 1998 focused on new releases
and enhancements to the Company's network products, VeraBill and TMS.
Selling, general and administrative expenses increased from $12,080,118
for the year ended December 31, 1997 to $13,612,451 for the year ended December
31, 1998, an increase of 13%.
The increased expense level is attributable to a number of factors
including:
1. An increase of just over $1 million dollars in the Company's support and
customer service costs. This includes significant investments in staffing,
training of existing and new staff members, and upgrades in the tools and
processes required to provide more efficient and effective service to
customers. The Company believes this investment is necessary to properly
support not only customers needs but those of marketing partners as well,
particularly for the new network product offerings, to enhance the
prospects of future sales growth and profitability.
2. An increase of approximately $400,000 in the marketing and project
management functions designed to increase both internal product marketing
and scheduling capability, and to strengthen resources committed to
external competitive market analysis.
14
<PAGE>
3. The continuation of a major effort begun in late 1997 and carrying
throughout 1998 to upgrade and fully integrate the Company's internal
management information systems. The goal of this program was to replace a
large number of standalone departmental systems that had been developed
over the years with a single integrated system allowing all functional
areas of the Company to communicate more effectively and share common data
bases.
Net interest income earned on the short term investment of excess cash
balances increased from $87,305 during 1997 to $167,456 for the year ended
December 31, 1998 due to higher average cash balances available for investment
as a result of 1998's positive cash flows.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company's total cash position (cash plus short-term investments) at
December 31, 1999 was $8,031,768, representing a 29% increase from the cash
position of $6,215,819 at December 31, 1998. For the year ended December 31,
1999, the Company generated approximately $3,500,000 of positive cash flow from
operations and approximately $892,000 from the exercise of stock options and
warrants.
Accounts receivable of $3,821,244 at December 31, 1999 were 20% higher
than the December 31, 1998 accounts receivable of $3,197,588. The increased
accounts receivable are directly attributable to the higher sales volumes
realized throughout 1999 as compared to 1998.
Inventories at December 31, 1999 were $557,123, a total relatively
unchanged from the $579,968 of inventory on hand December 31, 1998. Only a small
percentage of the Company's current product offerings contain a hardware element
and, as a result, it is not expected that inventories would increase
significantly at any point in the foreseeable future.
Prepaid expenses at December 31, 1999 were $596,574, consisting
primarily of expenses associated with the Company's acquisition of The Angeles
Group, which closed on January 7, 2000. Those charges will be expensed in the
first quarter of 2000.
During 1999 the Company continued to invest significant amounts of
capital in upgrading its facilities, computer and network capabilities, and
customer support and service tools. For the year ended December 31, 1999 capital
spending totaled $2,128,008. This follows on top of $790,700 of capital spending
for the year ended December 31, 1998. During 1999 the Company disposed of
approximately $900,000 of fully depreciated equipment, principally computers,
replaced by newer and more powerful systems. The net value of property and
equipment after depreciation was $3,101,198 at December 31, 1999, an increase of
113% from the net value of property and equipment at December 31, 1998.
During 1999, the Company leased certain computer equipment and
furniture under a series of capital leases. As of December 31, 1999, the
remaining value of these leases was $180,818, of which $70,106 is due during the
next twelve months.
Software development costs previously capitalized and carried as an
asset on the balance sheet at December 31, 1999 were $2,691,807, versus
$3,393,542 at December 31, 1998, a reduction of 21%. During the first quarter of
1999 the Company capitalized $393,907 of development expenses associated with
the latest release of its VeraBill product, and for the year ended December 31,
1999, amortized $1,095,642 of previously capitalized development charges.
15
<PAGE>
The Company capitalized no development charges in the second, third, or fourth
quarters of 1999.
Total assets of December 31, 1999 were $21,289,282, representing an
increase of 22% from the total assets of $17,522,034 at December 31, 1998.
Accounts payable of $827,837 at December 31, 1999 declined slightly
from the December 31, 1998 level of $835,874. Accruals for accrued compensation
and related taxes increased from a balance of $999,191 at December 31, 1998 to
$2,021,102 at December 31, 1999. This increase reflects a combination of the
Company's significant increase in employment (202 full-time employees at
December 31, 1998 to 266 employees at December 31, 1999), and associated
increases in accruals for commissions, profit sharing, and bonus achievements,
based on meeting certain revenue and profitability objectives for the year ended
December 31, 1999.
Deferred Revenue at December 31, 1999 was $3,515,957, as compared to
$3,746,319 at December 31, 1998. Deferred revenues represent the value of
unrecognized revenues related to a variety of services for which the Company has
billed customers but has not yet performed the associated service. These
services typically include training, installation, customer rate updates, and
maintenance and support, some of which may not be ultimately utilized by
customers. For the year ended December 31, 1999, 29% of the Company's sales were
generated from previously deferred billings. This compares with 27% of Company
sales for the year ended December 31, 1998. During 1999 approximately 7% of
sales were realized from previously deferred billings for services, which have
not been, and are not expected to be utilized by customers, based on historical
experience. This compares with 6% of sales for 1998.
Other accrued liabilities at December 31, 1999 total $368,681
consisting primarily of accruals for income taxes, legal and accounting charges,
and potential warranty costs. This compares with total accrued liabilities of
$691,640 at December 31, 1998.
In November 1998, The Angeles Group Division of the Company entered
into a note payable in the amount of $1,100,000. Interest is payable monthly at
the rate of thirteen percent (13%) per annum, through December 1, 2003, at which
time the principal balance is due. The note is secured by substantially all the
assets and intellectual property of The Angeles Group. Subsequent to December
31, 1999 the note was repaid.
In connection with the note, the Company granted warrants to the lender
to purchase up to four and a half percent (4 1/2%) OF the common stock of the
Company as set forth in the agreement. The Company has determined the fair value
of the warrants to be $175,000 and has capitalized this amount in current
assets. This amount will be amortized as interest expense over the term of the
note and will be charged to operations upon repayment of the note.
Total shareholders equity increased from $7,099,513 at December 31,
1998 to $10,231,116 at December 31, 1999, an increase of 44%. The increase is
attributable to the years net income of $2,398,586 and net proceeds received
from the exercise of stock options and warrants of $891,767. During the first
and second quarters of 1999, the Company repurchased 27,925 shares of its common
stock on the open market at prices ranging from $5.94 to $6.25.
The Company maintains a private equity line of credit agreement with a
single institutional investor. Under the equity line, the Company has the right
to sell to the investor
16
<PAGE>
shares of the Company's common stock at a price equal to 88% of the average bid
price of the stock for the subsequent ten trading days. During the term of the
agreement the Company may sell up to $6 million to this investor with no more
than $500,000 in any single month. This agreement expires August 30, 2000. There
were no transactions under this agreement during 1999.
The Company maintains an agreement with a major commercial bank for a
secured demand line of credit arrangement in the amount of $3,000,000. In August
of 1999, the Company entered into an agreement with the same bank for a
$7,000,000 three-year acquisition revolving credit facility. This is in addition
to the $3,000,000 demand line of credit agreement referenced above. There have
been no borrowings against either agreement as of December 31, 1999.
In light of its current cash position, profitable operations, and the
credit arrangements referred to above, the Company believes that it has
sufficient resources to meet its financial needs and support anticipated growth
over the next twelve months.
RECENT DEVELOPMENTS
RECENT ACQUISITION
In its Form 8-K filed with the Commission on January 13, 2000, the
Company reported the consummation of a recent acquisition. On January 7, 2000,
Veramark acquired, by merger, The Angeles Group, Inc. ("TAG"), a supplier of
enterprise software solutions addressing the major telemanagement issues faced
by large corporations, governmental agencies, utilities, and health care
providers. TAG is now operated as a division of Veramark. TAG's most significant
product, the Quantum Series, is a comprehensive telemanagement software system
for large enterprises. The Quantum Series features integrated modules with full
capability for call accounting, directory, bill reconciliation, cable
management, inventory and PBX intruder alert capabilities. The transaction was
accounted for using the "pooling-of-interests" method.
SELLING SHAREHOLDERS
The following table sets forth certain information as to the maximum
number of Shares that may be sold by each of the Selling Shareholders pursuant
to this Prospectus.
Name Number of Shares Owned Number of Shares
Prior to the Offering Owned After the Offering
Richard Elzinga 224,000 224,000*+
Tim Stassi 126,000 126,000*+
Commerce Capital L.P. 10,850 10,850*
Dr. Stephen P. Gill 5,000 5,000*
John E. Mooney 25,307 25,307
---------- ---------
TOTAL 391,157 391,157
17
<PAGE>
* Any or all of the Selling Shareholders may sell the Shares from time, either
in increments or in a single transaction. The Selling Shareholders may also
decide not to sell all the Shares they are allowed to sell under this
Prospectus. + Veramark has granted Richard Elzinga an option to purchase 50,000
shares of Veramark Common Stock.
Richard Elzinga and Tim Stassi are the former shareholders of TAG. Mr.
Elzinga and Mr. Stassi acquired the Shares in connection with Veramark's
acquisition of TAG on January 7, 2000. Commerce Capital also acquired its Shares
in connection with the TAG acquisition by exercising outstanding warrants for
TAG stock immediately prior to the consummation of the TAG acquisition, thus
becoming a shareholder of TAG. See "Recent Developments - Recent Acquisition".
The Equity Group, Inc., Dr. Stephen P. Gill and John E. Mooney are Veramark
warrant holders who are entitled to registration rights pursuant to registration
rights agreements with Veramark. Mr. Mooney is currently a member of Veramark's
Board of Directors.
PLAN OF DISTRIBUTION
The Shares will be registered so that they may be offered and sold by
the Selling Shareholders for their own accounts. The Company will not receive
any proceeds from the sale of the Shares pursuant to this Prospectus. The
Company has agreed to pay the expenses of registration of the Shares, including
a certain amount of legal and accounting fees.
The Selling Shareholders may offer and sell the Shares from time to
time in transactions on the Nasdaq National Market, in brokerage transactions at
prevailing market prices or in transactions at negotiated prices. Sales may be
made to or through brokers or dealers who may receive compensation in the form
of discounts, concessions or commissions from the Selling Shareholders or from
purchasers of Shares for whom brokers or dealers may act as agent or to whom
they may sell as principal, or both. As of the date of this Prospectus, the
Company is not aware of any agreement, arrangement or understanding between any
broker or dealer and the Selling Shareholders.
The Selling Shareholders and any brokers or dealers acting in
connection with the sale of the Shares pursuant to this Prospectus may be deemed
to be "underwriters" within the meaning of Section 2(11) of the Securities Act,
and any commissions received by them and any profit realized by them on the
resale of Shares as principals may be deemed underwriting compensation under the
Securities Act.
EXPERTS
The financial statements incorporated by reference in this Prospectus
and elsewhere in the Registration Statements have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
LEGAL MATTERS
The validity of the Shares offered by this Prospectus will be passed
upon for Veramark by Robert L. Boxer, Vice President, General Counsel and
Secretary, of Veramark. As of March 20, 2000, Robert L. Boxer owned 15,092
shares of Veramark common stock and options and stock units for 175,000 shares
of Veramark common stock.
18
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL
HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS
NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY
THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE VERAMARK
COMMON STOCK IN ANY JURISDICTION WHERE, TECHNOLOGIES, INC.
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL
TO MAKE ANY SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE AN IMPLICATION 374,185 SHARES
THAT THERE HAS NOT BEEN ANY CHANGE IN OF
THE FACTS SET FORTH IN THIS PROSPECTUS OR COMMON STOCK
IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.
SUMMARY
TABLE OF CONTENTS
Page
----
Additional Information.......... 4
Documents Incorporated PROSPECTUS
by Reference .............. 4
Risk Factors ................... 5
The Company..................... 8
Recent Developments............. 17
Selling Shareholders............ 17 MARCH , 2000
Plan of Distribution............ 18
Experts .................. 18
Legal Matters................... 18
19
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table is an itemized listing of expenses to be incurred
by the Company in connection with the issuance and distribution of the Common
Stock being registered hereby, other than discounts and commissions:
SEC Registration Fee....................................... $ 729.00
Accounting Fees and Expenses............................... $3500.00*
Legal Fees and Expenses.................................... $3500.00*
Miscellaneous.............................................. $ 100.00*
----------
Total.............................................. $7829.00*
=========
*Estimate
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Delaware General Corporation Law ("GCL") provides that directors
and officers of a Delaware corporation may be indemnified under certain
circumstances against judgments, fines, amounts paid in settlement and
reasonable expenses actually and necessarily incurred by them in disposing of
actions to which they are a party or are threatened to be made a party by reason
of acting as directors or officers if such persons acted in good faith in a
manner which they reasonably believed to be in the best interests of the
corporation, and, in the case of criminal proceedings, had no reasonable cause
to believe that their conduct was unlawful.
