<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended September 30, 1998
Commission file Number 0-23049
SVI Holdings, Inc.
--------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Nevada 84-1131608
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7979 Ivanhoe Avenue, Suite 500, La Jolla, CA 92037
--------------------------------------------------
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(619) 551-2365
Indicate by check mark whether the registrant(1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date:
Common Stock, $0.0001 Par Value - 29,308,684 shares as of October 15, 1998.
<PAGE> 2
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
<CAPTION>
SEPTEMBER 30,
1998 MARCH 31,
ASSETS (unaudited) 1998
------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 10,473,226 $ 14,468,578
Accounts receivable, net of allowance for doubtful accounts
of $466,603 at September 30, 1998 and $342,537 at March 31, 1998 6,130,595 3,214,402
Other receivables 935,925 -
Inventories 239,348 326,807
Prepaid expenses and other current assets 1,147,883 388,456
------------- -------------
Total current assets 18,926,977 18,398,243
Furniture and equipment, net of accumulated depreciation of
$1,335,485 at September 30, 1998 and $486,678 at March 31, 1998 1,507,497 885,276
Capitalized software, net of accumulated amortization of
of $2,370,411 at September 30, 1998 and $1,357,766 at March 31, 1998 13,601,527 12,354,371
Goodwill, net of accumulated amortization of $688,198 at September
30, 1998 and $313,183 at March 31, 1998 15,024,095 14,586,102
Not-to-compete agreement, net of accumulated amortization of
$80,284 at September 30, 1998 1,845,721 -
Deferred tax asset 406,935 239,690
Other assets 14,948 16,974
------------- -------------
TOTAL ASSETS $ 51,327,700 $ 46,480,656
============= =============
Current Liabilities
Accounts payable $ 2,490,126 $ 3,520,223
Accrued expenses 2,972,861 2,477,699
Income taxes payable 2,685,204 2,637,424
------------- -------------
Total current liabilities 8,148,191 8,635,346
Due to stockholder - 14,552
Long-term liabilities - 35,299
Deferred tax liability 500,138 720,464
------------- -------------
Total liabilities 8,648,329 9,405,661
------------- -------------
Stockholders' equity
Preferred stock, $.0001 par value; 5,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.0001 par value; 50,000,000 shares authorized;
28,533,684 and 28,146,684 issued and outstanding at
September 30, 1998 and March 31, 1998, respectively 2,853 2,815
Additional paid-in capital 34,771,477 33,137,939
Retained earnings 8,695,965 4,299,994
Cumulative foreign currency translation adjustment (790,924) (365,753)
------------- -------------
Total stockholders' equity 42,679,371 37,074,995
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 51,327,700 $ 46,480,656
============= =============
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 3
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 8,100,304 $ 4,175,047
Cost of sales 1,474,518 1,266,010
------------ ------------
Gross profit 6,625,786 2,909,037
Selling, general and administrative expenses 4,138,237 1,971,968
------------ ------------
Income from operations 2,487,549 937,069
Other income (expense):
Interest income 180,588 15,642
Other income 669,559 (29,438)
Interest expense (23,198) 10,916
Equity in earnings of Softline Limited - 279,427
Gain on sale of Softline Limited shares - 222,507
Loss on foreign currency transaction (8,471) (88,137)
------------ ------------
Income before income taxes 3,306,027 1,347,986
Income tax provision 1,023,515 700,901
------------ ------------
NET INCOME $ 2,282,512 $ 647,085
============ ============
Earnings per share:
BASIC $ 0.08 $ 0.04
============ ============
DILUTED $ 0.07 $ 0.04
============ ============
Weighted average common shares outstanding:
Basic 28,350,532 15,031,458
Diluted 32,659,038 16,290,200
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 4
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Net sales $ 16,571,284 $ 6,503,714
Cost of sales 3,113,296 1,884,213
------------- -------------
Gross profit 13,457,988 4,619,501
Selling, general and administrative expenses 8,402,904 3,504,514
------------- -------------
Income from operations 5,055,084 1,114,987
Other income (expense):
Interest income 355,345 31,083
Other income 703,377 (20,149)
Interest expense (42,443) (27,658)
Equity in earnings of Softline Limited - 279,427
Gain on sale of Softline Limited shares - 3,821,502
Loss on foreign currency transaction (8,471) (88,137)
------------- -------------
Income before income taxes 6,062,892 5,111,055
Income tax provision 1,666,921 825,862
------------- -------------
NET INCOME $ 4,395,971 $ 4,285,193
============= =============
Earnings per share:
BASIC $ 0.16 $ 0.29
============= =============
DILUTED $ 0.14 $ 0.27
============= =============
Weighted average common shares outstanding
Basic 28,270,526 14,698,492
Diluted 32,158,956 15,963,154
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 5
<TABLE>
SVI HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,395,971 $ 4,285,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 1,522,212 1,007,629
Equity in earnings in Softline Limited - (279,427)
Foreign currency transaction loss - 88,137
Gain on sale of Softline Limited shares - (3,821,502)
Stock-based compensation 320,277 202,500
Changes in deferred taxes (207,571) (116,197)
Loss on sale of fixed assets 6,896 -
(Increase) decrease in:
Accounts receivable (2,028,709) (899,979)
Inventories 122,277 (774,547)
Other receivables (935,925) 90,344
Prepaid expenses and other current assets (681,823) (104,234)
Deposits and other assets 2,026 (43,881)
Increase (decrease) in:
Accounts payable (1,154,802) 4,890,093
Accrued expenses (1,007,361) 233,161
Other liabilities (35,299) (609,467)
Income taxes payable 47,780 1,025,929
------------- -------------
Net cash provided by operating activities 365,949 5,173,752
------------- -------------
Cash flows from investing activities
Acquisition of Todds of Lincoln (208,277) -
Acquisition of Applied Retail Solutions, Inc., net (1,395,164) -
Acquisition of Quest Software Limited (298,229) -
Acquisition of Open Support Limited (149,348) -
Acquisition of Divergent Technologies, net - 237,294
Net proceeds from sale of Softline Limited - 5,864,852
Purchase of furniture and equipment (488,632) (258,051)
Proceeds from sale of fixed assets 62,207 -
Capitalized R&D and purchase of software (1,554,635) 188,808
Maturity of certificates of deposit - 350,000
------------- -------------
Net cash provided (used) by investing activities (4,032,078) 6,382,903
------------- -------------
Cash flows from financing activities:
Stock options exercised 110,500 -
Decrease in due to stockholders, net (14,552) (4,166,083)
Proceeds from note payable - 172,910
Payments on line of credit - (3,936,344)
Due from affiliates - 1,078,022
------------- -------------
Net cash provided (used) by financing activities 95,948 (6,851,495)
------------- -------------
Effect of exchange rate changes on cash (425,171) (236,185)
------------- -------------
Net increase (decrease) in cash (3,995,352) 4,468,975
Cash and cash equivalents, beginning of period 14,468,578 216,453
------------- -------------
Cash and cash equivalents, end of period $ 10,473,226 $ 4,685,428
============= =============
Supplemental disclosure of cash flow information:
Interest paid 42,443 43,724
Income taxes paid 1,705,874 103,152
Supplemental disclosure of non-cash investing and financing activities:
Issued 52,000 shares at $3.90 per share as part of
consideration for Todds of Lincoln acquisition 202,800 -
Acquired Triple-S Limited by incurring a short-term liability 429,208 -
Issued 250,000 shares at $4.00 per share as purchase
consideration for Applied Retail Solutions, Inc. acquisition 1,000,000 -
Issued 1,620,000 shares of common stock in connection with
purchase of software - 3,770,231
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
</TABLE>
<PAGE> 6
SVI HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note A - Organization and Basis of Preparation
The accompanying consolidated financial statements have been prepared from the
unaudited records of SVI Holdings, Inc. and subsidiaries. In the opinion of
management, all adjustments necessary to present fairly the financial position,
results of operations and cash flows at September 30, 1998 and for all the
periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. Accounting policies followed by the Company are
described in the notes to the financial statements in its Transition Report on
Form 10-KSB for the six months ended March 31, 1998. The financial information
included in this quarterly report should be read in conjunction with the
consolidated financial statements and related notes thereto in the Company's
Form 10-KSB for the six months ended March 31, 1998.
Certain numbers in the comparative periods ended September 30, 1997 have been
reclassified to conform to the presentation for the three and six months ended
September 30, 1998.
The results of operations for the six months ended September 30, 1998 and 1997
are not necessarily indicative of the results to be expected for the full year.
Note B - Acquisitions and Related Parties
Effective July 1, 1998, the Company acquired Applied Retail Solutions, Inc.
("ARS"), a San Diego based company specializing in point of sale software
systems. The acquisition was accomplished via a merger with a newly-formed,
wholly-owned subsidiary of the Company. The Company issued a total of 250,000
shares of common stock at $4.00 per share to the former owners of ARS as merger
consideration, and paid a total of $1,926,000 to the two principals of ARS for
entering into two-year employment and four-year non-compete agreements. In
addition, the Company issued 750,000 shares which were placed in escrow and are
subject to return to the Company if certain profit and license fee targets for
ARS for the twelve month periods ending March 31, 1999 and March 31, 2000,
respectively, are not achieved. The Company also agreed to issue additional
shares of common stock, valued at up to $2,000,000 based upon the fair market
value at the time of issuance, if certain profit and license fee targets for ARS
for the twelve month periods ending March 31, 1999 and March 31, 2000,
respectively, are exceeded.
Effective July 1, 1998, IBIS Systems Pty. Limited ("IBIS"), a wholly-owned
subsidiary located in United Kingdom, acquired Quest Software Limited ("Quest"),
a United Kingdom corporation, for 170,000 British pounds (US $284,000). In
connection with the acquisition, the Company granted the former owner of Quest
options to purchase 205,000 shares of the Company's common stock at $5.00 per
share as consideration for entering into a three-year employment agreement.
105,000 of these options are immediately exercisable and will expire after two
years. The remaining 100,000 options will be exercisable only to the extent the
pre-tax profits of Quest for the twelve months ending July 31, 1999 exceed
certain targets.
Effective July 1, 1998, IBIS also acquired Open Support Limited ("open"), a
United Kingdom corporation, for 100,000 British pounds (US $167,000), net of
prepayment charges of 103,000 British pounds (US $172,000). In connection with
the acquisition, the Company granted the former owner of Open options to
purchase up to 200,000 shares of the Company's common stock at $5.00 per share
as consideration for entering into a three-year employment agreement. The
options will be exercisable only to the extent the pre-tax profits of Open for
the twelve months ending March 31, 1999 exceed certain targets.
<PAGE> 7
Effective April 1, 1998, Divergent Technologies Pty. Ltd., a wholly-owned
subsidiary located in Australia, acquired Triple-S Computers Pty. Limited
("Triple-S") of Cape Town, South Africa, by assignment from the Company's
majority stockholder, for the consideration of R 3,200,000 (US$ 635,000).
Triple-S develops and installs computerized point of sale retail systems
throughout southern Africa.
Effective April 1, 1998, IBIS acquired the service division of Todds of Lincoln
Limited for the consideration of 125,000 pounds (US$ 210,000) and 52,000 shares
of the Company's common stock. Under the terms of the purchase agreement, Todds
of Lincoln is entitled to additional consideration based on pre-tax net income
for the acquired assets for the fiscal year ending March 31, 1999. The deferred
consideration will be paid in cash and in shares of the Company's common stock.
The results of operations for these acquisitions have been included in the
consolidated results of the Company from the respective dates of acquisition
through September 30, 1998.
Note C - Stock Options
Stock Option Plans:
Effective April 1, 1998, the Company amended its Incentive Stock Option Plan to
increase the number of shares available for issuance from 1,000,000 to
1,500,000.
On April 1, 1998, the Company granted options under the Incentive Stock Option
Plan for 412,375 shares at a weighted average exercise price of $3.24 per share.
The Company recognized expenses of $240,000 resulting from these options. On
July 29, 1998, the Company granted options under the Stock Option Plan for
38,000 shares at the fair market value of $8.00 per share.
Subsequent to September 30, 1998, the Board of Directors adopted the 1998
Incentive Stock Plan. This plan is in addition to the Company's Incentive Stock
Option Plan described above. 3,500,000 shares of common stock are reserved for
issuance under the new plan and may be issued pursuant to incentive stock
options, non-statutory options, stock bonuses, stock appreciation rights and
stock purchase agreements. The exercise price of 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 the grant, in the case of incentive stock options,
or 85% of the fair market value on the date of the grant, in the case of
non-statutory stock options. Options must vest over a period not to exceed five
years. As of the date of this report, no options or other stock awards have been
granted under the new plan.
Other Option Grants:
On July 1, 1998, the Company granted three-year options to one of its directors
to purchase 20,000 shares at $5.00 per share.
In conjunction with the acquisitions of Quest and Open, the Company granted
options to the former owners of such companies for a total of 300,000 shares of
the Company's common stock at an exercise price of $5.00 per share. These
options are exercisable based upon realization by the acquired companies of
certain profitability targets. As of September 30 ,1998, no compensation expense
has been recorded for these options. In addition, 105,000 options at an exercise
price of $5.00 per share were granted to the former owner of Quest upon signing
the employment agreement.
The Company recognized expenses of $80,277 resulting from the foregoing option
grants.
<PAGE> 8
Note D. Earnings Per Share
<TABLE>
Earnings per share for the quarters and six months ended September
30, 1998 and 1997 were as follows:
<CAPTION>
For the quarter ended September 30, 1998
(unaudited)
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 2,282,512 28,350,532 $ 0.08
============
Effect of dilutive securities options - 4,308,506
----------------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 2,282,512 32,659,038 $ 0.07
==========================================
</TABLE>
<TABLE>
<CAPTION>
For the quarter ended September 30, 1997
(unaudited)
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 647,085 15,031,458 $ 0.04
============
Effect of dilutive securities options - 1,258,742
----------------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 647,085 16,290,200 $ 0.04
==========================================
</TABLE>
<TABLE>
<CAPTION>
For the six months ended September 30, 1998
(unaudited)
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 4,395,971 28,270,526 $ 0.16
============
Effect of dilutive securities options - 3,888,430
----------------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 4,395,971 32,158,956 $ 0.14
==========================================
</TABLE>
<TABLE>
<CAPTION>
For the six months ended September 30, 1997
(unaudited)
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $ 4,285,193 14,698,492 $ 0.29
============
Effect of dilutive securities options - 1,264,663
----------------------------
Diluted EPS
Income available to common stockholders
plus assumed conversions $ 4,285,193 15,963,155 $ 0.27
==========================================
</TABLE>
750,000 shares issued to the former ARS shareholders but subject to
forfeiture are excluded from the EPS calculations for the quarter and
six months ended September 30, 1998.
<PAGE> 9
Item 2. Management's Discussion and Analysis
Introduction
SVI Holdings, Inc. (the "Company") is a provider of computer and information
technology services to specialty industries in domestic and international
markets. The Company is a holding company and operates solely through its
wholly-owned subsidiaries. The Company currently has four significant operating
subsidiaries which offer products and services in the following businesses:
point of sale and retail management computer systems; PC courseware and skills
assessment products; and general financial application software.
On July 8, 1998, the Company's common stock was approved for listing on the
American Stock Exchange under the symbol "SVI".
Acquisitions
Effective April 1, 1998, the Company's United Kingdom subsidiary, IBIS Systems
Pty. Ltd. ("IBIS"), acquired the computer service division of Todds of Lincoln
Limited for 125,000 British pounds (US$210,000) and 52,000 shares of the
Company's common stock. Under the terms of the purchase agreement, Todds of
Lincoln is entitled to additional consideration based on pre-tax net income for
the acquired assets for the fiscal year ending March 31, 1999. The deferred
consideration will be paid in cash and in shares of the Company's common stock.
This acquisition has enhanced IBIS's customer base in the U.K.
Effective April 1, 1998, a wholly-owned subsidiary of the Company's Divergent
Technologies Pty. Ltd. ("Divergent") subsidiary, acquired Triple-S Computers
Pty. Limited ("Triple-S") of Cape Town, South Africa. The acquisition was by
assignment of the acquisition agreement from Softline Limited ("Softline") and a
wholly-owned subsidiary of Softline. Softline beneficially owns approximately 60
percent of the Company's common stock. Triple-S develops and installs
computerized point of sale retail systems throughout southern Africa. The
Company reimbursed Softline for the 3,200,000 South African Rand (US$635,000)
paid by Softline for Triple-S. This acquisition has allowed Divergent to expand
its operations to the African continent.
