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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year ended: September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File No. 33-36125-D
SVI HOLDINGS, INC.
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(Name of Small Business Issuer in its Charter)
NEVADA 84-1131608
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
9364 CABOT DRIVE, SUITE B, SAN DIEGO, CALIFORNIA 92126
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(Address of Principal Executive Offices, Including Zip Code)
Issuer's Telephone Number, Including Area Code: (619) 693-4344
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: NONE.
Name of each exchange on which registered: NONE.
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act during the past 12 months (or for
such shorter period that the Registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes X No
---- ----
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues from continuing operations for the fiscal year ended
September 30, 1996 were $130,871.
The aggregate market value of the Issuer's voting stock held by non-affiliates
was $10,838,528 as of March 31, 1997.
As of March 31, 1997, 13,919,284 shares of the Issuer's common stock were
outstanding.
Documents incorporated by reference: None.
This Form 10-KSB consists of 152 pages. Exhibits are indexed at page 16.
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Currency Translation
Unless otherwise indicated, references in this report to "Australian
Dollar" or "A$" are to Australian Dollars, references in this report to "Rand"
or "R" are to South African Rand. On September 30, 1996, the market average
exchange rate was approximately A$1.26 and R 4.59 per U.S. dollar. Unless
otherwise indicated, U.S. dollar equivalent information of foreign currencies
for a period is based on the average of the daily exchange rates for the days in
the period, and U.S. dollar information as of a specified date is based on the
exchange rate for that date unless otherwise indicated. Certain numbers in this
report have been rounded.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this report regarding matters that are
not historical facts are forward-looking statements (as such term is defined in
the rules promulgated pursuant to the Securities Exchange Act of 1934, as
amended). Because such forward-looking statements include risks and
uncertainties, actual results may differ materially from those expressed in or
implied by such forward-looking statements. Factors that could cause actual
results to differ materially include, but are not limited to, those discussed
herein under "Risk Factors." The Company undertakes no obligation to release
publicly the result of any revisions to these forward-looking statements that
may be made to reflect events or circumstances after September 30, 1996 or to
reflect the occurrence of unanticipated events.
PART I
ITEM 1. Description of Business.
General
SVI Holdings, Inc., formerly known as Wilson Capital, Inc. (the
"Company"), is a Nevada corporation which maintains its principal place of
business at 9364 Cabot Drive, Suite B, San Diego, California 92126 and its
telephone number is (619) 693-4344.
The Company is a holding company and has no operating business except
through its direct and indirect subsidiaries. On February 2, 1994, the Company
acquired Sabica Ventures, Inc. ("Sabica") through an exchange of 9,000,000
shares of the Company's common stock for all of the issued and outstanding
common stock of Sabica (the "Acquisition"). Before the Acquisition, the
Company's activities had been limited to organizational matters and the sale of
1,000,000 Units consisting of the Company's $.0001 par value common stock and
one Common Stock Purchase Warrant. Each Warrant entitles the holder to purchase
one share of common stock at $7.00 during the two-year period commencing on the
effective date of a Post-Effective Amendment to the Company's Registration
Statement that has yet to be filed.
Sabica, a California corporation, formed in February 1990, is a holding
company which owns all of the equity interest in SVI Training Products, Inc.
("Training"), and Tango Products USA, Inc. ("Tango"). The Company continued the
business of Sabica, whose goal is to develop its earnings base by investment and
acquisition of innovative companies operating in potential growth industries.
The Company's primary and current focus in identifying such opportunities is
concentrated in the computer industry, where management has significant
experience. The Company is currently targeting several potential acquisitions
which will fit its target profile of companies marketing proven and profitable
products into emerging markets. Management has had previous experience in many
of these markets. The Company's strategy is to obtain a controlling equity
position in the acquired company, and complement the strengths of the existing
management by providing sound financial practices and entrepreneurial flair.
Consistent with the Company's new strategy, in August 1994, the Company
decided to discontinue the business of Cabinets Galore, Inc. ("CGI"), and in
October 1994, sold the assets to a previous president of CGI. CGI, which
manufactures cabinets and modular melamine furniture, had experienced reduced
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sales and poor margins due to adverse market conditions, and did not form part
of the Company's focus. Also, in September 1995, the Company decided to sell its
exclusive distribution rights, inventory, and the fixed assets of Tango Products
USA, Inc. to ASAP Factors, Inc.
In February 1996 the Company entered into an agreement with the
management of Softline Business Systems (Proprietary) Limited ("Softline") to
acquire 100% of Softline for R 7,500,000.00 (US$ 1,927,500 at March 1, 1996).
Management of Softline, which held 15% of the equity in Softline, simultaneously
entered into an agreement to purchase 85% of the outstanding issued share
capital in Softline from Persetel Holdings Limited ("Persetel"). On February 12,
1996, Claudav Holdings B.V., the majority stockholder of SVI Holdings, Inc.
entered into an agreement with Credit Bancorp Limited to provide financing for
the acquisition of Softline. Despite repeated assurances from Credit Bancorp and
affiliated parties, such funding failed to materialize. In March 1996, funding
for the payment of the outstanding purchase price was provided by a consortium
of investors (the "Consortium"). It was agreed between SVI and the consortium
that a new company, Softline Holdings (Proprietary) Limited ("Softline
Holdings") would be formed which would hold 100% of Softline. SVI would hold 50%
of the issued share capital of Softline Holdings with the balance of 50% being
held by the Consortium and Softline management. As payment for its 50% interest
in Softline Holdings, SVI agreed to provide R 14,250,000 (US$ 3,355,875 at March
31, 1996).
Although no fixed date was set for the payment of the amount
outstanding for the interest of SVI in Softline, it was agreed that such payment
would be made prior to the listing of Softline on the Johannesburg Stock
Exchange (the "JSE"). In order to finance the acquisition, SVI entered into
various contracts to secure funding through private placements and secured
loans, but despite the binding nature of such agreements, none of the funding
parties complied with their contractual commitments to provide such funding.
In August 1996, Softline entered into negotiations for the listing of
Softline on the JSE via the acquisition of Benoni Gold Mining Limited
("Benoni"), a "cash shell" listed on the JSE. In view of the impending listing
of Softline and the fact that the contracted sources for the provisions of
funding of the acquisition of Softline had failed to materialize, the Company
entered into negotiations with Softline management and the Consortium. As a
result of these negotiations, it was agreed that the Company would provide an
amount of R 9,627,200 (US$ 2,097,767 at September 30, 1996) and the interest of
SVI in Softline would be adjusted to 40.25% of the outstanding common shares.
Funding for the amount paid to Softline of R 9,627,200 (US$ 2,097,767
at September 30, 1996) was raised by the private placement of the Company's
securities and a loan from Sudash (Pty) Ltd ("Sudash") of R 8,280,000 (US$
1,804,212 at September 30, 1996). Sudash is a South African company owned by
Barry Schechter, SVI's Chief Executive Officer. The loan is interest free and
secured by the Company's shares in Softline.
On February 19, 1997, the acquisition of Benoni was completed and
Softline was listed in the Industrial - Electronics sector of the JSE as
Softline Limited. In terms of the agreement with the existing shareholders of
Benoni and the exercise of options in Softline, the Company's holding in
Softline was diluted to 29% of the outstanding issued share capital of Softline
Limited amounting to 48,639,000 shares of common stock. The Current market value
of the investment in Softline by SVI was US$ 20,865,000 at March 21, 1997.
Mr. Barry Schechter is a member of the Board of Directors of Softline
serving as a representative of the Company.
On November 5, 1996, the Company entered into agreements for the
acquisition of Divergent Technologies Pty, Ltd.("Divergent"), an Australian
information technology company. The Company acquired 100% of the outstanding
issued share capital of Divergent comprising 1,500,000 Ordinary shares and
52,500 "E" Class Redeemable Preference shares and the exclusive worldwide
technology rights (the "Technology Rights") for the "dOLPHIN" and "dPOSit"
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software products.
The purchase price for Divergent was A$ 5,177,720 (United States
$4,076,945 at November 5, 1996) and the option to purchase 1,600,000 shares of
the Company's common stock at a price of $1.75 for two years. The Technology
Rights were acquired in exchange for 1,300,000 shares of the common stock of the
Company. The Company intends to finance the acquisition of Divergent by the sale
of a portion of its investment in Softline. On February 27, 1997, the
outstanding purchase price for Divergent was secured by a pledge of 10,000,000
shares of Softline.
On March 12, 1997, the "E" Class Redeemable Preference shares were
redeemed for cash and the exchange of 52,383 shares of the Company's common
stock.
SOFTLINE HOLDINGS LIMITED
Softline Holdings Limited (Softline) is a holding company with
subsidiaries operating as developers and distributors of computer software and
distributors of computers and related products. Softline is located in South
Africa and is listed in the Industrial - Electronics sector of the Johannesburg
Stock Exchange. The wholly owned subsidiaries of Softline Holdings Limited are:
Soft Line Business Systems (Pty) Ltd., which operates as a developer and
distributor of computer software and distributors of computers and related
products.
Vantage Distribution (Pty) Ltd which operates as a distributor of hardware
products to resellers.
Soft Line Natal (Pty) Ltd and Soft Line Cape (Pty) Ltd., both of which operate
as regional branches of Soft Line Business Systems (Pty) Ltd.
Ultra Technologies, which is a systems integrator providing network and internet
solutions.
Masterskill Training, a training provider to the entire business and corporate
sector in information technology skills and human resource development.
Computer Parts (Pty) Ltd operates as a distributor of computer memory chips,PC
CPU's and peripheral products.
DIVERGENT TECHNOLOGIES PTY LTD
Divergent Technologies Pty Ltd. ("Divergent") is an Australian
information technology company with locations in Sydney, Melbourne and Brisbane.
Specializing in point of sale systems, Divergent provides comprehensive
solutions for clients' information system requirements through sales of hardware
and software and the provision of implementation, support and training services.
Divergent's products and services are primarily provided for clients
utilizing client/server architecture for their information technology solutions.
Client/server architecture utilizes multiple terminals and workstations linked
to larger computers and includes internet and intranet solutions. This
encompasses larger businesses with multiple locations and Australian State and
Federal Government bodies.
Divergent's market leading systems include the dOLFIN Financial
Management System for retail distribution and manufacturing companies, the
dPOSit Retail, Management and point-of-sale system for multi-store specialty
retailers and RAGS Computer Systems which are designed specifically for the
garment industry. Divergent's business systems provide complete integration of
all business activities into a single business system.
Divergent is currently investigating opportunities to include
additional platforms and expand into markets in the Pacific Rim and Asia.
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SVI TRAINING PRODUCTS, INC.
SVI Training Products, Inc. ("Training") develops and distributes
computer software Training courses designed for use in an instructor-led
training environment. Training products are either sold as individual manuals
and instructor guides, or provided to customers on a limited site license basis.
Site licensing allows the customer to utilize products to train an
unlimited number of people for a fixed annual fee, and provides Training with a
recurring annual income stream upon renewal. To date, license renewals have
exceeded 90% of the original licenses sold. A majority of the licenses sold have
been provided on disk, which allows customers some flexibility in the
customization of course materials.
Training is generally able to provide premium quality products at a
lower cost than competitors. Training uses a network of specialized
subcontractors in the development of materials on a project basis which allows
for the fast, simultaneous development of multiple courses. The use of
subcontractors on a project basis allows Training access to diverse skills
without incurring commitments to additional fixed overhead. An international
joint development agreement initially contributed to lower development costs;
however, this agreement was discontinued during the current year as the benefits
were diminishing with the maturation of the local network of developers and it
restricted access to a potentially lucrative foreign market. Timely introduction
of new products is important in accessing competitors' existing customer bases.
At September 1996, Training had developed in excess of 150 training modules,
which provide a significant barrier to entry for competitors. Management
believes that larger competitors will find it difficult to compete on the basis
of price with Training due to higher development costs and existing large
overhead structures.
Training markets products through direct mail, trade shows and
telemarketing. Training uses both in-house and independent representatives, and
has established sales offices in Sacramento and San Francisco. Customers include
universities, large corporations, government agencies and training schools.
Training has also concluded a royalty agreement with a distributor in the United
Kingdom and is in the process of negotiating agreements to open distribution to
additional foreign markets. In 1996 Training received a GSA contract which will
allows government agencies to purchase products from Training at predetermined
prices.
In October 1996, Training commenced distribution of installation and
customization software to its site license customers. This software is provided
on a CD-Rom and provides a simple method for clients to customize the existing
courseware library to their specific requirements.
It is the intention of Training to continue to broaden its base of
products and expand its markets both domestically and overseas.
Training currently has 5 full time employees.
TANGO PRODUCTS USA, INC.
Tango Products USA, Inc. ("Tango") held exclusive rights for the U.S.,
Canada, Mexico and Southern Africa on a royalty-free basis for the distribution
and sale of the Australian-manufactured Tango range of thermoplastic drinkware
and tabletop products ("Tango Products").
Tango's products are primarily constructed of Lexan, a polycarbonate
material developed by General Electric. Lexan is widely used in applications
requiring extraordinary transparency and strength such as bullet-proof "glass",
riot shields and aircraft canopies. The technology applied in manufacturing
products by Tango in Australia complements the unique qualities of Lexan by
resulting in finished goods of award winning design and glass-like clarity.
An agreement for the sale of the rights of the Tango product range was
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concluded in December 1995. All the fixed assets, inventory and distribution
rights were sold to ASAP Factors, Inc (the "Buyer"). In addition to the value of
fixed assets and inventory, Tango received a payment of $80,000 for goodwill. As
part of the sale agreement, Tango will receive a royalty of 5% of gross revenues
in excess of $1,200,000 per year until December 31, 1999.
A variety of factors influenced the decision to discontinue this
operation. Management believes that the Buyer's existing channels of
distribution into retail markets should significantly expand the market
opportunities for the product beyond the current focus in the food service and
hospitality industries. Entry to these markets would have required the
investment of significant managerial and financial resources by the Company.
Management believes that the royalty arrangement allows the company to benefit
from entry to these markets, if successful, without the attendant risks
associated with the development of new markets for the product. Management also
believes that the operations of Tango did not conform to the Company's primary
focus in the Computer industry. The sale of Tango will allow the Company to
focus both managerial and financial resources on acquisitions of computer
related companies which management believes present significant opportunities.
Risk Factors
The securities of the Company are speculative in nature and involve a
high degree of risk. In addition to the other information contained in this
report, shareholders should carefully consider the following risk factors.
Risks Relating To Operations In South Africa. Some of the Company's
operations are conducted through its direct and indirect subsidiaries located in
South Africa. The conduct of the Company's business in South Africa exposes the
Company to certain risks, including the following:
Political Risks. Historically, the social structure of South Africa
was governed according to the apartheid system. Racial tensions in South Africa
have from time to time resulted in social unrest, strikes, riots and other
sporadic localized violence. The apartheid system also resulted in the
imposition of international financial and trade sanctions against South Africa.
Although a new interim constitution was adopted providing for universal suffrage
and the first national election under the new constitution took place in April
1994, there can be no assurance that social unrest, which could range in
magnitude from civil disobedience to civil war, will not occur. In addition,
certain other countries in the region are currently engaged in or have had civil
war with the corresponding severe adverse economic and social conditions and
effects. Moreover, there can be no assurance as to the economic and tax policies
which the South African government may pursue and whether those policies may
include nationalization, expropriation and confiscatory taxation.
Nationalization, expropriation or confiscatory taxation, as well as currency
blockage, political changes, government regulation, strikes, political or social
instability or diplomatic developments could adversely affect the economy of
South Africa and could have a material adverse effect on the Company.
Risks Related to Currency Exchange. Some of the Company's operating
subsidiaries do business in South African Rand and the Company's revenues
derived therefrom are generally received in such currency. Historically, there
has been significant inflation in South Africa (averaging 10-15% per annum in
recent years) and significant fluctuations in the exchange rate of the South
African Rand. Because South Africa's inflation rate would impact its economy
both domestically and internationally, and higher levels of inflation have
frequently reduced the real return on capital and investment, South Africa's
level of inflation may increase the Company's risk related to currency
fluctuation. The U.S. Dollar equivalent of the Company's net assets and results
of operations will be adversely affected by reductions in the value of the Rand
relative to the U.S. Dollar. Similarly, if the exchange rate declines between
the time the Company incurs expenses in other currencies and the time cash
expenses are paid, the amount of South African Rand required to be converted
into such other currencies in order to pay such expenses could be greater than
the equivalent amount of such expenses in South African Rand at the time they
were incurred.
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Economic Risks. The economy of South Africa may differ unfavorably from
the U.S. economy in such respects as growth of gross domestic product or gross
national product, rate of inflation, taxation, capital reinvestment, resource
self-sufficiency and balance of payments position. South Africa may be
particularly susceptible to changes in the world price of gold and other primary
commodities as these represent a majority of South Africa's exports. Any such
unfavorable aspects of the South African economy may materially adversely affect
the financial investment of the Company in its South African subsidiaries.
Absence Of Substantive Disclosure Relating To Acquisitions. Although
management of the Company will endeavor to evaluate the risks inherent in any
particular acquisition, there can be no assurance that the Company will properly
ascertain all such risks. Management of the Company will have virtually
unrestricted flexibility in identifying and selecting prospective acquisition
candidates. The Company does not intend to seek stockholder approval for any
acquisitions unless required by applicable law or regulations and stockholders
will most likely not have an opportunity to review financial information on an
acquisition candidate prior to consummation of an acquisition.
Possible Fluctuations In Operating Results. There can be no assurance
that the Company's operating subsidiaries will operate profitably, or that prior
trends will be indicative of future results of operations. Future results of
operations may fluctuate significantly based upon factors such as increases in
competition, losses incurred by new businesses that may be acquired in the
future, currency fluctuations, political changes, macroeconomic factors, and
other circumstances that may not be reasonably foreseeable at this time.
Competition. The Company competes with a number of companies, from
South Africa and from other countries, offering similar products and services,
some of whom may have substantially greater financial, management, technical and
other resources than the Company. In addition, the Company may experience
competition from other companies seeking to identify and consummate acquisitions
of computer technology related companies. Such competition may result in the
loss of an acquisition candidate or an increase in the price the Company would
be required to pay for any such acquisition.
Dependence On Key Personnel. The Company's success depends upon the
continued contributions of its Chief Executive Officer, Barry Schechter. The
Company's success also depends upon the executive management of Softline and
Divergent. The business of the Company could be adversely affected by the loss
of services of, or a material reduction in the amount of time devoted to the
Company, by its executive officers.
Certain United States Federal Income Tax Risks. It is possible that
based on stock ownership and/or types of income, the Company may be classified
as a passive foreign investment company, a controlled foreign corporation, a
foreign personal holding company or a personal holding company for United States
federal income tax purposes. Under the special rules that apply to such
companies, United States residents may be required to include certain amounts in
income before it is actually distributed to them. Although the Company intends,
to the extent consistent with its other business goals, to operate in a manner
that will minimize the adverse effects of such provisions, if applicable, no
assurance of such a result can be given. Therefore, each shareholder should
consult his or her own tax advisor with respect to the tax consequences to him
or her of the ownership and disposition of the Company's Common Stock, including
the applicability and effect of federal, state, local and foreign tax laws and
of changes in applicable tax laws.
Item 2 Description of Property.
The Company leases a 6,130 square foot facility in a building located
at 9364 Cabot Drive, Suite B, in San Diego, California. These facilities are
shared by the Company and its subsidiaries under a lease which expires on May
31, 1997. The base rent is currently $2,750 per month. An option granted in
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terms of the lease permits the Company to extend the lease for additional years
with the lease rental subject to an increase equal to any increase in the
consumer price index.
Item 3. Legal Proceedings.
On November 26, 1996, the Company obtained a preliminary injunction in
the Federal District Court for the Southern District of California against
certain defendants, including Park Financial Group, Inc. ("Park Financial"),
Edwin Wood, Bank Martinique, Brink, Hudson & LaFever, Ltd., Walmur & Co.,
Pacific International Securities, Inc., Union Securities, Ltd., Corporate Stock
Transfer, Inc., BLB Financial, Inc., Brian Walsh, Brian Johanson, Luke di
Angelo, Gary Robinson, Bear Stearns & Co., Inc., and Philadelphia Depository
Trust Company, in order to prevent the transfer of any of the two million shares
of the Company's common stock that had been pledged by the majority stockholder
of the Company to Park Financial.
The Company has alleged that, the Company's majority stockholder, in
the course of seeking a loan from a prospective lender, transferred a
significant number of the Company's shares held by that majority stockholder to
Park Financial. The shares were to be held in trust by Park Financial until the
loan was funded and then held by Park Financial as a pledge holder. The Company
alleges that Park Financial failed to hold the shares in trust and instead sold
or otherwise transferred the shares to third parties who began to trade the
restricted shares in violation of Park Financial's representations and
obligations to the Company and its majority stockholder. Based on the above
allegations, the Company has filed a lawsuit in the Southern District against
certain of the above defendants for breach of contract, common law fraud, and
conversion, as well as for violations of federal securities and RICO statutes.
Item 4. Submission of Matters to a vote of Security Holders.
None
PART II
Item 5. Market for Company's Common Equity and Related Stockholder
Matters
Principal Market
The Company's Common Stock began trading on the over-the-counter market
in March 1994, and is quoted on OTC Bulletin Board Systems. As of March 31, 1997
there were 13,919,284 shares of Common Stock outstanding held by approximately
95 holders of record.
Stock Price and Dividend Information
The following table sets forth high and low bid closing quotations for
the Common Stock, on a quarterly basis from October 1, 1994 to September 30,
1996.
<TABLE>
<CAPTION>
Fiscal 1996 Fiscal 1995
Quarter High Bid Low Bid High Bid Low Bid
<S> <C> <C> <C> <C>
First 8 0.5 1.25 1
Second 8.75 5.875 1 0.406
Third 8.25 5.5 0.5 0.875
Fourth 7 3.25 0.5 0.5
</TABLE>
The quotations for the Common Stock set forth above represent bid
quotations between dealers, and may not necessarily represent actual
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transactions and "real time" sales prices. The source of the bid information
is the National Association of Securities Dealers, Inc.
As of September 30, 1996, there were 12,422,800 shares of Common Stock
outstanding held by approximately 78 holders of record.
The Company has not paid dividends to its stockholders since its
inception and does not anticipate paying dividends in the foreseeable future.
ITEM 6. Management's Discussion and Analysis or Plan of Operations.
Results of Operations
The audited financial statements of the Company for the years ended
September 30, 1996 and September 30, 1995 reflect net income of $147,463 and a
net loss of $732,009 respectively.
The Company has discontinued the operations of Tango via the sale of
its assets and distribution rights. In the period from October 1, 1995 to the
discontinuance date of December 8, 1996, Tango had net sales of $72,451 and a
net loss of $67,319, a profit of $83,911 was realised on the disposal of Tango.
For the year ended September 30, 1995, Tango incurred a net loss of $65,924 and
had net sales of $848,563.
Subsequent to the discontinuance of Cabinets Galore, Inc. in October
1994, an additional $205,326 was expended as a result of commitments and
guarantees by the Company. Due to uncertainty of the collectability of this
amount, the expenditure has been written off and will be recognized as revenue
when and if it is received.
Net sales from continuing operations increased by 16% for the year
ended September 30, 1996 to $673,608 compared to $579,777 for the year ended
September 30, 1995. The increase in sales reflects incremental revenues in
Training due to the renewal of site licences originally sold in prior years, in
addition to the sale of new product and site licences in the current year.
Marketing efforts in Training were negatively impacted by the redirection of
management resources for the development of the Course Customizer software which
required significant time resources to develop the software and reformat
existing course modules.
Gross Profit from continuing operations for the year ended September
30, 1996 was $573,219 compared to $479,660 for the year ended September 30,
1995. The increase in gross profit as a percentage of sales from 83% in 1995 to
85% in 1996 is a reflection of the change of product mix within Training where
Site Licenses account for a higher proportion of sales. Site Licenses have a
significantly lower cost of sales in comparison to the sale of Training manuals.
Operating Expenses for continuing operations for the year ended
September 30, 1996, were $1,089,309 compared to $770,762 for the year ended
September 30, 1995. In both the years ended September 30, 1996 and 1995, the
Company was still in a development phase and a significant amount of monies were
spent on product and market development as well as general corporate overhead.
In addition to these developmental expenses, a substantial amount was spent on
the investigation of possible acquisitions and the investigation and completion
of the investments in Softline and Divergent. Components of expenditure
attributable to the investment in Softline and acquisition of Divergent included
legal fees for contracts for financing and acquisition, international travel,
accommodation, and communications. In accordance with generally accepted
accounting practices, development expenses are charged to income when incurred.
As the Company develops operating expenses are expected to decrease as a
percentage of sales. While management believes that the company is well
positioned to benefit from its product and market development, there can be no
assurance as to whether, or when, the Company will realize such benefits.
Non-operating expense consists of net interest expense from continuing
operations which decreased to $133,505 in 1996 from $199,909 in 1995. This is
primarily due to forgiveness of interest on a portion of the amount due to
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stockholders.
Equity earnings of Softline amounted to $379,429 for the period from
March 1, 1996 (the acquisition date) to September 30, 1996 and comprised 40.25%
of the total earnings of Softline for this period. Although accounted for on a
consolidated basis in the quarterly reports for the quarters ended March 31,
1996 and June 30, 1996, as a result of the reduction of the Company's holding
which occurred in September 1996 and the further dilution of the Companies
holding to 29% in February 1997 resulting from the listing of Softline, it was
determined that the investment in Softline should be accounted for on the equity
method for the year ended September 30, 1996.
A foreign exchange gain of $343,000 arose for the period from March 1,
1996 to September 30, 1996 due to the amount payable for the acquisition of
Softline being denominated in South African Rands. Further gains or losses
resulting from the fluctuation of the value of the Rand in relation to United
States currency is expected until the amount outstanding is paid in full.
Net income from continuing operations for the year ended September 30,
1996, was $130,871 compared to a net loss of $460,759 for the year ended
September 30, 1995. The increase in income is primarily due to the contribution
of the equity earnings of Softline and foreign exchange gains.
During the year ended September 30, 1996, the company investigated
numerous possible acquisitions in addition to Softline and Divergent. The
Company will continue with its investment strategy of seeking potential
acquisitions which will contribute toward the Company's development.
Consummation of these investments will depend on the Company's ability to raise
funds through external sources such as equity and debt offerings. As there is no
certainty that the Company will be able to raise funds through such means or
reach satisfactory terms for these acquisitions, the occurrence of these
acquisitions cannot be guaranteed.
Liquidity and Capital Resources
At September 30, 1996, the Company had a deficit of working capital of
$12,430. This amount represents a decrease in the deficit of $542,132 compared
to the Company's working capital deficit at September 30, 1995 of $554,562.
Working capital excludes amounts due to stockholders. Subsequent to year end the
Company received additional funding by raising equity through a private
placement of 100,000 shares of common stock of the Company to accredited
investors for a total consideration of $200,000. The operations of the Company
have primarily been financed by private placements of the Company's securities
and advances from stockholders. The Company intends to utilize the liquidity of
its investment in Softline arising from the listing of Softline on the JSE as an
additional source of funds.
ITEM 7. Financial Statements
Please see financial statement pages F-1 through F-47.
The following unaudited pro forma summary presents the consolidated results
of operations as if the acquisition of Divergent Technologies (Pty) Ltd. and the
investment in Softline Limited had occurred on October 1, 1995. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisition been made as of
those dates or of the results which may occur in the future.
10
<PAGE> 11
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED PRO-FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Pro-forma
SVI Divergent Adjustments Total
<S> <C> <C> <C> <C>
Net Sales 673,608 6,039,901 6,713,509
Cost Of Goods Sold 100,389 2,071,653 2,172,042
-------- --------- ----------
Gross Profit 573,219 3,968,248 4,541,467
Selling, general, and
administrative expenses 1,089,309 3,786,146 4,875,455
---------- --------- ----------
Profit (loss) from Operations (516,090) 182,101 (333,989)
Other Income (expense)
Other Income 58,037 629,006 687,043
Interest (133,505) (133,505)
Equity in earnings of Softline
Holdings Limited 379,429 3,067 382,496
Gain on foreign currency
translation 343,000 343,000
Total other income (expense) 646,961 629,006 1,279,034
---------- --------- ----------
Income from continuing
operations before Taxation 130,871 811,107 941,978
Taxation 226,442 226,442
---------- --------- ----------
Income (loss) from continuing
operations 130,871 584,665 718,603
Income (loss) from discontinued
operations:
Loss from operations of Tango
Products USA, Inc. (67,319) (67,319)
Gain on disposal of Tango
Products, Inc. 83,911 83,911
---------- --------- ----------
Total income (loss) from
discontinued operations 16,592 16,592
---------- --------- ----------
Net income (loss) 147,463 584,665 735,195
========== ========= ==========
Per share information:
Income (loss) from continuing
operations 0.01 0.05
Income (loss) from discontinued
operations 0.00 0.00
---------- - ----------
Net income (loss) per share 0.01 0.06
========== ==========
Weighted average common shares 11,902,469 1,300,000 13,202,469
outstanding
</TABLE>
<PAGE> 12
SVI Holdings, Inc. and Subsidiaries
CONSOLIDATED PRO-FORMA BALANCE SHEET
FOR THE YEAR ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Pro-Forma
SVI Divergent Adjustments Pro-Forma
ASSETS
Current Assets
<S> <C> <C> <C> <C>
Cash 16,570 314,996 331,566
Certificates of Deposit 700,000 700,000
Accounts receivable 80,305 506,653 586,958
Inventories 9,177 304,433 313,610
Prepaid expense and other current assets 62,503 62,503
----------------------------- ---------------
Total current assets 868,555 1,126,082 1,994,637
Furniture and equipment net of accumulated 33,961 2,268,384 2,302,345
depreciation
Investment in Softline Holdings Limited, at 2,854,288 3,067 2,857,355
equity
Goodwill 1,742,680 1,742,680
Due from affilliate, unsecured non-interest 1,078,022 1,078,022
bearing
License rights, net of accumulated amortization 11,126 3,250,000 3,261,126
Software development costs, net of 51,423 51,423
accumulated amortization
Note receivable 90,344 90,344
Other assets 18,768 218,926 237,694
----------------------------- ---------------
Total Assets 5,006,487 3,613,392 13,615,626
============================= ===============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Lines of credit - bank 699,399 699,399
Notes payable 23,435 197,875 4,076,945 4,298,255
Accounts payable and accrued expenses 158,151 934,516 1,092,667
Due to stockholder 1,831,858 1,831,858
----------------------------- ---------------
Total current liabilities 2,712,843 1,132,391 7,922,179
Due to stockholder 1,947,080 1,947,080
Stockholders equity
Common stock 1,242 1,187,666 (1,187,536) 1,372
Additional paid in capital 6,712,705 850,313 2,399,557 9,962,575
Accumulated earning / (deficIt) (6,367,383) 216,600 (213,533) (6,364,316)
----------------------------- ---------------
Total stockholders' equity 346,564 2,254,579 3,599,631
----------------------------- ---------------
Total liabilities and stockholders equity 5,006,487 3,386,970 13,468,890
============================= ===============
</TABLE>
12
<PAGE> 13
ITEM 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
None.
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act.
Set forth below are the names, ages and principal occupations for the
last five years of the directors and/or executive officers of the Company:
Barry M. Schechter - (43), has been Chairman, President, Chief
Executive Officer and Director of the Company from February 1994 to the present.
He also serves as Chairman of the Board of each of the Company's subsidiaries.
