UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
Date of Report: June 30, 1999
NETWORK SYSTEMS INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Nevada 0-22991 87-0460247
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or Number) Identification Number)
organization)
200 North Elm Street, Greensboro, North Carolina 27401
(Address of principal executive officer) (Zip Code)
(336) 271-8400
(Registrants telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
On June 16, 1999, Network Systems International, Inc. (the
"Company") consummated the acquisition of all of the capital
stock of Vercom Software, Inc. ("Vercom"), a corporation
organized and existing under the laws of the State of Texas.
Vercom is a vertical market company offering a specialized
software solution for the complex requirements of the
printing industry. As consideration for the acquisition and
pursuant to the Stock Purchase Agreement dated as of June
16, 1999 by and among the Company, Vercom Software, Inc. and
the stockholders of Vercom Software, Inc., Network Systems
International, Inc. paid the Vercom stockholders $6.8
million in cash. The Company used funds accumulated from
operations and portions of a new Four Million Five Hundred
Thousand Dollars ($4,500,000) revolving line of credit with
Wachovia Bank, N.A. This revolving line of credit replaced
an existing line of credit with Wachovia Bank, N.A.
Item 7. Financial Statements, Pro Forma Financial
Information and Exhibits
(a) Financial Statements of Business Acquired
As of the filing of this Current Report of Form 8-K, it is
impracticable for the Company to provide the financial
statements required by Item 7(a) of Form 8-K. In accordance
with Item 7(a)(4) of Form 8-K, such financial statements
shall be filled by amendment to this Form 8-K no later than
60 days after June 30, 1999.
(b) Pro Forma Financial Information
As of the filing of this Current Report of Form 8-K, it is
impracticable for the Company to provide the pro forma
financial information required by Item 7(b) of Form 8-K. In
accordance with Item 7(a)(4) of Form 8-K, such pro forma
financial information shall be filled by amendment to this
Form 8-K no later than 60 days after June 30, 1999.
(c) Exhibits
The following exhibits are filed herewith in accordance with
the provisions of Item 601 of Regulation S-B:
Exhibit No. Description of Exhibit
2.1 Stock Purchase Agreement dated as of May 31, 1999, by
and among Network Systems International, Inc., Vercom
Software, Inc., and the stock holders of Vercom Software,
Inc. listed on the signature pages thereto
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
NETWORK SYSTEMS INTERNATIONAL, INC.
(Registrant)
By: /s/ Michael T. Spohn
Michael T. Spohn, Chief Financial Officer
Date: June 30, 1999
STOCK PURCHASE AGREEMENT
AGREEMENT, made and entered into as of the 16th day of June,
1999, among NETWORK SYSTEMS INTERNATIONAL, INC., a Nevada
corporation (the "Buyer"); EVAN E. PRICE, DEBORAH J. DOBY and
ZIAD A. YAMOUT (each a "Seller" and collectively the "Sellers");
and VERCOM SOFTWARE, INC., a Texas corporation (the "Company").
The Sellers are the owners of all of the issued and
outstanding shares of the capital stock (the "Shares") of the
Company. The Sellers wish to sell all of their Shares and the
Buyer wishes to purchase such Shares upon the terms and
conditions of this Agreement.
Accordingly, the parties agree as follows:
1. SALE AND PURCHASE OF SHARES.
1.1 Sale of Shares. At the Closing (as defined in Section
2 hereof), and subject to the terms and conditions of this
Agreement, each Seller agrees to sell to the Buyer, and the Buyer
agrees to purchase, the Shares set forth opposite such Seller's
name on Exhibit A for an aggregate purchase price of Six Million
Eight Hundred Thousand Dollars ($6,800,000), payable as provided
in Section 1.2 (the "Purchase Price").
1.2 Payment at the Closing of the Purchase Price. At the
Closing, the Purchase Price shall be paid by the Buyer as
follows:
(i) The Buyer shall deliver to each Seller by wire
transfer to such Seller's designated account cash in the
amount set forth opposite such Seller's name on Exhibit A in
the aggregate amount of Six Million Five Hundred Fifty
Thousand Dollars ($6,550,000); and
(ii) The Buyer shall deliver to Smith Helms Mulliss &
Moore, L.L.P. (the "Escrow Agent") cash in an aggregate
amount of Two Hundred Fifty Thousand Dollars ($250,000),
such amount to be held in an escrow account (the "Escrow
Account") in accordance with the terms of the Escrow
Agreement substantially in the form of Exhibit B among the
Buyer, the Escrow Agent and each of the Sellers (the "Escrow
Agreement").
1.3 Delivery of Shares. At the Closing, each Seller shall
deliver or cause to be delivered to the Buyer stock certificates
representing the number of Shares set forth opposite such
Seller's name on Exhibit A, duly endorsed in blank, and with all
appropriate stock transfer tax stamps (if any) affixed. The cost
of all such tax stamps shall be borne by the Sellers.
1.4 Sellers' Representative. Each Seller hereby appoints
EVAN E. PRICE or, in the event of his death, a successor to be
appointed by his estate, to act as such Seller's attorney-in-fact
and representative (the "Sellers' Representative"), to do any
and all things and to execute any and all documents, in such
Seller's name, place and stead, in any way which such Seller
could do if personally present, in connection with this Agreement
and with the Escrow Agreement and the transactions contemplated
hereby and thereby, including, without limitation, to amend,
cancel or extend, or waive the terms of, the Escrow Agreement.
The Buyer shall be entitled to rely, as being binding upon such
Seller, upon any document or other paper believed by the Buyer to
be genuine and correct and to have been signed by the Sellers'
Representative, and the Buyer shall not be liable to any Seller
for any action taken or omitted to be taken by the Buyer in such
reliance. The Sellers' Representative shall have the sole and
exclusive right on behalf of the Sellers to give a Claims Notice
pursuant to Section 9.3(i) or take any other action pursuant to
Article 9.
2. CLOSING; CLOSING DATE.
The closing of the sale and purchase of the Shares
contemplated hereby shall take place at the offices of Gardere &
Wynne, L.L.P., 1601 Elm Street, Suite 3000, Dallas, Texas, at
9:00 a.m. central standard time, on June 16, 1999, or at such
other time or date as the Buyer and the Sellers agree in writing.
The closing provided for in this Section is herein called the
"Closing," and the time and date upon which the Closing occurs is
herein called the "Closing Date." At the Closing, the parties
shall take such actions as may be necessary or appropriate in
order to consummate the transactions provided for herein (the
"Contemplated Transactions") in accordance with the terms and
conditions hereof.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS.
The Sellers, jointly and severally, represent and warrant to
the Buyer as provided in this Article 3. Notwithstanding the
foregoing, with respect to Section 3.3 and Section 3.5 hereof,
each Seller represents and warrants to the Buyer the
representations and warranties contained therein only on behalf
of himself or herself.
3.1 Due Incorporation and Authority. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Texas and has all requisite
corporate power and lawful authority to own, lease and operate
its assets, properties and business and to carry on its business
as now being conducted. The Company has heretofore delivered to
the Buyer true and complete copies of its Articles of
Incorporation (certified by the Secretary of State of Texas) and
Bylaws (certified by its secretary or an assistant secretary) as
in effect on the date hereof.
3.2 Company Authorization and Validity of Agreement. The
Company has full legal right and all requisite corporate power
and authority to enter into this Agreement, and all other
agreements contemplated hereunder, and to perform its obligations
hereunder and thereunder. The execution, delivery and
performance of this Agreement by the Company and the consummation
by the Company of the Contemplated Transactions have been duly
and effectively authorized by the Company's Board of Directors,
the requisite vote of the Company's shareholders and all other
requisite corporate action. This Agreement has been duly
executed by the Company and constitutes a valid and legally
binding obligation of the Company enforceable in accordance with
its terms.
3.3 Sellers' Authorization and Validity of Agreement. Each
Seller has the full legal right and power and all authority and
approval required to enter into, execute and deliver this
Agreement and to perform fully such Seller's obligations
hereunder. This Agreement has been duly executed and delivered
by such Seller and is a valid and binding obligation of such
Seller enforceable in accordance with its terms.
3.4 Outstanding Capital Stock. The Company is authorized
to issue one hundred thousand (100,000) shares of common stock,
par value $.01 per share, of which seven hundred fifty (750)
shares are issued and outstanding, and no other class of capital
stock of the Company is authorized or outstanding. The Shares
are duly authorized, validly issued and fully paid and
nonassessable.
3.5 Title to the Shares. As of the Closing Date, each
Seller owns beneficially and of record, free and clear of any
lien, option or other encumbrance, and has full power and
authority to convey free and clear of any lien or other
encumbrance, the Shares set forth opposite such Seller's name on
Exhibit A, and, upon delivery of and payment for such Shares as
herein provided, such Seller will convey to the Buyer good and
valid title thereto, free and clear of any lien or other
encumbrance.
3.6 Options, Warrants or Other Rights. Except as set forth
on Schedule 3.6, there is no outstanding right, subscription,
warrant, call, unsatisfied preemptive right, option, or other
agreement of any kind to purchase or otherwise to receive from
the Company or any of the Sellers any of the outstanding,
authorized but unissued, unauthorized or treasury shares of the
capital stock or any other security of the Company, and there is
no outstanding security of any kind convertible into any such
capital stock.
3.7 Subsidiaries and Other Affiliates. The Company does
not, directly or indirectly, own any interest in or control any
other corporation, partnership, firm, joint venture, association,
joint-stock company, trust, unincorporated organization or other
entity.
3.8 Qualification in Other Jurisdictions. The Company is
duly qualified or otherwise authorized as a foreign corporation
to transact business and is in good standing in each jurisdiction
in which it is required to be so qualified or authorized.
3.9 No Breach. Except as set forth on Schedule 3.9, the
execution, delivery and performance of this Agreement and the
consummation of the Contemplated Transactions will not
(i) violate, conflict with or result in the breach of any
provision of the Articles of Incorporation or Bylaws of the
Company; or (ii) violate or result in the breach of any of the
terms of, result in a material modification of, or otherwise give
any other contracting party the right to terminate, or constitute
(or with notice or lapse of time or both constitute) a default
under, any material contract or other agreement to which the
Company or any of the Sellers are a party or by or to which the
Company or any of its assets or properties may be bound or
subject; or (iii) violate any order, writ, judgment, injunction,
award or decree of any court, arbitrator or governmental or
regulatory body against, or binding upon, the Company or any of
the Sellers or upon the assets of the Company; or (iv) violate
any statute, law or regulation of any jurisdiction, which
violation could have a material adverse effect upon the
Contemplated Transactions or upon the condition of the Company;
or (v) violate or result in the revocation or suspension of any
Permit (as defined in Section 3.24 hereof). The execution and
delivery by the Sellers and the Company of this Agreement, the
performance by the Sellers and the Company of their obligations
hereunder, the consummation by the Sellers and the Company of the
Contemplated Transactions and the continuance in full force and
effect following the consummation of the Contemplated
Transactions of all contracts and agreements set forth on
Schedule 3.23 do not require the Sellers or the Company to obtain
any consent, approval or action of, or make any filing with or
give any notice to, any person or any governmental or regulatory
body, except as set forth in Schedule 3.9. The consents,
approvals, filings and notices listed on Schedule 3.9 are
referred to herein as the "Sellers' Required Consents."