Effective July 1, 1998, the Company acquired Applied Retail Solutions, Inc.
("ARS"), a San Diego-based company specializing in point of sale software
systems. The acquisition was accomplished via a merger with a new formed,
wholly-owned subsidiary of the Company. ARS's "Retail Solutions Package" is
installed in over 4,000 locations world-wide. The package utilizes an open
architecture and is designed to work in a client-server environment. The former
shareholders of ARS were issued 1,000,000 shares of the Company's common stock.
750,000 shares of the 1,000,000 shares issued, (the "Pledged Shares") are held
in escrow and subject to return to the Company if the sum of (X) the net profits
of ARS for the twelve months ended March 31, 1999, and (Y) the amount of
after-tax run time license fees earned by ARS during the twelve months ended
March 31, 2000, is less than $750,000. If the sum of (X) and (Y) is less than
$750,000, the number of Pledged Shares equal to one-half the dollar amount of
the short-fall will be returned to the Company. If the sum of (X) and (Y) above
is $750,000 or more, no shares will be returned to the Company, and the former
ARS shareholders will be entitled to additional merger consideration equal to
the amount that the sum of (X) and (Y) exceeds $750,000, multiplied by eight, up
to a maximum of $2 million. The additional consideration, if any, is to be paid
in shares of common stock valued at the average market value of such shares
during the thirty day period immediately preceding the final calculation of the
adjustment amount.
<PAGE> 10
In connection with the merger, the Company also paid a total of $1,926,000 to
the two principals of ARS for entering into two-year employment agreement and
four-year non-compete agreements. The source of funds for the employment and
non-compete agreements was the working capital of the Company.
Effective July 1, 1998, IBIS acquired Quest Software Limited ("Quest"), a United
Kingdom corporation, for 170,000 British pounds (US $284,000). In connection
with the acquisition, the Company granted the former owner of Quest options to
purchase 205,000 shares of the Company's common stock at $5.00 per share as
consideration for entering into a three-year employment agreement. 105,000 of
these options are immediately exercisable and will expire after two years. The
remaining 100,000 options will be exercisable only to the extent the pre-tax
profits of Quest for the twelve months ending July 31, 1999 exceed certain
targets.
Effective July 1, 1998, IBIS also acquired Open Support Limited ("Open"), a
United Kingdom corporation, for 100,000 British pounds (US $167,000), net of the
prepayment charges of 103,000 British pounds (US $172,000). In connection with
the acquisition, the Company granted the former owner of Open options to
purchase up to 200,000 shares of the Company's common stock at $5.00 per share
as consideration for entering into a three-year employment agreement. The
options will be exercisable only to the extent the pre-tax profits of Open for
the twelve months ending March 31, 1999 exceed certain targets.
Stock Option Plans
Effective April 1, 1998, the Board of Directors approved an amendment to the
Company's Incentive Stock Option Plan (the "1989 Plan") increasing the number of
shares of common stock authorized under the Plan to 1,500,000 from 1,000,000. On
the same date, the Company granted options under the Plan for 347,000 shares of
common stock at an exercise price of $3.00 per share and 65,375 shares at an
exercise price of $4.54 per share. On July 29, 1998, the Company granted options
for an additional 38,000 shares at an exercise price of $8.00 per share.
On October 5, 1998, the Board of Directors approved a new plan entitled the 1998
Incentive Stock Plan (the "1998 Plan"). The 1998 Plan is in addition to the
1989 Plan. The 1998 Plan authorizes 3,500,000 shares to be issued pursuant to
incentive stock options, non-statutory options, stock bonuses, stock
appreciation rights or stock purchase agreements. As of the date of this report,
the Company has not granted any options or other stock awards under the 1998
Plan.
The Company is seeking shareholder approval for the 1998 Plan and for the
increase in authorized shares under the 1989 Plan its annual meeting of
stockholders scheduled for November 2, 1998.
<PAGE> 11
Cautionary Statement Regarding Forward-Looking Statements
Certain statements contained in this report regarding matters that are not
historical facts are forward-looking statements. 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, competition, fluctuations in currency exchange rates, the demand for
the Company's products and services internationally, especially in the United
Kingdom, Australia and South Africa, and other risk factors identified from time
to time in the Company's filings with the Securities and Exchange Commission.
The Company urges readers to review the risk factors listed in the Company's
Transition Report on Form 10-KSB for the six months ended March 31, 1998.
The Company undertakes no obligation to release publicly any revisions to
forward-looking statements to reflect events or circumstances after the date of
this report or to reflect the occurrence of unanticipated events.
Results of operations
The following table sets forth, for the periods indicated, the relative
percentages of certain income and expense items to net sales:
<PAGE> 12
<TABLE>
SVI Holdings, Inc. Consolidated
<CAPTION>
Three months ended September 30,
-----------------------------------------------------------
1998 1997
Amount Percentage Amount Percentage
------------------------- -------------------------
<S> <C> <C> <C> <C>
Net sales $ 8,100,000 100% $ 4,175,000 100%
Cost of sales 1,474,000 18% 1,266,000 30%
------------------------- -------------------------
Gross profit 6,626,000 82% 2,909,000 70%
Selling, general and administrative
expenses 4,138,000 51% 1,972,000 47%
Other income (excluding gain on
sale of Softline Limited shares) 818,000 10% 188,000 5%
------------------------- -------------------------
Income before taxes 3,306,000 41% 1,125,000 27%
Income tax provision 1,023,000 13% 701,000 17%
------------------------- -------------------------
INCOME FROM CONTINUING OPERATIONS 2,283,000 28% 424,000 10%
Gain on sale of Softline Limited shares - 0% 223,000 5%
------------------------- -------------------------
NET INCOME $ 2,283,000 28% $ 647,000 15%
========================= =========================
BASIC EARNINGS PER SHARE:
Continuing operations $ 0.08 $ 0.03
Gain on sale of Softline shares - 0.01
------------ -----------
$ 0.08 $ 0.04
============ ===========
DILUTED EARNINGS PER SHARE:
Continuing operations $ 0.07 $ 0.03
Gain on sale of Softline shares - 0.01
------------ -----------
$ 0.07 $ 0.04
============ ===========
</TABLE>
<PAGE> 13
<TABLE>
SVI Holdings, Inc. Consolidated
<CAPTION>
Six months ended September 30,
-----------------------------------------------------------
1998 1997
Amount Percentage Amount Percentage
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Net sales $ 16,571,000 100% $ 6,504,000 100%
Cost of sales 3,113,000 19% 1,884,000 29%
------------------------- --------------------------
Gross profit 13,458,000 81% 4,620,000 71%
Selling, general and administrative
expenses 8,403,000 51% 3,505,000 54%
Other income (excluding gain on
sale of Softline Limited shares) 1,008,000 6% 175,000 3%
------------------------- --------------------------
Income before taxes 6,063,000 37% 1,290,000 20%
Income tax provision 1,667,000 10% 826,000 13%
------------------------- --------------------------
INCOME FROM CONTINUING OPERATIONS 4,396,000 27% 464,000 7%
Gain on sale of Softline Limited shares - 0% 3,821,000 59%
------------------------- --------------------------
NET INCOME $ 4,396,000 27% $ 4,285,000 66%
========================= ==========================
BASIC EARNINGS PER SHARE:
Continuing operations $ 0.16 $ 0.03
Gain on sale of Softline shares - 0.26
------------ ------------
$ 0.16 $ 0.29
============ ============
DILUTED EARNINGS PER SHARE:
Continuing operations $ 0.14 $ 0.03
Gain on sale of Softline shares - 0.24
------------ ------------
$ 0.14 $ 0.27
============ ============
</TABLE>
<PAGE> 14
The Company reports a consolidated net income of $2,283,000 and $647,000 for the
quarters ended September 30, 1998 and 1997, respectively. The results for the
quarter ended September 30, 1997 included a gain of $223,000 from the sale of
Softline shares. Income from continuing operations (excluding the Softline gain)
for the quarter ended September 30, 1997 was $424,000. The quarter ended
September 30, 1998 results therefore represent an increase of $1,859,000, or
438%, in net income from continuing operations, compared to the quarter ended
September 30, 1997.
The Company also reports a consolidated net income of $4,396,000 and $4,285,000
for the six months ended September 30, 1998 and 1997, respectively. The results
for the 1997 period included a gain of $3,821,000 from the sale of Softline
shares. Excluding this gain, net income from continuing operations for the six
months ended September 30, 1997 was $464,000. The six months ended September 30,
1998 results therefore represent an increase of $3,932,000, or 847%, in net
income from continuing operations compared to the six months ended September 30,
1997.
Net sales increased by $3,925,000, or 94%, for the three months ended September
30, 1998, to $8,100,000, compared to $4,175,000 for the comparable period ended
September 30, 1997. This increase is primarily attributable to the following:
- Inclusion in net sales of $3,867,000 generated from IBIS, which was
acquired in October 1997.
- Inclusion in net sales of $850,000 generated from ARS, which was
acquired as of July 1, 1998.
The increase was offset by a decrease in net sales generated by Divergent of
$946,000 for the quarter ended September 30, 1998 compared to the same period of
1997. Divergent sales for the 1997 period included revenue generated from
several large, national level contracts which did not generate revenues during
most of the 1998 period.
Net sales for the six months ended September 30, 1998 increased by $10,067,000,
or 155%, to $16,571,000 from $6,504,000 for the comparable period ended
September 30, 1997. In addition to the reasons discussed above, the increase in
net sales for the six month period reflects the inclusion of IBIS sales in the
first quarter of fiscal 1998 and a net increase in Divergent's sales for the six
month period ended September 30, 1998 of $824,000 compared to the six months
ended September 30, 1997.
Cost of sales for the quarters ended September 30, 1998 and 1997 were $1,475,000
and $1,266,000, respectively. The $209,000, or 16%, increase reflected increased
sales. Gross profit increased $3,716,000, or 128%, to $6,626,000 in the 1998
period, compared to $2,909,000 in the 1997 period. Gross profit increased as a
percentage of sales from 70% for the 1997 period to 82% for the 1998 period,
primarily due to a shift in total sales mix from lower margin hardware contracts
to higher margin service contracts. This is primarily attributable to the
inclusion of IBIS and ARS.
Cost of sales increased $1,229,000, or 65%, to $3,113,000 for the six months
ended September 30, 1998 from $1,884,000 for the comparable period in 1997.
Gross profit increased $8,838,000, or 191%, to $13,458,000 for the six months
ended September 30, 1998 from $4,620,000 for the comparable period ended
September 30, 1997. As a percentage of sales, gross profit increased from 71%
for the six months ended September 30, 1997 to 81% for the comparable period in
1998 again due to the inclusion of IBIS and the increased service components of
customer contracts.
Selling, general and administrative expenses for the three months ended
September 30, 1998 were $4,138,000 compared to $1,972,000 for the three months
ended September 30, 1997, representing an increase of $2,166,000, or 110%.
Selling, general and administrative expenses increased $4,898,000, or 140%, to
$8,403,000 for the six months ended September 30, 1998 from $3,505,000 for the
comparable period in 1997. The increases in expenses were due to growth in the
Company's operations including acquisitions.
<PAGE> 15
During the three month period ended September 30, 1998, selling, general and
administrative expenses increased as a percentage of sales to 51%, compared to
47% for the three month period ended September 30, 1997. This increase was
primarily due to costs associated with the rapid integration of ARS, Quest and
Open into the operations of the Company. For the six month periods ended
September 30, 1998 and 1997, selling, general and administrative expenses
decreased as a percentage of sales from 54% to 51%. The Company believes that
selling, general and administrative expenses will decrease in future periods as
the new operations become fully integrated and the Company realizes anticipated
economics of scale.
Pre-tax income from continuing operations (excluding the sale of Softline
shares) increased by $2,181,000, or 194%, to $3,306,000 for the quarter ended
September 30, 1998 from $1,125,000 for the comparable period in 1997. The
increase is primarily due to the acquisitions of IBIS and ARS.
For the six months ended September 30, 1998, pre-tax income from continuing
operations (excluding the sale of Softline shares) increased by $4,773,000, or
370%, to $6,063,000, from $1,290,000 for the six months ended September 30,
1997, again due primarily to the acquisitions of IBIS and ARS.
For the three and six months ended September 30, 1997, the Company recorded a
gain of $223,000 and $3,821,000, respectively, on sales of Softline shares. The
sales of the Softline shares yielded proceeds of $5,865,000.
Basic earnings per share for the quarters ended September 30, 1998 and 1997 were
$0.08 and $0.04 per share, respectively. The basic earnings per share for the
quarter ended September 30, 1997 included $0.01 per share from the sale of
Softline shares. The basic earnings per share therefore represent an increase of
$0.05 per share over the comparable quarter of 1997 if the non-recurring sale of
Softline shares is excluded. This increase is attributable to the Company's
expanded operations through acquisitions.
Diluted earnings per share for the quarters ended September 30, 1998 and 1997
were $0.07 and $0.04 per share, respectively. The quarter ended September 30,
1997 diluted earnings per share included $0.01 per share from the sale of
Softline shares.
Basic earnings per share for the six months ended September 30, 1998 and 1997
were $0.16 and $0.29 per share, respectively. The basic earnings per share for
the six months ended September 30, 1997 included $0.26 per share from the sale
of Softline shares. Excluding this non-recurring item, the basic earnings per
share represent an increase of $0.13 per share over the comparable period in
1997.
Diluted earnings per share for the six months ended September 30, 1998 and 1997
were $0.14 and $0.27, respectively. The diluted earnings per share for the
period ended September 30, 1997 included $0.24 per share from the sale of
Softline shares.
Liquidity and Capital Resources
At September 30, 1998, the Company had cash of $10,473,000, a decrease of
$3,995,000 from $14,469,000 of cash at March 31, 1998. The significant uses of
cash were as follows:
- Income tax payments of $1,706,000;
- Payment for ARS acquisition of $1,394,000; and
- Payments for other acquisitions of $656,000.
The Company believes it has sufficient cash to meet its working capital needs
for the next twelve months.
The Company expects to continue its strategy of seeking acquisition
opportunities within its target profile of companies with advanced technologies
and market leadership in specialty areas of information technology. There can be
no assurance that any such acquisition opportunities will be available on terms
acceptable to the Company, or that any such acquisitions will ultimately be
consummated.
<PAGE> 16
Year 2000 Issues
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish 21st
century dates from 20th century dates. As a result, many software and computer
systems, including machines controlled by microprocessors, may need to be
upgraded or replaced in order to comply with such "Year 2000" requirements.
In general, the Company's operating subsidiaries are reliant on software
developed internally. The Company believes that no significant Year 2000 issues
exist with these internal systems and services.
Although the Company believes that its systems are generally Year 2000
compliant, the Company utilizes third-party equipment and software that may not
be Year 2000 compliant. For this reason, the Company has implemented a four step
plan to address its Year 2000 issues, consisting of (i) assessing Year 2000
readiness; (ii) remediating non-compliant hardware and software; (iii) testing
remediated hardware and software; and (iv) certifying Year 2000 compliance.
Personnel from each operating subsidiary as well as outside consultants have
been involved in the process. Senior management of the Company is coordinating
the effort.
Communications with customers and suppliers to determine their Year 2000 issues
are an integral part of the program. The Company is currently reviewing vendor
contracts and intends to request certification from each vendor that its
products are Year 2000 compliant.
Assessment activities are estimated at approximately 70% complete. Assessment
data is continuously updated as new information becomes available. Overall
remediation efforts are estimated at 40% complete.
Because the assessment process is not yet complete, the Company cannot yet
accurately estimate the costs and risks that will be associated with Year 2000
assessment and remediation. As of the date of this report, the Company has
identified necessary remediation efforts which are estimated to cost $335,000.
It is probable that this estimate will increase as the Company collects further
assessment data. Costs for Year 2000 compliance are not being accounted for
separately. Much of the cost is being accounted for as part of normal operating
budgets. Overall, the costs are not expected to have a significant effect on the
Company's consolidated financial position or results of operations.
