<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30, 1998.
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
--------- ----------
Commission file number 0-19817
--------------------------------
INTRANET SOLUTIONS, INC.
- - --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Chapter)
Minnesota 41-1652566
- - ---------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
8091 Wallace Road, Eden Prairie, Minnesota 55344
- - --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(612) 903-2000
- - --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
9625 W. 76th Street, Suite 150, Eden Prairie, Minnesota 55344
- - --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, If Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
------- ------
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: At November 10, 1998 there
were 9,447,214 shares of common stock, $0.01 par value outstanding.
Page 1 of 18
<PAGE> 2
INTRANET SOLUTIONS, INC.
Form 10-QSB Index
September 30, 1998
Part I Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
September 30, 1998 and March 31, 1998 3
Condensed Consolidated Statements of Operations -
for the three and six months ended September 30,
1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
for the three and six months ended September 30,
1998 and 1997 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II: Other Information
Item 4: Submission of Matters to a Vote of Security-Holders 16
Item 6: Exhibits and Reports on Form 8-K 17
Page 2 of 18
<PAGE> 3
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
----------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $1,462,360 $994,526
Accounts receivable, net 5,531,619 4,925,301
Notes receivable 1,840,874 277,703
Inventories 78,531 233,121
Prepaid expenses and other current assets 479,273 540,472
----------------- ------------------
Total current assets 9,392,657 6,971,123
PROPERTY AND EQUIPMENT, NET 726,356 682,750
INTANGIBLE ASSETS, NET -- 93,338
NET ASSETS OF DISCONTINUED OPERATIONS -- 709,128
----------------- ------------------
$10,119,013 $8,456,339
================= ==================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES:
Revolving credit facility $2,189,240 $2,246,122
Current portion of long-term debt 66,285 663,631
Accounts payable 2,629,796 2,906,293
Deferred revenues 322,374 210,110
Accrued expenses 791,094 563,786
----------------- ------------------
Total current liabilities 5,998,789 6,589,942
LONG-TERM DEBT, NET OF CURRENT PORTION -- 156,250
OTHER 235,079 42,215
----------------- ------------------
Total liabilities 6,233,868 6,788,407
----------------- ------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Series A Preferred stock, $.01 par value, $5.00 stated value, 1,000,000
shares authorized, 270,000 and 450,000 shares
issued and outstanding, respectively 1,202,304 2,003,844
Series B Preferred Stock, $.01 par value, $5.00 stated value,
300 shares authorized, 285 and 0 shares issued and
outstanding, respectively 2,709,942 --
Common stock, $.01 par value, 24,000,000 shares authorized,
9,105,286 and 8,607,445 issued and outstanding, respectively 91,053 86,075
Additional paid-in capital 10,405,779 8,760,980
Accumulated deficit (10,441,452) (9,064,694)
Unearned compensation (82,481) (118,273)
----------------- ------------------
Total stockholders' equity 3,885,145 1,667,932
----------------- ------------------
$10,119,013 $8,456,339
================= ==================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 18
<PAGE> 4
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------------------- --------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
REVENUES:
Hardware integration $1,769,248 $3,605,149 $4,357,809 $6,556,839
Software, technical services and
support 2,438,884 1,395,055 4,066,667 3,000,018
----------------- ---------------- ---------------- -----------------
Total revenues 4,208,132 5,000,204 8,424,476 9,556,857
----------------- ---------------- ---------------- -----------------
COST OF REVENUES:
Hardware integration 1,527,607 3,089,770 3,711,929 5,523,812
Software, technical services and
support 797,932 577,588 1,420,071 1,566,501
----------------- ---------------- ---------------- -----------------
Total cost of revenues 2,325,539 3,667,358 5,132,000 7,090,313
----------------- ---------------- ---------------- -----------------
Gross profit 1,882,593 1,332,846 3,292,476 2,466,544
----------------- ---------------- ---------------- -----------------
OPERATING EXPENSES:
Sales and marketing 1,108,989 750,075 2,046,399 1,338,305
General and administrative 656,331 611,086 1,307,033 1,174,873
Research and development 344,252 331,605 628,970 636,971
----------------- ---------------- ---------------- -----------------
Total operating expenses 2,109,572 1,692,766 3,982,402 3,150,149
----------------- ---------------- ---------------- -----------------
Loss from operations (226,979) (359,920) (689,926) (683,605)
OTHER
Gain on sale of hardware
integration unit 516,934 -- 516,934 --
Interest expense, net (19,146) (103,360) (50,023) (196,143)
----------------- ---------------- ---------------- -----------------
INCOME (LOSS) FROM CONTINUING 270,809 (463,280) (223,015) (879,748)
OPERATIONS
DISCONTINUED OPERATIONS
Loss from operations of
Distribution Group -- (514,506) (410,361) (950,364)
Loss on sale of discontinued
Distribution Group -- -- (111,103) --
----------------- ---------------- ---------------- -----------------
NET INCOME (LOSS) $270,809 ($977,786) ($744,479) ($1,830,112)
PREFERRED STOCK DIVIDENDS AND ACCRETION 29,245 980,000 62,279 980,000
----------------- ---------------- ---------------- -----------------
INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS $241,564 ($1,957,786) ($806,758) ($2,810,112)
================= ================ ================ =================
EARNINGS PER SHARE - BASIC:
Income (loss) from continuing
operations per common share $0.03 ($0.06) ($0.03) ($0.12)
Net income (loss) per common
share $0.03 ($0.13) ($0.09) ($0.24)
Income (loss) attributable to
common shareholders per common
share $0.03 ($0.26) ($0.09) ($0.37)
EARNING PER SHARE - DILUTED:
Income (loss) from continuing
operations per common share $0.02 ($0.06) ($0.03) ($0.12)
Net income (loss) per common
share $0.02 ($0.13) ($0.09) ($0.24)
Income (loss) attributable to
common shareholders per common
share $0.02 ($0.26) ($0.09) ($0.37)
WEIGHTED AVERAGE SHARES - BASIC: 8,777,214 7,639,630 8,716,519 7,591,377
WEIGHTED AVERAGE SHARES - DILUTED: 10,930,096 7,639,630 8,716,519 7,591,377
</TABLE>
See accompanying notes to the condensed consolidated financial statements
Page 4 of 18
<PAGE> 5
INTRANET SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- -------------------------------------
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
----------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $270,809 ($977,786) ($744,479) ($1,830,112)
Adjustments to reconcile net loss
to cash flows from operating
activities -
Depreciation and amortization 69,669 74,474 150,919 127,644
Stock option compensation earned 14,031 16,896 15,992 34,257
Discount amortization -- 23,532 194 53,952
Gain on sale of hardware integration
unit (516,934) -- (516,934) --
Discontinued operations -- (148,703) 709,128 (24,321)
Changes in operating assets and
liabilities (50,578) (1,412,489) (994,004) (1,526,041)
----------------- ----------------- ---------------- -----------------
Cash flows from operating activities (213,003) (2,424,076) (1,379,184) (3,164,621)
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from note receivable -- -- -- 248,222
Purchases of fixed assets (70,161) (89,674) (233,674) (121,800)
----------------- ----------------- ---------------- -----------------
Cash flows from investing activities (70,161) (89,674) (233,674) 126,422
----------------- ----------------- ---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net advances from revolving credit
facility (82,119) (177) (56,882) 642,563
Payments on long-term debt (407,552) (104,990) (748,206) (213,050)
Payments on capital leases (2,827) (2,535) (5,584) (4,190)
Payments on other long-term liabilities (29,705) (50,216) (45,386) (72,260)
Repurchase of treasury stock (9,475) (9,400) (8,950) (8,800)
Issuance of preferred stock (457) 3,529,024 2,852,571 3,529,024
Payment of dividends on preferred stock (27,190) -- (60,224) --
Proceeds from stock options and warrants 4,466 213,578 153,353 215,858
----------------- ----------------- ---------------- -----------------
Cash flows from financing activities (554,859) 3,575,284 2,080,692 4,089,145
----------------- ----------------- ---------------- -----------------
NET INCREASE (DECREASE) IN CASH (838,023) 1,061,534 467,834 1,050,946
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 2,300,383 111,210 994,526 121,798
----------------- ----------------- ---------------- -----------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $1,462,360 $1,172,744 $1,462,360 $1,172,744
================= ================= ================ =================
NON-CASH TRANSACTIONS:
Conversion of debt to common stock -- -- -- $250,000
Conversion of debt to preferred stock -- $150,000 -- $150,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
INFORMATION:
Cash paid for interest $50,022 $96,163 $98,137 $176,789
Cash paid for income taxes -- -- $987 $3,531
DETAIL OF CHANGES IN OPERATING ASSETS AND
LIABILITIES:
Accounts receivable ($74,438) ($1,369,517) ($845,380) ($2,385,827)
Inventories 3,389 (98,367) 11,710 (34,935)
Prepaid expenses and other current assets 46,813 (156,607) 26,076 (208,401)
Accounts payable (170,173) 93,449 (284,640) 1,055,153
Accrued expenses and other current
liabilities 143,831 118,553 98,230 47,969
================= ================= ================ =================
Net changes in operating assets
and liabilities ($50,578) ($1,412,489) ($994,004) ($1,526,041)
================= ================= ================ =================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
Page 5 of 18
<PAGE> 6
INTRANET SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations. Although management believes that the disclosures are
adequate to make the information presented not misleading, it is suggested that
these interim consolidated financial statements be read in conjunction with the
Company's most recent audited consolidated financial statements and notes
thereto. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim period presented
have been made. Operating results for the six months ended September 30, 1998
are not necessarily indicative of the results that may be expected for the year
ending March 31, 1999.
(2) NET INCOME (LOSS) PER COMMON SHARE
Statement of Financial Accounting Standards No. 128, "Earnings per Share,"
requires presentation of "Basic" and " Diluted" earnings per share amounts, as
defined. "Basic" earnings per share replaces primary earnings per share under
APB Opinion No. 15, and excludes the dilutive effects of common stock
equivalents, if any, from the calculation. Fully diluted earnings per share has
not changed significantly but has been named "Dilutive" earnings per share.
Statement No. 128 became effective for fiscal years ending after December 15,
1997. All earnings per share prior to 1998 have been restated, where applicable,
to comply with this statement.
The Company's basic net income (loss) per share amounts have been computed by
dividing net income (loss) by the weighted average number of outstanding common
shares. The Company's diluted net income (loss) per share is computed by
dividing net income (loss) by the weighted average number of outstanding common
shares and common share equivalents relating to stock options, when dilutive.
For all periods except the quarter ended September 30, 1998, the Company
incurred net losses and therefore basic and diluted per share amounts are the
same. Common stock equivalent shares consist of convertible preferred stock
(using the if-converted method) and stock options and warrants (using the
treasury stock method).
Page 6 of 18
<PAGE> 7
The table below sets forth the computation of earnings per common share.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
Numerator: --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income (loss) from continuing
operations $270,809 ($463,280) ($223,015) ($879,748)
Discontinued operations -- (514,506) (521,464) (950,364)
--------------- -------------- -------------- --------------
Net Income (loss) 270,809 (977,786) (744,479) (1,830,112)
Preferred stock dividends and
accretion 29,245 980,000 62,279 980,000
--------------- -------------- -------------- --------------
Numerator for basic earnings per
share - income attributable to
common shareholders 241,564 (1,957,786) (806,758) (2,810,112)
Effect of dilutive securities:
Preferred stock dividends and
accretion 29,245 -- -- --
--------------- -------------- -------------- ---------------
Numerator for diluted earnings per
share - income (loss)
attributable to common
shareholders $270,809 ($1,957,786) ($806,758) ($2,810,112)
=============== ============== ============== ==============
Denominator:
Denominator for basic earnings
per share - weighted average
shares 8,777,214 7,639,630 8,716,519 7,591,377
Effect of dilutive securities:
Employee stock options 399,279 -- -- --
Warrants 27,064 -- -- --
Convertible preferred stock 1,726,539 -- -- --
--------------- -------------- -------------- --------------
Dilutive potential common shares 2,152,882 -- -- --
Denominator for diluted earnings
per share - adjusted weighted
average shares and assumed
conversions 10,930,096 7,639,630 8,716,519 7,591,377
=============== ============== ============== ==============
</TABLE>
(3) SERIES B CONVERTIBLE PREFERRED STOCK
In May, 1998, the Company issued $3,000,000 of Series B 4% Convertible
Preferred Stock. The preferred stock is convertible into the Company's common
stock at a price equal to 84% of market value at the date of conversion with a
maximum conversion price of $7.56 and a minimum conversion price of $1.81. In
connection with this transaction, the Company recognized a non-cash deemed
dividend of $570,000. The deemed dividend was recorded as a discount to
preferred stock with a corresponding credit to additional paid in capital. The
discount was recognized at the date of issue of the preferred stock, the same
date at which the shares were eligible for conversion. The accretion of the
discount is reflected in the statement of operations as an adjustment to net
income (loss), but has no net effect on total stockholders' equity.
(4) SALE OF HARDWARE INTEGRATION UNIT
Effective September 30, 1998, the Company sold the operations of its
hardware integration unit to Osage Systems Group, Inc. The sale was completed
for a purchase price of $1.6 million, and certain future financial
consideration, dependent on the performance of the unit divested over the next
two years. The purchase price is to be paid in three installments, including
$750,000 on October 16, 1998, $250,000 on November 16, 1998, and $535,000 on
January 15, 1999. The total amount of these installments, $1,535,000, has been
recorded as a note receivable in the balance sheet as of September 30, 1998. The
remaining $65,000 in proceeds, which has
Page 7 of 18
<PAGE> 8
been deducted from the purchase price as a cost of the transaction, will be paid
by Osage directly to certain former IntraNet employee's on or before October 15,
1999. The first installment due October 16, 1998 has been paid.
In conjunction with the sale of the hardware integration unit, the
Company has entered into a non-competition agreement with Osage. As a result,
the Company has recorded the necessary provision for the reserve or write-down
of the assets and contracts associated with the hardware integration unit to
their net realizable value. The gain on the sale of the hardware integration
unit operations of $516,000 has been recorded net of transaction costs and the
aforementioned provision in the statement of operations as other income.
(5) RECENTLY ISSUED ACCOUNTING PRINCIPLES
In October, 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position No. 97-2 ("SOP 97-2"), "Software Revenue
Recognition", which the Company has adopted for transactions entered into during
the fiscal year beginning April 1, 1998. SOP 97-2 provides guidance for
recognizing revenue on software transactions and supersedes SOP 91-1, "Software
Revenue Recognition". In March 1998, the AICPA issued Statement of Position No.
98-4 ("SOP 98-4"), "Deferral of the Effective Date of a Provision of SOP 97-2,
Software Revenue Recognition". SOP 98-4 defers, for one year, the application of
certain passages in SOP 97-2 which limit what is considered vendor-specific
objective evidence ("VSOE") necessary to recognize revenue for software licenses
in multiple-element arrangements when undelivered elements exist. Additional
guidance is expected to be provided prior to adoption of the deferred provision
of SOP 97-2. The Company will determine the impact, if any, the additional
guidance will have on current revenue recognition practices when issued.
Adoption of the remaining provisions of SOP 97-2 did not have a material impact
on revenue recognition during the three months ended September 30, 1998.
On April 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." Comprehensive income
includes certain changes in equity that are currently excluded from net
earnings. The adoption of this statement did not impact the Company's
consolidated financial statements; historically there have been no differences
between net earnings and comprehensive income.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information"("SFAS 131"). SFAS 131 revises information
regarding the reporting of operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Company will adopt SFAS 131 for the fiscal year ending March 31,
1999 and has not yet completed the evaluation of the impact of such adoption on
the notes to its consolidated financial statements.
(6) RECLASSIFICATIONS
Certain accounts in the prior year financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current year financial statements.
Page 8 of 18
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
IntraNet Solutions, Inc. ("IntraNet" or the "Company") develops and
implements integrated solutions for the management and distribution of critical
business information. IntraNet offers its customers a variety of products
including proprietary intranet document management software, software
implementation services. The evolution of Web technology as a tool for storing,
managing and distributing information, coupled with the Company's experience in
designing systems and creating custom software applications, has created an
opportunity for the Company to develop a line of document management software
products utilizing Web technology.
The Company's revenues are derived from (i) the sale of proprietary and
non-proprietary software products, (ii) the sale of maintenance and support
contracts, and (iii) the sale of technical and other services. Revenue from the
sale of software is recognized in accordance with AICPA Statement of Position
97-2 Software Revenue Recognition. Accordingly, revenue is recognized at the
time of product shipment if no significant Company obligations remain, fees are
fixed and determinable, and collection of the resulting sale price is probable.
In instances where a significant vendor obligation exists, revenue recognition
is deferred until the obligation has been satisfied. Revenue from maintenance
and support contracts is generally recognized ratably over the term of the
contract. Revenue from contracts with original durations of one year or less is
recognized at the time of sale if the Company does not expect to have material
future obligations to service the contracts. Revenue from technical and other
services are recognized as the related services are performed and collectibility
is deemed probable. Revenue from the sale of all other products and services is
recognized at the time of delivery to the customer.
Page 9 of 18
<PAGE> 10
RESULTS OF OPERATIONS FOR THE QUARTER ENDED SEPTEMBER 30, 1998
COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1997
REVENUES
Total revenues decreased to $4.2 million for the quarter ended
September 30, 1998 from $5.0 million for the quarter ended September 30, 1997,
or $800,000 (15.8%). This decrease related to a decrease in the Company's
hardware integration business.
Hardware Integration. Hardware integration revenues decreased a total
of $1.8 million or 50.9% for the quarter ended September 30, 1998 compared to
the quarter ended September 30, 1997 ($1.8 million in 1998 compared to $3.6
million in 1997). The decrease in hardware integration revenue was principally
due to an ongoing emphasis on the Company's proprietary software business and
the sale of this unit during the quarter ended September 30, 1998.
Software, Technical Services and Support. Software, technical services
and support revenues increased a total of $1.0 million or 74.8% for the quarter
ended September 30, 1998 compared to the quarter ended September 30, 1997 ($2.4
million in 1998 compared to $1.4 million in 1997). The growth in revenue was
primarily attributable to the Company's proprietary software products.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues decreased to $2.3 million for the quarter ended
September 30, 1998 from $3.7 million for the quarter ended September 30, 1997.
Total cost of revenues as a percent of total revenues was 55.3% in 1998 compared
to 73.3% in 1997. Gross profit increased to $1.9 million for the quarter ended
September 30, 1998 compared to $1.3 million for the quarter ended September 30,
1997. Total gross profit as a percent of total revenues was 44.7% in 1998
compared to 26.7% in 1997. The increase in gross profit was primarily
attributable to incremental revenue contributions from the sale of proprietary
software.
Hardware Integration. Cost of hardware integration revenues decreased
to $1.5 million for the quarter ended September 30, 1998 from $3.1 million for
the quarter ended September 30, 1997. Cost of hardware integration revenues as a
percent of hardware integration revenues was 86.3% in 1998 compared to 85.7% in
1997. Gross profit from hardware integration was 13.7% for the quarter ended
September 30, 1998 compared to 14.3% for the quarter ended September 30, 1997.
Software, Technical Services and Support. Cost of software, technical
services and support revenues increased to $800,000 for the quarter ended
September 30, 1998 from $600,000 for the quarter ended September 30, 1997. Cost
of software, technical services, and support revenues as a percent of software,
technical services, and support revenue was 32.7% in 1998 compared to 41.4% in
1997. Gross profit on software, technical services and support was 67.3% for the
quarter ended September 30, 1998 compared to 58.6% for the quarter ended
September 30, 1997. The increase in gross profit was primarily attributable to
the increase in sales of higher margin proprietary software.