The By-laws of Veramark provide for indemnification of its directors,
officers, employees and agents to the fullest extent permitted by law.
Veramark's restated certificate of incorporation provides that no director shall
be personally liable to Veramark or any of its stockholders for monetary damages
for breach of fiduciary duty as a director, except, if required by the Delaware
General Corporation Law ("GCL"), for liability (1) for any breach of a
director's duty of loyalty to Veramark or its stockholders, (2) for acts or
omissions not in good faith, (3) for intentional misconduct of a knowing
violation of law, (4) for paying a dividend or approving a stock repurchase in
violation of Section 174 of the GCL, or (5) for any transaction from which the
director derived an improper personal benefit.
Veramark has purchased insurance under a policy that insures both
Veramark and its officers and directors against exposure and liability normally
insured against under such policies, including exposure on the indemnities
described above. The GCL expressly permits Delaware corporations to purchase
such insurance.
ITEM 16. EXHIBITS
Number Description
- ------ -----------
2.1 Agreement and Plan of Merger, dated as of January 7, 1999, among
Veramark, TAG, Richard Elzinga and Tim Stassi.
5.1 Opinion of Robert L. Boxer, Vice President, General Counsel and
Secretary of Veramark, regarding the legality of the Common Stock
being registered
20
<PAGE>
II-2
23.1 Consent of Robert L. Boxer, Vice President, General Counsel and
Secretary of Veramark (included as part of Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney (included on signature page)
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(a) To include any prospectus required by Section 10 (a)(3) of the
Securities Act;
(b) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the Registration Statement;
(c) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a) and (b) do not apply if the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) For purposes of determining any liability under the Securities Act,
each filing of the Registrant's annual report pursuant to Section 13(a) or
Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to
21
<PAGE>
II-3
Section 15(d) of the Exchange Act) that is incorporated by reference in
the Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Pittsford, State of New York, on the 16th day of
March, 2000.
VERAMARK TECHNOLOGIES, INC.
By: /s/David G. Mazzella
---------------------------
Name: David G. Mazzella
Title: President and Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby severally constitutes and appoints David G. Mazzella his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to the Registration Statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto such attorney-in-fact and agents, and each of them,
full power and authority to do and person each and every act and thing requisite
or necessary that he might do in person.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
- --------- ----- ----
/s/David G. Mazzella Chairman of the Board, President March 16, 2000
- --------------------- and Chief Executive Officer
David G. Mazzella (Principal Executive Officer)
/s/Ronald C. Lundy Treasurer March 16, 2000
- ------------------- (Principal Financial and
Ronald C. Lundy Accounting Officer)
/s/John E. Mooney Director March 16, 2000
- -------------------
John E. Mooney
22
<PAGE>
/s/William J. Reilly Director March 16, 2000
- ---------------------
William J. Reilly
/s/James R. Scielzo Director March 16, 2000
- ---------------------
James R. Scielzo
/s/Robert W. Stubbs Director March 16, 2000
- ---------------------
Robert W. Stubbs
/s/John E. Gould Director March 16, 2000
- ---------------------
John E. Gould
23
<PAGE>
EXHIBIT INDEX
Number Description Location
- ------ ----------- --------
2.1 Agreement and Plan of Merger, dated as of Included herewith
January 7, 1999, among Veramark, TAG,
Richard Elzinga and Tim Stassi.
5.1 Opinion of Robert L. Boxer, Vice President, Included in
General Counsel and Secretary of Veramark, Exhibit 5.1
regarding the legality of the
Common Stock being registered
23.1 Consent of Robert L. Boxer, Vice President, Included in
General Counseland Secretary of Veramark Exhibit 5.1
23.2 Consent of Arthur Andersen LLP Included herewith
24 Power of Attorney Included on
signature Page
24
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 8, 1999
AMONG
VERAMARK TECHNOLOGIES, INC.
AND
THE ANGELES GROUP, INC.
AND ITS SHAREHOLDERS
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I The Merger.......................................................28
Section 1.1 The Merger..................................................28
Section 1.2 Closing ....................................................28
Section 1.3 Effective Time of the Merger................................28
Section 1.4 Effect of the Merger........................................29
ARTICLE II The Surviving Corporation........................................29
Section 2.1 Articles of Incorporation...................................29
Section 2.2 By-laws ....................................................29
Section 2.3 Board of Directors; Officers................................30
ARTICLE III Conversion of Shares.............................................30
Section 3.1 Merger Consideration........................................30
Section 3.2 Payment of Merger Consideration.............................30
Section 3.3 No Further Rights...........................................31
Section 3.4 Tax-Free Reorganization; Pooling............................31
ARTICLE IV Representations and Warranties of the Shareholders...............31
25
<PAGE>
Section 4.1 Organization and Qualification..............................31
Section 4.2 Capitalization..............................................31
Section 4.3 Authority Relative to This Merger Agreement.................32
Section 4.4 No Conflicts, Required Filings and Consents.................32
Section 4.5 Reports and Financial Statements............................32
Section 4.6 Intellectual Property.......................................33
Section 4.7 Warranties and Warranty Claims..............................36
Section 4.8 Contracts...................................................37
Section 4.9 Title to Property...........................................38
Section 4.10 Condition of Assets.........................................38
Section 4.11 Accounts Receivable.........................................38
Section 4.12 Real Property...............................................39
Section 4.13 Litigation, Claims..........................................39
Section 4.14 Absence of Certain Changes or Events........................39
Section 4.15 Employee Benefit Plans......................................40
Section 4.16 Employees...................................................40
Section 4.17 Taxes ......................................................41
Section 4.18 Compliance with Applicable Law..............................41
Section 4.19 Undisclosed Liabilities.....................................42
Section 4.20 Questionable Payments.......................................42
Section 4.21 Environmental Matters.......................................42
Section 4.22 Brokers ....................................................42
Section 4.23 Information.................................................43
ARTICLE V Representations and Warranties of Veramark.......................43
Section 5.1 Organization and Qualification..............................43
Section 5.2 Authority Relative to This Merger Agreement.................43
Section 5.3 No Conflicts; Required Filings and Consents.................43
Section 5.4 Information.................................................44
Section 5.5 Litigation..................................................44
Section 5.6 Brokers ....................................................45
ARTICLE VI Conduct of Business Pending the Merger ..........................45
Section 6.1 Conduct of Business by Angeles Group Pending the Merger.....45
Section 6.2 Advise of Changes...........................................47
Section 6.3 Closing Balance Sheet.......................................48
ARTICLE VII Additional Agreements............................................48
Section 7.1 Access to Information.......................................48
Section 7.2 Stock Options...............................................48
Section 7.3 Public Announcements; Confidentiality.......................49
Section 7.4 Efforts; Consents...........................................49
Section 7.5 Notice of Breaches..........................................49
Section 7.6 Transfer and Certain Other Taxes and Expenses...............50
Section 7.7 Debt .......................................................50
Section 7.8 Related Agreements..........................................50
ARTICLE VIII Conditions Precedent ............................................51
Section 8.1 Conditions to Each Party's Obligation to Effect
the Merger..................................................51
Section 8.2 Conditions to Obligation of Angeles Group to
Effect the Merger ..........................................5
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Section 8.3 Conditions to Obligations of Veramark to
Effect the Merger ..........................................52
ARTICLE IX Survival And Indemnification.....................................53
Section 9.1 Survival of Representations, Warranties and Covenants.......53
Section 9.2 Indemnification by the Shareholders.........................53
Section 9.3 Indemnification by Veramark.................................53
Section 9.4 Certain Limitations on Indemnities..........................54
Section 9.5 Procedure...................................................54
ARTICLE X Termination, Amendment and Waiver................................55
Section 10.1 Termination.................................................55
Section 10.2 Effect of Termination.......................................56
Section 10.3 Fees and Expenses...........................................56
Section 10.4 Amendment...................................................57
Section 10.5 Waiver .....................................................57
ARTICLE XI General Provisions...............................................57
Section 11.1 Waiver; Consents............................................57
Section 11.2 Notices ....................................................57
Section 11.3 Entire Agreement............................................58
Section 11.4 Assignments; Parties in Interest............................59
Section 11.5 Governing Law...............................................59
Section 11.6 Headings; Disclosure........................................59
Section 11.7 Certain Definitions.........................................59
Section 11.8 Counterparts................................................62
Section 11.9 Severability................................................62
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Merger Agreement"), dated as of
December 8, 1999, by and among VERAMARK TECHNOLOGIES, INC. ("Veramark"), a
Delaware corporation, and THE ANGELES GROUP, INC. (the "Angeles Group"), a
California corporation, and it shareholders Richard Elzinga and Tim Stassi (the
"Shareholders").
WHEREAS, the Boards of Directors of Veramark and Angeles Group have
approved the merger of Angeles Group with and into Veramark (the "Merger"), upon
the terms and subject to the conditions set forth herein; and
WHEREAS, the Shareholders of Angeles Group have also approved the
Merger, upon the terms and subject to the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein the parties hereto
agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions hereof, at
the Effective Time (as defined in Section 1.3), Angeles Group shall be merged
with and into Veramark and the separate existence of Angeles Group shall
thereupon cease, and Veramark shall continue as the surviving corporation in the
Merger (the "Surviving Corporation") under the laws of the State of Delaware
under the name "Veramark Technologies, Inc."
SECTION 1.2 CLOSING. Unless this Merger Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 9.1, and subject to the satisfaction or waiver of the conditions set
forth in Article VIII, the closing of the Merger will take place on January 7,
2000 or as promptly as practicable (and in any event within two business days)
after satisfaction or waiver of the conditions set forth in Sections 8.1, 8.2
and 8.3, at the offices of Angeles Group, The Angeles Group, Inc., 31280 Oak
Crest Dr. Suite 3, Westlake Village, California, unless another date, time or
place is agreed to in writing by the parties hereto (the "Closing Date").
SECTION 1.3 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective upon
the filing of a certificate of merger with the Secretary of State of the State
of Delaware in accordance with the provisions of the General Corporation Law of
the State of Delaware ("Delaware Law"), and by making any related filings
required under the General Corporation Law of the State of California
("California Law") to be made prior to or concurrent with the effectiveness of
the Merger, which filings shall be made as soon as practicable on the Closing
Date. When used in
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this Merger Agreement, the term "Effective Time" shall mean the time at which
such certificate is accepted for filing by the Secretary of State of Delaware.
All such other filings required to be made under California Law shall be filed
and become effective.
SECTION 1.4 EFFECT OF THE MERGER. The Merger shall, from and after the Effective
Time, have all the effects provided by applicable Delaware Law and California
Law. If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any further deeds, conveyances, assignments or
assurances in law or any other acts are necessary, desirable or proper to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, the
title to any property or rights of Angeles Group (the "Constituent Corporation")
to be vested in the Surviving Corporation, by reason of, or as a result of, the
Merger, or otherwise to carry out the purposes of this Merger Agreement, the
Constituent Corporation agrees that the Surviving Corporation and its proper
officers and directors shall execute and deliver all such deeds, conveyances,
assignments and assurances in law and do all things necessary, desirable or
proper to vest, perfect or confirm title to such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Merger
Agreement, and that the proper officers and directors of the Surviving
Corporation are fully authorized in the name of the Constituent Corporation or
otherwise to take any and all such action. The Surviving Corporation may be
served with process in the State of Delaware in any proceeding for enforcement
of any obligation of Angeles Group, as well as for enforcement of any obligation
of the Surviving Corporation arising from the Merger, including any suit or
other proceeding to enforce the right of any stockholders as determined in
appraisal proceedings pursuant to the provisions of ss. 262 of Delaware Law and
irrevocably appoints the Secretary of State of the State of Delaware as its
agent to accept service of process in any such suit or proceedings. The address
to which a copy of such process shall be mailed by such Secretary of State is
3750 Monroe Avenue, Pittsford, New York 14534.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 ARTICLES OF INCORPORATION. The Certificate of Incorporation of
Veramark as amended and restated shall be the Certificate of Incorporation of
the Surviving Corporation after the Effective Time, until thereafter changed or
amended as provided therein or by applicable law.
SECTION 2.2 BY-LAWS. The By-laws of Veramark as amended and restated shall be
the By-laws of the Surviving Corporation, until thereafter changed or amended as
provided therein or by applicable law.