He has been Chief Executive Officer of Sabica since its inception in February,
1990. Mr. Schechter is a Chartered Accountant (South Africa).
Arthur S. Klitofsky - (42), has been Vice President, and a Director of
the Company from February 1994 to the present. He has been Chief Executive
Officer of SVI Training, since 1991. From 1985 to 1991, he was Managing Director
of Punch Line Columbia Training Ltd., which became the largest computer
education company in South Africa. Mr. Klitofsky has a Bachelor of Science
Degree in Electrical Engineering from the University of Witwatersrand,
Johannesburg, South Africa and a Bachelor in Accounting Science Degree from the
University of South Africa.
Russell A. Schechter - (34), has been Vice President, Chief Financial
Officer, Treasurer, Secretary and a Director of the Company from February 1994
to the present. He has been Chief Financial Officer of Sabica since June, 1991.
From 1986 to 1991, he was employed in the audit and management advisory services
division of Coopers & Lybrand in South Africa. Mr. Schechter is a Chartered
Accountant (South Africa).
John C. Petrow - (45), has been a Director of the Company since
February 1994 to the present. Since 1976, he has been employed by C.J. Petrow
and Company (PTY) LTD., which is engaged in international commodities trading,
and he is presently a director of that company. Mr. Petrow received a BA Degree
from the University of the Witwatersrand, Johannesburg, South Africa.
Jack M. Ginsberg - (49), has been a Director of the Company since
February 1994 to the present. Since 1974, he has been employed by C.J. Petrow
and Company (PTY) LTD., which is engaged in international commodities trading,
and he is presently financial director of that company. Mr. Ginsberg has a
Bachelor of Accounting Degree from the University of the Witwatersrand,
Johannesburg, South Africa.
David Goldstone - (38), had been president of Tango USA, Inc., since
its inception in July, 1991. From June, 1990, to July, 1991, Mr. Goldstone was
Director of Sales and Marketing for Microcrisp USA, a distributor of a microwave
browning wrap. From March, 1987, to June 1990, he was President of Goldtini
International, an Australian marketing and import/export company.
David Goldstone resigned as president of Tango in November of 1995.
Directors of the Company will be elected annually and hold office until
the next annual meeting of shareholders or until their successors are duly
elected and qualified. All officers of the Company will be elected and serve at
the discretion of their Board of Directors.
There are no family relationships among the directors and executive
officers except that Barry M. Schechter and Russell A. Schechter are brothers.
Item 10. Executive Compensation
The following table sets forth for the years indicated certain
compensation of the Company's chief executive officer and the executive officers
of the Company who earned more than $100,000 in such years.
13
<PAGE> 14
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation
Principal Position Year Salary
<S> <C> <C>
Barry M. Schechter 1996 $138,000
Chairman, President 1995 $120,000
and Chief Executive 1994 $130,000
Officer
Arthur S. Klitofsky 1996 $114,000
Director, President 1995 $ 87,000
of SVI Training 1994 $ 79,000
</TABLE>
The Company also provides certain compensatory benefits and other
non-cash compensation to the persons named in the Summary Compensation Table.
The incremental cost to the Company of all such benefits and other compensation
paid in the years indicated to such named individuals was less than 10% of his
reported compensation and also less than $50,000.
The following table sets forth the information concerning individual
grants of stock options and appreciation rights during the last fiscal year to
the Company's chief executive officer and the executive officers of the Company
who earned more than $100,000 last year.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(Individual Grants)
Percent Of
<S> <C> <C> <C>
Number of Total Options/
Securities SARs Granted
Underlying To Employees Exercise Or
Options/SARs In Fiscal Base Price
Name Granted (#) Year (S/Sh) Expiration
Arthur Klitofsky 200,000 14.5% $ 0.50 10/20/2005
</TABLE>
The following table sets forth the information concerning each exercise
of stock options during the last fiscal year by each of Company's chief
executive officer and the executive officers of the Company who earned more than
$100,000 last year and the fiscal year value of unexercised options.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number Of
Securities Value Of
Underlying Unexercised
Shares Unexercised In-The-Money
Acquired Options/SARs Options/SARs
On Value At FY-End (#) At FY-End(S)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
<S> <C> <C> <C> <C>
B.Schechter 121,200 $99,990 0 $0
A. Klitofsky 0 $0 205,000 $103,750
Stock Option Plan
</TABLE>
The Company has an Incentive Stock Option Plan (the "Plan") under which
options granted are intended to qualify as incentive stock options as defined
under the Internal Revenue Code. In accordance with the terms of the Plan,
options to purchase up to 1,000,000 shares of the Company's Common Stock may be
granted to employees of the Company. The Plan is administered by the Board of
Directors, which establishes the terms and conditions of each option grant.
Incentive stock options must be granted at an exercise price of at least the
market value of the Common Stock on the date of grant, except for recipients who
own 10% or more of the Company's outstanding Common Stock, in which case the
14
<PAGE> 15
exercise price on the date of grant must be at least 110% of the market value of
the Common Stock. Additionally, the options must not have a term of in excess of
10 years, or five years if the recipient owns more than 10% of the outstanding
Common Stock.
Compensation Committee Interlock and Insider Participation
During fiscal year 1996, Barry M. Schechter, Arthur S. Klitofsky, and
Russell A. Schechter, all officers of the Company, participated in deliberations
of the Company's Board of Directors concerning executive officer compensation.
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
Set forth below is certain information concerning the ownership of the
Company's Common Stock as of March 31, 1997, by (i) all persons known to the
Company to be beneficial owners of more than 5% of the outstanding Common Stock,
(ii) each Director of the Company, (iii) each executive officer of the Company,
and (iv) all executive officers and Directors of the Company as a group. Except
as otherwise indicated, and subject to applicable community property and similar
laws, the persons named have sole voting and investment power with respect to
the securities owned by them.
<TABLE>
<CAPTION>
Number of Shares Percent of
Beneficially Owned Outstanding Shares
<S> <C> <C>
Claudav Holdings BV 8,197,200 59%
9 Rue Charles Humbert
1205 Geneva, Switzerland
Barry M. Schechter 8,318,400(1) 60%
Russell A. Schechter 494,010(2) 1.7%
Arthur S. Klitofsky 512,200(2) 1.7%
John C. Petrow 0 0%
Jack M. Ginsberg 0 0%
All Directors and Executive
Officers as a group
([5] persons) 9,324,610(2) 67%
</TABLE>
(1) Includes all of the shares held by Claudav Holdings BV for which Mr.
Schechter disclaims beneficial ownership.
(2) Includes shares issuable upon the exercise of options within sixty days of
March 31, 1997 as follows: 243,810 shares subject to options held by Mr. Russell
Schechter and 262,000 shares subject to options held by Mr. Klitofsky.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Claudav Holdings B.V., the majority stockholder of the Company, from
time to time, has provided funds to the Company to cover operating expenses in
the form of unsecured loans bearing interest at rates agreed to periodically
between Claudav Holdings B.V. and the Company. As of September 30, 1996, the
loans due Claudav Holdings B.V. aggregated $1,947,080.
In September 1996, Sudash (Pty) Ltd., a South African company owned by
Barry Schechter advanced the Company R 8,280,000 (US$ 1,804,212 at September 30,
1996) for the acquisition of Softline. The loan is payable in South African
Rands and is interest free and secured by the Company's shares in Softline.
As of September 30, 1996, $1,078,022 was due from an affiliated
corporation of the Company. The amount due is unsecured, has no stated maturity
date and is non-interest bearing. This amount due arose prior to the Acquisition
and no further advances have been made by the Company. The amount due is to be
repaid by the affiliated corporation before any amounts due to stockholders of
the Company are to be paid by the Company. The affiliated corporation shares
common directors with the Company and the majority stockholder of the affiliated
corporation is Claudav Holdings B.V., which is the majority stockholder of the
Company.
15
<PAGE> 16
<TABLE>
<CAPTION>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description
<S> <C>
2.1 Asset Purchase Agreement dated as of October 1, 1994 among
Cabinets Galore, Inc., Cabinets Galore Orange County, Inc.,
Sabica Ventures, Inc. and Barry Jacobs incorporated by
reference to the Company's Annual Report on Form 10-KSB for
the year ended September 30, 1995.
3.1 Articles of Incorporation - Incorporated by reference to
exhibit 3.1 to the Company's Annual Report for the year ended
December 31, 1993.
3.2 Bylaws - Incorporated by reference to exhibit 3.1 to the Company's
Annual Report for the year ended December 31, 1993.
10.1 Incentive Stock Option Plan - Incorporated by reference to exhibit
3.1 to the Company's Annual Report for the year ended September 30,
1994.
10.2 Distribution Agreement dated November 25, 1992 between Tango
Proprietary Limited and Tango Products USA, Inc. - Incorporated by
reference to exhibit 3.1 to the Company's Annual Report for the year
ended September 30, 1994.
10.3 Sales Of Shares Agreement dated January 28, 1996, between the
Company and Management of the Soft Line Management Group for
the acquisition of Soft Line Business Systems (Pty) Ltd.
10.4 Share Purchase Agreement dated November 4, 1996 as amended between
the Company and Hookmond Pty., Ltd. and Landreef Pty. Ltd. for the
acquisition of the equity of Divergent Technology Pty, Ltd.
10.5 Technology Purchase Agreement dated November 4, 1996 as amended
between the Company and New Hope Trading Limited for the acquisition
of the exclusive worldwide technology rights for the "dOLPHIN" and
"dPOSit" software products.
21 List of Subsidiaries
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the last quarter of the
fiscal year ended September 30, 1996.
16
<PAGE> 17
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Page Description
F-2 Audited financial statements of SVI Holdings, Inc. and subsidiaries
for the years ended September 30, 1996 and 1995.
F-18 Audited Financial Statements of Softline Business Systems
(Proprietary) Limited for the period ended February 29, 1996.
F-31 Audited Financial Statements of Softline Business Systems
(Proprietary) Limited for the year ended May 31, 1995.
F-47 Audited Financial Statements of Divergent Technologies Pty Limited
for the year ended June 30, 1996. (Stated in Australian Dollars)
</TABLE>
17
<PAGE> 18
SVI HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 1996 AND 1995
F-2
<PAGE> 19
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONTENTS
AS OF SEPTEMBER 30, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Balance Sheet 2
Consolidated Statements of Operations 3
Consolidated Statement of Stockholders' Equity (Deficit) 4
Consolidated Statements of Cash Flows 5 - 6
Notes to Consolidated Financial Statements 7 - 15
</TABLE>
F-3
<PAGE> 20
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
SVI Holdings, Inc.
We have audited the consolidated balance sheet of SVI Holdings, Inc. and
Subsidiaries as of September 30, 1996, and the related consolidated statements
of operations, stockholders' equity (deficit), and cash flows for each of the
two years in the period ended September 30, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of SVI Holdings, Inc.
and Subsidiaries as of September 30, 1996, and the consolidated results of their
operations and cash flows for each of the two years in the period ended
September 30, 1996, in conformity with generally accepted accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
December 11, 1996
F-4
<PAGE> 21
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AS SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
CURRENT ASSETS
<S> <C>
Cash $ 16,570
Certificates of deposit, pledged (Note 2) 700,000
Accounts receivable, net of allowance for doubtful accounts
of $500 (Note 3) 80,305
Inventories 9,177
Prepaid expenses and other current assets 62,503
-----------
Total current assets 868,555
FURNITURE AND EQUIPMENT, net of accumulated depreciation of $27,217 (Note 4) 33,961
INVESTMENT IN SOFTLINE HOLDINGS (PTY) LIMITED, at equity (Note 5) 2,854,288
DUE FROM AFFILIATE, unsecured non-interest bearing (Note 3) 1,078,022
LICENSE RIGHTS, net of accumulated amortization of $213,874 11,126
SOFTWARE DEVELOPMENT COSTS, net of accumulated amortization of $802 51,423
NOTE RECEIVABLE 90,344
OTHER ASSETS 18,768
-----------
TOTAL ASSETS $ 5,006,487
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Lines of credit - bank (Note 2) $ 699,399
Notes payable 23,435
Accounts payable and accrued expenses 158,151
Due to stockholder (Note 3) 1,831,858
-----------
Total current liabilities 2,712,843
DUE TO STOCKHOLDER (Note 3) 1,947,080
COMMITMENT (Note 6)
STOCKHOLDERS' EQUITY (Notes 7 and 10)
Preferred stock, $.0001 par value: 5,000,000 shares
authorized, none issued --
Common stock, $.0001 par value: 50,000,000 shares
authorized, 12,422,800 issued and outstanding 1,242
Additional paid-in capital 6,712,705
Accumulated deficit (6,367,383)
-----------
Total stockholders' equity 346,564
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,006,487
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 22
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
NET SALES $ 673,608 $ 579,777
COST OF GOODS SOLD 100,389 100,117
------------ ------------
GROSS PROFIT 573,219 479,660
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES 1,089,309 770,762
------------ ------------
LOSS FROM OPERATIONS (516,090) (291,102)
OTHER INCOME (EXPENSE)
Other income 58,037 30,252
Interest expense (133,505) (199,909)
Equity in earnings of Softline Holdings (Pty) Limited 379,429 --
Gain on foreign currency translation (Note 5) 343,000 --
------------ ------------
Total other income (expense) 646,961 (169,657)
------------ ------------
INCOME (LOSS) BEFORE DISCONTINUED OPERATIONS 130,871 (460,759)
INCOME (LOSS) FROM DISCONTINUED OPERATIONS (Note 9)
Loss from operations of Tango Products USA, Inc. (67,319) (65,924)
Gain on disposal of Tango Products USA, Inc. 83,911 --
Loss from operations of Cabinets Galore, Inc. -- (205,326)
------------ ------------
Total income (loss) from discontinued operations 16,592 (271,250)
------------ ------------
NET INCOME (LOSS) $ 147,463 $ (732,009)
============ ============
PER SHARE INFORMATION
Income (loss) from continuing operations $ .01 $ (.04)
Income (loss) from discontinued operations -- (.03)
------------ ------------
NET INCOME (LOSS) PER SHARE $ .01 $ (.07)
============ ============
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 11,902,469 10,319,800
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 23
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock Additional
------------ Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 30,
1994 10,319,800 $ 1,032 $ 4,757,227 $(5,782,837) $(1,024,578)
NET LOSS (732,009) (732,009)
----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30,
1995 10,319,800 1,032 4,757,227 (6,514,846) (1,756,587)
SALE OF COMMON STOCK
(Note 7) 1,966,800 197 1,843,501 1,843,698
EXERCISE OF STOCK OPTIONS 136,200 13 111,977 111,990
NET INCOME 147,463 147,463
----------- ----------- ----------- ----------- -----------
BALANCE, SEPTEMBER 30,
1996 12,422,800 $ 1,242 $ 6,712,705 $(6,367,383) $ 346,564
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 24
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
--------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) from continuing operations $ 130,871 $ (460,759)
Net income (loss) from discontinued operations 16,592 (271,250)
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 53,571 52,769
Earnings in Softline Holdings (Pty) Limited (379,429) -
Foreign currency translation gain (343,000) -
(Increase) decrease in
Accounts receivable 1,058 (24,579)
Inventories (8,439) (151)
Prepaid expenses and other current assets 19,180 54,422
Other assets (17,617) 1,027
Net current assets of discontinued operations 148,454 13,781
Increase (decrease) in
Accounts payable and accrued expenses (377,502) 158,104
--------------- ----------------
Net cash used in operating activities (756,261) (476,636)
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment (13,689) (12,370)
Investment in Softline Holdings (Pty) Limited (2,474,859) -
Purchase of software development costs (52,225) -
--------------- ----------------
Net cash used in investing activities (2,540,773) (12,370)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable - 63,840
Proceeds from sale of common stock 1,843,698 -
Payments on notes payable (150,405) (82,021)
Increase in bank overdraft (9,454) (80,891)
Increase in due to stockholders, net 1,629,765 588,078
--------------- ----------------
Net cash provided by financing activities 3,313,604 489,006
--------------- ----------------
Net increase in cash 16,570 -
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR - -
--------------- ----------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 16,570 $ -
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 25
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest of $145,474 and $220,050 was paid during the years ended September 30,
1996 and 1995, respectively, which included interest from discontinued
operations for the year ended September 30, 1996 and 1995 of $11,969 and
$20,141, respectively.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended September 30, 1996, a stockholder exercised stock options
in the amount of $111,990 by reducing due to stockholder.
During the year ended September 30, 1995, $90,344 of net assets from
discontinued operations from Cabinets Galore, Inc. were sold for $90,344 in the
form of a secured note receivable.
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE> 26
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Lines of Business
SVI Holdings, Inc. (the "Company," "SVI") is a holding company. At
September 30, 1996, through its subsidiaries, the Company is engaged in
the development and distribution of computer software training courses.
The distribution of unbreakable drinkware was discontinued as of
September 30, 1995, and the manufacturing of assembled and
ready-to-assemble modular furniture was discontinued as of September
30, 1994 (Note 9).
Reverse Merger
On February 2, 1994, Wilson Capital, Inc. ("Wilson") acquired all of
the outstanding stock of SVI. For accounting purposes, the acquisition
has been treated as a recapitalization of SVI, with SVI as the acquirer
(reverse acquisition). Wilson subsequently changed its name to SVI
Holdings, Inc. Wilson was incorporated in Nevada on November 29, 1989,
with a view towards the subsequent combination with a privately-held
business, and had limited operations since inception. Prior to the
acquisition, Wilson did not have any significant operations. Costs of
the transaction in the amount of $48,796 have been charged to capital.
Principles of Consolidation
The consolidated financial statement includes the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions have been eliminated.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with original maturity of three
months or less to be cash equivalents.
Inventories
Inventories consist of finished goods and are stated at the lower of
cost or market, cost generally being determined on a first-in,
first-out basis.
F-10
<PAGE> 27
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Furniture and Equipment
Furniture and equipment are stated at cost. Depreciation and
amortization are being provided using straight-line and accelerated
methods over the estimated useful lives of four to ten years as
follows:
<TABLE>
<S> <C>
Computer equipment 4 years
Furniture and fixtures 7 to 10 years
</TABLE>
Expenditures for maintenance and repairs are charged to operations as
incurred while renewals and betterments are capitalized.
License Rights
License rights for computer training software courses are stated at
cost and are amortized over five years using the straight-line method.
Revenue Recognition
Licensing and royalty revenues are generally recognized on the
completion of the license agreement by the Company provided that no
significant vendor or post-contract support obligations remain
outstanding and collection of the resulting receivable is deemed
probable. The Company has no significant post-support obligations.
Certain royalty agreements provide for per unit royalties to be paid to
the Company based on shipments by customers of units containing the
Company's products. Revenue under such agreements is recognized at the
time of shipment by the customer.
Software Development Costs
Software development costs include amounts paid to develop the
Company's computer training courses. These costs are amortized over
five years using the straight-line method.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of
common and common equivalent shares outstanding during each year. The
shares to be issued upon exercise of outstanding stock options and
warrants are included as common stock equivalents if they are dilutive.
Income Taxes
The Company uses the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes."
F-11
<PAGE> 28
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles held and used by
an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If the sum of the expected future undiscounted cash flows
is less than the carrying amount of the asset, an impairment loss is
recognized. Measurement of that loss would be based on the fair value
of the asset. SFAS No. 121 also generally requires long-lived assets
and certain identifiable intangibles to be disposed of to be reported
at the lower of the carrying amount or at the fair value less cost to
sell. SFAS No. 121 is effective for the Company's 1997 fiscal year end.
The Company does not believe that the adoption of SFAS No. 121 will
have a material impact on the Company's financial position, results of
operations, or cash flows.
In November 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," effective for
fiscal years beginning after December 15, 1995. SFAS 123 establishes
and encourages the use of the fair value based method of accounting for
stock-based compensation arrangements under which compensation cost is
determined using the fair value of stock-based compensation determined
as of the date of grant, and is recognized over the periods in which
the related services are rendered. The statement also permits companies
to elect to continue using the current implicit value accounting method
specified in Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," to account for stock-based
compensation. If the Company were to retain its current implicit value
based method, it will be required to disclose the pro forma effect of
using the fair value based method to account for its stock-based
compensation. The Company intends to continue accounting for stock
options under the APB based method.
Fair Value of Financial Instruments
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash, accounts receivable,
accounts payable, and accrued expenses, the carrying amounts
approximate fair value due to their short maturities. The amounts shown
for notes payable also approximate fair value because current interest
rates offered to the Company for notes payable of similar maturities
are substantially the same.
F-12
<PAGE> 29
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 2 - LINES OF CREDIT - BANK
The lines of credit are due through November 1997. Interest is payable
monthly at the bank's prime interest rate plus 1%. (The interest rate
as of September 30, 1996 was 9.5%.) The notes are collateralized by
certificates of deposit in the amount of $700,000 and all property of
the Company.
NOTE 3 - DUE TO STOCKHOLDER/DUE FROM AFFILIATE
The loans due to stockholder of $1,947,080 are unsecured with no stated
maturity date, with interest generally at prime plus 1.2% per annum,
but is forgiven from time to time by the stockholders. Interest paid
under these loans for the years ended September 30, 1996 and 1995 was
approximately $61,880 and $138,000, respectively.
The loan due to stockholder of $1,831,858 is payable in South African
Rands (R 8,280,000) and is secured by shares in Softline Holdings (Pty)
Limited. The note is non-interest bearing and is to be repaid from the
sale of shares in Softline Holdings (Pty) Limited.
The amounts due from affiliate are unsecured with no stated maturity
date and are non-interest bearing. The receivable is to be repaid by
the affiliate before any amounts due to stockholders of $1,947,080 are
paid by the Company.
NOTE 4 - FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Computer equipment $ 39,739
Furniture and fixtures 21,439
----------------
61,178
Less accumulated depreciation 27,217
----------------
TOTAL $ 33,961
================
</TABLE>
F-13
<PAGE> 30
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 5 - EQUITY INVESTMENT IN SOFTLINE HOLDINGS (PTY) LIMITED
In January 1996, the Company entered into an agreement to purchase 100%
of Softline Business Systems (Pty) Ltd. ("Softline"), a privately owned
South African software company. The transaction was to close on March
1, 1996. In late February 1996, financing arranged by the Company to
complete the acquisition failed to materialize. The Company then
arranged a consortium of investors to purchase Softline. The consortium
purchased Softline on March 1, 1996 and formed a new holding company,
Softline Holdings (Pty) Limited. The Company's interest in the
consortium was 50% acquired against a note payable of R 14,250,000. In
September 1996, the Company paid R 9,627,200 and its interest in
Softline was reduced to 40.25%. The management of the Company
effectively controlled the operations of Softline; however, since it
only owned a 40.25% interest at year-end, the Company has accounted for
its investment in Softline using the equity method of accounting.
The Company financed its acquisition of Softline, in part, with a note
payable that is payable in South African Rand (Note 3). Due to the
strength of the United States Dollar (the Company's functional
currency) to the South African Rand, the Company has recognized a gain
on foreign currency translation in the amount of $343,000 in the
September 30, 1996 statement of operations.
Summary audited financial information of Softline for the seven month
period ended September 30, 1996 is listed below:
<TABLE>
<CAPTION>
<S> <C>
Operating statement data
Net sales $21,727,917
Net income 942,680
Balance sheet data
Current assets $ 6,624,384
Total assets 13,902,659
Current liabilities 4,191,678
Long-term debt 8,872,257
Stockholders' equity 838,724
</TABLE>
NOTE 6 - COMMITMENT
The Company leases facilities for its corporate and operations offices
under a long-term lease agreement through May 1997.
Rent expense was $32,820 and $54,173 for the years ended September 30,
1996 and 1995, respectively.
F-14
<PAGE> 31
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 7 - COMMON STOCK, STOCK OPTIONS AND WARRANTS
Issuance of Common Shares
In 1996, the Company sold 1,966,800 shares of common stock through
several private placements with offering prices ranging from $0.375 to
$4.00 per share for a total consideration of $1,843,698.
Stock Option Plan
The Company has adopted an incentive stock option plan. Options under
this plan may be granted to employees and officers of the Company.
There are 1,000,000 shares of common stock reserved for issuance under
this plan. The exercise price of the options is determined by the board
of directors, but the exercise price may not be less than 100% of the
fair market value on the date of grant. Options vest over periods not
to exceed ten years.
The following summarizes the Company's stock option transactions under
the stock option plan:
<TABLE>
<CAPTION>
Shares Under Option Price
Option Per Share
--------------- ----------------
<S> <C> <C>
Options outstanding, September 30, 1994 187,200 $.75 - .825
Expired/canceled (20,000) .75
--------------
Options outstanding, September 30, 1995 167,200 .75 - .825
Expired/canceled (10,500) .75
Granted 391,810 .50 - .55
Exercised (136,200) .75 - .825
--------------
OPTIONS OUTSTANDING, SEPTEMBER 30, 1996 412,310 $ .50 - .75
===============
</TABLE>
At September 30, 1996, all of the options were exercisable.
Other Options
In addition to options issued pursuant to the stock option plan
mentioned above, the Company has issued additional options to
consultants. The following summarizes the Company's other stock option
transactions:
<TABLE>
<CAPTION>
Shares Under Option Price
Option Per Share
--------------- ----------------
<S> <C> <C>
Options outstanding, September 30, 1995 150,000 $.50 - 1.00
Expired/canceled (100,000) .50 - 1.00
Granted 900,000 .30 - .75
---------------
OPTIONS OUTSTANDING, SEPTEMBER 30, 1996 950,000 $ .30 - .75
===============
</TABLE>
At September 30, 1996, all of the options were exercisable.
F-15
<PAGE> 32
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 7 - COMMON STOCK, STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants
From the sale of units from the Company's initial public offering, the
Company has outstanding 1,000,000 warrants to purchase one share of
common stock with an exercise price of $7.00 per share. The warrants
expire two years from the effective date of a post-effective amendment
to the Company's registration statement.
NOTE 8 - INCOME TAXES
The Company has net losses for federal and state income tax purposes
for 1996 and 1995 and, therefore, no provision for income taxes was
provided. No benefit has been recognized for the net operating loss
carryforwards due to the uncertainty of its realization.
The Company has federal net operating loss carryforwards of
approximately $6,200,000. These carryforwards may be used to offset
future taxable income, expiring from the year 2005 through 2010.
At September 30, 1995, the Company had a deferred tax asset of
approximately $2,296,000, resulting from net operating loss
carryforwards, which has been offset in its entirety by a valuation
allowance due to the uncertainty of its realization.
NOTE 9 - DISCONTINUED OPERATIONS
Tango Products USA, Inc.
On December 8, 1995, the Company sold the net assets and related
operations of Tango Products USA, Inc., a wholly-owned and fully
consolidated subsidiary. The assets of Tango Products USA, Inc. consist
primarily of accounts receivable, inventories, prepaid expenses, and
other assets. The selling price was $153,615.
Operating results of Tango Products USA, Inc. for the years ended
September 30, 1996 and 1995 are shown separately in the accompanying
statements of operations.
Net sales of Tango Products USA, Inc. were $72,451 and $848,563 for the
years ended September 30, 1996 and 1995, respectively. These amounts
are not included in net sales in the accompanying statements of
operations.
F-16
<PAGE> 33
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
NOTE 9 - DISCONTINUED OPERATIONS (CONTINUED)
Cabinets Galore, Inc.
On October 1, 1994, the Company sold the net assets and related
operations of Cabinets Galore, Inc. ("Cabinets"), a substantially-owned
and fully consolidated subsidiary. The assets of Cabinets consist
primarily of accounts receivable, inventories, and machinery and
equipment. The selling price was $290,344 in the form of a secured
note. The note is interest free and is due October 1996 and is
currently past due. Due to the uncertainty of collection of the amount
of the note greater than the net assets securing the note ($200,000),
the Company has recognized only $90,344 of the note at the sale date.
The remaining $200,000 will be recognized when received.
In 1995, the Company incurred $205,326 of expenses related to Cabinets
which it has reflected as additional loss on the disposal of Cabinets.
The Company will attempt to recover this amount from the buyer and, if
successful, it will be recorded as income at that time. No such
recovery was received in 1996.
NOTE 10 - SUBSEQUENT EVENT (UNAUDITED)
In the period from October 1, 1996 to March 31, 1997, the Company sold
100,000 shares of common stock through a private placement at a price
of $2.00 per share for a total consideration of $200,000.
In the period from October 1, 1996 to March 31, 1997, the Company
issued 224,000 and 570,000 options to employees and consultants,
respectively, to purchase common stock with exercise prices ranging
from $1.00 to $2.00 per share.
On November 5, 1996, the Company entered into a Share Purchase
Agreement and a Technology Purchase Agreement to purchase 100% of the
issued and outstanding shares of common stock of Divergent Technologies
Pty Ltd., an Australian software company. The purchase price comprised
of 5,177,720 Australian Dollars (United States $4,076,945), 1,300,000
shares of the Company's common stock, and options to purchase 1,600,000
shares of the Company's common stock at a price of $1.75 for two years.
On February 19, 1996, Softline Holdings (Pty) Limited was listed on the
Johannesburg Stock Exchange via the acquisition of a cash shell. As a
result of this listing, the interest of the Company in Softline
Holdings (Pty) Limited was diluted to 29% comprising 48,639,000 shares
of freely traded and unrestricted common stock. The market value of
these shares at March 25, 1997 was approximately R 97,000,000 (United
States $21,000,000).
F-17
<PAGE> 34
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
Reg. No. 70/11870/07
FINANCIAL STATEMENTS FOR THE PERIOD ENDED 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
CONTENTS
PAGES
<TABLE>
<S> <C>
Report of the independent auditors 1
Directors' report 2 - 3
Balance sheets 4
Income statements 5
Notes to the financial statements 6 - 10
Cash flow statements 11 - 12
</TABLE>
APPROVAL OF FINANCIAL STATEMENTS
The financial statements were approved by the board of directors on 26 November
1996, and are signed on its behalf by :-
/s/ Ivan Epstein
DIRECTORS
/s/ Steven Cohen
F-18
<PAGE> 35
REPORT OF THE INDEPENDENT AUDITORS
To the members
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
- --------------------------------------------------------------------------------
We have audited the annual financial statements and group annual financial
statements set out on pages 2 to 12. These financial statements are the
responsibility of the company's directors. Our responsibility is to report on
these financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance that, in all material respects, fair presentation is achieved in the
financial statements. An audit includes an evaluation of the appropriateness of
the accounting policies, an examination, on a test basis, of evidence supporting
the amounts and disclosures included in the financial statements, an assessment
of the reasonableness of significant estimates and a consideration of the
appropriateness of the overall financial statement presentation. We consider
that our audit procedures were appropriate in the circumstances to express our
opinion presented below.
In our opinion these financial statements fairly present the financial position
of the company and the group at 29 February 1996, and the results of their
operations and cash flow information for the period then ended in conformity
with generally accepted accounting practice and in the manner required by the
Companies Act.
/s/ Charles Orbach & Co.
CHARTERED ACCOUNTANTS (S.A.)
REGISTERED ACCOUNTANTS
& AUDITORS
Johannesburg
F-19
<PAGE> 36
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
DIRECTORS' REPORT FOR THE PERIOD ENDED 29 FEBRUARY 1996
Your directors present their report together with the financial statements for
the period ended 29 February 1996.
CAPITAL
There were no changes in the company's authorised and issued share capital
during the financial period under review.
FINANCIAL RESULTS
Details of the company's and group's financial results are fully set out on
page 5 of the financial statements and require no further comment.