3.10 Financial Statements. Balance sheets of the Company
(prepared on an accrual basis) for fiscal years 1997 and 1998,
and the related income statements (prepared on a cash basis), are
set forth on Schedule 3.10 hereto. These balance sheets and
related income statements fairly present the financial position
of the Company as at such dates and the results of operations of
the Company for such respective periods, in each case in
accordance with generally accepted accounting principles
consistently applied for the periods covered thereby. (The
foregoing financial statements of the Company for fiscal years
1997 and 1998 are sometimes herein called the "Financials."
There are no notes to the Financials.) The balance sheet of the
Company (prepared on an accrual basis) as of May 31, 1999, and
the related income statement (prepared on a cash basis), which
have been delivered to the Buyer, fairly present the financial
position of the Company as at such date and the results of
operations of the Company for the five (5) months then ended, in
each case in conformity with generally accepted accounting
principles applied on a basis consistent with that of the
Financials. (The foregoing unaudited financial statements of the
Company as of May 31, 1999, and for the five (5) months then
ended are sometimes herein called the "Interim Financials," the
balance sheet included in the Interim Financials is sometimes
herein called the "Balance Sheet" and May 31, 1999, is sometimes
herein called the "Balance Sheet Date").
3.11 Liabilities. As of the Balance Sheet Date, the Company
did not have any indebtedness, liability, claim or loss,
liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise, of a kind required by
generally accepted accounting principles to be set forth on a
financial statement ("Liabilities") that were individually, or in
the aggregate, material to the condition of the Company and were
not fully and adequately reflected or reserved against on the
Balance Sheet or described on any Schedule hereto. Except as set
forth on Schedule 3.11, the Company has not, except in the
ordinary course of business, incurred any Liabilities since the
Balance Sheet Date.
3.12 No Material Adverse Change. Except as set forth on
Schedule 3.12, since the Balance Sheet Date, there has been no
material adverse change in the condition of the Company, and, to
the knowledge of the Company or any of the Sellers, no such
change is threatened or contemplated, nor has there been any
damage, destruction or loss which could have or has had a
material adverse effect upon the Contemplated Transactions or
upon the condition of the Company, whether or not covered by
insurance.
3.13 Tax Matters.
(i) The Company has paid all federal, state, local,
foreign and other taxes (including estimated taxes) (the
"Taxes") required to be paid by it through the date hereof,
and all deficiencies or other additions to tax, interest and
penalties owed by it, and shall timely pay any such Taxes,
including additions, interest and penalties, required to be
paid by it on or before the Closing Date, including, but not
limited to, all Taxes due or required to be paid in respect
of the Company's fiscal year ended December 31, 1998.
(ii) The Company has timely filed all federal, state,
local, foreign and other tax returns (the "Tax Returns")
required through the date hereof, and shall prepare and
timely file, in a manner consistent with prior years, all
Tax Returns required on or before the Closing Date.
(iii) Schedule 3.13 sets forth the status of
federal income tax audits of the returns of the Company for
each fiscal year for which the statute of limitations has
not expired, including the amounts of any deficiencies and
additions to tax, interest and penalties indicated on any
notices of proposed deficiency or statutory notices of
deficiency, and the amounts of any payments made by the
Company with respect thereto. Each return filed by the
Company for which the federal income tax audit has not been
completed accurately reflects the amount of its tax
liability for such period. Except as set forth on Schedule
3.13, the Company has not agreed to, nor is required to,
make any adjustments under section 481(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), by reason of
a change in accounting method or otherwise.
(iv) Schedule 3.13 sets forth the status of state and
local tax audits of the returns of the Company for each
fiscal year for which the statute of limitations has not
expired, including the amounts of any deficiencies or
additions to tax, interest and penalties that have been made
or proposed, and the amounts of any payments made by the
Company with respect thereto. Each state and local income
tax return filed by the Company for which the tax audit has
not been completed accurately reflects the amount of its tax
liability for such period. To the knowledge of the Company
or any of the Sellers, there has been no material adverse
change in the rates or basis of assessment of any tax
effective for the fiscal year ending December 31, 1998, of
the Company or of any unassessed tax deficiency proposed or
threatened against the Company.
(v) Schedule 3.13 sets forth all federal tax elections
under the Code that are in effect with respect to the
Company for the fiscal year ended December 31, 1998.
(vi) The Company has not at any time consented under
section 341(f)(1) of the Code to have the provisions of
section 341(f)(2) of the Code apply to any sale of its
stock.
3.14 Title to Assets. Except as set forth on Schedule 3.14,
the Company owns outright and has good and marketable title to
all of its assets, including, without limitation, all of the
assets reflected on the Balance Sheet or described in Section
3.15 (Real Estate), Section 3.16 (Tangible Property), Section
3.17 (Intellectual Property) and Section 3.21 (Receivables), in
each case free and clear of any lien or other encumbrance, except
for (i) assets disposed of, or subject to purchase or sales
orders, in the ordinary course of business since the Balance
Sheet Date; (ii) liens or other encumbrances securing taxes,
assessments, governmental charges or levies, all of which are not
yet due and payable or are being contested in good faith, so long
as such contest does not involve any danger of the sale,
forfeiture or loss of any assets material to the condition of the
Company; (iii) assets held or used pursuant to any lease or
license; or (iv) the rights of customers of the Company with
respect to inventory or work in progress under purchase orders or
contracts entered into by the Company in the ordinary course of
business. Schedule 3.14 sets forth a correct and complete list
of all of the Company's assets which are held or used pursuant to
any lease or license.
3.15 Real Estate. Schedule 3.15 sets forth a correct and
complete list of all real property owned in whole or in part by
the Company or leased by the Company (collectively, the "Real
Property"), and includes the name of the record title holder
thereof and a list and brief description of all indebtedness
secured by each mortgage, deed of trust or other lien or
encumbrance thereon. The Real Property set forth on Schedule
3.15 constitutes all of the real property used by the Company for
office, warehouse, storage, and any other uses. The buildings,
structures and improvements included within the Real Property
(collectively, the "Improvements") comply in all material
respects with all applicable restrictions, building ordinances
and zoning ordinances and all regulations of the applicable
health and fire departments, and no material alteration, repair,
improvement or other work has been performed in respect to such
Improvements within the last one hundred twenty (120) days. The
Improvements and the mechanical systems situated therein,
including, without limitation, the heating, electrical, air
conditioning and plumbing systems, are in good operating
condition and repair, ordinary wear and tear excepted, and are
adequate and suitable for the purposes for which they are
presently being used, and the roof of each Improvement is in
satisfactory condition and is not in need of material current
repair.
3.16 Tangible Property. The facilities, machinery,
equipment, furniture, leasehold improvements, fixtures, vehicles,
structures, any related capitalized items and other tangible
property material to the business of the Company (the "Tangible
Property") are in good operating condition and repair, subject to
continued repair and replacement in accordance with past
practice, and the Company has not received any notice that any of
the Tangible Property is in violation of any existing law or any
building, zoning, health, safety or other ordinance, code or
regulation which violation could have a material adverse effect
on the condition of the Company. During the past three (3) years
there has not been any significant interruption of the operations
of the Company due to inadequate maintenance of the Tangible
Property. All material leases, conditional sale contracts,
franchises or licenses pursuant to which the Company may hold or
use any interest owned or claimed by the Company (including,
without limitation, options) in or to Tangible Property are in
full force and effect and, with respect to the performance of the
Company, there is no default or event of default or event which
with notice or lapse of time or both would constitute a default.
3.17 Intellectual Property.
(i) Schedule 3.17(i) sets forth all of the
Intellectual Property (as defined below) and there are no
other patents, trademarks, copyrights, service marks, trade
names, other intellectual property rights, trade secrets,
know how, technology, blueprints, designs, works for hire,
inventions, or other proprietary information, processes or
formulae, which are material to the business of the Company
as presently conducted or as being developed. Except as
set forth on Schedule 3.17(i), neither the Company nor any
of the Sellers have any notice of any interest in the
Intellectual Property adverse to the Company's interest or
notice of any claim of any other person relating to any of
the property set forth on Schedule 3.17(i), and neither the
Company nor any of the Sellers knows of any basis for any
such charge or claim. All Intellectual Property is
adequately protected against the unauthorized or unlawful
use by other persons. There is no present or, to the
knowledge of the Company or any of the Sellers, threatened
use or encroachment of any Intellectual Property which could
have an adverse effect upon the Contemplated Transactions or
upon the condition of the Company.
(ii) Except for the rights and licenses validly and
effectively established by the Software Contracts (as
defined below), the Company owns, and shall retain on and
after the Closing, all the Intellectual Property.
(iii) Schedule 3.17(iii) sets forth the form and
placement of the proprietary legends and copyright notices
displayed in or on the Software Programs (as defined below).
In no instance has the eligibility of the Software Programs
for protection under applicable copyright law been forfeited
to the public domain by omission of any required notice or
any other action.
(iv) The Company has promulgated and used its
commercially reasonable best efforts to enforce a trade
secret protection program. To the knowledge of the Company
or any of the Sellers, there has been no material violation
of such program by any person or entity. The source code and
system documentation relating to the Software Programs (a)
have at all times been maintained in confidence, and (b)
have been disclosed by the Company or by any of the Sellers
only to employees and consultants having "a need to know"
the contents thereof in connection with the performance of
their duties to the Company.
(v) All personnel, including employees, agents,
consultants and contractors, who have contributed to or
participated in the conception and development of the
Software Programs, Technical Documentation (as defined
below), or Intellectual Property on behalf of the Company
either (a) have been party to a "work-for-hire" arrangement
or agreement with the Company, in accordance with applicable
federal and state law, that has accorded the Company full,
exclusive and original ownership of all tangible and
intangible property (including the Intellectual Property)
thereby arising, or (b) have executed appropriate
instruments of assignment in favor of the Company as
assignee that have conveyed to the Company full and
exclusive ownership of all tangible and intangible property
(including the Intellectual Property) thereby arising.
(vi) Whenever any of the terms set forth below is used
in this Article 3, it shall have the following meaning:
(a) "Intellectual Property" shall mean all
patents, trademarks, copyrights, service marks and
trade names (whether registered or not), all
applications for any of the foregoing, and all permits,
grants and licenses or other rights running to or from
the Company relating to any of the foregoing, and all
other intellectual property rights, trade secrets, know
how, technology, blueprints, designs, works for hire,
inventions, and other proprietary information,
processes and formulae used in the Company's business.