Page 10 of 18
<PAGE> 11
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased to $1.1
million for the quarter ended September 30, 1998 compared to $800,000 for the
quarter ended September 30, 1997. Sales and marketing expenses as a percent of
total revenues were 26.4% in 1998 compared to 15.0% in 1997. Sales and marketing
increased as a percent of revenues primarily due to expansion of the marketing
efforts for the Company's proprietary software products.
General and Administrative. General and administrative expenses
increased to $700,000 for the quarter ended September 30, 1998 compared to
$600,000 for the quarter ended September 30, 1997. General and administrative
expenses as a percent of total revenue were 15.6% in 1998 compared to 12.2% in
1997.
Research and Development. Research and development expenses were
$300,000 for each of the quarters ended September 30, 1998 and 1997. Research
and development expenses as a percent of total revenue were 8.2% in 1998
compared to 6.6% in 1997.
Page 11 of 18
<PAGE> 12
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THE SIX MONTHS ENDED SEPTEMBER 30, 1997
REVENUES
Total revenues decreased to $8.4 million for the six months ended
September 30, 1998 from $9.6 million for the quarter ended September 30, 1997,
or $1.2 million (11.9%). This decrease related to a decrease in the Company's
hardware integration business.
Hardware Integration. Hardware integration revenues decreased a total
of $2.2 million or 33.5% for the six months ended September 30, 1998 compared to
the six months ended September 30, 1997 ($4.4 million in 1998 compared to $6.6
million in 1997). The decrease in hardware integration revenue was principally
due to an ongoing emphasis on the Company's proprietary software business and
the sale of this unit during the quarter ended September 30, 1998.
Software, Technical Services and Support. Software, technical services
and support revenues increased a total of $1.1 million or 35.6% for the six
months ended September 30, 1998 compared to the six months ended September 30,
1997 ($4.1 million in 1998 compared to $3.0 million in 1997). The growth in
revenue was primarily attributable to the Company's proprietary software
products.
COST OF REVENUES AND GROSS PROFIT
Total cost of revenues decreased to $5.1 million for the six months
ended September 30, 1998 from $7.1 million for the six months ended September
30, 1997. Total cost of revenues as a percent of total revenues was 60.9% in
1998 compared to 74.2% in 1997. Gross profit increased to $3.3 million for the
six months ended September 30, 1998 compared to $2.5 million for the six months
ended September 30, 1997. Total gross profit as a percent of total revenues was
39.1% in 1998 compared to 25.8% in 1997. The increase in gross profit was
primarily attributable to incremental revenue contributions from the sale of
proprietary software.
Hardware Integration. Cost of hardware integration revenues decreased
to $3.7 million for the six months ended September 30, 1998 from $5.5 million
for the six months ended September 30, 1997. Cost of hardware integration
revenues as a percent of hardware integration revenues was 85.2% in 1998
compared to 84.2% in 1997. Gross profit from hardware integration was 14.8% for
the six months ended September 30, 1998 compared to 15.8% for the six months
ended September 30, 1997.
Software, Technical Services and Support. Cost of software, technical
services and support revenues decreased to $1.4 million for the six months ended
September 30, 1998 from $1.6 million for the six months ended September 30,
1997. Cost of software, technical services, and support revenues as a percent of
software, technical services, and support revenue was 34.9% in 1998 compared to
52.2% in 1997. Gross profit on software, technical services and support was
65.1% for the six months ended September 30, 1998 compared to 47.8% for the six
months ended September 30, 1997. The increase in gross profit was primarily
attributable to the increase in sales of higher margin proprietary software.
Page 12 of 18
<PAGE> 13
OPERATING EXPENSES
Sales and Marketing. Sales and marketing expenses increased to $2.0
million for the six months ended September 30, 1998 compared to $1.3 million for
the six months ended September 30, 1997. Sales and marketing expenses as a
percent of total revenues were 24.3% in 1998 compared to 14.0% in 1997. Sales
and marketing increased as a percent of revenues primarily due to expansion of
the marketing efforts for the Company's proprietary software products.
General and Administrative. General and administrative expenses
increased to $1.3 for the six months ended September 30, 1998 compared to $1.2
million for the six months ended September 30, 1997. General and administrative
expenses as a percent of total revenue were 15.5% in 1998 compared to 12.3% in
1997.
Research and Development. Research and development expenses were
$600,000 for each of the six months ended September 30, 1998 and 1997. Research
and development expenses as a percent of total revenue were 7.5% in 1998
compared to 6.7% in 1997.
Page 13 of 18
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has financed its operations primarily
through revolving working capital and term loans from banking institutions
together with the sale of stock and subordinated debt. In December 1996, the
Company issued $1.0 million of 9% promissory notes. During the fourth quarter of
fiscal 1997, the Company issued an additional $500,000 of 9% promissory notes.
During the year ended March 31, 1998, $250,000 of those notes were converted
into approximately 71,000 shares of common stock, $150,000 were converted into
preferred stock and $850,000 were paid at maturity. Additionally, in April 1998,
$250,000 of these notes were paid. In consideration of these borrowings, the
Company issued the lenders warrants to acquire an aggregate of 300,000 shares of
Common Stock at an exercise price of $4.00.
During July 1997, the Company issued $4,000,000 of Series A 5%
Convertible Preferred Stock. The Company issued 800,000 units, each consisting
of one share of $.01 par value preferred stock and a warrant to acquire one
share of the Company's common stock at an exercise price of $5.18. The preferred
stock is convertible into the Company's common stock at a price equal to 75% of
market value at the time of conversion, with a maximum conversion price of $3.71
per share and a minimum conversion price of $1.00 per share. During the quarter
ended September 30, 1998, 160,000 shares of Series A Preferred Stock were
converted into 357,143 shares of common stock.
In May, 1998, the Company issued $3,000,000 of Series B 4% Convertible
Preferred Stock. The preferred stock is convertible into the Company's current
stock at a price equal to 84% of market value at the date of conversion with a
maximum conversion price of $7.56 and a minimum conversion price of $1.81. In
connection with this transaction, the Company recognized a non-cash deemed
dividend of $570,000. The deemed dividend was recorded as a discount to
preferred stock with a corresponding credit to additional paid in capital. The
discount was recognized at the date of issue of the preferred stock, the same
date at which the shares were eligible for conversion. The accretion of the
discount is reflected in the statement of operations as an adjustment to net
loss. During the quarter ended September 30, 1998, 15 shares of Series B
Preferred Stock were converted into 60,088 shares of common stock.
Effective September 30, 1998, the Company sold the operations of its
hardware integration unit to Osage Systems Group, Inc. The sale was completed
for a purchase price of $1.6 million, and certain future financial
consideration, dependent on the performance of the unit divested over the next
two years. The purchase price is to be paid in three installments, including
$750,000 on October 16, 1998, $250,000 on November 16, 1998, and $535,000 on
January 15, 1999. The total amount of these installments, $1,535,000, has been
recorded as a note receivable in the balance sheet as of September 30, 1998. The
remaining $65,000 in proceeds, which has been deducted from the purchase price
as a cost of the transaction, will be paid by Osage directly to former IntraNet
employee's on or before October 15, 1999. The first installment due October 16,
1998 has been paid.
The Company has a note receivable in the balance sheet as of September
30, 1998 in the amount of $235,000, related to the sale of its Minneapolis
Distribution Group operations during the year ended March 31, 1998. The note
is to be paid in quarterly installments of $27,100 plus accrued interest.
Page 14 of 18
<PAGE> 15
The Company's revolving working capital line of credit allows for
borrowings of up to $3.85 million based on available collateral at the bank's
base lending rate plus 2.5%. At September 30, 1998, the Company had advances of
$2.2 million, which are due on demand. At September 30, 1998, the Company also
had term loans outstanding in the amount of $42,400. The term loans require
monthly principal payments of $20,800 plus interest at the bank's base lending
rate plus 2.5%. At September 30, 1998 the Company also had a demand note payable
to its principal stockholder in the amount of $20,000 which accrues interest at
a rate of 12%.
As of September 30, 1998 the Company had cash of approximately $1.5
million. Capital expenditures for the quarters ended September 30, 1998 and
1997, including equipment financed with capital lease obligations, were $70,200
and $89,700, respectively.
The Company has entered into certain operating leases for facilities
and equipment. These leases require total monthly payments, net of related
sublease arrangements, of $33,700. The Company also has a long-term consulting
agreement with a former stockholder that requires monthly payments of $10,300
through July 2000.
The Company's capital requirements in connection with its development
and marketing activities have been and will continue to be significant. The
Company will continue to evaluate future financing needs. Future financings, if
necessary, may be dilutive to shareholders or may contain restrictive terms or
covenants. There can be no assurance that additional financings will be
available to the Company on commercially reasonable terms, or at all.
YEAR 2000 COMPLIANCE
The Company has initiated a project to prepare its products and
computer systems for the year 2000 impact on its business operations, product
offerings, customers, and suppliers. The Company has completed the awareness
phase of the project and is currently in various stages of the assessment,
remediation and internal testing phases. The project is expected to be completed
by the end of the third quarter of calendar year 1999. Accordingly, management
believes the year 2000 issue will not have a significant impact on its business.
If necessary modification and conversions are not completed on a timely basis,
the year 2000 issue could have an adverse effect on the Company's business. At
this time, the Company believes it is unnecessary to adopt a contingency plan
covering the possibility that the project will not be completed in a timely
manner, but as part of the overall project, the Company will continue to assess
the need for a contingency plan.
The costs associated with the year 2000 issues are being expensed
during the period in which they are incurred. The financial impact to the
Company of implementing any necessary changes to become year 2000 compliant has
not and is not anticipated to be material to the Company's business. However,
uncertainties that could impact actual costs and timing of becoming year 2000
compliant do exist. Factors that could affect the Company's estimates include,
but are not limited to, the availability and cost of trained personnel, the
ability to identify all systems and programs that are not year 2000 compliant,
the nature and amount of programming necessary to replace or upgrade affected
programs or systems, and the success of the Company's suppliers and customers to
address these issues. The Company will continue to assess and evaluate cost
estimates and target completion dates of the project on a periodic basis.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Form 10-QSB and other materials filed or to be filed by the Company with the
Securities and Exchange Commission (as well as information included in oral
statements or other written statements made or to be made by the Company)
contain statements that are forward-looking, such as statements relating to
plans for future expansion, product development, market acceptance of new
products, and other business development activities as well as other capital
spending, financing sources and the effects of regulation and competition. Such
forward-looking information involves important risks and uncertainties that
could significantly affect anticipated results in the future and, accordingly,
such results may differ from those expressed in any forward-looking statements
made by or on behalf of the Company. These risks and uncertainties include, but
are not limited to, those relating to product development and market acceptance
of new products, dependence on existing management, leverage and debt service
(including sensitivity to fluctuations in interest rates), domestic or global
economic conditions, changes in federal or state tax laws or the administration
of such laws.
Page 15 of 18
<PAGE> 16
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company is not a party to any material pending legal
proceedings and, to the best of its knowledge, its properties are
not the subject of any such proceedings.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
On September 16, 1998, the Company held its Annual Meeting of
the Shareholders to consider and vote upon the following
proposals. The tabulation of the votes, in favor, against, and
abstaining with regard to the proposals is set forth below.
<TABLE>
<CAPTION>
Broker
Proposal In Favor Against Abstain Non Votes
<S> <C> <C> <C> <C>
1. Election of Directors:
Robert F. Olson 8,114,625 19,771 0 --
Ronald E. Eibensteiner 8,089,750 44,646 0 --
Paul R. Anderson 8,118,350 16,046 0 --
Kenneth H. Holec 8,118,350 16,046 0 --
Steven C. Waldron 8,118,350 16,046 0 --
Jeffrey J. Sjobeck 8,022,846 111,550 0 --
2. Amendment to the company's
1994-1997 Stock Option and
Compensation Plan to
increase the number of
shares of common stock
reserved for issuance
thereunder from 2,500,000
shares to 3,100,000
shares 5,341,284 264,169 15,373 2,513,570
3. Adoption of the 1997
Director
Stock Option Plan 5,606,751 300,071 16,535 2,211,039
</TABLE>
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.23 Asset Purchase Agreement by and among Midwest
Graphics & Response Systems, Inc., Stephen M. Krenz,
and IntraNet Distribution Group, Inc.
10.24 Asset Purchase Agreement by and among IntraNet
Solutions, Inc., IntraNet Distribution Group, Inc.,
and Communication Connections, Inc.
10.25 Asset Purchase Agreement by and between Osage
Systems Group, Inc., Osage Systems Group Minneapolis,
Inc., and IntraNet Solutions, Inc.
27 Financial Data Schedule (filed herewith)
(b) Report on Form 8-K
On October 30, 1998 the Company filed a Form 8-K
announcing that it had sold it's hardware integration
unit.
Page 16 of 18
<PAGE> 17
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INTRANET SOLUTIONS, INC.
(the "Registrant" or "Company")
Dated November 12, 1998 By: /s/ Robert F. Olson
-----------------------------------
Robert F. Olson
Its: Chief Executive Officer
-----------------------------------
(Principal Executive Officer)
Dated November 12, 1998 By: /s/ Jeffrey J. Sjobeck
-----------------------------------
Jeffrey J. Sjobeck
Its: Chief Financial Officer
-----------------------------------
(Principal Financial Officer)
Page 17 of 18
<PAGE> 1
================================================================================
ASSET PURCHASE AGREEMENT
BY AND AMONG
MIDWEST GRAPHICS & RESPONSE SYSTEMS, INC.
BUYER
STEPHEN M. KRENZ
GUARANTOR
INTRANET DISTRIBUTION GROUP, INC.
SELLER
MARCH 30, 1998
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C> <C>
1. PURCHASE AND SALE OF ASSETS.....................................................................1
1.1 Generally.....................................................................1
1.2 Excluded Assets...............................................................3
2. PURCHASE PRICE..................................................................................3
2.1 Generally.....................................................................3
2.2 Transition Period Income Statement............................................3
2.3 Payment of Purchase Price.....................................................4
2.4 Adjustment of Purchase Price Following Transition Period......................4
3. LIMITATION ON ASSUMPTION OF LIABILITIES.........................................................5
4. CLOSING.........................................................................................5
5. LABOR AND EMPLOYMENT MATTERS....................................................................5
5.1 Generally.....................................................................5
5.2 Employment Transition Provisions..............................................6
5.3 Employee Vacation Matters.....................................................6
6. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE TO ASSETS.............................................6
7. PRORATIONS, ETC.................................................................................6
8. OTHER AGREEMENTS................................................................................6
9. REPRESENTATIONS AND WARRANTIES OF SELLER........................................................7
9.1 Corporate Organization........................................................7
9.2 Corporate Power...............................................................7
9.3 Conflicting Agreements, Governmental Consents.................................7
9.4 Restrictive Covenants. ......................................................8
9.5 Entire Business...............................................................8
9.6 Corporate Authority...........................................................8
9.7 Actions, Suits, Proceedings...................................................8
9.8 No Violations.................................................................8
9.9 Labor Matters.................................................................8
9.10 Title to Personal Property....................................................9
9.11 Condition of Assets...........................................................9
9.12 Payment Obligations of Customers..............................................9
9.13 Inventory Contracts, Purchase Orders and Other Contracts......................9
9.14 Computer Software. ...........................................................9
9.15 Licenses and Permits..........................................................9
9.16 Financial Information........................................................10
9.17 Taxes........................................................................10
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
9.18 Capital Projects.............................................................10
9.19 Insurance....................................................................11
9.20 Brokers and Finders..........................................................11
9.21 Full Disclosure..............................................................11
10. REPRESENTATIONS AND WARRANTIES OF BUYER........................................................11
10.1 Organization.................................................................11
10.2 Conflicting Agreements, Governmental Consents................................11
10.3 Corporate Authority..........................................................11
10.4 Brokers and Finders..........................................................11
11. CONDITIONS TO OBLIGATION OF BUYER TO CLOSE.....................................................12
11.1 Representations and Warranties...............................................12
11.2 No Adverse Change............................................................12
11.3 Observance and Performance...................................................12
11.4 Officer's Certificate........................................................12
11.5 Verification of Operating Results............................................12
11.6 Searches.....................................................................12
11.7 Consents of Third Parties....................................................12
11.8 Regulatory Approvals.........................................................12
11.9 Copies of Documents..........................................................13
11.10 No Legal Actions.............................................................13
11.11 Other Agreements.............................................................13
11.12 Closing Documents............................................................13
11.13 Due Diligence. .............................................................13
12. CONDITIONS TO OBLIGATION OF SELLER TO CLOSE....................................................13
12.1 Representations and Warranties...............................................13
12.2 Observance and Performance...................................................13
12.3 Officer's Certificate........................................................13
12.4 Regulatory Approvals.........................................................13
12.5 Delivery of Consideration....................................................14
12.6 Other Agreements.............................................................14
12.7 No Legal Actions.............................................................14
13. OPERATION OF BUSINESS PRIOR TO CLOSING.........................................................14
13.1 Maintenance of Business......................................................14
13.2 Employees....................................................................14
13.3 No Disposition of Assets.....................................................14
13.4 No Additional Liens..........................................................14
13.5 No Modification of Agreements................................................14
13.6 Maintenance of Tangible Assets...............................................14
13.7 Maintenance of Intangible Assets.............................................14
13.8 No Extraordinary Agreements..................................................15
13.9 Maintenance of Insurance.....................................................15
13.10 Ordinary Operations..........................................................15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
14. INSPECTION RIGHTS..............................................................................15
14.1 Pre-Closing Inspection Rights................................................15
14.2 Post-Closing Inspection Rights...............................................15
15. TAXES, FEES AND OTHER EXPENSES.................................................................15
15.1 Taxes and Fees...............................................................15
15.2 Expenses.....................................................................16
16. INDEMNIFICATION BY SELLER......................................................................16
16.1 Generally....................................................................16
16.2 Deductible...................................................................17
16.3 Limitations on Seller's Indemnification Obligations..........................17
16.4 Procedures...................................................................17
16.5 Settlement and Compromise....................................................17
16.6 Manner of Indemnification....................................................17
16.7 Non-Waiver, Non-Exclusive Remedy.............................................18
17. INDEMNIFICATION BY BUYER.......................................................................18
17.1 Generally....................................................................18
17.2 Limitations on Buyer's Indemnification Obligations...........................19
17.3 Procedures...................................................................19
17.4 Settlement and Compromise....................................................19
18. TERMINATION OF AGREEMENT.......................................................................19
18.1 Mutual Consent...............................................................19
18.2 Breach of Agreement..........................................................19
18.3 Results of Due Diligence.....................................................20
18.4 Government Action............................................................20
19. ASSIGNMENT. ..................................................................................20
20. COVENANT OF FURTHER ASSURANCES.................................................................20
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................................................20
22. OBLIGATIONS OF GUARANTOR.......................................................................20
23. PUBLIC ANNOUNCEMENT............................................................................21
24. ENTIRE AGREEMENT...............................................................................21
25. AMENDMENT AND WAIVER...........................................................................21
26. CHOICE OF LAW..................................................................................21
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
27. SEVERABILITY...................................................................................21
28. COUNTERPARTS...................................................................................21
29. FACSIMILE EXECUTION............................................................................21
30. INTERPRETATION.................................................................................21
31. NOTICES........................................................................................21
</TABLE>
EXHIBITS
EXHIBIT A - Promissory Note
EXHIBIT B - Employment Agreement between Buyer and Michael J. Grebin
EXHIBIT C - Separation Agreement between Seller and Michael J. Grebin
EXHIBIT D - Noncompetition and Confidentiality Agreement
EXHIBIT E - Transition Agreement
EXHIBIT F - Stephen M. Krenz Guaranty
SCHEDULES
SCHEDULE 1.1(A) - Equipment
SCHEDULE 1.1(C) - Accounts Receivable
SCHEDULE 1.1(E) - Inventory Contracts
SCHEDULE 1.1(F) - Purchase Orders
SCHEDULE 1.1(G) - Other Contracts
SCHEDULE 1.1(H) - Computer Systems
SCHEDULE 1.2(C) - Excluded Assets
SCHEDULE 2.1 - Allocation of Purchase Price
SCHEDULE 2.3(B) - Assumed Liabilities
SCHEDULE 9.9 - Employment Agreements and Collective Bargaining Agreements
SCHEDULE 9.10 - Encumbrances on Personal Property
SCHEDULE 9.15 - Licenses and Permits
SCHEDULE 9.17 - Tax Extensions
SCHEDULE 9.19 - Insurance
iv
<PAGE> 6
THIS ASSET PURCHASE AGREEMENT, dated as of March 30, 1998, by and among
Midwest Graphics & Response Systems, Inc., a Minnesota corporation ("Buyer"),
Stephen M. Krenz ("Guarantor") and IntraNet Distribution Group, Inc., a
Minnesota corporation ("Seller").