DIVIDENDS
A dividend of $75 376 (1995 - $42 018) was declared to shareholders registered
on 30 November 1995. No further dividends are recommended in respect of the
financial period under review.
DIRECTORATE
The following were directors of the company during the financial period under
review :-
A.A. Osrin
S.M. Cohen
I.M. Epstein
The following directors resigned during the period under review :-
<TABLE>
<CAPTION>
<S> <C>
A.G. Lloyd 25 August 1995
J.W. Davis 7 February 1996
J. Smit 7 February 1996
K.R.M. Evans 7 February 1996
D.W. Henwood 7 February 1996
</TABLE>
SECRETARY
Persetel Management Services (Pty) Limited resigned as secretaries of the
company on 31 January 1996.
The following was appointed the secretary of the company on 31 January 1996.
<TABLE>
<S> <C>
Orco Secretaries (Proprietary) Limited P.O. Box 821
1st Floor - Barclays House NORTHLANDS
261 Oxford Road 2116
ILLOVO
2196
</TABLE>
F-20
<PAGE> 37
NATURE OF COMPANY'S BUSINESS
The company carries on its principal business activity as a developer and
distributor of computer software as well as a distributer of computer hardware
components.
No material changes in the nature of the company's business occurred during the
financial period under review.
FIXED ASSETS
The company acquired fixed assets at a cost of $54 443 (1995 - $78 727) and the
group acquired fixed assets at a cost of $71 763 (1995 - $117 300) during the
financial period under review.
No major changes in the nature of the fixed assets of the company occurred
during the financial period under review.
No changes in policy regarding the use of fixed assets occurred during the
financial period under review.
SUBSIDIARY AND ASSOCIATED COMPANIES
Details of your company's subsidiaries and associates are set out in note 6 of
the financial statements.
The company's interest in the after tax losses of the subsidiaries amounted to
$21 580 (1995 - profits of $31 638).
HOLDING COMPANY
The company's holding company is Persetel Investments (Pty) Limited, a company
incorporated in the Republic of South Africa.
Subsequent to the period under review the entire shareholding of the company has
been purchased by Soft Line Holdings (Pty) Limited.
GENERAL
The company's affairs are considered to be satisfactory.
No further material facts and circumstances have occurred between the accounting
date and the date of this report.
F-21
<PAGE> 38
BALANCE SHEETS AT 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROUP COMPANY
29.2.1996 31.5.1995 29.2.1996 31.5.1995
Notes $ $ $ $
CAPITAL EMPLOYED
<S> <C> <C> <C> <C> <C>
SHARE CAPITAL 2 35 35 35 35
FOREIGN CURRENCY TRANSLATION RESERVE
(19 190) (12 394) (17 872) (11 902)
RETAINED INCOME 106 505 203 381 96 447 171 744
---------------- -------------- --------------- --------------
SHAREHOLDERS' INTEREST 87 350 191 022 78 610 159 877
OUTSIDE SHAREHOLDERS' INTEREST
2 473 8 050 - -
---------------- -------------- --------------- --------------
89 823 199 072 78 610 159 877
================ ============== =============== ==============
EMPLOYMENT OF CAPITAL
FIXED ASSETS 4 164 109 132 306 133 514 103 808
PROGRAM DEVELOPMENT COSTS 5 272 459 - 272 459 -
INVESTMENT IN SUBSIDIARIES 6 - - 239 924 161 130
NET CURRENT (LIABILITIES)/ASSETS
(346 745) 66 766 (567 287) (105 061)
---------------- -------------- --------------- --------------
CURRENT ASSETS 2 098 063 858 583 1 808 957 588 824
---------------- -------------- --------------- --------------
Stock 512 091 191 462 463 240 161 851
Accounts receivable 7 1 502 432 444 228 1 345 717 315 102
Fellow subsidiary companies - 67 639 - 55 475
Bank and cash resources 83 540 155 254 - 56 396
---------------- -------------- --------------- --------------
CURRENT LIABILITIES 2 444 808 791 817 2 376 244 693 885
---------------- -------------- --------------- --------------
Accounts payable 1 932 044 614 234 1 867 071 574 978
Short term loans 333 891 - 333 891 -
Taxation - 150 486 - 96 020
Shareholders for dividends 2 507 27 097 - 22 887
Bank overdraft 7 176 366 - 175 282 -
---------------- -------------- --------------- --------------
89 823 199 072 78 610 159 877
================ ============== =============== ==============
</TABLE>
F-22
<PAGE> 39
INCOME STATEMENTS FOR THE PERIOD ENDED 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROUP COMPANY
9 MONTHS ENDED 12 months 9 MONTHS 12 months
29.2.1996 ended ENDED ended
$ 31.5.1995 29.2.1996 31.5.1995
Note $ $ $
<S> <C> <C> <C> <C>
TURNOVER 4 143 796 3 456 248 3 531 376 2 725 326
NET (LOSS)/INCOME BEFORE TAXATION
(37 244) 367 954 (15 416) 256 730
========= ========= ========= =========
after taking into account the following
items :-
- --------------------------------------------------------------------------------------------------------------------------------
INCOME
Interest received 3 980 12 013 1 280 8 337
Profit on disposal of fixed assets - 587 - -
Income from subsidiaries - - 20 222 46 814
--------- --------- --------- ---------
- - Dividends received - - 7 641 31 061
- - Administration fees received - - 12 581 15 753
--------- --------- --------- ---------
EXPENDITURE
Audit fees 26 866 8 259 24 000 5 836
--------- --------- --------- ---------
- - Current year 25 801 18 022 22 935 15 599
- - Other services 1 065 - 1 065 -
- - Underprovision prior years - (9 763) - (9 763)
--------- --------- --------- ---------
Depreciation 35 301 25 389 20 945 15 953
Foreign exchange losses 34 564 - 34 564 -
Interest paid 25 481 1 256 25 481 1 256
Loss on disposal of fixed assets - 1 315 - 1 315
- --------------------------------------------------------------------------------------------------------------------------------
TAXATION 8 13 052 177 859 10 502 114 625
--------- --------- --------- ---------
NET (LOSS)/INCOME FOR THE PERIOD
(50 296) 190 095 (25 918) 142 105
(LOSS)/INCOME ATTRIBUTABLE TO OUTSIDE
SHAREHOLDERS
(2 798) 16 352 - -
(LOSS)/INCOME ATTRIBUTABLE TO MEMBERS
(47 498) 173 743 (25 918) 142 105
DIVIDEND PAID 49 379 122 015 49 379 122 015
--------- --------- --------- ---------
(ACCUMULATED LOSS)/ RETAINED INCOME for
the period
(96 877) 51 728 (75 297) 20 090
RETAINED INCOME at beginning of period
203 381 151 654 171 744 151 654
--------- --------- --------- ---------
RETAINED INCOME at end of period
106 505 203 381 96 447 171 744
--------- --------- --------- ---------
</TABLE>
F-23
<PAGE> 40
NOTES TO THE FINANCIAL STATEMENTS AT 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
1. ACCOUNTING POLICIES
The financial statements have been prepared on the historical cost
basis and incorporate the following principal accounting policies which
are consistent with those of the previous year :-
a. BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial position
and the results of operations of the company and its subsidiaries. The
results of the subsidiaries are included from the effective dates of
acquisition. All significant inter-company transactions and balances
are eliminated on consolidation.
b. FIXED ASSETS
Fixed assets are stated at cost less the related provision for
depreciation. Depreciation is provided on the straight line basis at
rates considered appropriate to reduce the book values to estimated
residual values over the expected useful lives of the assets.
c. STOCK
Stock, which consists of goods for resale, is valued at the lower of
cost and net realisable value. Cost is determined on the first in first
out basis.
d. FOREIGN CURRENCIES
Liabilities in foreign currencies are converted to South African Rand
at rates ruling at the balance sheet date, except where covered by
forward exchange contracts, when the rates specified in the forward
exchange contracts are used. Transactions are recorded at the rates
ruling at the transaction date or at forward cover rates if applicable.
All realised and unrealised gains and losses on uncovered foreign
transactions are included in the income statement as incurred.
e. FOREIGN CURRENCY TRANSLATION
The financial statements have been translated from South African Rands
into United States Dollars using the closing rate method.
Assets and liabilities are translated at the rates of exchange ruling
at the year end.
Income, expenditure and cash flow items are translated at the weighted
average rates of exchange during the year.
Gains and losses arising from translation during the year are included
in a foreign currency translation reserve.
f. DEFERRED TAXATION
Deferred taxation is provided using the comprehensive method and
represents the future potential liability for taxation on items of
expenditure which are recognised for tax purposes in periods different
from those during which they are brought to account in the income
statement. In computing the liability for deferred taxation, account is
taken of computed income tax losses. Account is not taken of deferred
taxation in the event of it resulting in a debit balance.
g. PROGRAM DEVELOPMENT COSTS
Program development costs are accumulated until the program is
finalised and sales thereof have commenced. The costs are then written
off to income over a period of 5 years. The cost of subsequent
amendments will be written off as they are incurred.
h. TURNOVER
Turnover comprises sales to customers and excludes value added tax.
<PAGE> 41
NOTES TO THE FINANCIAL STATEMENTS AT 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROUP COMPANY
<S> <C> <C> <C> <C>
29.2.1996 31.5.1995 29.2.1996 31.5.1995
$ $ $ $
2. SHARE CAPITAL
Authorised
10 000 ordinary shares of R0.10
each 350 350 350 350
=============== =============== =============== ===============
Issued
1 000 ordinary shares of R0.10
each 35 35 35 35
=============== =============== =============== ===============
3. INTEREST BEARING DEBT
Short term 510 257 - 509 173 -
=============== =============== =============== ===============
</TABLE>
F-25
<PAGE> 42
NOTES TO THE FINANCIAL STATEMENTS AT 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
4. FIXED ASSETS
<TABLE>
<CAPTION>
GROUP FURNITURE OFFICE COMPUTER
AND FITTINGS EQUIPMENT EQUIPMENT TOTAL
<S> <C> <C> <C> <C>
Depreciation rates 10% 10 - 20% 20 - 33%
Cost 31 709 20 421 135 150 187 280
Accumulated depreciation 5 757 3 765 45 452 54 974
-------------- --------------- --------------- --------------
Net book value at beginning of period
25 952 16 656 89 698 132 306
Translation difference (1 054) (677) (3 644) (5 375)
Additions 19 985 4 237 47 541 71 763
Current depreciation 3 507 2 880 28 198 34 585
-------------- --------------- --------------- --------------
Net book value at end of period 41 376 17 336 105 397 164 109
============== =============== =============== ==============
Cost 49 993 23 331 172 491 245 815
Accumulated depreciation 8 617 5 995 67 094 81 706
-------------- --------------- --------------- --------------
Net book value at end of period 41 376 17 336 105 397 164 109
============== =============== =============== ==============
</TABLE>
<TABLE>
<CAPTION>
COMPANY FURNITURE OFFICE COMPUTER
AND FITTINGS EQUIPMENT EQUIPMENT TOTAL
<S> <C> <C> <C> <C>
Depreciation rates 10% 10-20% 20-33%
Cost 25 286 10 848 106 034 142 168
Accumulated depreciation 4 579 2 639 31 142 38 360
-------------- --------------- --------------- --------------
Net book value at beginning of period
20 707 8 209 74 892 103 808
Translation difference (841) (334) (3 043) (4 217)
Additions 17 815 2 859 33 770 54 443
Current depreciation 2 567 1 449 16 504 20 520
-------------- --------------- --------------- --------------
Net book value at end of period 35 114 9 285 89 115 133 514
============== =============== =============== ==============
Cost 42 074 13 266 135 496 190 835
Accumulated depreciation 6 960 3 981 46 381 57 321
-------------- --------------- --------------- --------------
Net book value at end of period 35 114 9 285 89 115 133 514
============== =============== =============== ==============
</TABLE>
F-26
<PAGE> 43
NOTES TO THE FINANCIAL STATEMENTS AT 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROUP COMPANY
<S> <C> <C> <C> <C>
29.2.1996 31.5.1995 29.2.1996 31.5.1995
$ $ $ $
5. PROGRAM
DEVELOPMENT COSTS
Current period expenditure 272 459 - 272 459 -
=============== =============== =============== ===============
6. INVESTMENT IN SUBSIDIARY COMPANIES
Shares at cost 78 55
Amounts owing by subsidiaries 239 846 161 075
--------------- ---------------
Net investment in subsidiaries 239 924 161 130
=============== ===============
</TABLE>
The shares at cost comprises :-
Unlisted
- A 90% share (1995 - 90%) in Soft Line Natal (Proprietary)
Limited which has an issued share capital of $35.
- A 70% share (1995 - 70%) in Soft Line Cape (Proprietary)
Limited which has an issued share capital of $35.
- A 100% share (1995 - R Nil) in Vantage Distribution
(Proprietary) Limited which has an issued share capital of
$35.
7. BANK OVERDRAFT
Trade debtors have been ceded to the company bankers subsequent to the
financial period end as security for the bank overdraft and other
facilities granted.
<TABLE>
<CAPTION>
GROUP COMPANY
<S> <C> <C> <C> <C>
29.2.1996 31.5.1995 29.2.1996 31.5.1995
$ $ $ $
8. TAXATION
S.A. Normal Taxation (188) 148 537 (188) 95 256
Current - 148 537 - 95 256
Prior year overprovision
(188) - (188) -
--------------- --------------- --------------- ---------------
Secondary tax on companies 13 240 29 322 10 690 19 369
--------------- --------------- --------------- ---------------
13 052 177 859 10 502 114 625
=============== =============== =============== ===============
</TABLE>
F-27
<PAGE> 44
NOTES TO THE FINANCIAL STATEMENTS AT 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROUP COMPANY
<S> <C> <C> <C> <C>
29.2.1996 31.5.1995 29.2.1996 31.5.1995
$ $ $ $
8. TAXATION (CONT'D.)
Tax rate reconciliation : % % % %
Statutory tax rate - 35,0 - 35,0
Permanent differences - 5,3 - 1,3
Exempt income - - - 0,3
Prior year overprovision (0,5) - (1,2) -
Secondary tax on companies 35,5 8,0 69,3 8,0
--------------- --------------- --------------- ---------------
Effective tax rate 35,0 48,3 68,1 44,6
=============== =============== =============== ===============
The estimated tax effect of tax
losses are as follows :=
Before deferred taxation 6 269 1 697
After deferred taxation 6 269 1 697
Any benefit to be derived from
these tax losses is dependant on the
company and group earning taxable
incomes in future years.
9. DIRECTORS' EMOLUMENTS
The aggregate of directors'
emoluments
For services as directors = =
For other services 218 859 206 234
--------------- ---------------
218 859 206 234
=============== ===============
</TABLE>
11 CONTINGENT LIABILITIES
a. Secondary tax on companies on the company's distributable reserves
$8 912 (1995 = $31 970).
b. Guarantees issued to suppliers of the company by the company's bankers
amount to $15 343.
c. The company has entered into a forward exchange contract to purchase
United States Dollars to pay future foreign liabilities. The amount
outstanding in respect of this contract is US$241 651 at a rate of
R4,1382 = US$1.
F-28
<PAGE> 45
CASH FLOW STATEMENTS FOR THE PERIOD ENDED 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROUP COMPANY
<S> <C> <C> <C> <C>
29.2.1996 31.5.1995 29.2.1996 31.5.1995
NOTES $ $ $ $
CASH (UTILISED IN)/RETAINED FROM OPERATING
ACTIVITIES (237 749) 219 705 (159 873) 244 235
Cash generated by operations 1 17 150 332 417 27 552 264 192
Investment income 3 980 12 013 1 280 8 338
Generated by a decrease in working capital
2 6 616 99 119 15 564 230 763
--------------- --------------- --------------- ---------------
Cash generated by operating activities 27 746 443 549 44 396 503 293
Taxation paid 3 (163 538) (123 393) (106 522) (158 674)
Finance costs (25 481) (1 256) (25 481) (1 256)
--------------- --------------- --------------- ---------------
Cash (utilised in)/available from operating
activities (161 273) 318 900 (87 607) 343 363
Dividends paid 4 (76 476) (99 195) (72 266) (99 128)
--------------- --------------- --------------- ---------------
CASH UTILISED IN INVESTING ACTIVITIES
(344 222) (116 524) (405 696) (239 912)
Acquisition of fixed assets (71 763) (117 300) (54 443) (78 727)
Development costs capitalised (272 459) - (272 459) =
Proceeds on disposal of fixed assets - 776 - =
Acquisition of subsidiaries - - (26) (55)
Increase in loans to subsidiary companies
- - (78 768) (161 130)
--------------- --------------- --------------- ---------------
(581 971) 103 181 (565 569) 4 323
================ ============== =============== ===============
CASH EFFECTS OF FINANCING ACTIVITIES
Increase in short term loans 510 257 - 509 173 -
Decrease/(increase) in cash resources 71 714 (103 181) 56 396 (4 323)
---------------- -------------- --------------- ---------------
581 971 (103 181) 565 569 (4 323)
================ ============== =============== ===============
</TABLE>
F-29
<PAGE> 46
NOTES TO THE CASH FLOW STATEMENTS FOR THE PERIOD ENDED 29 FEBRUARY 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROUP COMPANY
<S> <C> <C> <C> <C>
29.2.1996 31.5.1995 29.2.1996 31.5.1995
$ $ $ $
1. CASH GENERATED BY OPERATIONS
Operating income before interest (11 763) 369 209 10 066 256 086
Adjustment for :
Depreciation 35 301 25 389 20 945 15 953
Loss on disposal of fixed assets = 729 = 1 215
Investment income (3 980) (12 013) (1 280) (8 338)
Exchange rate movement (2 408) (50 897) (2 179) (724)
---------------- --------------- --------------- ---------------
17 150 332 417 27 552 264 192
================ =============== =============== ===============
2. GENERATED BY A DECREASE IN WORKING CAPITAL
Increase in stock (320 629) (143 720) (301 389) (114 109)
(Increase)/decrease in accounts receivable
(1 058 204) (106 093) (1 030 615) 23 033
Decrease/(increase) in fellow subsidiary
companies 67 639 (43 310) 55 475 (31 146)
Increase in accounts payable 1 317 810 392 242 1 292 093 352 985
---------------- --------------- --------------- ---------------
6 616 99 119 15 564 230 763
================ =============== =============== ===============
3. TAXATION PAID
Amounts unpaid at beginning of period
(150 486) (96 020) (96 020) (140 069)
Amounts charged to the income statement
(13 052) (177 859) (10 502) (114 625)
Amounts unpaid at end of period = 150 486 = 96 020
---------------- --------------- --------------- ---------------
(163 538) (123 393) (106 522) (158 674)
================ =============== =============== ===============
4. DIVIDENDS PAID
Amounts unpaid at beginning of period
(27 097) = (22 887) =
Amounts charged to income statement
(49 379) (122 015) (49 379) (122 015)
Outside shareholders' interest (2 507) (4 277) = =
Amounts unpaid at end of period 2 507 27 097 = 22 887
---------------- --------------- --------------- ---------------
(76 476) (99 195) (72 266) (99 128)
================ =============== =============== ===============
</TABLE>
<PAGE> 47
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
ANNUAL FINANCIAL STATEMENTS
31 MAY 1995
F-31
<PAGE> 48
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
(Registration Number: 70/11870/07)
ANNUAL FINANCIAL STATEMENTS
31 May 1995
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of the independent auditors 1
Report of the directors 2
Consolidated income statement 3
Consolidated balance sheet 4
Income statement 5
Balance sheet 6
Cash flow statements 7
Notes to the cash flow statements 8 - 9
Accounting policies 10
Notes to the annual financial statements 11 - 14
</TABLE>
The annual financial statements set out on pages 2 to 14 were approved by the
board of directors on 24 June 1995 and are signed on its behalf by:
/s/ Steven Cohen
..................................)
)
) DIRECTORS
/s/ Alan Osrin )
..................................)
F-32
<PAGE> 49
[DELOITTE & TOUCHE LETTERHEAD]
REPORT OF THE INDEPENDENT AUDITORS
TO THE MEMBERS OF SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
We have audited the annual financial statements and group annual financial
statements set out on pages 2 to 14. These annual financial statements are the
responsibility of the company's directors. Our responsibility is to report on
these annual financial statements.
We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the audit to obtain reasonable
assurance that, in all material respects, fair presentation is achieved in the
annual financial statements. An audit includes an evaluation of the
appropriateness of the accounting policies, an examination, on a test basis, of
evidence supporting the amounts and disclosures included in the annual financial
statements, an assessment of the reasonableness of significant estimates and a
consideration of the appropriateness of the overall financial statement
presentation. We consider that our audit procedures were appropriate in the
circumstances to express our opinion presented below.
In our opinion these annual financial statements fairly present the financial
position of the company and the group at 31 May 1995 and the results of their
operations and cash flow information for the year then ended in conformity with
generally accepted accounting practice and in the manner required by the
Companies Act.
24 June 1995
F-33
<PAGE> 50
The directors have pleasure in presenting their report on the activities of the
company for the period ended 31 May 1995.
REVIEW OF ACTIVITIES
The company is engaged in the development and distribution of computer software,
development projects and other related services.
The results for the period under review are clearly shown in the attached annual
financial statements.
SHARE CAPITAL
The authorised share capital of the company was subdivided into 3 500 ordinary
shares of 3,5 cents each on 17 October 1994.
Details of the authorised and issued share capital of the company appear in note
4 to the annual financial statements.
DIVIDENDS
A dividend of $122 015 (1994 - $ NIL) was declared during the year.
DIRECTORS AND SECRETARY
The directors in office at the financial year end and date of this report were
as follows:
S M Cohen
J W Davis
I M Epstein
KRM Evans (appointed 18 October 1994)
DW Henwood (appointed 18 October 1994)
AG Lloyd (appointed 1 June 1994)
A A Osrin
J Smit (appointed 1 June 1994)
Secretary - Persetel Management Services (Proprietary) Limited
<TABLE>
<CAPTION>
Business address: Postal address:
----------------- ---------------
<S> <C>
1 Charles Crescent P O Box 785091
Eastgate Ext 4 SANDTON
SANDTON 2146
2148
</TABLE>
HOLDING COMPANY
The company's holding company is Persetel Investments (Proprietary) Limited and
ultimate holding company is Persetel Holdings Limited.
SUBSIDIARIES
The interest of the company in the aggregate net income of subsidiaries is:
<TABLE>
<CAPTION>
12 months 8 months
ended ended
31 May 31 May
1995 1994
$ $
<S> <C> <C>
Net income 79 626 -
--------- --------
</TABLE>
Details of the company's subsidiaries are set out in note 6 to these annual
financial statements
F-34
<PAGE> 51
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
CONSOLIDATED INCOME STATEMENT
for the year ended 31 May 1995
<TABLE>
<CAPTION>
12 months 8 months
ended ended
31 May 31 May
Notes 1995 1994
----- ----- ----
$ $
TURNOVER 3 456 248 1 113 341
<S> <C> <C> <C>
Operating income before interest 1 357 196 177 309
Net interest received 10 757 11 292
INCOME BEFORE TAXATION 367 953 188 601
Taxation 3 177 859 99 663
NET INCOME 190 094 88 938
Attributable to outside shareholders in subsidiaries 16 352 -
NET INCOME ATTRIBUTABLE TO SHAREHOLDERS 173 742 88 938
Dividend 122 015 -
RETAINED INCOME for the year 51 727 88 938
Retained income at beginning of the year 151 654 62 716
RETAINED INCOME at end of the year 203 381 151 654
</TABLE>
F-35
<PAGE> 52
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
CONSOLIDATED BALANCE SHEET
31 MAY 1995
<TABLE>
<CAPTION>
Notes 1995 1994
----- ---- ----
$ $
CAPITAL EMPLOYED
<S> <C> <C> <C>
Share capital 4 35 35
Retained income 203 381 151 654
Foreign currency translation reserve (12 393) (7 497)
------- -------
TOTAL SHAREHOLDERS' FUNDS 191 023 144 192
OUTSIDE SHAREHOLDERS' INTEREST 8 049 -
------- -------
TOTAL CAPITAL EMPLOYED 199 072 144 192
------- -------
EMPLOYMENT OF CAPITAL
FIXED ASSETS 5 132 307 43 975
CURRENT ASSETS
Stock 7 191 462 47 742
Debtors 444 228 338 135
Fellow subsidiary companies 67 639 24 329
Bank balances and cash 155 254 52 073
------- -------
Total current assets 858 583 462 279
------- -------
CURRENT LIABILITIES
Creditors 8 614 235 221 993
Taxation 150 486 140 069
Shareholders for dividend 27 097 -
------- -------
Total current liabilities 791 818 362 062
------- -------
NET CURRENT ASSETS 66 765 100 217
------- -------
TOTAL EMPLOYMENT OF CAPITAL 199 072 144 192
------- -------
</TABLE>
F-36
<PAGE> 53
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
INCOME STATEMENT
for the year ended 31 May 1995
<TABLE>
<CAPTION>
12 months 8 months
ended ended
31 May 31 May
Notes 1995 1994
----- ---- ----
$ $
<S> <C> <C> <C>
TURNOVER 2 725 326 1 113 341
--------- ---------
Operating income before interest 1 249 648 177 309
Net interest received 7 082 11 292
--------- ---------
INCOME BEFORE TAXATION 256 730 188 601
Taxation 3 114 625 99 663
--------- ---------
NET INCOME 142 105 88 938
Dividend 122 015 -
--------- ---------
RETAINED INCOME for the year 20 090 88 938
Retained income at beginning of the year 151 654 62 716
--------- ---------
RETAINED INCOME at end of the year 171 744 151 654
--------- ---------
</TABLE>
F-37
<PAGE> 54
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
BALANCE SHEET
31 MAY 1995
<TABLE>
<CAPTION>
Notes 1995 1994
----- ---- ----
$ $
<S> <C> <C> <C>
CAPITAL EMPLOYED
Share capital 4 35 35
Retained income 171 744 151 654
Foreign currency translation reserve (11 902) (7 497)
------- ------
TOTAL CAPITAL EMPLOYED 159 877 144 192
======= =======
EMPLOYMENT OF CAPITAL
FIXED ASSETS 5 103 808 43 975
SUBSIDIARY COMPANIES 6 161 130 -
CURRENT ASSETS
Stock 7 161 851 47 742
Debtors 315 102 338 135
Fellow subsidiary companies 55 475 24 329
Bank balances and cash 56 396 52 073
------- ------
Total current assets 588 824 462 279
------- ------
CURRENT LIABILITIES
Creditors 8 574 978 221 993
Taxation 96 020 140 069
Shareholders for dividend 22 887 -
------- ------
Total current liabilities 693 885 362 062
------- ------
NET CURRENT (LIABILITIES) ASSETS (105 061) 100 217
------- ------
TOTAL EMPLOYMENT OF CAPITAL 159 877 144 192
======= =======
</TABLE>
F-38
<PAGE> 55
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
CASH FLOW STATEMENTS
for the year ended 31 May 1995
<TABLE>
<CAPTION>
Group and
Group Company company
12 months 12 months 8 months
ended ended ended
31 May 31 May 31 May
Notes 1995 1995 1994
$ $ $
<S> <C> <C> <C>
Cash generated by operations A 275 240 217 740 120 907
Investment income 10 757 7 082 11 292
Decrease (increase) in working capital B 99 119 230 763 (32 781)
--------- --------- --------
Cash generated by operating
activities 385 116 455 585 99 418
Taxation paid C (123 393) (158 674) (86 233)
--------- --------- --------
Cash available from operating
activities 261 723 296 911 (13 185)
Dividends paid D (42 018) (52 676) (64 838)
--------- --------- --------
CASH RETAINED FROM (APPLIED TO)
OPERATING ACTIVITIES 219 705 244 235 (51 653)
--------- --------- --------
Replacement of fixed assets (117 300) (78 727) (24 037)
Proceeds of disposal of fixed
assets E 776 - -
Loans to subsidiary companies - (161 130) -
Purchase of subsidiaries - (55) -
--------- --------- --------
CASH UTILISED IN INVESTING ACTIVITIES (116 524) (239 912) (24 037)
--------- --------- --------
103 181 4 323 (75 690)
--------- --------- --------
CASH EFFECTS OF FINANCING ACTIVITIES
Decrease in long-term borrowings - - (39 000)
(Decrease) increase in short-term borrowings F (103 181) (4 323) 114 690
--------- --------- --------
CASH (UTILISED) GENERATED (103 181) (4 323) 75 690
--------- --------- --------
</TABLE>
F-39
<PAGE> 56
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
NOTES TO THE CASH FLOW STATEMENTS
for the year ended 31 May 1995
<TABLE>
<CAPTION>
Group and
Group Company company
12 months 12 months 8 months
ended ended ended
31 May 31 May 31 May
1995 1995 1994
$ $ $
<S> <C> <C> <C>
A. CASH GENERATED BY OPERATIONS:
Operating income before interest 357 196 249 648 177 309
Adjustments for:
Depreciation 25 389 15 953 4 218
Loss on disposal of fixed
assets 729 1 315 -
Exchange rate movements (108 074) (47 176) (60 620)
--------- -------- --------
275 240 217 740 120 907
--------- -------- --------
B. DECREASE (INCREASE) IN WORKING CAPITAL:
Increase in stock (143 720) (114 109) (25 411)
(Increase) decrease in debtors (106 093) 23 033 (98 714)
Increase in creditors 392 242 352 985 115 673
Fellow subsidiary companies (43 310) (31 146) (24 329)
--------- -------- --------
99 119 230 763 (32 781)
--------- -------- --------
C. TAXATION PAID IS RECONCILED
TO THE AMOUNTS DISCLOSED IN
THE INCOME STATEMENT AS FOLLOWS:
Amounts unpaid at beginning of the year 96 020 140 069 126 639
Amounts charged to the income statement 177 859 114 625 99 663
Amounts unpaid at end of the year (150 486) (96 020) (140 069)
--------- -------- --------
123 393 158 674 86 233
--------- -------- --------
D. DIVIDENDS PAID ARE RECONCILED
TO THE AMOUNTS DISCLOSED IN
THE INCOME STATEMENT AS FOLLOWS:
Amounts unpaid at beginning of the year - - 64 838
Amounts charged to the income statement 64 838 64 838 -
Outside shareholders interest 4 277 - -
Amounts unpaid at end of the year (27 097) (12 162) -
--------- -------- --------
42 018 52 676 64 838
--------- -------- --------
</TABLE>
F-40
<PAGE> 57
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
NOTES TO THE CASH FLOW STATEMENTS (continued)
for the year ended 31 May 1995
<TABLE>
<CAPTION>
Group and
Group Company company
12 months 12 months 8 months
ended ended ended
31 May 31 May 31 May
1995 1995 1994
--------- --------- --------
$ $ $
<S> <C> <C> <C>
E. PROCEEDS ON DISPOSAL OF FIXED ASSETS:
Book value of assets disposed of 1 505 1 315 -
Loss on disposal 729 1 315 -
-------- -------- -------
776 - -
======== ======== =======
F. (DECREASE) INCREASE IN SHORT-TERM
BORROWINGS COMPRISES:
Decrease in short-term loans - - (983)
(Increase) decrease in bank balances
and cash (103 181) (4 323) 115 673
-------- -------- -------
(103 181) (4 323) 114 690
======== ======== =======
</TABLE>
F-41
<PAGE> 58
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
ACCOUNTING POLICIES
31 May 1995
The annual financial statements are prepared on the historical cost basis and
incorporate the following principal accounting policies, which have been
consistently applied in all material respects.