(b) "Software Contracts" shall mean all
contracts, agreements, licenses, sublicenses, and other
commitments and arrangements, oral or written, with any
person or entity respecting the ownership, license,
acquisition, design, development, distribution,
marketing, use or maintenance of computer program code,
related technical or user documentation, and databases,
in each case relating to or arising out of the
Company's business, including, without limitation, the
following: (1) licenses or sublicenses from third
parties (development and/or marketing), (2) licenses or
sublicenses from third parties (internal use only), (3)
development contracts, work-for-hire agreements, and
consulting and employment agreements, (4)
distributorships, dealerships, franchises, and
manufacturer's representative contracts, (5) licenses
and sublicenses to others, and (6) maintenance, support
or enhancement agreements;
(c) "Software Programs" shall mean the systems and
applications computer programs described in Schedule
3.17(vi); and
(d) "Technical Documentation" shall mean all
technical and descriptive materials relating to the
acquisition, design, development, use or maintenance of
computer code and program documentation and materials
in the Company's business.
3.18 Adequacy of Technical Documentation. The Technical
Documentation (as defined in Section 3.17(vi) hereof) includes
the source code, system documentation, statements of principles
of operation, and schematics for all Software Programs (as
defined in Section 3.17(vi) hereof), as well as any pertinent
commentary or explanation that may be necessary to render such
materials understandable and usable by a computer programmer
fully trained in the applicable source code language. The
Technical Documentation also includes any program (including,
without limitation, compilers), "workbenches," tools and higher
level (or "proprietary") language owned, licensed or used by the
Company for the development, maintenance and implementation of
the Software Programs.
3.19 Third-Party Components in Software Programs. The
Company has validly and effectively obtained the right and
license to use, copy, modify and distribute the third-party
programming and materials contained in the Software Programs and
Technical Documentation pursuant to the Software Contracts that
are "licenses or sublicenses from third parties (development
and/or marketing)" (as described in Section 3.17(vi)(b)(1)) or
that are "licenses or sublicenses from third parties (internal
use only)"(as described in Section 3.17(vi)(b)(2)). The Software
Programs and Technical Documentation contain no other programming
or materials in which any third party may claim superior, joint
or common ownership, including any right or license. Except as
set forth on Schedule 3.19, the Software Programs and Technical
Documentation do not contain derivative works of any programming
or materials not owned in their entirety by the Company.
3.20 Third-Party Interests or Marketing Rights in Software
Programs. Except as set forth on Schedule 3.20, the Company has
not granted, transferred or assigned any right or interest in the
Software Programs, the Technical Documentation or the
Intellectual Property to any person or entity, except pursuant to
the Software Contracts that are "distributorships, dealerships,
franchises, and manufacturer's representative contracts" (as
described in Section 3.17(vi)(b)(4)) or that are "licenses and
sublicenses to others" (as described in Section 3.17(vi)(b)(5)).
Except as set forth in Schedule 3.20, all Software Contracts that
are "licenses and sublicenses to others" (as described in Section
3.17(vi)(b)(5)) constitute only end-user agreements, each of
which grants the end-user thereunder solely the nonexclusive
right and license to use an identified Software Program and
related user documentation, for internal purposes only, on a
single central processing unit. There are no contracts,
agreements, licenses, sublicenses and other commitments and
arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Software Programs,
the Technical Documentation or the Intellectual Property by any
independent salesperson, distributor, sublicensor, or other
remarketer or sales organization, except for the Software
Contracts that are "distributorships, dealerships, franchises,
and manufacturer's representative contracts" (as described in
Section 3.17(vi)(b)(4)).
3.21 Receivables. All accounts and notes receivable as
reflected on the Balance Sheet, and all accounts and notes
receivable arising subsequent to the Balance Sheet Date and on or
prior to the Closing Date, (i) have arisen in the ordinary course
of business of the Company, (ii) represent valid obligations due
to the Company enforceable in accordance with their terms, and
(iii) have been collected or are collectible in the ordinary
course of business of the Company in the aggregate recorded
amounts thereof in accordance with their terms.
3.22 Actions and Proceedings. There are no outstanding
orders, judgments, injunctions, awards or decrees of any court,
arbitrator or governmental or regulatory body against the
Company. Except as set forth on Schedule 3.22, there are no
actions, suits or claims or legal, administrative or arbitral
proceedings or investigations (whether or not the defense thereof
or liabilities in respect thereof are covered by insurance)
pending, or to the knowledge of the Company or any of the
Sellers, threatened against or involving the Company or any of
its properties or assets which, individually or in the aggregate,
could have a material adverse effect upon the Contemplated
Transactions or upon the condition of the Company. All notices
required to have been given to any insurance company listed as
insuring against any action, suit or claim set forth on Schedule
3.22 have been timely and duly given and, except as set forth on
Schedule 3.22, no insurance company has asserted, orally or in
writing, that such claim is not covered by the applicable policy
relating to such claim. Except as set forth in Schedule 3.22,
there are no product liability or warranty claims against or
involving the Company or the Company Products (as defined in
Section 3.29).
3.23 Contracts and Other Agreements. Schedule 3.23 sets
forth all of the following contracts and other agreements to
which the Company is a party or by or to which it or its assets
or properties are bound or subject: (i) contracts and other
agreements with any current or former officer, director,
shareholder or other affiliate or with any other current employee
or consultant or with an entity in which any of the foregoing is
a controlling person; (ii) contracts and other agreements with
any labor union or association representing any employee;
(iii) contracts and other agreements with any person to sell,
distribute or otherwise market any of the Company Products (as
defined in Section 3.29); (iv) contracts and other agreements
with any person for the development, creation or manufacture of
any of the Company Products; (v) contracts and other agreements
for the sale of any of its assets other than in the ordinary
course of business or for the grant to any person of any option
or preferential rights to purchase any of its assets; (vi) joint
venture agreements; (vii) contracts and other agreements under
which it agrees to indemnify any party or to share tax liability
of any party; (viii) material contracts and other material
agreements which cannot be canceled without liability, premium or
penalty upon ninety (90) days notice or less notice;
(ix) contracts and other agreements with customers, distributors
or suppliers for the sharing of fees, the rebating of charges or
other similar arrangements; (x) contracts and other agreements
containing covenants of the Company not to compete in any line of
business or with any person in any geographical area or covenants
of any other person not to compete with the Company in any line
of business or in any geographical area; (xi) contracts and other
agreements relating to the acquisition by the Company of any
operating business or the capital stock of any other person;
(xii) contracts and other agreements requiring the payment to any
person of an override or similar commission or fee;
(xiii) contracts and other agreements relating to the borrowing
of money; (xiv) licenses; (xv) leases; (xvi) contracts and other
agreements with any person for the sale of any of the Company
Products (as defined in Section 3.29) that have not been fully
performed, and with respect to which the purchase price payable
to the Company for the unperformed portion is in excess of One
Hundred Fifty Thousand Dollars ($150,000); (xvii) any other
contracts and other agreements in excess of Five Thousand Dollars
($5,000) not made in the ordinary course of business; or
(xviii) any other contracts and other agreements pursuant to the
terms of which there is either a current or future obligation of
the Company to make payments in excess of Five Thousand Dollars
($5,000). There have been made available to the Buyer true and
complete copies of all of the contracts and other agreements set
forth on Schedule 3.23 or on any other Schedule. All of such
contracts and other agreements are valid and binding upon the
Company. The Company is not in default under any of such
agreements, nor, to the knowledge of the Company or any of the
Sellers, is any other party to any such contract or other
agreement in default thereunder, nor does any condition exist
that with notice or lapse of time or both would constitute a
default thereunder. Schedule 3.23 also lists all contracts and
other agreements currently in negotiation or proposed by the
Company of a type which if entered into by the Company would be
required to be listed on Schedule 3.23 or on any other Schedule.
The Company and the Sellers have made available to the Buyer true
and correct drafts or summaries of all contracts and other
agreements described in the preceding sentence and copies of all
documents relating thereto.
3.24 Compliance with Laws. Except as set forth on Schedule
3.24, the Company is not in violation of any applicable federal,
state, local or foreign law, ordinance, regulation, order,
judgment, injunction, award, decree or other requirement of any
governmental or regulatory body, court or arbitrator, including,
without limitation, (i) the Robinson-Patman Price Discrimination
Act of 1936, as amended, (ii) regulations and requirements of the
Occupational Safety and Health Administration, or (iii) laws
relating to pollution or protection of the environment (clauses
(ii) and (iii) hereinafter collectively referred to as the
"Safety and Environmental Laws"), including, without limitation,
laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals, or industrial,
toxic or hazardous substances or wastes into the environment
(including, without limitation, ambient air, surface water,
ground water or land), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal,
transport or handling of pollutants, contaminants, chemicals or
industrial, toxic or hazardous substances or wastes, which
violation could have a material adverse effect upon the
Contemplated Transactions or upon the condition of the Company
and neither the Company nor any of the Sellers have received
notice that any such violation is being alleged. The Company has
all licenses, permits, orders or approvals of, and has made all
required registrations with, any governmental or regulatory body
that are material to the conduct of the business of the Company
(collectively, "Permits"), including, without limitation, all
Permits relating to compliance with Safety and Environmental
Laws. All Permits are listed on Schedule 3.24 and are in full
force and effect; no material violations are or have been
recorded in respect of any Permit; and no proceeding is pending
or threatened to revoke or limit any Permit.
3.25 Suppliers, Distributors, Sales Agents and Customers.
Schedule 3.25 lists, by dollar volume paid for the twelve (12)
months ended on March 31, 1999, (i) the ten (10) largest
suppliers of the Company, (ii) all of the distributors and sales
agents for the Company Products (as defined in Section 3.29),
(iii) the ten (10) largest customers of the Company, and (iv) any
other supplier which is the Company's sole supplier of a product
of which the Company purchased in excess of Twenty Five Thousand
Dollars ($25,000) of such product during such twelve (12) month
period. To the knowledge of the Company or any of the Sellers,
except as set forth on Schedule 3.25, (A) no person listed on
Schedule 3.25 intends or within the last twelve (12) months has
threatened to cancel or otherwise terminate the relationship of
such person with the Company, (B) no such person intends to
modify materially its relationship with the Company or to
decrease materially or limit materially its services, supplies or
materials to the Company or its usage or purchase of the services
of the Company or Company Products, as the case may be, (C) no
such person has during the last twelve (12) months decreased
materially or threatened to decrease or limit materially, its
services, supplies or materials to the Company or its usage or
purchase of the services or products of the Company, as the case
may be, and (D) the acquisition of the Shares by the Buyer and
the Contemplated Transactions will not affect the relationship of
the Company with any supplier, distributor, sales agent or
customer listed on Schedule 3.25 to an extent that the condition
of the Company will be adversely affected in any material
respect.