SECTION 2.3 BOARD OF DIRECTORS; OFFICERS. The directors of Veramark immediately
prior to the Effective Time shall be the directors of the Surviving Corporation
and the officers of Veramark immediately prior to the Effective Time shall be
the officers of the Surviving
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Corporation, in each case, until the earlier of their respective resignations or
the time that their respective successors are duly elected or appointed and
qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 MERGER CONSIDERATION. As of the Effective Time, by virtue of the
Merger and without any action on the part of any shareholder of Angeles Group or
Veramark:
(a) Any shares of common stock, no par value, of Angeles Group
("Angeles Common Stock") which are held by Angeles Group shall
be canceled and retired and shall cease to exist, and no
consideration shall be delivered in exchange therefor. The
shares of Angeles Common Stock are referred to herein as the
"Shares".
(b) Each issued and outstanding Share, other than those to
which the first sentence of Section 3.1(a) applies, shall be
converted into and represent the right to receive 350 shares
of Veramark common stock, par value $0.10 per share ("Veramark
Common Stock") (calculated based on a price of $4,438,000,
minus any Excess Debt and Costs, divided by the average of the
closing price of Veramark Common Stock for the ten trading
days from October 5 to October 18, 1999 inclusive ($12.68)),
without interest thereon (the aggregate of such Veramark
Common Stock being referred to herein as the "Merger
Consideration"). Excess Debt and Costs" shall equal the
amount, if any, by which the sum of (i) the principal and
interest of indebtedness for borrowed money, excluding
capitalized leases and other liabilities and trade debt which
is not past due as of the Effective Time, and (ii) the value
of the Veramark Common Stock or the amount of cash required to
be paid to repurchase or redeem the outstanding warrants held
by Commerce Capital L.P. (the "Warrants"), and (iii) the
Broker's Fees exceed $1,820,000 (the "Target Debt and Expenses
Amount"). There are 1,000 Shares outstanding prior to the
exercise of the Warrants.
SECTION 3.2 PAYMENT OF MERGER CONSIDERATION. At the Effective Time, Veramark
shall deliver to the Shareholders, based on the number of shares of Angeles
Common Stock held by each, their aggregate portion of the Merger Consideration.
SECTION 3.3 NO FURTHER RIGHTS. From and after the Effective Time, holders of
certificates theretofore evidencing Shares shall cease to have any rights as
shareholders of Angeles Group, except as provided herein or by law.
SECTION 3.4 TAX-FREE REORGANIZATION; POOLING. The parties intend that the Merger
qualify (a) as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986,
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as amended, and the regulations thereunder (the "Code") and (b) for accounting
treatment as a pooling of interests. None of the parties will knowingly take any
action that would cause the Merger to fail to qualify as a reorganization within
the meaning of Section 368(a) of the Code or as a pooling under applicable
accounting and Securities and Exchange Commission ("SEC") rules. Each of the
parties shall report the Merger for income tax purposes as a reorganization
within the meaning of Section 368(a) of the Code (and any comparable state or
local tax statute).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
The Shareholders, jointly and severally, represent and warrant to
Veramark that, except as disclosed in the Angeles Group Disclosure Schedule
which has been delivered to Veramark prior to the execution of this Merger
Agreement (the "Angeles Disclosure Schedule"):
SECTION 4.1 ORGANIZATION AND QUALIFICATION. Angeles Group is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. The Angeles Group has the requisite corporate power and authority to
carry on its business as it is now being conducted and is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or held under lease or the nature of its
activities makes such qualification necessary. Angeles Group has heretofore made
available to Veramark a complete and correct copy of its Articles of
Incorporation and By-laws, stock transfer ledger and all proceedings of its
shareholders and board of directors, each as amended to the date hereof.
SECTION 4.2 CAPITALIZATION. The authorized capital stock of Angeles Group
consists of 100,000 shares of Angeles Common Stock. As of the date hereof, 1,000
shares of Angeles Common Stock were validly issued and outstanding, fully paid
and nonassessable. As of the date hereof, there are no bonds, debentures, notes
or other indebtedness issued or outstanding having general voting rights under
ordinary circumstances. As of the date hereof, except for the Warrants, there
are no options, warrants, calls or other rights, agreements or commitments
presently outstanding obligating Angeles Group to issue, deliver or sell shares
of its capital stock, or obligating Angeles Group to grant, extend or enter into
any such option, warrant, call or other such right, agreement or commitment. As
of the Closing Date, the Warrants shall have been exercised in full or otherwise
terminated.
SECTION 4.3 AUTHORITY RELATIVE TO THIS MERGER AGREEMENT. Angeles Group has the
necessary corporate power and authority to execute and deliver this Merger
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Merger Agreement and the consummation of the transactions
contemplated hereby by Angeles Group have been duly and validly authorized and
approved by Angeles Group's Board of Directors and, by their execution of this
Merger Agreement, the Shareholders and no other corporate proceedings on the
part of Angeles Group are necessary to authorize or approve this Merger
Agreement or to consummate the transactions contemplated hereby. This Merger
Agreement
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has been duly executed and delivered by Angeles Group and the Shareholders and
constitutes the valid and binding obligation of Angeles Group enforceable
against Angeles Group and the Shareholders in accordance with its terms except
as such enforceability may be limited by general principles of equity or
principles applicable to creditors' rights generally.
SECTION 4.4 NO CONFLICTS, REQUIRED FILINGS AND CONSENTS.
(a) None of the execution and delivery of this Merger Agreement by
Angeles Group and the Shareholders, the consummation by Angeles Group and the
Shareholders of the transactions contemplated hereby or compliance by Angeles
Group and the Shareholders with any of the provisions hereof will: (i) conflict
with or violate the Articles of Incorporation or By-laws of Angeles Group, (ii)
result in a material violation of any statute, ordinance, rule, regulation,
order, judgment or decree applicable to Angeles Group or any of Angeles Group's
subsidiaries, or by which any of them or any of their respective properties or
assets may be bound or affected, or (iii) result in a violation pursuant to, any
material note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Angeles Group is a
party or by which Angeles Group or any of its properties may be bound or
affected.
(b) None of the execution and delivery of this Merger Agreement by
Angeles Group and the Shareholders, the consummation of the transactions
contemplated hereby or compliance by with any of the provisions hereof will
require any Consent of any Governmental Entity, except for (i) the filing of a
certificate of merger pursuant to Delaware Law and related filings under
California Law; (ii) such filings as may be required in connection with the
taxes described in Section 7.6; and (iii) as set forth on the Angeles Disclosure
Schedule.
SECTION 4.5 REPORTS AND FINANCIAL STATEMENTS.
(a) Angeles Group has filed with the State of California and each
jurisdiction in which Angeles Group does business all forms, reports, schedules
and other information required to be filed by it with the applicable
governmental entity since March 26, 1987. As of their respective dates, such
forms, reports, schedules and information 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 therein, in light of the
circumstances under which they were made, not misleading.
(b) The balance sheets of Angeles Group as of December 31, 1998 and
1997 and the related statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended December 31, 1998 (including the
related notes and schedules thereto) of Angeles Group (the "Annual Financial
Statements") present fairly, in all material respects, the financial position
and the results of operations and cash flows of Angeles Group as of the dates or
for the periods presented therein in conformity with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved except as otherwise noted therein, including in the related
notes. True and compete copies of the Annual Financial Statements, together with
the reports of Arthur Andersen LLP thereon, are included in
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the Angeles Disclosure Schedule. Arthur Andersen LLP is an "independent public
accountant" as to Angeles Group as defined in Regulation S-X promulgated by the
SEC.
(c) The interim unaudited balance sheets and the related statements of
earnings and cash flows (including, in each case, the related notes thereto) of
Angeles Group for the period ended September 30, 1999 (the "Interim Financial
Statements") have been prepared in accordance with the requirements for interim
financial statements contained in Regulation S-X, promulgated by the SEC, which
do not require all the information and footnotes necessary for a fair
presentation of financial position, results of operations and cash flows in
conformity with GAAP. The Interim Financial Statements reflect all adjustments
necessary to present fairly in accordance with GAAP (except as indicated therein
or in the notes thereto or incorporated by reference therein), in all material
respects, the financial position, results of operations and cash flows of
Angeles Group for all periods presented therein. True and complete copies of the
Interim Financial Statements are included in the Angeles Disclosure Schedule.
SECTION 4.6 INTELLECTUAL PROPERTY.
4.6.1 Products. Schedule 4.6.1 lists all products currently marketed
and sold by the Business, whether to or for end users, original equipment
manufacturers or other value-added resellers, or others (the "Products"), except
for individual modules/components thereof, and Schedule 4.6.1 lists all products
under development as of the date of this Merger Agreement (the
"Products-in-Development"). Schedule 4.6.1 also separately lists products which
are not currently marketed by the Business but, as of the date of this Merger
Agreement, continue to be supported in some manner by the Business ("Supported
Products"). Angeles Group has and has heretofore provided Veramark with copies
of all documentation, manuals, promotional materials, internal notes, memos,
technical specifications, drawings, flow-charts, diagrams, source language
statements, demonstration disks, benchmark test results, year 2000 test results,
"bug" lists, test plans and test data bases and other materials whether in
human-readable or machine-readable form (in all media, including digital
formats) used or produced in connection with research and development,
maintenance, support, enhancement or upgrades relating to any of the Products,
Products-in-Developments or Supported Products ("Documentation"). Except for
portions licensed pursuant to the Material Contracts or rights granted to
customers, Angeles Group holds valid and enforceable rights to the Intellectual
Property that may be asserted, and are sufficient, to prevent any person other
than Angeles Group from reproducing, transmitting, distributing, selling,
licensing, leasing or otherwise conveying or exploiting for commercial purposes,
or preparing derivative works of, the source code or object code contained in
the Products and the Products in Development.
4.6.2 Ownership. Angeles Group owns, or is licensed or otherwise
possesses pursuant written agreements legally enforceable rights to use all
non-patented inventions, trade secret or know-how, that are used in the
development of, incorporated in, or form a part of the Products,
Products-in-Development or Supported Products (collectively, "Intellectual
Property") necessary to conduct the Business as currently conducted, and to
make, sell, license, distribute and support the Products,
Products-in-Development or Supported Products. Except as set forth in Schedule
4.6.2, the Intellectual Property is not subject to any liens, security
interests, mortgages, charges, or encumbrances except for rights of third
parties pursuant to licenses constituting Material
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Contracts (as defined in Section 4.8.1) or licenses or grants of rights to use
such Intellectual Property given to customers of the Business.
4.6.3 Patents. Angeles Group has no patents issued and has filed no
patent applications. Except for patents licensed to Angeles Group pursuant to
Material Contracts listed on Schedule 4.8.1, no patented technology is included
in any computer programs, operating systems, applications systems, firmware or
software of any nature (whether operational, under development or inactive) used
in the Business or included in the Products, Products-in-Development or
Supported Products.
4.6.4 Copyrights and Trademarks. Angeles Group has no registered U.S.
or foreign copyrights. Except for copyrighted materials licensed to Angeles
Group pursuant to Material Contracts listed on Schedule 4.8.1 (the
"Copyrights"), no material subject to copyrights claimed by persons other than
Angeles Group are included in any computer programs, operating systems,
applications systems, firmware or software of any nature (whether operational,
under development or inactive) used in the Business or included in the Products,
Products-in-Development or Supported Products, whether in object code, source
code, technical manuals, user manuals and other documentation therefor, whether
in machine-readable form, programming language or any other language or symbols
and whether stored, encoded, recorded or written on disk, tape, film, memory
device, paper or other media of any nature (collectively, "Software") or the
Documentation. The Software used by Angeles Group or included in the Products,
Products-in-Developments or Supported Products does not contain any copyrighted
material, including source code or portions of source code, created by any
person other than past or current employees of, or consultants to, Angeles Group
each of whom has assigned all such Contributor's rights of ownership in such
Copyrights to Angeles Group ("Contributors"). All trademarks, service marks,
trademark registrations, trade names and trade dress used in the Business
(collectively, the "Trademarks") are listed on Schedule 4.6.4
4.6.5 No Claims. Except as set forth in Schedule 4.6.5, with respect to
the Intellectual Property as used in the Products, Products-in-Development or
Supported Products and the Business, these is no pending suit, action,
proceeding or claim, or received in writing any claim or notice, which involves
a claim of infringement of any patents, trademarks, service marks or violation
of any trade secret or other proprietary right of any third person and the
Shareholders have no knowledge that any of the manufacturing, marketing,
licensing or sale of the Products, Products-in-Development or Supported Products
infringes on any patents, trademarks, service marks or violation of any trade
secret of any third person.
4.6.6 Export Compliance. Angeles Group is in compliance in all material
respects with all applicable laws, statutes, codes, ordinances, rules,
regulations, orders, judgments or decrees ("Laws") promulgated by (i) the United
States government, (ii) the government of any of the states constituting the
United States or any municipality thereof, (iii) any national, provincial,
regional or local government, and (iv) all branches, departments, agencies,
instrumentalities, controlled corporations or other subdivisions of any of the
foregoing (each, a "Governmental Entity") relating to the export and re-export
of the Products.