CONSOLIDATION
The consolidated annual financial statements incorporate the annual financial
statements of the company and its subsidiaries. The operating results of the
subsidiaries are included from the effective dates of acquisition and up to the
effective dates of disposal. All significant inter-company transactions and
balances have been eliminated.
FOREIGN CURRENCY TRANSLATION
The financial statements have been translated from South African Rands into
United States Dollars using the closing rate method.
Assets and liabilities are translated at the rates of exchange ruling at the
year end.
Income, expenditure and cash flow items are translated at the weighted average
rates of exchange during the year.
Gains and losses arising from translation during the year are included in a
foreign currency translation reserve.
FIXED ASSETS AND DEPRECIATION
Fixed assets are stated at cost. Depreciation is calculated on cost using the
straight line method over their expected useful lives. The rates used are as
follows:
<TABLE>
<S> <C>
Furniture and fittings 10%
Computer equipment 20%
Office equipment 20%
</TABLE>
STOCK
Stock is valued at the lower of cost and net realisable value. Cost is
determined on the following bases:
Stationery stock is valued at average cost.
Merchandise is valued at cost on a first-in first-out basis.
Redundant and slow-moving stocks are identified and written down with regard to
their estimated economic or realisable values.
DEFERRED TAXATION
Deferred taxation is provided on the comprehensive basis using the liability
method. Defererred tax assets are not raised.
TURNOVER
Turnover comprises the invoiced value of sales to third parties and excludes
value added tax.
F-42
<PAGE> 59
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
31 May 1995
<TABLE>
<CAPTION>
Group Company Group and company
12 months 12 months 8 months
ended ended ended
31 May 31 May 31 May
1995 1995 1994
$ $ $
------ ------ ------
<S> <C> <C> <C>
1. OPERATING INCOME BEFORE INTEREST
Operating income before interest is
arrived at after taking the following items into account:
Auditor's remuneration:
- audit fees 18 022 15 599 11 074
- overprovision in prior year (9 763) (9 763) -
------ ------ ------
8 259 5 836 11 074
------ ------ ------
Depreciation 25 389 15 953 4 218
Loss on disposal of fixed assets 729 1 315 -
Income from subsidiaries:
- fees 15 753 -
- dividends 31 637 -
------ ------
47 390 4 218
------ ------
Operating lease payments:
- land and buildings 66 601 49 688 15 364
------ ------ ------
2. DIRECTORS' EMOLUMENTS
For managerial services 206 234 122 663
------- -------
</TABLE>
F-43
<PAGE> 60
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
31 May 1995
<TABLE>
<CAPTION>
Group and
Group Company company
12 months 12 months 8 months
ended ended ended
31 May 31 May 31 May
1995 1995 1994
$ $ $
------- ------- ------
<S> <C> <C> <C>
3. TAXATION
South African normal taxation
Current taxation - current year 148 462 95 256 99 663
Secondary tax on companies 29 397 19 369 -
------- ------- ------
Taxation, per income statement 177 859 114 625 99 663
------- ------- ------
% % %
South African normal rate of taxation 35,0 35,0 35,0
Non-taxable income - (3,7) -
Expenditure not allowed for taxation 0,3 0,3 0,6
Timing differences not provided for 5,0 5,0 12,2
Transitional levy - - 5,0
Secondary tax on companies 8,0 8,0 -
------- ------- ------
Effective Tax Rate 48,3 44,6 52,8
------- ------- ------
1995 1995 1994
------- ------- ------
$ $ $
4. SHARE CAPITAL
Authorised
10 000 (1994 : 1 000) Ordinary shares of
10 cents (1994 : R1) each 350 350 350
------- ------- ------
Issued 1 000 (1994 : 100) ordinary shares
of 10 cents (1994 : R1) each 35 35 35
------- ------- ------
</TABLE>
F-44
<PAGE> 61
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
31 May 1995
5. FIXED ASSETS
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
---- ------------ -----
$ $ $
<S> <C> <C> <C>
Group
- -----
31 May 1995
- -----------
Furniture and fittings 31 709 5 757 25 952
Computer equipment 135 150 45 452 89 698
------- ------ ------
Office equipment 20 421 3 765 16 656
187 280 54 974 132 306
------- ------ ------
Company
- -------
31 May 1995
- -----------
Furniture and fittings 25 286 4 579 20 707
Computer equipment 106 034 31 142 74 892
Office equipment 10 848 2 639 8 209
------- ------ ------
142 168 38 360 103 808
------- ------ ------
Group and company
- -----------------
31 May 1994
- -----------
Furniture and fittings 16 974 3 977 12 997
Computer equipment 48 770 18 742 30 028
Office equipment 1 325 375 950
------- ------ ------
67 069 23 094 43 975
------- ------ ------
</TABLE>
F-45
<PAGE> 62
SOFT LINE BUSINESS SYSTEMS (PROPRIETARY) LIMITED
NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)
31 May 1995
<TABLE>
<CAPTION>
Group and
Company company
12 months 8 months
ended ended
31 May 31 May
1995 1994
-------- --------
$ $
<S> <C> <C>
6. SUBSIDIARY COMPANIES
Shares at cost 55 -
Amounts owing by subsidiaries 161 130 -
-------- --------
Net investment in subsidiaries 161 185 -
-------- --------
</TABLE>
The investment in subsidiary companies comprises:
Unlisted
- A 90% share (1994 : Nil) in Soft Line Natal (Proprietary) Limited which
has an issued share capital of R100.
- A 70% share (1994 : Nil) in Soft Line Cape (Proprietary) Limited which
has an issued share capital of R100.
<TABLE>
<CAPTION>
Group and
Group Company Company
1995 1995 1994
---- ---- ----
$ $ $
<S> <C> <C> <C>
7. STOCK
Stationery stock 38 674 38 674 17 624
Merchandise 152 788 123 177 30 118
------- ------- -------
191 462 161 851 47 742
------- ------- -------
8. CREDITORS
Trade creditors 321 169 307 242 66 164
Provisions 92 487 86 768 94 012
Other creditors 200 579 180 968 61 817
------- ------- -------
614 235 574 978 221 993
------- ------- -------
</TABLE>
F-46
<PAGE> 63
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
FINANCIAL STATEMENTS
YEAR ENDED 30 JUNE 1996
F-47
<PAGE> 64
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
DIRECTORS' REPORT
In respect of the financial year ended 30 June 1996, the directors of Divergent
Technologies Pty Limited, submit the following report made out in accordance
with a resolution of directors:-
NAMES OF DIRECTORS
The names of the directors of the company in office at the date of this report
are:
Ivan Hammerschlag
Shaun Rosen
Peter Wise
PRINCIPAL ACTIVITIES
The principal continuing activities of the company in the course of the
financial year were that of sale of computer software and hardware and computer
services. No significant change in the nature of these activities occurred
during the year.
OPERATING RESULT
The net amount of profit of the company for the year after providing for income
tax was $840,275 (1995:$831,248).
DIVIDENDS
During the financial year dividends of $1,116,427 were paid as follows:-
<TABLE>
<S> <C>
"A" Class shares 1,105,727
"E" Class shares 10,700
---------
$1,116,427
=========
Since year end a dividend of $550,000 has been paid as follows:-
"A" Class shares $ 531,401
"E" Class shares 18,599
-----------
$ 550,000
===========
</TABLE>
SIGNIFICANT CHANGES IN STATE OF AFFAIRS
No matters or circumstances have arisen since the end of the financial year
which significantly affected or may significantly affect the operations of the
company or the results of those operations or the state of affairs of the
company during the financial year subsequent to 30 June 1996.
F-48
<PAGE> 65
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
DIRECTORS' REPORT (CONT'D)
EVENTS SUBSEQUENT TO BALANCE DATE
Since the end of the financial year, the directors are not aware of any matter
or circumstance not otherwise dealt with in this report or Note 20 to the
financial statements that has significantly or may significantly affect the
operations of the company, the results of those operations or the state of
affairs of the company in subsequent financial years.
SHARE OPTIONS
Since the end of the financial year options over 78,947 "A" Class shares have
been granted to an employee of the company, Clive Klugman. No options have been
exercised at the date of this report.
No unissued shares, other than those referred to above are under option at the
date of this report.
LIKELY DEVELOPMENTS AND RESULTS
No information is included on the likely developments in the operations of the
company and the expected results of those operations as it is the opinion of the
directors of the company that this information would prejudice the interests of
the company if included in this report.
DIRECTORS BENEFITS
No director of the company has, since the end of the previous financial year,
received or become entitled to receive a benefit other than a benefit included
in the aggregate amount of emoluments received or due and receivable by
directors shown in the accounts, or the fixed salary of a full-time employee of
the company or of a related corporation by reason of a contract made by the
company or a related corporation with any director or with a firm of which he is
a member, or with a company in which he has a substantial financial interest.
DIRECTORS' INTEREST IN CONTRACTS
No material contract involving directors were entered into since the end of the
previous financial year or existed at the end of the financial year.
F-49
<PAGE> 66
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
DIRECTORS' REPORT (CONT'D)
INDEMNIFICATION AND INSURANCE OF OFFICERS AND AUDITORS
The company has not, during the financial year, in respect of any person who is
or has been an officer or auditor of the company:
- - indemnified or made any relevant agreement for indemnifying against a
liability incurred as an officer, including costs and expenses in
successfully defending legal proceedings; or
- - paid or agreed to pay a premium in respect of a contract insuring against
a liability incurred as an officer for the costs or expenses to defend
legal proceedings
For and on behalf of the Board in accordance with a resolution of the directors
dated 31 October, 1996.
/S/ SHAUN ROSEN /S/ IVAN HAMMERSCHLAG
- ------------------------------- --------------------------------
MR. SHAUN ROSEN - DIRECTOR MR. IVAN HAMMERSCHLAG - DIRECTOR
F-50
<PAGE> 67
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED 30 JUNE 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
$ $
<S> <C> <C> <C>
Operating profit before income tax 2,3 1,181,036 1,270,098
Abnormal item before income tax 4 82,045
---------- ---------
Operating profit after abnormal
item but before income tax 1,263,081 1,270,098
Income tax attributable to operating profit 8 422,806
---------- ---------
438,850
Operating profit after income tax 840,275 831,248
Retained profits at the beginning of the financial year 821,899 70,653
---------- ---------
Total available for appropriation 1,662,174 901,901
Dividends provided for or paid 1,116,427 80,002
========== =========
Retained profits at the end of the financial year 545,747 821,899
========== =========
</TABLE>
These accounts are to be read in conjunction with the
accompanying notes which form part of the accounts.
F-51
<PAGE> 68
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
BALANCE SHEET AS AT 30 JUNE 1996
<TABLE>
<CAPTION>
NOTE 1996 1995
$ $
<S> <C> <C> <C>
CURRENT ASSETS
Cash 9 254,794 850,484
Receivables 10 1,044,484 710,034
Inventories 11 418,545 195,336
Other 12 65,808 63,492
--------- ---------
TOTAL CURRENT ASSETS 1,783,631 1,819,346
--------- ---------
NON CURRENT ASSETS
Property, plant and equipment 13 655,517 190,109
Intangibles 14 2,489,417 2,000,875
--------- ---------
TOTAL NON CURRENT ASSETS 3,144,934 2,190,894
--------- ---------
TOTAL ASSETS 4,928,565 4,010,240
--------- ---------
CURRENT LIABILITIES
Creditors and borrowings 15 1,338,841 699,403
Provisions 16 412,608 488,932
Other 17 43,822
--------- ---------
TOTAL CURRENT LIABILITIES 1,795,271 1,188,335
========= =========
NONCURRENT LIABILITIES
Provisions 16 12,716 -
--------- ---------
TOTAL NON CURRENT LIABILITIES 12,716 -
--------- ---------
TOTAL LIABILITIES 1,807,987 1,188,335
--------- ---------
NET ASSETS 3,120,578 2,821,905
========= =========
SHAREHOLDERS' EQUITY
Share capital 18 1,500,525 16
Reserves 19 1,074,305 1,999,990
Retained profits 545,747 821,899
--------- ---------
3,120,578 2,821,905
========= =========
</TABLE>
The above balance sheet is to be read
in conjunction with the attached notes.
F-52
<PAGE> 69
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
NOTE 1: STATEMENT OF ACCOUNTING POLICIES
These financial statements are a special purpose financial report prepared in
order to meet the needs of the members, which have been prepared specifically
for distribution to members in accordance with the entity's constitution. The
Directors have determined that the company is not a reporting entity as defined
in Statement of Accounting Concepts 1 "Definition of the Reporting Entity" and
therefore there is no requirement to apply Accounting Standards and other
mandatory professional reporting requirements (Urgent Issues Group Consensus
Views) in the preparation and presentation of these financial statements.
However, all Accounting Standards and professional reporting requirements have
been adopted, with the exception of the following:-
AASB 1008 - Accounting for Leases
AASB 1017 - Related Party Disclosure
AASB 1020 - Accounting for Income Tax
(Tax-Effect Accounting)
AASB 1026 - Statement of Cash Flows
(A) BASIS OF ACCOUNTING
These statements have also been prepared on an accruals basis from the
records of the company. They are based on historical cost and do not
take into account changing money values, or except where specifically
stated, current valuations of non-current assets.
(B) INVENTORIES
Inventories are stated at the lower of cost and net realisable value.
(C) INCOME TAX
Income tax is brought to account on the tax payable method, whereby the
income tax expense shown in the profit and loss is based on the amount
of tax paid or payable during the year.
F-53
<PAGE> 70
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
NOTE 1: STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
(D) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are brought to account at cost less,
where applicable, any accumulated depreciation.
The carrying amount of property, plant and equipment is reviewed
annually by the Directors to ensure it is not in excess of the
recoverable amount from these assets. The recoverable amount is
assessed on the basis of the expected net cash flows which will be
received from the assets employment and subsequent disposal. The
expected net cash flows have not been discounted to their present
values in determining recoverable amounts.
The depreciable amount of all fixed assets is depreciated over the
period of time the asset is expected to be used by the company.
(E) REVENUE RECOGNITION
(I) CONSULTING INCOME
Revenues from consulting services provided are recognized when the
service is performed.
CHANGE IN ACCOUNTING POLICY
In the previous financial year, consulting income was recognized when
the invoice to the customer was raised. To better reflect the financial
performance and financial position of the company, consulting revenue
is now recognized when the service is performed for the customer.
As a result of the above change in accounting policy, consulting
revenue has increased by $125,867.
(II) UNEARNED REVENUE
Revenues received for maintenance income in advance of the maintenance
services being performed are recorded as unearned revenue.
CHANGE IN ACCOUNTING POLICY
In the previous financial year, revenues for maintenance income were
recorded in the period in which they were invoiced. In the current
financial year, to better match the maintenance income with the
expenses of providing maintenance services, the amounts are recorded as
unearned revenue when invoiced and then matched to the period to which
the maintenance revenue relates.
As a result of the above change in accounting policy, maintenance
income for the company has reduced by $43,822.
F-54
<PAGE> 71
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
NOTE 1: STATEMENT OF ACCOUNTING POLICIES (CONTINUED)
(F) INTANGIBLES
PRINCIPAL TECHNOLOGY
Principal technology is recorded at cost.
The balance is reviewed annually and any balance representing future
benefits for which the realization is considered to be no longer
probable are written off.
GOODWILL
Goodwill is amortized on a straight line basis over the period of the
expected benefit, which has been assessed as 20 years from the date of
purchase.
(G) EMPLOYEE ENTITLEMENTS
Provision is made for the companies liability for employee entitlements
arising from services rendered by employees to balance date. Employee
entitlements expected to be settled within one year together with
entitlements arising from wages and salaries, annual leave and sick
leave which will be settled after one year, have been measured at their
nominal amount. Other employee entitlements payable later than one year
have been measured at the present value of the estimated future cash
outflows to be made for those entitlements.
(H) WARRANTY CLAIMS
All warranty claims made against the company are adequately covered by
current insurance policies. Consequently, no provision for warranty
claims is brought to account.
(I) LEASED ASSETS
WHERE THE ENTITY IS THE LESSEE
Goods purchased for leasing to customers are recorded as fixed assets,
at cost (i.e. Property, Plant and Equipment). Income received from
leasing of such assets is recognized as income in the period it is
received.
WHERE THE COMPANY IS THE LESSOR
The company records all lease payments made under finance leases
agreements, as expenses of the period in which they arise.
(J) COMPARATIVE FIGURES
Where necessary, comparative figures have been adjusted to conform with
changes in presentation for the current financial year.
F-55
<PAGE> 72
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
NOTE 2: OPERATING REVENUE
<TABLE>
<CAPTION>
1996 1995
$ $
-------------- --------------
<S> <C> <C>
Sales revenue 5,865,847 4,151,877
Other operating revenue:
- Interest received - other corporations 65,019 39,411
- Consulting fees 1,921,384 1,311,342
- Maintenance income 394,480 399,651
- Lease income 125,000 -
- Proceeds from the sale of fixed assets 7,000 -
- Recoveries 30,439 13,474
- Other revenue 1,328 1,040
--------- ---------
8,410,497 5,916,795
========= =========
NOTE 3: OPERATING PROFIT
(a) Operating profit before abnormal items and
income tax has been determined after:
(i) Crediting as income:
Interest received
- Other corporations 65,109 39,411
Profit on sale of non current assets 7,000
========= =========
-
(ii) Charging as expenses
Depreciation of:
- Plant and equipment 287,533 37,195
- Motor vehicles 8,100 -
Provision for credit notes 78,028 74,388
Lease payments 54,075 75,318
Amortization of:
- Formation expense 875 -
- Goodwill 583 -
Provision for annual leave 49,364 30,470
Provision for long service leave 12,716 -
========= =========
</TABLE>
F-56
<PAGE> 73
=
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
NOTE 4: ABNORMAL ITEM
<TABLE>
<CAPTION>
1996 1995
$ $
Net increase in revenues arising from changes in accounting policies:
<S> <C> <C>
- - Consulting income (refer note 1(e)(i)) 125,867 -
- - Maintenance income (refer note 1(e)(ii)) (43,821) -
------- -------
82,045 -
======= =======
Income tax applicable thereto 29,536 -
======= =======
NOTE 5: REMUNERATION OF DIRECTORS
Directors' remuneration
Income received or due receivable by directors
of the company 442,072 205,834
======= =======
The number of directors of the Company included in these figures are shown below
in their relevant income bands:-
$30,000 to $39,999 1 -
$80,000 to $89,999 - 1
$120,000 to $129,999 - 1
$180,000 to $189,999 1 -
$220,000 to $229,999 1 -
======= =======
NOTE 7: AUDITORS REMUNERATION
Amounts received, or due receivable by the auditors for:
- - Auditing the financial statements 6,000 -
- - Other services - -
======= =======
</TABLE>
F-57
<PAGE> 74
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
<TABLE>
<CAPTION>
NOTE 8: INCOME TAX 1996 1995
$ $
<S> <C> <C>
(a) The prima facie tax payable on operating
profit is reconciled to the income tax
provided in the accounts as follows:-
Prima facie tax payable on operating profit at 36% (1995 - 33%) 454,709 419,132
======== ========
Add: Tax effect of:
Non deductible expenses:-
- - Professional fees 10,053 8,176
- - Entertainment 1,173 1,803
- - Insurance 3,141 1,265
- - Amortization of intangibles 525 -
- - Sundry 122 77
Amounts deductible in future periods
(future income tax benefits not brought to account) 57,127 26,434
-------- --------
72,141 37,755
-------- --------
Less: Tax effect of:
Other deductible items:-
- - Amortization of principal technology 37,900 13,887
Amounts deductible in current period not recorded
as expenses until future periods
(Provision for deferred income tax not brought to account) 66,144 4,150
-------- --------
104,044 18,037
-------- --------
Income tax expense applicable to current year 422,806 438,850
======== ========
(b) The income tax expense comprises
amounts set aside for:-
Provision for income tax 422,806 438,850
======== ========
(c) Provision for income tax attributable to future
years not brought to account:-
Future income tax benefit (57,127) (26,434)
Provision for deferred income tax 66,144 4,150
-------- --------
9,017 (22,284)
======== ========
</TABLE>
F-58
<PAGE> 75
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
<TABLE>
<CAPTION>
NOTE 9: CASH 1996 1995
$ $
<S> <C> <C>
Cash on hand 4 4
Term deposits 184,986 849,621
Cash management account 50,778 -
Cash at bank - Commercial bank account 13,373
Cash at bank - Rags 4,560 -
Petty Cash 703 655
Deposits 390 204
--------- -------
254,794 850,484
========= =======
NOTE 10: RECEIVABLE
Trade and other debtors 802,438 720,580
Provision for doubtful debts (78,028) (24,611)
--------- -------
724,410 695,969
--------- -------
Sundry debtors 128,885 8,213
Loans at call - 3,052
Shareholders' loans - "E" Class shares 174,825 -
Loans - other 16,364 2,800
--------- -------
1,044,484 710,034
========= =======
NOTE 11: INVENTORIES
Stock on hand - finished goods 418,545 195,336
========= =======
NOTE 12: OTHER ASSETS
Prepayments 65,808 63,492
========= =======
NOTE 13: PROPERTY, PLANT AND EQUIPMENT
Plant and equipment - at cost 952,026 179,851
Accumulated depreciation (334,173) (40,057)
--------- -------
617,853 139,344
--------- -------
Motor vehicles - at cost 54,000 60,372
Accumulated depreciation (16,336) (9,697)
--------- -------
37,664 50,675
--------- -------
Total property, plant and equipment 655,517 190,019
========= =======
</TABLE>
F-59
<PAGE> 76
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
<TABLE>
<CAPTION>
NOTE 14: INTANGIBLES 1996 1995
$ $
<S> <C> <C>
Principal technology
- - Dolfin - at cost 2,000,000 2,000,000
- - Rags - at cost 455,000 -
--------- ---------
2,455,000 2,000,000
--------- ---------
Formation expense 875 875
Less: Accumulated amortization (875)
--------- ---------
- 875
--------- ---------
Goodwill - at cost 35,000 -
Less: Accumulated amortization (583) -
--------- ---------
34,417 -
--------- ---------
2,489,417 2,000,875
========= =========
NOTE 15: CREDITORS AND BORROWINGS
CURRENT
Bank overdraft - secured* 181,996 37,580
Trade creditors 458,902 581,892
Sundry creditors 397,443 79,431
Loan - D Rosen - unsecured 500 500
Deposits owing - unsecured 300,000 -
--------- ---------
1,338,841 699,403
========= =========
* Secured by registered mortgage debenture
over the assets of the company.
NOTE 16: PROVISIONS
CURRENT
Income tax 313,162 438,850
Annual leave 99,446 50,082
--------- ---------
412,608 488,932
========= =========
NON-CURRENT
Long Service Leave 12,716 -
========= =========
</TABLE>
F-60
<PAGE> 77
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
NOTE 17: OTHER
<TABLE>
<CAPTION>
1996 1995
$ $
<S> <C> <C>
Unearned income 43,822 -
=========== =========
NOTE 18: SHARE CAPITAL
AUTHORIZED
500,000 Ordinary shares of $1 100,000,000 1,000,000
10,000,000 "E" Class redeemable
preference shares of $0.01 100,000 -
----------- ---------
100,100,000 1,000,000
=========== =========
ISSUED
1,500,000 Ordinary shares of $1
(1995: 16 Ordinary Shares of $1) 1,500,000 16
52,500 "E" Class redeemable Preference shares 525 -
----------- ---------
1,500,525 16
=========== =========
NOTE 19: RESERVES
Share premium reserve 1,074,306 1,999,990
=========== =========
Movement in reserves was:-
Opening balance 1,999,990 -
Add:
- - Allotment of $120,000 ordinary shares at $2.3333 premium 279,996 -
- - Allotment of $2,500 "E" Class redeemable preference
shares at a $3.32 premium 174,300 -
allotment of 12 ordinary shares at a $166,665.83 premium - 1,999,990
Less:
bonus issue from share premium reserve (1,379,984) -
----------- ---------
Closing Balance 1,074,302 1,999,990
=========== =========
</TABLE>
F-61
<PAGE> 78
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
NOTES TO AND FORMING PART OF THE ACCOUNTS
FOR THE YEAR ENDED 30 JUNE 1996
<TABLE>
<CAPTION>
NOTE 20: SUBSEQUENT EVENTS 1996 1995
$ $
On 2 July 1996, Divergent sold the right to receive lease payments from a client
of the company, for the cash consideration of $899,332. As a consequence, a
profit of $592,849 will be realized during the year ending 30 June 1997.
NOTE 21: CONTINGENT LIABILITIES
<S> <C> <C>
Bank guarantee 250,000 250,000
======= =======
NOTE 22: COMMITMENTS
(A) FINANCE LEASES
Finance leasing commitments that have not been
provided for in the financial statements
Payable no later than one year 6,351 -
Payable later than one, no later than two years 1,058 -
Payable later than two, no later than five years - -
Payable later than five years - -
------- -------
7,409 -
======= =======
</TABLE>
(B) OTHER
The company has no lease agreement in place for its main premises.
However, the leasor and the company have agreed to an indefinite base
rental of $15,000 per annum.
NOTE 23: SEGMENT REPORTING
The principal activity of the company is a supplier of both computer hardware
and software. The company trades in Australia only.
F-62
<PAGE> 79
DIVERGENT TECHNOLOGIES PTY LIMITED
ACN 003 908 325
STATEMENT BY DIRECTORS
The directors determined that the company is not a reporting entity as defined
in Statement of Accounting Concepts I "Definition of the Reporting Entity", and
therefore there is no requirement to apply accounting standards and other
mandatory professional reporting requirements (Urgent Issues Group Consensus
Views) in the preparation of these financial statements. The directors have
determined that this special purpose financial report should be prepared in
accordance with those accounting policies outlined in Note 1 to the accounts.
In the opinion of the directors of the company:
1. (a) The accompanying Profit and Loss Account gives a true and fair
view of the profit or loss of the company for the financial
year ended 30 June, 1996; and
(b) The accompanying Balance Sheet give a true and fair view of
the state of affairs of the company as at 30 June, 1996.
2. At the date of this statement, there are reasonable grounds to believe
that the company will be able to pay its debts as and when they fall
due.
This statement is made in accordance with a resolution of the Board of the
Directors and is signed for and on behalf of the directors by:
Director /S/ SHAUN ROSEN
-------------------------------
Shaun Rosen
Director /S/ IVAN HAMMERSCHLAG
-------------------------------
Ivan Hammerschlag
Dated: 31 October, 1996
F-63
<PAGE> 80
PANNELL KERR FORSTER PKF WORLDWIDE
Chartered Accountants 20th Level
1 York Street
Sydney NSW 2000
Tel: (02)9251 4100
Fax: (02)9251 3832
DX: 10173
Sydney Stock
Exchange
INDEPENDENT AUDIT REPORT TO THE MEMBERS OF
DIVERGENT TECHNOLOGIES PTY LIMITED
SCOPE
We have audited the financial statements, being a special purpose financial
report of Divergent Technologies Pty limited for the year ended 30 June 1996, as
set out on pages 4 to 16. The company's directors are responsible for the
financial statements and have determined that the accounting policies used are
constant with the financial requirements of Divergent Technologies Pty Limited
and are appropriate to meet the needs of members. We have conducted an
independent audit of these financial statements in order to express an opinion
on them to the members of the company. No opinion is expressed as to whether the
accounting policies used are appropriate to the needs of the members.
The financial statements have been prepared for distribution to members. We
disclaim any responsibility for any reliance on this report or on the financial
statements to any person other than the members, or for any purpose other than
that for which it was prepared.
Our audit has been conducted in accordance with Australian Auditing standards.
Our procedures included examination, on a test basis, of the evidence supporting
the amounts and other disclosures in the financial statements, and significant
accounting estimates. These procedures have been undertaken to form an opinion
as to whether, in all material respects, the financial statements are prepared
fairly in accordance with the accounting policies described in note 1 to the
financial statements, (these policies do not require the application of all
Accounting Standards and UIG Consensus Views).
The audit opinion on this report is expressed on the above basis.
AUDIT OPINION
In our opinion, the financial statements present fairly, in accordance with the
accounting policies described in Note 1 to the financial statements, the
financial position of Divergent Technologies Pty Limited as at 30 June 1996 and
the results of its operations for the year then ended.
PANNEL KERR FORSTER
Chartered Accountants Dated: 31 October, 1996
GEOFF HARRIS, Partner A New South Wales Partnership
F-64
<PAGE> 81
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SVI HOLDINGS, INC., A NEVADA CORPORATION
By: /s/Barry M. Schechter
-------------------------------
Barry M. Schechter, President
(Principal Executive Officer)
Date: May 11, 1997
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signatures Capacity Date
---------- -------- ----
/s/Barry M. Schechter Chairman of the Board, May 13, 1997
- ------------------------- President, Chief
Barry M. Schechter Executive Officer and Director
/s/Russell A. Schechter Vice President, May 13, 1997
- ------------------------ Treasurer and Director
Russell A. Schechter (Principal Financial
and Accounting
Officer)
/s/Arthur S. Klitofsky Vice President and May 13, 1997
- ------------------------ Director
Arthur S. Klitofsky
- ------------------------ Director
John C. Petrow
- ------------------------ Director
Jack M. Ginsberg
18
<PAGE> 82
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED PURSUANT TO SECTION 15(D) OF THE EXCHANGE ACT
BY NON-REPORTING ISSUERS
No annual report or proxy material has been sent to security-holders. If the
Company furnishes such materials to its security-holders subsequent to the
filing of this Annual Report on Form 10-KSB, the Company shall furnish copies to
the Commission for its information when such material is sent to
security-holders.
19
<PAGE> 1
EXHIBIT 10.3
1. DEFINITIONS
For the purpose of this Agreement unless the context indicates otherwise -
1.1 "this Agreement" means this Sale of Shares agreement;
1.2 "the Closing Date" means 01 March 1996, or the date upon which
the entire purchase price has been paid, whichever is the
earlier;
1.3 "Softline Management" means Steven Mark Cohen, Ivan Michael
Epstein and Alan Anthony Osrin;
1.4 "the Company" means Soft Line Business Systems (Proprietary)
Limited, Registration No. 70/11870/07;
1.5 the effective date means 1 March 1996;
1.6 "Persetel" means Persetel Holdings Limited and its
subsidiaries from time to time;
1.7 "the Purchaser" means SVI Holdings, Inc. Federal Employers
Identification Number 84-1131608
1.8 "the Seller" means "Softline Management"
1.9 "the Persetel Agreement" means the Sale of Shares Agreement
between Persetel Investments (Proprietary) Limited and
Persetel Trading (Proprietary) Limited and Steven Mark Cohen,
Ivan Michael Epstein and Alan Anthony Osrin;
1.10 "the Sale Shares" means all the shares in the issued share
capital of the Company.