RECITALS
WHEREAS, Seller is engaged in, among other businesses, the business of
printing; and
WHEREAS, Seller desires to sell and Buyer desires to purchase
substantially all of the Minneapolis assets of Seller located in Minnesota
related to Seller's printing business to the extent performed in Minnesota,
specifically excluding any business taking place outside of Minnesota (the
"Business") on the terms and subject to the conditions of this Agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and conditions contained herein, the parties hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 Generally. On the terms and subject to the conditions of this
Agreement, Seller agrees to sell, transfer, convey and deliver to Buyer, and
Buyer agrees to purchase from Seller, on and as of the Closing Date (as defined
in Section 4 hereof), all property and assets of Seller utilized in, related to
or arising from the Business, as reflected in its books and records (the
"Assets"), other than the Excluded Assets (as defined in Section 1.2 hereof).
The Assets to be transferred to Buyer shall include without limitation the
following:
(a) All machinery, equipment, tools, motor vehicles, spare parts, tools,
accessories, furniture, and other miscellaneous tangible personal
property and utilized in or related to the Business, to the extent
listed on SCHEDULE 1.1(A) hereto (collectively, exclusive of those
items of personal property described in clause (d), herein referred to
as the "Equipment");
(b) All rights of Seller under any warranty or guarantee by any
manufacturer, supplier or other transferor of the Assets;
(c) All accounts, notes and other receivables in favor of Seller arising
out of the Business and as existing on the Closing Date, together with
all collateral security therefor, to the extent listed on SCHEDULE
1.1(C) hereto (the "Accounts Receivable");
(d) All merchantable inventory (including raw materials, work in process
and finished goods), packaging materials and supplies of Seller
utilized in the Business (the "Inventory");
(e) All rights of Seller under contracts and agreements pursuant to which
Seller has agreed to purchase or sell, as the case may be, Inventory
after the Closing Date ("Inventory Contracts"), including, without
limitation, the Inventory Contracts identified in SCHEDULE 1.1(E)
hereto;
1
<PAGE> 7
(f) All rights of Seller under purchase orders and purchase contracts
(including purchase orders for work-in-process) other than Inventory
Contracts, issued by it in the ordinary course of operating the
Business ("Purchase Orders"), including, without limitation, the
Purchase Orders identified in SCHEDULE 1.1(F) hereto;
(g) All rights of Seller under any contracts, indentures, guarantees,
leases, commitments, or other agreements necessary to operate to the
Business (the "Other Contracts"), including without limitation the
Other Contracts identified in SCHEDULE 1.1(G) hereto;
(h) All computer hardware, software programs (including but not limited to
all process control software and all computer applications software,
owned or licensed, whether for general business usage (e.g., printing,
accounting, word processing, graphics and spreadsheet analysis) or
specific, unique-to-the-business usage (e.g., order processing, process
control and shipping) and all computer operating, security or
programming software, owned or licensed by Seller and used in the
Business and including all documentation and source code with respect
to such software programs), and systems utilized in the Business (the
"Computer Systems") including without limitation, the Computer Systems
identified in SCHEDULE 1.1(H) hereto;
(i) All goodwill and other general intangibles of Seller utilized in the
Business; and
(j) All sales records, purchase records, customer lists (both house lists
and rented lists), supplier lists, advertising and promotional
materials, vendor records and information, production records and other
records relating to the Business; copies of all deeds and other
instruments, maps, and profiles relating to the Business in the
possession of Seller; copies of all real estate and engineering data,
blueprints and other property records relating to the Business in the
possession of Seller; all records regarding the Occupational Safety and
Health Act ("OSHA") and other governmental examinations and clearances
relating to the Business; and all personnel records; provided, however,
that Seller may make and retain copies of any records transferred to
Buyer.
Except as hereinafter specifically provided, the Assets will be
transferred by Seller to Buyer in accordance with this Agreement with all
required consents of any and all third parties (to the extent such consents can
be obtained at no charge to Seller, provided, however, that if any such consents
are not obtained, Buyer shall have a right to terminate this Agreement) free and
clear of all liens, security interests or encumbrances, other than (i) liens for
taxes and installments of special assessments not yet due and payable, (ii)
other liens, charges or encumbrances incidental to the conduct of the Business
in the ordinary course or the ownership of the Assets which were not incurred in
connection with the borrowing of money or the obtaining of advances or credit
and which do not in the aggregate materially detract from the value of the
Assets or materially impair or interfere with the use thereof in the operation
of the Business, and (iii) liens or encumbrances relating to Assumed
Liabilities, as defined in Section 2.3 (collectively, the "Permitted
Encumbrances").
2
<PAGE> 8
1.2 Excluded Assets. The following property and assets of
Seller are excluded from sale to Buyer (the "Excluded Assets"):
(a) The corporate charter, qualifications to conduct business as a foreign
corporation, arrangements with registered agents relating to foreign
qualifications, taxpayer and other identification numbers, general
ledgers, tax returns, seals, minute books, stock transfer books and
similar documents of Seller relating to the organization, maintenance
and existence of Seller as a corporation (provided that Buyer shall
have access thereto to the extent reasonably necessary for the
operation of the Business and the preparation of tax returns and
financial statements of Buyer following the Closing Date);
(b) Cash and cash equivalents;
(c) The property listed on SCHEDULE 1.2(C) hereto; and
(d) Any of the rights of Seller under this Agreement or any other agreement
between Seller and Buyer entered into on or after the date of this
Agreement in accordance with the terms hereof.
2. PURCHASE PRICE.
2.1 Generally. Subject to adjustment as provided herein,
including but not limited to as set forth in Sections 2.4, 6 and 7 hereof, the
total purchase price to be paid to Seller for the Assets (hereinafter referred
to as the "Purchase Price") shall be $1,648,917. The Purchase Price shall be
allocated among the Assets as set forth in SCHEDULE 2.1 hereto.
2.2 Transition Period Income Statement.
(a) Within twenty (20) days following the Closing Date, Seller shall
deliver to Buyer an income statement (the "Transition Period Income
Statement") for the Business for the period March 1, 1998 to March 31,
1998, inclusive (the "Transition Period"). Seller covenants and agrees
that the Transition Period Income Statement shall (i) be prepared in
accordance with the books and records of Seller, (ii) present fairly
the financial condition of the Business for the Transition Period and
(iii) be prepared in accordance with good accounting principles,
applied on a basis consistent with that applied in the preparation of
the Basic Financial Statements (as hereinafter defined).
(b) Buyer shall have the right, exercisable by written notice delivered to
Seller within ten (10) days following the delivery of the Transition
Period Income Statement, to dispute any element of the Transition
Period Income Statement. The foregoing notice is referred to herein as
a "Dispute Notice." The Dispute Notice shall set forth with specificity
the items in dispute. For a period of 30 days after the delivery of a
Dispute Notice, Seller and Buyer shall negotiate in good faith to
attempt to settle the dispute. If they are able to settle the dispute,
the Transition Period Income Statement shall be adjusted to reflect the
resolution
3
<PAGE> 9
of the dispute. If they are unable to settle the dispute, the parties
shall submit the matters then in dispute to binding arbitration in
Minneapolis, Minnesota, pursuant to the commercial arbitration rules of
the American Arbitration Association. The arbitrator shall be a member
of an accounting firm which has not rendered services to Seller or
Buyer during the two year period preceding the Closing Date. Each of
the parties agrees to initially share the costs of arbitration, but
further agree that upon a final determination, the prevailing party
shall be reimbursed for all of its expenses in such arbitration,
including reasonable attorneys' fees, and the nonprevailing party shall
pay all costs thereof, as determined by such arbitration. Seller hereby
agree that Buyer's (i) right to review the Transition Period Income
Statement and (ii) Buyer's failure to dispute any or all items
contained therein as contemplated in this Section 2.2, shall not
constitute approval or ratification of any amounts contained in the
Transition Period Income Statement (except for purposes of the
calculation of the Purchase Price hereunder), nor in any way limit
Seller's representations, warranties, covenants or indemnification
obligations under this Agreement.
2.3 Payment of Purchase Price. The Purchase Price shall be
payable as follows:
(a) At the Closing, Buyer shall pay to Seller $359,142 by certified check,
cashier's check or wire transfer.
(b) At the Closing, Buyer will assume certain of Seller's unpaid
liabilities to the extent identified on SCHEDULE 2.3(B) (the "Assumed
Liabilities"), subject to Section 3 below. The Assumed Liabilities will
be deemed to constitute $1,139,775 of the Purchase Price.
(c) Within five (5) days after Buyer and Seller agree on, or the Arbitrator
determines, the amounts on the Transition Period Income Statement,
Buyer shall deliver to Seller a promissory note for the balance of the
Purchase Price (i.e., the Purchase Price net of the amounts set forth
in (a) and (b) above and as adjusted, if required, pursuant to Sections
2.4, 6 and 7 hereof) substantially in the form set forth as EXHIBIT A
hereto (the "Promissory Note"), which note will bear interest payable
quarterly at an annual rate of 1 1/2% over the reference rate of
Norwest Bank Minnesota, N.A., Minneapolis, Minnesota, as in effect from
time to time, with principal payable over three (3) years in twelve
(12) equal quarterly installments beginning June 30, 1998. An executed
copy of the Promissory Note with the principal amount thereof left
blank shall be held in escrow by Maslon Edelman Borman & Brand, LLP,
which firm shall fill in the principal amount thereof and deliver the
same to Buyer upon written instructions executed by both Buyer and
Seller.
2.4 Adjustment of Purchase Price Following Transition Period.
The Purchase Price shall be increased in the amount of pre-tax losses, if any,
incurred by the Business during the Transition Period as shown on the Transition
Period Income Statement; provided, however, that no adjustment pursuant to this
sentence shall exceed $40,000. The Purchase Price shall be decreased in the
amount of pre-tax income, if any, earned by the Business during the Transition
Period as shown on the Transition Period Income Statement.
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2.5 Reassignment and Purchase Price Offset for Uncollected
Accounts Receivable. Buyer shall have the right to assign back to Seller any
Accounts Receivable which remain uncollected more than 120 days after the
Closing Date (the "Uncollected Receivables"). Upon receipt from Buyer of duly
executed instruments of transfer evidencing such assignment, Seller shall
deliver a certified check payable to Buyer or its assigns for the aggregate
amount of the Uncollected Receivables. The Purchase Price shall be decreased in
such amount.
3. LIMITATION ON ASSUMPTION OF LIABILITIES. Except for the Assumed
Liabilities, Buyer shall not assume any liabilities or obligations of Seller,
including but not limited to, all liabilities for income taxes, notes payable to
shareholders, together with accrued interest thereon, and accrued dividends
payable.
4. CLOSING. A pre-closing of the transactions contemplated by this
Agreement shall take place at the offices of Maslon Edelman Borman & Brand, LLP,
Minneapolis, Minnesota, at 10:00 a.m. on March 30, 1998, and the closing thereof
(the "Closing") shall be held at the same time and place on March 31, 1998 (the
"Closing Date"). At the Closing, (a) Buyer shall (i) pay to Seller the Purchase
Price as specified in Section 2.3 hereof, (ii) deliver to Seller the various
certificates, instruments and documents referred to in Sections 8 and 12 hereof
and (iii) deliver to Seller an assumption agreement evidencing the assumption by
Buyer of the Assumed Liabilities, and (b) Seller shall (i) deliver to Buyer such
bills of sale, assignments, consents, estoppels, warranties, and other documents
of transfer reasonably required to transfer to Buyer the interest of Seller in
the Assets; and (ii) deliver to Buyer the various certificates, instruments and
documents referred to in Sections 8 and 11 hereof.
5. LABOR AND EMPLOYMENT MATTERS.
5.1 Generally. Without limiting the generality of Section 3
hereof, except as provided in Section 5.3 hereof, Buyer shall not assume any
employment obligation, wage or salary payment obligation, including without
limitation those arising under any pension, profit sharing, deferred
compensation, severance, welfare, accrued or earned vacation (except as
reflected on SCHEDULE 2.3(B)), wage or other employee benefit plan, procedure,
policy or practice of Seller regardless of whether such plan, procedure, policy
or practice is disclosed in this Agreement. Seller shall afford Buyer a
reasonable opportunity to interview its employees for prospective employment by
Buyer if so requested by Buyer. Except as set forth in Section 8.1 hereof, Buyer
shall be entitled (but shall have no obligation) to offer employment to any such
person, but in its discretion may offer employment to any such person on terms
and conditions established by Buyer. Seller will furnish to Buyer such
information in its personnel files as Buyer may reasonably request in connection
with determining whether to employ a person presently employed by Seller. To the
extent Seller has any ongoing requirements to provide benefits (under COBRA or
other similar laws) to former employees of Seller, Buyer agrees to make its
benefit plans available (to the extent it offers such benefits) for Seller to
use to meet such obligations provided that Seller hereby acknowledge that it
shall remain liable for such obligations and hereby agree to indemnify and hold
Buyer harmless for any and all costs thereof.
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5.2 Employment Transition Provisions. Seller shall terminate
the employment of each person employed by Seller in the conduct of the Business,
effective the Closing Date. Seller shall pay or provide for all other employee
benefits maintained by Seller for all periods prior to the Closing Date, all in
accordance with applicable law.
5.3 Employee Vacation Matters. Promptly after the Closing,
Seller and Buyer shall jointly prepare a schedule setting forth for each
employee of Seller who accepts employment by Buyer: (i) the number of days of
vacation earned by such employee for his or her current year of employment but
unused as of the Closing Date, (ii) the number of days of vacation accrued for
such employee as of the Closing Date for his or her next year of employment
(such accrual to be based upon the number of days in the employee's current year
of employment to and including the Closing Date), and (iii) the value of such
earned and accrued vacation, based upon the level of compensation paid by Seller
to such employee immediately prior to the Closing Date. Buyer shall recognize
such earned and accrued vacation of the employees of Seller who accept
employment with Buyer, and shall provide such vacation to the employees while
employed by Buyer pursuant to Seller's existing vacation schedule to the extent
such earned and accrued vacation is reflected on SCHEDULE 2.3(B).
6. LOSS, DESTRUCTION, CONDEMNATION OR DAMAGE TO ASSETS. If
between the date of this Agreement and the Closing Date, tangible Assets (other
than Inventory) are lost, destroyed or condemned, or suffer any material damage
and this Agreement shall not have been terminated pursuant to Section 19 hereof,
if applicable, then, at the option of Buyer, either (a) the Purchase Price shall
be reduced by the excess of (i) the fair market value of such Assets prior to
such loss, destruction, condemnation or damage, over (ii) the salvage value, if
any, of such Assets following such loss, destruction, condemnation or damage
(such excess, the "Loss Amount"), or (b) no adjustment to the Purchase Price
shall be made and Seller shall, on the Closing Date, assign to Buyer all
insurance and/or condemnation proceeds payable to Seller on account of such
loss, destruction, condemnation or damage pursuant to an assignment in form and
substance satisfactory to Buyer and pay to Buyer the amount of any deductible
under any such insurance provided such insurance proceeds and deductible are
equal to or greater than the Loss Amount.
7. PRORATIONS, ETC. On the Closing Date, rent, utility charges,
maintenance and repair charges, real estate and all other taxes payable under
any assumed lease and all other items of expense and other similar obligations
to third parties (to the extent not completely included as Assumed Liabilities)
shall be prorated between Seller and Buyer. Real estate and other property taxes
(including any real property assessments and similar charges) shall be prorated
based upon the year with respect for which such taxes are payable, determined in
accordance with local law.
8. OTHER AGREEMENTS. On the terms and subject to the conditions of
this Agreement, on the Closing Date, the following agreements shall be
delivered:
8.1 Employment Agreement between Buyer and Michael J. Grebin
in the form of EXHIBIT B hereto (the "Employment Agreement").
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8.2 Separation Agreement between Seller and Michael J. Grebin
in the form of Exhibit C hereto (the "Separation Agreement").
8.3 Noncompetition and Confidentiality Agreement between Buyer
and Seller substantially in the form of Exhibit D hereto (the "Non-Compete
Agreement").
8.4 The Promissory Note.
8.5 Transition Agreement between Buyer and Seller
substantially in the form of Exhibit E hereto (the "Transition Agreement")
relating to (a) use of the space currently occupied by the Business, (b) use of
the systems, if any, currently shared by Seller and its affiliates, and (c) the
relationship between Buyer and affiliates of Seller regarding resale of certain
software products manufactured or represented by affiliates of Seller.
8.6 Guaranty by Stephen M. Krenz of the Promissory Note,
substantially in the form of Exhibit F hereto.
9. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Buyer that, except as set forth in the disclosure schedule
accompanying this Agreement and signed by the parties (the "Disclosure
Schedule"):
9.1 Corporate Organization. Seller is duly organized, validly
existing and in good standing under the laws of the State of Minnesota, with
full corporate power to carry on the Business as it is now and has since it
organization been conducted and to own, lease or operate the Assets. True and
correct copies of the Articles of Incorporation and By-Laws of Seller have been
provided to Buyer. Seller does not own, directly or indirectly, the capital
stock of any class of any other corporation, nor is Seller a party to any
partnership or joint venture related to the Assets or the Business.
9.2 Corporate Power. Seller has the corporate power to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby.
9.3 Conflicting Agreements, Governmental Consents. The
execution and delivery of this Agreement and all of the other agreements and
instruments to be executed and delivered by Seller in connection with this
Agreement, the consummation of the transactions contemplated hereby, and the
performance or observance by Seller of any of the terms or conditions hereof or
thereof, will not (a) conflict with, or result in a breach or violation of the
terms or conditions of, or constitute a default under, or result in the creation
of any lien on any of the Assets pursuant to, the Articles of Incorporation or
By-Laws of Seller, any award of any arbitrator, or any indenture, contract or
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation to which Seller or the Assets
is subject, or (b) require any filing or registration with, or any consent or
approval of, any federal, state or local governmental agency or authority.
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9.4 Restrictive Covenants. Seller is not a party to nor are
the Assets bound or affected by any agreement or document containing any
covenant limiting the freedom of Seller to compete in any line of business or
which materially or adversely affects the business practices, operations or
conditions of the Business or the continued operation of the Business after the
Closing Date on substantially the same basis and on substantially the same terms
and conditions as the Business is presently carried on.
9.5 Entire Business. All of the Assets and operations of the
Business are comprised within and owned or leased by Seller.
9.6 Corporate Authority. The execution and delivery of this
Agreement and all of the other agreements and instruments to be executed and
delivered by Seller, and the consummation of the transactions contemplated
hereby or thereby, have been duly authorized by all necessary corporate action.
This Agreement and all other agreements and instruments required hereby to be
executed and delivered by Seller are, or when delivered will be, legal, valid
and binding obligations of Seller, enforceable in accordance with their
respective terms.