4.6.7 Y2K. The Software used by Angeles Group in the Business and that
comprising or included in the Products and Products-in-Development is Year 2000
Compliant. "Year 2000
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Compliant" when used with respect to Software means that the Software, Products,
Products-in-Development and Supported Products will accurately read and process
date data, including, but not limited to, the year 2000, that all material
functions of such Software and products will perform as well on and after
January 1, 2000 as they did on prior dates, including, without limitation, that
(i) the Software was designed and tested to and will store date data in
four-digit fields so as to accurately process, provide and/or receive date data
within and between the year 1999 and 2000, and the twentieth and twenty-first
centuries and beyond, and (ii) the Software recognizes leap year data, provided,
that such representation is conditioned upon the following: (a) all materials
used with the Product (including hardware, software, firmware and databases)
properly exchange date data with the Products, (b) the Product is used in
accordance with its associated documentation, and (c) the Product has not been
modified by anyone other than Angeles Group.
4.6.8 Development Plans. Schedule 4.6.8 sets forth all of Angeles
Group's formally prepared, material written development plans and related
budgets for the Products-in-Development and future obligations under the
Material Contracts. The Shareholders have no knowledge of any facts or
circumstances which would cause Angeles Group not to meet the development plans
or future obligations in accordance with such development plans and related
budgets.
4.6.9 No Unauthorized Software. None of the Products,
Products-in-Development or Supported Products contains any Software which has
not been developed or licensed by Angeles Group, and all Software used in the
Business of Angeles Group or its equipment has been developed or licensed by
Angeles Group or is in the public domain.
4.6.10 No Government Funding. Angeles Group has not received
governmental nor academic funding which (a) was used in the development of the
Software; or (b) precludes Buyer from making any desired change to the Software,
combining it with other technology or exploiting or marketing it in any manner.
4.6.11 No Claims Against Contributors. No person has claimed or, to the
knowledge of Angeles Group, has reason to claim that any Contributor, by virtue
of such Contributor's participation in the development of the Intellectual
Property has thereby: (a) violated any of the terms or conditions of any
employment, non-competition or non-disclosure agreement; (b) disclosed or
utilized any trade secret or proprietary information or documentation in an
unauthorized manner; (c) tortuously interfered with or breached any agreement;
or (d) violated or exceeded the scope of any Law or agreement.
4.6.12 Notices and Markings. Angeles Group has taken all reasonable
measures to protect the proprietary rights of Angeles Group to the Intellectual
Property; provided, however, Angeles Group has not obtained any copyright
registrations. In no instance has the eligibility of the Intellectual Property
for protection under applicable U.S. copyright Law been forfeited to the public
domain by omission of any required notice or marking, or inclusion of any false
marking or any other reason.
4.6.13 Noninfringement. The Intellectual Property as used in the
Software and the Business does not:
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(a) Infringe any copyright, or to the knowledge of
Angeles Group, induce or contribute to the infringement of any
copyright of any person;
(b) Infringe or induce or contribute to the infringement
of any patent or other intellectual property right (other than
copyright) of any person;
(c) Misappropriate any trade secret, know-how, process,
proprietary information or other right of any Person.
Angeles Group has not received notice of and has no knowledge of any complaint,
assertion, threat or allegation that would contradict the foregoing.
4.6.14 No Undocumented Controls. The Software does not contain any
virus, timer, clock, counter, or other design or routine intended to limit
access to or usage of the Software or the Products or Products-in-Development
except to the extent reflected in Design Documentation.
SECTION 4.7 WARRANTIES AND WARRANTY CLAIMS. Other than as set forth in the
Material Contracts or the standard form of warranties set forth in Schedule 4.7,
Angeles Group has not made any written or other binding warranty or
representation with respect to any of the Software, Product,
Products-in-Development or Supported Products, or any product that embodies or
utilizes any of it or them. All pending warranty claims by Angeles Group
customers with respect to the Products, Products-in-Development or Supported
Product are described on Schedule 4.7. Angeles Group has heretofore provided
Veramark with access to a complete copy of all unresolved written customer
complaints and all written summaries of those oral customer complaints relating
to the Products, Products-in Development or Supported Products.
SECTION 4.8 CONTRACTS.
4.8.1 All of the contracts, agreements and instruments related to the
Business and to which Angeles Group is a party, including purchase orders from
customers, licenses for Intellectual Property or Software, employment agreements
and assignments of employees' or contractors' rights to Intellectual Property
are in full force and effect and are not in default. Set forth on Schedule 4.8.1
are lists of the following documents (the "Material Contracts"), true and
complete copies of which (and all amendments and modifications thereof and
consent and waivers thereunder) have been made available by Angeles Group to
Veramark:
(a) All customer purchase orders or agreements with customers
of the Business in existence on and not performed as of
September 30, 1999 and (a) involving a purchase price for the
Product(s) of more than $10,000; (b) requiring professional
services to be performed; (c) for which all or a portion of
the purchase price has been paid; in each case, for products
that have not been shipped, delivered or installed or for
professional services which have not been fully performed by
the Business; or (d) are contracts with a
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Governmental Entity or any agency or instrumentality thereof
subject to the government contracting requirements.
(b) All written contracts with any Employee and all consulting
contracts relating to professional services or product
development for the Business;
(c) Any obligations for borrowed money of Angeles Group;
(d) Any contracts, together with a schedule of customer
deposits received, for which Products or services (other than
routine maintenance services) have not yet been delivered or
performed; and
(e) Any contracts which are to be performed in any material
respect on or after the Effective Time which involve payments
to or from the Business in amounts greater than $10,000
annually or by their terms extend more than two years after
the date of this Merger Agreement (other than pursuant to
automatic renewal provisions which permit cancellation without
penalty upon 90 days or less notice).
4.8.2 Except as set forth on Schedule 4.8.1, Angeles Group has not: (a)
sold, licensed, transferred or assigned source code of the Software to, or
otherwise provided for the escrow of source code of the Software for the benefit
of, any person; (b) granted any person the right to sublicense any Software to
any other person; or (c) granted any third person ownership rights in or to any
Intellectual Property of the Business or any enhancements of or revisions to the
Intellectual Property.
4.8.3 Angeles Group has not contracted or committed to provide
development work or customization work (or special features or functionality)
with respect to any Products or Products-in-Development (including releases,
versions, updates or enhancements to Products or Products-in-Development or
additional products), except as provided in any of the Material Contracts or in
any special project agreement (the "Project Agreements"). Schedule 4.8.3 lists
Project Agreements for work that has not been shipped, delivered or installed,
or for new Product features or enhancements that have not been shipped,
delivered, or installed, or for professional services which have not been
performed by Angeles Group.
SECTION 4.9 TITLE TO PROPERTY. Except as set forth on Schedule 4.9, Angeles
Group has good and marketable title to, or a valid and binding leasehold
interest in, all of the assets reflects in its Financial Statement or used in
the Business (collectively, the "Assets") free and clear of all security
interests, mortgages, liens, pledges, charges, claims or encumbrances of any
kind or character, except (a) statutory liens for property taxes not yet
delinquent or payable subsequent to the date on which this representation is
given and statutory or common law liens securing the payment or performance of
any obligation of Angeles Group, the payment or performance of which is not
delinquent, or that is payable without interest or penalty subsequent to the
date on which this representation is given, or the validity of which is being
contested in good faith by Angeles Group; (b) the rights of customers of the
Business with respect to Products or Project
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Agreements under orders or contracts entered into by Angeles Group in the
ordinary course of business; (c) claims, easements, liens and other encumbrances
of record pursuant to filings under real property recording statutes; (d) rights
of parties to any equipment or real estate in accordance with the terms of such
leases, all of which leases are listed on Schedule 4.8.1; and (e) as reflected
in the Financial Statements or the notes thereto (such encumbrances being
"Permitted Encumbrances").
SECTION 4.10 CONDITION OF ASSETS. All of the Assets, whether owned or leased,
are in all material respects and in the aggregate in good operating condition
and repair, normal wear and tear excepted, and are adequate for the conduct of
the Business. All property leased under the personal property or real property
leases is in a condition that on the date hereof and on the Closing Date
(assuming in each case that such date was the last date of the lease term) will
reasonably permit such property to be surrendered to the lessors under such
leases without incurring any penalties or charges, except for such penalties or
charges which are not material with respect to an Asset or in the aggregate,
based on the condition of such property.
SECTION 4.11 ACCOUNTS RECEIVABLE. The accounts receivable reflected on the
Closing Balance Sheet have arisen in the ordinary course of business and
represent sales actually made to persons which are not affiliates of Angeles
Group or the Shareholders and do not represent obligations for goods sold on
consignment, on approval or on a sale-or-return basis and are not subject to any
other repurchase or return arrangement or other credits, allowances or
adjustments. Such accounts receivable have been properly recorded in accordance
with GAAP consistently applied and are fully collectible in the aggregate net of
reserves set forth on the Closing Balance Sheet. Except as set forth on Schedule
4.11, no account receivable with a value in excess of $10,000 is being contested
or disputed by the obligor thereon or was more than 90 days past due at the date
of the Closing Balance Sheet.
SECTION 4.12 REAL PROPERTY. Schedule 4.12 lists all real estate leases,
subleases and other agreements pursuant to which Angeles Group leases, subleases
or otherwise obtains rights of use and occupancy in real property used in the
Business (the "Real Estate Leases"), and the addresses thereof. Angeles Group
has provided true and complete copies of all Real Estate Leases and all
amendments and modifications thereof to Veramark. Each Real Estate Lease is
valid, binding and enforceable against Angeles Group and, to the knowledge of
Angeles Group, against the other parties thereto. Except as set forth in
Schedule 4.12, the Real Estate Leases are in full force and effect, and Angeles
Group is not in default under any of the Real Estate Leases.
SECTION 4.13 LITIGATION, CLAIMS. Except as disclosed in the notes to the Annual
Financial Statements, there is no suit, action or proceeding pending or, to the
knowledge of Angeles Group, threatened against or affecting Angeles Group or the
Shareholders. Except as provided in Schedule 4.13, the Intellectual Property
owned by Angeles Group or the right of any third party licensor to the
Intellectual Property licensed pursuant to a material Agreement, are not subject
to any outstanding settlement agreement, order, ruling, decree, judgment, or
stipulation preventing their use by Angeles Group or Veramark in the Business.
Angeles Group has not received any notice of any claim, demand, suit or other
assertion by any third person; and, to the knowledge of
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Shareholders and Angeles Group, there are no circumstances which would (or are
likely to) give rise to any claim, demand, suit or other assertion by any person
other than a party to this Merger Agreement, that such person has superior
rights, ownership or shared ownership requiring any payments to any Person other
than as provided in this Merger Agreement, or other interest of any kind or
nature in or with respect to, the Intellectual Property.
SECTION 4.14 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated by
this Merger Agreement, since December 31, 1998, Angeles Group has conducted its
business only in the ordinary course, and there has not been (i) any change that
would have an Angeles Material Adverse Effect, (ii) any declaration, setting
aside or payment of any dividend or other distribution (whether in cash, stock
or property) with respect to any of Angeles Group's capital stock, or any
redemption, purchase or other acquisition of any of its capital stock, (iii) any
split, combination or reclassification of any of Angeles Group's capital stock
or any issuance or the authorization of any issuance of any securities of
Angeles Group , (iv) any granting by Angeles Group to any employee of Angeles
Group of any increase in compensation, except in the ordinary course of business
consistent with prior practice or as required under employment agreements in
effect as of January 1, 1999, (y) any granting by Angeles Group to any employee
of Angeles Group of any increase in severance or termination pay, or (z) any
entry by Angeles Group into any employment, severance or termination agreement
with any employee of Angeles Group, or any increase in benefits available under
or establishment of any Angeles Benefit Plan (as defined below) except in the
ordinary course of business consistent with past practice, (v) any damage,
destruction or loss, whether or not covered by insurance, or (vi) any material
change in accounting methods, principles or practices by Angeles Group, except
insofar as may have been required by a change in GAAP and disclosed in the
Annual Financial Statements or the Interim Financial Statements.
SECTION 4.15 EMPLOYEE BENEFIT PLANS
(a) Except as disclosed in Angeles Group Annual Financial Statements,
there are no (i) employee benefit or compensation plans, agreements or
arrangements, including "employee benefit plans," as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and
including, but not limited to, plans, agreements or arrangements relating to
former employees, including, but not limited to, retiree medical plans or life
insurance, maintained by Angeles Group or any of its subsidiaries or (ii)
collective bargaining agreements to which Angeles Group or any of its
subsidiaries is a party (together, the "Angeles Benefit Plans"). Angeles Group
has complied in all material respects with the terms of all Angeles Benefit
Plans, and no default exists with respect to the obligations of Angeles Group
under such Angeles Benefit Plans, including any failure to include or permit to
participate any person who may, under state or federal law be deemed an employee
of Angeles Group entitled to such inclusion or participation.