3.26 Employee Benefit Plans.
(i) Schedule 3.26 sets forth a complete and correct
list of all Benefit Plans (as defined below).
(ii) The Company delivered to the Buyer complete and
accurate copies of all plan texts and other agreements
(including, without limitation, trust agreements and
agreements with third party administrators, actuaries,
investment managers, investment consultants and other
independent contractors) adopted in connection with each
Benefit Plan, and all amendments thereto; all summary plan
descriptions for each Benefit Plan and other material
employee communications relating thereto; the annual reports
for each Benefit Plan for each of the most recent three plan
years and financial statements (or similar reports)
therefor; a written description of any Benefit Plan that is
not otherwise in a writing provided to Buyer pursuant to
this Section 3.26; all notices or other filings given with
respect to each Benefit Plan to the IRS, the PBGC (as
defined below), or any participant or beneficiary, pursuant
to statute within the four years preceding the date of this
Agreement; all notices that were given by the IRS, the PBGC
or the United States Department of Labor with regard to any
Benefit Plan to the Company within the four years preceding
the date of this Agreement; and, with respect to each
Benefit Plan which is a Pension Plan (as defined below)
(i) the most recent actuarial valuation therefor (if any),
and (ii) the most recent determination letter received from
the Internal Revenue Service (if any).
(iii) No event has occurred, and there exists no
condition or set of circumstances relating, directly or
indirectly, to the Benefit Plans in connection with which
the Company or any Benefit Plan, directly or indirectly,
could be subject to any liability under ERISA (as defined
below) (including, but not limited to, sections 409, 502(i),
4062, 4063, 4064, 4069, 4201, 4242 or 4243 thereof), the
Code (including, but not limited to, sections 4971 or 4975
thereof) or any other applicable law.
(iv) With respect to each Benefit Plan: (i) full
payment of all amounts which the Company is or has been
required under the terms of each such plan to have paid as
contributions to such plan has been made; (ii) no
accumulated funding deficiency (as defined in section 302 of
ERISA and section 412 of the Code), whether or not waived,
exists with respect to any such plan; (iii) in all material
respects, each such plan conforms to, and its administration
is in compliance with, applicable plan documents and all
applicable laws and regulations, including, but not limited,
to ERISA and the Code; (iv) each such plan which is a
Pension Plan intended to qualify under section 401(a) or
403(a) of the Code has been determined by the Internal
Revenue Service to so qualify and nothing has occurred since
the date of any such determination which has adversely
affected such qualification; and (v) there are no actions,
suits or claims pending (other than routine claims for
benefits) or threatened against any such plan or against the
assets of any such plan.
(v) No unpaid or contingent liability to the PBGC (as
defined below) has been or is expected to be incurred,
directly or indirectly, by the Company (other than for
payment of PBGC premiums in the ordinary course). No event
has occurred, and there exists no condition or set of
circumstances which presents a material risk of the
termination or partial termination of any Pension Plan,
which could result, directly or indirectly, in a liability
on the part of the Company to the PBGC or any other person.
(vi) Except as set forth on Schedule 3.26, there is no
plan or arrangement which is a Benefit Plan and which
provides medical or death benefits (whether or not insured)
to employees beyond their retirement or other termination of
service (other than coverage mandated by statute).
(vii) Except as set forth on Schedule 3.26, there
are no trust accounts, reserves, assets, surplus or prepaid
premiums under any Benefit Plan which is a welfare plan (as
defined in section 3(1) of ERISA).
(viii) There are no unfunded pension benefit
obligations arising in any jurisdiction which are not
accounted for by reserves shown on the Company's financial
statements and established under generally accepted
accounting principles, or otherwise expressly noted on such
statements.
(ix) With respect to each Benefit Plan which is a
Pension Plan, the present value of liabilities for accrued
benefits as of the Closing Date, whether or not vested,
under any such plan shall not exceed the net assets of such
plan allocable to such liabilities.
(x) No transaction prohibited by Section 406 of ERISA
and no "prohibited transaction" under Section 4975(c) of the
Code have occurred with respect to any Benefit Plan.
(xi) All contributions and payments made or accrued
with respect to all Benefit Plans are deductible under
Section 162 or Section 404 of the Code. No amount nor any
asset of any Benefit Plan or related trust is subject to tax
as unrelated business taxable income.
(xii) Except as set forth on Schedule 3.26, each
Benefit Plan can be terminated within thirty (30) days,
without payment of any additional contribution or amount and
without the vesting or acceleration of any benefits
permitted by such plan.
(xiii) No event has occurred or circumstance exists
that could result in a material increase in premium costs of
Benefit Plans that are insured, or a material increase in
costs of Benefit Plans that are self-insured.
(xiv) No Benefit Plan is subject to Title IV of
ERISA.
(xv) The Company, and any other person that together
with the Company would be treated as a single employer under
Section 414 of the Code, have complied, in all material
respects, with the provisions of Section 601 et seq. of
ERISA and Section 4980B of the Code.
(xvi) Except as set forth on Schedule 3.26, the
consummation of the Contemplated Transactions will not
(A) entitle any employee of the Company to severance pay,
unemployment compensation or any similar payment, or
(B) accelerate the time of payment, vesting, or increase the
amount of any compensation due to any employee of the
Company.
(xvii) Except as set forth on Schedule 3.26, there
has been no contribution or obligation to contribute to any
multi-employer plan (as defined in section 4001(a)(3) of
ERISA) with respect to any employee of the Company.
(xviii) Whenever any of the terms set forth below is
used in this Section 3.26, it shall have the following
meaning: (A) "Benefit Plan" shall mean any plan, agreement,
arrangement or commitment which is an employment or
consulting agreement, executive compensation plan, bonus
plan, deferred compensation agreement, employee pension,
profit-sharing, savings or retirement plan, employee stock
option or stock purchase plan, group life, health, accident,
or disability insurance or other employee benefit plan,
agreement, arrangement or commitment, including, without
limitation, dental care, vision care, dependent care,
cafeteria plan, legal services, employee assistance program,
scholarship, severance, holiday, vacation, Christmas bonus
or other bonus practice (including, but not limited to,
employee benefit plans, as defined in section 3(3) of
ERISA), with respect to which the Company (1) currently has
or in the future may have some liability or obligation to
contribute or pay benefits and (2) which relates to current
or former employees of the Company or to current or former
employees of any other person that together with the Company
would be treated as a single employer under Section 414 of
the Code; (B) "ERISA" shall mean the Employee Retirement
Income Security Act of 1974, as amended; (C) "PBGC" shall
mean the Pension Benefit Guaranty Corporation; and
(D) "Pension Plan" shall mean an employee pension benefit
plan, as defined in section 3(2) of ERISA.
3.27 Insurance. Schedule 3.27 sets forth a list and brief
description (specifying the insurer, describing each pending
claim thereunder of more than Ten Thousand Dollars ($10,000) and
setting forth the aggregate amounts paid out under each such
policy through the date hereof) of all policies or binders of
fire, liability, product liability, workmen's compensation,
vehicular and other insurance held by or on behalf of the
Company. Such policies and binders are in full force and effect
and insure against risks and liabilities to an extent and in a
manner customary in the industries in which the Company
operates. Except for claims set forth on Schedule 3.27, there
are no outstanding unpaid claims under any such policy or binder;
the Company has not received any notice of cancellation or non-
renewal of any such policy or binder. To the knowledge of the
Company or any of the Sellers, there is no inaccuracy in any
application for such policies or binders, or any failure to pay
premiums when due. Except as set forth on Schedule 3.27, neither
the Company nor any of the Sellers have received any notice from
any of its insurance carriers that any insurance premiums will
be materially increased in the future or that any insurance
coverage listed on Schedule 3.27 will not be available in the
future on substantially the same terms as now in effect.
3.28 Books and Records. The minute books and stock issuance
and transfer records of the Company, as made available to the
Buyer and its representatives, contain complete and accurate
records of all meetings, and accurately reflect all other
corporate action, of the shareholders and the Board of Directors
of the Company, and accurately reflect all issues and transfers
of all of the capital stock of the Company.
3.29 Company Products. All express or implied warranties
that the Company has made with respect to any product developed,
manufactured, marketed, sold or distributed at any time by the
Company (the "Company Products") are described on Schedule 3.29
hereto. No events have occurred or facts exist that could result
in a significant increase in any future expense related to the
warranty obligations described on Schedule 3.27 from that
historically experienced by the Company.
3.30 Year 2000 Compliance. The Year 2000 Problem (as
defined below) has not been, and the Company has taken reasonably
appropriate actions to assure that the Year 2000 Problem will not
be, material and adverse to the business, properties, assets,
financial condition, results of operations or prospects of the
Company, including, but not limited to, the Company Products.
Schedule 3.30 sets forth all actions taken by the Company as of
the date of this Agreement and all actions remaining to be taken
to become Year 2000 Compliant (as defined below) on or prior to
January 1, 2000 in all computer-based systems (including all
software, embedded microchips and other processing capabilities)
used by or operated within the custody or control of the Company.
The Company has undertaken a review and assessment of the
products of all suppliers and vendors that are incorporated in or
delivered by the Company for use with the Company's Products,
with respect to which products the Year 2000 Problem could
reasonably be expected to have a material adverse effect upon the
Contemplated Transactions or upon the Company. The Company has
developed and implemented plans or procedures reasonably
appropriate to avoid or minimize any such material adverse effect
to the Contemplated Transactions or to the Company. For the
purposes of this Agreement, the "Year 2000 Problem" shall mean
the risk that computer applications used by, or operated within
the custody or control of the Company or products of any of its
material suppliers or vendors that are incorporated in or
delivered by the Company for use with the Company's Products may
be unable to recognize or properly perform date-sensitive
functions involving certain dates (including dates related to any
leap year) prior to, and any date after, December 31, 1999. For
purposes of this Agreement, "Year 2000 Compliant" shall mean,
with respect to the Company or any of its material suppliers or
vendors, all software, embedded microchips and other processing
capabilities utilized by the Company or any of its material
suppliers or vendors are able to interpret and manipulate data on
or involving all calendar dates (including dates related to any
leap year) correctly and without causing any abnormal ending
scenario, including in relation to dates (including dates related
to any leap year) immediately prior to, in and after the year
2000.
3.31 Officers, Directors and Key Employees. Schedule 3.31
sets forth the name and total current annual compensation of each
person who is now an officer or director of the Company, an
employee, consultant, agent or other representative of the
Company whose annual rate of compensation (including bonuses and
commissions) exceeds Seventy Five Thousand Dollars ($75,000).
With the exception of salary increases granted in the ordinary
course of business and in a manner and amount consistent with its
past practices, the Company has not made a commitment or
agreement to increase the compensation or to modify the
conditions or terms of employment of any such person. Except as
set forth on Schedule 3.31, none of such persons currently
holding such a position has indicated that he or she will cancel
or otherwise terminate such person's relationship with the
Company.