9.7 Actions, Suits, Proceedings. There are no actions, suits
or proceedings pending or, to the knowledge of Seller, threatened against Seller
or any of Seller's property in any court or before any federal, state, municipal
or other governmental agency or before any other private or public tribunal or
quasi-tribunal which, (a) if decided adversely to Seller, would have an adverse
effect upon the Business or Assets, (b) seek to restrain or prohibit the
transactions contemplated by this Agreement or obtain any damages in connection
therewith, or (c) in any way call into question the validity of this Agreement
or the other agreements and instruments to be executed and delivered by Seller;
nor is Seller in default with respect to any order of any court or governmental
agency entered against it in respect of the Business or Assets. Seller has
received no notice, formally or otherwise, of any judgments, orders, decrees,
stipulations, settlement agreements, liens or injunctions, relating in any way
to the Assets, which have not been wholly and completely settled, complied with
and discharged.
9.8 No Violations. Seller is not in violation of any
applicable law, rule or regulation relating to the Business or Assets. There are
no requests, claims, notices, investigations, demands, administrative
proceedings, hearings or other governmental claims against Seller alleging the
existence of any such violation. Seller has provided to Buyer copies of all
written field inspection reports in its possession submitted to Seller by
governmental authorities since its organization.
9.9 Labor Matters. There are no existing labor disputes or
disturbances which adversely affect the Business or the future prospects of the
Business. There are no existing employment agreements or collective bargaining
agreements between Seller and any of its employees engaged in operation of the
Business or any collective bargaining unit representing any such employees
except as set forth on SCHEDULE 9.9 hereto. No petition has been filed or is
pending with the National Labor Relations Board by any labor organization or any
group of employees for an election or certification regarding the representation
of any group of Seller's employees by a labor
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organization. To the best knowledge of Seller without independent inquiry or
investigation, there is no present solicitation or campaign by any labor
organization or employee for the representation of Seller's employees by a labor
organization. Seller is in compliance with all material terms and provisions of
its collective bargaining agreements. There are no outstanding material disputes
or grievances under its collective bargaining agreements.
9.10 Title to Personal Property. Except as set forth on
SCHEDULE 9.10 hereto, Seller has good title to all personal property included in
the Assets, free and clear of all mortgages, liens, pledges, charges and
encumbrances other than Permitted Encumbrances.
9.11 Condition of Assets. All of the tangible Assets are to be
transferred to Buyer in "as-is" condition.
9.12 Payment Obligations of Customers. The Accounts Receivable
reflected on SCHEDULE 1.1(C) shall have arisen from bona fide transactions in
the normal course of the operation of the Business, shall constitute valid and
binding obligations of the debtors enforceable in accordance with their terms at
the amount recorded therefor on the books of Seller (subject to any allowance
for doubtful accounts), and not be subject to any discounts.
9.13 Inventory Contracts, Purchase Orders and Other Contracts.
SCHEDULE 1.1(G) hereto sets forth correctly all contracts, indentures,
guarantees, leases, commitments or other agreements relating to the Business to
which Seller is a party or by which it is bound with respect to the Business,
except Purchase Orders and Inventory Contracts referred to specifically in
clauses (e) and (f) of Section 1.1 hereof. Seller and, to the best knowledge of
Seller, each other party thereto, have substantially performed all obligations
required to be performed by them to date, and are not in default in any material
respect, under any of the instruments or agreements described above. The
instruments and agreements described above which are to be assigned to Buyer
hereunder are each in full force and effect and, except as set forth on SCHEDULE
1.1(G), are assignable to Buyer without the consent of third parties, and Seller
has not waived or assigned to any other person any of its rights thereunder.
9.14 Computer Software. SCHEDULE 1.1(I) hereto correctly
describes all Computer Systems owned or leased or used by Seller in the
operation of the Business, and such Computer Systems are sufficient to conduct
the Business as it has been historically conducted.
9.15 Licenses and Permits. SCHEDULE 9.15 hereto correctly
describes all material licenses and permits granted to or by Seller in
connection with the operation of the Business. Seller has all material licenses
and permits required by law or otherwise necessary for the proper operation of
the Business as it has been historically conducted. All licenses and permits
granted to Seller are in full force and effect, and no action to terminate any
such license or permit is pending or, to the best knowledge of Seller without
independent inquiry or investigation, has been threatened by any governmental
agency or other party. Except as disclosed on SCHEDULE 9.15, the consummation of
the transactions contemplated by this Agreement will not violate the provisions
of, or require Buyer to reapply for, any such license or permit.
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9.16 Financial Information. Seller has delivered to Buyer an
unaudited balance sheet of Seller as of December 31, 1997 and income statements
for the period then ended (collectively, the "Basic Financial Statements").
Seller will deliver to Buyer the Transition Period Income Statement within
twenty (20) days following the Closing Date. The Basic Financial Statements and
the Transition Period Income Statement were, or will be, prepared from the books
and records of Seller, fairly present, or will fairly present, in all material
respects, the financial condition of the Business at such dates and the results
of operations for the respective periods then ended or ending and have been, or
will be, prepared in accordance with good accounting principles, consistently
applied. Since December 31, 1997, there has not been:
(a) any material adverse change in the financial condition, the Assets, the
Business or the liabilities of Seller;
(b) any damage, destruction or loss (whether or not covered by insurance)
materially and adversely affecting the Business or the Assets;
(c) any sale or transfer of any of the assets used in or useful to the
Business, except in the ordinary course of business; or
(d) any transaction affecting the Business or the Assets entered into by
Seller other than in the ordinary course of business, except this
Agreement.
9.17 Taxes. All taxes, including, without limitation, income,
profits, franchise, sales, use, property, excise, payroll, added value,
employees' income withholding and social security taxes, and other taxes and
assessments, imposed by the United States or by any foreign country or any
state, municipality, subdivision or instrumentality of the United States or of
any foreign country, or by any other taxing authority, which are due or payable
by Seller, and all interest and penalties thereon, whether disputed or not, have
been paid in full, all tax returns required to be filed in connection therewith
have been accurately prepared and duly and timely filed and all deposits
required by law to be made by Seller with respect to employees' withholding and
other taxes have been duly made. Seller has not been delinquent in the payment
of any foreign or domestic tax, assessment or governmental charge or deposit and
has no tax deficiency or claim outstanding, proposed or assessed against it, and
there is no basis for any such deficiency or claim. Seller's federal income tax
returns have never been audited by the Internal Revenue Service and, except as
set forth on SCHEDULE 9.17, there is not now in force any extension of time with
respect to the date on which any tax return was or is due to be filed by or with
respect to Seller, or any waiver or agreement by it for the extension of time
for the assessment of any tax, has paid all federal, state and local income. No
claims for additional taxes have been asserted against Seller and no audits are
pending with respect to any tax liabilities of Seller.
9.18 Capital Projects. No construction or other capital
projects are in progress, have been contracted for or, to the knowledge of
Seller, are required by applicable law or regulation in connection with the
operation of the Business. All completed construction and other capital projects
are reflected in the Basic Financial Statements.
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9.19 Insurance. Seller maintains property and casualty
insurance on all tangible Assets on a replacement value basis and product
liability insurance with respect to the Business as described generally on
SCHEDULE 9.19 hereto. All policies providing such insurance are in full force
and effect and Seller has not received any notice of impending cancellation or
nonrenewal thereof.
9.20 Brokers and Finders. Seller has not retained or engaged
any broker, finder or other financial intermediary in connection with the
transaction contemplated by this Agreement.
9.21 Full Disclosure. No representation or warranty by Seller
contained herein, nor any statements or certificates furnished or to be
furnished by Seller to Buyer or its representatives contains or will contain any
untrue statement of a material fact, or omits or will omit to state any material
fact required to make the representations and warranties herein or therein
contained not misleading.
10. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby represents
and warrants to Seller as follows:
10.1 Organization. Buyer is a corporation duly organized and
existing and in good standing under the laws of the State of Minnesota and has
the corporate power to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
10.2 Conflicting Agreements, Governmental Consents. The
execution and delivery of this Agreement and all of the other agreements and
instruments to be executed and delivered by Buyer, the consummation of the
transactions contemplated hereby or thereby, and the performance or observance
by Buyer of any of the terms or conditions hereof or thereof, will not (a)
conflict with, or result in a breach or violation of the terms or conditions of,
or constitute a default under, the Articles of Incorporation or By-Laws of
Buyer, any award of any arbitrator, or any indenture, contract or agreement
(including any agreement with stockholders), instrument, order, judgment,
decree, statute, law, rule or regulation to which Buyer is subject, or (b)
require any filing or registration with, or any consent or approval of, any
federal, state or local governmental agency or authority.
10.3 Corporate Authority. The execution and delivery of this
Agreement and all of the other agreements and instruments to be executed and
delivered by Buyer, and the consummation of transactions contemplated hereby or
thereby, have been duly authorized by all necessary corporate action. This
Agreement and all other instruments required hereby to be executed and delivered
by Buyer are, or when delivered will be, legal, valid and binding obligations of
Buyer, enforceable in accordance with their respective terms.
10.4 Brokers and Finders. Buyer has not retained any broker,
finder or other financial intermediary in connection with the transactions
contemplated by this Agreement.
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11. CONDITIONS TO OBLIGATION OF BUYER TO CLOSE. The obligation of
Buyer to effect the closing of the transactions contemplated by this Agreement
is subject to the satisfaction prior to or at the Closing of the following
conditions:
11.1 Representations and Warranties. All of the
representations and warranties of Seller contained in this Agreement shall be
true and correct on the Closing Date, as if made on the Closing Date.
11.2 No Adverse Change. There shall have occurred no material
adverse change in the Assets as a whole or the Business since December 31, 1997,
nor shall there have occurred any material damage, loss, destruction or
condemnation of Assets. Notwithstanding the aforementioned, between December 31,
1997 and the Closing Date, Seller shall not have incurred any material
obligations of any kind, nor entered into any contracts or agreements, related
to or arising out of the Business, except as have been incurred in the ordinary
course of the Business consistent with the historical operation of the Business.
11.3 Observance and Performance. Seller shall have observed
and performed all covenants and agreements required by this Agreement to be
observed or performed by Seller on or prior to the Closing Date.
11.4 Officer's Certificate. Seller shall have delivered to
Buyer a certificate of a responsible officer of Seller, dated the Closing Date,
to the effects set forth in Sections 11.1, 11.2 and 11.3 above.
11.5 Verification of Operating Results. Buyer shall have been
afforded the opportunity to review the invoices, purchase documents relating to
the cost of goods sold, production expenses and sales expenses of Seller related
to the Business in order to determine the results of operations of the Business,
and shall have concluded that such results of operations are consistent in all
material respects with the results of operations for such periods heretofore
disclosed by Seller to Buyer.
11.6 Searches. No Uniform Commercial Code searches or federal,
state or local tax lien or judgment searches obtained by Buyer against Seller
shall disclose any liens or security interests against the Assets other than
Permitted Encumbrances.
11.7 Consents of Third Parties. Buyer shall have received duly
executed copies of any consents necessary to permit consummation of the
transactions hereof, including but not limited to the assignment of the Other
Contracts described in SCHEDULE 1.1(G) hereto without breach thereof.
11.8 Regulatory Approvals. Buyer shall have received from
Seller all authorizations, consents and approvals of governments and
governmental agencies required in connection with the purchase and sale
contemplated by this Agreement.
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11.9 Copies of Documents. Buyer shall have received accurate
and complete copies of all documents and instruments listed in any of the
exhibits or schedules to this Agreement (and of any amendments, waivers or
similar supplementary materials related thereto).
11.10 No Legal Actions. No court or governmental authority of
competent jurisdiction shall have issued an order restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement, and no person, firm, corporation or governmental agency shall have
instituted an action or proceeding which shall not have been previously
dismissed seeking to restrain, enjoin or prohibit the consummation of the
transactions contemplated by this Agreement.
11.11 Other Agreements. Buyer shall have received signed copies
of all of the agreements required by Section 8 hereof.
11.12 Closing Documents. Buyer shall have received such bills
of sale, a non-disturbance agreement from any lender of record, assignments and
other documents of transfer reasonably required to transfer to Buyer the
interests of Seller in the Assets consistent with the terms of this Agreement.
11.13 Due Diligence. Buyer shall not have discovered any fact
or condition in the performance of its due diligence which Buyer believes
materially effects the amount, composition or quality of the Assets or the
Business.
12. CONDITIONS TO OBLIGATION OF SELLER TO CLOSE. The obligation of
Seller to effect the transactions contemplated by this Agreement is subject to
the satisfaction prior to or at the Closing of the following conditions:
12.1 Representations and Warranties. The representations and
warranties of Buyer contained in this Agreement shall be true and correct on the
Closing Date, as if made on the Closing Date.
12.2 Observance and Performance. Buyer shall have observed and
performed all Covenants and agreements required by this Agreement to be observed
or performed by Buyer on or prior to or at the Closing Date.
12.3 Officer's Certificate. Buyer shall have delivered to
Seller a certificate of a responsible officer of Buyer dated the Closing Date to
the effects set forth in Sections 12.1 and 12.2 above.
12.4 Regulatory Approvals. Buyer shall have received all
authorizations, consents and approvals of governments and governmental agencies
required in connection with the purchase and sale contemplated by this
Agreement.
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12.5 Delivery of Consideration. Buyer shall have fulfilled its
obligations to deliver the consideration as set forth in Section 2.3 hereof.
12.6 Other Agreements. Seller shall have received signed
copies of all of the agreements required by Section 8 hereof.
12.7 No Legal Actions. No court or governmental authority of
competent jurisdiction shall have issued an order restraining, enjoining or
otherwise prohibiting the consummation of the transactions contemplated by this
Agreement, and no person, firm, corporation or governmental agency shall have
instituted an action or proceeding which shall not have been previously
dismissed seeking to restrain, enjoin or prohibit the consummation of the
transactions contemplated by this Agreement.
13. OPERATION OF BUSINESS PRIOR TO CLOSING. Seller agrees that, except
with Buyer's prior written consent, from the date hereof to the Closing:
13.1 Maintenance of Business. Seller will use its best efforts
to preserve intact the business organization of the Business, keep available the
services of key employees on terms no less favorable to Seller than those on
which such officers and employees are presently employed, and preserve for Buyer
the good will of suppliers, customers and others having business relationships
with the Business. Seller will maintain its books and records during such period
in a manner consistent with past practice.
13.2 Employees. Seller will not hire any new employees for the
Business, or effect any increase in compensation or employee benefits for its
employees engaged in operating the Business.
13.3 No Disposition of Assets. Seller will not sell, transfer,
dispose of or abandon any portion of the Assets, except in the ordinary course
of business and consistent with past practice.
13.4 No Additional Liens. Seller will not permit any of the
Assets to become subject to any mortgage, lien, charge, or encumbrance, other
than Permitted Encumbrances.
13.5 No Modification of Agreements. Seller will not modify or
amend any material contract, lease, commitment or agreement to be assigned to or
assumed by Buyer hereunder, or waive or assign to any third party any of its
rights under any such contract, lease, commitment or agreement.
13.6 Maintenance of Tangible Assets. Seller will maintain all
tangible Assets in good order and repair, ordinary wear and tear excepted.
13.7 Maintenance of Intangible Assets. Seller will maintain
and protect to the full extent allowed by law, all intangible Assets including
but not limited to the Intellectual Property.
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13.8 No Extraordinary Agreements. Seller will not enter into
any contract or agreement which relates to the Business or Assets and which
contains terms or conditions inconsistent with past business practices of Seller
or the continued operation of the Business as a going concern.
13.9 Maintenance of Insurance. Seller will continue to carry
all existing policies of insurance relating to the Assets, or will effect
renewals or replacements thereof in substantially the same form and amount, and
providing substantially the same coverage, as such existing policies.
13.10 Ordinary Operations. Without limiting the generality
of the foregoing, Seller will in all other respects operate the Business in the
ordinary course.
14. INSPECTION RIGHTS.
14.1 Pre-Closing Inspection Rights. Seller will permit
employees and agents of Buyer during normal business hours and on reasonable
prior notice to Seller to inspect the Assets and to inspect all contracts,
agreements, other documents and records reflecting or reasonably relating to the
Assets or the Business. Buyer will comply with all reasonable requests by Seller
to limit Buyer's exposure to employees and customers. All information and
records obtained by Buyer pursuant to this Section shall be maintained as
confidential and shall not be disclosed to any third party without the consent
of Seller except in response to legal process or to the extent required to
comply with applicable law. Buyer shall not be obligated to maintain as
confidential any information obtained from Seller which is publicly available,
readily ascertainable from public sources, known to Buyer at the time the
information was disclosed or which is rightfully obtained f rom a third party.
The obligations of confidentiality arising under this Section shall survive the
termination or abandonment of this Agreement.
14.2 Post-Closing Inspection Rights. Buyer agrees that all
books and records delivered to Buyer by Seller pursuant to the provisions of
this Agreement shall be open for inspection by representatives of Seller at any
time during regular business hours on or prior to the first anniversary of the
Closing, and that Seller may during such period at its expense make such
excerpts therefrom as it may deem desirable. Seller agrees that such documents
and materials retained by Seller and that are related to the Assets or Business
shall be open for inspection by representatives of Buyer at any time during
regular business hours on or prior to the first anniversary of the Closing and
that Buyer may during such period at its expense make such excerpts therefrom as
it may deem desirable. Thereafter, each party shall offer an opportunity to copy
any such documents and materials prior to the destruction thereof.
15. TAXES, FEES AND OTHER EXPENSES.
15.1 Taxes and Fees. Seller shall be responsible for and shall
pay all sales, transfer or similar taxes or governmental charges, if any, and
all deed taxes and recording fees with respect to the sale and purchase of the
Assets, whether levied against the Assets, Seller or Buyer.
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15.2 Expenses. Each party shall pay all of the costs and
expenses incurred by it in negotiating and preparing this Agreement (and all
other agreements, certificates, instruments and documents executed in connection
herewith), in performing its obligations under this Agreement, and in otherwise
consummating the transactions contemplated by this Agreement, including, without
limitation, its attorneys' fees, accountants' fees and investment banking,
appraisal and brokerage fees.
16. INDEMNIFICATION BY SELLER.
16.1 Generally. Seller shall indemnify, defend and hold
harmless Buyer and its respective directors, officers, employers, agents,
consultants, representatives, successors, transferees and assigns (individually
an "Indemnified Party" and collectively the "Indemnified Parties"), promptly
upon demand, at any time and from time to time, from, against, and in respect of
any and all claims, losses, damages, liabilities, assessments, suits, actions,
proceedings, interest, penalties, and expenses (including, without limitation,
settlement costs and any legal, accounting and other expenses for investigating
or defending any actions or threatened actions or for enforcing such rights of
indemnity and defense) incurred or suffered by the Indemnified Parties, in
connection with, arising out of or as a result of each and all of the following:
(a) any breach of any representation or warranty made by Seller in this
Agreement or any instrument contemplated by this Agreement;
(b) the breach of any covenant, agreement or obligation of Seller contained
in this Agreement or any other instrument contemplated by this
Agreement;
(c) any misrepresentation or omission contained in any statement or
certificate furnished by Seller pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement;
(d) any claim of any broker, finder or investment banker engaged by Seller;
(e) any and all liabilities and obligations of Seller except to the extent
specifically assumed and agreed to be paid by Buyer pursuant to Section
2.3 hereof and any and all liabilities and obligations arising from
ownership of the Assets, operation of the Business and incidents and
occurrences on or prior to the Closing Date, whether or not reflected
in Seller's books and records and whether or not manifest on or before
the Closing Date;
(f) any and all loss, injury, damage or deficiency resulting from any
non-fulfillment of any covenant or agreement on the part of Seller
under this Agreement; and
(g) Any and all demands, claims, actions, suits, proceedings, assessments,
judgments, costs and legal and other expenses incident to any of the
foregoing.