(b) All Angeles Benefit Plans are in compliance with the applicable
provisions of ERISA, the Code, all other applicable laws and all applicable
collective bargaining agreements in all material respects. Each of the Angeles
Group Benefit Plans which is intended to meet the requirements of Section 401(a)
of the Code has been determined by the Internal Revenue Service to be
"qualified" within the meaning of such Section of the Code and Angeles Group
does not
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know of any circumstances likely to result in revocation of such determination.
No Angeles Benefit Plan is subject to Title IV of ERISA or Section 412 of the
Code and Angeles Group has not been party to or subject to making any
contributions to any multiemployer benefit plan or any defined benefit plan.
(c) Neither the execution and delivery of this Merger Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation or golden parachute) becoming due to any director, officer or
employee of Angeles Group, (ii) materially increase any benefits otherwise
payable under any Angeles Benefit Plan or (iii) result in the acceleration of
the time of payment or vesting of any such benefits to any material extent.
SECTION 4.16 EMPLOYEES.
4.16.1 Schedule 4.16.1 lists all current employees of Angeles Group,
together with their base salary, years of services and job classification, and
all consultants or independent contractors engaged by Angeles Group and all
former employees of Angeles Group for the past two years. There are no labor
controversies pending or threatened with respect to employees of Angeles Group
and Angeles Group is not is a party to any collective bargaining agreements with
any labor union or other representative of employees. To the knowledge of
Angeles Group, there is no pending or threatened union organization activity by
or among any of its employees. There have been no strikes, lockouts or work
stoppages or slowdowns, labor jurisdictional disputes or labor organizing
activity occurring or threatened with respect to the business or operations of
Angeles Group.
4.16.2 As of the Closing Date, all employees of, and all consultants
and independent contractors to, Angeles Group shall have executed and delivered
to Angeles Group assignments of all rights to Intellectual Property developed at
or for Angeles Group. The form of such assignment is included with Schedule
4.16.2(a). Except as set forth on Schedule 4.16.2(b), all former employees have
signed a Nondisclosure and Noncompetition Agreement in the form included with
Schedule 4.16.2(c).
4.16.3 Angeles Group has complied with all labor and employment Laws,
including provisions thereof relating to wages, hours, equal opportunity,
collective bargaining, the Americans With Disabilities Act, the Family and
Medical Leave Act and the payment of social security and other taxes. There is
no pending claim or notice of claim against Angeles Group or any of its
employees under the Equal Employment Opportunity Act of 1972, as amended, or
comparable Laws of the U.S. or any other Governmental Entity.
SECTION 4.17 TAXES. Angeles Group has duly filed all foreign, federal, state and
local income, franchise, excise, real and personal property and other tax
returns and reports (including, but not limited to, those filed on a combined or
unitary basis) required to have been filed by Angeles Group prior to the date
hereof. All of the foregoing returns and reports are true and correct in all
material respects, and Angeles Group and its Shareholders have paid or, prior to
the Effective Time will pay, all taxes, interest and penalties due or (except to
the extent the same are contested in good faith) claimed to be due to any
federal, state, local or other taxing authorities (whether or
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not shown on such returns or reports). All taxes and state assessments and
levies which Angeles Group is required by law to withhold or collect have been
withheld or collected and have been paid to the proper governmental authorities
or are held by Angeles Group for such payment in trust or as otherwise required
by applicable law. Neither Angeles Group nor the Shareholders with respect to
income, losses, deductions or other tax items from Angeles Group has been
subject to any audit by any taxing authority.
SECTION 4.18 COMPLIANCE WITH APPLICABLE LAW. Angeles Group holds all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for them to own, lease or operate their properties and assets
and to carry on their businesses substantially as now conducted (the "Angeles
Permits"). Angeles Group is in compliance with all applicable laws and the terms
of Angeles Permits except where such non-compliance, individually or in the
aggregate, would not result in a liability or adverse change in excess of
$100,000.
SECTION 4.19 UNDISCLOSED LIABILITIES. Except as disclosed in Angeles Group's
Annual Financial Statements or Interim Financial Statements, Angeles Group does
not have any liabilities or any obligations of any nature whether or not
accrued, contingent or otherwise, other than those incurred in the ordinary
course of business.
SECTION 4.20 QUESTIONABLE PAYMENTS. NONE OF ANGELES GROUP, THE SHAREHOLDERS OR
ANY EMPLOYEE OF ANGELES GROUP HAS (A) MADE ANY PAYMENTS, (B) PROVIDED SERVICES
OR OTHER FAVORS, (C) MADE ANY POLITICAL CONTRIBUTIONS IN THE U.S. OR IN ANY
FOREIGN COUNTRY IN ORDER TO OBTAIN PREFERENTIAL TREATMENT OR CONSIDERATION BY
ANY GOVERNMENTAL ENTITY WITH RESPECT TO ANY ASPECT OF THE BUSINESS, WHICH WOULD
BE UNLAWFUL UNDER THE LAWS OF THE U.S. AND, IF APPLICABLE, ANY FOREIGN COUNTRY
IN WHICH SUCH PAYMENTS WERE MADE OR (D) BEEN THE SUBJECT OF ANY INQUIRY OR
INVESTIGATION BY ANY GOVERNMENTAL ENTITY IN CONNECTION WITH PAYMENTS OR BENEFITS
OR OTHER FAVORS TO OR FOR THE BENEFIT OF ANY GOVERNMENTAL OR ARMED SERVICES
OFFICIAL, AGENT, REPRESENTATIVE OR EMPLOYEE WITH RESPECT TO ANY ASPECT OF THE
BUSINESS OR WITH RESPECT TO ANY POLITICAL CONTRIBUTION. NO CUSTOMER, SUPPLIER,
FINDER OR OTHER PERSON, INCLUDING ANGELES GROUP AND ITS EMPLOYEES, HAS PAID OR
RECEIVED ANY REBATE, DISCOUNT, DEFERRAL OR OTHER CONSIDERATION, OTHER THAN
CUSTOMARY DISCOUNTS FOR VOLUME OR PROMPT PAYMENT DISCLOSED IN WRITING ON
INVOICES, PURCHASE ORDERS OR THE MATERIAL CONTRACTS IN CONNECTION WITH THE SALE
OR LICENSE OF ANY PRODUCT OR SUPPORTED PRODUCT OR ANY GOODS OR SERVICES SUPPLIED
BY OR UTILIZED BY ANGELES GROUP.
SECTION 4.21 ENVIRONMENTAL MATTERS. Angeles Group does not currently and has not
in the past owned any real property, and (i) to the best knowledge of Angeles
Group no real property currently or formerly occupied or operated by Angeles
Group is contaminated with any Hazardous Substances; (ii) no judicial or
administrative proceeding is pending or to the best knowledge of Angeles Group
threatened relating to liability for any off-site disposal or contamination by
or on behalf of Angeles Group; and (iii) Angeles Group has not received any
claims or notices alleging liability under any Environmental Law, and Angeles
Group has no knowledge of any circumstances that could result in such claims.
"Environmental Law" means any applicable federal, state or local law,
regulation, order, decree, or judicial opinion or other
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agency requirement having the force and effect of law and relating to noise,
odor, Hazardous Substance or the protection of the environment. "Hazardous
Substance" means any toxic or hazardous substance that is regulated by or under
authority of any Environmental Law, including any petroleum products, asbestos
or polychlorinated biphenyls.
SECTION 4.22 BROKERS. Except for Egroup and Corum, no broker or finder is
entitled to any broker's or finder's fee in connection with the transactions
contemplated by this Merger Agreement based upon arrangements made by or on
behalf of Angeles Group or the Shareholders. Veramark agrees to pay the Brokers'
Fees as defined in Section 11.7.1(c.)
SECTION 4.23 INFORMATION. Angeles Group has provided to Veramark all information
regarding its business, intellectual property, suppliers, customers, financial
results, prospects and other information that a reasonable acquirer of Angeles
Group and its business would desire to know in making its investment decision.
None of the information supplied or to be supplied by Angeles Group on the
Angeles Group Disclosure Schedule or in or pursuant to this Merger Agreement,
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF VERAMARK
Veramark represents and warrants to Angeles Group that, except as
disclosed in the Veramark Disclosure Schedule which has been delivered to
Angeles Group prior to the execution of this Merger Agreement (the "Veramark
Disclosure Schedule"):
SECTION 5.1 ORGANIZATION AND QUALIFICATION. Veramark is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Veramark has the requisite corporate power and authority to carry on
its business as it is now being conducted and is duly qualified or licensed to
do business, and is in good standing, in each jurisdiction where the character
of its properties owned or held under lease or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
will not, individually or in the aggregate, have a Veramark Material Adverse
Effect.
SECTION 5.2 AUTHORITY RELATIVE TO THIS MERGER AGREEMENT. Veramark has the
necessary corporate power and authority to execute and deliver this Merger
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Merger Agreement and the consummation of the transactions
contemplated hereby by Veramark have been duly and validly authorized and
approved by the Board of Directors of Veramark and no other corporate
proceedings on the part of Veramark are necessary to authorize and approve this
Merger Agreement or to consummate the transactions contemplated hereby. This
Merger Agreement has been duly executed and delivered by Veramark, and
constitutes the valid and binding obligation
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of Veramark enforceable against it in accordance with its terms except as such
enforceability may be limited by general principles of equity or principles
applicable to creditors' rights generally.
SECTION 5.3 NO CONFLICTS; REQUIRED FILINGS AND CONSENTS.
(a) None of the execution and delivery of this Merger Agreement by
Veramark, the consummation by Veramark of the transactions contemplated hereby
or compliance by Veramark with any of the provisions hereof will (i) conflict
with or violate the charter or By-laws of Veramark or the comparable
organizational documents of any of Veramark's Significant Subsidiaries as such
term is defined in Regulation S-X promulgated by the SEC, (ii) subject to
receipt or filing of the required Consents (as defined herein) referred to in
Section 4.4(b), conflict with or violate any statute, ordinance, rule,
regulation, order, judgment or decree applicable to Veramark or any of
Veramark's Significant Subsidiaries, or by which any of them or any of their
respective properties or assets may be bound or affected, or (iii) result in a
violation or breach of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result in
the creation of any lien, charge, security interest, pledge, or encumbrance of
any kind or nature on any of the property or assets of Veramark or any of
Veramark's Significant Subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Veramark or any of Veramark's Significant
Subsidiaries is a party or by which Veramark or any of Veramark's Significant
Subsidiaries or any of their respective properties may be bound or affected,
except in the case of the foregoing clause (ii) or (iii) for any such violations
which would not have a Veramark Material Adverse Effect.
(b) None of the execution and delivery of this Merger Agreement by
Veramark, the consummation by Veramark of the transactions contemplated hereby
or compliance by Veramark with any of the provisions hereof will require any
consent, waiver, license, approval, authorization, order or permit of, or
registration or filing with or notification to (any of the foregoing being a
"Veramark Consent"), any Governmental Entity, except for (i) compliance with any
applicable requirements of the Exchange Act, (ii) the filing of a certificate of
merger pursuant to Delaware Law and related filings under California Law, (iii)
certain state takeover, securities, "blue sky" and environmental statutes, and
(iv) such filings as may be required in connection with the taxes described in
Section 7.6.
SECTION 5.4 INFORMATION. Veramark has filed with the SEC all forms, reports,
schedules, registration statements and definitive proxy statements (the
"Veramark SEC Reports") required to be filed by it with the SEC since December
31, 1998. As of their respective dates, the Veramark SEC Reports complied as to
form in all material respects with the requirements of the Securities and
Exchange Act of 1934 , as amended, or the Securities Act of 1933, as amended, as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such Veramark SEC Reports. As of their respective dates and as of the date
any information from such Veramark SEC Reports has been incorporated by
reference, the Veramark SEC Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be
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stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
SECTION 5.5 LITIGATION. As of the date hereof, there is no suit, action or
proceeding pending or, to the knowledge of Veramark, threatened against or
affecting Veramark or any of Veramark's Significant Subsidiaries that,
individually or in the aggregate, is reasonably expected to have a Veramark
Material Adverse Effect, nor is there any judgment, decree, injunction or order
of any Governmental Entity or arbitrator outstanding against Veramark or any of
Veramark's Significant Subsidiaries having, or which is reasonably expected to
have, individually or in the aggregate, a Veramark Material Adverse Effect.