3.32 Operations of the Company. Except as set forth on
Schedule 3.32, since the Balance Sheet Date the Company has not:
(i) declared or paid any dividends or declared or made
any other distributions of any kind to its shareholders, or
made any direct or indirect redemption, retirement, purchase
or other acquisition of any shares of its capital stock;
(ii) except for short-term bank borrowings in the
ordinary course of business, incurred any indebtedness for
borrowed money;
(iii) reduced its cash or short term investments or
their equivalent, other than to meet cash needs arising in
the ordinary course of business, consistent with past
practices;
(iv) waived any material right under any contract or
other agreement of the type required to be set forth on any
Schedule hereto;
(v) made any material change in its accounting methods
or practices or made any material change in depreciation or
amortization policies or rates adopted by it;
(vi) materially changed any of its business policies,
including, without limitation, advertising, investment,
marketing, pricing, purchasing, personnel, sales, returns,
budget or product acquisition policies;
(vii) made any wage or salary increase or bonus, or
increase in any other direct or indirect compensation, or
any payment or commitment to pay any severance or
termination pay to any of its officers, directors,
employees, consultants, agents or other representatives, or
any accrual for or commitment or agreement to make or pay
the same, in each case, other than to persons other than its
officers, directors or shareholders made in the ordinary
course of business;
(viii) made any loan or advance to any of its
shareholders, officers, directors, employees, consultants,
agents or other representatives (other than travel advances
made in the ordinary course of business), or made any other
loan or advance other than in the ordinary course of
business;
(ix) except for inventory, supplies or equipment
acquired in the ordinary course of business, made any
acquisition of all or any part of the assets, properties,
capital stock or business of any other person;
(x) paid, directly or indirectly, any of its material
Liabilities before the same became due in accordance with
its terms or otherwise than in the ordinary course of
business;
(xi) terminated or failed to renew, or received any
threat to terminate or fail to renew, any contract or other
agreement that is or was material to the condition of the
Company;
(xii) entered into any Software Contracts (as
defined in Section 3.17(vi) hereof) other than in the
ordinary course of business and consistent with past
practices; or
(xii) engaged in any material transaction other
than in the ordinary course of business.
3.33 Potential Conflicts of Interest. Except as set forth
on Schedule 3.33, to the knowledge of the Company or any of the
Sellers, no officer, director or affiliate of the Company, no
Seller, no relative or spouse (or relative of such spouse) of any
such officer, director or affiliate or of a Seller and no entity
controlled by one (1) or more of the foregoing:
(i) owns, directly or indirectly, any interest in
(excepting less than one percent (1%) stock holdings for
investment purposes in securities of publicly held and
traded companies), or is an officer, director, employee or
consultant of, any person which is, or is engaged in
business as, a competitor, lessor, lessee, supplier,
distributor, sales agent or customer of the Company;
(ii) owns, directly or indirectly, in whole or in part,
any tangible or intangible property that the Company uses in
the conduct of business; or
(iii) has any cause of action or other claim
whatsoever against, or owes any amount to, the Company,
except for claims in the ordinary course of business such as
for accrued vacation pay, accrued benefits under employee
benefit plans, and similar matters and agreements existing
on the date hereof.
3.34 Banks, Brokers and Proxies. Schedule 3.34 sets forth
(i) the name of each bank, trust company, securities or other
broker or other financial institution with which the Company has
an account, credit line or safe deposit box or vaults; (ii) the
name of each person authorized by the Company to draw thereon or
to have access to any safe deposit box or vault; and (iii) the
names of all persons authorized by proxies, powers of attorney or
other instruments to act on behalf of the Company in matters
concerning its business or affairs.
3.35 Full Disclosure. All documents and other papers
delivered by or on behalf of the Sellers in connection with this
Agreement and the Contemplated Transactions are true, complete
and authentic in all material respects. Notwithstanding the
foregoing, this Section 3.35 does not apply to projections for
the future. No representation or warranty of the Sellers
contained in this Agreement contains an untrue statement of a
material fact or omits to state a material fact required to be
stated therein or necessary to make the statements made, in the
context in which made, not materially false or misleading.
3.36 Representations and Warranties on Closing Date. The
representations and warranties contained in this Article 3 shall
be true in all material respects on and as of the Closing Date
with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER.
The Buyer represents and warrants to the Sellers as follows:
4.1 Due Incorporation and Authority. The Buyer is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Nevada, and has all requisite
corporate power and authority to own, lease and operate its
assets and business and to carry on its business as now being and
as heretofore conducted.
4.2 Buyer Authorization and Validity of Agreement. The
Buyer has the full legal right and power and all authority and
approval required to enter into, execute and deliver this
Agreement and to perform fully its obligations hereunder. This
Agreement has been duly executed and delivered by the Buyer and
(assuming the due authorization, execution and delivery hereof by
the Sellers) is a valid and binding obligation of the Buyer
enforceable in accordance with its terms.
4.3 No Breach. Except as set forth on Schedule 4.3, the
execution and delivery by the Buyer of this Agreement, the
consummation of the Contemplated Transactions and the performance
by the Buyer of this Agreement in accordance with the terms and
conditions hereof, will not (i) require the approval or consent
of any foreign, federal, state, county, local or other
governmental or regulatory body or the approval or consent of any
other person; (ii) conflict with or result in any breach or
violation of any of the terms and conditions of, or constitute
(or with notice or lapse of time or both constitute) a default
under, any Articles of Incorporation or the Bylaws of the Buyer,
statute, regulation, order, judgment or decree of or applicable
to the Buyer, or any instrument, contract or other agreement to
which the Buyer is a party or by or to which the Buyer or any of
its properties is bound or subject; or (iii) result in the
creation of any lien or encumbrance on any of the properties of
the Buyer. The consents, approvals, filings and notices listed
on Schedule 4.3 (if any) are referred to herein as the "Buyer's
Required Consents."
4.4 Representations and Warranties on Closing Date. The
representations and warranties contained in this Article 4 shall
be true in all material respects on and as of the Closing Date
with the same force and effect as though such representations and
warranties had been made on and as of the Closing Date.
5. COVENANTS AND AGREEMENTS.
The parties covenant and agree as follows:
5.1 Conduct of Business. From the date hereof through the
Closing Date, the Company shall, and the Sellers shall cause the
Company to, conduct its business in the ordinary course,
consistent with past practice, and, without the prior written
consent of the Buyer, the Sellers will not cause or permit the
Company to take any action that would cause any of the
representations and warranties contained in Section 3.32 hereof
not to be true and correct immediately after the taking of such
action. From the date hereof through the Closing Date, the
Sellers shall cause the Company to, and the Company shall,
conduct its business in such a manner so that the other
representations and warranties contained in Article 3 hereof, in
addition to those contained in Section 3.32, shall continue to be
true and correct on and as of the Closing Date as if made on and
as of the Closing Date, and each Seller shall conduct such
Seller's affairs in such a manner so that the representations and
warranties contained in Article 3 hereof with respect to such
Seller shall continue to be true and correct on and as of the
Closing Date as if made on and as of the Closing Date.
5.2 Maintenance of Assets; Casualty Loss. From the date
hereof through the Closing Date, the Sellers and the Company
shall use their best efforts to maintain the assets of the
Company in customary repair, order and condition, reasonable wear
and tear excepted, and, in the event of a casualty, loss or
damage prior to the Closing Date to any of such assets for which
the Company is insured, the Company, at the option of the Buyer,
and subject to the requirements of any applicable loss payee or
mortgagee clauses, shall either repair or replace such damaged
assets or transfer the proceeds of such insurance to the Buyer on
the Closing Date.
5.3 Notice of Certain Events. The Company and each of the
Sellers hereby agree to give the Buyer prompt notice of (i) any
event, condition or circumstances occurring from the date hereof
through the Closing Date that would constitute a violation or
breach of any representation, warranty or covenant of the Company
or any of the Sellers contained in this Agreement, or (ii) any
event, occurrence, transaction or other item which would have
been required to have been disclosed in this Agreement or any
Schedule or statement delivered hereunder, had such event,
occurrence, transaction or item existed on the date hereof.
5.4 Corporate Examinations and Investigations. Prior to
the Closing Date, the Buyer shall be entitled, through its
employees, representatives and contractors, including, without
limitation, Smith Helms Mulliss & Moore, L.L.P., KPMG Peat
Marwick, LLP, and Arthur Andersen LLP to make such investigation
of the assets, properties, business and operations of the
Company, and such examination of the books, records and financial
condition of the Company as it wishes. Any such investigation
and examination shall be conducted at reasonable times and under
reasonable circumstances, and the Company and the Sellers shall
cooperate fully therein. No investigation by or on behalf of the
Buyer, however, shall diminish or obviate any of the
representations, warranties, covenants or agreements of the
Sellers under this Agreement. In order that the Buyer may have
full opportunity to make such physical, business, accounting and
legal review, examination or investigation as it may wish of the
business and affairs of the Company, the Sellers shall make
available and shall cause the Company to make available to the
representatives of the Buyer during such period all such
information and copies of such documents concerning the affairs
of the Company as such representatives may reasonably request,
shall permit the contractors and representatives of the Buyer
access to the properties of the Company and all parts thereof and
shall cause the officers, employees, consultants, agents,
accountants and attorneys of the Company to cooperate in all
reasonable respects with such contractors and representatives in
connection with such review and examination. If this Agreement
terminates, the Buyer and their employees, representatives and
contractors shall keep confidential and shall not use in any
manner any information or documents obtained from the Company
concerning its assets, business and operations, unless readily
ascertainable from public or published information, or trade
sources (in each such case unless as a result of a violation of
this Section 5.4), or already known or subsequently developed by
the Buyer independently of any investigation of the Company. If
this Agreement terminates, any documents obtained from the
Company, and all copies thereof, shall be returned.
5.5 Expenses. The Buyer and each of the Sellers shall bear
their own respective expenses incurred in connection with the
negotiation, preparation, execution, delivery and performance of
this Agreement and the consummation of the Contemplated
Transactions hereby, including, without limitation, all fees and
expenses of agents, representatives, counsel and accountants. No
such expenses of the Sellers shall be paid by or accrued as a
liability of the Company. The Sellers shall bear, in addition to
their own costs and expenses, all the costs and expenses of the
Company incurred in connection this Agreement and the
Contemplated Transactions. The Sellers specifically acknowledge
and agree that all costs and expenses of Hoak Breedlove Wesneski
& Co. (including, without limitation, a "success fee" of
approximately One Hundred Eighty Five Thousand Dollars
($185,000)) shall be the responsibility of and paid by the
Sellers on or before the Closing Date.