2. PREAMBLE
The parties record that -
2.1 the authorised share capital of the Company is R1 000,00 (one
thousand rand) divided into 10 000 ten thousand) ordinary
shares of 10c (ten cents) each;
2.2 the issued share capital of the Company is R100,00 (one
hundred rand) divided into 1 000 (one thousand) ordinary
shares of 10c (ten cents) each, which shares are held as
follows -
2.2.1 Persetel Investments - 850 (eight hundred and fifty)
ordinary shares of 10c (ten cents) each, being 85% (eighty
five per centum) of the shares in the issued share capital of
the Company;
2.2.2 Cohen - 50 (fifty) ordinary shares of 10c (ten
cents) each, being 5% (five per centum) of the shares in the
issued share capital of the Company;
2.2.3 Epstein - 50 (fifty) ordinary shares of 10c (ten
cents) each, being 5% (five per centum) of the shares in the
issued share capital of the Company;
2.2.4 Osrin - 50 (fifty) ordinary shares of 10c (ten
cents) each, being 5% (five per centum) of the shares in the
issued share capital of the Company;
2.3 Seller has entered into an agreement for the purchase of 850
(eighty hundred and fifty) ordinary shares of 10c (ten cents)
<PAGE> 2
each, being 85% (eighty five per centum) of the shares in the
issued share capital of the Company from Persetel,
2.4 Seller has decided to sell 100% of the shares in the issued
share capital of the Company to the Purchaser subsequent to
the closing of the Persetel Agreement.
2.5 whereas it is the intent of the Seller to enter into the
Persetel Agreement in order to facilitate the sale of Softline
to the Purchaser, the Persetel Agreement forms an integral and
unseverable part of this agreement, and the Purchaser accepts
the obligations and conditions of the Persetel agreement as if
it is the obligation of the Purchaser,
and the parties are entering into this Agreement to give effect thereto.
3. SALE PURCHASE PRICE AND PAYMENT
3.1 Softline Management hereby sells to the Purchasers, who hereby
purchase, the Sale Shares, with effect from the Effective
Date, on the terms and subject to the conditions set out in
this agreement.
3.2 The purchase price to be paid by the Purchasers to Softline
Management in respect of the Sale Shares, shall be R7 500
000,00 (seven million five hundred thousand rand).
3.4 The purchase price referred to in Clause 3.2 above shall be
paid by the purchasers to Softline Management by means of wire
transfer on or before 28 February 1996
4. CLOSING
On the Closing Date representatives of the parties shall meet at 14H00
at the offices of Softline Business Systems (Proprietary) Limited at 14
Commerce Crescent, Eastgate Ext. 4, Sandton, 2196 and at that meeting
the Seller will deliver to a representative of the Purchaser share
certificates in respect of the Sale Shares with duly signed share
transfer forms in order to enable the Sale Shares to be registered in
the name of the Purchasers or their nominee(s)
5. RISK AND BENEFIT
All the risk and benefit in the Sale Shares shall be deemed to have
passed from Softline Management to the Purchaser on the Effective Date.
6. THE PERSETEL AGREEMENT
Whereas the Persetel Agreement is expressly a part of this agreement -
6.1 save for where specifically excluded by this agreement, the
Purchaser accepts the obligations of the Persetel Agreement as
if it is an obligation of the Purchaser,
6.2 Purchaser indemnifies Seller for liability incurred by Seller
to a third party as a consequence of breach of this agreement
by Purchaser,
6.3 Seller undertakes to apply their best efforts in protecting
the interests of Purchaser in any claim against Purchaser
resulting from this agreement or the Persetel Agreement.
7. BREACH
7.1 Should either party commit a breach of this Agreement and fail
to
<PAGE> 3
remedy that breach within 7 (seven) days after receipt from
the other party of written notice calling upon it so to do,
then the party aggrieved by that breach shall be entitled, in
addition to and without prejudice to any right it may have as
a result of that breach, to enforce the performance of the
terms hereof.
7.2 The parties remedies under Clause 7.1 shall not be exhaustive
and shall be in addition and without prejudice to any other
remedies they may have whether for damages or otherwise.
8. JURISDICTION
The parties hereby consent and submit to the jurisdiction of the
Witwatersrand Local Division of the Supreme Court of the Republic of
South Africa for the purpose of all or any legal proceedings arising
from or concerning this Agreement
9. DOMICILIUM AND NOTICES
9.1 Each party chooses the address set out below as the address at
which all notices and other communications must be delivered
for the purposes of this Agreement -
9.1.1 Softline Management at 14 Commerce Crescent, Eastgate
Extension 13, Sandton, 2196, or Telefax No. (27) (11) 445-9004
and marked "For the Attention of Mr Ivan Epstein",
9.1.2 SVI Holdings, Inc. at 9364 Cabot Drive, Suite B, San Diego, CA
92126, or Telefax No. (91)(619) 693-4344 and marked "For the
Attention of Mr Barry Schechter".
9.2 Any notice or communication required or permitted to be given in terms
of this Agreement shall be valid and effective only if in writing but
it shall be competent to give notice by telefax, provided that the
telefax in question has been confirmed by an acknowledgement of
competent transmission generated by the telefax machine used for the
transmission in question.
9.3 Any notice to a party contained in a correctly addressed
envelope and -
9.3.1 sent by prepaid registered post or courier service to it at
its chosen address; or
9.3.2 delivered by hand to a responsible person during ordinary
business hours at its chosen address,
shall be deemed to have been received on the day of delivery.
9.4 Any notice sent by telefax to a party at its telefax number shall be
deemed (unless the contrary is proved) to have been received -
9.4.1 if it is transmitted during normal business hours, within 2
(two) hours of transmission;
9.4.2 if it is transmitted outside normal business hours, within 2
(two) hours of the commencement of normal business hours on
the first business day after it is transmitted.
9.5 Each party chooses the physical address set out opposite its name in
Clause 9.1 as the address at which legal process must be delivered for
the purposes of this agreement.
9.6 The parties shall be entitled at any time to change their
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addresses for the purposes of Clause 9.5 to any other address by giving
written notice to that effect to the other.
10. GENERAL
10.1 Any latitude or extension of time which may be allowed by any party
shall not under any circumstances whatsoever act as an estoppel or be
a waiver of that party's rights hereunder.
10.2 This agreement constitutes the entire contract between the parties
and no other conditions, warranties, guarantees and representations
shall be of any force or effect other than those which are included
herein.
10.3 All the transactions and arrangements contemplated in this
Agreement constitute one indivisible transaction.
11. INTERPRETATION
11.1 In this Agreement, unless the context requires otherwise -
11.1.1 words importing any one gender shall include the
other two genders;
11.1.2 the singular shall include the plural and vice versa;
11.1.3 a reference to natural persons shall include created
entities (corporate and unincorporate) and vice versa.
11.2 The headings in this Agreement have been inserted for convenience
only and shall not be used for nor assist or affect its
interpretation.
12. COSTS
12.1 Each party shall bear its own costs of and incidental to the
negotiating, preparing and drawing of this Agreement.
12.2 The purchasers shall bear the stamp duty payable on the
registration of transfer of the Sale Shares.
SIGNED AT Sandton ON 28 January 1996
For: The Softline Management Group
By: /s/ Ivan Epstein
-----------------
Ivan Epstein
who declares that he is authorised to do so
SIGNED AT Sandton ON 28 January 1996
For: SVI Holdings, Inc.
By: /s/ Barry Schechter
-------------------
Barry Schechter
who declares that he is authorised to do so
<PAGE> 1
EXHIBIT 10.4
SHARE PURCHASE AGREEMENT
made as of November 4, 1996 (Pacific Standard Time)
by SVI Holdings, Inc. a Nevada corporation ("Buyer"),
Landreef Pty., Ltd.,
and
Hookmond Pty. Ltd.
(each, a "Seller" and collectively, "Sellers")
<PAGE> 2
SHARE PURCHASE AGREEMENT
This Share Purchase Agreement ("Agreement") is made as of November 4, 1996
(Pacific Standard Time), by SVI HOLDINGS, INC., a Nevada corporation or its
designee ("Buyer"), Landreef Pty. Ltd. (ACN 066347126), and Hookmond Pty. Ltd.
(ACN 067238546), (each, a "Seller" and collectively, "Sellers").
1. Recital. This Agreement is made with reference to the following recital
of essential facts: 1.1. Sellers desire to sell, and Buyer desires to purchase,
1,500,000 shares of Ordinary Shares (the "Shares") of Divergent Technologies
Pty, Ltd., an Australian corporation (the "Company"), representing one-hundred
percent (100%) of the issued and outstanding shares of capital stock of the
Company, for the consideration and on the terms set forth in this Agreement.
1.2. The parties, intending to be legally bound, agree as set forth
below:
2. Definitions. For purposes of this Agreement, the following definitions
shall apply:
2.1. "Applicable Contract" means any Contract (a) under which any
Subject Company has or may acquire any rights, (b) under which any Subject
Company has or may become subject to any obligation or liability, or (c) by
which any Subject Company or any of the assets owned or used by it is or
may become bound.
2.2. "Balance Sheet" has the meaning defined in Section 4.4.
2.3. "Breach" means a "Breach" of a representation, warranty,
covenant, obligation, or other provision of this Agreement or any
instrument delivered pursuant to this Agreement will be deemed to have
occurred if there is or has been any inaccuracy in or breach of, or any
failure to perform or comply with, such representation, warranty, covenant,
obligation, or other provision.
2.4. "Buyer" has the meaning defined in the first paragraph of this
Agreement.
2.5. "Closing" has the meaning defined in Section 3.3.
2.6. "Closing Date" means December 14, 1996 or such other date as the
parties may agree.
2.7. "Company" has the meaning defined in the Recitals of this
Agreement.
2.8. "Company Plans" has the meaning defined in Section 4.12.
2.9. "Consent" means any approval, consent, ratification, waiver, or
other authorization (including any Governmental Authorization).
2.10. "Contemplated Transactions" means all of the transactions
contemplated by
<PAGE> 3
this Agreement, including:
(a) the sale of the Shares by Sellers to Buyer;
(b) the execution, delivery, and performance of the Employment
Agreements;
(c) the performance by Buyer and Sellers of their respective
covenants and obligations under this Agreement; and
(d) Buyer's acquisition and ownership of the Shares and exercise
of control over the Subject Companies.
(e) [Intentionally Omitted]
(f) [Intentionally Omitted]
2.11. "Contract" means any agreement, contract, obligation, promise,
or undertaking (whether written or oral and whether express or implied) that is
legally binding.
2.12. "Corporations Law" means the Corporations Law introduced by the
Corporations Act of 1989, a statute of Commonwealth of Australia.
2.13. "Damages" has the meaning defined in Section 11.2.
2.14. "Disclosure Letter" means the disclosure letter delivered by
Sellers to Buyer concurrently with the execution and delivery of
this Agreement.
2.15. "Employment Agreements" has the meaning defined in Section
3.4(a)(ii).
2.16. "Encumbrance" means any charge, claim, community
property interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
2.17. [Intentionally Omitted]
2.18. "GAAP" means generally accepted Australian accounting
principles, applied on a basis consistent with the basis on which the Balance
Sheet and the other financial statements referred to in Section 4.4(b) were
prepared.
2.19. "Governmental Authorization" means any approval, consent,
license, permit, waiver, or other authorization issued, granted, given,
or otherwise made available by or under the authority of any Governmental Body
or pursuant to any Legal Requirement.
<PAGE> 4
2.20. "Governmental Body" means any:
(a) nation, state, county, city, town, village, district, or
other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other
government;
(c) governmental or quasi-governmental authority of any
nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
dministrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
2.21. "Intellectual Property Assets" has the meaning defined in
Section 4.19.
2.22. "Interim Balance Sheet" has the meaning defined in
Section 4.4.
2.23. "Knowledge" means an individual will be deemed to have
"Knowledge" of a particular fact or other matter if such individual: (a) is
actually aware of such fact or other matter; or (b) has received written notice
of such fact or other matter.
2.24. "Legal Requirement" means any federal, state, local,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
2.25. "MSE" has the meaning defined in Section 4.22.
2.26. "Order" means any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
2.27. "Organizational Documents" means (a) the articles and
memorandum or certificate of incorporation and the bylaws of a corporation; (b)
the partnership agreement and any statement of partnership of a general
partnership; (c) the limited partnership agreement and the certificate of
limited partnership of a limited partnership; (d) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (e) any amendment to any of the foregoing.
2.28. "Normal Course of Trading" means an action taken by a
Person will be deemed to have been taken in the "Normal Course of Trading" only
if:
(a) such action is consistent with the past practices of such
Person and is taken in the ordinary course of the normal day-to-day operations
of such Person;
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<PAGE> 5
(b) such action is not required to be authorized by the board
of directors of such Person (or by any Person or group of Persons exercising
similar authority); and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or by
any Person or group of Persons exercising similar authority), in the ordinary
course of the normal day-to-day operations of other Persons that are in the same
line of business as such Person.
2.29. "Person" means any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
2.30. "Proceeding" means any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
2.31. "Related Person" means with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by
such individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material Interest;
and
(d) any Person with respect to which such individual or one or
more members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is
directly or indirectly controlled by, or is directly or indirectly under common
control with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner,
executor, or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person
serves as a general partner or a trustee (or in a similar capacity);
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<PAGE> 6
(f) any "associate" of such specified person (as defined in
Division 2 of Par 1.2 of the Corporations Law);
(g) any Related Corporation with respect to such specified
individual; and
(h) any Related Person of any individual described in
clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, (b) "Material Interest" means (i) any right to appoint a
majority of the directors to the board of directors of another Person who is a
corporation, (ii) direct or indirect beneficial ownership of voting securities
or other voting interests representing at least 51% of the outstanding voting
power of a Person or equity securities, or (iii) other equity interests
representing at least 51% of the outstanding equity securities or equity
interests in a Person and, (c) "Related Corporations" means a "related body
corporate" as that expression is defined in Section 50 of the Corporations Law
and includes a body corporate which is at any time after the date of this
Agreement a "related body corporate" but ceases to be a "related body corporate"
because of an amendment, consolidated or replacement of the Corporations Law.
2.32. "Representative" means with respect to a particular
Person, any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.
2.33. "Securities Act" means the Securities Act of 1933 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
2.34. "Sellers" has the meaning defined in the first
paragraph of this Agreement.
2.35. "Shares" has the meaning defined in the Recitals of
this Agreement.
2.36. "Subject Companies" means the Company and its
Subsidiaries, collectively.
2.37. "Subsidiary" means a "subsidiary" as defined in the
Corporations Law.
2.38. "Tax Return" means any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any tax.
2.39. "Threatened" means a claim, Proceeding, dispute, action,
or other matter will be deemed to have been "Threatened" if any demand or
statement has been made in writing or any notice has been given in writing, or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be commenced, taken, or otherwise pursued
in the future.
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<PAGE> 7
3. Sale and Transfer of Shares; Closing; Additional Agreements.
3.1. Shares. Subject to the terms and conditions of this
Agreement, at the Closing, Sellers will sell and transfer the Shares to Buyer or
Buyer's designee, and Buyer or Buyer' designee will purchase the Shares from
Sellers.
3.2. Purchase Price. The purchase price (the "Purchase Price")
for the Shares will be AUS. $5,177,720.
3.3. Closing. The purchase and sale (the "Closing") provided
for in this Agreement will take place after all conditions specified in Sections
8 and 9 are satisfied or waived by the appropriate party and at the offices of
Solomon Ward Seidenwurm and Smith at 401 B Street, Suite 1200, San Diego,
California 92101, at 10:00 a.m. (local time) on December 14, 1996 or such other
date as the parties may agree. Subject to the provisions of Section 10, failure
to consummate the purchase and sale provided for in this Agreement on the date
and time and at the place determined pursuant to this Section 3.3 will not
result in the termination of this Agreement and will not relieve any party of
any obligation under this Agreement. Buyer and Seller acknowledge that the
Closing is contingent upon the prior or concurrent closing of the purchase and
sale of technology assets contemplated by that certain agreement between Buyer
and New Hope Trading Limited (the "New Hope Agreement").
3.4. Closing Obligations. At the Closing:
(a) Sellers will deliver to Buyer:
(i) certificates representing the Shares, duly
endorsed for transfer to Buyer;
(ii) employment agreements in a form satisfactory
to Buyer, in Buyer's sole discretion, acting reasonably, executed by Ivan
Hammerschlag, Shaun Rosen, Malcolm Thomas, David Cohen, Alan Treisman, David
Tyc, Linda Katz, Alex Belokopytov, Mark Moffat and Clive Klugman (collectively,
"Employment Agreements");
(iii) a certificate executed by each of the Sellers
severally, representing and warranting to Buyer that each of that Seller's
representations and warranties in this Agreement was accurate in all respects
as of the date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date (giving full effect to any
supplements to the Disclosure Letter that were delivered by Sellers to Buyer
prior to the Closing Date in accordance with Section 6.5);
(iv) [Intentionally Omitted]
(v) such other documents as may be required
pursuant to Section 8 below; and
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<PAGE> 8
(b) Subject to Sellers' performing all their obligations
including, in accordance with Paragraph 3.4(a) above, Buyer will deliver to
Sellers:
(i) [Intentionally Omitted]
(ii) a bank cashier's or certified check payable to
the order of each of the Sellers, respectively, in the amount of the cash
portion of the Purchase Price;
(iii) a certificate executed by Buyer to the effect
that, except as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement was accurate in all respects
as of the date of this Agreement and is accurate in all respects as of the
Closing Date as if made on the Closing Date; and
(iv) the Employment Agreements, executed by the
Company.
3.5. [Intentionally Omitted]
3.6. Repurchase Agreement. Each of Buyer and Seller
acknowledge the provision set forth in the New Hope Agreement relating to New
Hope Trading Limited's right to cause Buyer, under certain conditions relating
to the market price of the Exchange Shares (as defined in that agreement), to
return the Technology Assets (also as defined in that agreement) to Seller in
exchange for a return of the Exchange Shares. In such event, Buyer shall return
to Seller the Shares and pay applicable stamp duty, if any, and Seller shall
refund the Purchase Price to Buyer in full. Buyer shall not sell, encumber, or
otherwise deal with or transfer or grant any interest in the Technology Assets
or the Shares until the period within which New Hope Trading Limited is to
exercise such option has lapsed. Such restriction on transfer shall not preclude
a transfer of the Shares to a subsidiary of Buyer if the subsidiary undertakes
to comply with this clause.
3.7. [Intentionally Omitted]
3.8. Sellers' Right to Appoint Director of Buyer. Landreef
Pty. Ltd. and Hookmond Pty. Ltd. may jointly designate for election one person
to Buyer's board of directors during any period that Hammerschlag or Rosen are
employed by or otherwise performing services for the Company. Landreef Pty.
Ltd. and Hookmond Pty. Ltd. agree to cause the designate to provide Buyer all
information regarding the designate as Buyer may request. Landreef Pty. Ltd.
and Hookmond Pty. Ltd. agree that Buyer will have the right to reject any
designate for reasonable cause.
4. Representations and Warranties of Sellers. Each of the Sellers,
severally, represent and warrant to Buyer as follows, subject to the matters
disclosed in the Disclosure Letter:
4.1. Organization and Good Standing.
(a) Part 4.1 of the Disclosure Letter contains a complete and
accurate list for each Subject Company of its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do business,
and its capitalization (including the identity of each shareholder and the
7
<PAGE> 9
number of shares held by each). Each Subject Company is a corporation duly
organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate authority to conduct its
business as it is now being conducted, to own or use the properties and assets
that it purports to own or use, and to perform all its obligations under
Applicable Contracts. Each Subject Company is duly qualified to do business
under the laws of each jurisdiction where applicable law requires such
qualification.
(b) Sellers have delivered to Buyer copies of the
Organizational Documents of each Subject Company, as currently in effect.
4.2. Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Sellers, enforceable against Sellers in accordance with its terms.
Upon the execution and delivery by Ivan Hammerschlag and Shaun Rosen of their
respective Employment Agreements, such agreements will constitute the legal,
valid, and binding obligations of such employees, enforceable against them in
accordance with their respective terms. Sellers have the absolute and
unrestricted right, power, authority, and capacity to execute and deliver this
Agreement and the Employment Agreements and to perform their obligations under
this Agreement and the Employment Agreements.
(b) Except as set forth in Part 4.2 of the Disclosure
Letter, neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a
violation of (A) any provision of the Organizational Documents of the Subject
Companies, or (B) any resolution adopted by the board of directors or the
shareholders of any Subject Company;
(ii) to the best of Sellers' Knowledge, contravene,
conflict with, or result in a violation of, or give any Governmental Body or
other Person the right to challenge any of the Contemplated Transactions or to
exercise any remedy or obtain any relief under, any Legal Requirement (other
than the Australian Tax Act) or any Order to which any Subject Company or
Sellers, or any of the assets owned or used by any Subject Company, may be
subject;
(iii) to the best of Sellers' Knowledge, contravene,
conflict with, or result in a violation of any of the terms or requirements of,
or give any Governmental Body the right to revoke, withdraw, suspend, cancel,
terminate, or modify, any Governmental Authorization that is held by any Subject
Company or that otherwise relates to the business of, or any of the assets owned
or used by, any Subject Company;]
(iv) to the best of Sellers' Knowledge, contravene,
conflict with, or result in a violation or breach of any provision of, or give
any Person the right to declare a default or exercise any remedy under, or to
accelerate the maturity or performance of, or to cancel, terminate, or modify,
any Applicable Contract; or
(v) result in the imposition or creation of any
Encumbrance upon or
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<PAGE> 10
with respect to any of the assets owned or used by any Subject Company.
Except as set forth in Part 4.2 of the Disclosure Letter and except as
to the Company's bank and customer contracts, no Seller or Subject Company is or
will be required to give any notice to or obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
4.3. Capitalization. The authorized share capital of the
Company consists of 10,000,000 shares of Ordinary Shares, par value AUS$1.00 per
share and of which 1,500,000 shares are issued. Sellers are and will be on the
Closing Date the legal and beneficial owners and holders of the Shares, free and
clear of all Encumbrances. Sellers own the number of Shares as reflected in
Exhibit "4.3" attached hereto. With the exception of the Shares (which are owned
by Sellers), all of the issued share capital of each Subject Company is
beneficially owned by the Company, free and clear of all Encumbrances. No legend
or other reference to any purported Encumbrance appears upon any certificate
representing equity securities of any Subject Company. All of the outstanding
equity securities of each Subject Company have been duly authorized and validly
issued and are fully paid and nonassessable. There are no Contracts relating to
the issuance, sale, or transfer of any equity securities or other securities of
any Subject Company.
4.4. Financial Statements. Sellers have delivered or will
deliver to Buyer concurrently with the execution of this Agreement: (a) audited
consolidated balance sheets of the Subject Companies as at June 30 in each of
the years 1995 and 1996, and the related audited consolidated statements of
income, changes in stockholders' equity, and cash flow for each of the fiscal
years then ended, together with the report thereon by November 15, 1996,
independent certified public accountants (the "Audit Report"), (the June 30,
1996 balance sheet including the notes thereto shall be referred to as the
"Balance Sheet") (b) an unaudited consolidated balance sheet of the Subject
Companies as at September 30, 1996 (the "Interim Balance Sheet") and the related
unaudited consolidated statements of income, changes in stockholders' equity,
and cash flow for the three (3) months then ended, including in each case the
notes thereto. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow of the Subject Companies as at the respective dates of and for the
periods referred to in such financial statements, all in accordance with GAAP
and the financial reporting requirements of the Corporations Law, other than as
specifically described in the Audit Report; the financial statements referred to
in this Section 4.4 reflect the consistent application of such accounting
principles throughout the periods involved, except as disclosed in the notes to
such financial statements. No financial statements of any Person other than the
Subject Companies are required by GAAP or the Corporations Law to be included in
the consolidated financial statements of the Company.
4.5. Real Property. Except as set forth in Part 4.5 of the
Disclosure Letter, none of the Subject Companies owns or holds any real
property, leaseholds, or other real property interests.
4.6. Accounts Receivable. All accounts receivable of the
Subject Companies that are reflected on the Balance Sheet or the Interim Balance
Sheet or on the accounting records of the Subject Companies as of the Closing
Date (collectively, the "Accounts Receivable") arise from sales actually made or
services actually performed in the Normal Course of Trading. At least fifty (50)
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percent of the collective amount of such Accounts Receivable either has been or
will be collected in an amount collected in the Normal Course of Trading,
without any set-off, within ninety days after the day on which it first becomes
due and payable. Part 4.6 of the Disclosure Letter contains a complete and
accurate list of all Accounts Receivable as of the date of the Interim Balance
Sheet, which list sets forth the aging of such Accounts Receivable.
4.7. Inventory. To the best of Sellers' Knowledge: (a) all
inventory of the Subject Companies, whether or not reflected in the Balance
Sheet or the Interim Balance Sheet, consists of a quality and quantity usable
and salable in the Normal Course of Trading, except for obsolete items and items
of below-standard quality, all of which have been written off or written down to
net realizable value in the Balance Sheet or the Interim Balance Sheet or on the
accounting records of the Subject Companies as of the Closing Date, as the case
may be; and (b) the quantities of each item of inventory (whether raw materials,
work-in-process, or finished goods) are not excessive, but are reasonable in the
present circumstances of the Subject Companies.
4.8. No Undisclosed Liabilities. To the best of Sellers'
Knowledge, except as set forth in Part 4.8 of the Disclosure Letter, the Subject
Companies have no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities incurred in the Normal Course
of Trading since the respective dates thereof.
4.9. Taxes. To the best of Sellers' Knowledge, the Subject
Companies have filed or caused to be filed all Tax Returns that are or were
required to be filed by or with respect to any of them, either separately or as
a member of a group of corporations, pursuant to applicable Legal Requirements.
To the best of Sellers' Knowledge, the Subject Companies have paid, or made
provision for the payment of, all taxes or duties that have or may have become
due pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Sellers or any Subject Company. None of the Subject Companies have
any permanent establishment (as that expression is defined in any relevant
double taxation agreement to which Australia is a party) outside Australia. Any
obligation under any tax law to withhold amounts as source has been complied
with. To the best of Sellers' Knowledge, there is no pending or Threatened tax
or duty audit.
To the best of Sellers' knowledge, the Company has maintained proper
and adequate records to enable it to comply with its obligations to:
(a) prepare and submit any information, notices,
computations, returns, and payments required in respect to any tax law;
(b) prepare any accounts necessary for the compliance of
any tax law; and
(c) retain necessary records as required by any tax law.
To the best of Sellers' knowledge, any information, notice, computation
and return which has been submitted by the Company to a Government Body in
respect to any tax or duty (a) discloses
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all material facts that should be disclosed under any tax law; (b) is not
misleading; and (c) has been submitted on time.
4.10. No Material Adverse Change. To the best of Sellers'
Knowledge, since the date of the Balance Sheet, there has not been any material
adverse change in the business, operations, properties, prospects, assets, or
condition of any Subject Company, and no event has occurred or circumstance
exists that may result in such a material adverse change.
4.11. Employee Benefits. None of the Subject Companies have
any plans, contracts, or arrangements for the benefit of employees, or persons
who were formerly employees, of the Subject Companies, including without
limitation pension, retirement, profit-sharing, thrift-savings, deferred
compensation, stock bonus, stock option, or employee stock ownership. Except as
set forth in Part 4.11 of the Disclosure Letter, none of the Subject Companies
is a party to any written employment or service agreement. None of the Subject
Companies owns or operates its own superannuation scheme or other pension
arrangement in connection with the employees of the Subject Companies and which
provides its directors or employees or their dependents with pensions, annuities
or lump sum payment.
4.12. Compliance with Legal Requirements; Governmental
Authorizations. To the best of Sellers' Knowledge and except as set forth in
Part 4.12 of the Disclosure Letter, (i) each Subject Company is in full
compliance with each Legal Requirement that is or was applicable to it or to the
conduct or operation of its business, and (ii) no Subject Company has received
any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual or alleged violation
of any Legal Requirement.
4.13. Legal Proceedings; Orders. Except as set forth in Part
4.13 of the Disclosure Letter, (a) there are no Proceedings by or against any
Subject Company or that otherwise relates to or may affect the business of, or
any of the assets owned or used by, any Subject Company, and (b) to the best of
Sellers' Knowledge no such Proceeding has been Threatened or is pending.
4.14. Absence of Certain Changes and Events. Except as set
forth in Part 4.14 of the Disclosure Letter, since the date of the Balance
Sheet, the Subject Companies have conducted their businesses only in the Normal
Course of Trading and there has not been any:
(a) change in any Subject Company's authorized or
issued share capital; grant of any option or right to purchase any shares of any
Subject Company; the issue of any debentures or notes convertible into any
shares of any Subject Company;
grant of any registration rights; purchase, redemption, retirement, or other
acquisition by any Subject Company of any shares of any such capital stock; or
declaration or payment of any dividend or other distribution or payment in
respect of any of the issued shares of any Subject Company;
(b) amendment to the Organizational Documents of any
Subject Company;
(c) payment or increase by any Subject Company of any
bonuses, salaries, or other compensation to any stockholder, director, officer,
or (except in the Normal Course of Trading)
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employee or entry into any employment, severance, or similar Contract with any
director, officer, or employee;
(d) adoption of, or increase in the payments to or
benefits under, any profit sharing, bonus, deferred compensation, savings,
insurance, pension, retirement, or other employee benefit plan for or with any
employees of any Subject Company other than in the Normal Course of Trading;
(e) damage to or destruction or loss of any asset or
property of any Subject Company, whether or not covered by insurance, materially
and adversely affecting the properties, assets, business, financial condition,
or prospects of the Subject Companies, taken as a whole;
(f) other than dealings with customers in the Normal
Course of Trading, entry into, termination of, or receipt of notice of
termination of (i) any license, distributorship, dealer, sales representative,
joint venture, credit, or similar agreement, or (ii) any Contract or transaction
involving a total remaining commitment by or to any Subject Company of at least
AUS$25,000.00;
(g) sale (other than sales of inventory in the Normal
Course of Trading), lease, or other disposition of any asset or property of any
Subject Company or mortgage, pledge, or imposition of any lien or other
encumbrance on any material asset or property of any Subject Company, including
the sale, lease, or other disposition of any of the Intellectual Property
Assets;
(h) other than dealings with customers in the Normal
Course of Trading, cancellation or waiver of any claims or rights with a value
to any Subject Company in excess of AUS$25,000.00;
(i) material change in the accounting methods used by
any Subject Company other than disclosed in the Audit Report; or
(j) agreement, whether oral or written, by any Subject
Company to do any of the foregoing.
4.15. Contracts; No Defaults. None of the Subject Companies is
in default (beyond any applicable cure period) under any contracts or agreements
which are material to the operation of such company's business. To the best of
Sellers' Knowledge, none of the parties to any contracts or agreements which are
material to the operation of the Subject Companies business as are in default
(beyond any applicable cure period). To the best of Sellers' Knowledge Seller
has delivered to Buyer copies or written details of the terms of all contracts
or agreements that are material to the operation of the businesses of the
Subject Companies. For purposes of this Section, a contract or agreement shall
be deemed to be material to the operation of a Subject Company's business if it
(a) involves performance of services or delivery of goods or materials of an
amount or value in excess of AUS.$25,000.00 (other than customer contracts
entered into in the Normal Course of Trading), or (b) any contract or agreement
the loss, termination, or revocation of which, individually or together in the
aggregate with other contracts or agreements, would constitute a material
adverse change in the business, operations, prospects, or condition of the
Subject Company. None of the Subject
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Companies is a party to any foreign currency transaction other than in the
Normal Course of Trading.
4.16. Insurance.
(a) Sellers have delivered or made available to Buyer:
(i) true and complete copies of all policies of
insurance to which any Subject Company is a party or under which any Subject
Company, or any director of any Subject Company, is or has been covered at any
time within the twelve month period preceding the date of this Agreement;
(ii) true and complete copies of all pending
applications for policies of insurance; and
(iii) any statement by the auditor of any Subject
Company's financial statements with regard to the adequacy of such entity's
coverage or of the reserves for claims.