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16.2 Deductible. No claim for indemnification under this
Section shall be made by Buyer unless and until the aggregate amount of such
claims shall exceed Ten Thousand Dollars ($10,000) (the "Threshold Amount"), and
in such event, Buyer shall be entitled to all amounts in excess of, but not
including, the Threshold Amount.
16.3 Limitations on Seller's Indemnification Obligations.
Seller's obligations to indemnify Buyer under this Section to the extent based
on any misrepresentation or breach of warranty shall terminate on the second
(2nd) anniversary of the Closing Date, except (a) for any claim based on the
untruth or inaccuracy of any representation or warranty made herein or in any
statement, certificate or schedule furnished hereunder with an intent to deceive
or defraud or with reckless disregard for the truth or accuracy thereof, (b) for
any claim based on any untruth or inaccuracy of a representation made in Section
9.17 hereof, and (c) that with respect to any pending claim for indemnity
hereunder which shall have been made prior to such second (2nd) anniversary, the
right to indemnify shall not terminate until the final determination and
satisfaction of such claim.
16.4 Procedures. In the event any demands or claims are
asserted against an Indemnified Party or any actions, suits or proceedings are
commenced against an Indemnified Party for which Seller is obligated to
indemnify an Indemnified Party under this Section, then the Indemnified Party
shall give timely notice thereof to Seller in order to permit Seller the
necessary time to evaluate the merits of such demand, claim, action, suit or
proceeding and defend, settle or compromise the same so that Seller's interests
are not materially prejudiced. Within 10 business days after such notice, Seller
shall assume the defense thereof with counsel chosen by Seller or its insurer
and reasonably acceptable to the Indemnified Party. Seller shall not be liable
for any costs or expenses incurred by an Indemnified Party in connection with
any demand, claim, action, suit or proceeding for which Seller is obligated to
indemnify the Indemnified Party under this Section, provided that Seller shall
have assumed the defense thereof in accordance with this Section. The
Indemnified Parties shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If Seller
does not assume the defense of any such claim or litigation resulting therefrom,
(a) an Indemnified Party may defend against such claim or litigation, in such
manner as it may deem appropriate, including, but not limited to, settling such
claim or litigation, after giving notice of the same to Seller on such terms as
such Indemnified Party may deem appropriate, and (b) Seller shall be entitled to
participate in (but not control) the defense of such action, with its own
counsel and at its own expense.
16.5 Settlement and Compromise. Seller shall not settle or
compromise any demands, claims, actions, suits or proceedings for which an
Indemnified Party has sought indemnification from Seller unless it shall have
given the Indemnified Party not less than fifteen (15) days prior written notice
of the proposed settlement or compromise and afforded the Indemnified Party an
opportunity to consult with Seller regarding the proposed settlement or
compromise.
16.6 Manner of Indemnification. All indemnification by Seller
shall be effected by the payment of cash, delivery of a certified or official
bank check or, at the request of Seller, Buyer shall offset such indemnification
obligation against its obligations under the Promissory Note to the extent of
Buyer's obligations remaining thereunder. Any and all indemnification payments
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<PAGE> 23
shall be deemed an adjustment to the Purchase Price. Prior to making any such
offset, Buyer shall first provide Seller with a written notice of intent to
offset ("Notice of Offset") and if such claim for indemnification is disputed by
Seller, then Seller shall give Buyer written notice of such dispute within 15
days of receipt of the Notice of Offset from Buyer. If such claim for
indemnification is disputed by Seller, then Buyer shall place any payments then
due into a segregated account pending resolution of the claim.
16.7 Non-Waiver, Non-Exclusive Remedy. Failure of the
Indemnified Parties to give reasonably prompt notice of any claim or claims
shall not release, waive or otherwise affect any of Seller's obligations with
respect thereto except to the extent that Seller can demonstrate actual loss and
prejudice as a result of such failure. The indemnification provisions contained
in this Section are in addition to, and not in derogation of, any statutory,
common law or equitable rights or remedies any party may have for breach of any
representation, warranty, covenant or agreement.
17. INDEMNIFICATION BY BUYER
17.1 Generally. Buyer shall indemnify, defend and hold
harmless Seller and each of its directors, officers, employers, agents,
consultants, representatives, successors, transferees and assigns (individually
an "Indemnified Party"; and collectively the "Indemnified Parties"), promptly
upon demand, at any time and from time to time, from, against, and in respect of
any and all claims, losses, damages, liabilities, assessments, suits, actions,
proceedings, interest, penalties, and expenses (including, without limitation,
settlement costs and any legal, accounting and other expenses for investigating
or defending any actions or threatened actions or for enforcing such rights of
indemnity and defense) incurred or suffered by the Indemnified Parties, in
connection with, arising out of or as a result of each and all of the following:
(a) any breach of any representation or warranty made by Buyer in this
Agreement or any instrument contemplated by this Agreement;
(b) the breach of any covenant, agreement or obligation of Buyer contained
in this Agreement or any other instrument contemplated by this
Agreement;
(c) any misrepresentation or omission contained in any statement or
certificate furnished by Buyer pursuant to this Agreement or in
connection with the transactions contemplated by this Agreement;
(d) the liabilities and obligations of Seller specifically assumed and
agreed to be paid by Buyer pursuant to Section 2.3 hereof and any and
all liabilities and obligations arising from ownership of the Assets,
operation of the Business and incidents and occurrences after the
Closing Date;
(e) any and all loss, injury, damage or deficiency resulting from any
non-fulfillment of any covenant or agreement on the part of Buyer under
this Agreement; and
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(f) Any and all demands, claims, actions, suits, proceedings, assessments,
judgments, costs and legal and other expenses incident to any of the
foregoing.
17.2 Limitations on Buyer's Indemnification Obligations.
Buyer's obligations to indemnify Seller under this Section to the extent based
on any misrepresentation or breach of warranty shall terminate on the second
(2nd) anniversary of the Closing Date, except (a) for any claim based on the
untruth or inaccuracy of any representation or warranty made herein or in any
statement, certificate or schedule furnished hereunder with an intent to deceive
or defraud or with reckless disregard for the truth or accuracy thereof, and (b)
that with respect to any pending claim for indemnity hereunder which shall have
been made prior to such second (2nd) anniversary, the right to indemnify shall
not terminate until the final determination and satisfaction of such claim.
17.3 Procedures. In the event any demands or claims are
asserted against Seller or any actions, suits or proceedings are commenced
against Seller for which Buyer is obligated to indemnify Seller under this
Section, then Seller shall give timely notice thereof to Buyer in order to
permit Buyer the necessary time to evaluate the merits of such demand, claim,
action, suit or proceeding and defend, settle or compromise the same so that
Buyer's interest is not materially prejudiced. Within ten (10) business days
after such notice, Buyer shall assume the defense thereof with counsel chosen by
Buyer and reasonably acceptable to Seller. Buyer shall not be liable for any
costs or expenses incurred by Seller in connection with any demand, claim,
action, suit or proceeding for which Buyer is obligated to indemnify Seller
under this Section, provided that Buyer shall have assumed the defense hereof in
accordance with this Section. Seller shall be entitled to participate in (but
not control) the defense of any such action, with its counsel and at its own
expense. If Buyer does not assume the defense of any such claim or litigation
resulting therefrom, (a) Seller may defend against such claim or litigation, in
such manner as it may deem appropriate, including, but not limited to, settling
such claim or litigation, after giving notice of the same to Buyer on such terms
as Seller may deem appropriate, and (b) Buyer shall be entitled to participate
in (but not control) the defense of such action, with their own counsel and at
its own expense.
17.4 Settlement and Compromise. Buyer shall not settle or
compromise any demands, claims, actions, suits or proceedings for which Seller
has sought indemnification from Buyer unless it shall have given Seller not less
than fifteen (15) days prior written notice of the proposed settlement or
compromise and afforded Seller an opportunity to consult with Buyer regarding
the proposed settlement or compromise.
18. TERMINATION OF AGREEMENT. This Agreement may be terminated at any
time prior to the Closing Date:
18.1 Mutual Consent. By mutual consent of Buyer and Seller.
18.2 Breach of Agreement. By Buyer giving written notice to
Seller if Seller is in breach, or by Seller giving written notice to Buyer if
Buyer is in breach, in any material respect of any representation, warranty or
covenant contained in this Agreement.
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18.3 Results of Due Diligence. By Buyer giving written notice
to Seller on or before March __, 1998 (seven (7) days after signing of this
Agreement) if Buyer is not satisfied with the results of its continuing
business, legal, and accounting due diligence regarding Seller.
18.4 Government Action. By Buyer or Seller if any court of
competent jurisdiction in the United States or other United States governmental
body shall have issued an order, decree or ruling or taken any other action
restraining, enjoining or otherwise prohibiting the consummation of the
transactions contemplated by this Agreement and such order, decree, ruling or
other action shall have become final and non-appealable.
19. ASSIGNMENT. This Agreement may not be assigned by any party hereto
without the prior written consent of the other parties hereto. The terms and
provisions of this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, their successors and assigns, and no person, firm
or corporation other than the parties, their successors and assigns, shall
acquire or have any rights under or by virtue of this Agreement.
20. COVENANT OF FURTHER ASSURANCES. From time to time after the
Closing, at the request of any party hereto and without further consideration,
the other parties hereto will execute and deliver such other instruments and
take such other actions as the requesting party may reasonably require to
effectuate the transactions contemplated by this Agreement, including but not
limited to the transfer of the Assets to and vesting of title to the Assets in
Buyer and putting Buyer in possession of the Assets. In the event that it shall
be necessary for Seller to qualify to do business as a foreign corporation in
any state after the Closing in order for Buyer to enforce any material claim,
Seller shall so qualify promptly upon written request of Buyer.
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties contained herein, and all other written representations and
warranties of Buyer and Seller contained in the instruments executed in
connection with the consummation of the transactions provided for herein, shall
survive the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby until the second (2nd) anniversary of the
Closing Date, notwithstanding any investigation or examination at any time made
by or on behalf of any party; provided, that the foregoing shall not bar the
parties hereto, and their respective successors and assigns, from asserting at
any time thereafter any cause of action based on (a) the untruth or inaccuracy
of any representation or warranty made herein or in any statement, certificate
or schedule furnished hereunder with an intent to deceive or defraud or with
reckless disregard for the truth or accuracy thereof, and (b) any untruth or
inaccuracy of a representation made in Section 9.17 hereof; and provided
further, that no representation or warranty, the alleged untruth or inaccuracy
of which is the subject of a cause of action made prior to such second (2nd)
anniversary shall terminate until the final determination and satisfaction of
such cause of action.
22. OBLIGATIONS OF GUARANTOR. Guarantor hereby agrees that it will be
liable to Seller for the performance of Buyer's obligations under this
Agreement.
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23. PUBLIC ANNOUNCEMENT. Any and all public announcements of any kind
or nature whatsoever concerning the transactions contemplated hereby made
before, on or after the Closing Date, shall require the joint approval of Buyer
and Seller, provided that either Buyer or Seller shall nevertheless be permitted
to issue any press release or report required by applicable law or stock
exchange rules.
24. ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules attached to this Agreement, constitutes the entire agreement and
understanding between Seller and Buyer with respect to the sale and purchase of
the Assets and the other transactions contemplated by this Agreement. All prior
representations, understandings and agreements between the parties with respect
to the purchase and sale of the Assets and the other transactions contemplated
by this Agreement are superseded by the terms of this Agreement.
25. AMENDMENT AND WAIVER. Any provision of this Agreement may be
amended or waived by a writing signed by the party against which enforcement of
the amendment or waiver is sought.
26. CHOICE OF LAW. This Agreement shall be construed and interpreted
IN accordance with the laws of the State of Minnesota, without regard to its
choice of law provisions, as though all acts and omissions related to this
Agreement occurred in the State of Minnesota.
27. SEVERABILITY. The provisions of this Agreement shall, where
possible, be interpreted so as to sustain their legality and enforceability, and
for that purpose the provisions of this Agreement shall be read as if they cover
only the specific situation to which they are being applied. The invalidity or
unenforceability of any provision of this Agreement in a specific situation
shall not affect the validity or enforceability of that provision in other
situations or of other provisions of this Agreement.
28. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be considered an original.
29. FACSIMILE EXECUTION. This Agreement may be executed by one or more
of the parties by facsimile transmitted signature and all parties agree that the
reproduction of signatures by way of telecopying device will be treated as
though such reproductions were executed originals.
30. INTERPRETATION. All references herein to Articles and Sections
refer to Articles and Sections of this Agreement. All Article and Section
headings are for reference purposes only and shall not affect the interpretation
of this Agreement. Within this Agreement, the singular shall include the plural
and the plural shall include the singular, and any gender shall include all
other genders, all as the meaning and the context of this Agreement shall
require.
31. NOTICES. All notices given pursuant to this Agreement shall be
delivered by hand or sent by United States registered mail, postage prepaid,
addressed as follows (or to another address or person as a party may specify on
notice to the other):
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If to Seller: IntraNet Distribution Group, Inc.
9625 W. 76th Street, Suite 150
Eden Prairie, MN 55343
Attention: Chief Executive Officer
with a copy to: Maslon Edelman Borman & Brand, LLP
90 South 7th Street
3300 Norwest Center
Minneapolis, MN 55402
Attention: William M. Mower, Esq.
If to Buyer Midwest Graphics & Response Systems, Inc.
or Guarantor: 11400 K-Tel Drive
Minnetonka, MN 55343
Attention: Michael Vikesland
with a copy to: Murnane Conlin White & Brandt, P.A.
1800 Piper Jaffray Plaza
444 Cedar Street
St. Paul, MN 55101
Attention: John E. Brandt, Esq.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date and year
first above written.
BUYER: MIDWEST GRAPHICS & RESPONSE
SYSTEMS, INC.
By /s/ Stephen M. Krenz
-------------------------
President and Chief Executive Officer
GUARANTOR:
/s/ Stephen M. Krenz
-------------------------
Stephen M. Krenz
SELLER: INTRANET DISTRIBUTION GROUP, INC.
By /s/ Jeffrey J. Sjobeck
-------------------------
Chief Financial Officer
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<PAGE> 1
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT ("Agreement") is made and entered into
this 13th day of August, 1998, by and among IntraNet Solutions, Inc.
("Solutions"), a Minnesota corporation and IntraNet Distribution Group, Inc.
("Distribution") a Minnesota corporation and wholly-owned subsidiary of
Solutions (hereinafter Solutions and Distribution are sometimes referred to
singularly as "Seller" and referred to collectively as "Sellers"); and
Communication Connections, Inc., a Wisconsin corporation ("Buyer").
WHEREAS, Buyer desires to purchase and Sellers desire to sell
substantially all of the printing business assets of Sellers at Sellers' Phoenix
location (the "Business"), including goodwill, customer lists and all other
intangible assets;
NOW, THEREFORE, it is hereby agreed:
ARTICLE 1. PURCHASE AND SALE OF ASSETS
1.1. ASSETS TO BE ACQUIRED. On the terms and subject to the conditions
of this Agreement, Sellers hereby transfer, assign and deliver to Buyer or
Buyer's nominee, by and through duly executed instruments for the sale, transfer
and conveyance to Buyer, all tangible and intangible assets used in the
Business, including, without limitation, all current equipment, furniture,
fixtures, inventories, tooling, service parts, trademarks, trade names, patents,
drawings, designs, the license rights under the Software License Agreements (see
Section 1.7, below), proprietary computer software and systems (excluding all
software licensed by Sellers to Buyer pursuant to Section 1.7 hereof) and
similar assets utilized by Sellers in the Business, together with technical
expertise, order backlog details, customer lists, sales records and information,
marketing information, advertising materials and all of the records relating to
the Business (sometimes herein referred to as the "Purchased Assets"), excluding
only cash, accounts receivable and the Miehle 29" two color offset press.
1.2. Purchase Price. As and for consideration for the Purchased
Assets, Buyer shall pay to Sellers the purchase price ("Purchase Price") set
forth in this Section 1.2. The Purchase Price for the Purchased Assets shall be
equal to the following:
(a) The Purchase Price allocated to the Purchased Assets other
than goodwill, customer lists, and all other intangibles (the "Tangible Assets")
is $486,680.00, subject to adjustment on a dollar for dollar basis to the extent
the value of Distribution's total inventory and prepaid expense on the Closing
Date differs from the recorded book, June 30, 1998 balance for total inventory
and prepaid expenses of $135,330.00. On the Closing Date Sellers and Buyer shall
conduct a physical inventory of the inventory and shall determine, based on the
results of the physical inspection, the value of inventory and prepaid expenses
as of the Closing Date. The Purchase Price for the Tangible Assets shall be paid
as follows:
(i) At Closing, Buyer shall assume those liabilities of
Seller set forth on, and only to the extent listed on, the attached Schedule 1.2
(the "Assumed Liabilities"), the aggregate amount of which shall not exceed
$486,680.00.
<PAGE> 2
(ii) if the aggregate amount of the Assumed Liabilities are
less than $486,680.00, Buyer shall pay to Sellers at Closing by certified check,
cashier's check, or wire transfer an amount equal to the difference between
$486,680.00 and the aggregate total of Assumed Liabilities. If the aggregate
total of Assumed Liabilities is equal to $486,680.00, there shall be no cash
payment due Sellers under this Section 1.2(a); and if such aggregate total is
greater than $486,680.00, Sellers shall pay to Buyer at Closing the amount by
which the Assumed Liabilities exceed $486,680.00.
(b) The Purchase Price allocated to Sellers' goodwill,
customer lists and all other intangible assets (the "Intangible Assets") shall
be equal to 2% of the gross revenue received by Buyer for the Current Major
Accounts (defined below) during the five year period commencing on the Closing
Date, provided, however, that the Purchase Price for Intangible Assets under
this Section 1.2(b) shall not exceed $300,000 in the aggregate. The Purchase
Price for the Intangible Assets shall be paid to Seller in quarterly
installments due by the end of the month immediately following the close of the
quarter. The amount of each installment shall be based on the revenues actually
received by Buyer during the quarter for which the payment is made. In the event
Buyer makes a refund to a Current Major Account on an order for which Buyer had
previously submitted 2% of received revenues to Sellers pursuant to this Section
1.2(b), Buyer shall be entitled to a credit against amounts otherwise due Seller
hereunder in an amount equal to 2% of the refund provided to the Current Major
Account. Notwithstanding anything contained herein or otherwise to the contrary,
and in consideration of Buyer's assumption of Sellers' Komori Lithrone Model
L426II Four Color Press operating lease with International Financial Services
Corporation, Buyer shall receive a credit from Sellers in the amount of $55,000
to be applied and credited against the first $55,000 of the Purchase Price for
the Intangible Assets payable to Seller, if any, pursuant to this Section
1.2(b).
Notwithstanding the above, in the event that Buyer enters into an
agreement to provide services to any of the Current Major Accounts where Special
Pricing (defined below) is to be provided to secure additional business, the 2%
revenue sharing shall be limited on an annual (year 1 begins on Closing Date and
subsequent years begin on the 1st, 2nd, 3rd and 4th anniversary dates of the
Closing Date) basis to an annual amount equal to 2% of the gross sales revenue
from May 1, 1997 to April 30, 1998 for that account, as listed below. As used
herein, the phrase "Special Pricing" shall mean pricing discounted from Buyer's
standard post-Closing pricing on any pricing agreement with a term of six months
or longer.
Also notwithstanding the above, annual (year 1 begins on Closing Date
and subsequent years begin on the 1st, 2nd, 3rd and 4th anniversary dates of the
Closing Date) gross sales revenue over the annual amount indicated below would
be exempt from the 2% revenue sharing provided for under this Section 1.2(b).