5.6 Indemnification of Brokerage. The Sellers jointly and
severally represent and warrant to the Buyers that no broker,
finder, agent or similar intermediary has acted on behalf of the
Company or any Seller in connection with this Agreement or the
transactions provided for herein, and that there are no brokerage
commissions, finder's fees or similar fees or commissions payable
with respect to this Agreement or such transactions based on any
agreement, arrangement or understanding with the Company or any
Seller, or any action taken by the Company or any Seller, other
than fees payable to Hoak Breedlove Wesneski & Co., whose fees
will be the sole responsibility of the Sellers. The Sellers
jointly and severally agree to indemnify and save the Buyer
harmless from any claim or demand for commission or other
compensation by any broker, finder, agent or similar intermediary
claiming to have been employed by or on behalf of the Company or
any of the Sellers, and to bear any and all costs, including,
without limitation, any legal fees and expenses incurred in
defending against any such claim.
5.7 Related Parties. The Sellers shall, prior to the
Closing, pay or cause to be paid to the Company all amounts owed
to the Company and reflected on the Balance Sheet or borrowed
from or owed to the Company since the Balance Sheet Date by any
of the Sellers or any affiliate of any of the Sellers. At and as
of the Closing, any debts of the Company owed to any of the
Sellers or to any affiliate of any of the Sellers shall be
canceled, except those debts owed to any Seller in respect of his
or her employment with the Company and incurred in the ordinary
course of business.
5.8 Exclusive Dealing. From the date hereof through June
30, 1999, the Sellers agree that they will not, and that they
will not permit the Company to, directly or indirectly,
encourage, initiate or engage in discussions or negotiations
with, or provide any information to, any corporation,
partnership, person or other entity or group, other than the
Buyer, concerning any purchase of the Shares or any equity
interest in the Company or any subsidiary, or any merger, sale of
substantial assets or similar transaction involving the Company.
5.9 Employment Agreement. Evan E. Price and the Company
agree to enter into an Employment Agreement concurrently with the
Closing substantially in the form of Exhibit C hereto (the "Price
Employment Agreement").
5.10 Covenants Not To Compete.
(i) Each Seller promises and agrees that until the
expiration of the later of (A) five (5) years from the
Closing Date, or (B) one (1) year following the termination
or expiration for any reason of such Seller's consulting or
employment relationship with the Company (if any), the
Seller will not, either directly or indirectly within the
United States:
(a) Own, manage, operate, control, be employed
by, render advisory services to, participate in or be
connected in any management or control of any business
that is then engaged, in competition with the Company
or any of its subsidiaries or affiliates, in the sale
of:
(I) any computer software products or
services developed, marketed, or sold by the
Company or any of its subsidiaries or affiliates,
(II) any computer hardware products or
services developed, marketed, or sold by the
Company or any of its subsidiaries or affiliates,
or
(III) any products or services sold by
the Company or any of its subsidiaries or
affiliates at the time of such termination,
unless his or her duties, responsibilities and
activities for or on behalf of such business are not
related in any way to the sale of any such products or
services;
(b) Influence or attempt to influence any
customer of the Company or any of its subsidiaries or
affiliates to discontinue its purchases of any product
or service sold by the Company or any of its
subsidiaries or affiliates at the time of termination
of his employment or to divert such purchases to any
other person, firm, or corporation;
(c) Interfere with, disrupt or attempt to disrupt
the relationship, contractual or otherwise, between the
Company or any of its subsidiaries or affiliates and
any of its respective suppliers, distributors, lessors,
or licensors; or
(d) Solicit any employee of the Company or any of
its subsidiaries or affiliates, whose base annual
salary at the time of the Employee's termination was
Thirty Thousand Dollars ($30,000) or more, to work for
any other person, firm or corporation.
(ii) For purposes of this Section 5.10, "competition
with the Company or any of its subsidiaries or affiliates"
shall mean direct competition for customers of products or
services of the kind described above in any geographic area
in which the Company or any of its subsidiaries or
affiliates is engaged, directly or indirectly, in selling or
attempting to sell such products or services.
(iii) Each of the Sellers understand and agree that
the Company and its affiliates conduct business throughout
the United States, and that each of the provisions of this
Section 5.10 (including, without limitation, its scope,
geographic limitations and time period covered) are
reasonable and necessary for the protection of the Company
and its affiliates and of their legitimate business
interests.
(iv) It is the desire and intent of the parties that
the provisions of this Section 5.10 shall be enforced to the
fullest extent permitted under the laws and public policies
of each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this Section 5.10
shall be adjudicated to be invalid or unenforceable, such
adjudication shall apply only with respect to the operation
of that portion in the particular jurisdiction in which such
adjudication is made, and all other portions shall continue
in full force and effect.
5.11 Confidentiality. Each Seller covenants that he or she
will not disclose any confidential or proprietary information
concerning this Agreement, the Contemplated Transactions or any
other confidential information of the Company (including, without
limitation, information relating to the Company's business,
products, financial status, performance, operations, methods,
processes, techniques, shop practices, formulae, research data,
marketing and sales information, personnel data, customer lists,
financial data, plans, know-how, proprietary information or
Intellectual Property (as defined in Section 3.17(vi) hereof)
(the "Confidential Information") to any person not employed by
the Company, or not engaged to render services to the Company, or
use, for himself, herself or any other person, firm, corporation
or entity, any Confidential Information. However, this Section
5.11 shall not preclude any of the Sellers from:
(i) disclosing information generally available to the
public (other than information known generally to the public
as a result of a violation of this Section 5.11 by the
Sellers collectively or by any of the Sellers individually);
or
(ii) disclosing information required by law or court
order after promptly notifying the Buyer of the requirement
to disclose such information and permitting the Buyer a
reasonable period to obtain a protective order to prevent
such disclosure.
5.12 Injunctive Relief. The Sellers acknowledge and agree
that the Company would suffer irreparable injury in the event of
a breach by the Sellers collectively, or by any Seller
individually, of any of the provisions of Section 5.10 or Section
5.11 of this Agreement and that the Company shall be entitled to
an injunction restraining all of the Sellers collectively or any
Seller individually, as appropriate, from any breach or
threatened breach thereof. Nothing herein shall be construed,
however, as prohibiting the Company from pursuing any other
remedies at law or in equity which it may have for any such
breach or threatened breach of any provision of Section 5.10 or
Section 5.11 hereof, including the recovery of damages from the
Sellers collectively or from any Seller individually, as
appropriate.
5.13 Further Assurances. Each of the parties hereto shall
execute such agreements, certificates, documents and other
instruments and take such further action as may be reasonably
necessary or appropriate to carry out the provisions hereof and
the transactions provided for herein. Each such party shall use
its best commercially reasonable efforts to fulfill or obtain the
fulfillment of all conditions to the Closing.
6. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE BUYER TO
CLOSE.
The obligation of the Buyer to enter into and complete the
Closing is subject, at the option of the Buyer acting in
accordance with the provisions of this Agreement with respect to
termination hereof, to the fulfillment on or prior to the Closing
Date of the following conditions, any one or more of which may be
waived by it:
6.1 Representations and Covenants. The representations and
warranties of each of the Sellers contained in this Agreement
shall be true in all material respects on and as of the Closing
Date with the same force and effect as though made on and as of
the Closing Date. Each of the Sellers and the Company shall have
performed and complied in all material respects with all
covenants and agreements required by this Agreement to be
performed or complied with by such Seller or the Company on or
prior to the Closing Date. Each Seller shall have delivered to
the Buyer a certificate, dated the Closing Date and signed by
such Seller, to the foregoing effect.
6.2 Consents and Approvals. All of Sellers' Required
Consents shall have been obtained and be in full force and
effect, and the Buyer shall have been furnished with appropriate
evidence of the granting of such approvals, authorizations and
consents.
6.3 Opinion of Counsel to the Company. The Buyer shall
have received the opinion of Gardere & Wynne, L.L.P., counsel to
the Company and the Sellers, dated the date of the Closing,
addressed to the Buyer, in the form of Exhibit D.
6.4 Releases. Each officer and director of the Company,
and such other persons and entities related to or affiliated with
the Company as the Buyer may reasonably designate prior to the
Closing, shall have executed and delivered to the Company and the
Buyer duplicate counterparts of a Release, dated the date of the
Closing, in the form of Exhibit E, or other form satisfactory to
the Buyer.
6.5 Employment Agreements. Evan E. Price shall have
entered into and delivered the Price Employment Agreement.
Additionally, the Company shall enter into Employment Agreements
in form and substance acceptable the Buyer with certain key
personnel of the Company, to be determined by the Buyer in its
sole discretion (the "Key Employment Agreements").
6.6 Financing. The Buyer shall have entered into a loan
agreement and other related agreements with a lender pursuant to
which such lender shall agree to make such loans to the Buyer as
the Buyer may require to enable it to consummate the Contemplated
Transactions and to provide the Buyer with working capital to
conduct the business previously conducted by the Company. The
proceeds of such loans shall be available to the Buyer at the
Closing.
6.7 Escrow Agreement. Concurrently with the Closing, the
Buyer, each of the Sellers and the Escrow Agent shall enter into
the Escrow Agreement.
6.8 Resignations. All resignations from directors of the
Company which have been previously requested in writing by the
Buyer shall have been delivered to the Buyer.
6.9 No Proceeding or Litigation. No action, suit, claim,
proceeding or investigation before any federal or state court or
any federal or state governmental or regulatory authority shall
have been threatened or commenced against any Seller, the
Company, any subsidiary or affiliate of the Company, or the Buyer
seeking to restrain, prevent or change the transactions
contemplated by this Agreement or seeking damages in connection
with any of such transactions.
7. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE
SELLERS TO CLOSE.
The obligation of the Sellers to enter into and complete the
Closing is subject, at the option of the Sellers acting in
accordance with the provisions of this Agreement with respect to
termination hereof, to the fulfillment on or prior to the Closing
Date of the following conditions, any one (1) or more of which
may be waived by the Sellers' Representative:
7.1 Representations and Covenants. The representations and
warranties of the Buyer contained in this Agreement shall be true
in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of the Closing
Date. The Buyer shall have performed and complied in all material
respects with all covenants and agreements required by this
Agreement to be performed or complied with by it on or prior to
the Closing Date. The Buyer shall have delivered to the Sellers
a certificate, dated the Closing Date and signed by an officer of
the Buyer, to the foregoing effect.
7.2 Opinion of Counsel to the Buyer. The Sellers shall
have received the opinion of Smith Helms Mulliss & Moore, L.L.P.,
counsel to the Buyer, dated the date of the Closing, addressed to
the Sellers, in the form of Exhibit F.
7.3 Consents and Approvals. All of Buyer's Required
Consents (as defined in Section 4.3, hereof) shall have been
obtained and be in full force and effect.
7.4 Employment Agreements. Concurrently with the Closing,
the Company and the appropriate employees shall have entered into
the Price Employment Agreement and the Key Employee Agreements.