In the event that any of the Company's significant suppliers or customers do not
successfully and timely achieve Year 2000 compliance, the Company's business or
operations could be adversely affected. This could result in system failures or
generation of erroneous information and could cause significant disruption of
business activities. In the event the Company does not fully identify and
correct all Year 2000 problems in the products marketed by its subsidiaries,
those subsidiaries could become subject to warranty claims or returns, which
could have an adverse effect on financial performance. Moreover, the Company's
subsidiaries could become subject to warranty claims, with or without merit,
returns and/or increased customer support expenses if the computer systems of
customers are not able to properly integrate the Company's products due to
customers' internal Year 2000 problems. Finally, Year 2000 problems could have a
ripple effect through world economies which could adversely affect the demand
for some or all of the Company's products and services.
The former shareholders of ARS have represented that ARS's express written
warranties to customers concerning Year 2000 compliance for ARS's products and
services are accurate, and such shareholders have agreed to indemnify the
Company in the event this representation proves not to be accurate, up to the
full value of the consideration paid or to be paid by the Company in the
acquisition of ARS. The Company has no similar commitments with respect to its
other operating subsidiaries.
The Company intends as part of the certification process to have each of its
operating subsidiaries perform a Year 2000 "dry run," where the dates on all
computers and microprocessor-controlled equipment are set ahead to a date within
the year 2000, and the Company hopes that such dry runs will identify all
remaining internal Year 2000 issues before problems occur. These procedures will
not however identify external Year 2000 problems, and they will not provide any
information as to how Year 2000 problems throughout world economies may affect
the Company. The Company intends to create a contingency plan to address these
latter types of risks, but it has not yet done so.
<PAGE> 17
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
During the quarter ended September 30, 1998, the Company issued the following
securities:
- - An aggregate of 1,000,000 shares of common stock to the former ARS
shareholders as consideration for the merger of ARS with a wholly-owned
subsidiary of the Company.
- - Options to purchase 205,000 shares of common stock to the former owner of
Quest as consideration for entering into a three-year employment
agreement. Options for 105,000 shares are exercisable for two years at an
exercise price of $5.00 per share. Options for the remaining 100,000
shares of common stock are exercisable at $5.00 per share only to the
extent that certain profitability targets of Quest are achieved.
- - Options to purchase 200,000 shares of common stock to the former owner of
Open as consideration for entering into a three-year employment agreement.
The options are exercisable at $5.00 per share only to the extent that
certain profitability targets of Open are achieved.
- - Options to purchase 20,000 shares of common stock to a director. The
options are exercisable for three years at an exercise price of $5.00 per
share.
- - An aggregate of 50,000 shares of common stock upon exercise of options
granted to two persons who purchased common stock in a 1996 private
placement. The exercise price of the options was $2.00 per share.
These transactions were exempt from registration under the Securities Act of
1933, as amended, pursuant to Section 4(2) of such Act.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 2.3 to 2.6, 3.1, 3.2, and 10.02 to 10.14 included in the Company's
report on Form 10-KSB for the transition period ended March 31, 1998, and
Exhibit 10.2 included in the Company's report on Form 10-QSB for the three
months ended June 30, 1998, are incorporated herein by reference.
<PAGE> 18
Exhibit Description
- ------- -----------
2.1 Agreement of Merger and Plan of Reorganization dated as of July 1,
1998 among SVI Holdings, Inc. and its wholly-owned subsidiary;
Applied Retail Solutions, Inc.; and the shareholders of Applied Retail
Solutions, Inc., incorporated by reference to Exhibit 2.1 of the Form
8-K filed on September 16, 1998.
2.2 Agreement for Sale of Business effective July 31, 1998 between IBIS
Systems Pty. Ltd. and Quest Software Limited (included herewith).
2.3 Agreement for Sale of Business effective July 31, 1998 between IBIS
Systems Pty. Ltd. and Open Support Limited (included herewith).
3.1 Amendment to Bylaws dated July 3, 1998 (included herewith).
10.1 Incentive Stock Option Plan, amended as of April 1, 1998 (included
herewith).
10.2 1998 Incentive Stock Plan (included herewith).
10.3 Employment Agreement of Sam Pickard dated as of August 27, 1998,
incorporated by reference to Exhibit 2.3 of the Form 8-K filed on
September 16, 1998.
10.4 Employment Agreement of Larry Lahodny dated as of August 27, 1998,
incorporated by reference to Exhibit 2.4 of the Form 8-K filed on
September 16, 1998.
27 Financial Data Schedule (included herewith).
(b) Reports on Form 8-K
The Company filed a report on Form 8-K on September 16, 1998 concerning the
acquisition of Applied Retail Solutions, Inc. ("ARS"), which report was amended
on Form 8-K/A to include the required financial data on October 14, 1998.
The Company filed a report on Form 8-K September 30, 1998 concerning a change in
independent auditors.
<PAGE> 19
SIGNATURES
----------
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly cause this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SVI Holdings, Inc.
Registrant
/s/ David L. Reese
-------------------------------
Date: October 30, 1998 David L. Reese
Chief Financial Officer
Signing on behalf of the registrant and as
principal financial officer.
<PAGE>
Exhibit 2.2
DATED 25TH AUGUST 1998
------------------------------------------
QUEST SOFTWARE LIMITED
AND
QUEST SOFTWARE (SCOTLAND) LIMITED
AND
IBIS SYSTEMS LIMITED
AND
SIMON CARTER
---------------------------------------------------
AGREEMENT FOR SALE OF BUSINESS
---------------------------------------------------
Beale And Company
Garrick House
27-32 King Street
Covent Garden
London
Wc2e 8Jd
Tel: 0171 240 3474
Fax: 0171 240 9111
Dx: 51632 Covent Garden
E-mail [email protected]
<PAGE>
REF: MJA/VHT/I5.31
JULY 1998
<PAGE>
AGREEMENT FOR SALE OF BUSINESS
------------------------------
DATE: 25TH AUGUST 1998
PARTIES:
1. "The Vendor" Quest Software Limited registered in England and Wales
under registration no: 2526420 whose registered office is at 5 The
Windmills Turk Street Alton Hants GU34 1EF and Quest Software
(Scotland) Limited registered in England and Wales under registration
number 3408121 whose registered office is at 5 The Windmills as
aforesaid
2. "The Purchaser" Ibis Systems Limited (registered no: 3410598) whose
registered office is at 2 Twyford Place, Lincolns Inn, Cressex, High
Wycombe, Buckinghamshire HP12 3RE
3. "The Guarantor" Simon Carter of 5 Appleton View East Tisted Alton Hants
GU34 3QG
OPERATIVE PROVISIONS:
1. INTERPRETATION
1.1. In this agreement the following words and expressions have the
following meanings, unless they are inconsistent with the context:
"Accounts Date" means the 31st December 1996
"Agents" means the persons whose details are set out in Schedule 4
who, at the Effective Time are engaged by the Vendor in
relation to the Business pursuant to various Agency
Agreements referred to in the Disclosure Letter
<PAGE>
"Assets" means the property, assets and rights of the Business to be
purchased by the Purchaser as described in clause 2.1
"Book Debts" means the trade debts owed to the Vendor at the Effective
Time in connection with the Business
"Business" means the business of selling computer software and hardware
and providing telephone support for the computer software and
hardware to customers as carried on by the Vendor up to the
Effective Time
"Cash Float" means any cash in hand for the purpose of reimbursing
out-of-pocket expenses in connection with the Business and
any cash balances held at the Vendor's bank at the Effective
Time
"Completion" means the completion of the sale and purchase of the Assets
in accordance with clause 4
"Computer Equipment" means the equipment listed in Part I of Schedule I
"Computer Software" means that computer software written by the Vendor listed in
Part II of Schedule I together with the following relating to
such software (a) all copies of the source code (b) the
programmer's notes as to the design of the code and the steps
taken to supplement functions of the programs (c) logic
manuals and flow charts and user manuals and (d) original
specification and design objectives
"Contracts" means all current contracts and engagements entered into or
orders made prior to the Effective Time by or on behalf of
the Vendor in each case which remain (in whole or in part) to
be performed at or after the Effective Time as the same are
set out or referred to in Part III of Schedule I and shall
include the benefit of any causes of action against the other
contracting party to such Contracts arising under such
Contracts other than the Book Debts which shall have accrued
prior to the Effective Time
<PAGE>
"Creditors" means the aggregate amount owed by the Vendor in connection
with the Business to or in respect of trade creditors and
accrued charges as recorded in the books of account of the
Business as at the Effective Time but not including
liabilities for value added tax or taxation on profits or
chargeable gains
"Customer List" means the record of names addresses and contact details of
all current customers of the Business as the same are set out
or referred to in Part IV of Schedule I and of all prior
customers of the Business or any part thereof of which the
Vendor has records and whether stored electronically or in
documentary or other form and including such software access
or pass codes as are required to enable such information to
be read and utilised
"Disclosures" means the disclosures set out in a disclosure letter of
today's date from the Vendor to the Purchaser relating to the
warranties set out in this agreement and the Schedules
"Effective Time" means the close of business on 31st July 1998
"Employees" means the persons whose details are set out in Schedule 4
who, at the Effective Time, are employed by the Vendor and
whose duties relate to the Business
"Excluded Assets" means those assets listed in Schedule 2 being assets which
are not to be transferred to the Purchaser
"Goodwill" means the goodwill of the Vendor in relation to the Business
and attaching to the Intellectual Property Rights and the
Contracts, together with the exclusive right for the
Purchaser or its assignee to represent itself as carrying on
the Business in succession to the Vendor, and the irrevocable
and exclusive right to use all trade names logos and designs
used by the Vendor in relation to the Business at the
Effective Time
<PAGE>
"Information" means all information owned by the Vendor or which the Vendor
is entitled to use and pass to the Purchaser and which (in
either case) is reasonably required for the operation of the
Business including information relating to the supply of work
and materials to the Business, to the marketing of any
products or services supplied by the Business including (to
the extent they exist) sales targets, sales statistics,
marketing surveys and reports, marketing research, all
training manuals and other materials relating to training of
Customers or Employees on computer software products, any
advertising or other promotional materials and all records
and the database relating to modifications to software
carried out for customers of the Business
<PAGE>
"Intellectual Property
Rights" means all intellectual property rights owned by the Vendor
and used in or for the purpose of the Business including
service marks, trade marks, registered designs and copyrights
in any part of the world whether registered or unregistered
and including all applications and rights to register the
same and the copyright in all drawings, plans,
specifications, designs and computer software and all
know-how and confidential information, the registered rights
being as listed in Part V of Schedule 1
"The Lease" means the lease of the Premises dated 2nd December 1996 made
between G F Carter, E Carter and S C Carter (1) and the
Vendor (2) as amended by a Deed of Variation between the
parties dated 24TH AUGUST 1998
"Liabilities" means the liabilities of the Business (other than the
Creditors) outstanding at the Effective Time
"Licensed Software"means all software licensed by third parties which is used in
the Business as the same is listed in Part VII of Schedule 1
"Office Equipment" means all the office furniture and other equipment used by
the Vendor in the Business as set out in Part VIII of
Schedule 1
"Planning Acts" means as defined in the Town and Country Planning Act 1990
s336
"Premises" means the premises comprised within the Lease and known as 5
The Windmills Turk Street Alton Hampshire
<PAGE>
"Principal Accounts" means the audited balance sheet as at the Accounts Date
audited profit and loss account for the year ended on the
Accounts Date of the Vendor, including the directors' report
and notes
"Purchaser's Solicitors" means Beale and Company of Garrick House, 27-32 King
Street, Covent Garden, London WC2E 8JD (Tel: 0171 240 3474
ref: MJA)
"Regulations" means the Transfer of Undertakings (Protection of Employment)
Regulations 1981
"Vendor's Solicitors" means Penningtons of 9 London Road Newbury Berkshire RG14
1DH (ref: MF)
"Stocks" means the stocks including raw materials and finished goods
owned by the Vendor at the Effective Time for the purposes of
or in connection with the Business including those which,
although subject to reservation of title by the Sellers, are
under the control of the Vendor
"Warranties" means the warranties and undertakings of the Vendor contained
in this agreement and the Schedules
"Warranty Claim" means any claim made by the Purchaser for breach of any of
the Warranties
"Work in Progress" means the value of any work carried out in the Business by
the Vendor which has not been invoiced to customers as at the
Effective Time
1.2 all references to statutory provisions shall be construed as including
references to:
1.2.1 any statutory modification, consolidation or re-enactment;
<PAGE>
1.2.2 all statutory instruments or orders made pursuant to it;
1.2.3 any statutory provisions of which it is a modification,
consolidation or re-enactment;
in each case made or enacted at or before the Effective Time
1.3 except where the context otherwise requires, words denoting the
singular include the plural and vice versa; words denoting any gender
include all genders; words denoting persons include firms and
corporations and vice versa;
1.4 unless otherwise stated, a reference to a clause, sub-clause or
Schedule is a reference to a clause or a sub-clause of, or a Schedule
to, this agreement;
1.5 clause headings are for ease of reference only and do not affect the
construction of this agreement.
1.6 1.6.1 The liabilities of the two companies comprised within the
definition "Vendor" shall be joint and several
1.6.2 Any reference to any right or asset of whatever nature or to
any liability or obligation of whatever nature of the Vendor
shall be a reference to any right or asset or liability or
obligation (as the case may be) of that one of the two
companies comprised within the definition "the Vendor" as shall
be appropriate to the case.
2. AGREEMENT FOR SALE
2.1 Subject to the terms and conditions of this agreement, the Vendor shall
sell to the Purchaser with full title guarantee and the Purchaser
relying on the Warranties and the indemnities contained in clauses 6.4,
6.6 and 7.2 shall purchase with effect from the Effective Time:
2.1.1 the Business as a going concern; and
2.1.2 all the following assets and rights owned by the Vendor and
used in the conduct of the Business or which are used in the
Business and are under the control of the Vendor pursuant to
any contract and by that contract will vest in the Vendor
subject only to payment of any unpaid monies due to any party:-
<PAGE>
(a) the Goodwill;
(b) the Customer List;
(c) the Computer Equipment;
(d) the Computer Software;
(e) the Office Equipment;
(f) the Work in Progress;
(g) the benefits (subject to the burdens as provided under clauses 7.1 and
7.2) of the Contracts;
(h) the Intellectual Property Rights;
(i) the Information;
(j) the Stocks;
(k) (to the extent transferable) all the rights of the Vendor against
suppliers and third parties with respect to materials merchandise or
services purchased by the Vendor from them in connection with the
Business including without limitation all rights whether accrued or not
at the Effective Time that the Vendor has or may have arising under AN
AGREEMENT DATED 17TH MAY 1996 MADE BETWEEN THE DEVELOPMENT CENTRE
LIMITED (1) THE VENDOR (2) AND SIMON CHARLES CARTER (3)
but not for the avoidance of doubt) the Excluded Assets
2.2 Title to and risk in the Assets shall vest in the Purchaser at the
Effective Time with title having passed to the Purchaser as regards
those assets in item 2.1.2(a), (f), (g), (h) and (k) by virtue of this
agreement and as regards those assets in 2.1.2 (b), (c), (d), (e), (i)
and (j) by virtue of the delivery of the same into the possession of
the Purchaser. To the extent not delivered, assets shall be held on
trust by the Vendor for the Purchaser absolutely.
<PAGE>
2.3 The Vendor shall be deemed to have carried on the Business from the
Effective Time until Completion in all respects as the agent of the
Purchaser. All profits and losses of the Business during that period
shall be for the account of the Purchaser, and the Purchaser shall
fully and effectively indemnify the Vendor against any losses sustained
during that period and against all other actions, claims, costs,
damages and proceedings arising out of the carrying on of the Business
during that period.
3. PURCHASE CONSIDERATION
3.1 The consideration for the sale by the Vendor of the Business and the
Assets shall be the sum of 170,000 UKP (one hundred and seventy
thousand pounds). The consideration shall be apportioned as follows:
Apportionment
-------------
(a) the Goodwill 99,993 UKP
(b) the Customer List 1 UKP
(c) the Computer Equipment 43,000 UKP
(d) the Computer Software 1 UKP
(e) the Office Equipment 20,000 UKP
(f) the Work in Progress 1 UKP
(g) the Contracts 1 UKP plus the benefit of the
Purchaser's covenant in
clause 7
(h) the Intellectual Property Rights 1 UKP
(i) the Information 1 UKP
(j) the Stocks 7,000 UKP
(k) the Rights 1 UKP
--------
TOTAL: 170,000 UKP
--------
<PAGE>
3.2 The consideration is exclusive of Value Added Tax on the basis that the
sale constitutes the sale of a business as a going concern pursuant to
the Value Added Tax (Special Provisions) Order 1995.