The following is a listing of the Current Major Accounts which would be
eligible for the 2% revenue sharing with their annual sales revenue from May 1,
1997 to April 30, 1998 indicated to the right of the account name:
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<PAGE> 3
Intel $ 277,226.60
Computerprep $ 195,252.72
Samaritan Design Center $ 172,280.20
Orion Research $ 142,976.06
University of Phoenix $ 134,062.86
Microchip Technology $ 120,013.10
Jewelway $ 106,107.00
Best Western $ 78,258.06
Lockheed Martin $ 68,955.16
Paragon Vision Science $ 66,733.08
The Dial Corp. $ 61,404.00
Segal Company $ 58,860.44
Western International University $ 56,241.59
As used herein, the term "Current Major or Accounts" shall mean and be
limited to the thirteen accounts listed above
1.3. Transition Period Income Statement.
(a) Within 20 days following the Closing Date, Sellers shall
deliver to Buyer an income statement (the "Transition Period Income Statement")
for the Business for the period July 1, 1998 to the Closing Date, inclusive (the
"Transition Period"). Sellers covenant and agree that the Transition Period
Income Statement shall (i) be prepared in accordance with the books and
records of Sellers, (ii) present fairly the financial condition of the Business
for the Transition Period and (iii) be prepared in accordance with good
accounting principles, applied on a basis consistent with that applied in the
preparation of the Interim Financial Statements (as described in Section 3.6,
below).
(b) Buyer shall have the right, exercisable by written notice
delivered to Sellers within 30 days following the receipt of the Transition
Period Income Statement, to dispute any element of the Transition Period Income
Statement. The foregoing notice is referred to herein as a "Dispute Notice."
The Dispute Notice shall set forth with specificity the items in dispute. For a
period of 30 days after the delivery of a Dispute Notice, Sellers and Buyer
shall negotiate in good faith to attempt to settle the dispute. If they are able
to settle the dispute, the Transition Period Income Statement shall be adjusted
to reflect the resolution of the dispute. If they are unable to settle the
dispute, the parties shall submit the matters then in dispute to binding
arbitration in Milwaukee, Wisconsin, pursuant to the commercial arbitration
rules of the American Arbitration Association. The arbitrator shall be a member
of an accounting firm which has not rendered services to Sellers or Buyer during
the two year period preceding the Closing Date. Each of the parties agrees to
initially share the costs of arbitration, but further agree that upon a final
determination, the prevailing party shall be reimbursed for all of its expenses
in such arbitration, including reasonable attorneys' fees, and the nonprevailing
party shall pay all costs thereof, as determined by such arbitration. Sellers
hereby agree that Buyer's (i) right to review the Transition Period Income
Statement and (ii) Buyer's failure to dispute any or all items contained therein
as contemplated in this Section 1.3 shall not constitute approval or
ratification
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of any amounts contained in the Transition Period Income Statement (except for
purposes of the calculation of the Purchase Price hereunder), nor in any way
limit Sellers' representations, warranties, covenants or indemnification
obligations under this Agreement.
1.4. Adjustment of Purchase Price Following Transition Period.
(a) The Purchase Price shall be increased in the amount of
pre-tax losses, if any, incurred by the Business during the Transition Period as
shown on the Transition Period Income Statement. The Purchase Price shall be
decreased in the amount of pre-tax income, if any, earned by the Business
during the Transition Period as shown on the Transition Period Income Statement.
(b) Within five days after Buyer and Sellers agree on, or the
Arbitrator determines, the amounts on the Transition Period Income Statement:
(i) in the case where the Transition Period Income Statement results in income
for the Transition Period, Sellers shall deliver to Buyer a certified check for
an amount equal to the Transition Period income, as adjusted by any change in
accounts receivable during the Transition Period (to be retained by Sellers), or
(ii) in the case where the Transition Period Income Statement results in a loss
for the Transition Period, Buyer shall deliver to Sellers a certified check for
an amount equal to the Transition Period loss, as adjusted by any change in
accounts receivable during the Transition Period (to be retained by Sellers).
1.5. Assignment of Contracts and Assumption of Certain Obligations and
Liability. Sellers assign, transfer and deliver all of Sellers' rights, title
and interest in and under the contracts, agreements and commitments of the
Business, and Buyer agrees to and will assume and perform, pay, discharge and
satisfy those leases specifically listed on Schedule 1.5 pursuant to an
Assignment and Assumption Agreement in the form attached hereto as Exhibit A.
1.6. Limitation as to Undertakings. Except as expressly provided in
this Agreement and the Schedules hereto, Buyer does not hereby assume and will
not assume or be deemed to assume any obligations or liabilities of Sellers,
whether arising out of or relating to the Purchased Assets or otherwise, and
Sellers agree, jointly and severally, to indemnify Buyer and hold Buyer harmless
in accordance with the provisions of ARTICLE 7 from any such liabilities and
obligations. Except as expressly provided herein, the provisions of this
Agreement and the Schedules hereto shall not confer any rights on any person not
a party to this Agreement.
1.7. Software License Agreements. Sellers have developed software
necessary and required to support the Intel contract (listed in Section 1.2(b)
as a Current Major Account).n partial consideration of payment of the Purchase
Price for the Intangible Assets, Seller shall grant to Buyer two Intra.doc!
Management System server licenses and two Intra.doc! Order Management System
server licenses for use at two locations pursuant to the software license
agreements attached hereto as Exhibit B ("Software License Agreements"). Buyer
shall have the express right to assign and sub-license the rights under one of
each of the agreements to Commercial Communications, Inc. ("CCI"), a Wisconsin
corporation and the parent corporation of Buyer, for use by CCI at CCI's
Hartland, Wisconsin location. Further, Sellers shall provide,
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at no additional cost to Buyer, all future upgrades to and standard maintenance
support on such software for a period of five years.
1.8. Proration of Personal Property Taxes. Personal property taxes, if
any, for 1998 shall be prorated based on 1997 personal property taxes. Seller
shall be responsible for personal property taxes accruing prior to and including
the Closing Date.
ARTICLE 2. THE CLOSING
2.1. Time and Place of Closing. The sale contemplated by this
Agreement shall be consummated ("Closing") on August 13, 1998 at 10:00 a.m.
local time ("Closing Date") at the offices of von Briesen, Purtell & Roper,
s.c., 411 East Wisconsin Avenue, Suite 700, Milwaukee, WI 53202.
2.2. Deliveries by Seller. At the Closing, Sellers shall execute and
deliver to Buyer the following:
(a) A good and sufficient bill of sale with covenants or
warranty of title, endorsements, assignments and other good and sufficient
instruments of sale, transfer and assignment in the form attached as Exhibit C
in order to vest effectively in Buyer or its nominee good and marketable title
to the Purchased Assets, free and clear of all liens, encumbrances, security
interests and other burdens;
(b) Business records and other documents relating specifically
to the Business, excluding any of Distribution's existing insurance policies,
Distribution's corporate records, canceled checks of Distribution or of any of
its affiliates, bank statements or tax returns, provided, however, that Sellers
shall provide Buyer with copies of Distribution's bank statements to the extent
necessary to substantiate the Transition Period Income Statement..
(c) The written opinion of Sellers' legal counsel with respect
to the Sellers and their authority and the Purchased Assets in the form attached
as Exhibit D.
(d) A Non-Competition Agreement executed by Sellers, pursuant
to which Sellers agree not to compete with Buyer in accordance with the terms
and provisions thereof in the form attached hereto as Exhibit E (the
"Non-Competition Agreement").
(e) All approvals and consents of third parties which are
necessary to convey title to the Purchased Assets in accordance with this
Agreement and otherwise consummate the transactions hereunder.
(f) Physical possession of all Tangible Assets to be purchased
hereunder.
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(g) Certified copies of resolutions of Sellers' board of
directors and Distribution's sole shareholder authorizing the execution and
performance of this Agreement and the transactions contemplated hereby.
(h) The Assignment and Assumption Agreements duly executed by
Sellers.
(i) The Software License Agreements duly executed by Sellers.
(j) Other documents reasonably required by Buyer to consummate
the transactions contemplated hereby including evidence that encumbrances on the
Purchased Assets have been removed or otherwise terminated.
2.3. Further Assurances. Any time and from time-to-time after the
Closing Date, Sellers shall, at the request of Buyer, take all action necessary
to put Buyer in actual possession and operating control of the Purchased Assets
and shall execute and deliver such further instruments of sale, conveyance,
transfer, assignment and consent and use its best efforts to obtain such further
consents, and take such other action, as Buyer may request in order to more
effectively sell convey, transfer and assign to Buyer any of the Purchased
Assets, to confirm the title of Buyer thereto and to assist Buyer in exercising
its rights with respect thereto.
2.4. Deliveries by Buyer. At Closing, Buyer shall deliver to Sellers
the following:
(a) That portion of the Purchase Price payable at Closing
pursuant to Section 1.2(b), above.
(b) The Non-Competition Agreement executed by Buyer.
(c) The Assignment and Assumption Agreements executed by Buyer.
(d) The Software License Agreements executed by Buyer.
(e) Certified copy of resolutions of Buyer's board of
directors authorizing the execution of this Agreement and the performance by
Buyer of the transactions contemplated hereby.
(f) Other documents reasonably required by Seller to consummate
the transactions contemplated hereby.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers, jointly and severally, represent and warrant to the Buyer that
as of the day hereof; and as of the Closing Date:
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3.1. Incorporation and Qualification. Sellers are corporations duly
organized, validly existing and in good standing under the laws of Minnesota,
have the corporate power to own their properties and conduct their business and
are duly qualified to do business in each jurisdiction in which their failure to
so qualify could reasonably be expected to have a material and adverse impact on
the Purchased Assets.
3.2. Corporate Authority. Sellers have full corporate authority to
execute and perform in accordance with this Agreement and this Agreement
constitutes a valid and binding obligation of Sellers; this Agreement and all
transactions contemplated hereby have been and will be, prior to Closing, duly
authorized by all requisite corporate authority and will not result in any
violation of any of the terms and provisions of Sellers' governing instruments
or of any other agreement to which any Seller is a party or by which any Seller
is bound.
3.3. Title to Property. Sellers own all of the right, title and
interest in and to the Purchased Assets and, except as set forth on Schedules
1.2 or 1.5, such assets are herewith conveyed to Buyer free and clear of all
mortgages, liens, charges, encumbrances or security interest of any nature
whatsoever.
3.4. Information Furnished. Information concerning the Business sales
history, gross receipts and other financial information with respect to the
Business furnished by Sellers to Buyer is substantially correct and Sellers know
of no pending events which they have reason to believe might adversely affect
the future prospects of the Business.
3.5. Tax Returns and Payments. Sellers have filed all federal, state,
local and foreign tax returns and reports required to be filed under applicable
law, and no taxes, assessments, fees or penalties (U.S., foreign, state, local
or other) upon it for upon any of its properties, assets, income or franchises
are delinquent.
3.6. Financial Statements. The divisional financial statements of
Distribution for the fiscal year ended March 31, 1998 (the "Annual Financial
Statements") and for the interim period ended June 30, 1999 (the "Interim
Financial Statements") present fairly the financial position and results of
operations of Distribution as of and for the periods indicated. However, both
the Annual Financial Statements and the Interim Financial Statements, as
divisional financial statements, exclude transactions that, in the sole
discretion of Sellers' management, are not directly attributable to
Distribution. Except for the omission of footnotes and a statement of cash
flows, the Annual Financial Statements have been prepared in accordance with
generally accepted accounting procedures ("GAAP") and have been prepared
consistent with the principles applied in preparing the consolidated financial
statements of Solutions. The Interim Financial Statements have been prepared
consistent with unaudited interim financial statements and, in the opinion of
management, contain all adjustments (including only normal recurring
adjustments) necessary for a fair presentation. However, the Interim Financial
Statements do not include the required disclosures and statement of cash flows
necessary for a presentation in accordance with GAAP.
3.7. No Litigation or Other Proceedings. Except as described on
Schedule 3.7:
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(a) No claim, litigation, investigation or proceeding is pending
or threatened against Sellers, or has been concluded in the past three years,
relating to the Business;
(b) To Sellers' knowledge, there is no state of facts or event
which could reasonably be expected to form the basis for such a claim,
litigation, investigation or proceeding; and
(c) No arbitration award, judgment, order, decree or similar
restriction is outstanding against or relating to the Business or the Purchased
Assets.
3.8. Patents, Trademarks and Copyrights. Except for the patents,
trademarks, and licenses relating to the software to be licensed by Sellers to
Buyer pursuant to Section 1.7 hereof, there are no patents, trademarks, or
copyrights used in connection with the Business. No claim, suit or action is
pending or to Sellers' knowledge is threatened against that Sellers are
infringing upon a patent, trademark or copyright held by a third party.
3.9. Product Liability. Sellers are not aware of any product liability
claims or potential product liability claims against Sellers with respect to the
Business. Buyer shall have no responsibility with respect to such claims or any
other product liability claims against Sellers with respect to contracts sold,
completed and delivered to third parties by Sellers prior to the Closing, which
Sellers shall defend in such manner as it deems appropriate and for which
Sellers shall be totally responsible. Schedule 3.9 includes:
(a) A history of any and all product liability claims made
against Sellers with respect to the Business since November 20, 1996;
(b) Any insurance coverages with respect to the foregoing claims
in effect during such period, the manner in which such claims were discharged
and the amounts of any payments therefor. Seller agrees to provide Buyer with
supplemental information concerning such claims and payments and to provide such
consent to its insurer as may be necessary therefor. Buyer shall not assume any
liability or responsibility (other than with respect to any outstanding warranty
assumed by Buyer hereunder) as to any products sold and delivered by Seller
prior to the Closing Date.
3.10. Governmental Consents. Neither the execution and delivery of
this Agreement nor the consummation of any of the transactions of the Sellers
contemplated hereby requires any consent, approval, order or authorization of or
registration with or the giving of notice to any governmental or public body or
authority.
3.11. Disclosures and Reliances. The information given to Buyer
concerning the transactions covered by this Agreement is true and correct in all
material respects and does not omit any material fact necessary in order to make
the statements contained herein not misleading.
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3.12. Condition and Sufficiency of Assets. The Tangible Assets are
structurally sound, are in good operating condition and repair, and are adequate
for the uses to which they are being put, and none of such Tangible Assets are
in need of maintenance or repairs except for ordinary, routine maintenance and
repairs that are not material in nature or cost. The Tangible Assets are
sufficient for the continued conduct of the Business after the Closing in
substantially the same manner as conducted prior to the Closing.
3.13. Inventory. All inventory being purchased that is reflected in the
financial statements of Sellers provided to Buyer, consists of a quality and
quantity useable and saleable in the ordinary course of business and are
recorded in accordance with GAAP.
3.14. Employee Benefits. Except as set forth on Schedule 3.14 and
except for the Retirement Fund (defined in Section 3.15 below), no Seller is a
participating employer in any employee benefit plan, as defined in Section 3(3)
of the Employment Retirement Income Security Act of 1974, as amended. The
attached Schedule 3.14 discloses all written and unwritten "employee benefit
plans" within the meaning of Section 3.3 of the Employment Retirement Income
Security Act of 1974, and any other written and unwritten profit sharing,
pension, savings, deferred compensation, fringe benefit, insurance, medical,
medical reimbursement, life, disability, accident, post-retirement health or
welfare benefit, sick pay, vacation, employment, severance, termination or other
plan, agreement, contract, policy, trust fund or arrangement (each, a "Benefit
Plan"), whether or not funded and whether or not terminated, (a) maintained or
sponsored by Seller with respect to the Business, or (b) with respect to which
the Seller, with respect to the Business, has or may have liability or is
obligated to contribute, (c) that otherwise covers any of the current or former
employees of Seller with respect to the Business or their beneficiaries, or (d)
as to which any such current or former employee or their beneficiaries
participated or were entitled to participate or accrue or have accrued any
rights thereunder (each, a "Company Plan"). Each Company Plan and all related
trusts, insurance contracts and funds have been created, maintained, funded and
administered in all respects and compliance with all applicable laws, rules and
regulations and in compliance with the plan document, trust agreement, insurance
policy or other writing creating the same or applicable thereto. No Company Plan
is, or, to Sellers' knowledge, proposed to be, under audit or investigation, and
no completed audit of any Company Plan has resulted in the imposition of any
tax, fine or penalty.
3.15. Labor Relations; Compliance. Other than the agreement with
the Graphic Communications International Union Local No. 512-M, AFL-CIO, CLC
(the "Union"), Sellers have not been and are not a party to any collective
bargaining agreement or other labor contract applicable to employees employed in
the Business. Except as set forth on Schedule 3.15, there has not been nor are
there presently pending or existing, and to Sellers' knowledge there is not
threatened, (a) any strike, slowdown, picketing, work stoppage, or employee
grievance process relating to the Business, (b) any proceeding against or
affecting any Sellers relating to the alleged violation of any requirement
pertaining to labor relations or employment matters relating to the Business,
including any charge or complaint filed by an employee or the Union, or any
union, with the National Labor Relations Board, the Equal Employment Opportunity
Commission, or any comparable state or federal governmental body, organizational
activity, or other labor or
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employment dispute against or affecting the Sellers relating to the Business, or
(c) any application for certification of a collective bargaining agent other
than the Union relating to employees employed in the Business. No event has
occurred or circumstance exists that could provide the basis for any work
stoppage or other labor dispute relating to the Business. There is no lockout of
any employees by Sellers, and no such action is contemplated by Sellers. Each
Seller has complied in all respects with all laws, statutes, regulations, and
rules applicable to the Business relating to employment, equal employment
opportunity, nondiscrimination, immigration, wages, hours, benefits, collective
bargaining, the payment of social security and similar taxes, occupational
safety and health, and plant closing. Except as set forth on Schedule 3.15,
neither Solutions, Distribution, nor, to Sellers' knowledge. The LaFountain
Corporation (an Arizona corporation which engaged in business as Sims Printing
Co.) are in violation of any provision of the contract with the Union or any
other obligation owed to the Union. Neither Solutions, Distribution, nor, to
Sellers' knowledge, The LaFountain Corporation are in violation of any
obligation under the Graphic Communications International Union Supplemental
Retirement Disability Fund (the "Retirement Fund") and/or the Agreement and
Declaration of Trust governing the Retirement Fund. Sellers have complied with
all applicable laws, rules and regulations relating to employment or labor,
including but not limited to those relating to wages, hours, collective
bargaining, age, sex, and discrimination in the payment and withholding of
taxes.
3.16. Year 2000 Compliant. To Sellers' knowledge, except as set forth
in Schedule 3.16, none of the Purchased Assets will be adversely affected, or
their functionality impaired in any way, by the transition to the year 2000. For
purposes of the foregoing, a Purchased Asset or its functionality is deemed
adversely affected or impaired if, as a result of the change of centuries, it is
unable to process, or calculate date related data without error or to
distinguish between dates having the same day and month in different centuries.
3.17. Environmental Compliance. Sellers are in compliance with all
Environmental Laws applicable to the Business. "Environmental Laws" shall mean
all federal, state and local laws. including statutes, regulations and other
governmental restrictions and requirements relating to the discharge of air
pollutants, water pollutants or processed waste water, or the storage, use,
generation or disposal of solid or hazardous waste, or otherwise relating to the
environment or hazardous substances or employee health and safety.
3.18. Preferred Purchasing Arrangements. Except as set forth on
Schedule 1.5, Sellers are not a part of any preferred purchasing arrangement
with respect to the purchase of materials for use in the Business.
3.19. Unemployment Compensation. Sellers have made all required
payments to the appropriate governmental authorities with respect to
unemployment compensation reserve accounts related to the operation of the
Business.
3.20. Government License and Regulation. Sellers have all governmental
licenses and permits necessary to conduct the Business and own and use the
Purchased Assets.
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3.21. Compliance with Law. The Business and the use of the Purchased
Assets by Sellers do not violate any laws, including, without limitation, all
energy, safety, environmental, health, export, import, antidiscrimination,
antitrust, wage and hour, and price and wage control laws, orders, rules or
regulations applicable to the Business or the Purchased Assets.