SECTION 5.6 BROKERS. No broker or finder is entitled to any broker's or finder's
fee in connection with the transactions contemplated by this Merger Agreement
based upon arrangements made by or on behalf of Veramark.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 CONDUCT OF BUSINESS BY ANGELES GROUP PENDING THE MERGER
Section 6.1.1 From and after the date hereof, prior to the Effective
Time, except as contemplated by this Merger Agreement (including Section 6.1.2)
and except for the matters set forth in Angeles Group Disclosure Schedule or
unless Veramark shall otherwise agree in writing, Angeles Group shall carry on
its business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and to use reasonable efforts to conduct its
business in a manner consistent with the budgets and plans heretofore delivered
to Veramark, and shall use reasonable efforts to preserve intact its present
business organizations, keep available the services of its employees and
preserve its relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with it to the end that its
goodwill and on-going businesses shall not be impaired in any material respect
at the Effective Time. Except for the matters set forth in Section 6.1.1 of
Angeles Group Disclosure Schedule or unless Veramark shall otherwise agree in
writing, prior to the Effective Time, Angeles Group shall not:
(a) declare, set aside, or pay any dividends on, or make any
other distributions in respect of, any of its capital stock,
other than a dividend in accordance with past practices to
cover the taxes of the Shareholders on net taxable income from
Angeles Group for calendar year 1999 to the Closing Date;
(b) split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its
capital stock;
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(c) purchase, redeem or otherwise acquire any shares of
capital stock of Angeles Group or any other equity securities
thereof or any rights, warrants, or options to acquire any
such shares or other securities, other than the re-acquisition
or cancellation of the Warrants for an amount not to exceed
$150,000;
(d) amend its Articles of Incorporation, By-laws or other
comparable organizational documents;
(e) acquire or agree to acquire (x) by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or other
business organization or division thereof, or (y) any assets
that are material, individually or in the aggregate, to
Angeles Group;
(f) subject to a lien or sell, lease or otherwise dispose of
any of its properties or assets, except for the sale or
products and inventory in the ordinary course of business;
(g) (x) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or sell any
debt securities of Angeles Group, guarantee any debt
securities of another person, or enter into any "keep well" or
other agreement to maintain any financial condition of another
person, except, in any such case, for borrowings or other
transactions incurred in the ordinary course of business not
exceeding $20,000 in the aggregate including to repay existing
indebtedness pursuant to the terms thereof, or (y) make any
loans, advances or capital contributions to, or investments
in, any other person, other than to Angeles Group or settle or
compromise any material claims or litigation; or
(h) authorize any of, or commit or agree to take any of, the
foregoing actions.
6.1.2 Except as provided in the Budget Plan dated November 18, 1999 or
as otherwise specifically permitted pursuant to this Merger Agreement, or with
the prior written consent of Veramark, Angeles Group covenants that it shall
not:
(a) enter into or amend any contract of employment with any
employee or independent contractor or hire any additional
employees, amend in any material respect or adopt any
non-ERISA Benefit Plan, amend or adopt any ERISA Benefit Plan,
or change the benefits or the compensation of any Employee;
(b) make any material change in any pricing, financial
reporting or credit practice, payment practice or accounting
method of the Business, including selling or entering into a
contract to sell any Product or combination of Products or
Products and services with a list price in excess of $10,000
for a discount to list price or offer any discount, which is
in excess of Angeles Group's normal practice during the
previous two years, for early payment of
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any account receivable included in the Interim Financial
Statements or arising after the date of this Merger Agreement;
(c) enter into any new agreement, or any amendment,
modification or change to any Project Agreement or other
agreement which would impose a burden (financial or other
resources) on the Business;
(d) give any notice of default or breach, or renewal,
non-renewal or cancellation to any Person pursuant to any
license for Intellectual Property other than such notices with
respect to customer agreements issued in the ordinary course
of business;
(e) enter into any agreement which provides for delivery,
license or escrow of source code of the Software other than
pursuant to the existing source code escrow agreement included
in the Material Contracts or transfer any other rights in the
Intellectual Property of Angeles Group, to any third person
except in connection with the sale of Products in the ordinary
course of business;
(f) enter into any new Project Agreement for development work
or customization work, other than any potential project
referred to in Judy Mirkin's forecast dated October 21, 1999;
(g) enter into any new strategic alliance of any kind; or
(h) authorize any of the foregoing or enter into any contract,
agreement, binding commitment or arrangement to do any of the
foregoing.
6.1.3 Except as otherwise specifically set forth in this Merger
Agreement, or in connection with the consummation of the transactions
contemplated hereby, or with the prior written consent of Veramark, Angeles
Group covenants that it shall not:
(a) sell, lease or transfer any Asset other than in the
ordinary course of business of the Business;
(b) take any action to diminish insurance coverages for the
Business from existing levels (to the extent such coverages
remain commercially available);
(c) incur any indebtedness other than trade debt in the
ordinary course of business of the Business or permit to arise
any encumbrance on any Asset other than Permitted
Encumbrances;
(d) solicit or intentionally induce any employee to refuse or
fail to continue employment with Veramark or Angeles Group; or
(e) authorize any of the foregoing, or enter into any
contract, agreement, binding commitment or arrangement to do
any of the foregoing.
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SECTION 6.2 ADVISE OF CHANGES. Angeles Group shall promptly provide Veramark
copies of all filings made by Angeles Group with any Governmental Entity in
connection with this Merger Agreement and the transactions contemplated hereby.
Angeles Group shall, before settling or compromising any material income tax
liability of Angeles Group, consult with Veramark and its advisors as to the
positions and elections that will be taken or made with respect to such matter.
SECTION 6.3 CLOSING BALANCE SHEET. At least two business days prior to the
Closing Date, Angeles Group shall deliver to Veramark a balance sheet of Angeles
Group as of October 31,1999 (the "Closing Balance Sheet"). The Closing Balance
Sheet shall be prepared consistent with the preparation of the December 31, 1998
balance sheet included in the Audited Financial Statement and shall reflect the
books and records of the Business and fairly present the financial condition of
Angeles Group in accordance with GAAP applied on a consistent basis as of its
date.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 ACCESS TO INFORMATION. From the date hereof through the Effective
Time, Angeles Group shall afford to Veramark and Veramark's accountants, counsel
and other representatives full and reasonable access (subject, however, to
existing confidentiality and similar non-disclosure obligations and the
preservation of attorney client and work product privileges) during normal
business hours to its properties, books, contracts, commitments, records and
personnel and, during such period, shall furnish promptly to Veramark (i) a copy
of each report, schedule and other document filed or received by it from any
Governmental Entity, and (ii) all other information concerning its business,
properties and personnel as Veramark may reasonably request. Veramark shall
hold, and shall cause its employees, agents and representatives to hold, in
confidence all such information in accordance with the terms of the
Confidentiality Agreement dated August 31, 1999 between Veramark and Angeles
Group, which shall remain in full force and effect in accordance with the terms
thereof, including, without limitation, in the event of termination of this
Merger Agreement. Veramark and its accountants, counsel and other
representatives shall, in the exercise of the rights described in this Section
7.1, not unduly interfere with the operation of the business of Angeles Group.
SECTION 7.2 STOCK OPTIONS. As soon as practicable after the Effective Time,
Veramark shall grant to each of the Shareholders an option to purchase 50,000
shares of Veramark Common Stock (the "Shareholder Options"). The Shareholder
Options will be exercisable at a price equal to 85% of the closing price of
Veramark Common Stock on the Closing Date and will vest in full and become
immediately exercisable upon the earlier of (i) the fifth anniversary of the
Closing Date or (ii) as to (x) Mr. Elzinga, upon his retirement with the consent
of Veramark or upon his involuntary termination without cause or substantial
diminution of job responsibilities or compensation without cause; and (y) Mr.
Stassi, upon his involuntary termination without cause
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or substantial diminution of job responsibilities or compensation without cause.
In addition, Veramark will consult with Shareholders and develop a program for
stock option awards to other key employees of Angeles Group commensurate with
the position of the employee and the option award schedule of Veramark for its
employees.
SECTION 7.3 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. So long as this Merger
Agreement is in effect, Veramark and Angeles Group agree to use their respective
reasonable efforts to consult with each other before issuing any press release
or otherwise making any public statement with respect to the transactions
contemplated by this Merger Agreement. Veramark and Angeles Group acknowledge
and confirm their obligations under the letter agreement ("Letter Agreement"),
dated September 29, 1999, as amended, and agree that except as expressly set
forth herein, such Letter Agreement continues in full force and effect. In
addition to the limitations set forth in the Letter Agreement, following the
Closing Date, Shareholders shall, and shall use commercially reasonable efforts
to cause their affiliates and agents to, hold in strict confidence, not disclose
to any person without the prior written consent of Veramark, and not use in any
manner whatsoever except in furtherance of the Business and the business of
Veramark, any confidential business or technical information remaining in their
possession concerning the Business or the Assets. Such confidential information
specifically includes all source code, system and user documentation, and other
documentation and design documentation pertaining to the technology, including
any proposed design and specifications for future products and products in
development, marketing plans, and all other technical and business information
concerning the Business.
SECTION 7.4 EFFORTS; CONSENTS. Subject to the terms and conditions herein
provided and, in the case of Angeles Group, fiduciary duties under applicable
law, each of the parties hereto agrees to use its best efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the transactions contemplated by this Merger Agreement and the Merger and to
cooperate with each other in connection with the foregoing. Without limiting the
generality of the foregoing, each of Angeles Group and Veramark shall make or
cause to be made all required filings with or applications to Governmental
Entities (including under the Exchange Act), and use its best efforts to (i)
obtain all necessary waivers of any Violations and other Consents of all
Governmental Entities and other third parties, necessary for the parties to
consummate the transactions contemplated hereby, (ii) oppose, lift or rescind
any injunction or restraining order or other order adversely affecting the
ability of the parties to consummate the transactions contemplated hereby, and
(iii) fulfill all conditions to this Merger Agreement.
SECTION 7.5 NOTICE OF BREACHES. Angeles Group shall give prompt notice to
Veramark, and Veramark shall give prompt notice to Angeles Group, of (i) any
representation or warranty made by it contained in this Merger Agreement which
has become untrue or inaccurate in any material respect, or (ii) the failure by
it to comply with or satisfy in any material respect any covenant, condition, or
agreement to be complied with or satisfied by it under this Merger Agreement;
provided, however, that such notification shall not excuse or otherwise affect
the representations,
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warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Merger Agreement.
SECTION 7.6 TRANSFER AND CERTAIN OTHER TAXES AND EXPENSES. Veramark, Angeles
Group and the Shareholders agree that the Shareholders will pay all transfer,
gains and other similar taxes and all documentary stamps, filing fees, recording
fees and sales and use taxes, if any, and any penalties or interest with respect
thereto, payable in connection with consummation of the Merger.
SECTION 7.7 DEBT.
7.7.1 Veramark agrees to pay on the Closing Date the full principal
amount of $1,100,000 due from the Angeles Group to Commerce Capital LP pursuant
to a Loan Agreement dated November 25, 1998.
7.7.2 From and after October 1, 1999 and through the Effective Time,
Angeles Group will not increase the sum of (i) its current installments of
long-term debt, (ii) its long-term debt, excluding current installments, (iii)
the amount payable in exchange for the Warrants, and (iv) the amount payable to
brokers, to an amount greater than the Target Debt and Expenses Amount.
SECTION 7.8 RELATED AGREEMENTS.
Simultaneously with the execution and delivery of this Merger
Agreement, or as otherwise provided below, and as material consideration for the
execution and delivery of this Merger Agreement by Veramark and Angeles Group,
the following persons are executing and delivering the following agreements
(collectively, the "Related Agreements"):
7.8.1 Each of the Shareholders shall have entered into a
non-competition and non-solicitation agreement in the form of Exhibit A hereto
which shall provide, among other things, that each such Shareholder shall not,
directly or indirectly, compete with the business or Products or
Products-in-Development of Angeles Group or Veramark in the U.S. or Canada for a
period of twelve months after leaving the employment of Veramark, and shall not
solicit employees, customers or suppliers of Angeles Group or Veramark during
such period.
7.8.2 Not fewer than ten days prior to the Closing Date, each of the
"affiliates" of Angeles Group for purposes of Rule 145 under the Securities Act
and each such person who is an affiliate for purposes of qualifying the Merger
as a pooling of interests shall execute and deliver to Veramark and its
accountants a letter agreement in the form of Exhibit B to this Merger Agreement
(the "Affiliate Agreements").