3.3 The consideration shall be satisfied in cash upon completion of the
purchase in accordance with clause 4.
4. COMPLETION
4.1 The sale and purchase shall be completed immediately upon exchange of
this agreement when all the matters set out in this clause 4 shall be
effected.
4.2 The Vendor shall deliver to the Purchaser, at the Premises such of the
Assets as are capable of being transferred by delivery.
4.3 The Vendor shall cause to be delivered or (if so requested by the
Purchaser) made available to the Purchaser:
4.3.1 such documents (if any) and in such form as shall have been
agreed between the Purchasers Solicitors and the Vendors
Solicitors prior to the signing of this agreement and as are
required by the Purchaser's solicitors to complete the sale and
purchase of the Assets and vest title to the Assets in the
Purchaser;
4.3.2 all its books of account, payroll records, income records,
stock and other records, information relating to customers and
suppliers (including a list of customers to which outstanding
quotations have been given and a list of unfulfilled orders as
at the Effective Time), relevant computer programmes (including
all copies of the source code installed on a computer which is
part of the Assets to be purchased hereunder) and other books
and documents which relate to such programmes and the Business.
4.3.3 all its designs and drawings, plans, instructional and
promotional material, sales publications, advertising
materials, terms and conditions of sale and other technical
material and sales matter which relate to the Business,
together with any plates, blocks, negatives and similar
material relating to them;
<PAGE>
4.3.4 all records of National Insurance and PAYE relating to all the
Employees duly completed and up to date;
4.3.5 the Lease together with an executed (but unstamped) Deed of
Assignment by the Vendor to the Purchaser of the Lease and the
Landlord's consent to the assignment thereby effected;
4.3.6 a Contract of Employment between the Purchaser and Simon Carter
of 5 Appleton View East Tisted Alton Hampshire signed by the
said Simon Carter.
4.4 Upon completion of the matters referred to above the Purchaser shall:
4.4.1 deliver to the Vendor a banker's draft in respect of the
purchase consideration; and
4.4.2 deliver to the said Simon Carter a duplicate copy of the
Contract of Employment referred to in clause 4.3.6 duly signed
by a director of the Purchaser.
4.4.3 deliver to the Vendor a duplicate copy of the Deed of
Assignment REFERRED TO IN CLAUSE 4.3.5.
4.5 The Purchaser shall not be obliged to complete the purchase of any of
the Assets unless the purchase of all the Assets is completed in
accordance with this agreement.
4.6 The Purchaser may in its absolute discretion waive any requirement
contained in clause 4.2 or 4.3.
<PAGE>
5. DEBTORS
5.1 The Vendor shall be entitled to collect the Book Debts and the
Purchaser agrees to give all reasonable assistance to the Vendor to
enable the Vendor to collect the Book Debts.
5.2 Any sums received by the Purchaser in respect of any Book Debts shall
be held on trust by the Purchaser for the Vendor.
5.3 The Purchaser shall account to the Vendor within 14 days of receipt for
any sums received by it in respect of any of the Book Debts.
5.4 If it becomes apparent that recovery of any of the Book Debts is not
likely to be possible within a reasonable period unless legal
proceedings are instituted, the Vendor will consult with the Purchaser
before instituting any legal proceedings.
5.5 Subject to any express intention to the contrary on the part of the
debtor, any money received by either party from a person who is both
indebted to the Purchaser and liable for payment of one or more of the
Book Debts shall be deemed to have been paid in or towards discharge of
the oldest debt, regardless of the identity of the creditor.
5.6 The Purchaser shall for a period of 12 months give to the Vendor
reasonable access to its books and records in relation to the
collection of the Book Debts.
6. CREDITORS AND LIABILITIES
6.1 The Vendor shall forthwith following a request therefor supply to the
Purchaser full details of the Creditors.
6.2 Subject to clause 6.7 the Vendor shall be responsible for the discharge
of the Creditors and Liabilities and notwithstanding completion of the
purchase of the Business shall be responsible (subject as aforesaid)
for all debts payable by and claims outstanding against it at the
Effective Time including all wages, sums payable under taxation
statutes, rent and other expenses.
<PAGE>
6.3 Without prejudice to the generality of clause 6.2 but subject as
therein mentioned:
6.3.1 the Vendor shall remain liable for claims by third parties in
respect of any service supplied or products sold by the Vendor
or any act or omission of the Vendor prior to the Effective
Time or arising from defective products or parts of products
manufactured by the Vendor, even if the defective products or
parts were sold by the Purchaser provided (in such case) they
are sold in the 12 months following completion;
6.3.2 upon becoming aware of any relevant claim the Purchaser will
promptly give notice of it to the Vendor and neither party
shall take any steps which might reasonably be expected to
damage the commercial interests of the other without prior
consultation with the other.
6.4 The Vendor shall indemnify the Purchaser from and against all
liabilities debts and claims referred to under clause 6.2 and 6.3.1 and
such indemnity shall extend to the amount of any settlement of a claim
(including reasonable costs) made by the Purchaser with the approval of
the Vendor.
6.5 The Purchaser shall take all reasonable preventive action with a view
to avoiding claims under clause 6.3.1 (including, without limitation
repair and replacement) and provided such action has first been
discussed and approved by the Vendor (such approval not to be
unreasonably withheld or delayed) the Vendor shall bear the cost of
that action.
6.6 Save for such liabilities as the Purchaser agrees expressly to assume
under this agreement, the Purchaser shall not assume any liability of
or relating to the Business in existence at the Effective Time and
nothing in this agreement shall make the Purchaser liable in respect of
anything done or omitted to be done prior to the Effective Time by the
Vendor.
6.7 The Purchaser has been notified by the Vendor and accepts that in
certain respects the Computer Software is not Year 2000 compliant and
to that extent, the Vendor may have been in breach of representations
and other contractual obligations to its customers. The Purchaser will
use best endeavours after Completion to remedy the defects in the
Computer Software relating to Year 2000 compliance and thereafter to
notify all relevant customers and supply them free of charge with
supplemental software remedying the defects.
<PAGE>
7. CONTRACTS
7.1 The Purchaser shall:
7.1.1 accept assignments from the Vendor of or join with the Vendor
in procuring a novation of the Contracts; and
7.1.2 carry out perform and discharge all the obligations and
liabilities created by or arising under the Contracts after the
Effective Time except for any obligations and liabilities
(other than as referred to in clause 6.7) attributable to a
breach on the part of the Vendor or arising prior to the
Effective Time.
7.2 The Purchaser shall indemnify the Vendor against all actions,
proceedings, costs, damages, claims and demands in respect of any
failure on the part of the Purchaser to carry out, perform and
discharge all the obligations and liabilities created by or arising
under the Contracts (except as provided under 7.1.2) to the extent that
they fall to be carried out, performed and discharged after the
Effective Time. The Vendor shall indemnify the Purchaser against all
actions, proceedings, costs, damages, claims and demands other than
those in respect of or arising out of the matters referred to in clause
6.7 to the extent that the same are attributable to any failure on the
part of the Vendor to carry out, perform and discharge all the
obligations and liabilities created by or arising under the Contracts
in the period up to the Effective Time to the extent that they fall to
be carried out, performed and discharged up to the Effective Time.
7.3 Insofar as the benefit of any of the Contracts cannot effectively be
assigned to the Purchaser except by an agreement or novation with, or
consent to the assignment from, the person, firm or company concerned:
(a) the Vendor shall at the Purchaser's request and expense use all
reasonable endeavours with the co-operation of the Purchaser to
procure such novation or consent to the assignment;
<PAGE>
(b) until any Contract is novated or assigned the Vendor shall hold
it and also the benefits arising under it in trust for the
Purchaser absolutely. Where the Purchaser performs such
contract it does so (provided such sub-contracting is
permissible and lawful under that Contract), as the Vendor's
sub-contractor; and
(c) until any Contract is novated or assigned the Vendor shall (so
far as it lawfully may) give all reasonable assistance to the
Purchaser (at the Purchaser's request and expense) to enable
the Purchaser to enforce its rights under that Contract.
7.4 For the purpose of obtaining the effective assignment of the Contracts
to the Purchaser the Vendor and the Purchaser agree to notify together
in writing the other parties to the Contracts on or as soon as
practicable after the Effective Time (in such form as both parties
shall agree) of the assignment of each Contract to the Purchaser to the
extent that the same are assignable to the Purchaser without the other
party's prior written consent.
7.5 The Vendor agrees that it shall, at the Purchaser's request and
expense, use all reasonable endeavours with the co-operation of the
Purchaser to procure the assignment to the Purchaser of the right to
use the Licensed Software following Completion. Following any such
assignment, the Purchaser shall perform and discharge all of the
obligations and liabilities relating to the Licensed Software imposed
by any third party including the owner of any Licensed Software save
for any that relate to the period up to the Effective Time. For the
avoidance of doubt, clauses 7.2, 7.3 and 7.4 shall apply mutatis
mutandis to the Licensed Software.
<PAGE>
8. EMPLOYEES AND AGENTS
8.1 For the purposes of Regulation 10 of the Regulations, the Vendor
warrants that it does not recognize any Trade Union as representing any
of the Employees or the Agents.
8.2 All salaries and other emoluments and obligations, including
entitlement to commission bonuses or rewards up to the Effective Time,
accrued but unpaid holiday entitlement (where holiday has not been
taken), holiday pay, accrued sick pay, tax and national insurance
payments and other contributions to retirement benefit or pension
schemes and other contractual benefits relating to the Employees and
the Agents shall be borne by the Vendor to the extent they arise in or
relate to the period up to the Effective Time.
9. VALUE ADDED TAX
9.1 The parties shall use all reasonable endeavours to procure that the
sale of the Business is deemed to be a transfer of a business as a
going concern for the purposes of the Value Added Tax Act 1994, s49 and
Schedule 4 paragraph 8(1)(a). In the event that VAT shall be payable on
the sale under this agreement (other than where such VAT has become
payable because of a breach by the Vendor of the provisions of the
first sentence of this clause) the Purchaser shall pay to the Vendor
such VAT and any penalties or interest incurred by the Vendor for late
payment of such sum, such payment to be made on delivery by the Vendor
to the Purchaser of a valid invoice in respect of such VAT.
9.2 The Vendor shall deliver to the Purchaser all the records of the
Business for value added tax purposes which are required by the Value
Added Tax Act 1994, s49(1)(b) to be preserved.
9.3 The Purchaser shall for a period of not less than 6 years from the
Effective Time preserve the records so delivered to it by the Vendor
and, upon reasonable notice, make them available to the Vendor or its
agents during normal business hours.
10. TITLE AND APPORTIONMENTS
10.1 The Vendor shall take all necessary steps reasonably required (but
shall not be required to incur any expenditure to that end) and
co-operate fully with the Purchaser to ensure that the Purchaser
obtains the full benefit of the Business and Assets and shall at the
request and expense of the Purchaser execute such documents and take
such other steps (or so far as it is reasonably able procure other
necessary parties so to do) as are reasonably necessary or appropriate
for vesting in the Purchaser all its rights and interests in the
Assets.
<PAGE>
10.2 All rents, rates, gas, water, electricity and telephone charges and
other outgoings relating to or payable in respect of the Business up to
the Effective Time shall be borne by the Vendor and as from the
Effective Time shall be borne by the Purchaser and all rents, royalties
and other periodical payments receivable in respect of the Business up
to that time shall belong to and be payable to the Vendor and as from
that time shall belong to and be payable to the Purchaser. Such
outgoings and payments receivable shall if necessary be apportioned
accordingly, provided that any such outgoings or payments receivable
which are referable to the extent of the use of any property or right
shall be apportioned according to the extent of such use.
10.3 Where any amounts fall to be apportioned under this agreement, the
Vendor shall provide the Purchaser with full details of the
apportionments, together with supporting vouchers or similar
documentation, and to the extent that the items are not in dispute the
appropriate payment shall be made by or to the Vendor forthwith. If the
amount of any apportionment is in dispute, the provisions of clause
10.4 shall apply for resolving the dispute and the amount determined in
accordance with that clause shall be paid within 14 days of the
determination, together with interest calculated on a daily basis (as
well after as before judgment), from the Effective Time until the date
of actual payment, at the rate of 4 per cent per annum above the base
rate from time to time of Midland Bank PLC.
10.4 In the case of dispute between the parties as to the amount of any
apportionment either party may refer the subject of the dispute to a
firm of chartered accountants agreed by the parties or failing
agreement within 14 days, a firm nominated at the request of either
party by the President for the time being of the Institute of Chartered
Accountants in England and Wales. The accountants shall be entitled to
call for and inspect the relevant invoices and vouchers and such other
documents as they shall consider necessary. In making their
determination the accountants shall act as experts and not as
arbitrators, their decision shall (in the absence of manifest error) be
final and binding on the parties and their fees shall be borne and paid
by the Vendor and Purchaser in such proportions as the accountants
determine.
<PAGE>
11. WARRANTIES BY THE VENDOR
11.1 The Vendor warrants to the Purchaser that:
11.1.1 save as disclosed in the Disclosures, the Warranties set out in
Schedule 3 are true and accurate in all respects;
11.1.2 the Disclosures are true and accurate in all material respects
fully and fairly disclose every matter to which they relate.
11.2 The rights and remedies of the Purchaser in respect of any breach of
the Warranties shall not be affected by completion of the purchase of
the Business, by any investigation made by or on behalf of the
Purchaser into the affairs of the Vendor, by the Purchaser failing to
exercise or delaying the exercise of any of its rights or remedies or
by any other event or matter whatsoever except a specific and duly
authorised written waiver or release.
11.3 The Purchaser hereby acknowledges that it does not enter into this
Agreement in reliance on any representation warranty or undertaking
other than those embodied in this Agreement and the Schedules.
11.4 If there is a breach of any of the Warranties and:
11.4.1 the value of the Business or any of the Assets is less than it
would have been at the Effective Time in the absence of the
breach; or
11.4.2 the Purchaser incurs a liability which it would not have
incurred or which exceeds the liability it would have incurred
had matters been as warranted; or
11.4.3 as a result of the breach or of matters not being as warranted
the Purchaser suffers loss, costs or expenses or does not
receive any benefit, gain or profit which otherwise could
reasonably have been expected to accrue;
then without affecting the Purchaser's other rights the Vendor shall
pay to the Purchaser in cash by way of damages an amount equal to the
resulting diminution of value or the liability or excess liability and
the loss, costs and expenses so as to put the Purchaser into the
position which it would have been in if the Warranties had been true
and accurate and had not been breached.
<PAGE>
11.5 The Vendor undertakes to indemnify the Purchaser against any costs
taxed on an indemnity basis (together with any VAT thereon which is not
recoverable by the Purchaser) which the Purchaser may incur either
before or after the commencement of any action, in connection with:
11.5.1 any legal proceedings in which the Purchaser claims that there
has been a breach of the Warranties and in which judgment is
given in favour of the Purchaser; or
11.5.2 the enforcement of any such judgment.
11.6 Notwithstanding any other provisions of this Agreement the liability of
the Vendor hereunder shall be limited in accordance with the provisions
of Schedule 5 and the provisions of such Schedule shall have effect.
12. PENSIONS
12.1 The Vendor shall be responsible for all payments into the Vendor's
pension fund in respect of the Employees for the period up to the
Effective Time.
13. FUTURE ACTIVITIES
13.1 For the purpose of assuring to the Purchaser the full benefit of the
Business the Vendor and Guarantor each covenant and undertake with the
Purchaser that it shall not:
13.1.1 disclose to any person or itself use for any purpose the
Customer List, the Information or any other confidential
information concerning the Business and it shall keep the same
confidential and shall use all reasonable endeavours to ensure
that the use publication or disclosure by others (including
without limitation existing or former employees or agents of
the Vendor) of the same does not occur and is prevented;
<PAGE>
13.1.2 for a period of 4 years after the Effective Time either on its
own account or through any other person directly or indirectly
solicit, interfere with or endeavour to entice away from the
Purchaser any person who is now or has, during the two years
preceding the Effective Time, been a customer or employee of,
supplier to or otherwise in the habit of dealing with, the
Vendor in relation to the Business;
13.1.3 for a period of 4 years after the Effective Time directly
engage in the United Kingdom in any activity which is similar
to or which directly competes with the Business or any material
part thereof as it is now carried on.