(b) To the best of Sellers' Knowledge except as set
forth on Part 4.16(b) of the Disclosure Letter:
(i) All policies to which any Subject Company is
a party or that provide coverage to Sellers, any Subject Company, or any
director or officer of an Subject Company:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is
financially sound and reputable;
(C) taken together, provide adequate insurance
coverage for the assets and the operations of the Subject Companies;
(D) to the best of Sellers' Knowledge, are
sufficient for compliance with all Legal Requirements and Contracts to which any
Subject Company is a party or by which any of them is bound;
(E) will continue in full force and effect
following the consummation of the Contemplated Transactions; and
(F) do not provide for any retrospective
premium adjustment or other experienced-based liability on the part of any
Subject Company.
(ii) Subject Company has not received (A) any
refusal of coverage or any notice that a defense will be afforded with
reservation of rights, or (B) any notice of cancellation or any other indication
that any insurance policy is no longer in full force or effect or will not be
renewed or that the issuer of any policy is not willing or able to perform its
obligations
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thereunder.
(iii) The Subject Companies have paid all premiums
due, and have otherwise performed all of their respective obligations, under
each policy to which any Subject Company is a party or that provides coverage to
any Subject Company or director thereof.
(iv) The Subject Companies have given notice to
the insurer of all claims that may be insured thereby.
4.17. Employees.
(a) Part 4.17 of the Disclosure Letter contains a complete
and accurate list of the following information for each employee or director of
the Subject Companies, including each employee on leave of absence or layoff
status: employer; name; job title; current compensation paid or payable and any
change in compensation during the 12-month period preceding the execution of
this Agreement; length of service, accrued holiday pay, accrued long service
leave, accrued other sick pay, and any other benefits, including without
limitation insurance coverage, and automobile allowance.
(b) To best of Sellers' Knowledge, no director, officer,
or other key employee of any Subject Company intends to terminate his employment
with such Subject Company.
(c) There are no benefits payable now or in the future by
any Subject Company to any retired employee or director or their dependents,
including without limitation pension benefit, pension option election, retiree
medical insurance coverage, retiree life insurance coverage, and other benefits.
(d) The employment of each employee can be lawfully
terminated on three months' notice or less without payment of any damages or
compensation, including any severance or redundancy payments.
(e) None of the Subject Companies have been involved in
any material industrial dispute with any employee at any time within the five
years preceding the date of this Agreement and none of the Sellers have any
Knowledge of any circumstances likely to give rise to any material industrial
dispute.
4.18. Labor Relations; Compliance. No Subject Company has been
or is a party to any collective bargaining, labor Contract, or any Contract with
a union or industrial organization in respect of employees. There is not
presently pending or existing, and to the best of Sellers' Knowledge there is
not Threatened any strike, slowdown, picketing, work stoppage, or employee
grievance process.
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4.19. Intellectual Property.
(a) Intellectual Property Assets. The term "Intellectual
Property Assets" includes:
(i) the name Divergent Technologies, all fictional
business names, trading names, registered and unregistered trademarks, service
marks, and applications (collectively, "Marks");
(ii) all patents, patent applications, and inventions
and discoveries that may be patentable (collectively, "Patents");
(iii) all copyrights in both published works and
npublished works (collectively, "Copyrights");
(iv) all rights in mask works (collectively, "Rights
in Mask Works"); and
(v) all know-how, trade secrets, confidential
information, customer lists, software, technical information, data, process
technology, plans, drawings, and blue prints (collectively, "Trade Secrets");
owned, used, or licensed by any Subject Company as licensee or licensor.
(b) Agreements. To the best of Sellers' Knowledge part
4.19(b) of the Disclosure Letter contains a complete and accurate list and
summary description, including any royalties paid or received by the Subject
Companies, of all Contracts (other than customer contracts entered into in the
Normal Course of Trading) relating to the Intellectual Property Assets to which
any Subject Company is a party or by which any Subject Company is bound, except
for any license implied by the sale of a product and perpetual, paid-up licenses
for commonly available software programs with a value of less than $1,000 AUS
under which a Subject Company is the licensee. There are no outstanding and, to
the best of Sellers' Knowledge, no Threatened disputes or disagreements with
respect to any such agreement.
(c) Know-How Necessary for the Business. To the best of
Sellers' Knowledge, the Intellectual Property Assets are all those necessary for
the operation of the Subject Companies' businesses as they are currently
conducted in Australia or as reflected in the business plan given to Buyer. One
or more of the Subject Companies is the owner of all right, title, and interest
in and to each of the Intellectual Property Assets, free and clear of all liens,
security interests, charges, encumbrances, equities, and other adverse claims,
has the right to use without payment to a third party all of the Intellectual
Property Assets and has not received any notice of a claim or assertion to the
contrary.
(d) Patents. To the best of Sellers' Knowledge, unless
stated to the contrary in Part 4.19(d) of the Disclosure Letter, none of the
Subject Company's is the owner or licensee with respect to any Patents.
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(e) Trademarks. Part 4.19(e) of Disclosure Letter
contains a complete and accurate list and summary description of all Marks. One
or more of the Subject Companies is the owner of all right, title, and interest
in and to each of the Marks, free and clear of all liens, security interests,
charges, encumbrances, equities, and other adverse claims. No Mark is infringed
or, to the best of Sellers' Knowledge, none of the Marks used by any Subject
Company infringes or is alleged to infringe any trade name, trademark, or
service mark of any third party.
(f) Copyrights. Part 4.19(f) of the Disclosure Letter
contains a complete and accurate list and summary description of all Copyrights.
One or more of the Subject Companies is the owner of all right, title, and
interest in and to each of the Copyrights, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims. No
Copyright is infringed or, to the best of Sellers' Knowledge, infringes or is
alleged to infringe any copyright of any third party or is a derivative work
based on the work of a third party.
(g) Trade Secrets. To the best of Sellers' Knowledge, no
Trade Secrets are materially necessary for the conduct of the business as
presently conducted of any Subject Company in the Normal Course of Trading.
4.20. Disclosure.
(a) To the best of Sellers' Knowledge, no representation
or warranty of Sellers in this Agreement and no statement in the Disclosure
Letter omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances in which they were made, not misleading.
The information in the Disclosure Letter, and the exhibits and schedules
attached or prepared in connection with this Agreement are accurate and complete
and not misleading.
(b) To the best of Sellers' Knowledge, no notice given
pursuant to Section 6.5 will contain any untrue statement or omit to state a
material fact necessary to make the statements therein or in this Agreement, in
light of the circumstances in which they were made, not misleading.
(c) To the best of Sellers' Knowledge, there is no fact
known to any Seller that has specific application to either Seller or any
Subject Company (other than general economic or industry conditions) and that
materially adversely affects or, as far as any Seller can reasonably foresee,
materially threatens, the assets, business, prospects, financial condition, or
results of operations of the Subject Companies (on a consolidated basis) that
has not been set forth in this Agreement or the Disclosure Letter.
4.21. Brokers or Finders. Except for a South African finder
who is entitled to receive compensation equal to one percent of the Purchase
Price from each of Buyer and Sellers (for a total of two percent) for services
rendered, Sellers and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
4.22. Value Added Reseller Agreement. The Company has a good
relationship with Magic Israel, an Israeli company ("MSE") and no event has
occurred that jeopardizes that
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relationship. Sellers have no reason to doubt that MSE will enter into a Value
Added Reseller ("VAR") agreement relating to MSE's point of sale system on terms
favorable to the Company and the Company expects to have a written VAR agreement
with MSE within 60 days after the execution of this Agreement.
4.23. [Intentionally Omitted]
4.24. [Intentionally Omitted]
4.25. Prior Shareholders. As at the Closing, Sellers have purchased
and/or caused to be redeemed all and any shares or other equity interests in the
Company of shareholders or interest holders, including without limitation
Techno Holdings Pty., Ltd., Clive Klugman, holders of E Class Shares
and any other minority shareholders ("Minority Shareholders"). All such
transactions constitute the legal, valid and binding obligation of all parties
to such transactions enforceable against such parties in accordance with their
terms. The Minority Shareholders shall not have any claims of any nature
whatsoever against Buyer, the Company or any Subject Company. All such
transactions are in full compliance with each Legal Requirement that is or was
applicable and shall be deemed to be Contemplated Transactions for the purposes
of paragraph 4.2 above.
5. Representations and Warranties of Buyer. Buyer represents and warrants
to Sellers as follows:
5.1. Organization and Good Standing. Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Nevada.
5.2. Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
Buyer has the absolute and unrestricted right, power, and authority to execute
and deliver this Agreement and the Employment Agreements and to perform its
obligations under this Agreement.
(b) Except as set forth in Part 5.2 of the Disclosure Letter and
the right of the Foreign Investment Review Board ("FIRB") to approve the
Contemplated Transactions, neither the execution and delivery of this Agreement
by Buyer nor the consummation or performance of any of the Contemplated
Transactions by Buyer will give any Person the right to prevent, delay, or
otherwise interfere with any of the Contemplated Transactions pursuant to:
(i) any provision of Buyer's Organizational Documents;
(ii) any resolution adopted by the board of directors or the
stockholders of Buyer;
(iii) any Legal Requirement or Order to which Buyer may be
subject; or
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(iv) any Contract to which Buyer is a party or by which Buyer
may be bound.
Except as set forth in Part 5.2 of the Disclosure Letter, Buyer is not
and will not be required to obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
5.3. Investment Intent. Buyer is acquiring the Shares for its
own account and not with a view to their distribution within the meaning of
Section 2(11) of the Securities Act.
5.4. Certain Proceedings. There is no pending Proceeding that
has been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
5.5. Brokers or Finders. Except for a South African finder who
is entitled to receive compensation equal to one percent of the Purchase Price
from each of Buyer and Sellers (for a total of two percent) for services
rendered, Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Sellers harmless from any such payment alleged to be due by
or through Buyer as a result of the action of Buyer or its officers or agents.
6. Covenants of Sellers Prior to Closing Date.
6.1. Access and Investigation. Between the date of this
Agreement and the Closing Date, Sellers will, and will cause each Subject
Company and its Representatives to, (a) afford Buyer and its Representatives and
prospective lenders and their Representatives (collectively, "Buyer's Advisors")
full and free access to each Subject Company's personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data,
(b) furnish Buyer and Buyer's Advisors with copies of all such contracts, books
and records, and other existing documents and data as Buyer may reasonably
request, and (c) furnish Buyer and Buyer's Advisors with such additional
financial, operating, and other data and information as Buyer may reasonably
request.
6.2. Operation of the Businesses of the Subject Companies.
Except to the extent otherwise agreed by Buyer in writing, between the date of
this Agreement and the Closing Date, Sellers will, and will cause each Subject
Company to:
(a) conduct the business of such Subject Company only in
the Normal Course of Trading;
(b) use their Best Efforts to preserve intact the
current business organization of such Subject Company, keep available the
services of the current officers, employees, and agents of such Subject Company,
and maintain the relations and good will with suppliers, customers, landlords,
creditors, employees, agents, and others having business relationships with such
Subject
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Company;
(c) confer with Buyer concerning operational matters of
a material nature; and
(d) otherwise report periodically to Buyer concerning the
status of the business, operations, and finances of such Subject Company.
6.3. Negative Covenant. Except as otherwise expressly
permitted by this Agreement, between the date of this Agreement and the Closing
Date, Sellers will not, and will cause each Subject Company not to, without the
prior consent of Buyer, take any affirmative action, or fail to take any
reasonable action within their or its control, as a result of which any of the
changes or events listed in Section 4.14 is likely to occur. Other than in the
Normal Course of Trading and as reflected in the Disclosure Letter, between the
date of this Agreement and the Closing Date, Sellers shall take all necessary
action to ensure that:
(a) no Subject Company will enter into any financial
commitment in an amount exceeding AUS$25,000;
(b) no Subject Company will declare any dividend or pay any
management fee to the Sellers or their Associates or Related Corporations other
than management fees which are payable and set out in the Disclosure Letter;
(c) no Subject Company will issue or allot any further
shares or grant any options in favor of any one over any unissued shares nor
will any of the Subject Companies buy back or cancel any of their shares;
(d) no Subject Company will enter into any employment
contract which may require a Subject Company to give more than one month's
notice to the employee concerned or provide any bonus to any employee;
(e) no Subject Company will do or omit to do anything as a
result of which any other warranties as qualified by the Disclosure Letter would
not be true if given at any time before Closing; and
(f) no Subject Company may alter its memorandum or articles
of association.
6.4. Required Approvals. As promptly as practicable after the
date of this Agreement, Sellers will, and will cause each Subject Company to,
make all filings required by Legal Requirements to be made by them in order to
consummate the Contemplated Transactions. Between the date of this Agreement and
the Closing Date, Sellers will, and will cause each Subject Company to, (a)
cooperate with Buyer with respect to all filings that Buyer elects to make or is
required by Legal Requirements to make in connection with the Contemplated
Transactions, and (b) cooperate with Buyer in obtaining all consents identified
in Part 4.2 of the Disclosure Letter.
6.5. Notification. Between the date of this Agreement and the
Closing Date, each
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Seller will promptly notify Buyer in writing if such Seller or any Subject
Company becomes aware of any fact or condition that causes or constitutes a
Breach of any of Sellers' representations and warranties as of the date of this
Agreement, or if such Seller or any Subject Company becomes aware of the
occurrence after the date of this Agreement of any fact or condition that would
(except as expressly contemplated by this Agreement) cause or constitute a
Breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition. Should any such fact or condition require any change in the
Disclosure Letter if the Disclosure Letter were dated the date of the occurrence
or discovery of any such fact or condition, Sellers will promptly deliver to
Buyer a supplement to the Disclosure Letter specifying such change. During the
same period, each Seller will promptly notify Buyer of the occurrence of any
Breach of any covenant of Sellers in this Section 6 or of the occurrence of any
event that may make the satisfaction of the conditions in Section 8 impossible
or unlikely.
6.6. Payment of Indebtedness by Related Persons. Except as
expressly provided in this Agreement, Sellers will cause all indebtedness owed
to a Subject Company by either Seller or any Related Person of either Seller to
be paid in full prior to Closing.
6.7. No Negotiation. Until such time, if any, as this
Agreement is terminated pursuant to Section 10, Sellers will not, and will cause
each Subject Company and each of their Representatives not to, directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any Person (other
than Buyer) relating to any transaction involving the sale of the business or
assets (other than in the Normal Course of Trading) of any Subject Company, or
any of the capital stock of any Subject Company, or any merger, consolidation,
business combination, or similar transaction involving any Subject Company.
6.8. Best Efforts. Between the date of this Agreement and the
Closing Date, Sellers will use their Best Efforts to cause the conditions in
Sections 8 and 9 to be satisfied.
7. Covenants of Buyer Prior to Closing Date.
7.1. Approvals Of Governmental Bodies. As promptly as
practicable after the date of this Agreement, Buyer will, and will cause each of
its Related Persons to, make all filings required by Legal Requirements to be
made by them to consummate the Contemplated Transactions. Between the date of
this Agreement and the Closing Date, Buyer will, and will cause each Related
Person to, cooperate with Sellers with respect to all filings that Sellers are
required by Legal Requirements to make in connection with the Contemplated
Transactions, and (ii) cooperate with Sellers in obtaining all consents
identified in Part 4.2 of the Disclosure Letter; provided that this Agreement
will not require Buyer to dispose of or make any change in any portion of its
business or to incur any other burden to obtain a Governmental Authorization.
7.2. Best Efforts. Except as set forth in the proviso to
Section 7.1, between the date of this Agreement and the Closing Date, Buyer will
use its Best Efforts to cause the conditions in Sections 8 and 9 to be
satisfied.
8. Conditions Precedent to Buyer's Obligation to Close. Buyer's obligation
to purchase the
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Shares and to take the other actions required to be taken by Buyer at the
Closing is subject to the satisfaction, at or prior to the Closing, of each of
the following conditions (any of which may be waived by Buyer, in whole or in
part):
8.1. Foreign Investment Review Board Approval. The occurrence of the
following with respect to the approval by the FIRB of the Contemplated
Transactions:
(a) a notice in writing is issued by or on behalf of, the
Treasurer of the Commonwealth of Australia stating that the Commonwealth
Government does not object to the parties entering into and completing this
Agreement either unconditionally or on terms reasonably acceptable to the Buyer;
or
(b) the Treasurer of the Commonwealth of Australia becomes
precluded from making an order in respect of the acquisition of the Shares under
the Foreign Acquisitions and Takeover Act of 1975.
8.2 Accuracy of Representations.
(a) All of Sellers' representations and warranties in this
Agreement (considered collectively), and each of these representations and
warranties (considered individually and subject to qualifications set forth in
such representations and warranties), must have been accurate in all material
respects as of the date of this Agreement, and must be accurate in all material
respects as of the Closing Date as if made on the Closing Date, without giving
effect to any supplement to the Disclosure Letter.
(b) Each of Sellers' representations and warranties in
Sections 4.3, 4.4, and 4.10 must have been accurate in all respects as of the
date of this Agreement, and must be accurate in all respects as of the Closing
Date as if made on the Closing Date, without giving effect to any supplement to
the Disclosure Letter.
8.3. Sellers' Performance.
(a) All of the covenants and obligations that Sellers are
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
(b) Each document required to be delivered pursuant to
Section 3.4 must have been delivered, and each of the other covenants and
obligations in Sections 6.4 and 6.8 must have been performed and complied with
in all respects.
8.4. Consents. Each of the Consents identified in the Disclosure
Letter, and each Consent identified in Part 5.2 of the Disclosure Letter must
have been obtained and must be in full force and effect.
8.5. Additional Documents. Each of the following documents must have
been
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delivered to Buyer:
(a) [Intentionally Omitted]
(b) such other documents as Buyer may reasonably request for the
purpose of (i) evidencing the accuracy of any of Sellers' representations and
warranties, (ii) evidencing the performance by either Seller of, or the
compliance by either Seller with, any covenant or obligation required to be
performed or complied with by such Seller, (iii) evidencing the satisfaction of
any condition referred to in this Section 8, (iv) complying with applicable laws
and regulations, or (v) otherwise facilitating the consummation or performance
of any of the Contemplated Transactions.
8.6. No Proceedings. There must not have been commenced or Threatened
against any of the Subject Companies any proceeding (a) involving any challenge
to, or seeking damages or other relief in connection with, any of the
Contemplated Transactions, or (b) that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with any of the Contemplated
Transactions. Further, none of the Subject Companies may have gone into
liquidation or passed a winding up resolution or received notices under Sections
572 or 573 of the Corporations Law, and no petition or other process for winding
up has been presented or threatened against any of the Subject Companies. No
receiver or receivers and manager or administrator appointed under the
Corporation Law have been appointed or threatened to any part of the undertaking
of assets of any of the Subject Companies.
8.7. No Claim Regarding Share Ownership or Sale Proceeds. There must
not have been made or Threatened by any Person any claim asserting that such
Person (a) is the holder or the beneficial owner of, or has the right to acquire
or to obtain beneficial ownership of, any shares of, or any other voting,
equity, or ownership interest in, any of the Subject Companies, or (b) is
entitled to all or any portion of the Purchase Price payable for the Shares.
8.8. No Prohibition. Neither the consummation nor the performance of
any of the Contemplated Transactions will, directly or indirectly (with or
without notice or lapse of time), materially contravene, or conflict with, or
result in a material violation of, or cause Buyer or any Person affiliated with
Buyer to suffer any material adverse consequence under, (a) any applicable Legal
Requirement or Order, or (b) any Legal Requirement or Order that has been
published, introduced, or otherwise formally proposed by or before any
Governmental Body.
8.9 [Deleted ]
8.10 Consummation of New Hope Transaction. The purchase and sale of
technology assets pursuant to the New Hope Agreement (as defined in
Section 3.3 above) shall have been consummated, either prior to or concurrently
with the Closing.
8.11 Disclosure Letter. On or before 48 hours after the delivery to
Buyer of a complete Disclosure Letter plus exhibits, Buyer must be satisfied, in
its sole discretion, of the contents of the Disclosure Letter.
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9. Conditions Precedent to Sellers' Obligation to Close. Sellers'
obligation to sell the Shares and to take the other actions required to be taken
by Sellers at the Closing is subject to the satisfaction, at or prior to the
Closing, of each of the following conditions (any of which may be waived by
Sellers, in whole or in part):
9.1. Accuracy of Representations. All of Buyer's representations and
warranties in this Agreement (considered collectively), and each of these
representations and warranties (considered individually), must have been
accurate in all material respects as of the date of this Agreement and must be
accurate in all material respects as of the Closing Date as if made on the
Closing Date.
9.2. Buyer's Performance.
(a) All of the covenants and obligations that Buyer is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been performed and complied
with in all material respects.
(b) Buyer must have delivered each of the documents, funds,
and instruments required to be delivered by Buyer pursuant to Section 3.4.
9.3. Additional Documents. Buyer must have caused the following
documents to be delivered to Sellers such other documents as Sellers may
reasonably request for the purpose of (i) evidencing the accuracy of any
representation or warranty of Buyer, (ii) evidencing the performance by Buyer
of, or the compliance by Buyer with, any covenant or obligation required to be
performed or complied with by Buyer, (iii) evidencing the satisfaction of any
condition referred to in this Section 9, or (iv) otherwise facilitating the
consummation of any of the Contemplated Transactions.
9.4. No Injunction. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits the sale of the
Shares by Sellers to Buyer, and (b) has been adopted or issued, or has otherwise
become effective, since the date of this Agreement.
9.5 Consummation of New Hope Transaction. The purchase and sale of
technology assets pursuant to the New Hope Agreement shall have been
consummated, either prior to or concurrently with the Closing.
10. Termination.
10.1. Termination Events. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by either Buyer or Sellers if a material Breach of any
provision of this Agreement has been committed by the other party and such
Breach has not been waived or cured on or before fourteen (14) days after
written notice from the non-breaching party;
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(b) (i) by Buyer if any of the conditions in Section 8
have not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Buyer to
comply with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Sellers, if any of the
conditions in Section 9 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Sellers to comply with their obligations under this Agreement)
and Sellers have not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Sellers; or
(d) by either Buyer or Sellers if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before November 30, 1996, or such later date as the parties may agree upon.
10.2. Effect of Termination. Each party's right of termination
under Section 10.1 is in addition to any other rights it may have under this
Agreement or otherwise, and the exercise of a right of termination will not be
an election of remedies. If this Agreement is terminated pursuant to Section
10.1, all further obligations of the parties under this Agreement will
terminate, provided, however, that if this Agreement is terminated by a party
because of the Breach of the Agreement by the other party or because one or more
of the conditions to the terminating party's obligations under this Agreement is
not satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
11. Indemnification; Remedies.
11.1. Survival. All representations, warranties, covenants,
and obligations in this Agreement, the Disclosure Letter, the supplements to the
Disclosure Letter, the certificate delivered pursuant to Section 3.4(a)(iii),
and any other certificate or document delivered pursuant to this Agreement will
survive the Closing.
11.2. Indemnification and Payment of Damages by Sellers. Each
of the Sellers, severally, will indemnify and hold harmless Buyer and the
Subject Companies, (collectively, the "Indemnified Persons") for, and will pay
to the Indemnified Persons the amount of, any loss, liability, claim, damage
(including incidental and consequential damages), expense (including costs of
investigation and defense and reasonable attorneys' fees) or diminution of
value, whether or not involving a third-party claim (collectively, "Damages"),
arising, directly or indirectly, from or in connection with:
(a) any Breach of any representation or warranty made by
such Seller in this Agreement (without giving effect to any supplement to the
Disclosure Letter), the Disclosure Letter, the supplements to the Disclosure
Letter, or any other certificate or document delivered by Sellers pursuant to
this Agreement;
(b) any Breach of any representation or warranty made by
such Seller in this
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Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Disclosure Letter;
or
(c) any Breach by such Seller of any covenant or obligation
of such Seller in this Agreement;
Notwithstanding the foregoing, Sellers shall have no indemnification
obligations under this Section 11.2 unless and to the extent Buyer's Damages
exceeds $50,000.00 in Damages. The remedies provided in this Section 11.2 will
not be exclusive of or limit any other remedies that may be available to Buyer
or the other Indemnified Persons.
11.3. Indemnification and Payment of Damages by Buyer. Buyer
will indemnify and hold harmless Sellers, and will pay to Sellers the amount of
any Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer in this Agreement or in
any certificate delivered by Buyer pursuant to this Agreement, (b) any Breach by
Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any claim
by any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the Contemplated Transactions. Notwithstanding the foregoing, Buyer shall have
no indemnification obligations under this Section 11.3 unless and to the extent
Buyer's Damages exceeds $50,000.00 in Damages.
11.4. Time Limitations. If the Closing occurs, Sellers will
have no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before the second
anniversary of the Closing Buyer notifies the Sellers of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer; a claim with respect to Section 4.3, or a claim for indemnification or
reimbursement not based upon any representation or warranty or any covenant or
obligation to be performed and complied with prior to the Closing Date, may be
made at any time. If the Closing occurs, Buyer will have no liability (for
indemnification or otherwise) with respect to any representation or warranty, or
covenant or obligation to be performed and complied with prior to the Closing
Date, unless on or before the second anniversary of the Closing Sellers notify
Buyer of a claim specifying the factual basis of that claim in reasonable detail
to the extent then known by Sellers.
11.5. Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party under
Section 11.2 or 11.3 of notice of the commencement of any Proceeding against it,
such indemnified party will, if a claim is to be made against an indemnifying
party under such Section, give notice to the indemnifying party of the
commencement of such claim, but the failure to notify the indemnifying party
will not relieve the indemnifying party of any liability that it may have to any
indemnified party, except to the extent that the indemnifying party demonstrates
that the defense of such action is prejudiced by the indemnifying party's
failure to give such notice.
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(b) If any Proceeding referred to in Section 11.5(a) is
brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 11 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party
determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
(d) Sellers and Buyer hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on Sellers with respect to such a
claim anywhere in the world.
11.6. Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
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11.7. Guarantees.
(a) Ivan Hammerschlag unconditionally and irrevocably
guarantees to the Buyer the payment by Landreef Pty Limited ("Landreef") of any
liability of Landreef to the Buyer under Section 11.2.
(b) Shaun Rosen unconditionally and irrevocably guarantees to
the Buyer the payment by Hookmond (Pty) Limited ("Hookmond") of any liability of
Hookmond to the Buyer under Section 11.2.
(c)
(i) the guarantees contained in Sections 11.7(a) and
(b) are continuing guarantees.
(ii) the obligations of Ivan Hammerschlag and Shaun Rosen
under Sections 11.7(a) and (b) are principal obligations and are not released,
discharged or otherwise affected by anything which might have that effect,
including the grant to any person of any time, waiver, covenant not to sue or
other indulgence, the release or discharge of any person, the cessation of the
obligations, in whole or in part, of any person under any document or agreement,
the liquidation of any person, any alteration, amendment, variation, supplement
to or replacement of this agreement or any other document or agreement, any
payment to the Buyer, or any amounts owing to the Buyer under this agreement
being irrecoverable for any reason or the death of either Ivan Hammerschlag or
Shaun Rosen.
(iii) if the obligations of Ivan Hammerschlag or Shaun
Rosen are unenforceable against either or both of them on the basis that the
guarantee referred to in Section 11.7(a) or as the case may be Section 11.7(b)
is invalid or unenforceable, then Ivan Hammerschlag or as the case may be, Shaun
Rosen, indemnifies and continues to indemnify the Buyer against any claim,
action, damage, loss, liability, cost, expense or payment suffered, paid or
incurred by the Buyer arising out of or as a consequence of the guarantee
referred to in Section 11.7(a) or as the case may be Section 11.7(b) be invalid
or unenforceable.
(iv) each of Ivan Hammerschlag and Shaun Rosen waives (A)
all rights he would have, but for this waiver (A) to require Buyer to proceed
against Sellers or pursue any other remedy available to Buyer, (B) all defenses
which may have arisen by reason of any disability of Sellers, including without
limitation the incapacity or lack of authority or failure of Buyer to file or
enforce a claim against the estate (in administration, bankruptcy, or any other
proceeding) of Sellers or any other person, (C) all defenses which may have
arisen due to failure of consideration, accord and satisfaction, impossibility
of performance, or mistake, (D) all rights to receive notice of any default by
Sellers, and (E) all rights of recourse against Sellers by reason of any
provision of this Agreement. Each of Ivan Hammerschlag and Shaun Rosen
acknowledges that the waivers set forth above have the effect of eliminating
certain rights and protections which each of them would otherwise have
including, without limitation, (a) certain rights to require Buyer to act in a
particular manner as a condition to enforcing its rights against them under this
provision, and (b) certain rights
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to require Buyer to pursue other remedies available to it prior to pursuing
either of them.
11.8 Breach by Other Seller. Notwithstanding anything else contained
in this agreement:
(a) Neither Seller will be liable for a breach of this
agreement caused by the other Seller; and
(b) where a representation or warranty makes reference to
the Knowledge of the Sellers, a Seller will not be deemed to have breached that
representation or warranty if the matter giving rise to the breach was not
within the Knowledge of that Seller but was within the Knowledge of the other
Seller.
12. Covenant Not To Compete.
12.1. To the extent permitted by applicable law:
(a) None of Sellers, Ivan Hammerschlag nor Shaun Rosen
(for purposes of this Section 12, Hammerschlag and Rosen, shall collectively be
referred to as "Principals"), will directly or indirectly, engage or invest in,
own, manage, operate, finance, control, or participate in the ownership,
management, operation, or control of, be employed by, associated with, or in any
manner connected with, lend any Sellers' or Principals' name or any similar name
to, lend Sellers' or Principals' credit to, or render services or advice to, any
business in each State and Territory in the Commonwealth of Australia whose
products or activities compete in whole or in part with the products or
activities of the Company; provided, however, that Sellers or Principals may
purchase or otherwise acquire up to (but not more than) five percent (5%) of any
class of securities of any enterprise (but without otherwise participating in
the activities of such enterprise) if such securities are listed on any national
or regional securities exchange or have been registered under Section 12(g) of
the Securities Exchange Act of 1934. The duration of this covenant shall be (a)
with respect to Landreef Pty. Ltd. and Ivan Hammerschlag, three years after Ivan
Hammerschlag ceases to be an employee of or render services to the Company, and
(b) with respect to Shaun Rosen and Hookmond Pty. Ltd., three years after Shaun
Rosen ceases to be an employee of or render services to the Company. Sellers and
Principals agree that this covenant is reasonable with respect to its duration,
geographical area, and scope.
(b) Neither Sellers nor Principals will, directly or
indirectly, either for themselves or any other Person, (A) induce or attempt to
induce any employee of a Subject Company to leave the employ of such Subject
Company, (B) in any way interfere with the relationship between a Subject
Company and any employee of such Subject Company, (C) employ, or otherwise
engage as an employee, independent contractor, or otherwise, any employee of a
Subject Company, or (D) induce or attempt to induce any customer, supplier,
licensee, or business relation of a Subject Company to cease doing business with
such Subject Company, or in any way interfere with the relationship between any
customer, supplier, licensee, or business relation of a Subject Company.
(c) Neither Sellers nor Principals will, directly or
indirectly, either for
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themselves or any other Person, solicit the business of any Person known to
Sellers or either Principal to be a customer of a Subject Company, whether or
not any Seller had personal contact with such Person, unless Sellers' or
Principals' solicitation of such Person is done in connection with a business
that is not competitive with that of any of the Subject Companies.
12.2. In the event of a breach by Sellers or Principals of any
covenant set forth in Subsection 12.1 of this Agreement, the term of such
covenant will be extended by the period of the duration of such breach.