3.22. Assumed Contracts and Equipment Leases. Sellers are current with
and not in default or breach of any and all obligations under any contract or
equipment lease listed on Schedule 1.5, such contracts and equipment leases to
be assigned by Sellers and assumed by Buyer pursuant to Section 1.5, above.
ARTICLE 4.
Sellers covenant to Buyer as follows:
4.1. Covenant Not to Compete. Sellers will execute and deliver a
Non-Competition Agreement in substantially the form attached hereto as Exhibit
E.
4.2. Other Action. Sellers shall use their best efforts to cause the
fulfillment at the earliest practical date of all of the conditions to Sellers'
obligations to consummate the transactions contemplated in this Agreement.
4.3. Continuing Disclosure. Seller shall have a continuing obligation
to promptly notify Buyer in writing with respect to any matter hereafter arising
or discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described, but no such disclosure shall
cure any breach of any representation or warranty which is inaccurate when made.
The delivery of any information pursuant to this Section 4.3 shall not
constitute a waiver by Buyer of any of the provisions of Section 7.2 and any and
all adverse changes contained in any such notices shall be considered in the
determination of whether the conditions set forth in such section are met.
4.4. Payment of Creditors. At Closing, Seller shall deliver to Buyer a
list of all Distribution's creditors as of the Closing Date, including amount
due to each such creditor certified as true and correct by the President of
Distributions.
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers that as of the day hereof and
as of the Closing Date:
5.1. Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of Wisconsin, has the corporate
power to own its properties and conduct its business and is qualified to do
business in each jurisdiction in which its failure to so qualify could
reasonably be expected to have a material and adverse impact on its operations.
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5.2. Corporate Authorization. Buyer has full corporate authority to
execute and perform in accordance with this Agreement and this Agreement
constitutes a valid and binding obligation of Buyer; this Agreement and all
transactions contemplated hereby have been and will be, prior to Closing, duly
authorized by all requisite corporate authority and will not result in any
violation of any of the terms and provisions of Buyer's governing instruments or
of any other agreement to which Buyer is a party or by which it is bound.
5.3. No violation. Consummation of the transactions contemplated by
this Agreement will not result in:
(a) The breach of any term or condition of, or constitute
default under, any term or condition of any contract or agreement to which Buyer
is a party, or constitute an event which, with notice, lapse of time or both,
would result in such a breach or event of default, nor
(b) To the Buyer's knowledge, the violation by Buyer of any
statute, rule, regulation, ordinance, code, judgment, order, injunction or
decree.
5.4. Governmental Consents. Neither the execution and delivery of this
Agreement nor the consummation of any of the transactions of the Buyer
contemplated hereby requires any consent, approval, order or authorization of or
registration with or the giving of notice to any governmental or public body or
authority.
ARTICLE 6. COVENANTS OF BUYER
Buyer covenants to Sellers as follows:
6.1. Other Action. Buyer shall use its best efforts to cause the
fulfillment at the earliest practicable date of all of the conditions to Buyer's
obligations to consummate the transactions contemplated in this Agreement.
6.2. Access to Books and Records. Upon execution by Sellers of a
confidentiality agreement acceptable to Buyer, Buyer will allow Sellers
reasonable access to books and records relating to the pre-Closing Date
operation of the Business at all reasonable times during normal business hours
in order to permit Sellers or any of their authorized representatives to timely
file tax returns or respond to any audits concerning the Business.
6.3. Books and Records Relating to Revenue Sharing. Buyer shall
maintain complete and accurate books, records and accounts of all revenues
received from and credits granted to Current Major Accounts. Upon execution by
Sellers of a confidentiality agreement acceptable to Buyer, all such books,
records and accounts of Buyer shall be available for inspection and audit by
Sellers or any of their authorized representatives at all reasonable times
during normal business hours in order to permit Sellers to verify amounts
payable to Sellers pursuant to Section 1.2(b) hereof.
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ARTICLE 7. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATIONS
7.1. Survival of Representations and Warranties. All representations
and warranties made by the parties in Sections 3 and 5 shall survive the Closing
and shall continue for a period of 30 months following the Closing, except as
set forth below in this section 7.1.
(a) The representations and warranties contained in the
following section shall continue until expiration of all applicable federal,
state and local statutes of limitations (including extensions thereof):
(1) Section 3.5 (Tax Returns and Payments);
(2) Section 3.14 (Employee Benefits);
(3) Section 3.15 (Labor Relations; Compliance);
(4) Section 3.17 (Environmental Compliance); and
(5) Section 3.19 (Unemployment Compensation).
(b) The representations and warranties contained in the
section set forth below shall continue indefinitely;
(1) Section 3.1 (Incorporation and Qualification);
(2) Section 3.2 (Corporate Authority);
(3) Section 3.3 (Title to Property);
(4) Section 5.1 (Organization); and
(5) Section 5.2 (Corporate Authorization).
(c) Notwithstanding the above, the provisions set forth in
this Section 7.1 shall not limit in any way a party's right to bring a cause of
action against another party based on that party's intentional misrepresentation
or fraudulent conduct in connection with the negotiation and execution of this
Agreement and/or the consummation of the transactions contemplated by this
Agreement.
7.2. Indemnification of Buyer. Sellers shall, jointly and severally,
indemnify and save Buyer harmless from, against, for and in respect of any and
all damages, losses, settlement payments, obligations, liabilities, claims,
actions or causes of action, encumbrances and reasonable costs and expenses
suffered, sustained, incurred or required to be paid by Buyer
(a) because of the untruth, inaccuracy or breach of any
representation, warranty, agreement or covenants of Sellers
contained in or made in connection with this Agreement; (b)
for or relating to any deficiencies, shortfalls, penalties,
fines, assessments or other liabilities with respect to the
Retirement Fund, any other Union sponsored employee pension
or benefit plan, or any audit of any of the foregoing, for
the period from November 20, 1996 through the Closing Date;
(c) for or relating to any payments or contributions Buyer
makes or is required to
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make, during the five year period following the Closing Date,
into the Retirement Fund or any other Union sponsored or
mandated pension or benefit plan, for or on behalf of any
employees of Buyer, other than employees of Buyer who were
previously employed by Sellers; (d) for or relating to any
payments or contributions CCI makes or is required to make,
during the five year period following the Closing Date, into
any union sponsored or mandated pension, retirement or other
employee benefit plan, for or on behalf of any of its
employees; and (e) arising out of or relating to the failure
of the landlord under that certain "Lease," with Distribution
as tenant, dated November 20, 1996 for the Property located
at 3320 West Vernon, Phoenix, Arizona to consent to the
assignment of the Lease to Buyer in accordance with the
"Assignment and Assumption of Lease" in the form attached
hereto as Exhibit F.
including all reasonable costs and expenses (including without limitation,
attorneys fees, interest and penalties) incurred by any indemnified party in
connection with any action, suit, proceeding, demand, assessment or judgment
incident to any of the matters indemnified against.
7.3. Indemnification of Sellers. Buyer shall indemnify and save
Sellers harmless from, against, for and in respect of any and all damages,
losses, settlement payments, obligations, liabilities, claims, actions or causes
of action, encumbrances and reasonable costs and expenses suffered, sustained,
incurred or required to be paid by Sellers because of the untruth, inaccuracy or
breach of any representation, warranty, agreement or covenants of Buyer
contained in or made in connection with this Agreement, including all reasonable
costs and expenses (including without limitation, attorneys fees, interest and
penalties) incurred by any indemnified party in connection with any action,
suit, proceeding, demand, assessment or judgment incident to any of the matters
indemnified against.
7.4. Rules Regarding Indemnification.
(a) The obligation and liabilities of each indemnifying party
hereunder with respect to claims resulting from the assertion of liability by
the other party shall be subject to the following terms and conditions:
(i) The indemnified party shall give prompt written notice
to the indemnifying party of any claim which might give rise to a claim by the
indemnified party against the indemnifying party based on the indemnity
agreements contained in Sections 7.2 and 7.3 hereof, stating the nature and
basis of said claims and the amounts thereof, to the extent known.
(ii) In the event any action, suit or proceeding is brought
against the indemnified party, with respect to which the indemnifying party may
have liability under the indemnity agreements contained in Sections 7.2 and 7.3
hereof, the action, suit or proceeding shall, upon the written acknowledgment by
the indemnifying party that it is obligated to indemnify under such indemnity
agreement, be defended (including all proceedings on appeal or for review which
counsel for the indemnified party shall deem appropriate) by the indemnifying
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party. The indemnified party shall have the right to employ its own counsel in
any such case, but the fees and expenses of such counsel shall be at the
indemnified party's own expense unless (A) the employment of such counsel and
the payment of such fees and expenses both shall have been specifically
authorized by the indemnifying party in connection with the defense of such
action, suit or proceeding, or (B) such indemnified party shall have reasonably
concluded and specifically notified the indemnifying party that there may be
specific defenses available to it which are different from or additional to
those available to the indemnifying party or that such action, suit or
proceeding involves or could have an effect upon matters beyond the scope of the
indemnity agreements contained in Sections 7.2 and 7.3 hereof, in any of which
events the indemnifying party, to the extent made necessary by such defenses
shall not have the right to direct the defense of such action. In such case only
that portion of such fees and expenses reasonably related to matters covered by
the indemnity agreements contained in Sections 7.2 and 7.3 hereof shall be borne
by the indemnifying party. The indemnified party shall be kept fully informed of
such action, suit or proceeding at all stages thereof whether or not it is so
represented. The indemnified party shall make available to the indemnifying
party and its attorneys and accountants all books and records of the indemnified
party relating to such proceedings or litigation and the parties hereto agree to
render to each other such assistance as they may reasonably require of each
other in order to ensure the proper and adequate defense of any such action,
suit or proceeding.
(b) The indemnified party shall not make any settlement of
any claims without the written consent of the indemnifying party, which consent
shall not be unreasonably withheld or delayed.
7.5. Limitation on Sellers' Liability. Notwithstanding any provision
to the contrary set forth herein, Sellers will have no liability for
indemnification under Section 7.2(a) until the aggregate total of indemnifiable
damages suffered by Buyer exceeds $10,000.00. However, when the indemnifiable
damages suffered by Buyer pursuant to Section 7.2(a) exceed $10,000.00, Buyer
shall be entitled to full indemnification of all indemnifiable damages suffered
by Buyer in accordance with the provisions of Section 7.1, 7.3, and 7.4, above;
provided, however, that the maximum aggregate liability of Sellers for
indemnifiable damages pursuant to Sections 7.2(b), (c) and (d) shall not exceed
the amounts paid or payable to Sellers, if any, as the Purchase Price for the
Intangible Assets pursuant to Section 1.2(b) above. However, this Section 7.5
will not apply to any breach of any of Sellers' representations and warranties
of which either Seller had knowledge at any time prior to the Closing Date or
any intentional breach by either Seller of any covenant or obligation, and
Sellers will be jointly and severally liable for all damages with respect to
such breaches.
7.6. Right of Set Off. Sellers expressly acknowledge and agree that
Buyer shall be entitled, in addition to and not in lieu of any other remedies
which may be available to it, to set off against amounts due and owing or to
become due and owing to Sellers pursuant to Section 1.2(b) above or otherwise
hereunder, any indemnifiable damages suffered or incurred by Buyer as provided
in this ARTICLE 7.
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ARTICLE 8. ADDITIONAL MUTUAL COVENANTS; MISCELLANEOUS
8.1. Brokers. Except for an agreement entered into by CCI, payments
under which shall be the responsibility of CCI or Buyer, each of the parties
hereto represents and warrants to the other that there are no claims for
brokerage commissions or finder's fees in connection with the transaction
contemplated by this Agreement, and each party shall indemnify the other from
and against any and all claims for brokerage commissions or finder's fees,
incurred by reason of any action taken by it.
8.2. Individual Expenses. Each party agrees to be responsible for the
payment of all expenses incurred by or on behalf of it in connection with the
preparation, authorization, execution and performance of this Agreement,
including without limitation all fees of counsel, accountants and consultants
incurred by that party, whether or not this transaction is completed.
8.3. Notices. All notices, demands and communications hereunder shall
be in writing and shall be deemed to be duly given if delivered or mailed by
registered or certified mail, postage prepaid, return receipt requested, as
follows:
If to Seller: Robert Olson
President
IntraNet Solutions, Inc.
Lake Corporate Center
8091 Wallace Road
Eden Prairie, MN 55344
With a copy to: Gay Greiter
Maslon, Edelman, Borman & Brand, LLP
3300 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
If to Buyer: Robert D. Hegwood
Communication Connections, Inc.
1225 Walnut Ridge Drive
Hartland, WI 53029
With a copy to: William C. Pickering
von Briesen, Purtell & Roper, s.c.
411 East Wisconsin Avenue, Suite 700
Milwaukee, WI 53202-4470
8.4. Entire Agreement. This Agreement, and the schedules and exhibits
referred to herein or delivered pursuant hereto, contain the entire
understanding of the parties with respect to the subject matter, and supersede
all prior agreements and understandings between the parties
16
<PAGE> 17
with reference thereto. This Agreement may be amended only by a written
instrument duly executed by the parties subsequent to the date hereof.
8.5. Headings. The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
interpretation of the Agreement.
8.6. Successors and Assigns. The terms and conditions of this
Agreement shall bind, and inure to the benefit of, the parties hereto and their
respective successors, personal representatives and assigns.
8.7. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.
8.8. Applicable Law. This Agreement and the transactions contemplated
hereby shall be governed by and construed and enforced in accordance with the
laws of the State of Wisconsin.
8.9. Waiver of Bulk Sale Laws. In consideration of Buyer's willingness
to waive compliance with any applicable bulk sale laws, Sellers shall, jointly
and severally, hold Buyer harmless (in accordance with the provisions of ARTICLE
7) from and against all claims asserted against the Purchased Assets or Buyer
pursuant to such bulk sale laws except to the extent that such claims are based
upon or arise from Buyer's failure to pay or otherwise discharge any liability
or obligation assumed by Buyer under this Agreement or under any other
instrument contemplated by this Agreement.
8.10. Publicity. All publicity and announcements concerning the
transactions contemplated hereby shall be made with the joint approval of the
parties hereto. Buyer shall approve issuance of a press release mutually agreed
upon by Sellers and Buyer regarding the transactions contemplated by this
Agreement within two days of such a request by Sellers so that Sellers may make
a timely public disclosure of the transactions.
8.11. Facsimile Signatures. Facsimile signatures shall be acceptable
as original signatures and shall be binding upon the parties provided, however,
that each party shall immediately forward to the other, via nationally
recognized overnight delivery service, original executed copies of all such
documents exchanged by the parties.
17
<PAGE> 18
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date above written.
SELLERS: BUYER:
INTRANET SOLUTIONS, INC. COMMUNICATION CONNECTIONS, INC.
By: /s/ Robert F. Olson By: /s/ Robert D. Hegwood
--------------------------------- -------------------------------
Title: Chief Executive Officer Title: President
------------------------------ ----------------------------
INTRANET DISTRIBUTION GROUP, INC.
By: /s/ Robert F. Olson
---------------------------------
Title: Chief Executive Officer
------------------------------
18
<PAGE> 19
LIST OF EXHIBITS
Exhibit Section Reference Description
- - ------- ----------------- -----------
A. 1.3 Assignment and Assumption Agreement
B. 1.5 Software License Agreements
C. 2.2(a) Bill of Sale
D. 2.2(c) Sellers' Counsel's Legal Opinion
E. 2.2(d) Non-Competition Agreement
EXHIBITS ARE OMITTED
19
<PAGE> 1
ASSET PURCHASE AGREEMENT
by and between
OSAGE SYSTEMS GROUP, INC.
and
OSAGE SYSTEMS GROUP MINNEAPOLIS, INC.
as Buyer
and
INTRANET SOLUTIONS, INC.
as Seller
Effective as of September 30, 1998
<PAGE> 2
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (the "Agreement") is made effective as of
September 30, 1998, by and between OSAGE SYSTEMS GROUP, INC., a publicly-owned
Delaware corporation ("Osage") and OSAGE SYSTEMS GROUP MINNEAPOLIS, INC.
("Sub"), a Delaware corporation which is a wholly-owned subsidiary of Osage
(Osage and Sub are collectively referred to as "Buyer"), and INTRANET SOLUTIONS,
INC., a publicly-owned Minnesota corporation ("Seller").
WITNESSETH:
WHEREAS, Seller operates a division which is engaged in the provision
of services to integrate computer systems;
WHEREAS, Seller desires to sell all of the assets it currently uses or
which it owns and are usable in connection with its system integration business
as conducted as of the date hereof, which assets include contract rights,
intellectual property rights and the goodwill and going concern value of such
business; and
WHEREAS, Buyer wishes to (i) purchase all of the assets so used by
Seller in its system integration business and (ii) retain certain persons
currently employed by Seller in order to develop a systems integration business
in Minnesota, North Dakota, South Dakota, Iowa and Wisconsin.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, agreements and representations and warranties herein contained, and
for other good and legal consideration, the receipt and sufficiency of which is
hereby acknowledged, Seller and Buyer, intending to be legally bound hereby,
agree as follows:
ARTICLE 1
DEFINITIONS
1.1. When used in this Agreement, the following terms, in their singular and
plural forms, shall have the meanings assigned to them below:
"Act" means the Securities Act of 1933, as amended.
"Additional Shares" is defined in Section 3.5.
"Agreement" is defined in the initial paragraph hereof.
"Assets" means all of Seller's right, title and interest in and to all
of the following described holdings:
<PAGE> 3
(a) all of Seller's interest in (including all rights and benefits) all
written or oral commitments, contracts, leases, licenses, agreements and
understandings in connection with the SI Business identified in Schedule 1.1
hereto (the "Assumed Contracts"), and all outstanding offers or solicitations to
enter into any of the foregoing;
(b) all licenses, permits and other governmental approvals and
authorizations, whether federal, state or local, owned, held or utilized by
Seller in connection with the operation of the SI Business, and all pending
applications therefor;
(c) all operating data and records of Seller, including without
limitation, client and customer lists and records, referral sources, research
and development reports and records, production reports and records,
configuration files, operating guides and manuals, sales literature, copies of
the Records, correspondence and other similar documents relating to the SI
Business;
(d) all of the intellectual property owned by Seller and used in
connection with the SI Business, including, without limitation, all trade
secrets, know-how, processes, methods, plans, research data, marketing plans and
strategies, forecasts, trademarks, service marks, trade names, patents and
patent rights, logos and copyrights;
(e) the goodwill and going concern value of the SI Business;
(f) all claims of Seller against third parties relating to the SI
Business, whether known or unknown, contingent or otherwise;
(g) all vendor reseller development funds not earned, collected or
collectible by Seller on or before the 60th day following the Closing Date and
which Sun Microsystems, Access Graphics and/or any other vendor agree(s) to
transfer to Buyer on or after the Closing Date (collectively, the "Transferred
Development Funds"); and
(h) all other intangible assets of every kind, character or description
relating to the SI Business, except the Excluded Assets.
"Buyer" is defined in the initial paragraph hereof.
"Claim" means a claim or demand for any and all Liabilities, damages,
losses, obligations, deficiencies, encumbrances, penalties, costs and expenses,
including reasonable attorneys' fees, resulting from, related to or arising out
of (i) any misrepresentation, breach of warranty or non-fulfillment of any
covenant set forth in this Agreement or in any Related Document; (ii) Seller's
ownership of the Assets; (iii) any and all Proceedings, demands, assessments,
audits, judgments and claims arising out of any of the foregoing.
"Closing" and "Closing Date" are defined in Section 6.1.
"Closing Purchase Price" is defined in Section 3.2
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<PAGE> 4
"Contract" means any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
"Escrow Agent" means U.S. Bank Trust National Association.