13.1.4 for a period of 4 years after the Effective Time use the name
Quest Software on its own or in any trading name or any similar
sounding name in any business;
13.1.5 not at any time after the Effective Time grant licence or
assign the right to use the name Quest Software on its own or
any similar sounding name to any other party or purport to do
so.
13.2 The Vendor shall promptly refer to the Purchaser all enquiries relating
to the Business and assign to the Purchaser all orders relating to the
Business, including enquiries or orders for any work, supplies of
computer software or hardware or computer related services which the
Vendor may in the future receive.
13.3 The Vendor and Guarantor agree with the Purchaser that the provisions
of clause 13.1 are reasonable and necessary for the protection of the
value of the Business and the Goodwill and that having regard to that
fact those provisions do not work unfairly against the Vendor and the
Guarantor.
13.4 The Vendor and Guarantor agree that if any of the provisions of clause
13.1 themselves or taken together, shall be adjudged to go beyond what
is reasonable in all the circumstances for the protection of the
legitimate interests of the Purchaser but would be adjudged reasonable
if part or parts of the wording thereof were deleted or amended or
qualified or the periods thereof were reduced or the range of business
activities or area dealt with were thereby reduced in scope, then the
relevant provision shall apply with such modification as may be
necessary to make it or them valid and effective.
<PAGE>
14. ANNOUNCEMENTS
14.1 No announcement of any kind shall be made in respect of the subject
matter of this agreement except as specifically agreed between the
Vendor and the Purchaser. Any announcement by either party shall in any
event be issued only after prior consultation with the other.
15. COSTS
15.1 All expenses incurred by or on behalf of the parties, including all
fees of agents, solicitors, accountants, employed by either of the
parties in connection with the negotiation, preparation and execution
of this agreement shall be borne solely by the party which incurred
them.
16. COMMUNICATIONS
16.1 All communications between the parties with respect to this agreement
shall be delivered by hand or sent by first-class post to the address
of the addressee as set out in this agreement, or to such other address
(being in Great Britain) as the addressee may from time to time have
notified for the purpose of this clause, or sent by facsimile
transmission (with confirmation by letter posted first-class within 24
hours).
16.2 Communications shall be deemed to have been received:
16.2.1 if sent by first-class post: 2 business days after posting
exclusive of the day of posting;
16.2.2 if delivered by hand: on the day of delivery;
16.2.3 if sent by facsimile transmission: at the time of transmission.
16.3 Communications addressed to the Vendor shall be marked "Strictly
Private and Confidential attention of Mr. Simon Carter". Communications
addressed to the Purchaser shall be marked for the attention of Peter
Nagle with copies to Barry Schechter at 7979 Ivanhoe Avenue, Suite 500,
La Jolla, CA 92037.
<PAGE>
16.4 In proving service:
16.4.1 by delivery by hand: it shall be necessary only to produce a
receipt for the communication signed by or on behalf of the
addressee;
16.4.2 by post: it shall be necessary only to prove that the
communication, or letter of confirmation, was contained in an
envelope which was duly addressed posted in accordance with
this clause;
16.4.3 by facsimile transmission: it shall be necessary only to prove
that the facsimile message was properly addressed transmitted
and confirmation received from the recipient's fax machine or
operator as the case may be.
<PAGE>
17. ENTIRE AGREEMENT AND SCHEDULES
17.1 This agreement and the Schedules constitute the entire agreement and
understanding between the parties with respect to all matters which are
referred to.
17.2 The Schedules form part of this agreement.
17.3 This agreement binds each party's permitted successors and assigns.
17.4 None of the rights or obligations under this agreement may be assigned
or transferred without the prior written consent of all the parties.
18. INVALIDITY
18.1 If any term or provision in this agreement shall in whole or in part be
held to any extent to be illegal or unenforceable under any enactment
or rule of law, that term or provision or part shall to that extent be
deemed not to form part of this agreement but the remainder of this
agreement shall not be affected.
19. FURTHER ASSURANCE
19.1 The Vendor shall without charge (but subject to clause 19.2) execute
all such documents or do or procure the doing of such acts and things
after Completion as the Purchaser shall reasonably require in order to
give effect to this agreement and give to the Purchaser the full
benefit thereof which shall include enforcing the rights described in
clause 2.1.2(k).
19.2 The Purchaser shall discharge all fees and out-of-pocket expenses
incurred by the Vendor with the prior approval of the Purchaser in
carrying out its obligations under clause 19.1 (including, without
limitation, all reasonable fees of solicitors accountants and other
professional advisers) and the Vendor shall be entitled to security
therefor before complying with such obligations.
<PAGE>
20. PROPER LAW
20.1 The construction, validity and performance of this agreement shall be
governed by the laws of England and the parties agree to submit to the
jurisdiction of the English Courts for all purposes relating to this
agreement.
21. WARRANTY OF AUTHORITY
21.1 The Purchaser warrants to the Vendor that the Purchaser has full power
and authority to enter into this Agreement and does not require the
consent of any third party to do so.
22. GUARANTEE
22.1 The Guarantor as principal obligor unconditionally and irrevocably
GUARANTEES to the Purchaser the performance of all of the obligations
and the discharge of all liabilities of the Vendor arising under this
Agreement upon the following conditions:
22.1.1 If the Vendor in any respect fails to comply with its
obligations and discharge any liabilities under the Agreement
or commits any breach and in either case fails to remedy its
default within fourteen days of notice in writing from the
Purchaser requiring it so to do, the Guarantor shall indemnify
the Purchaser against the losses, damages, costs and expenses
that may be reasonably incurred by the Purchaser by reason of
that default; and
22.1.2 Notice in writing of any default or breach is to be given by
the Purchaser to the Guarantor and within 7 days from receipt
of such notice the Guarantor agrees to make payment in
accordance with the indemnity in clause 22.1.1 arising out of
such default or breach.
22.2 This Guarantee is a continuing guarantee until the complete discharge
and satisfaction of all obligations owed under the Agreement.
22.3 The Guarantor shall not be discharged by time or any other indulgence
or concession given to any third party by the Purchaser, or by anything
the Purchaser may do or omit to do or by any other dealing, act or
omission that but for this provision would discharge the Guarantor.
22.4 If at any time any one or more of the provisions of this Guarantee is
or becomes invalid, illegal or unenforceable in any respect under any
law, the validity, legality and enforceability of the remaining
provisions hereof shall not be in anyway affected or impaired thereby.
23. CERTIFICATE OF VALUE
23.1 It is hereby certified that the transaction hereby effected does not
form part of a larger transaction or of a series of transactions in
respect of which the amount or value or aggregate amount or value of
the consideration exceeds ?500,000 (five hundred thousand pounds).
AS WITNESS the hands of the duly authorised representatives of the parties on
the date which first appears on page 1.
<PAGE>
SIGNED BY )
for and on behalf of )
QUEST SOFTWARE LIMITED )
)
In the presence of )
SIGNED BY )
for and on behalf of )
QUEST SOFTWARE )
(SCOTLAND) LIMITED )
)
In the presence of )
SIGNED BY )
for and on behalf of )
IBIS SYSTEMS LIMITED )
In the presence of )
SIGNED BY )
for and on behalf of )
SIMON CARTER )
In the presence of )
<PAGE>
CONTENTS
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PAGES
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Agreement for Sale of Business
Schedule I
Part I: Computer Equipment
Part II: Computer Software
Part III: Contracts
Part IV: Customer List
Part V: Prepayments (invoiced and paid and invoiced and unpaid)
Part VI: Intellectual Property Rights
Part VII: Licensed Software.
Part VIII: Office Equipment
Part IX: Premises
Schedule 2 Excluded Assets
Schedule 3 Warranties
Schedule 4 Employees (containing lists of names,
date of birth, address, cont. service
and accrued rights)
Schedule 5 Limitations on Vendor's Liability to Warranty claims
<PAGE>
Exhibit 2.3
14 August 1998
DATED 1998
- --------------------------------------------------------------------------------
OPEN SUPPORT LIMITED
and
IBIS SYSTEMS LIMITED
-----------------------------------------
AGREEMENT FOR SALE OF BUSINESS
-----------------------------------------
Beak and Company
Garrick House
27.32 King Street
Covent Garden
London
WC2E 8JD
Tel: 0171 240 3474
Fax: 0171 240 9111
DX: 51632 Covent Garden
e-mail [email protected]
Ref: MJA/VIIT/15.30
July 1998
<PAGE>
AGREEMENT FOR SALE OF BUSINESS
------------------------------
DATE:
PARTIES:
1. "The Vendor" Open Support Limited (registered no: 2518293) whose
registered office is at 3 Lyttleton Court, Birmingham
Street, Halesowen B63 3HN
2. "The Purchaser" Ibis Systems Limited (registered no: 3410598) whose
registered office is at 2 Twyford Place, Lincolns Inn,
Cressex, High Wycombe, Buckinghamshire HPI2 3RE
OPERATIVE PROVISIONS:
1. INTERPRETATION
1.1 In this agreement the following words and expressions have the following
meanings, unless they are inconsistent with the context:
"Accounts Date" means the date to which the Principal Accounts have
been prepared
"Assets" means the property, assets, Computer Equipment and
rights of the Business to be purchased by the
Purchaser as described in clause 2.1 and listed in
Schedule 1 Parts I and II
"Book Debts" means the trade debts owed to the Vendor at the
Effective Time in connection with the Business
<PAGE>
"Business" means the business of selling computer software and
hardware and providing telephone support services for
the computer software and hardware to customers as
carried on by the Vendor up to the Effective Time
"Cash Float" means any cash in hand for the purpose of reimbursing
out-of-pocket expenses in connection with the Business
and any cash balances held at the Vendor's bank at the
Effective Time
"Completion" means the completion of the sale and purchase of the
Assets in accordance with clause 4
"Computer Equipment" means the stocks of equipment for the repair of
computer hardware owned by the Vendor at the Effective
Time
"Contracts" means all current contracts and engagements entered
into or orders made prior to the Effective Time by or
on behalf of the Vendor with customers for hardware
and/or software support;
in each case which remain (in whole or in part) to be
performed at or after the Effective Time and shall
include the benefit of any Cause of action against the
other contracting party to such Contracts arising
under such Contracts other than the Book Debts which
shall have accrued and have been fully earned prior to
the Effective Time
"Creditors" means the aggregate amount owed by the Vendor in
connection with the Business to or in respect of trade
creditors and accrued charges as recorded in the books
of account of the Business as at the
<PAGE>
Effective Time but not including liabilities for value
added tax or taxation on profits or chargeable gains
"Customer List" means the record of names addresses and contact
details of all current customers of the Business and
as the same are set out in Part II of Schedule 1 all
prior customers of the Business or any part thereof of
which the Vendor has records and whether stored
electronically or in documentary or other form and
including such software access or pass codes as are
required to enable such information to be read and
utilised
"Effective Time" means the close of business on 31st July 1998
"Employees" means the persons who, at the Effective Time, are
employed by the Vendor and whose duties relate to the
Business as the same are set out in Schedule 3 (the
accrued liabilities in respect of whom being fully
listed in Schedule 3)
"Goodwill" means the goodwill of the Vendor in relation to the
Business and attaching to Intellectual Property in the
Business and the Contracts, together with the
exclusive right for the Purchaser or its assignee to
represent itself as carrying on the Business in
succession to the Vendor, and the irrevocable and
exclusive right to use all trade names logos and
designs associated with the Business
"Information" means all information owned by the Vendor or in the
Vendor's possession and reasonably required for the
operation of the Business including information
relating to the supply of work and materials to the
Business, to the marketing of any products or services
supplied by the Business including (to the extent they
<PAGE>
exist) the Customer List, sales targets, sales
statistics, marketing surveys and reports, marketing
research, all training manuals and other materials
relating to training of Customers or Employees on
computer software products, any advertising or other
promotional materials and all records and the database
relating to modifications to software carried out for
customers of the Business
"Liabilities" means the liabilities of the Business (other than the
Creditors) outstanding at the Effective Time
"Prepayments" means the sums paid or payable by customers against
invoices issued prior to the Effective Time by the
Vendor for support services for any period or periods
extending or commencing after the Effective Time
"Prepayment Charge" means the agreed sum as set out in clause 2.3 which
the parties have agreed shall be payable by the Vendor
on Completion in respect of Prepayments
"Principal Accounts" means the audited balance sheet for the year ended
30th September 1997 and audited profit and loss
account for the year ended 30th September 1997 of the
Vendor, including the directors' report and notes
"Purchaser's
Solicitors" means Beale and Company of Garrick House, 27-32 King
Street, Covent Garden, London WC2E 8JD (Tel: 0171 240
3474 ref: MJA)
"Regulations" means the Transfer of Undertakings (Protection of
Employment) Regulations 1981
<PAGE>
"Vendor's Solicitors" means Lee Crowder of 39 Newhall Street Birmingham B3
3DY (telephone 0121 236 4710 ref: AMC)
"Subsidiary" means a subsidiary as defined in the Companies Act
1985 s736
"Warranties" means the warranties and undertakings of the Vendor
contained in this agreement including the Schedules
"Warranty Claim" means any claim made by the Purchaser for breach of
any of the Warranties
1.1.2 all references to references to statutory provisions shall be construed
as including references to:
(a) any statutory modification, consolidation or re-enactment;
(b) all statutory instruments or orders made pursuant to it;
(c) any statutory provisions of which it is a modification,
consolidation or re-enactment;
1.1.3 except where the context otherwise requires, words denoting the
singular include the plural and vice versa; words denoting any gender
include all genders; words denoting persons include firms and
corporations and vice versa;
1.1.4 unless otherwise stated, a reference to a clause, sub-clause or
Schedule is a reference to a clause or a sub-clause of, or a Schedule
to, this agreement;
1.1.5 clause headings are for ease of reference only and do not affect the
construction of this agreement.
<PAGE>
2. AGREEMENT FOR SALE
2.1 Subject to the terms and conditions of this agreement, the Vendor shall
sell to the Purchaser with full title guarantee and the Purchaser
relying on the Warranties and the indemnities given by the Vendor
contained herein shall purchase as at the Effective Time:
2.1.1 the Business as a going concern; and
2.1.2 all the following assets and rights owned by, or (although
subject to reservation of title by the sellers) under the
control of, the Vendor and used in the conduct of the
Business
(a) the Goodwill;
(b) the Customer list;
(c) the Computer Equipment;
(d) the benefits (subject to the burdens as provided under
clauses 8.1 and 8.2) of the Contracts;
(e) the Information.
For the avoidance of doubt no other property or assets of the Vendor
are included in the sale and purchase hereof agreed.
2.2 Title to and risk in the Assets shall vest in the Purchaser at the
Effective Time with title passing to the Purchaser as regards those
assets in item 2.1.2(a) and (d) by virtue of this agreement and as
regards those assets in 2.1.2 (b), (c) and (e) by virtue of the
delivery of the same into the possession of the Purchaser. To the
extent not delivered, assets shall be used on trust by the Vendor for
the Purchaser absolutely.
<PAGE>
2.3 The Vendor agrees to pay to the Purchaser on Completion against a VAT
invoice therefor the amount of the Prepayment Charge in the sum of
103,000 UKP plus VAT.
3. PURCHASE CONSIDERATION
3.1 The consideration for the sale by the Vendor of the Business and the
Assets shall be the Sum of 203,000 UKP (two hundred and three thousand
pounds). The consideration shall be apportioned us follows:
Apportionment
-------------
(a) the Goodwill 197,998 UKP
(b) the Customer List 1 UKP
(c) the Computer Equipment 5000 UKP
(d) the Contracts the benefit of the
Purchaser's covenant
in clause 8
(e) the Information 1 UKP
Total: 203,000 UKP
-----------
3.2 The consideration shall he satisfied in cash upon completion of the
purchase in accordance with clause 4.
4. COMPLETION
4.1 The sale and purchase shall be completed immediately upon exchange of
this agreement when all the matters set out in this clause 4 shall be
effected.