12.3. Neither Sellers nor Principals will, at any time during
or after the three-year period, disparage Buyer or the Subject Company, or any
of their shareholders, directors, officers, employees, or agents. Buyer or a
Subject Company may serve notice upon each such employer that Sellers and
Principals are bound by this Agreement and furnish each such employer with a
copy of this Agreement or relevant portions thereof.
12.4. In addition to Buyer's right to damages and any other
rights it may have, to obtain injunctive or other equitable relief to restrain
any breach or threatened breach or otherwise to specifically enforce the
provisions of this Section Sellers and Principals agree that money damages alone
would be inadequate to compensate the Buyer and the Subject Company and would be
an inadequate remedy for such breach.
12.5. If a court of competent jurisdiction holds that the
obligations of Sellers or Principals pursuant to this covenant are unenforceable
due to the duration, geographical area and scope of this covenant, then such
duration, geographical area or scope of this covenant shall be reduced to the
least degree necessary to render this covenant enforceable.
13. General Provisions.
13.1. Expenses.
(a) Except as otherwise expressly agreed to by the parties
in writing, each party to this Agreement will bear expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including the fees and expenses of agents,
representatives, counsel, and accountants. In the event of termination of this
Agreement, the obligation of each party to pay its own expenses will be subject
to any rights of such party arising from a breach of this Agreement by another
party.
(b) Buyer will reimburse Sellers for any reasonable legal
and accounting expenses incurred by Sellers due to Buyer's specific written
request to undertake due diligence which causes Sellers to incur said legal or
accounting expenses.
13.2. Public Announcements. Subject to Techno Holdings (Pty) Ltd.
fulfilling its obligations to the Australian Stock Exchange any public
announcement or similar publicity with respect to this Agreement or the
Contemplated Transactions will be issued, if at all, at such time and in such
manner as Buyer, with the reasonable consent of Ivan Hammerschlag, as
representative of
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Sellers, determines. Unless consented to by Buyer in advance or required by
Legal Requirements, prior to the Closing Sellers shall, and shall cause the
Subject Companies to, keep this Agreement strictly confidential and may not make
any disclosure of this Agreement to any Person. Sellers and Buyer will consult
with each other concerning the means by which the Subject Companies' employees,
customers, and suppliers and others having dealings with the Subject Companies
will be informed of the Contemplated Transactions, and Buyer will have the right
to be present for any such communication.
13.3. Confidentiality. Subject to Techno Holdings (Pty) Ltd.
fulfilling its obligations to the Australian Stock Exchange between the date of
this Agreement and the Closing Date, Buyer and Sellers will maintain in
confidence, and will cause the directors, officers, employees, agents, and
advisors of Buyer and the Subject Companies to maintain in confidence, any
written, oral, or other information obtained in confidence from another party or
an Subject Company in connection with this Agreement or the Contemplated
Transactions, unless (a) such information is already known to such party or to
others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by or
necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Sellers waive, and
will upon Buyer's request cause the Subject Companies to waive, any cause of
action, right, or claim arising out of the access of Buyer or its
representatives to any trade secrets or other confidential information of the
Subject Companies except for the intentional competitive misuse by Buyer of such
trade secrets or confidential information.
13.4. Notices. Each notice and other communication required or
permitted to be given under this Agreement ("Notice") must be in writing. Notice
is duly given to another party upon: (a) hand delivery to the other party, (b)
receipt by the other party when sent by facsimile to the address and number for
such party set forth below (provided, however, that the Notice is not effective
unless a duplicate copy of the facsimile Notice is promptly given by one of the
other methods permitted under this paragraph), (c) fourteen business days after
the Notice has been deposited with the United States postal service as first
class certified mail, return receipt requested, postage prepaid, and addressed
to the party as set forth below, or (d) the next business day after the Notice
has been deposited with a reputable overnight delivery service, postage prepaid,
addressed to the party as set forth below with next-business-day delivery
guaranteed, provided that the sending party receives a confirmation of delivery
from the delivery-service-provider.
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To Buyer: Barry M. Schechter
Chief Executive Officer
SVI Holdings, Inc.
9364 Cabot Drive, Suite B
San Diego, CA 92126
Phone: (619) 693-4344
Fax: (619) 693-3518
Copy to: Norman L. Smith, Esq.
Solomon Ward Seidenwurm & Smith
401 B Street, Suite 1200
San Diego, CA 92101
Phone: (619) 231-0303
Fax: (619) 231-4755
To Sellers: Landreef Pty., Ltd.
12 Drumalbyn Road
Bellvue Hill
Sydney, Australia NSW 2023
Phone: (612) 363-2745
Fax: (612) 362-3482
Hookmond Pty., Ltd
Level 1, 35 Spring Street
Bondi Junction
Sydney, Australia NSW 2022
Phone: (612) 389-3555
Fax: (612) 387-7110
Each party shall make a reasonable, good faith effort to ensure that it will
accept or receive Notices to it that are given in accordance with this
paragraph. A party may change its address for purposes of this paragraph by
giving the other party(ies) written notice of a new address in the manner set
forth above.
13.5. Jurisdiction; Service of Process. Except as provided
below, all actions and proceedings arising in connection with this Agreement
must be tried and litigated exclusively in the State and Federal courts located
in the County of San Diego, State of California, which courts have personal
jurisdiction and venue over each of the parties to this Agreement for the
purpose of adjudicating all matters arising out of or related to this Agreement.
Notwithstanding the foregoing sentence, Buyer and/or Seller may, at any time
Buyer or Seller deems that urgent or injunctive relief is necessary or
desirable, seek such relief in the courts of New South Wales, Commonwealth of
Australia. Each party authorizes and accepts service of process sufficient for
personal jurisdiction in any action against it as contemplated by this paragraph
by registered or certified mail, return receipt requested, postage prepaid, to
its address for the giving of notices set forth in this Agreement.
31
<PAGE> 33
13.6. Further Assurances. Each party to this Agreement shall
execute and deliver all instruments and documents and take all actions as may be
reasonably required or appropriate to carry out the purposes of this Agreement.
13.7. Waiver. Any waiver of a default or provision under this
Agreement must be in writing. No such waiver constitutes a waiver of any other
default or provision concerning the same or any other provision of this
Agreement. No delay or omission by a party in the exercise of any of its rights
or remedies constitutes a waiver of (or otherwise impairs) such right or remedy.
A consent to or approval of an act does not waive or render unnecessary the
consent to or approval of any other or subsequent act.
13.8. Entire Agreement and Modification. This Agreement and
all documents specifically referred to and executed in connection with this
Agreement: (a) contain the entire and final agreement of the parties to this
Agreement with respect to the subject matter of this Agreement, and (b)
supersede all negotiations, stipulations, understandings, agreements,
representations and warranties, if any, with respect to such subject matter,
which precede or accompany the execution of this Agreement. This Agreement may
be modified only by a contract in writing executed by the party to this
Agreement against whom enforcement of the modification is sought.
13.9. Disclosure Letter.
(a) The disclosures in the Disclosure Letter, and
those in any Supplement thereto, must relate only to the representations and
warranties in the Section of the Agreement to which they expressly relate and
not to any other representation or warranty in this Agreement.
(b) In the event of any inconsistency between the
statements in the body of this Agreement and those in the Disclosure Letter
(other than an exception expressly set forth as such in the Disclosure Letter
with respect to a specifically identified representation or warranty), the
statements in the body of this Agreement will control.
13.10. Assignments, Successors, and No Third-Party Rights.
Sellers may not voluntarily or by operation of law assign, hypothecate, delegate
or otherwise transfer or encumber all or any part of its rights, duties or other
interests in this Agreement without the prior written consent of Buyer, which
consent may be withheld in Buyer's sole and absolute discretion. Any such
transfer in violation of this paragraph is void. Subject to the foregoing and
any other restrictions on transferability contained in this Agreement, this
Agreement is binding upon and inures to the benefit of the
successors-in-interest and assigns of each party to this Agreement. Nothing in
this Agreement is intended to confer any rights or remedies on any person or
entity other than the parties to this Agreement and their respective
successors-in-interest and permitted assignees, unless such rights are expressly
granted in this Agreement to another person specifically identified as a "Third
Party Beneficiary."
13.11. Severability. Each provision of this Agreement is
valid and enforceable to the fullest extent permitted by law. If any provision
of this Agreement (or the application of such provision to any person or
circumstance) is or becomes invalid or unenforceable, the remainder of
32
<PAGE> 34
this Agreement, and the application of such provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
are not affected by such invalidity or unenforceability.
13.12. Section Headings, Construction. The headings of the
paragraphs of this Agreement have been included only for convenience, and shall
not be deemed in any manner to modify or limit any of the provisions of this
Agreement, or be used in any manner in the interpretation of this Agreement.
13.13. Time of Essence. Time and strict and punctual
performance are of the essence with respect to each provision of this Agreement.
13.14. Governing Law. This Agreement is governed by and
construed in accordance with the laws of the State of California, irrespective
of California's choice-of-law principles.
13.15. Counterparts. This Agreement may be executed in
counterparts, each of which is deemed an original and all of which together
constitute one document. All exhibits attached to and referenced in this
Agreement are incorporated into this Agreement.
13.16. Arbitration. Except as to the right to seek urgent or
injunctive relief in the courts of New South Wales, Commonwealth of Australia,
pursuant to Section 13.5 above, any dispute, controversy or claim arising out of
or related to this Agreement shall be finally settled by arbitration in
accordance with the Rules of Conciliation and Arbitration of the International
Chamber of Commerce.
(a) In the event of any conflict between these Rules and
this Section, the provisions of this Section will govern. The arbitration shall
take place in San Diego, California. The selection of an arbitrator shall be
approved by agreement between the parties to this Agreement or, if the parties
cannot so agree within 30 days after written notice by either party that it
intends to seek arbitration with respect to a particular dispute, such
arbitrator shall be appointed by Presiding Judge of the Superior Court for the
County of San Diego, California.
(b) The arbitration shall be conducted in the English
language. Relevant documents in other languages shall be translated into English
if the arbitrators so direct. In arriving at their award, the arbitrators shall
make every effort to find a solution to the dispute in the provisions of this
Agreement and shall give full effect to all parts thereof. If a solution cannot
be found in the provisions of the Agreement, the arbitrators shall apply the
laws of the state of California.
(c) The parties agree that after either has filed a
notice of demand for arbitration of any dispute subject to arbitration under
this Agreement, they shall, upon request, make discovery and disclosure of all
materials relevant to the subject of the dispute. The arbitrators shall make the
final determination as to any discovery disputes between the parties.
Examination of witnesses by the parties and by the arbitrators shall be
permitted. A written transcript of the hearing shall be made and furnished to
the parties. The cost of this transcript shall be borne equally by the parties.
(d) The arbitrators shall state the reasons upon which
the award is based. The
33
<PAGE> 35
award of the arbitrators shall be final and binding upon the parties. Judgment
upon the award may be entered in any court having jurisdiction. An application
may be made to any such court for a judicial acceptance of the award and an
order for enforcement.
BUYER: SVI HOLDINGS, INC.,
a Nevada corporation
By:/s/Barry Schechter
--------------------------
Barry Schechter
Chief Executive Officer
SELLERS: LANDREEF PTY., LTD.,
an Australian corporation
By:/s/Ivan Hammerschlag
--------------------------
Ivan Hammerschlag
Managing Director
HOOKMOND PTY. LTD.,
an Australian corporation
By:/s/Shaun Rosen
--------------------------
Shaun Rosen
Managing Director
Ivan Hammerschlag
Shaun Rosen
Exhibit 4.3
<TABLE>
<CAPTION>
Name Class of Shares Number of Shares
<S> <C> <C>
Landreef Pty., Ltd. Ordinary 750,000
Hookmond Pty. Ltd. Ordinary 750,000
</TABLE>
34
<PAGE> 36
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Recital..................................................................................................1
2. Definitions..............................................................................................1
3. Sale and Transfer of Shares; Closing; Additional Agreements..............................................6
3.1. Shares.............................................................................................6
3.2. Purchase Price.....................................................................................6
3.3. Closing............................................................................................6
3.4. Closing Obligations................................................................................6
3.8. Sellers' Right to Appoint Director of Buyer........................................................7
4. Representations and Warranties of Sellers................................................................7
4.1. Organization and Good Standing.....................................................................7
4.2. Authority; No Conflict.............................................................................8
4.3. Capitalization.....................................................................................9
4.4. Financial Statements...............................................................................9
4.5. Real Property......................................................................................9
4.6. Accounts Receivable...............................................................................10
4.7. Inventory.........................................................................................10
4.8. No Undisclosed Liabilities........................................................................10
4.9. Taxes.............................................................................................10
4.10. No Material Adverse Change.......................................................................11
4.11. Employee Benefits................................................................................11
</TABLE>
i
<PAGE> 37
<TABLE>
<S> <C> <C>
4.12. Compliance with Legal Requirements; Governmental Authorizations..................................11
4.13. Legal Proceedings; Orders........................................................................11
4.14. Absence of Certain Changes and Events............................................................11
4.15. Contracts; No Defaults...........................................................................12
4.16. Insurance........................................................................................13
4.17. Employees........................................................................................14
4.18. Labor Relations; Compliance......................................................................15
4.19. Intellectual Property............................................................................15
4.20. Disclosure.......................................................................................16
4.21. Brokers or Finders...............................................................................17
4.22. Value Added Reseller Agreement...................................................................17
5. Representations and Warranties of Buyer.................................................................17
5.1. Organization and Good Standing....................................................................17
5.2. Authority; No Conflict............................................................................17
5.3. Investment Intent.................................................................................18
5.4. Certain Proceedings...............................................................................18
5.5. Brokers or Finders................................................................................18
6. Covenants of Sellers Prior to Closing Date..............................................................18
6.1. Access and Investigation..........................................................................18
6.2. Operation of the Businesses of the Subject Companies..............................................19
6.3. Negative Covenant.................................................................................19
6.4. Required Approvals................................................................................20
6.5. Notification......................................................................................20
6.6. Payment of Indebtedness by Related Persons........................................................20
</TABLE>
ii
<PAGE> 38
<TABLE>
<S> <C> <C>
6.7. No Negotiation....................................................................................20
6.8. Best Efforts......................................................................................20
</TABLE>
iii
<PAGE> 39
<TABLE>
<S> <C> <C>
7. Covenants of Buyer Prior to Closing Date................................................................21
7.1. Approvals Of Governmental Bodies..................................................................21
7.2. Best Efforts......................................................................................21
8. Conditions Precedent to Buyer's Obligation to Close.....................................................21
8.1. Foreign Investment Review Board Approval..........................................................21
8.2 Accuracy of Representations........................................................................21
8.3. Sellers' Performance..............................................................................22
8.4. Consents..........................................................................................22
8.5. Additional Documents..............................................................................22
8.6. No Proceedings....................................................................................22
8.7. No Claim Regarding Share Ownership or Sale Proceeds...............................................22
8.8. No Prohibition....................................................................................22
8.9. Arrangement of Financing..........................................................................23
9. Conditions Precedent to Sellers' Obligation to Close....................................................23
9.1. Accuracy of Representations.......................................................................23
9.2. Buyer's Performance...............................................................................23
9.3. Additional Documents..............................................................................23
9.4. No Injunction.....................................................................................24
10. Termination............................................................................................24
10.1. Termination Events...............................................................................24
10.2. Effect of Termination............................................................................24
11. Indemnification; Remedies..............................................................................25
11.1. Survival.........................................................................................25
</TABLE>
iv
<PAGE> 40
<TABLE>
<S> <C> <C>
11.2. Indemnification and Payment of Damages by Sellers................................................25
11.3. Indemnification and Payment of Damages by Buyer..................................................25
11.4. Time Limitations.................................................................................25
11.5. Procedure for Indemnification--Third Party Claims................................................26
11.6. Procedure for Indemnification--Other Claims......................................................27
12. Covenant Not To Compete................................................................................28
13. General Provisions.....................................................................................30
13.1. Expenses.........................................................................................30
13.2. Public Announcements.............................................................................30
13.3. Confidentiality..................................................................................30
13.4. Notices..........................................................................................31
13.5. Jurisdiction; Service of Process.................................................................32
13.6. Further Assurances...............................................................................32
13.7. Waiver...........................................................................................32
13.8. Entire Agreement and Modification................................................................32
13.9. Disclosure Letter................................................................................32
13.10. Assignments, Successors, and No Third-Party Rights..............................................32
13.11. Severability....................................................................................33
13.12. Section Headings, Construction..................................................................33
13.13. Time of Essence.................................................................................33
13.14. Governing Law...................................................................................33
13.15. Counterparts....................................................................................33
13.16. Arbitration....................................................................................33
</TABLE>
v
<PAGE> 1
EXHIBIT 10.5
TECHNOLOGY PURCHASE AGREEMENT
made as of November 4, 1996 (Pacific Standard Time)
between
SVI HOLDINGS, INC., a Nevada corporation ("Buyer"),
and
NEW HOPE TRADING LIMITED ("Seller")
<PAGE> 2
TECHNOLOGY PURCHASE AGREEMENT
This Technology Purchase Agreement ("Agreement") is made as of November
4, 1996 (Pacific Standard Time), by SVI HOLDINGS, INC., a Nevada corporation or
its designee ("Buyer"), and NEW HOPE TRADING LIMITED ("Seller").
1. Recital. This Agreement is made with reference to the
following recital of essential facts:
1.1. Seller desire to sell, and Buyer desires to purchase,
the Technology Assets (as defined below)
1.2. The parties, intending to be legally bound, agree as set
forth below:
2. Definitions. For purposes of this Agreement, the following
definitions shall apply:
2.1. "Breach" means a "Breach" of a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement will be deemed to have occurred if there is
or has been any inaccuracy in or breach of, or any failure to perform or comply
with, such representation, warranty, covenant, obligation, or other provision.
2.2. "Buyer" has the meaning defined in the first paragraph
of this Agreement.
2.3. "Closing" has the meaning defined in Section 3.3.
2.4. "Closing Date" shall have the same meaning as defined in
the Divergent Agreement (as defined below).
2.5. "Consent" means any approval, consent, ratification,
waiver, or other authorization (including any Governmental Authorization).
2.6. "Contemplated Transactions" means all of the
ransactions contemplated by this Agreement, including:
(a) the sale of the Technology Assets to Buyer;
(b) the performance by Buyer and Seller of their
espective covenants and obligations under this Agreement; and
(c) the sale of the Exchange Shares to Seller.
2.7. "Contract" means any agreement, contract, obligation,
promise, or undertaking (whether written or oral and whether express or implied)
that is legally binding.
2.8. "Damages" has the meaning defined in Section 11.2.
<PAGE> 3
2.9. "Divergent Agreement" has the meaning defined in Section
8.5.
2.9. "Encumbrance" means any charge, claim, community property
interest, condition, equitable interest, lien, option, pledge, security
interest, right of first refusal, or restriction of any kind, including any
restriction on use, voting, transfer, receipt of income, or exercise of any
other attribute of ownership.
2.10. "Exchange Shares" has the meaning defined in Section
3.2.
2.11. "Governmental Authorization" means any approval,
consent, license, permit, waiver, or other authorization issued, granted, given,
or otherwise made available by or under the authority of any Governmental Body
or pursuant to any Legal Requirement.
2.12. "Governmental Body" means any:
(a) nation, state, county, city, town, village,
district, or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or
other government;
(c) governmental or quasi-governmental authority of
any nature (including any governmental agency, branch, department, official, or
entity and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any
administrative, executive, judicial, legislative, police, regulatory, or taxing
authority or power of any nature.
2.13. "Knowledge" means an individual will be deemed to have
"Knowledge" of a particular fact or other matter if such individual: (a) is
actually aware of such fact or other matter; or (b) has received written notice
of such fact or other matter.
2.14. "Legal Requirement" means any federal, state, local,
municipal, foreign, international, multinational, or other administrative order,
constitution, law, ordinance, principle of common law, regulation, statute, or
treaty.
2.15. "Order" means any award, decision, injunction, judgment,
order, ruling, subpoena, or verdict entered, issued, made, or rendered by any
court, administrative agency, or other Governmental Body or by any arbitrator.
2.16. "Organizational Documents" means (a) the articles and
memorandum or certificate of incorporation and the bylaws of a corporation; (b)
the partnership agreement and any statement of partnership of a general
partnership; (c) the limited partnership agreement and the certificate of
limited partnership of a limited partnership; (d) any charter or similar
document adopted or filed in connection with the creation, formation, or
organization of a Person; and (e) any
<PAGE> 4
amendment to any of the foregoing.
2.17. "Normal Course of Trading" means an action taken by a
Person will be deemed to have been taken in the "Normal Course of Trading" only
if:
(a) such action is consistent with the past
practices of such Person and is taken in the ordinary course of the normal
day-to-day operations of such Person;
(b) such action is not required to be authorized by
the board of directors of such Person (or by any Person or group of Persons
exercising similar authority); and
(c) such action is similar in nature and magnitude
to actions customarily taken, without any authorization by the board of
directors (or by any Person or group of Persons exercising similar authority),
in the ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
2.18. "Person" means any individual, corporation (including
any non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Body.
2.19. "Proceeding" means any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental Body or arbitrator.
2.20. "Related Person" means with respect to a particular
individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly
controlled by such individual or one or more members of such individual's
Family;
(c) any Person in which such individual or members
of such individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual
or one or more members of such individual's Family serves as a director,
officer, partner, executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls,
is directly or indirectly controlled by, or is directly or indirectly under
common control with such specified Person;
(b) any Person that holds a Material Interest in
such specified Person;
3
<PAGE> 5
(c) each Person that serves as a director, officer,
partner, executor, or trustee of such specified Person (or in a similar
capacity); (d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified
Person serves as a general partner or a trustee (or in a similar capacity);
(h) any Related Person of any individual described
in clause (b) or (c).
For purposes of this definition, (a) the "Family" of an individual
includes (i) the individual, (ii) the individual's spouse, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means (i) any right to appoint a
majority of the directors to the board of directors of another Person who is a
corporation, (ii) direct or indirect beneficial ownership of voting securities
or other voting interests representing at least 51% of the outstanding voting
power of a Person or equity securities, or (iii) other equity interests
representing at least 51% of the outstanding equity securities or equity
interests in a Person.
2.21. "Representative" means with respect to a particular
Person, any director, officer, employee, agent, consultant, advisor, or other
representative of such Person, including legal counsel, accountants, and
financial advisors.
2.22. "Securities Act" means the Securities Act of 1933 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
2.23. "Seller" has the meaning defined in the first paragraph
of this Agreement.
2.24. "Tax Return" means any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any tax.
2.25. "Technology Assets" means software programs, object and
source code, all associated products and know-how which together comprise
packages called "dOLFin" and "dPOSit" that enables retail, wholesale,
distribution, and/or manufacturing enterprises to conduct all their transactions
in an integrated, computerized environment and includes all intellectual
property rights of every kind in and to such programs, object and source code,
products and know-how but does not include the Australian rights to such
programs, object and source code, products and know-how.
2.26. "Threatened" means a claim, Proceeding, dispute, action,
or other matter will be deemed to have been "Threatened" if any demand or
statement has been made in writing or any notice has been given in writing, or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be commenced, taken, or otherwise pursued
in the future.
4
<PAGE> 6
2.27. "Top-up Exchange Shares" has the meaning defined in
Section 3.6(b).
3. Sale and Transfer of Technology Assets; Closing; Additional
Agreements.
3.1. Technology Assets. Subject to the terms and conditions of
this Agreement, at the Closing, Seller will sell and transfer the Technology
Assets to Buyer or Buyer's designee, and Buyer or Buyer' designee will purchase
the Technology Assets from Seller.
3.2. Purchase Price. The purchase price (the "Purchase Price")
for the Technology Assets will be 1,300,000 shares of common stock of Buyer (the
"Exchange Shares").
3.3. Closing. The purchase and sale (the "Closing") provided
for in this Agreement will take place after all conditions specified in Sections
8 and 9 are satisfied or waived by the appropriate party and at the offices of
Solomon Ward Seidenwurm and Smith at 401 B Street, Suite 1200, San Diego,
California 92101, concurrently with the Closing of the Divergent Agreement.
Subject to the provisions of Section 10, failure to consummate the purchase and
sale provided for in this Agreement on the date and time and at the place
determined pursuant to this Section 3.3 will not result in the termination of
this Agreement and will not relieve any party of any obligation under this
Agreement.
3.4. Closing Obligations. At the Closing:
(a) Seller will deliver to Buyer:
(i) a bill of sale and such other
nstruments as may be necessary or desirable, in Buyer's sole discretion, for the
assignment and conveyance of marketable title to the Technology Assets to Buyer;
(ii) a certificate executed by the Seller
representing and warranting to Buyer that each of Seller's representations and
warranties in this Agreement was accurate in all respects as of the date of this
Agreement and is accurate in all respects as of the Closing Date as if made on
the Closing Date (giving full effect to any supplements to the Disclosure Letter
that were delivered by Seller to Buyer prior to the Closing Date in accordance
with Section 6.5); and
(iii) such other documents as may be
required pursuant to Section 8 below.
(b) Subject to Seller's performing all its
obligations including, in accordance with Paragraph 3.4(a) above, Buyer will
deliver to Seller:
(i) certificates representing the Exchange
Shares pursuant to Section 3.2 above;
(ii) a certificate executed by Buyer to the
effect that, except as otherwise stated in such certificate, each of Buyer's
representations and warranties in this Agreement
5
<PAGE> 7
was accurate in all respects as of the date of this Agreement and is accurate in
all respects as of the Closing Date as if made on the Closing Date; and
3.5. Lock-up of Seller. Except upon the written consent of
Buyer, Seller agrees not to, directly or indirectly, offer, sell, transfer,
pledge, assign, hypothecate or otherwise, encumber the Exchange Shares or Top-up
Exchange Shares, or otherwise dispose of any interest therein under Rule 144 or
otherwise, for a period of not less than six (6) months following the date of
receipt of Purchase Price by Seller. An appropriate legend will be marked on the
face of the certificates representing the Exchange Shares and Top-up Exchange
Shares.
3.6. Repurchase Agreement.
(a) If the average of the closing bid and asked
price of the Exchange Shares is less than Sixty United States Cents (U.S. $0.60)
for ten (10) consecutive trading days, at some future time within six (6) months
of the Closing Date, then, at Seller's option, to be exercised in writing within
ten (10) days of the occurrence, Buyer shall return to Seller the Technology
Assets in exchange for the Exchange Shares and refund of the Purchase Price
under the Divergent Agreement. Buyer shall not sell, encumber or otherwise deal
with or transfer or grant any interest in the Technology Assets until the period
within which Seller is to exercise such option has lapsed. Buyer also
acknowledges its obligation under the Divergent Agreement not to sell, encumber,
or otherwise deal with or transfer or grant any interest in the shares purchased
by Buyer pursuant to the Divergent Agreement until the period within which
Seller is to exercise such option has lapsed. Such restriction or transfer does
not preclude a transfer of such shares to a subsidiary of Buyer if the
subsidiary undertakes to comply with this agreement.
(b) [Deleted]
3.7. Piggyback Registration Rights.
(a) Buyer shall promptly give to Seller written
notice of its decision to register any of its securities under the Act (other
than on SEC forms S-4 or S-8) and shall use its reasonable efforts to include in
such registration (and any related qualification under blue sky laws or other
compliance) and in any underwriting involved therein, any or all of the Exchange
Shares or Top-up Exchange Shares which Seller may specify in a written request
made within fifteen (15) days after receipt of the written notice from Buyer.
(b) If, on the date six (6) months following the
Closing Date, Buyer has not registered the Exchange Shares, and the Top-up
Exchange Shares, then Buyer will register the Exchange Shares and the Top-up
Exchange Shares. (c) All registration expenses, except for filing fees, incurred
in connection with any registration, qualification or compliance including,
without limitation, printing expenses, fees and disbursements of counsel for
Buyer, blue sky fees and expenses, and the expense of any special audits or
accounting services incident to such registration shall be borne by Buyer.
4. Representations and Warranties of Seller. Seller represents and
warrants to Buyer as
6
<PAGE> 8
follows:
4.1. Organization and Good Standing. Seller is a corporation
duly organized, validly existing, and in good standing under the laws of its
jurisdiction of incorporation, with full corporate authority to conduct its
business as it is now being conducted, and to own or use the properties and
assets that it purports to own or use. Seller is duly qualified to do business
under the laws of each jurisdiction where applicable law requires such
qualification. Seller shall provide Buyer with a copy of all its Organizational
Documents within 14 days after execution of this Agreement.
4.2. Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and
binding obligation of Seller, enforceable against Seller in accordance with its
terms. Seller has the absolute and unrestricted right, power, authority, and
capacity to execute and deliver this Agreement and to perform its obligations
under this Agreement.
(b) Neither the execution and delivery of this
Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time):
(i) contravene, conflict with, or result
in a violation of (A) any provision of the Organizational Documents of Seller,
or (B) any resolution adopted by the board of directors or the shareholders of
Seller;
(ii) to the best of Seller's Knowledge,
contravene, conflict with, or result in a violation of, or give any Governmental
Body or other Person the right to challenge any of the Contemplated Transactions
or to exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which Seller, or the Technology Assets, may be subject;
(iii) to the best of Seller's Knowledge,
contravene, conflict with, or result in a violation of any of the terms or
requirements of, or give any Governmental Body the right to revoke, withdraw,
suspend, cancel, terminate, or modify, any Governmental Authorization that is
held by Seller that relates to the Contemplated Transactions;
(iv) result in the imposition or creation
of any Encumbrance upon or with respect to any of the assets owned or used by
Seller.
Seller is not nor will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
4.3. Title to Assets. Seller is, and as of the Closing Date
will be, the sole and absolute owner of the Technology Assets and has and will
have as of the Closing Date good and marketable title to the Technology Assets,
free and clear of any security interests, conditional sales agreements, liens,
claims, charges, reversions, reservations, restrictions, preferential rights of
purchase,
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encumbrances, encroachments, burdens or other defects of title. There has been
no grant, assignment or other transfer of any rights in the Technology Assets
other than in accordance with the written agreement between Seller and Divergent
Technologies, Pty., Ltd. to distribute the Technology Assets in Australia; a
true and unamended copy of which has been delivered to Buyer.
4.4. Legal Proceedings; Orders. There are no Proceedings by or
against Seller or that otherwise relates to or may affect the business of, or
any of the assets owned or used by, Seller and, to the best of Seller's
Knowledge, no such Proceeding has been Threatened or is pending.
4.5. Intellectual Property.
(a) Agreements. To the best of Seller's
Knowledge, Schedule 1 to this Agreement contains a complete and accurate list
and summary description, including any royalties paid or received by Seller, of
all agreements and contracts relating to the Technology Assets to which Seller
is a party or by which Seller is bound. There are no outstanding and, to
Sellers' Knowledge, no Threatened disputes or disagreements with respect to any
such agreement.
(b) Know-How. To the best of Seller's
Knowledge, the Technology Assets include all know-how necessary for the use,
operation, marketing, sale, licensing, and further development of the Technology
Assets by Buyer.
(c) Patents. To the best of Seller's Knowledge,
Schedule 1 to this Agreement contains a complete and accurate list and summary
description of all patents related to or incorporated within the Technology
Assets. Seller is the owner of all right, title, and interest in and to each of
the patents, free and clear of all liens, security interests, charges,
encumbrances, equities, and other adverse claims. No such patent is infringed
or, to Seller's best Knowledge, no such patent infringes or is alleged to
infringe any patent of any third party.