7.5 Escrow Agreement. Simultaneously with the Closing
hereunder, the Buyer, each of the Sellers and the Escrow Agent
shall enter into the Escrow Agreement.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
8.1 Sellers' Representations and Warranties.
Notwithstanding any right of the Buyer fully to investigate the
affairs of the Company, and notwithstanding any knowledge of
facts determined or determinable by the Buyer pursuant to such
investigation or right of investigation, the Buyer has the right
to rely fully upon the representations, warranties, covenants and
agreements of the Sellers and the Company contained in this
Agreement or in any certificate deliverable pursuant to this
Agreement. All such representations, warranties, covenants and
agreements shall survive the execution and delivery of this
Agreement and the Closing hereunder and shall continue in full
force and effect thereafter; subject, however, to the following:
(i) All representations and warranties of the Sellers
contained in this Agreement or made pursuant hereto,
except for the representations and warranties of the
Sellers in respect of the Tax Returns (as defined in
Section 3.13 above) and Taxes (as defined in Section
3.13 above), and except for the representations and
warranties of the Sellers contained in Section 3.2
(Company Authorization and Validity of Agreement),
Section 3.3 (Sellers Authorization and Validity of
Agreement), Section 3.4 (Outstanding Capital Stock),
Section 3.5 (Title to the Shares), and Section 3.6
(Options, Warrants or Other Rights), shall terminate
and expire two (2) years after the Closing Date, except
with respect to any matter as to which a Claims Notice
(as defined in Section 9.3(i)) is given prior to
expiration of such two (2) year period, in which event
all representations and warranties that relate to the
subject matter of such Claims Notice shall continue in
full force and effect until final resolution of the
matter in question.
(ii) The representations and warranties of the Sellers
in respect of the Tax Returns and Taxes shall continue
in effect after the Closing until expiration of the
applicable statute of limitations relating to the Tax
Returns and Taxes and until final resolution of any
indemnification claim by the Buyer in respect of the
Tax Returns and Taxes, and such representations and
warranties shall not otherwise be limited as to time.
(iii) The representations and warranties of Sellers
contained in Section 3.2 (Company Authorization and
Validity of Agreement), Section 3.3 (Sellers Authority
to Execute and Perform Agreement), Section 3.4
(Outstanding Capital Stock), Section 3.5 (Title to the
Shares), and Section 3.6 (Options, Warrants or Other
Rights) shall continue after the Closing without
limitation pursuant to this Agreement as to time.
8.2 Buyer's Representations and Warranties.
Notwithstanding any right of the Sellers fully to investigate the
affairs of the Buyer, and notwithstanding any knowledge of facts
determined or determinable by the Sellers pursuant to such
investigation or right of investigation, the Sellers have the
right to rely fully upon the representations, warranties,
covenants and agreements of the Buyer contained in this Agreement
or in any certificate deliverable pursuant to this Agreement.
All such representations, warranties, covenants and agreements
shall survive the execution and delivery of this Agreement and
the Closing hereunder and shall continue in full force and effect
thereafter; provided, however, that all representations and
warranties of the Buyer contained in this Agreement or made
pursuant hereto, shall terminate and expire two (2) years after
the Closing Date, except with respect to any matter as to which a
Claims Notice (as defined in Section 9.3(i)) is given prior to
expiration of such period, in which event all representations and
warranties that relate to the subject matter of such Claims
Notice shall continue in full force and effect until final
resolution of the matter in question.
9. INDEMNIFICATION.
9.1 Obligation of the Sellers to Indemnify. The Sellers
jointly and severally agree to indemnify, defend and hold
harmless the Buyer (and its respective directors, officers,
affiliates, successors and assigns) from and against all losses,
liabilities, damages, deficiencies, costs or expenses (including
interest, penalties and reasonable attorneys' fees and
disbursements) (a "Loss" or "Losses") based upon, arising out of
or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of the Sellers or
the Company contained in this Agreement or in any agreement,
certificate, document or other instrument delivered by the
Company or any of the Sellers pursuant to this Agreement.
9.2 Obligation of the Buyer to Indemnify. The Buyer agrees
to indemnify, defend and hold harmless the Sellers from and
against any Losses based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any representation,
warranty, covenant or agreement of the Buyer contained in this
Agreement or in any agreement, certificate, document or other
instrument delivered by the Buyer pursuant to this Agreement.
9.3 Notice and Opportunity to Defend.
(i) Notice of Asserted Liability. Promptly after
receipt by any party hereto (the "Indemnitee") of notice of
any demand, claim or circumstances which, with the lapse of
time, would or might give rise to a claim or the
commencement (or threatened commencement) of any action,
proceeding or investigation (an "Asserted Liability") that
may result in a Loss, the Indemnitee shall give notice
thereof (the "Claims Notice") to any other party (or
parties) obligated to provide indemnification pursuant to
Section 9.1 or Section 9.2 (the "Indemnifying Party"). The
Claims Notice shall describe the Asserted Liability in
reasonable detail, and shall indicate the amount (estimated,
if necessary and to the extent feasible) of the Loss that
has been or may be suffered by the Indemnitee.
(ii) Opportunity to Defend. The Indemnifying Party may
elect to compromise or defend, at his, her or its own
expense and by his, her or its own counsel, any Asserted
Liability. If the Indemnifying Party elects to compromise
or defend such Asserted Liability, he, she or it shall
within thirty (30) days (or sooner, if the nature of the
Asserted Liability so requires) notify the Indemnitee of
his, her or its intent to do so, and the Indemnitee shall
cooperate, at the expense of the Indemnifying Party, in the
compromise of, or defense against, such Asserted Liability.
If the Indemnifying Party elects not to compromise or defend
the Asserted Liability, fails to notify the Indemnitee of
his, her or its election as herein provided or contests his,
her or its obligation to indemnify under this Agreement, the
Indemnitee may pay, compromise or defend such Asserted
Liability. Notwithstanding the foregoing, neither the
Indemnifying Party nor the Indemnitee may settle or
compromise any claim over the objection of the other;
provided, however, that consent to settlement or compromise
shall not be unreasonably withheld; provided, however, that,
if the Sellers are the Indemnifying Party, the Indemnifying
Party may settle any claim without the prior written consent
of the Buyer if the judgment or proposed settlement involves
only the payment of any money damages by the Indemnifying
Party and does not impose any injunctions or other equitable
relief upon the Buyer or the Company or otherwise adversely
impact the ongoing business of the Buyer or the Company. In
any event, the Indemnitee and the Indemnifying Party may
participate, at their own expense, in the defense of any
Asserted Liability. If the Indemnifying Party chooses to
defend any claim, the Indemnitee shall make available to the
Indemnifying Party any books, records or other documents
within his, her or its control that are necessary or
appropriate for such defense.
(iii) Disputes with Customers, Distributors, Sales
Agents or Suppliers. Anything in Section 9.3(ii) to the
contrary notwithstanding, in the case of any Asserted
Liability by any supplier, distributor, sales agent or
customer of the Company with respect to the business
conducted by the Company prior to the Closing in connection
with which the Buyer may make a claim against the Sellers
for indemnification pursuant to Section 9.1, the Buyer shall
give a Claims Notice with respect thereto but, unless the
Buyer and the Indemnifying Party otherwise agree, the Buyer
shall have the exclusive right and option to defend any such
matter, subject to the duty of the Buyer to consult with the
Indemnifying Party and his or her attorneys in connection
with such defense and provided that no such matter shall be
compromised or settled by the Buyer without the prior
consent of the Indemnifying Party, which consent shall not
be unreasonably withheld; provided, however, that the
Indemnifying Party may settle any claim without the prior
written consent of the Buyer if the judgment or proposed
settlement involves only the payment of only money damages
by the Indemnifying Party and does not impose an injunction
or other equitable relief upon the Buyer or the Company or
otherwise adversely impact the ongoing business of the Buyer
or the Company. The Indemnifying Party shall have the right
to recommend in good faith to the Buyer proposals to
compromise or settle claims brought by a supplier,
distributor, sales agent or customer, and the Buyer agrees
to present such proposed compromise or settlements to such
supplier, distributor, sales agent or customer. All amounts
required to be paid in connection with any such Asserted
Liability pursuant to the determination of any court,
governmental or regulatory body or arbitrator, and all
amounts required to be paid in connection with any such
compromise or settlement consented to by the Indemnifying
Party, shall be borne and paid by the Indemnifying Party.
The parties agree to cooperate fully with one another in the
defense, compromise or settlement of any such Asserted
Liability and, except as provided in this Section 9.3(iii),
the indemnification provisions hereof shall be fully
applicable with respect thereto.
9.4 Accounts Receivable. With respect to any accounts
receivable of the Company as to which the Buyer may assert a
claim for indemnification hereunder, upon satisfaction of such
claim by payment by the Sellers, the Buyer or the Company shall
then assign to Sellers the account receivable with respect to
which the indemnification claim was made. Any monies thereafter
received by the Company or the Buyer in payment of any such
assigned receivable shall be remitted to the Sellers. Unless the
account debtor otherwise indicates, all payments received by the
Company on accounts receivable shall be applied first to the
oldest receivable from that account debtor.
9.5 Limitations on Indemnification. The indemnification
provided for in this Article 9 shall be subject to the following
limitations:
(i) The Sellers shall not be obligated to pay any
amounts for indemnification under this Article 9,
except in respect of those claims based upon, arising
out of or otherwise in respect of (A) Section 3.1 (Due
Incorporation and Authority), Section 3.2 (Company
Authorization and Validity of Agreement), Section 3.3
(Sellers Authorization and Validity of Agreement),
Section 3.4 (Outstanding Capital Stock), Section 3.5
(Title to the Shares), Section 3.6 (Options, Warrants
or Other Rights), Section 5.5 (Expenses) or Section 5.6
(Indemnification of Brokerage) hereof, (collectively,
the "Basket Exclusions"), or (B) the Receivables
Exclusion (as defined in Section 9.5(ii) below), until
the aggregate amount for which indemnification has been
claimed pursuant to Article 9 hereof, exclusive of the
Basket Exclusions and the Receivables Exclusion,
exceeds Thirty Thousand Dollars ($30,000) (the "Basket
Amount"), whereupon the Sellers shall be obligated to
pay in full all amounts due pursuant to this Article 9,
including the entire Basket Amount.
(ii) The Sellers shall not be obligated to pay any
amounts for indemnification with respect to a
particular account receivable of the Company, until
that account receivable is in excess of ninety (90)
days past due, and the Company has not been able to
collect such receivable using means consistent with the
Company's past practices in the ordinary course of
business. In addition to the foregoing, the Sellers
shall not be obligated to pay any amounts for
indemnification under this Article 9 for claims based
upon, arising out of or otherwise in respect of Section
3.21 (Receivables) (the "Receivables Exclusion") until
the aggregate amount for which indemnification has been
claimed pursuant to Article 9 hereof exceeds Seventy
Five Thousand Dollars ($75,000) (the "Receivables
Basket Amount"), whereupon the Sellers shall be
obligated to pay in full all amounts in excess of the
Receivables Basket Amount.