4.2 The Vendor shall deliver to the Purchaser, at the Premises such of the
Assets as are capable of being transferred by delivery.
4.3 The Vendor shall cause to be delivered or (if so requested by the
Purchaser) made available to the Purchaser:
<PAGE>
4.3.1 such documents as are required by the Purchaser's solicitors
to complete the sale and purchase of the Assets and vest
title to the Assets in the Purchaser, including (but without
limitation) assignments of the Goodwill and Contracts insofar
as they are assignable;
4.3.2 all its information relating to customers under the Contracts
(including a list of customers to which outstanding
quotations have been given and a list of unfulfilled orders
as at the Effective Time);
4.3.3 all records of National Insurance and PAYE relating to all
the Employees duly completed and up to date;
4.3.4 a certified copy of the special resolution resolving to
change the name of the Vendor;
4.3.5 Service Agreement signed by Philip Wood
4.4 Upon completion of the matters referred to above the Purchaser shall
deliver to the Vendor a banker's draft in respect of the purchase
consideration.
4.5 The Purchaser shall not be obliged to complete the purchase of any of
the Assets unless the purchase of all the Assets is completed in
accordance with this agreement.
4.6 The Purchaser may in its absolute discretion waive any requirement
contained in clause 4.2 or 4.3.
5. DEBTORS
5.1 The Vendor shall collect the Book Debts and the Purchaser agrees to
give all reasonable assistance to the Vendor to enable the Vendor to
collect the Book Debts.
5.2 Any sums received by the Purchaser in respect of any Book Debts shall
be held on trust by the Purchaser for the Vendor.
<PAGE>
5.3 The Purchaser shall account to the Vendor for any Book Debts paid to it
within 14 days of receipt.
5.4 Subject to any express intention to the contrary on the part of the
debtor, any money received by the Purchaser in the course of collecting
any Book Debts from a person who is also indebted to the Purchaser
shall be deemed to have been paid in or towards discharge of the oldest
debt, regardless of the identity of the debtor.
6. CREDITORS AND LIABILITIES
6.1 The Vendor shall forthwith following a request therefor supply to the
Purchaser full details of the Creditors.
6.2 The Vendor shall be responsible for the discharge of the Creditors and
Liabilities and notwithstanding completion of the purchase of the
Business shall be responsible for all debts payable by and claims
outstanding against it at the Effective Time including all wages, sums
payable under taxation statutes, rent and other expenses.
6.3 In addition to clause 6.2:
6.3.1 the Vendor shall remain liable for claims by third parties in
respect of any service supplied or products sold by the
Vendor or any act or omission of the Vendor prior to the
Effective Date or arising from defective products or parts of
products manufactured by the Vendor, even if the defective
products or parts were sold by the Purchaser in the 12 months
following completion;
6.3.2 upon becoming aware of any such claim the Purchaser will
promptly give notice of it to the Vendor and neither shall
take any steps which might reasonably be expected to damage
the commercial interests of the other without prior
consultation with the other.
6.4 The Vendor shall indemnify the Purchaser from and against all
liabilities debts and claims referred to under clause 6.2 and 6.3.1 and
such indemnity shall
<PAGE>
extend to the amount of any settlement of a claim (including costs)
made by the Purchaser with the approval of the Vendor.
6.5 If the Purchaser reasonably considers that it is desirable to take
preventive action with a view to avoiding claims under clause 6.3.1
including, without limitation repair and replacement then provided such
action has first been discussed and approved by the Vendor such
approval not to be unreasonably withheld the Vendor shall hear the cost
of that action.
6.6 Save for such liabilities as the Purchaser agrees expressly to assume
under this agreement, the Purchaser shall not assume any liability of
or relating to the Business in existence at the Effective Time and
nothing in this agreement shall make the Purchaser liable in respect of
anything done or omitted to be done prior to the Effective Time by the
Vendor. The Vendor shall indemnify the Purchaser in respect of any such
liability (which liability shall include, without limitation, all
losses, costs, claims, expenses, damages, legal and other professional
fees and expenses on an indemnity basis) which it may incur or which
may arise as a result of anything so done or omitted to be done and in
respect of any breaches by the Vendor of this Agreement or claim
arising from the Vendor's conduct of thc Business prior to the
Effective Time and for all and any liabilities not expressly agreed
under this Agreement to be assumed by the Purchaser.
7. CONTRACTS
7.1 The Purchaser shall:
7.1.1 accept assignments from the Vendor of or join with the Vendor
in procuring a novation of the Contracts; and
7.1.2 carry out perform and discharge all the obligations and
liabilities created by or arising under the Contracts after
the Effective Time except for any obligations and liabilities
attributable to a breach on the part of the Vendor or arising
prior to the Effective Time.
<PAGE>
7.2 The Purchaser shall indemnify the Vendor against all actions,
proceedings, costs, damages, claims and demands in respect of any
failure on the part of the Purchaser to carry out, perform and
discharge all the obligations and liabilities created by or arising
under the Contracts (except as provided under 7.1.2) to the extent that
they fail to be carried out, performed and discharged after the
Effective Time. The Vendor shall indemnify the Purchaser against all
actions, proceedings, costs, damages, claims and demands in respect of
any failure on the part of the Vendor to carry out, perform and
discharge all the obligations and liabilities created by or arising
under the Contracts in the period up to the Effective Time to the
extent that they fail to be carried out, performed and discharged up to
the Effective Time.
7.3 Insofar as the benefit of any of the Contracts cannot effectively be
assigned to the Purchaser except by an agreement or novation with, or
consent to the assignment from, the person, firm or company concerned:
(a) the Vendor shall at the Purchaser's request and expense use
all reasonable endeavours with the co-operation of the
Purchaser to procure such novation or consent to the
assignment;
(b) until the Contract is novated or assigned the Vendor shall
hold it and also the benefits arising under it in trust for
the Purchaser absolutely. Where the Purchaser performs such
contract it does so (provided if such sub-contracting is
permissible and lawful under the Contract), as the Vendor's
sub-contractor; and
(c) until the Contract is novated or assigned the Vendor shall
(so far as it lawfully may) give all reasonable assistance to
the Purchaser (at the Purchaser's request and expense) to
enable the Purchaser to enforce its rights under the
Contract.
7.4 For the purpose of obtaining the effective assignment of the Contracts
to the Purchaser the Vendor and the Purchaser agree to notify together
in writing the customers and those other parties to the Contracts on or
as soon as practicable after the Effective Time (in such form as both
parties shall agree) of the assignment of each Contract to the
Purchaser to the extent that the same are
<PAGE>
assignable to the Purchaser without the relevant customer's or other
party's prior written consent.
7.5 It is the intention of the parties to co-operate together in finalizing
customer contracts (not being Contracts) in existence at the Effective
Time.
8. EMPLOYEES
8.1 The Vendor warrants that it has complied with the provisions of
Regulation 10 of the Regulations.
8.2 The Vendor shall indemnity the Purchaser against any order to pay
compensation made pursuant to the Regulations provided that the order
is not made as a result of any act or omission of the Purchaser.
8.3 All salaries and other emoluments and obligations, including
entitlement to commission bonuses or rewards up to the Effective Time,
accrued but unpaid holiday entitlement, (where holiday has not been
taken), holiday pay, accrued sick pay, tax and national insurance
payments and other contributions to retirement benefit or pension
schemes and other contractual benefits relating to the Employees shall
he borne by the Vendor to the extent they arise in or relate to the
period up to the Effective Time. The Vendor has set out all necessary
apportionments in respect of such matters in Schedule 3 and agrees to
indemnity the Purchaser in respect of all such matters to the extent
that they have not been listed and the cost of them adequately
quantified in Schedule 3.
9. VALUE ADDED TAX
9.1 The parties shall use all reasonable endeavours to procure that the
sale of the Business is deemed to be a transfer of a business as a
going concern for the purposes of the Value Added Tax Act 1994, s49 and
Schedule 4 paragraph 8(l)(a). In the event that VAT shall be payable on
the sale under this agreement (other than where such VAT has become
payable because of a breach by the Vendor of the provisions of the
first sentence of this clause) the Purchaser shall pay to the Vendor
such VAT and any penalties or interest
<PAGE>
incurred by the Vendor for late payment of such sum, such payment to be
made on delivery by the Vendor to the Purchaser of a valid invoice in
respect of such VAT.
9.2 The Vendor shall retain all the records of the Business for value added
tax purposes which are required by the Value Added Tax Act 1994,
s49(l)(b) to be preserved and shall notify the Commissioners of Customs
and Excise accordingly.
9.3 The Purchaser shall for a period of not less than 6 years from the
Effective Date preserve the records delivered to it by the Vendor and,
upon reasonable notice, make them available to the Vendor or its agents
during normal business hours.
10. TITLE
10.1 The Vendor shall take all necessary steps reasonably required and
co-operate fully with the Purchaser to ensure that it obtains the full
benefit of the Business and Assets and shall at the request and expense
of the Purchaser execute such documents and take such other steps (or
procure other necessary parties so to do) as are reasonably necessary
or appropriate for vesting in the Purchaser all its rights arid
interests in the Assets.
10.2 The Prepayment Charge shall be payable by the Vendor to the Purchaser
against an invoice therefor (together with VAT thereon) on Completion.
11. WARRANTIES BY THE VENDOR
11.1 The Vendor warrants to the Purchaser that:
11.1.1 the Warranties set out in Schedules 2 are true and accurate
in all respects;
11.2 The rights and remedies of the Purchaser in respect of any breach of
the Warranties shall not be affected by completion of the purchase of
the Business, by any investigation made by or on behalf of the
Purchaser into the affairs of
<PAGE>
the Vendor, by the Purchaser failing to exercise or delaying the
exercise of any of its rights or remedies or by any other event or
matter whatsoever except a specific and duly authorised written waiver
or release.
11.3 The Purchaser hereby acknowledges that it does not enter into this
Agreement in reliance on any representation warranty or undertaking
other than those embodied in this Agreement.
11.4 If there is a breach of any of the Warranties and:
11.4.1 the value of the Business or any of the Assets is less than
it would have been at the Effective Time in the absence of
the breach; or
11.4.2 the Purchaser incurs a liability which it would not have
incurred or which exceeds the liability it would have
incurred had matters been as warranted; or
11.4.3 as a result of the breach or of matters not being as
warranted the Purchaser suffers loss, costs or expenses or
does not receive any benefit, gain or profit which otherwise
could reasonably have been expected to accrue;
then without affecting the Purchaser's other rights the Vendor shall
pay to the Purchaser in cash by way of damages an amount equal to the
resulting diminution of value or the liability or excess liability and
the loss, costs and expenses so as to put the Purchaser into the
position which it would have been in if the Warranties had been true
and accurate and had not been breached.
11.5 The Vendor undertakes to indemnify the Purchaser against any reasonable
costs, expenses and other liabilities (together with any VAT thereon
which is not recoverable by the Purchaser) which the Purchaser may
incur either before or after the commencement of any action, in
connection with:
11.5.1 the settlement of any claim by the Purchaser that there has
been a breach of the Warranties;
<PAGE>
11.5.2 any legal proceedings in which the Purchaser claims that
there has been a breach of the Warranties and in which
judgment is given in favor of the Purchaser; or
11.5.3 the enforcement of any such settlement, compromise or
judgment.
11.6 Notwithstanding any other provisions of this Agreement the liability of
the Vendor hereunder shall be limited in accordance with the provisions
of Schedule 4 and the provisions of such Schedule shall have effect.
12. PENSIONS
12.1 The Vendor shall be responsible for all payments into the Vendor's
pension fund in respect of the Employees for the period up to the
Effective Time.
13. FUTURE ACTIVITIES
13.1 For the purpose of assuring to the Purchaser the full benefit of the
Business the Vendor covenants and undertakes with the Purchaser that it
shall not:
13.1.1 disclose to any person or itself use for any purpose the
Customer List, the Information or any other confidential
information concerning the Business and it shall keep the
same confidential and shall use all reasonable endeavors to
ensure that the use publication or disclosure by' others
(including without limitation existing or former employees or
agents of the Vendor) of the same does not occur and is
prevented;
13.1.2 for a period of 5 years after the Effective Time either on
its own account or through any other person directly or
indirectly solicit, interfere with or endeavor to entice away
from the Purchaser any person who is now or has, during the
two years preceding the Effective Time, been a customer or
employee of, supplier to or otherwise in the habit of dealing
with, the Vendor in relation to the Business;
<PAGE>
13.1.3 for a period of 5 years after the Effective Time directly or
indirectly engage in the United Kingdom in any activity which
is similar to or which directly or indirectly competes with
the Business or any material part thereof as it is now
carried on.
13.2 The Vendor shall promptly refer to the Purchaser all enquiries relating
to the Business and assign to the Purchaser all orders relating to the
Business, including enquiries or orders for any work, supplies of
computer software or hardware or computer related services which the
Vendor may in the future receive.
13.3 The Vendor agrees with the Purchaser that the provisions of clause 13.1
are reasonable and necessary for the protection of the value of the
Business and the Goodwill and that having regard to that fact those
provisions do not work unfairly against the Vendor.
13.4 The Vendor agrees that if any of the provisions of clause 13.1
themselves or taken together, shall be adjudged to go beyond what is
reasonable in all the circumstances for the protection of the
legitimate interests of the Purchaser but would he adjudged reasonable
if part or parts of the wording thereof were deleted or amended or
qualified or the periods thereof were reduced or the range of business
activities or area dealt with were thereby reduced in scope, then the
relevant provision shall apply with such modification as may be
necessary to make it or them valid and effective.
14. ANNOUNCEMENTS
14.1 No announcement of any kind shall be made in respect of the subject
matter of this agreement except as specifically agreed between the
Vendor and the Purchaser. Any announcement by either party shall in any
event be issued only after prior consultation with the other.
15. COSTS
15.1 All expenses incurred by or on behalf of the parties, including all
fees of agents, solicitors, accountants, employed by either of the
parties in connection
<PAGE>
with the negotiation, preparation and execution of this agreement shall
be borne solely by the party which incurred them.
16. COMMUNICATIONS
16.1 All communications between the parties with respect to this agreement
shall be delivered by hand or sent by first-class post to the address
of the addressee as set out in this agreement, or to such other address
(being in Great Britain) as the addressee may from time to time have
notified for the purpose of this clause, or sent by facsimile
transmission (with confirmation by letter posted first-class within 24
hours).
16.2 Communications shall be deemed to have been received:
16.2.1 if sent by first-class post: 3 business days after posting
exclusive of the day of posting;
16.2.2 if delivered by hand: on the day of delivery;
16.2.3 if sent by facsimile transmission: at the time of
transmission.
16.3 Communications addressed to the Vendor shall be marked for the
attention of Philip Wood. Communications addressed to the Purchaser
shall be marked for the attention of Peter Nagle with copies to Barry
Schechter at 7979 Ivanhoe Avenue, Suite 500, La Jolla, CA 92037.
16.4 In proving service:
16.4.1 by delivery by hand: it shall be necessary only to produce a
receipt for the communication signed by or on behalf of the
addressee;
16.4.2 by post: it shall be necessary only to prove that the
communication, or letter of confirmation, was contained in an
envelope which was duly addressed posted in accordance with
this clause;
<PAGE>
16.4.3 by facsimile transmission: it shall be necessary only to
prove that the facsimile message was properly addressed
transmitted and confirmation received from the recipient's
fax machine or operator as the case may be.
17. ENTIRE AGREEMENT AND SCHEDULES
17.1 This agreement and the Schedules constitute the entire agreement and
understanding between the parties with respect to all matters which are
referred to.
17.2 The Schedules form part of this agreement.
17.3 This agreement binds each party's successors and assigns.
17.4 None of the rights or obligations under this agreement may be assigned
or transferred without the prior written consent of all the parties.
18. INVALIDITY
18.1 If any term or provision in this agreement shall in whole or in part be
held to any extent to be illegal or unenforceable under any enactment
or rule of law, that term or provision or part shall to that extent be
deemed not to form part of this agreement shall not be affected.
19. FURTHER ASSURANCE
19.1 The Vendor shall as its own cost (other than disbursements which shall
be at the Purchaser's costs) execute all such documents or do or
procure the doing of such acts and things after Completion as the
Purchaser shall reasonably require in order to give effect to this
agreement and give to the Purchaser the full benefit thereof and which
shall include enforcing the rights described in clause 2.1.2(m).