(d) Trademarks. To the best of Seller's
Knowledge, Schedule 1 to this Agreement contains a complete and accurate list
and summary description of all trademarks, tradenames, and service marks used in
connection with the Technology Assets. Seller is the owner of all right, title,
and interest in and to each of such marks, free and clear of all liens, security
interests, charges, encumbrances, equities, and other adverse claims. No such
mark is infringed or, to Seller's best Knowledge, no such mark infringes or is
alleged to infringe any trade name, trademark, or service mark of any third
party.
(e) Copyrights. Schedule 1 to this Agreement
contains a complete and accurate list and summary description of all copyrights
used in connection with the Technology Assets. Seller is the owner of all right,
title, and interest in and to each of the copyrights, free and clear of all
liens, security interests, charges, encumbrances, equities, and other adverse
claims. To the best of Seller's Knowledge, no such copyright is infringed or
infringes or is alleged to infringe any copyright of any third party or is a
derivative work based on the work of a third party.
(6) Trade Secrets. The Technology Assets
nclude all trade secrets, confidential information, customer lists, software,
technical information, data, process technology,
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plans, and drawings, materially necessary for the use, operation, marketing,
sale, licensing, and further development of the Technology Assets by Buyer.
4.6. Disclosure.
(a) To the best of Seller's Knowledge, no
representation or warranty of Seller in this Agreement omits to state a material
fact necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading. The exhibits and
schedules attached or prepared in connection with this Agreement are accurate
and complete and not misleading.
(b) To the best of Seller's Knowledge, no notice
given pursuant to Section 6.5 will contain any untrue statement or omit to state
a material fact necessary to make the statements therein or in this Agreement,
in light of the circumstances in which they were made, not misleading.
(c) To the best of Seller's Knowledge, there is no
fact known to any Seller that has specific application to the Technology Assets
and that materially adversely affects or, as far as any Seller can reasonably
foresee, materially threatens, the use, marketability, or value of the
Technology Assets.
4.7. Brokers or Finders. Except for a South African finder who
is entitled to receive compensation equal to one percent of the Purchase Price
from each of Buyer and Seller (for a total of two percent) for services
rendered, Seller and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
4.8. Investment Intent. Seller is acquiring the Exchange
Shares and Top-up Exchange Shares, if any, for its own account and not with a
view to their distribution within the meaning of Section 2(11) of the Securities
Act.
4.9. Seller is a Sophisticated and Accredited Investor.
(a) Seller, or Seller's advisors (who are
unaffiliated with and who are not compensated by Buyer or an affiliate or agent
of Buyer, directly or indirectly) have such knowledge and experience in
financial, tax, and business matters in order (i) to enable Seller to use the
information made available to Seller in connection with the Contemplated
Transactions to fully evaluate the risks associated with such an investment,
(ii) to make an informed investment decision, and (iii) to protect Seller's
interest in connection with the Contemplated Transactions.
(b) Seller is qualified as accredited investors as
such term is defined under the Securities Act.
5. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
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5.1. Organization and Good Standing. Buyer is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Nevada.
5.2. Authority; No Conflict.
(a) This Agreement constitutes the legal, valid, and
binding obligation of Buyer, enforceable against Buyer in accordance with its
terms. Buyer has the absolute and unrestricted right, power, and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement.
(b) Neither the execution and delivery of this
Agreement by Buyer nor the consummation or performance of any of the
Contemplated Transactions by Buyer will give any Person the right to prevent,
delay, or otherwise interfere with any of the Contemplated Transactions pursuant
to:
(i) any provision of Buyer's
Organizational Documents;
(ii) any resolution adopted by the board
of directors or the stockholders of Buyer;
(iii) any Legal Requirement or Order to
which Buyer may be subject; or
(iv) any Contract to which Buyer is a
party or by which Buyer may be bound.
Except as set forth in Part 5.2 of the Disclosure Letter, Buyer is not
and will not be required to obtain any Consent from any Person in connection
with the execution and delivery of this Agreement or the consummation or
performance of any of the Contemplated Transactions.
5.3. Certain Proceedings. There is no pending Proceeding that
has been commenced against Buyer and that challenges, or may have the effect of
preventing, delaying, making illegal, or otherwise interfering with, any of the
Contemplated Transactions. To Buyer's Knowledge, no such Proceeding has been
Threatened.
5.4. Brokers or Finders. Except for a South African finder who
is entitled to receive compensation equal to one percent of the Purchase Price
from each of Buyer and Seller (for a total of two percent) for services
rendered, Buyer and its officers and agents have incurred no obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or other similar payment in connection with this Agreement and will
indemnify and hold Seller harmless from any such payment alleged to be due by or
through Buyer as a result of the action of Buyer or its officers or agents.
6. Covenants of Seller Prior to Closing Date.
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6.1. Access and Investigation. Between the date of this
Agreement and the Closing Date, Seller will afford Buyer and its Representatives
and prospective lenders and their Representatives (collectively, "Buyer's
Advisors") full and free access to Seller's contracts, research and engineering
data, and books and records that relate in any way to the Technology Assets, and
other documents and data as Buyer may reasonably request.
6.2. Negative Covenant. Between the date of this Agreement and
the Closing Date, Seller shall not: (a) do or omit to do anything as a result of
which any representation or warranty of Seller set forth in this Agreement would
be untrue or misleading if given at any time before Closing; or (b) alter,
modify or amend its Organizational Documents.
6.3. Required Approvals. As promptly as practicable after the
date of this Agreement, Seller will make all filings required by Legal
Requirements to be made by them in order to consummate the Contemplated
Transactions. Between the date of this Agreement and the Closing Date, Seller
will cooperate with Buyer with respect to all filings that Buyer elects to make
or is required by Legal Requirements to make in connection with the Contemplated
Transactions.
6.4. Notification. Between the date of this Agreement and the
Closing Date, Seller will promptly notify Buyer in writing if Seller becomes
aware of any fact or condition that causes or constitutes a Breach of any of
Seller's representations and warranties as of the date of this Agreement, or if
such Seller becomes aware of the occurrence after the date of this Agreement of
any fact or condition that would (except as expressly contemplated by this
Agreement) cause or constitute a Breach of any such representation or warranty
had such representation or warranty been made as of the time of occurrence or
discovery of such fact or condition.
6.5. No Negotiation. Until such time, if any, as this
Agreement is terminated pursuant to Section 10, Seller will not, directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any Person (other
than Buyer) relating to any transaction involving the sale or other transfer of
the Technology Assets.
6.6. Best Efforts. Between the date of this Agreement and the
Closing Date, Seller will use its Best Efforts to cause the conditions in
Sections 8 and 9 to be satisfied.
7. Covenant of Buyer Prior to Closing Date. Buyer will use its Best
Efforts to cause the conditions in Sections 8 and 9 to be satisfied.
8. Conditions Precedent to Buyer's Obligation to Close. Buyer's
obligation to purchase the Technology Assets and to take the other actions
required to be taken by Buyer at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Buyer, in whole or in part):
8.1. Accuracy of Representations. All of Seller's
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually and
subject to qualifications set forth in such representations and warranties),
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must have been accurate in all material respects as of the date of this
Agreement, and must be accurate in all material respects as of the Closing Date
as if made on the Closing Date.
8.2. Seller's Performance. All of the covenants and
obligations that Seller is required to perform or to comply with pursuant to
this Agreement at or prior to the Closing (considered collectively), and each of
these covenants and obligations (considered individually), must have been duly
performed and complied with in all material respects.
8.3. No Proceedings. There must not have been commenced or
Threatened any proceeding (a) involving any challenge to, or seeking damages or
other relief in connection with, any of the Contemplated Transactions, or (b)
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with any of the Contemplated Transactions.
8.4. No Prohibition. Neither the consummation nor the
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time), materially contravene, or conflict
with, or result in a material violation of, or cause Buyer or any Person
affiliated with Buyer to suffer any material adverse consequence under, (a) any
applicable Legal Requirement or Order, or (b) any Legal Requirement or Order
that has been published, introduced, or otherwise formally proposed by or before
any Governmental Body.
8.5. Consummation of Divergent Technologies Pty, Ltd
Transaction. Buyer must have, either prior to or concurrently with the Closing,
consummated the purchase of Divergent Technologies Pty, Ltd Ordinary Shares
pursuant to that certain agreement among Buyer, Landreef Pty. Ltd. and Hookmond
Pty. Ltd. (the "Divergent Agreement").
8.6 [Deleted]
9. Conditions Precedent to Seller's Obligation to Close. Seller's
obligation to sell the Technology Assets and to take the other actions required
to be taken by Seller at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Seller, in whole or in part):
9.1. Accuracy of Representations. All of Buyer's
representations and warranties in this Agreement (considered collectively), and
each of these representations and warranties (considered individually), must
have been accurate in all material respects as of the date of this Agreement and
must be accurate in all material respects as of the Closing Date as if made on
the Closing Date.
9.2. Buyer's Performance. All of the covenants and obligations
that Buyer is required to perform or to comply with pursuant to this Agreement
at or prior to the Closing (considered collectively), and each of these
covenants and obligations (considered individually), must have been performed
and complied with in all material respects.
9.3. No Injunction. There must not be in effect any Legal
Requirement or any injunction or other Order that (a) prohibits the sale of the
Technology Assets by Seller to Buyer, and
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(b) has been adopted or issued, or has otherwise become effective, since the
date of this Agreement.
9.4. Consummation of Divergent Technologies, Pty. Ltd.
Transaction. The sale of shares pursuant to the Divergent Agreement must have
been consummated prior to or concurrently with the Closing.
10. Termination.
10.1. Termination Events. This Agreement may, by notice given
prior to or at the Closing, be terminated:
(a) by either Buyer or Seller if a material Breach
of any provision of this Agreement has been committed by the other party and
such Breach has not been waived or cured on or before fourteen (14) days after
written notice from the non-breaching party;
(b) (i) by Buyer if any of the conditions in Section
8 have not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Buyer to
comply with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Seller, if any of the
conditions in Section 9 has not been satisfied of the Closing Date or if
satisfaction of such a condition is or becomes impossible (other than through
the failure of Seller to comply with its obligations under this Agreement) and
Seller has not waived such condition on or before the Closing Date;
(c) by mutual consent of Buyer and Seller; or
(d) by either Buyer or Seller if the Closing has not
occurred (other than through the failure of any party seeking to terminate this
Agreement to comply fully with its obligations under this Agreement) on or
before November 30, 1996, or such later date as the parties may agree upon.
10.2. Effect of Termination. Each party's right of termination under Section
10.1 is in addition to any other rights it may have under this Agreement or
otherwise, and the exercise of a right of termination will not be an election of
remedies. If this Agreement is terminated pursuant to Section 10.1, all further
obligations of the parties under this Agreement will terminate, provided,
however, that if this Agreement is terminated by a party because of the Breach
of the Agreement by the other party or because one or more of the conditions to
the terminating party's obligations under this Agreement is not satisfied as a
result of the other party's failure to comply with its obligations under this
Agreement, the terminating party's right to pursue all legal remedies will
survive such termination unimpaired.
11. Indemnification; Remedies.
11.1. Survival. All representations, warranties, covenants,
and obligations in this Agreement, and any other certificate or document
delivered pursuant to this Agreement, will survive the Closing.
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11.2. Indemnification and Payment of Damages by Seller. Seller
will indemnify and hold harmless Buyer for, and will pay to Buyer the amount of,
any loss, liability, claim, damage (including incidental and consequential
damages), expense (including costs of investigation and defense and reasonable
attorneys' fees) or diminution of value, whether or not involving a third-party
claim (collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty
made by such Seller in this Agreement or any other certificate or document
delivered by Seller pursuant to this Agreement;
(b) any Breach of any representation or warranty
made by such Seller in this Agreement as if such representation or warranty were
made on and as of the Closing Date; or
(c) any Breach by such Seller of any covenant or
obligation of such Seller in this Agreement;
The remedies provided in this Section 11.2 will not be exclusive of or
limit any other remedies that may be available to Buyer or the other Indemnified
Persons.
11.3. Indemnification and Payment of Damages by Buyer. Buyer
will indemnify and hold harmless Seller, and will pay to Seller the amount of
any Damages arising, directly or indirectly, from or in connection with (a) any
Breach of any representation or warranty made by Buyer in this Agreement or in
any certificate delivered by Buyer pursuant to this Agreement, (b) any Breach by
Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any claim
by any Person for brokerage or finder's fees or commissions or similar payments
based upon any agreement or understanding alleged to have been made by such
Person with Buyer (or any Person acting on its behalf) in connection with any of
the Contemplated Transactions.
11.4. Time Limitations. If the Closing occurs, Seller will
have no liability (for indemnification or otherwise) with respect to any
representation or warranty, or covenant or obligation to be performed and
complied with prior to the Closing Date, unless on or before the second
anniversary of the Closing Buyer notifies the Seller of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Buyer; a claim for indemnification or reimbursement not based upon any
representation or warranty or any covenant or obligation to be performed and
complied with prior to the Closing Date, may be made at any time. If the Closing
occurs, Buyer will have no liability (for indemnification or otherwise) with
respect to any representation or warranty, or covenant or obligation to be
performed and complied with prior to the Closing Date, unless on or before the
second anniversary of the Closing Seller notify Buyer of a claim specifying the
factual basis of that claim in reasonable detail to the extent then known by
Seller.
11.5. Procedure for Indemnification--Third Party Claims.
(a) Promptly after receipt by an indemnified party
under Section 11.2 or 11.3 of notice of the commencement of any Proceeding
against it, such indemnified party will, if a claim is to be made against an
indemnifying party under such Section, give notice to the indemnifying party of
the commencement of such claim, but the failure to notify the indemnifying party
will not relieve
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the indemnifying party of any liability that it may have to any indemnified
party, except to the extent that the indemnifying party demonstrates that the
defense of such action is prejudiced by the indemnifying party's failure to give
such notice.
(b) If any Proceeding referred to in Section 11.5(a)
is brought against an indemnified party and it gives notice to the indemnifying
party of the commencement of such Proceeding, the indemnifying party will,
unless the claim involves taxes, be entitled to participate in such Proceeding
and, to the extent that it wishes (unless (i) the indemnifying party is also a
party to such Proceeding and the indemnified party determines in good faith that
joint representation would be inappropriate, or (ii) the indemnifying party
fails to provide reasonable assurance to the indemnified party of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 11 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified
party determines in good faith that there is a reasonable probability that a
Proceeding may adversely affect it or its affiliates other than as a result of
monetary damages for which it would be entitled to indemnification under this
Agreement, the indemnified party may, by notice to the indemnifying party,
assume the exclusive right to defend, compromise, or settle such Proceeding, but
the indemnifying party will not be bound by any determination of a Proceeding so
defended or any compromise or settlement effected without its consent (which may
not be unreasonably withheld).
(d) Seller and Buyer hereby consent to the non-
exclusive jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on Seller with respect to such a
claim anywhere in the world.
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11.6. Procedure for Indemnification--Other Claims. A claim for
indemnification for any matter not involving a third-party claim may be asserted
by notice to the party from whom indemnification is sought.
12. Covenant Not To Compete.
12.1. For a period of three years after the Closing Date, to
the extent permitted by applicable law:
(a) Seller will not, directly or indirectly, engage
or invest in, own, manage, operate, finance, control, or participate in the
ownership, management, operation, or control of, be employed by, associated
with, or in any manner connected with, lend any Seller's name or any similar
name to, lend Seller's credit to, or render services or advice to, any business
in any country of the world within which Buyer does business whose products or
activities compete in whole or in part with the products or activities of
Seller; provided, however, that Seller may purchase or otherwise acquire up to
(but not more than) five percent (5%) of any class of securities of any
enterprise (but without otherwise participating in the activities of such
enterprise) if such securities are listed on any national or regional securities
exchange or have been registered under Section 12(g) of the Securities Exchange
Act of 1934. Seller agrees that this covenant is reasonable with respect to its
duration, geographical area, and scope.
(b) Seller will not, directly or indirectly, either
for themselves or any other Person, (A) induce or attempt to induce any employee
of Buyer to leave the employ of Buyer, (B) in any way interfere with the
relationship between Buyer and any employee of Buyer, (C) employ, or otherwise
engage as an employee, independent contractor, or otherwise, any employee of
Buyer, or (D) induce or attempt to induce any customer, supplier, licensee, or
business relation of Buyer to cease doing business with Buyer, or in any way
interfere with the relationship between any customer, supplier, licensee, or
business relation of Buyer.
(c) Seller will not, directly or indirectly, either
for themselves or any other Person, solicit the business of any Person known to
Seller to be a customer of Buyer, whether or not any Seller had personal contact
with such Person, unless Seller's solicitation of such Person is done in
connection with a business that is not competitive with that of Buyer.
12.2. In the event of a breach by Seller of any covenant set
forth in Subsection 12.1 of this Agreement, the term of such covenant will be
extended by the period of the duration of such breach.
12.3. Seller will not, at any time during or after the
three-year period, disparage Buyer, or any of their shareholders, directors,
officers, employees, or agents. Buyer may serve notice upon each such employer
that Seller is bound by this Agreement and furnish each such employer with a
copy of this Agreement or relevant portions thereof.
12.4. In addition to Buyer's right to damages and any other
rights it may have, to obtain injunctive or other equitable relief to restrain
any breach or threatened breach or otherwise to
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specifically enforce the provisions of this Section Seller agrees that money
damages alone would be inadequate to compensate the Buyer and would be an
inadequate remedy for such breach.
12.5. If a court of competent jurisdiction holds that the
obligations of Seller pursuant to this covenant are unenforceable due to the
duration, geographical area and scope of this covenant, then such duration,
geographical area or scope of this covenant shall be reduced to the least degree
necessary to render this covenant enforceable.
13. General Provisions.
13.1. Expenses. Except as otherwise expressly agreed to by the
parties in writing, each party to this Agreement will bear expenses incurred in
connection with the preparation, execution, and performance of this Agreement
and the Contemplated Transactions, including the fees and expenses of agents,
representatives, counsel, and accountants. In the event of termination of this
Agreement, the obligation of each party to pay its own expenses will be subject
to any rights of such party arising from a breach of this Agreement by another
party.
13.2. Public Announcements. Any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as Buyer determines.
13.3. Confidentiality. Buyer and Seller will maintain in
confidence, and will cause the directors, officers, employees, agents, and
advisors of Buyer and Seller to maintain in confidence, any written, oral, or
other information obtained in confidence from another party in connection with
this Agreement or the Contemplated Transactions, unless (a) such information is
already known to such party or to others not bound by a duty of confidentiality
or such information becomes publicly available through no fault of such party,
(b) the use of such information is necessary or appropriate in making any filing
or obtaining any consent or approval required for the consummation of the
Contemplated Transactions, or (c) the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings.
If the Contemplated Transactions are not consummated, each party will
return or destroy as much of such written information as the other party may
reasonably request. Whether or not the Closing takes place, Seller waive, and
will upon Buyer's request cause the Seller to waive, any cause of action, right,
or claim arising out of the access of Buyer or its representatives to any trade
secrets or other confidential information of the Seller except for the
intentional competitive misuse by Buyer of such trade secrets or confidential
information.
13.4. Notices. Each notice and other communication required or
permitted to be given under this Agreement ("Notice") must be in writing. Notice
is duly given to another party upon: (a) hand delivery to the other party, (b)
receipt by the other party when sent by facsimile to the address and number for
such party set forth below (provided, however, that the Notice is not effective
unless a duplicate copy of the facsimile Notice is promptly given by one of the
other methods permitted under this paragraph), (c) fourteen business days after
the Notice has been deposited with the United States postal service as first
class certified mail, return receipt requested,
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postage prepaid, and addressed to the party as set forth below, or (d) the next
business day after the Notice has been deposited with a reputable overnight
delivery service, postage prepaid, addressed to the party as set forth below
with next-business-day delivery guaranteed, provided that the sending party
receives a confirmation of delivery from the delivery-service-provider.
To Buyer: Barry M. Schechter
Chief Executive Officer
SVI Holdings, Inc.
9364 Cabot Drive, Suite B
San Diego, CA 92126
Phone: (619) 693-4344
Fax: (619) 693-3518
Copy to: Norman L. Smith, Esq.
Solomon Ward Seidenwurm & Smith
401 B Street, Suite 1200
San Diego, CA 92101
Phone: (619) 231-0303
Fax: (619) 231-4755
To Seller: New Hope Trading Limited
Chemin Des Trois Portes 11
2006 Neuchatel, Switzerland
Phone: 413 824 9440
Fax: 413 824 6321
Copy to: Divergent Technologies Pty Ltd
Level 1, 35 Spring Street
Bondi Junction
Sydney, Australia NSW 2022
Phone: 612-389-3555
Fax: 612-387-7110
Each party shall make a reasonable, good faith effort to ensure that it will
accept or receive Notices to it that are given in accordance with this
paragraph. A party may change its address for purposes of this paragraph by
giving the other party(ies) written notice of a new address in the manner set
forth above.
13.5. Jurisdiction; Service of Process. Except as provided
below, all actions and proceedings arising in connection with this Agreement
must be tried and litigated exclusively in the State and Federal courts located
in the County of San Diego, State of California, which courts have personal
jurisdiction and venue over each of the parties to this Agreement for the
purpose of adjudicating all matters arising out of or related to this Agreement.
Each party authorizes and accepts service of process sufficient for personal
jurisdiction in any action against it as contemplated by this paragraph by
registered or certified mail, return receipt requested, postage prepaid, to its
address for the giving of notices set forth in this Agreement.
18
<PAGE> 20
13.6. Further Assurances. Each party to this Agreement shall
execute and deliver all instruments and documents and take all actions as may be
reasonably required or appropriate to carry out the purposes of this Agreement.
13.7. Waiver. Any waiver of a default or provision under this
Agreement must be in writing. No such waiver constitutes a waiver of any other
default or provision concerning the same or any other provision of this
Agreement. No delay or omission by a party in the exercise of any of its rights
or remedies constitutes a waiver of (or otherwise impairs) such right or remedy.
A consent to or approval of an act does not waive or render unnecessary the
consent to or approval of any other or subsequent act.
13.8. Entire Agreement and Modification. This Agreement and
all documents specifically referred to and executed in connection with this
Agreement: (a) contain the entire and final agreement of the parties to this
Agreement with respect to the subject matter of this Agreement, and (b)
supersede all negotiations, stipulations, understandings, agreements,
representations and warranties, if any, with respect to such subject matter,
which precede or accompany the execution of this Agreement. This Agreement may
be modified only by a contract in writing executed by the party to this
Agreement against whom enforcement of the modification is sought.
13.9. Assignments, Successors, and No Third-Party Rights.
Seller may not voluntarily or by operation of law assign, hypothecate, delegate
or otherwise transfer or encumber all or any part of its rights, duties or other
interests in this Agreement without the prior written consent of Buyer, which
consent may be withheld in Buyer's sole and absolute discretion. Any such
transfer in violation of this paragraph is void. Subject to the foregoing and
any other restrictions on transferability contained in this Agreement, this
Agreement is binding upon and inures to the benefit of the
successors-in-interest and assigns of each party to this Agreement. Nothing in
this Agreement is intended to confer any rights or remedies on any person or
entity other than the parties to this Agreement and their respective
successors-in-interest and permitted assignees, unless such rights are expressly
granted in this Agreement to another person specifically identified as a "Third
Party Beneficiary."
13.10. Severability. Each provision of this Agreement is valid
and enforceable to the fullest extent permitted by law. If any provision of this
Agreement (or the application of such provision to any person or circumstance)
is or becomes invalid or unenforceable, the remainder of this Agreement, and the
application of such provision to persons or circumstances other than those as to
which it is held invalid or unenforceable, are not affected by such invalidity
or unenforceability.
13.11. Section Headings, Construction. The headings of the
paragraphs of this Agreement have been included only for convenience, and shall
not be deemed in any manner to modify or limit any of the provisions of this
Agreement, or be used in any manner in the interpretation of this Agreement.
13.12. Time of Essence. Time and strict and punctual
performance are of the essence with respect to each provision of this Agreement.
19
<PAGE> 21
13.13. Governing Law. This Agreement is governed by and
construed in accordance with the laws of the State of California, irrespective
of California's choice-of-law principles.
13.14. Counterparts. This Agreement may be executed in
counterparts, each of which is deemed an original and all of which together
constitute one document. All exhibits attached to and referenced in this
Agreement are incorporated into this Agreement.
13.15. Arbitration. Any dispute, controversy or claim arising
out of or related to this Agreement shall be finally settled by arbitration in
accordance with the Rules of Conciliation and Arbitration of the International
Chamber of Commerce.
(a) In the event of any conflict between these Rules
and this Section, the provisions of this Section will govern. The arbitration
shall take place in San Diego, California. The selection of an arbitrator shall
be approved by agreement between the parties to this Agreement or, if the
parties cannot so agree within 30 days after written notice by either party that
it intends to seek arbitration with respect to a particular dispute, such
arbitrator shall be appointed by Presiding Judge of the Superior Court for the
County of San Diego, California.
(b) The arbitration shall be conducted in the
English language. Relevant documents in other languages shall be translated into
English if the arbitrators so direct. In arriving at their award, the
arbitrators shall make every effort to find a solution to the dispute in the
provisions of this Agreement and shall give full effect to all parts thereof. If
a solution cannot be found in the provisions of the Agreement, the arbitrators
shall apply the laws of the state of California. (c) The parties agree that
after either has filed a notice of demand for arbitration of any dispute subject
to arbitration under this Agreement, they shall, upon request, make discovery
and disclosure of all materials relevant to the subject of the dispute. The
arbitrators shall make the final determination as to any discovery disputes
between the parties. Examination of witnesses by the parties and by the
arbitrators shall be permitted. A written transcript of the hearing shall be
made and furnished to the parties. The cost of this transcript shall be borne
equally by the parties.
(d) The arbitrators shall state the reasons upon
which the award is based. The award of the arbitrators shall be final and
binding upon the parties. Judgment upon the award may be entered in any court
having jurisdiction. An application may be made to any such court for a judicial
acceptance of the award and an order for enforcement.
BUYER: SVI HOLDINGS, INC.,
a Nevada corporation
By:/s/Barry Schechter
--------------------------
Barry Schechter
Chief Executive Officer
Seller: New Hope Trading Limited, a BVI corporation
By: /s/ M. Baskin
--------------------------
20
<PAGE> 22
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Recital..................................................................................................1
2. Definitions..............................................................................................1
3. Sale and Transfer of Technology Assets; Closing; Additional Agreements...................................5
3.1. Technology Assets..................................................................................5
3.2. Purchase Price.....................................................................................5
3.3. Closing............................................................................................5
3.4. Closing Obligations................................................................................5
3.5. Lock-up of Seller..................................................................................6
3.6. Repurchase Agreement...............................................................................6
3.7. Piggyback Registration Rights......................................................................6
4. Representations and Warranties of Seller.................................................................7
4.1. Organization and Good Standing.....................................................................7
4.2. Authority; No Conflict.............................................................................7
4.3. Title to Assets....................................................................................8
4.4. Legal Proceedings; Orders..........................................................................8
4.5. Intellectual Property..............................................................................8
4.6. Disclosure.........................................................................................9
4.7. Brokers or Finders.................................................................................9
4.8. Investment Intent..................................................................................9
4.9. Seller is a Sophisticated and Accredited Investor..................................................9
5. Representations and Warranties of Buyer.................................................................10
</TABLE>
i
<PAGE> 23
<TABLE>
<S> <C> <C>
5.1. Organization and Good Standing....................................................................10
5.2. Authority; No Conflict............................................................................10
5.3. Certain Proceedings...............................................................................10
5.4. Brokers or Finders................................................................................11
6. Covenants of Seller Prior to Closing Date...............................................................11
6.1. Access and Investigation..........................................................................11
6.2. Negative Covenant.................................................................................11
6.3. Required Approvals................................................................................11
6.4. Notification......................................................................................11
6.5. No Negotiation....................................................................................11
6.6. Best Efforts......................................................................................11
7. Covenant of Buyer Prior to Closing Date.................................................................12
8. Conditions Precedent to Buyer's Obligation to Close.....................................................12
8.1. Accuracy of Representations.......................................................................12
8.2. Seller's Performance..............................................................................12
8.3. No Proceedings....................................................................................12
8.4. No Prohibition....................................................................................12
8.5. Consummation of Divergent Technologies Pty, Ltd Transaction.......................................12
8.6 Disclosure Letter..................................................................................12
9. Conditions Precedent to Seller's Obligation to Close....................................................12
9.1. Accuracy of Representations.......................................................................13
9.2. Buyer's Performance...............................................................................13
</TABLE>
ii
<PAGE> 24
<TABLE>
<S> <C> <C>
9.3. No Injunction.....................................................................................13
9.4. Consummation of Divergent Technologies, Pty. Ltd. Transaction.....................................13
10. Termination............................................................................................13
10.1. Termination Events...............................................................................13
10.2. Effect of Termination............................................................................14
11. Indemnification; Remedies..............................................................................14
11.1. Survival.........................................................................................14
11.2. Indemnification and Payment of Damages by Seller.................................................14
11.3. Indemnification and Payment of Damages by Buyer..................................................14
11.4. Time Limitations.................................................................................15
11.5. Procedure for Indemnification--Third Party Claims................................................15
11.6. Procedure for Indemnification--Other Claims......................................................16
12. Covenant Not To Compete................................................................................16
13. General Provisions.....................................................................................17
13.1. Expenses.........................................................................................17
13.2. Public Announcements.............................................................................17
13.3. Confidentiality..................................................................................17
13.4. Notices..........................................................................................18
13.5. Jurisdiction; Service of Process.................................................................19
13.6. Further Assurances...............................................................................19
13.7. Waiver...........................................................................................19
13.8. Entire Agreement and Modification................................................................19
13.9. Assignments, Successors, and No Third-Party Rights...............................................19
</TABLE>
iii
<PAGE> 25
<TABLE>
<S> <C> <C>
13.10. Severability....................................................................................20
13.11. Section Headings, Construction..................................................................20
13.12. Time of Essence.................................................................................20
13.13. Governing Law...................................................................................20
13.14. Counterparts....................................................................................20
13.15. Arbitration.....................................................................................20
</TABLE>
iv
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
Subsidiaries of SVI Holdings, Inc.
Subsidiary State of Incorporation
- --------- ----------------------
<S> <C>
SVI Training Products California
Tango Products USA, Inc. California
Softline Holdings Limited South Africa
Divergent Technologies Pty Ltd Australia
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 716,570
<SECURITIES> 0
<RECEIVABLES> 142,808
<ALLOWANCES> 500
<INVENTORY> 9,177
<CURRENT-ASSETS> 868,555
<PP&E> 33,961
<DEPRECIATION> 27,217
<TOTAL-ASSETS> 5,006,487
<CURRENT-LIABILITIES> 2,712,843
<BONDS> 0
<COMMON> 1,242
0
0
<OTHER-SE> 6,712,705
<TOTAL-LIABILITY-AND-EQUITY> 5,006,487
<SALES> 673,608
<TOTAL-REVENUES> 673,608
<CGS> 100,389
<TOTAL-COSTS> 1,089,309
<OTHER-EXPENSES> 133,505
<LOSS-PROVISION> 500
<INTEREST-EXPENSE> 133,505
<INCOME-PRETAX> 130,871
<INCOME-TAX> 0
<INCOME-CONTINUING> 130,871
<DISCONTINUED> 16,592
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,463
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