7.8.3 Not fewer than ten days prior to the Closing Date, each of
Angeles Group and the Shareholders shall have executed and delivered such
certificates and other instruments as may be reasonably required by counsel to
Veramark and/or its accountants to establish the tax-free nature of the
transactions (the "Tax Certificates").
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7.8.4 At Closing, Veramark shall enter into a Registration Rights
Agreement with Shareholders in the form of Exhibit C to this Merger Agreement
(the "Registration Rights Agreement") and each of the Shareholders shall have
entered into a letter agreement with Veramark agreeing not to dispose of the
shares of Veramark Common Stock received in the Merger for a period ending 30
days after the first release of financial information for Veramark after the
Effective Time which contains combined results for Veramark and Angeles Group in
the form of Exhibit D to this Merger Agreement (the "Lock-Up Letters").
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
(a) The consummation of the Merger shall not be restrained,
enjoined or prohibited by any order, judgment, decree,
injunction or ruling of a court of competent jurisdiction;
provided, however, that the parties shall comply with the
provisions of Section 7.4 and shall further use their best
efforts to cause any such order, judgment, decree, injunction
or ruling to be vacated or lifted.
SECTION 8.2 CONDITIONS TO OBLIGATION OF ANGELES GROUP TO EFFECT THE MERGER. The
obligation of Angeles Group to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following conditions,
unless waived by Angeles Group:
(a) Veramark shall have performed in all material respects its
agreements contained in this Merger Agreement required to be
performed at or prior to the Effective Time and the
representations and warranties of Veramark contained in this
Merger Agreement shall be true when made and (except for
representations and warranties made as of a specified date,
which need only be true as of such date) at and as of the
Effective Time as if made at and as of such time, except as
contemplated by this Merger Agreement and except for
inaccuracies that in the aggregate do not constitute a
Veramark Material Adverse Effect;
(b) Angeles Group shall have received the opinion of its
counsel Cowen, Crowley, Nord & Staub, P.C., dated as of the
Closing Date, that the Merger qualifies as a reorganization
within the meaning of Section 368(a)(1)(A) of the Code; and
(c) The Related Agreements have been executed and delivered by
the respective parties thereto and continue in full force and
effect.
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SECTION 8.3 CONDITIONS TO OBLIGATIONS OF VERAMARK TO EFFECT THE MERGER. The
obligations of Veramark to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the additional following conditions, unless
waived by Veramark:
(a) Angeles Group shall have performed in all respects its
agreements contained in this Merger Agreement required to be
performed at or prior to the Effective Time and the
representations and warranties of Angeles Group contained in
this Merger Agreement shall be true when made and (except for
representations and warranties made as of a specified date,
which need only be true as of such date) at and as of the
Effective Time as if made at and as of such time, except as
contemplated by this Merger Agreement and except for
inaccuracies in representations and warranties and failures to
perform its agreements that in the aggregate do not constitute
a Angeles Material Adverse Effect; and Veramark shall have
received a certificate of the Chief Executive Officer of
Angeles Group and the Shareholders to that effect;
(b) Veramark shall have received from Arthur Andersen LLP,
independent public accountants to Veramark and Angeles Group,
one or more letters, dated as of the Closing Date, stating
that the accounting for the Merger is as a pooling of
interests under Opinion 16 of the Accounting Principles Board
and applicable SEC rules if the Merger is consummated as
contemplated by this Merger Agreement;
(c) Veramark shall have received the opinion of its special
counsel Nixon Peabody LLP dated as of the Closing Date that
the Merger qualifies as a reorganization within the meaning of
Section 368(a)(1)(A) of the Code;
(d) The Related Agreements have been executed and delivered by
the respective parties thereto and continue in full force and
effect;
(e) During the period beginning on the date of the Closing
Balance Sheet and ending on the Closing Date, there shall have
been no material adverse change or changes having in the
aggregate an adverse effect of more than $100,000, other than
a change or changes arising out of the ordinary course of
business of Angeles Group; and
(f) Of the orders projected to be received during 1999, as set
forth on Judy Mirkin's forecast, dated October 21, 1999, the
Angeles Group shall have received by December 31, 1999 not
less than $1.3 million in orders.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
SECTION 9.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of the parties contained in this Merger Agreement
shall, notwithstanding any
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investigation by or notice by or to any party prior to the Closing Date, survive
the Merger for the period set forth in this Section 9.1. The representations and
warranties of the Shareholders and Angeles Group set forth in Article IV and the
representations and warranties of Veramark set forth in Article V shall survive
until the second anniversary of the Closing Date, provided that the
representations and warranties of the Shareholders and Angeles Group in Sections
4.2, 4.3, 4.15, 4.16.3 and 4.17 shall survive for 90 days following the
expiration of the applicable statutes of limitations for claims with respect to
such matters (the "Expiration Date"); provided, however, that the
representations and warranties that are the subject of any indemnification claim
pending on the Expiration Date, as provided in Section 9.4, shall survive the
Expiration Date until the claim is finally resolved. The pre-Closing covenants
and agreements of the parties contained in this Merger Agreement shall terminate
as of the Closing and the other covenants and agreements of the parties
contained in this Merger Agreement shall survive until fully performed.
SECTION 9.2 INDEMNIFICATION BY THE SHAREHOLDERS. In the manner herein provided,
from and after the Closing Date, the Shareholders shall, in proportion to their
stock ownership in Angeles Group as of the Closing Date, indemnify and hold
harmless Veramark and its affiliates, and their respective employees, directors,
agents and representatives (collectively, the "Veramark Indemnified Parties"),
from and against any and all Loss and Litigation Expense, which they or any of
them may suffer or incur as a result of or arising from any of the following:
(a) any misrepresentation or breach of warranty by Angeles Group or the
Shareholders; (b) the failure of Angeles Group to obtain all consents required
to consummate the transactions contemplated by this Merger Agreement; (c) the
failure by the Shareholders to satisfy any liability or obligation which is
their obligation to satisfy under the terms of this Merger Agreement; (d) the
failure by Angeles Group or the Shareholders to perform their covenants and
agreements under this Merger Agreement; or (e) the failure of the Shareholders
to pay any transfer taxes which the Shareholders are required to pay or any
other costs or expenses which are the responsibility of the Shareholders.
SECTION 9.3 INDEMNIFICATION BY VERAMARK. In the manner herein provided, from and
after the Closing Date, Veramark shall indemnify and hold harmless the
Shareholders and their respective heirs and representatives (collectively, the
"Angeles Indemnified Parties"), from and against any and all Loss and Litigation
Expense which they, or any of them, may suffer or incur as a result of or
arising from any of the following: (a) any misrepresentation or breach of
warranty by Veramark; (b) the failure by Veramark to perform its covenants and
agreements under this Merger Agreement; or (c) the failure of Veramark to pay
any transfer taxes which Veramark is required to pay pursuant to Section 7.6 or
any other costs or expenses which are the responsibility of Veramark.
SECTION 9.4 CERTAIN LIMITATIONS ON INDEMNITIES.
9.4.1 With respect to the indemnification obligation under clause (a)
of Section 9.2, Shareholders shall not have any obligation to indemnify Veramark
Indemnified Parties unless the aggregate of all such claims for breaches of
representations, warranties or
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covenants ("Claims") exceeds One Hundred Thousand Dollars ($100,000); provided,
however, if such Claims exceed $100,000, the aggregate of all such Claims (from
the first dollar) shall be paid by Shareholders to Veramark. Shareholders shall
not be required to indemnify Veramark for Claims under this Article IX to the
extent that the aggregate of such Claims exceeds $4,438,000.
9.4.2 With respect to the indemnification obligation under clause (a)
of Section 9.3, Veramark shall not have any obligation to indemnify Angeles
Indemnified Parties unless the aggregate of all such claims for breaches of
representations, warranties or covenants exceeds One Hundred Thousand Dollars
($100,000), provided, however, if such Claims exceed $100,000, the aggregate of
all such Claims (from the first dollar) shall be paid by Veramark to
Shareholders.
SECTION 9.5 PROCEDURE.
9.5.1 Promptly after acquiring knowledge of any Loss, or any action,
suit, investigation, proceeding, demand, assessment, audit, judgment, or claim
("Claim") which may result in a Loss, and prior to the Expiration Date, the
person seeking indemnity under this Article IX (the "Indemnitee") shall give
written notice thereof to the party from whom indemnity is sought (the
"Indemnitor").
9.5.2 If the Claim is brought by a person not affiliated with Veramark
or the Indemnitee, the Indemnitor shall have the right, at its expense, to
defend, contest or compromise such Claim, through counsel of its choice (unless
such Indemnitor is relieved of its liability hereunder with respect to such
Claim and Loss and Litigation Expense by the Indemnitee) and shall not then be
liable for fees or expenses of the Indemnitee's attorneys (unless the Indemnitor
and Indemnitee are parties to the action and there exists a conflict of interest
between the Indemnitor and the Indemnitee, in which event the Indemnitor will be
responsible for the reasonable fees and expenses of one attorney representing
Indemnitee(s)), and the Indemnitee and the Indemnitor shall provide to each
other all necessary and reasonable cooperation in the defense of all Claims,
including, but not limited to, the services of employees who are familiar with
the transactions out of which such Claim or Loss may have arisen. In the event
that the Indemnitor shall undertake to compromise or defend any Claim, it shall
promptly notify the Indemnitee of its intention to do so. In the event that the
Indemnitor, after written notice from Indemnitee, fails to take timely action to
defend the same, the Indemnitee shall have the right to defend the same by
counsel of its own choosing, but at the cost and expense of the Indemnitor,
provided, no settlement of a Claim, by Indemnitee shall be effected without the
consent of the Indemnitor unless Indemnitee waives any right to indemnification
therefor. The Indemnitor may settle or compromise any Claim or consent to the
entry of any judgment (i) which includes the unconditional release by the person
asserting the Claim and any related claimants of Indemnitee from all liability
with respect to such Claim in form and substance reasonably satisfactory to
Indemnitee, and (ii) which would not adversely affect the right of Indemnitee
and its affiliates to own, hold use and operate their respective assets and
businesses.
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9.5.3 Veramark and the Shareholders shall treat any payment under this
Article IX for all tax purposes as an adjustment of the Merger Consideration,
except to the extent such treatment is not permitted under applicable Law.
Section 9.6 Certain Terms. For purposes of this Article IX, the
following terms have the definitions set forth below:
"Litigation Expense" means any expenses incurred in connection with
investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against under this Merger Agreement,
including, without limitation, court filing fees, court costs, arbitration fees
or costs, witness fees and reasonable fees and disbursements of legal counsel
(whether incurred in any action or proceeding between the parties to this Merger
Agreement or between any party to this Merger Agreement and any third person and
whether or not any action or proceeding is commenced), investigators, expert
witnesses, accountants and other professionals.
"Loss" means any loss, obligation, claim, liability, settlement
payment, award, judgment, fine, penalty, interest charge, expense, damage or
deficiency or other charge, measured after accounting for any insurance proceeds
actually received with respect thereto, other than Litigation Expense.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1 TERMINATION. This Merger Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval by the
shareholders of Angeles Group:
(a) by mutual written consent of Veramark and Angeles Group;
(b) by Angeles Group, upon a material breach of this Merger
Agreement on the part of Veramark which has not been cured and
which would cause the conditions set forth in Section 8.2 to
be incapable of being satisfied by January 31, 1999;
(c) by Veramark, upon a determination that information of
material significance was either misrepresented or
intentionally hidden during Veramark's diligence review or
upon a material breach of this Merger Agreement on the part of
Angeles Group set forth in this Merger Agreement which has not
been cured;
(d) by Veramark or Angeles Group if any court of competent
jurisdiction shall have issued, enacted, entered, promulgated
or enforced any order, judgment, decree, injunction or ruling
which restrains, enjoins or otherwise prohibits the Merger and
such order, judgment, decree, injunction or ruling shall have
become final and nonappealable; or
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(e) by either Veramark or Angeles Group if the Merger shall
not have been consummated on or before January 31, 1999 (the
"Upset Date") (provided the terminating party is not otherwise
in material breach of its representations, warranties or
obligations under this Merger Agreement).
SECTION 10.2 EFFECT OF TERMINATION. In the event of termination of this Merger
Agreement by either Veramark or Angeles Group, as provided in Section 10.1, this
Merger Agreement shall forthwith become void and there shall be no liability
hereunder on the part of any of Angeles Group, the Shareholders, Veramark or its
respective officers or directors; provided, however, that Sections 7.3 and 10.3
shall survive the termination.
SECTION 10.3 FEES AND EXPENSES.
(a) Whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Merger Agreement and the transactions
contemplated by this Merger Agreement shall be paid by the party incurring such
expenses; provided, however, that Veramark shall pay the Brokers' Fees as
provided in Section 3.1 if the Merger is consummated and the transfer taxes
shall be paid as provided in Section 7.6.