(iii) Except as otherwise provided in this
Section 9.5, Sellers shall be obligated to pay the
Basket Exclusions without regard to the individual or
aggregate amounts thereof and without regard to whether
the aggregate of all other indemnification payments
shall have exceeded, in the aggregate, the Basket
Amount.
(iv) No Seller shall be obligated to pay any
amount for indemnification under this Article 9 in
excess of the portion of the Purchase Price received by
such Seller pursuant to Section 1.2 hereof (with
respect to each Seller, the "Individual Indemnification
Cap"). The Buyer shall be entitled to enforce the full
indemnification obligation of the Sellers pursuant to
this Article 9 from any individual Seller, all of the
Sellers collectively, or any combination of the
Sellers; provided, however, that in no event shall any
Seller be obligated to pay any amount for
indemnification in excess of such Seller's Individual
Indemnification Cap. The Buyer shall not be required
to enforce such indemnification obligation of the
Sellers against the Sellers collectively on a pro-rata
basis, or to pursue or join any other Seller in an
action to enforce its indemnification rights pursuant
to this Article 9.
9.6 Remedies. The rights and remedies provided for in this
Agreement and in the other agreements contemplated hereby are
cumulative and shall be the exclusive remedies of the parties
hereto (except rights and remedies in respect of claims for
fraud) with respect to claims for monetary damages related to the
matters addressed herein and with respect to the Contemplated
Transactions and the parties shall have no other liability for
monetary damages to each other, under any statutory or common law
right; provided, however, that nothing herein shall be construed
as limiting the right of a party hereto to equitable relief,
other than monetary damages, for a breach of this Agreement or of
the other agreements contemplated hereby, including, without
limitation, specific performance of the terms of such agreements.
Any election of one remedy by a party hereto shall not constitute
a waiver of any other available remedy.
10. TERMINATION OF AGREEMENT.
10.1 Termination. This Agreement may be terminated prior to
the Closing as follows:
(i) At the election of Sellers' Representative, if any
one (1) or more of the conditions to the obligation of
the Sellers to close has not been fulfilled as of June
30, 1999 and such noncompliance shall not have been
caused by Sellers;
(ii) At the election of the Buyer, if any one (1) or
more of the conditions to its obligation to close has
not been fulfilled as of June 30, 1999 and such
noncompliance shall not have been caused by the Buyer;
(iii) At the election of Sellers' Representative,
if the Buyer has breached any material representation,
warranty, covenant or agreement contained in this
Agreement, which breach cannot be or is not cured by
June 30, 1999;
(iv) At the election of the Buyer, if any of the
Sellers has breached any material representation,
warranty, covenant or agreement contained in this
Agreement, which breach cannot be or is not cured by
June 30, 1999;
(v) At any time on or prior to the Closing Date, by
mutual written consent of the Sellers' Representative
and the Buyer. If this Agreement so terminates, it
shall become null and void and have no further force or
effect, except as provided in Section 10.2.
10.2 Survival. If this Agreement is terminated and the
transactions contemplated hereby are not consummated as described
above, this Agreement shall become void and of no further force
and effect, except for the provisions of Section 5.4 relating to
the obligation of the Buyer to keep confidential and not to use
certain information and data obtained by it from the Company and
to return documents to the Company and except for the provisions
of Section 5.5 (Expenses) and Section 5.6 (Indemnification of
Brokerage). No party hereto shall have any liability to any
other party in respect of a termination of this Agreement except
pursuant to Section 5.4, Section 5.5, and Section 5.6.
11. MISCELLANEOUS.
11.1 Notices. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered
personally, sent by facsimile transmission, sent by certified,
registered or express mail, or by Federal Express or other
overnight courier, postage or other charges prepaid. Any such
notice shall be deemed given on the date so delivered personally,
or sent by facsimile transmission, or, if mailed, two days after
the date of deposit in the United States mail, or, if sent by
overnight courier, the day after delivery to the overnight
courier for next day delivery, addressed as follows:
If to the Buyer or to the Company after the Closing, to:
Network Systems International, Inc.
200 North Elm Street
Greensboro, North Carolina 27401
Attention: President
With a copy to:
Smith Helms Mulliss & Moore, L.L.P.
300 N. Greene St., Suite 1400
Post Office Box 21927
Greensboro, North Carolina 27420
Attention: W. Alexander Audilet
If to Evan E. Price, to the Sellers' Representative, or to
the Company prior to the Closing:
Evan E. Price
5915 Club Hill Place
Dallas, Texas 75248
With a copy to:
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75201
Attention: C. Robert Butterfield
If to Deborah J. Doby, to:
Deborah J. Doby
6801 Raintree Place
Flower Mound, Texas 75028
If to Ziad A. Yamout, to:
Ziad A. Yamout
6316 Twinhill Drive
Arlington, Texas 76016
Any party may by notice given in accordance with this
Section 11.2 to the other parties designate another address or
person for receipt of notices hereunder.
11.3 Entire Agreement. This Agreement (including the
Exhibits and Schedules hereto) and the collateral agreements
executed in connection with the consummation of the transactions
provided for hereby contain the entire agreement among the
parties with respect to the purchase of the Shares and supersedes
all prior agreements, written or oral, if any there be, with
respect thereto, other than the Escrow Agreement.
11.4 Waivers and Amendments; Preservation of Remedies. This
Agreement may be amended, superseded, canceled, renewed or
extended, and the terms hereof may be waived, only by a written
instrument signed by the Buyer and the Sellers, or in the case of
a waiver, by the party waiving compliance. No delay on the part
of any party in exercising any right, power or privilege
hereunder shall operate as a waiver thereof. Nor shall any
waiver on the part of any party of any such right, power or
privilege, nor any single or partial exercise of any such right,
power or privilege, preclude any further exercise thereof or the
exercise of any other such right, power or privilege. The rights
and remedies of any party based upon, arising out of or otherwise
in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement shall
in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any
such inaccuracy or breach is based may also be the subject matter
of any other representation, warranty, covenant or agreement
contained in this Agreement (or in any other agreement between
the parties) as to which there is no inaccuracy or breach.
11.5 Governing Law; Arbitration. This Agreement shall be
governed and construed in accordance with the laws of the State
of North Carolina applicable to agreements made and to be
performed entirely within such state. Any controversy arising out
of or relating to this Agreement or any of the documents provided
for herein (including any modifications hereof or thereof) shall
be settled by arbitration in Greensboro, North Carolina, in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, and judgment upon any award may be
entered in any court of competent jurisdiction. The arbitrators
in any such controversy (the "Arbitration") shall have no power
to alter or modify any express provision of this Agreement or any
of the documents provided for herein or to render any award that
directly or indirectly effects any such alteration or
modification. The parties consent to the application of North
Carolina or Federal arbitration statutes and to the jurisdiction
of the court of North Carolina or the Federal District Courts in
North Carolina, as the case may be, for all purposes in
connection with this agreement to arbitrate. Each party to any
such arbitration or court proceeding shall bear its own
attorneys' fees and other costs. Each party hereto shall also
have all rights to provisional remedies that he, she or it would
have at law or equity, notwithstanding the existence of this
agreement to arbitrate.
11.7 Binding Effect; No Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their
respective successors and legal representatives. This Agreement
is not assignable except by operation of law, except that the
Buyer may assign its rights hereunder to the banks or other
financial institutions providing the financing for the
Contemplated Transactions.
11.8 Variations in Pronouns. All pronouns and any
variations thereof refer to the masculine, feminine or neuter,
singular or plural, as the context may require.
11.9 Counterparts. This Agreement may be executed by the
parties hereto in any number of counterparts, each of which when
so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same
instrument. Each counterpart may consist of a copy hereof
containing multiple signature pages, each signed by less than
all, but together signed by all of the parties hereto.
11.10 Schedules. The Schedules are a part of this
Agreement as if fully set forth herein. All references herein to
sections, subsections, clauses, Exhibits and Schedules shall be
deemed references to such parts of this Agreement, unless the
context shall otherwise require.
11.11 Headings. The headings in this Agreement are for
reference only and shall not affect the interpretation of this
Agreement.
11.12 Severability of Provisions. If any provision or
any portion of any provision of this Agreement or the application
of any such provision or any portion thereof to any person or
circumstance shall be held invalid or unenforceable, the
remaining portion of such provision and the remaining provisions
of this Agreement, or the application of such provision or
portion of such provision as is held invalid or unenforceable to
persons or circumstances other than those as to which it is held
invalid or unenforceable, shall not be affected thereby.
[Remainder of page intentionally left blank.
Signature page to follow.]
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date first above written.
BUYER:
NETWORK SYSTEMS INTERNATIONAL, INC.
(Corporate Seal) /s/ Christopher N. Baker
By: Christopher N. Baker
Title: President
ATTEST:
/s/ William C. Ray
William C. Ray, Secretary
SELLERS:
/s/ Evan E. Price (SEAL)
Evan E. Price
/s/ Deborah J. Doby (SEAL)
Deborah J. Doby
/s/ Ziad A. Yamout (SEAL)
Ziad A. Yamout
COMPANY:
VERCOM SOFTWARE, INC.
(Corporate Seal) /s/ Evan E. Price
By: Evan E. Price
Title: Chairman/CEO
ATTEST:
/s/ Deborah J. Doby
Deborah J. Doby, Secretary
Index of Exhibits and Schedules
Exhibit A Ownership of Shares/Allocation of Purchase Price
Exhibit B Escrow Agreement
Exhibit C Employment Agreement
Exhibit D Opinion Letter from Seller's Attorney
Exhibit E General Release
Exhibit F Opinion Letter from Buyer's Attorney
Schedule 3.6 Options, Warrants and Other Rights
Schedule 3.9 No Breach
Schedule 3.10 Financial Statements
Schedule 3.11 Liabilities
Schedule 3.12 No Material Adverse Change
Schedule 3.13 Tax Matters
Schedule 3.14 Title to Assets
Schedule 3.15 Real Estate
Schedule 3.17(i) Intellectual Property
Schedule 3.17(iii) Proprietary Legends
Schedule 3.17(vi) Software Programs
Schedule 3.19 Third Party Components in Software Programs
Schedule 3.20 Third Party Interests or Marketing Rights in
Software Programs
Schedule 3.22 Actions & Proceedings
Schedule 3.23 Contracts & Other Agreements
Schedule 3.24 Compliance with Laws
Schedule 3.25 Suppliers, Customers
Schedule 3.26 Employee Benefit Plans
Schedule 3.27 Insurance
Schedule 3.29 Company Product Warranties
Schedule 3.30 Year 2000 Compliance
Schedule 3.31 Officer and Directors
Schedule 3.32 Operations of the Company
Schedule 3.33 Conflicts of Interest
Schedule 3.34 Banks, Brokers and Proxies
Schedule 4.3 No Breach
Network Systems International, Inc. will provide to the Securities and Exchange
Commission a copy of the Exhibits and Schedules upon request.