<PAGE>
20. PROPER LAW
20.1 The construction, validity and performance of this agreement shall be
governed by the laws of England and the parties agree to submit to the
jurisdiction of the English Courts for all purposes relating to this
agreement.
21. POST-COMPLETION WINDING UP
21.1 Within a period of 12 months following Completion the Vendor agrees to
enter into liquidation for the purposes of winding up its affairs.
22. CERTIFICATE OF VALUE
22.1 It is hereby certified that the transaction hereby effected does not
form part of a larger transaction or series of transactions in respect
of which the amount or value or aggregate amount or value of
consideration exceeds 250,000 UKP.
AS WITNESS the hands of the duly authorised representatives of the
parties on the date which first appears on page 1.
<PAGE>
SIGNED BY )
for and on behalf of )
OPEN SUPPORT LIMITED )
In the presence of )
SIGNED BY )
for and on behalf of )
IBIS SYSTEMS LIMITED )
In the presence of )
AMENDMENT TO BYLAWS OF SVI HOLDINGS, INC.
(FORMERLY KNOWN AS WILSON CAPITAL, INC.)
The Bylaws of SVI Holdings, Inc., a Nevada corporation formerly known
as Wilson Capital, Inc. (the "Company"), adopted by the Board of Directors of
the Company on November 29, 1989, are hereby amended to replace in Section 4.1,
the phrase "seven (7)" in each place that it appears with the phrase "eight
(8)."
In all other respects, the Bylaws remain in full force and effect.
CERTIFICATE
-----------
I hereby certify that the foregoing amendment to the Bylaws of SVI
Holdings, Inc., a Nevada corporation, was adopted by the Board of Directors of
the Company as of the 3rd day of July, 1998.
/s/ David L. Reese
---------------------------------
David L. Reese, Secretary
October 16, 1998
<PAGE>
Exhibit 10.1
INCENTIVE STOCK OPTION PLAN
(Amended as of April 1, 1998)
This Incentive Stock Option Plan of SVI Holdings, Inc., formerly known
as Wilson Capital, Inc., a Nevada corporation ("Corporation") is dated November
29, 1989, and amended as of April 1, 1998. The purpose of this Plan is to help
attract, keep and motivate superior personnel.
ARTICLE I
---------
STOCK SUBJECT TO OPTION
-----------------------
The total number of shares in the Corporation which may be issued under
incentive stock options ("options") granted pursuant to this Plan is 1,500,000
common shares having $.0001 par value.
ARTICLE II
----------
EMPLOYEES ELIGIBLE TO RECEIVE OPTIONS
-------------------------------------
SECTION 2.1 ALL EMPLOYEES. All employees of the Corporation,
its parent or subsidiaries, if any, shall be eligible to receive options
to purchase stock under this Plan.
SECTION 2.2 10% SHAREHOLDERS. Employees directly or indirectly
owning more than 10% of the stock of the Corporation, its parent or
subsidiaries, if any, shall be eligible to receive options to purchase stock
under this Plan. For purposes of this Plan, an employee is considered to own
those shares which are owned by his siblings, spouse, ancestors, and lineal
descendants, and a proportionate amount of those shares owned by or for a
corporation, partnership, estate or trust of which he is a shareholder, partner
or beneficiary.
ARTICLE III
-----------
ANNUAL LIMIT ON OPTIONS
-----------------------
There shall be no annual limit on options granted to an employee under
this Plan, provided that options issued pursuant to the Plan will be Incentive
Stock Options as defined by Section 422 of the Internal Revenue Code of 1986, as
amended, only to the extent that the value of shares of stock which can be first
exercised by an employee in any calendar year does not exceed $100,000 based on
the fair market value of the stock at the time of the grant.
<PAGE> 34
EXHIBIT IV
----------
OPTION PRICE
------------
SECTION 4.1 MINIMUM PRICE. The minimum option price for the
purchase of any stock pursuant to an option granted under this Plan shall be
100% of the fair market value of the stock at the time the option is granted.
SECTION 4.2 PRICE FOR 10% SHAREHOLDERS. The minimum option price
for 10% Shareholders shall be at least 110% of the fair market value of the
stock at the time the option is granted.
ARTICLE V
---------
OPTION LIFE
-----------
SECTION 5.1 TIME OF GRANT. All options granted under this Plan
must he granted within ten years from the date the Board of Directors adopt this
Plan, or the date the Shareholders approve this Plan, whichever is earlier.
SECTION 5.2 TIME OF EXERCISE. An option granted under this Plan
must provide that it is to be exercised within a period less than ten years
after the date the option is granted. However, if an optionee directly or
indirectly owns more than 10%, not including stock obtainable under the option,
of the stock of the Corporation, its parent or subsidiaries, if any, the option
must provide that it is to be exercised within a period less than five years
after the date the option is granted.
ARTICLE VI
----------
EMPLOYMENT STATUS
-----------------
All incentive stock options granted under this Plan must be granted in
connection with an optionee's employment status. Employment by the Corporation,
its parent or subsidiaries, if any, must continue from the time of the grant
until three months before the option is exercised. However, if an optionee
becomes disabled, an option may be exercised by a disabled employee up to twelve
months after termination of employment.
<PAGE> 35
ARTICLE VII
-----------
HOLDING PERIOD
--------------
All shares of stock purchased by an employee pursuant to the exercise
of an option granted under this Plan shall be Incentive Stock Options as defined
by Section 422 of the Internal Revenue Code of 1986, as amended, only if that
employee does not dispose of those shares for at least two years after the
option is granted and at least one year after the date the shares are
transferred to the employee.
ARTICLE VIII
------------
NONTRANSFERABILITY
------------------
Options granted under this Plan may not be assigned and may be
transferred only by will or by laws of descent and distribution. During the
employee's life, the options are exercisable only by him.
ARTICLE IX
----------
ADMINISTRATION OF PLAN
----------------------
This Plan shall be administered by the Board of Directors of the
Corporation or a Compensation Committee appointed by the Board of Directors. The
Directors of the Corporation or the Compensation Committee shall have the
exclusive power to select the employees to be granted options, the time at which
an option may be granted, the number of Shares for which an option is granted,
and the term of any option. In granting options, the Directors or the
Compensation Committee may take into consideration the value of the services
rendered by the employees, their present and potential contributions to the
Corporation's success, and such other factors deemed relevant in accomplishing
the purposes of this Plan. All decisions and determinations made by the
Directors or the Compensation Committee shall be final and binding upon all
parties, including the Corporation, its shareholders and its employees.
ARTICLE X
---------
AMENDMENT OF PLAN
-----------------
This Plan may be amended at any time by the Board of Directors without
the approval of the Corporation's Shareholders, other than an amendment of the
provisions regarding the number of optionable shares, the class of eligible
employees, the minimum option prices, or the $100,000 ceiling on grants. If any
provision of this Plan is determined to disqualify the options or shares which
may be purchased upon exercise of the options granted under this Plan so that
the special tax treatment provided by Section 422 is not available, then this
Plan shall be deemed to be automatically amended so as to delete the
disqualifying provision as if it had never been inserted in this Plan, and to
incorporate by reference the modification necessary to qualify the options or
shares under Section 422.
This Plan shall be effective as of the date and year first written above.
<PAGE>
Exhibit 10.2
SVI HOLDINGS, INC.
1998 INCENTIVE STOCK PLAN
1. PURPOSES.
---------
(a) The purpose of this 1998 Incentive Stock Plan is to provide a means by
which Employees, Directors and Consultants of the Company, and its Affiliates,
may be given an opportunity to benefit from increases in value of the common
stock of the Company through the granting of (i) incentive stock options, (ii)
non-statutory stock options, (iii) stock bonuses, (iv) rights to purchase stock,
and (v) stock appreciation rights.
(b) The Company, by means of this 1998 Incentive Stock Plan, seeks to
retain the services of persons who are now Employees, Directors, or Consultants
of the Company, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company.
(c) The Company intends that the Stock Awards issued under this Plan shall,
in the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either (i) Options granted pursuant to Section 6, including Incentive Stock
Options and Non-statutory Stock Options, (ii) Stock bonuses or rights to
purchase Stock granted pursuant to Section 7, or (iii) Stock appreciation rights
granted pursuant to Section 8. All Options shall be separately designated
Incentive Stock Options or Non-statutory Stock Options at the time of grant, and
in such form as issued pursuant to Section 6, and a separate certificate or
certificates will be issued for shares purchased on exercise of each type of
Option.
2. DEFINITIONS.
------------
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance with
subsection 3(c) of the Plan.
(e) "COMPANY" means: SVI Holdings, Inc. a Nevada corporation.
(f) "CONCURRENT STOCK APPRECIATION RIGHT" or "CONCURRENT RIGHT" means a
right granted pursuant to subsection 8(b)(ii) of the Plan.
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(g) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render services and who is compensated for such
services; provided that the term "Consultant" shall not include Directors who
are paid only a director's fee by the Company or who are not compensated by the
Company for their services as Directors.
(h) "CONTINUOUS STATUS OF EMPLOYEE, DIRECTOR OR CONSULTANT" means the
employment or relationship as a Director or Consultant is not interrupted or
terminated by the Company or any Affiliate. The Board in its sole discretion,
may determine whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave. For purposes of Incentive Stock Options and Stock Appreciation
Rights appurtenant thereto, any such leave may not exceed ninety (90) days,
unless re-employment upon the expiration of such leave is guaranteed by contract
(including certain Company policies) or statute; or (ii) transfers between
locations of the Company or between the Company, its Affiliates or its
successor.
(i) "DIRECTOR" means a member of the Company's Board of Directors.
(j) "DISABILITY" means total and permanent disability as defined in Section
22(e)(3) of the Code.
(k) "EMPLOYEE" means any person, including Officers and Directors, employed
by the Company or any Affiliate of the Company. Neither service as a Director
nor payment of a director's fee by the Company shall be sufficient to constitute
"employment" by the Company.
(l) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(m) "FAIR MARKET VALUE" means the average of the high and low sale prices
per share of Stock on the American Stock Exchange, composite tape or other
recognized market source, as determined by the Board, on the applicable date of
reference hereunder, or if there is no sale on such date, the average high and
low sale prices on the last previous day on which a sale is reported.
(n) "INCENTIVE STOCK OPTION" means an Option granted pursuant to the Plan
which is designated as an incentive stock option by the Board, and qualifies as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "INDEPENDENT STOCK APPRECIATION RIGHT" means a right granted under
subsection 8(b)(iii) of the Plan.
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(p) "NON-STATUTORY STOCK OPTION" means an Option granted pursuant to the
Plan which is not an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means an option to purchase Stock granted pursuant to the
Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(t) "OPTION PRICE" shall mean the price per share of Stock to be paid by
the Optionee upon exercise of the Option and as set forth in the Option
Agreement.
(u) "OPTIONEE" means an Employee, Director or Consultant who holds an
outstanding Option.
(v) "PLAN" means this 1998 Incentive Stock Plan, as may be amended from
time to time.
(w) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3, as in effect when discretion is being exercised with respect to the
Plan.
(x) "STOCK" shall mean the $0.0001 par value common stock of the Company.
(y) "STOCK APPRECIATION RIGHT" means any of the various types of rights
which may be granted under Section 8 of the Plan.
(z) "STOCK AWARD" means any right granted under the Plan, including any
Option, any Stock Bonus, any Stock Purchase Right, and any Stock Appreciation
Right.
(aa) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. The Stock Award Agreement is subject to the terms
and conditions of the Plan.
(bb) "TANDEM STOCK APPRECIATION RIGHT" or "TANDEM RIGHT" means a right
granted under subsection 8(b)(i) of the Plan.
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3. ADMINISTRATION.
---------------
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible under
the Plan shall be granted Stock Awards; when and how Stock Awards shall be
granted; whether a Stock Award will be an Incentive Stock Option, a
Non-statutory Stock Option, a Stock Bonus, a Stock Purchase Right, a Stock
Appreciation Right, or a combination of the foregoing; the provisions of each
Stock Award granted (which need not be identical), including the time or times
when a person shall be permitted to receive Stock pursuant to a Stock Award,
whether a person shall be permitted to receive Stock upon exercise of an
Independent Stock Appreciation Right; and the number of shares with respect to
which Stock Awards shall be granted to each such person.
(2) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan as provided in Section 14.
(4) Generally, to exercise such powers and to perform such acts as the
Board deems necessary or expedient to promote the best interests of the Company.
(c) The Board may delegate administration of the Plan to a committee
composed of persons who may meet the requirements of Rule 16b-3 promulgated
under the Exchange Act (the "Committee"). If administration is delegated to a
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers possessed by the Board (and references in this Plan to the
Board shall thereafter be to the Committee), subject, however, to such
resolutions, not inconsistent with the provisions of the Plan, as may be adopted
from time to time by the Board. The Board may abolish the Committee at any time
and re-vest in the Board the administration of the Plan.
4. SHARES SUBJECT TO THE PLAN.
---------------------------
(a) Subject to the provisions of Section 13 relating to adjustments upon
changes in Stock, the Stock that may be issued pursuant to Stock Awards shall
not exceed in the aggregate three million five hundred thousand (3,500,000)
shares. The number of shares available shall be adjusted as provided in Section
13. Stock issued under any other stock option plan of the Company shall not be
counted against the maximum number of shares that can be issued under the Plan.
If any Stock Award shall for any reason expire or otherwise terminate without
having been exercised in full, the Stock not purchased under such Stock Award
shall again become available for issuance under the Plan. Shares subject to
Stock Appreciation Rights exercised in accordance with Section 8 of the Plan
shall not be available for subsequent issuance under the Plan.
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<PAGE> 40
(b) The Stock subject to the Plan may be unissued shares or reacquired
shares.
5. ELIGIBILITY.
------------
(a) Incentive Stock Options and Stock Appreciation Rights appurtenant
thereto may be granted only to Employees. Stock Awards other than Incentive
Stock Options and Stock Appreciation Rights appurtenant thereto may be granted
only to Employees, Directors or Consultants.
(b) A Director shall not be eligible for the benefits of the Plan unless at
the time of grant of a Stock Award: (i) the Board has either approved the grant
of the Stock Awards or has delegated its discretionary authority over the Plan
to a Committee which consists solely of two or more nonemployee directors (as
that term is defined by Rule 16b-3); and (ii) the Plan otherwise complies with
the requirements of Rule 16b-3.
(c) No person shall be eligible for the grant of an Option if, at the time
of grant, such person owns (or is deemed to own pursuant to Code Section 424(d))
Stock possessing more than ten (10%) percent of the total combined voting power
of all classes of capital stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one hundred ten (110%)
percent of the Fair Market Value of the Stock at the date of grant and the
Option is not exercisable after the expiration of five (5) years from the grant
date.
6. OPTION PROVISIONS.
------------------
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions of the Plan by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted; provided that an Option granted to a person
possessing ten (10%) percent or more of the combined voting power of all classes
of capital stock of the Company or its Affiliates shall have a term not
exceeding five (5) years.
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<PAGE> 41
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the Stock
subject to the Option on the date the Option is granted. The exercise price of
each Non-statutory Stock Option shall be not less than eighty-five (85%) of the
Fair Market Value of the Stock subject to the Option on the date the Option is
granted. Despite the previous two sentences, the purchase price for Options
granted to a person who possesses more than ten percent (10%) of the total
combined voting power of all classes of capital stock of the Company or its
Affiliates shall be at least one hundred ten percent (110%) of the Fair Market
Value of the Stock at the date of grant.
(c) CONSIDERATION. The Option Price of Stock acquired pursuant to an Option
shall be paid, to the extent permitted by applicable statutes and regulations,
either (1) in cash at the time the Option is exercised, or (2) at the discretion
of the Board or the Committee, either at the time of the grant or exercise of
the Option, (A) by delivery to the Company of other Stock of the Company, (B)
according to a deferred payment or other arrangement (which may include, without
limiting the generality of the foregoing, the use of other Stock of the Company
valued at Fair Market Value as provided herein) with the person to whom the
Option is granted or to whom the Option is transferred pursuant to subsection
6(d), or (C) an agreement with the Company whereby a portion of the Optionee's
Options are terminated, and where the Built in Gain on any Options which are
terminated as part of the agreement equals the aggregate Option Price of the
Option being exercised.