(b) In the event that the Merger fails to be consummated for any reason
other than by reason of Veramark determining not to proceed based on its due
diligence findings, and if within one (1) year after the date of such
termination any of the Shareholders or Angeles Group sells, transfers or
conveys, or agrees to sell, transfer or convey, all or any of the assets or
capital stock (whether in the form of a merger, amalgamation, consolidation,
purchase of stock, acquisition of assets, joint venture, strategic alliance or
otherwise) of Angeles Group to any third party for aggregate consideration
(including the value of all consideration, cash or non-cash, received directly
or indirectly, by or on behalf of the Shareholders or their affiliates) in
excess of the merger consideration, Angeles Group and the Shareholders shall,
within ten (10) days after any such sale, transfer or conveyance, reimburse
Veramark for all out-of-pocket expenses (including reasonable attorneys' fees)
incurred by Veramark or on its behalf in connection with the Merger contemplated
hereby (in all cases up to a maximum of $50,000 in the aggregate) and shall pay
to Veramark as liquidated damages the sum of $500,000. If Angeles Group fails to
pay promptly the amount due pursuant to this Section 10.3(b), and, in order to
obtain such payment, Veramark commences a suit which results in a judgment
against Angeles Group for the fee set forth in this paragraph (b), Angeles Group
shall pay to Veramark its reasonable costs and expenses (including attorneys'
fees and expenses) in connection with such suit.
SECTION 10.4 AMENDMENT. This Merger Agreement may be amended by the parties
hereto at any time before or after approval hereof by the shareholders of
Angeles Group. This Merger Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
SECTION 10.5 WAIVER. At any time prior to the Effective Time, the parties hereto
may, to the extent permitted by applicable law, (i) extend the time for the
performance of any of the
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obligations or other acts of any other party hereto, (ii) waive any inaccuracies
in the representations and warranties by any other party contained herein or in
any documents delivered by any other party pursuant hereto and (iii) waive
compliance with any of the agreements of any other party or with any conditions
to its own obligations contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE XI
GENERAL PROVISIONS
11.1 WAIVER; CONSENTS. THE FAILURE BY ANY PARTY TO EXERCISE ANY RIGHT UNDER, OR
TO OBJECT TO THE BREACH BY ANY OTHER PARTY OF ANY TERM, PROVISION OR CONDITION
OF, THIS MERGER AGREEMENT SHALL NOT CONSTITUTE A WAIVER THEREOF AND SHALL NOT
PRECLUDE SUCH PARTY FROM THEREAFTER EXERCISING THAT OR ANY OTHER RIGHT, OR FROM
THEREAFTER OBJECTING TO THAT OR ANY PRIOR OR SUBSEQUENT BREACH OF THE SAME OR
ANY OTHER TERM, PROVISION OR CONDITION OF THE AGREEMENT. ANY CONSENT GRANTED
PURSUANT TO THIS MERGER AGREEMENT SHALL BE IN WRITING, EXECUTED BY THE PERSON
DULY AUTHORIZED BY THE CONSENTING PARTY, AND SHALL BE A CONSENT ONLY TO THE
TRANSACTION, ACT OR AGREEMENT SPECIFICALLY REFERRED TO IN THE CONSENT AND NOT TO
OTHER SIMILAR TRANSACTIONS, ACTS OR AGREEMENTS.
SECTION 11.2 NOTICES. All notices or other communications under this Merger
Agreement shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person, by telecopy (with
confirmation of receipt), or by registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
If to Angeles Group or the Shareholders:
The Angeles Group, Inc.
31280 Oak Crest Dr.
Suite 3
Westlake Village, California 91361
Telephone: (818) 707-3900
Facsimile: (818) 707-0181
With a copy to:
Cowen, Crowley, Nord & Staub, P.C.
55 West Monroe Street, Suite 500
Chicago, Illinois 60603
Attention: David K. Staub, Esq.
Telephone: (312) 641-0060
Facsimile: (312) 641-6959
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If to Veramark:
Veramark Technologies, Inc.
3750 Monroe Avenue
Pittsford, New York 14534
Attention: Robert L. Boxer
Telephone: (716) 383-6803
Facsimile: (716) 383-6858
With a copy to:
Nixon Peabody LLP
Clinton Square
P.O. Box 1051
Rochester, New York 14603
Attention: Deborah McLean Quinn
Telephone: (716) 263-1307
Facsimile: (716) 263-1600
or to such other address as any party may have furnished to the other parties in
writing in accordance with this Section.
SECTION 11.3 ENTIRE AGREEMENT. This Merger Agreement (including the documents
and instruments referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
This Merger Agreement is the joint drafting product of Veramark, Angeles Group
and the Shareholders and each provision has been subject to negotiation and
agreement and shall not be construed for or against either party as drafter
thereof.
SECTION 11.4 ASSIGNMENTS; PARTIES IN INTEREST. Neither this Merger Agreement nor
any of the rights, interests or obligations hereunder may be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Merger Agreement shall be binding upon and inure solely to the benefit of each
party hereto, and nothing in this Merger Agreement, express or implied, is
intended to or shall confer upon any person not a party hereto any right,
benefit or remedy of any nature whatsoever under or by reason of this Merger
Agreement, including to confer third party beneficiary rights, except for the
provisions of Sections 9.2 and 9.3 hereof.
SECTION 11.5 GOVERNING LAW. This Merger Agreement, except to the extent that
California Law and Delaware Law (with respect to the Merger only) are
mandatorily applicable to the Merger and the rights of the shareholders of
Angeles Group, shall be governed in all respects by the laws of the State of New
York (without giving effect to the provisions thereof relating to conflicts of
law). The exclusive venue for the adjudication of any dispute or proceeding
arising out of this Merger Agreement or the performance thereof shall be the
courts located in the
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County of Monroe, State of New York and the parties hereto and their affiliates
each consents to and hereby submits to the jurisdiction of any court located in
the County of Monroe, State of New York or Federal courts in the Western
District of New York.
SECTION 11.6 HEADINGS; DISCLOSURE. The descriptive headings 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 Merger Agreement. Any disclosure by
Angeles Group or Veramark in any portion of its respective disclosure schedule
shall be deemed disclosure in each other portion of such disclosure schedule.
SECTION 11.7 CERTAIN DEFINITIONS. As used in this Merger Agreement:
11.7.1 (a) the term "affiliate," as applied to any person, shall mean
any other person directly or indirectly controlling, controlled by, or
under common control with, that person; for purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by" and "under common control with"), as
applied to any person, means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and
policies of that person, whether through the ownership of voting
securities, by contract or otherwise;
(b) an "Angeles Material Adverse Effect" shall be deemed to occur if
the aggregate consequences of all breaches and inaccuracies of
covenants and representations of Angeles Group, when read without any
exception or qualification for an Angeles Material Adverse Effect, are
reasonably likely to have a material adverse effect on the business,
operations or financial condition of Angeles Group which is agreed to
be an effect in excess of $100,000;
(c) the term "Brokers' Fees" shall mean the broker's fee due to Egroup
in the amount of $250,000 and the broker's fee due to Corum in an
amount of up to $320,000;
(d) the term "person" shall include individuals, corporations,
partnerships, trusts, other entities and groups (which term shall
include a "group" as such term is defined in Section 13(d)(3) of the
Exchange Act);
(e) the term "Veramark Material Adverse Effect" means consequences
which are reasonably likely to prevent or delay beyond the date set
forth in Section 10.1 the consummation of the transactions contemplated
by this Merger Agreement.
Section 11.7.2 The following terms are defined in the sections of this
Merger Agreement noted below:
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Term Defined In
---- ----------
Affiliate Agreements ss. 7.8.2
Angeles Benefit Plans ss. 4.15
Angeles Common Stock ss. 3.1(a)
Angeles Disclosure Schedule Article IV
Angeles Group Preamble
Angeles Indemnified Parties ss. 9.3
Angeles Permits ss. 4.18
Annual Financial Statements ss. 4.5(b)
Assets ss. 4.9
California Law ss. 1.3
Claims ss. 9.4
Closing Balance Sheet ss. 6.3
Closing Date ss. 1.2
Code ss. 3.4
Constituent Corporation ss. 1.4
Contributors ss. 4.6.4
Copyrights ss. 4.6.4
Delaware Law ss. 1.3
Documentation ss. 4.6.1
Effective Time ss. 1.3
ERISA ss. 4.15
Excess Debt and Costs ss. 3.1(b)
Expiration Date ss. 9.1
GAAP ss. 4.5(b)
Governmental Entity ss. 4.6.6
Indemnitee ss. 9.5.1
Indemnitor ss. 9.5.1
Intellectual Property ss. 4.6.2
Laws ss. 4.6.6
Letter Agreement ss. 7.3
Litigation Expense ss. 9.6
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Term Defined In
---- ----------
Lock-Up Letters ss. 7.8.4
Loss ss. 9.6
Material Contracts ss. 4.8.1
Merger Preamble
Merger Agreement Preamble
Merger Consideration ss. 3.1(b)
Products ss. 4.6.1
Products-in-Development ss. 4.6.1
Project Agreements ss. 4.8.3
Interim Financial Statements ss. 4.5(c)
Real Estate Leases ss. 4.12
Registration Rights Agreement ss. 7.8.4
Related Agreements ss. 7.8
SEC ss. 3.4
Shareholders Preamble
Shares ss. 3.1(a)
Software ss. 4.6.4
Supported Products ss. 4.6.1
Surviving Corporation ss. 1.1
Tax Certificates ss. 7.8.3
Target Debt and Expenses Amount ss. 3.1(b)
Trademarks ss. 4.6.4
Upset Date ss. 10.1(e)
Veramark Preamble
Veramark Common Stock ss. 3.1(b)
Veramark Consent ss. 5.4(b)
Veramark Disclosure Schedule Article V
Veramark Indemnified Parties ss. 9.2
Warrants ss. 4.2
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SECTION 11.8 COUNTERPARTS. This Merger Agreement may be executed in two or more
counterparts, which together shall constitute a single agreement.
SECTION 11.9 SEVERABILITY. If any term or other provision of this Merger
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Merger Agreement
shall nevertheless remain in full force and effect so long as the economics or
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon determination that any term or
other provision hereof is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Merger Agreement so
as to effect the original intent of the parties as closely as possible to the
fullest extent permitted by applicable law in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
IN WITNESS WHEREOF, Veramark and Angeles Group have caused this Merger
Agreement to be signed by their respective officers thereunder duly authorized
and the Shareholders have executed this Merger Agreement, all as of the date
first written above.
VERAMARK TECHNOLOGIES, INC.
By /s/David G. Mazzella
---------------------------
David G. Mazzella
Title: President and Chief
Executive Officer
By /s/Robert L. Boxer
---------------------------
Robert L. Boxer
Title: Secretary
THE ANGELES GROUP, INC.
By /s/Richard Elzinga
---------------------------
Richard Elzinga, President
By /s/Tim Stassi
---------------------------
Tim Stassi, Secretary
61
<PAGE>
/s/Richard Elzinga
---------------------------
Richard Elzinga
/s/Tim Stassi
---------------------------
Tim Stassi
62
Exhibit 5.1
Veramark Technologies, Inc.
3750 Monroe Avenue
Pittsford, New York 14534
March 21, 2000
Veramark Technologies, Inc.
3750 Monroe Avenue
Pittsford, New York 14534
Gentlemen:
In connection with the registration under the Securities Act of 1933,
as amended (the "Securities Act"), of 374,185 shares of common stock (the
"Shares") of Veramark Technologies, Inc., a Delaware corporation ("Veramark"),
I, as Vice President, Secretary and General Counsel of Veramark, have examined
such corporate records, certificates and other documents and such questions of
law as I have considered necessary or appropriate for the purposes of this
opinion.
Upon the basis of such examination, I advise you that, in my opinion:
1. Veramark has been duly incorporated and is an existing corporation
in good standing under the laws of the state of Delaware.
2. The Shares have been duly authorized for issuance and are validly
issued, fully paid and non-assessable.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the heading "Legal
Matters" in the Prospectus.
Very truly yours,
/s/ Robert L. Boxer
Vice President, Secretary and
General Counsel of Veramark Technologies, Inc.
63
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our reports dated February 4, 2000
included in Veramark Technologies, Inc.'s Form 10-K for the year ended December
31, 1999 and the report dated February 4, 2000 included in Veramark
Technologies, Inc.'s Form 8-K/A dated March 16, 2000 and to all references to
our firm included in this Registration Statement.
/s/ ARTHUR ANDERSEN LLP
- - ---------------------------
ARTHUR ANDERSEN LLP
Rochester, New York
March 20, 2000