The Board may permit deemed or constructive transfer of shares in lieu of actual
transfer and physical delivery of certificates. Except to the extent prohibited
by applicable law, the Board may take any necessary or appropriate steps in
order to facilitate the payment of the Option Price. The Board, in its sole and
exclusive discretion, may require satisfaction of any rules or conditions in
connection with paying the Option Price at any particular time, in any
particular form, or with the Company's assistance.
In the event the Board determines in its sole discretion to provide an Optionee
with a deferred payment arrangement, interest shall be payable at least annually
and shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Internal Revenue
Code of 1986, of any amounts other than amounts stated to be interest under the
deferred payment arrangement. "Built in Gain" means the excess of the aggregate
Fair Market Value of Stock subject to an Option otherwise issuable on exercise
of a terminated Option over the aggregate Option Price otherwise due the Company
on such exercise. If Stock used to pay any Option Price is subject to any prior
restrictions imposed in connection with any stock option or stock purchase plan
or agreement of the Company (including this Plan), an equal number of the shares
of Stock acquired on exercise shall be made subject to such prior restrictions
in addition to any further restrictions imposed on the Stock by the terms of the
particular Agreement or by the Plan.
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<PAGE> 42
(d) TRANSFERABILITY. To the extent required by Code Section 422, Options,
(or the rights of Optionees pursuant to the Agreement), shall not be
transferable in any manner, whether voluntary or involuntary, except by will or
the law of descent and distribution. A Non-Qualified Stock Option may be
transferred to a trust for the benefit of the Optionee or members of his
immediate family provided such transfer does not violate the requirements of the
California Corporate Securities Rules (Title 10, California Code of
Regulations). An attempted non-permitted transfer shall be void and shall
immediately terminate the Option.
(e) VESTING. The total number of shares of Stock subject to an Option may,
but need not, be allotted in periodic installments (which may, but need not, be
equal). The Option Agreement may provide that from time to time during each of
such installment periods, the Option may become exercisable ("vest") with
respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The vesting provisions of individual Options may vary but in each
case will provide for vesting of at least twenty percent (20%) of the total
number of shares subject to the Option per year. During the remainder of the
term of the Option (if its term extends beyond the end of the installment
periods), the option may be exercised from time to time with respect to any
shares then remaining subject to the Option. The provisions of this subsection
6(e) are subject to any Option provisions governing the minimum number of shares
as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or any
person to whom an Option is transferred under subsection 6(d), as a condition of
exercising any such Option, to give written assurances satisfactory to the
Company, if any, that are necessary to ensure compliance with federal securities
laws. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the Option has been registered under a then currently effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii) as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
If an Optionee's Continuous Status as an Employee, Director or Consultant
terminates (other than "for cause", or upon the Optionee's death or Disability),
the Optionee may exercise his or her Option, but only within such period of time
as is determined by the Board (which period shall not be less than three (3)
months from the date of such termination), and only to the extent that the
Optionee was entitled to exercise it at the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to the Plan. If an Optionee's Continuous Status as an
Employee, Director or Consultant terminates "for cause", the right to exercise
the Option shall immediately cease, unless the Option is an Incentive Stock
Option, in which case the right to exercise the Option shall terminate three (3)
months after the date of termination of Optionee's employment.
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<PAGE> 43
(h) DISABILITY OF OPTIONEE. If an Optionee's Continuous Status as an
Employee, Director or Consultant terminates as a result of the Optionee's
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Board (which period from the date of such
termination shall not be less than one (1) year, and only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Option Agreement). If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the shares covered by the Option shall revert to
the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee, the Option
may be exercised, at any time within such period as is determined by the Board
(which period shall not be less than twelve (12) months following the date of
death) by the personal representative of the Optionee's estate or by a person
who acquired the right to exercise the Option by bequest or inheritance, and
only to the extent the Optionee was entitled to exercise the Option at the date
of death (but in no event later than the expiration of the term of such Option
as set forth in the Option Agreement). If, at the time of death, the Optionee
was not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to the Plan If, after death,
the Optionee's estate or a person who acquired the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to the Plan.
(j) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the Stock otherwise issuable
to the Optionee as a result of the exercise of the Option; or (3) delivering to
the Company unencumbered shares of Stock owned by Optionee.
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<PAGE> 44
7. TERMS OF STOCK BONUSES AND STOCK PURCHASES.
-------------------------------------------
Each Stock Bonus or Stock Purchase agreement shall be in such form and
shall contain such terms and conditions as the Board or the Committee shall deem
appropriate. The terms and conditions of Stock Bonus or Stock Purchase
agreements may change from time to time, and the terms and conditions of
separate agreements need not be identical, but each Stock Bonus or Stock
Purchase agreement shall include (through incorporation of provisions hereof by
reference in the agreement or otherwise) the substance of each of the following
provisions as appropriate:
(a) PURCHASE PRICE. The purchase price under each Stock Purchase agreement
shall be such amount as the Board or Committee shall determine and designate in
such agreement (which purchase price shall in any event be not less than
eighty-five (85%) percent of the Fair Market Value of the Stock on the date such
award is made), provided that the purchase price shall be one hundred (100%)
percent of the Fair Market Value of the Stock on the date the award is made, in
the case of any person who owns Stock possessing more than ten (10%) percent of
the total combined voting power of all classes of capital stock of the Company
or its Affiliates.
(b) TRANSFERABILITY. Rights under a Stock Bonus or Stock Purchase agreement
shall not be transferable in any manner, whether voluntary or involuntary,
except by will or the law of descent and distribution. Rights under a Stock
Bonus or Stock Purchase agreement may be transferred to a trust for the benefit
of the holder of the rights or members of his immediate family if the transfer
does not violate the requirements of the California Corporate Securities Rules
(Title 10, California Code of Regulations). An attempted non-permitted transfer
shall be void and shall immediately terminate the rights.
(c) CONSIDERATION. The purchase price of Stock acquired pursuant to a Stock
Purchase agreement shall be paid either: (i) in cash at the time of purchase;
(ii) at the discretion of the Board or the Committee, according to a deferred
payment or other arrangement with the person to whom the Stock is sold; or (iii)
in any other form of legal consideration (including shares of previously owned
Stock) that may be acceptable to the Board or the Committee in their discretion.
(d) VESTING. Shares of Stock sold or awarded under the Plan may, but need
not, be subject to a repurchase option in favor of the Company in accordance
with a vesting schedule to be determined by the Board or the Committee.
(e) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event a Participant's Continuous Status as an Employee, Director or
Consultant terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of Stock held by that person which have not vested as of the
date of termination under the terms of the Stock bonus or Stock purchase
agreement between the Company and such person.
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8. STOCK APPRECIATION RIGHTS.
--------------------------
(a) The Board or Committee shall have full power and authority, exercisable
in its sole discretion, to grant Stock Appreciation Rights to Employees,
Directors or Consultants of the Company or its Affiliates under the Plan. Each
such right shall entitle the holder to a distribution based on the appreciation
in the Fair Market Value per share of a designated amount of Stock.
(b) three types of Stock Appreciation Rights shall be authorized for
issuance under the Plan:
(i) TANDEM STOCK APPRECIATION RIGHTS. Tandem Rights will be granted
appurtenant to an Option and will require the holder to elect between the
exercise of the underlying Option for shares of Stock and the surrender, in
whole or in part, of the Option for an appreciation distribution equal to the
excess of (A) the Fair Market Value (on the date of Option surrender) of vested
shares of Stock purchasable under the surrendered Option over (B) the aggregate
exercise price payable for those shares.
(ii) CONCURRENT STOCK APPRECIATION RIGHTS. Concurrent Rights will be
granted appurtenant to an Option and may apply to all or any portion of the
shares of Stock subject to the underlying Option and will be exercised
automatically at the same time the Option is exercised for those shares. The
appreciation distribution to which the holder of such Concurrent Right shall be
entitled upon exercise of the underlying Option shall be in an amount equal to
the excess of (A) the aggregate Fair Market Value (at date of exercise) of the
vested shares purchased under the underlying Option with such Concurrent Rights
over (B) the aggregate exercise price paid for those shares.
(iii) INDEPENDENT STOCK APPRECIATION RIGHTS. Independent Rights may be
granted independently of any Option and will entitle the holder upon exercise to
an appreciation distribution equal in amount to the excess of (A) the aggregate
Fair Market Value (at the date of exercise) of a number of shares of Stock equal
to the number of vested share equivalents exercised at such time (as described
in subsection 8(c)(iii)(B)) over (B) the aggregate Fair Market Value of such
number of shares of Stock at the date of grant.
(c) The terms and conditions applicable to each Tandem Right, Concurrent
Right and Independent Right shall be as follows:
(i) TANDEM RIGHTS.
(A) Tandem Rights may be tied to either Incentive Stock Options
or Non-statutory Stock Options. Each Tandem Right shall, except as specifically
set forth below, be subject to the same terms and conditions applicable to the
particular Option to which it pertains. If Tandem Rights are granted appurtenant
to an Incentive Stock Option, they shall satisfy any applicable Treasury
Regulations so as not to disqualify the Option as an Incentive Stock Option
under the Code.
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<PAGE> 46
(B) The appreciation distribution payable on the exercised Tandem
Right shall be in cash in an amount equal to the excess of (I) the Fair Market
Value (on the date of the Option surrender) of the number of shares of Stock
covered by that portion of the surrendered Option in which the Optionee is
vested over (II) the aggregate exercise price payable for those vested shares.
(ii) CONCURRENT RIGHTS.
(A) Concurrent Rights may be tied to any or all of the shares of
Stock subject to any Incentive Stock Option or Non-statutory Stock Option grant
made under the Plan. A Concurrent Right shall, except as specifically set forth
below, be subject to the same terms and conditions applicable to the particular
Option grant to which it pertains.
(B) A Concurrent Right shall be automatically exercised at the
same time the underlying Option is exercised with respect to the particular
shares of Stock to which the Concurrent Right pertains.
(C) The appreciation distribution payable on an exercised
Concurrent Right shall be in cash in an amount equal to such portion as shall be
determined by the Board or the Committee at the time of the grant of the excess
of (I) the aggregate Fair Market Value (on the Exercise Date) of the vested
shares of Stock purchased under the underlying Option which have Concurrent
Rights appurtenant to them over (II) the aggregate exercise price paid for those
shares.
(iii) INDEPENDENT RIGHTS.
(A) Independent Rights shall, except as specifically set forth
below, be subject to the same terms and conditions applicable to Non-statutory
Stock Options as set forth in Section 6. They shall be denominated in share
equivalents.
(B) The appreciation distribution payable on the exercised
independent Right shall be in an amount equal to the excess of (1) the aggregate
Fair Market Value (on the date of the exercise of the Independent Right) of a
number of shares of Company Stock equal to the number of share equivalents in
which the holder is vested under such Independent Right, and with respect to
which the holder is exercising the Independent Right on such date, over (II) the
aggregate Fair Market Value (on the date of the grant of the Independent Right)
of such number of shares of Company Stock.
(C) The appreciation distribution payable on the exercised
Independent Right may be paid, in the discretion of the Board or the Committee,
in cash, in shares of Stock or in a combination of cash and Stock. Any shares of
Stock so distributed shall be valued at Fair Market Value on the date the
Independent Right is exercised.
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(iv) TERMS APPLICABLE TO TANDEM RIGHTS, CONCURRENT RIGHTS AND
INDEPENDENT RIGHTS.
(A) To exercise any outstanding Tandem, Concurrent or Independent
Right, the holder must provide written notice of exercise to the Company in
compliance with the provisions of the instrument evidencing the right.
(B) If a Tandem, Concurrent, or Independent Right is granted to
an individual who is at the time subject to Section 16(b) of the Exchange Act (a
"Section 16(b) Insider"), then the instrument of grant shall incorporate all the
terms and conditions at the time necessary to assure that the subsequent
exercise of the right shall qualify for the safe-harbor exemption from
short-swing profit liability provided by Rule 16b-3 promulgated under the
Exchange Act (or any successor rule or regulation).
(C) No limitation shall exist on the aggregate amount of cash
payments the Company may make under the Plan in connection with the exercise of
Tandem, Concurrent or Independent Rights.
9. CANCELLATION AND RE-GRANT OPTIONS.
----------------------------------
The Board or the Committee shall have the authority to effect, at any time
and from time to time, with the consent of the affected holders of Options
and/or Stock Appreciation Rights, (i) the re-pricing of any outstanding Options
and/or any Stock Appreciation Rights under the Plan and/or (ii) the cancellation
of any outstanding Options and/or any Stock Appreciation Rights under the Plan
and the grant in substitution therefor of new Options and/or Stock Appreciation
Rights under the Plan covering the same or different numbers of shares of Stock,
but having an exercise price per share not less than eighty-five (85%) percent
of the Fair Market Value (one hundred (100%) percent of the Fair Market Value in
the case of an Option or, in the case of a ten (10%) percent shareholder (as
described in subsection 5(c)), not less than one hundred ten (110%) percent of
the Fair Market Value) per share of Stock on the new grant date.
10. COVENANT OF THE COMPANY.
------------------------
During the terms of the Stock Awards, the Company shall keep available at
all times the number of shares of Stock required to satisfy such Stock Awards up
to the number of shares of Stock authorized under the Plan.
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11. USE OF PROCEEDS FROM STOCK.
---------------------------
Proceeds from the sale of Stock pursuant to Stock Awards shall constitute
general funds of the Company.
12. MISCELLANEOUS.
--------------
(a) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
(b) Throughout the term of any Option granted pursuant to the Plan, the
Company shall make available to the holder of such Option, not later than one
hundred twenty (120) days after the close of each of the Company's fiscal years
during the Option term, such financial and other information regarding the
Company as comprises the annual report to the stockholders of the Company
provided for in the bylaws of the Company.
(c) Nothing in the Plan or any instrument executed or Stock Award granted
pursuant thereto shall confer upon any Employee, Director, Consultant, Optionee,
or other holder of Stock Awards any right to continue in the employ of the
Company or any Affiliate (or to continue acting as a Director or Consultant) or
shall affect the right of the Company or any Affiliate to terminate the
employment of any Employee, or the relationship as a Director or Consultant of
any Director or Consultant with or without cause.
(d) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Non-statutory Stock
Options.
13. ADJUSTMENTS UPON CHANGES IN STOCK.
----------------------------------
(a) If any change is made in the Stock subject to the Plan, or subject to
any Stock Award (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and outstanding Stock Awards will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of Stock
subject to outstanding Stock Awards.
13
<PAGE> 49
(b) In the event of: (1) a merger or consolidation in which the Company is
not the surviving corporation or (2) a reverse merger in which the Company is
the surviving corporation but the shares of Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then, at the sole
discretion of the Board and to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Stock Awards outstanding under the Plan
or shall substitute similar Stock Awards for those outstanding under the Plan,
or (ii) such Stock Awards shall continue in full force and effect. In the event
any surviving corporation refuses to assume or continue such Stock Awards, or to
substitute similar awards for those outstanding under the Plan, the Stock Awards
shall be terminated if not exercised prior to such event. In the event of a
dissolution or liquidation of the Company, any Stock Awards outstanding under
the Plan shall terminate if not exercised prior to such event.
14. AMENDMENT OF THE PLAN.
----------------------
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 13 relating to adjustments upon changes
in Stock, any amendments shall be approved by the shareholders of the Company
where required by law.
(b) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance with the Code.
(c) Rights and obligations under any Stock Award granted before amendment
of the Plan shall not be altered or impaired by any amendment of the Plan unless
(i) the Company requests the consent of the person to whom the Stock Award was
granted and (ii) such person consents in writing.
15. TERMINATION OR SUSPENSION OF THE PLAN.
--------------------------------------
(a) The Plan shall terminate ten (10) years following its effective date.
Despite the preceding sentence, the Board may suspend or terminate the Plan at
any time. No Stock Awards may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any Stock Award granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the Stock Award was granted.
16. EFFECTIVE DATE OF PLAN.
-----------------------
The Plan shall become effective upon the date designated by the Board. No
Stock Award granted hereunder shall take effect unless approved by a majority of
the outstanding shares of the Company, which approval must occur within a period
commencing twelve (12) months before and ending twelve (12) months after the
date the Plan is adopted by the Board.
14
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