"Escrow Agreement" is defined in Section 3.2.
"Escrow Fund" is defined in Section 3.2.
"Excluded Assets" means:
(a) all trade accounts receivable and other rights to receive payments
from Seller's customers as of the Closing Date;
(b) all cash and cash equivalents and all securities and short term
investments;
(c) any vendor reseller development funds other than the Transferred
Development Funds;
(d) the minute books, stock records and corporate seal of Seller;
(e) the shares of capital stock of Seller;
(f) all inventory, machinery, equipment, fixtures, computer hardware
and software, tools, supplies, spare parts, furniture, vehicles and other
tangible personal property and assets owned by Seller; and
(g) all real property owned by Seller.
"Financial Information" means the unaudited financial information
provided by Seller to Buyer concerning the net revenues and gross profit for
Seller's SI Business as of, and for the twelve-month period ended, March 31,
1998.
"Former IntraNet Employees" means the following persons: Dennis
Blomberg, Jim Holmes, Ken Wachtler, Wade Stuart, Linda Giles and Chris Mabry.
"GAAP" means generally accepted accounting principles in the United
States, consistently applied.
"Governmental Authority" means any foreign, federal, state, regional or
local authority, agency, body, court or instrumentality, regulatory or
otherwise, which, in whole or in part, was formed by or operates under the
auspices of any foreign, federal, state, regional or local government.
"Indemnified Party" is defined in Section 11.4
"Indemnifying Party" is defined in Section 11.4
3
<PAGE> 5
"Knowledge" - an individual will be deemed to have "Knowledge" of a
particular fact or other matter if such individual is actually aware of such
fact or other matter. A Person (other than an individual) will be deemed to
have "Knowledge" of a particular fact or other matter if any individual who is
serving, or who has at any time served, as a director, officer, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter. Seller will be deemed to have
"Knowledge" of a particular fact or other matter if any director or officer of
Seller has, or at any time had, Knowledge of such fact or other matter, or if
such director or officer would have had Knowledge of a particular fact or matter
if such director or officer had made all reasonable inquiries into the
particular fact or matter.
"Law" means any common law and any federal, state, regional, local or
foreign law, rule, statute, ordinance, rule, order or regulation.
"Liabilities" means liabilities, obligations, claims or debts of Seller
of any type or nature, whether matured, unmatured, contingent or unknown,
including, without limitation, tort, contract or other claims asserted against
Seller which are based on acts or omissions occurring on, before or after the
Closing Date.
"Lien" means any lien, charge, covenant, condition, easement, adverse
claim, demand, encumbrance, security interest, option, pledge, or any other
title defect, easement or restriction of any kind.
"Note" means the promissory note in the original principal amount of
$785,000, made by Buyer in favor of Seller, in substantially the form attached
hereto as Exhibit "E".
"Order" means any award, decision, injunction, judgment, order, ruling,
subpoena, or verdict entered, issued, made, or rendered by any court,
administrative agency, or other Governmental Authority or by any arbitrator.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Person" means any individual, corporation (including any non-profit
corporation), general or limited partnership, limited liability company, joint
venture, estate, trust, association, organization, labor union, or other entity
or Governmental Authority.
"Proceeding" means any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Authority or arbitrator.
"Purchase Price" is defined in Section 3.1
"Records" means all financial, accounting and personnel records of
Seller relating to the SI Business.
4
<PAGE> 6
"Registration Statement" is defined in Section 7.6
"Related Documents" means this Agreement and each document or
instrument executed in connection with the consummation of the transactions
contemplated herein.
"Reports" is defined in Section 4.14.
"Seller" is defined in the initial paragraph of this Agreement.
"SI Business" means the sale of hardware, systems software, hardware
support and services related to their implementation, as conducted by Seller.
"Stock Pledge Agreement" means the Stock Pledge Agreement by and
between Jack Leadbeater and Seller, in substantially the form attached hereto as
Exhibit "F".
"Tax" means any federal, state, local, or foreign income, gross
receipt, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, custom duties, capital stock
franchise, profits, withholding, social security, unemployment, disability, real
property, personal property, sales, use, transfer, registration, value added,
alternative, add-on minimum, estimated, or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether disputed or not.
"Year One" is defined in Section 3.5.
"Year Two" is defined in Section 3.5.
ARTICLE 2
SALE AND PURCHASE OF ASSETS
2.1. Agreement to Sell and Purchase Assets.
(a) Subject to the terms and conditions hereof and on the basis of and
in reliance upon the covenants, agreements and representations and warranties
set forth herein, on the Closing Date Seller shall sell and deliver the Assets
to Buyer, and Buyer shall purchase the Assets from Seller. The Assets shall be
sold, transferred and conveyed by Seller to Buyer free and clear of any and all
Liens.
(b) In addition to the foregoing, Seller will, upon request and
without additional consideration, at and subsequent to the Closing Date, execute
and deliver all such further instruments of conveyance and transfer and
confirmation thereof as may be requested by Buyer in order to make further
effective the provisions of this Agreement and to assure the transfers and
vesting of title provided for by this Agreement. All such transfers and
assignments of title shall vest and be effective on the Closing Date.
2.2 Responsibility for Liabilities. Buyer shall not assume any Liabilities
of Seller by virtue of this Agreement or otherwise, including, without
limitation, the following:
5
<PAGE> 7
(a) any obligation or liability related to accounts payable, taxes or
warranty claims which relate to goods or services sold by Seller prior to
Closing;
(b) claims or obligations related to Seller's employees arising prior
to or on the Closing Date, including, without limitation, severance claims,
vacation and sick days and all other accrued benefits;
(c) liabilities relating to environmental matters;
(d) any liability or obligation under contracts, agreements,
arrangements and understandings of Seller arising prior to or on the Closing
Date other than Seller's performance obligations set forth in the Assumed
Contracts listed in Schedule 1.1;
(e) any intercompany debt or other liability between the Seller or any
shareholder or affiliate of Seller; and
(f) any other liability or obligation of Seller, whether known or
unknown, absolute or contingent.
Notwithstanding anything herein or in any Related Document to the contrary,
except as otherwise expressly provided herein, Buyer is neither assuming nor
agreeing to pay or discharge any of the claims against, or Liabilities or
obligations of, Seller or of any other party and nothing in this Agreement shall
be construed to the contrary. All claims against, and Liabilities and
obligations of Seller, whether known or unknown, suspected or unsuspected,
direct or contingent, in litigation, threatened or not yet asserted or existing
with respect to any aspect of the Assets or the SI Business, or this Agreement,
arising or existing prior to or on the Closing Date or arising after closing an
account of the SI Business prior to Closing are and shall remain the
responsibility of Seller.
ARTICLE 3
PAYMENT OF THE PURCHASE PRICE
3.1. Purchase Price. The purchase price ("Purchase Price") for the Assets
shall consist of (i) the Closing Purchase Price (as such term is defined in
Section 3.2 below) and (ii) the Additional Shares (as such term is defined in
Section 3.5 below), if any.
3.2. Closing Purchase Price. Buyer shall deliver the total sum of $1,600,000
in immediately available funds in the form of cash, cashier's check or wire
transfer (the "Closing Purchase Price") in the following manner:
(a) At the Closing, Buyer shall deliver the sum of $715,000 to Seller.
(b) At the Closing, Buyer shall deliver $35,000 of the Closing
Purchase Price to Seller to be paid to the Former IntraNet Employees, which sum
shall be allocated among the Former IntraNet Employees in a manner mutually
agreed upon by the Buyer and Seller.
6
<PAGE> 8
(c) At the Closing, Buyer shall deliver the Note in the original
principal amount of $785,000 to Seller, of which $250,000 shall be due and
payable within 30 days after the Closing and the remaining principal amount of
$535,000 (the "Balance") shall be due and payable within 90 days after the
Closing. Out of the Balance, subject to the terms of an escrow agreement (the
"Escrow Agreement"), in form and substance mutually acceptable to Buyer and
Seller, a copy of which has been attached hereto as Exhibit "A", the sum of
$125,000 will be deposited into an escrow fund (the "Escrow Fund") to be
established and maintained pursuant to the provisions of the Escrow Agreement.
(d) On the one year anniversary of the Closing Date, Buyer shall pay
to the Former IntraNet Employees who are employed by Sub at that time $65,000
which sum shall be allocated among the Former IntraNet Employees in a manner
determined by the Buyer.
3.3. Allocation of Closing Purchase Price. The Closing Purchase Price shall
be allocated in accordance with Schedule 3.3 hereto. Each of the parties shall
timely file Internal Revenue Service Form 8594 in substantially the form
attached hereto as Exhibit "D".
3.4. Intentionally Omitted.
3.5. Additional Shares.
(a) In the event the Former IntraNet Employees produce for the SI
Business to be operated by Buyer following the Closing the levels of economic
performance specified in this Section 3.5, Osage shall issue to Seller and the
Former IntraNet Employees shares of Common Stock of Osage, par value $0.01 per
share (the "Additional Shares"), in the amounts set forth below.
(b) Osage shall issue Additional Shares having an aggregate valuation
of $500,000 if, during the first year following the Closing hereunder ("Year
One"), the Former IntraNet Employees produce for the SI Business operated by
Buyer net revenues of $13.8 million and gross profit of $2.6 million, subject,
however, to the following adjustment features:
(i) To the extent that during Year One the Former IntraNet
Employees produce net revenues of between $10.35 million and $13.8 million,
Additional Shares shall be issued having a valuation equal to the sum of (1)
$62,500 and (2) the product of $62,500 and the percentage calculated by dividing
the amount by which net revenues exceeded $10.35 million by $3.45 million. For
example, if net revenues of $12.075 million are produced by the Former IntraNet
Employees during the period, then Additional Shares having a valuation equal to
$93,750 shall be issued.
(ii) To the extent that during Year One the Former IntraNet
Employees produce net revenues of less than $10.35 million, no Additional Shares
shall be issued. To the extent the Former IntraNet Employees produce net
revenues of greater than $13.8 million during Year One, Buyer shall have no
obligation to issue Additional Shares having a valuation in excess of $125,000.
7
<PAGE> 9
(iii) To the extent that during Year One the Former IntraNet
Employees produce gross profit of between $1.95 million and $2.6 million,
Additional Shares shall be issued having a valuation equal to the sum of (1)
$187,500 and (2) the product of $187,500 and the percentage calculated by
dividing the amount by which gross profit exceeded $1.95 million by $650,000.
For example, if the Former IntraNet Employees produce gross profit of $2.275
million, then Additional Shares having a valuation equal to $281,250 shall be
issued.
(iv) To the extent that during Year One the Former IntraNet
Employees produce gross profit of less than $1.95 million, no Additional Shares
shall be issued. To the extent the Former IntraNet Employees produce gross
profit of greater than $2.6 million during Year One, Buyer shall have no
obligation to issue Additional Shares having a valuation in excess of $375,000.
(c) Osage shall issue Additional Shares having a valuation of $500,000
if, during the second year following Closing ("Year Two"), the Former IntraNet
Employees shall have produced for the SI Business operated by Buyer, net
revenues of $16.2 million and gross profit of $3.12 million, subject, however,
to the following adjustment features:
(i) To the extent that during Year Two the Former IntraNet
Employees produce net revenues of between $12.15 million and $16.2 million,
Additional Shares shall be issued having a valuation equal to the sum of (1)
$62,500 and (2) the product of $62,500 and the percentage calculated by dividing
the amount by which net revenues exceeded $12.15 million by $4.05 million. For
example, if the Former IntraNet Employees produce net revenues of $14.175
million, then Additional Shares having a valuation equal to $93,750 shall be
issued.
(ii) To the extent that during Year Two the Former IntraNet
Employees produce net revenues of less than $12.15 million, no Additional Shares
shall be issued. To the extent the Former IntraNet Employees produce net
revenues of greater than $16.2 million during Year Two, Buyer shall have no
obligation to issue Additional Shares having a valuation in excess of $125,000.
(iii) To the extent that during Year Two the Former IntraNet
Employees produce gross profit of between $2.34 million and $3.12 million,
Additional Shares shall be issued having a valuation equal to the sum of (1)
$187,500 and (2) the product of $187,500 and the percentage calculated by
dividing the amount by which gross profit exceeded $2.34 million by $780,000.
For example, if the Former IntraNet Employees produce gross profit of $2.73
million, then Additional Shares having a valuation equal to $281,250 shall be
issued.
(iv) To the extent that during Year Two the Former IntraNet
Employees produce gross profit of less than $2.34 million, no Additional Shares
shall be issued. To the extent the Former IntraNet Employees produce gross
profit of greater than $3.12 million during Year Two, Buyer shall have no
obligation to issue Additional Shares having a valuation in excess of $375,000.
(d) Of the Additional Shares issued hereunder, 90% shall be issued to
the Seller and 10% shall be issued to the Former IntraNet Employees who continue
to be employed
8
<PAGE> 10
by Sub from the Closing Date until the time such shares are issued. The
Additional Shares issued to the Former IntraNet Employees shall be allocated
among such employees in a manner to be mutually agreed upon by the Buyer and
Seller.
(e) For the purposes of Section 3.5, the valuation of the Additional
Shares shall be determined based upon the average closing price of the Common
Stock of Osage for the ten (10) trading days immediately preceding the issuance
of the Additional Shares. The Additional Shares shall be issued, if at all,
once Osage has completed financial statements reflecting the results of
operations of the SI Business for Year One or Year Two, as the case may be,
however, in no event later than 90 days after the twelve-month period in
question.
(f) For the purposes of this Section 3.5, the term "net revenues"
shall be the aggregate net revenues generated by the Former IntraNet Employees
for the SI Business then operated by Buyer, as determined by Osage's accounting
staff in conformity with GAAP and the internal revenue attribution guidelines of
Osage, excluding (i) sales revenues from the sale of Adobe Systems products and
(ii) sales revenues generated by sales and service to Medtronic, Inc. and
Artesyn Technologies. For the purposes of this Section 3.5, the term "gross
profit" shall mean the pre-tax gross profit produced as a result of the revenues
generated by the Former IntraNet Employees for the SI Business determined by
Osage's accounting staff in conformity with GAAP, and which shall include (y)
adjustments to net revenues of only client product costs and (z) all Sun
Microsystems and other vendor cash reseller development funds received by Sub on
account of the SI Business, without reduction for administrative and/or overhead
charges or parent company allocations and excluding (i) sales of Adobe Systems
products and (ii) sales to Medtronic, Inc. and Artesyn Technologies.
(g) If the Seller disputes the amount of the net revenues or gross
profit described in this Section 3.5 determined by the Osage accountants it may,
at its own cost and expense, retain its own accountants to review the
conclusions of the Osage accountants. If a dispute remains thereafter, Seller
shall notify Buyer of the amount in dispute (the "Disputed Amount") and the
parties may submit the matter to arbitration. If the arbitrators rule for an
adjustment in excess of 50% of the Disputed Amount in favor of the Seller, Buyer
shall reimburse the expenses of the Seller incurred in connection with the
arbitration proceeding. If the arbitrators rule for no upward adjustment to the
determinations of the Osage accountants, Seller shall reimburse the expenses of
Buyer incurred in connection with the arbitration proceeding. In all other
instances, each party shall bear its own expenses incurred in connection with
the arbitration proceeding.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
4.1. Organization and Standing of Seller. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. Seller has all
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<PAGE> 11
requisite corporate power and authority to sell the Assets, free and clear of
any and all Liens. A certified copy of Seller's Articles of Incorporation and
Bylaws are attached to Schedule 4.1.
4.2. Due Authorization. This Agreement has been duly authorized, executed
and delivered by Seller and constitutes a valid and binding agreement of Seller,
enforceable in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, moratorium, and other similar laws
relating to, limiting or affecting the enforcement of creditors rights generally
or by the application of equitable principles. As of the Closing all corporate
action on the part of Seller required under applicable law in order to
consummate the transactions contemplated hereby will have occurred. Seller
represents and warrants that the approval of Seller's stockholders is not
required by Law or Seller's Articles of Incorporation or Bylaws in order to
consummate the transactions contemplated by this Agreement.
4.3. No Conflict With Other Agreements. Neither the execution and delivery
of this Agreement or the Related Documents nor the carrying out of the
transactions contemplated hereby will result in any breach, violation,
termination or modification of, or be in conflict with, or require any consent
of any party to, any material contract, agreement, indenture, mortgage, note or
other instrument to which Seller is a party, or any permit, judgment, decree or
order applicable to Seller, which would result in the creation of any Lien upon
any of the Assets, which would create an obligation to Buyer or which would
affect Seller's ability to consummate the transactions contemplated by this
Agreement in a timely fashion.
4.4. Title to Assets. Seller owns and holds of record the entire right,
title and interest in and to all of the Assets, free and clear of any and all
Liens.
4.5. Financial Information. Seller hereby represents and warrants that the
Financial Information fairly, completely and accurately presents the net
revenues and gross profit for the SI Business at the dates and for the periods
covered thereby, in all material respects.
4.6. Litigation.
(a) There is no pending Proceeding:
(i) that has been commenced by or against Seller or that
otherwise relates to or may affect the SI Business, or any of the Assets; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
hereunder.
(b) To the Knowledge of Seller, (1) no such Proceeding has been
threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding.
(c) To the Knowledge of Seller, no Former IntraNet Employee is subject
to any Order that prohibits such employee from engaging in or continuing any
conduct, activity, or practice relating to the SI Business.
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<PAGE> 12
(d) There is no Order to which Seller or any of the Assets owned or
used by Seller is subject.
4.7. Third Party Consents. There are no authorizations, consents, approvals
or notices required to be obtained or given by Seller or waiting periods
required to expire, in order that this Agreement and the transactions provided
for herein may be consummated by Seller.
4.8. Absence of Certain Changes, Events or Conditions. With respect to the
SI Business, since March 31, 1998, there has not been (i) any change in Seller's
financial position, results of operations, manner of conducting business,
assets, Liabilities, net worth or business, other than changes in the ordinary
course of business which have not been materially adverse, (ii) any material
change in the normal operations of the SI Business, including any material
reduction in sales volume or profit margins other than in the ordinary course,
(iii) a pledge of the Assets or other encumbrance thereof, or (iv) any other
event or condition experienced by Seller of any character (whether or not
covered by insurance) which would create a Lien on any of the Assets, create an
obligation to Buyer, or which would materially affect the transactions
contemplated by this Agreement.
4.9. Labor Matters. Seller is not a party to any collective bargaining
agreement relating to the employees of Seller employed in the SI Business. No
strike, work stoppage, grievance, unfair labor practice claim, union organizing
activity or other labor difficulty or concerted employee action of any kind has
occurred since January 1, 1998, or currently is pending or, to the Knowledge of
Seller, threatened, which would materially adversely affect any of the Assets,
the SI Business or the transactions contemplated by this Agreement. Seller has
discharged and will discharge any and all collective bargaining agreement
obligations which it may have in connection with the transactions contemplated
by this Agreement.
4.10. Intellectual Property. Schedule 4.10 sets forth a list and
description of all intellectual property Assets in which, to Seller's Knowledge,
Seller has an interest and which is used in or material to the SI Business (the
"Intellectual Property").
(a) With respect to each item of Intellectual Property, Seller owns or
possesses adequate licenses or other rights to use the Intellectual Property to
conduct the SI Business, free and clear of adverse claims or Liens.
(b) With respect to each item of Intellectual Property, without any
further action by, consent of or payment of additional fees, royalties or other
compensation to any other person or entity, Buyer will be entitled to
unrestricted use of the Intellectual Property. To Seller's Knowledge, Seller's
use of the Intellectual Property does not infringe or conflict with any rights
of patent, copyright, trademark or trade secret of any other party. Seller has
not received any notice of infringement or conflict with (and has no Knowledge
of any threatened claim of infringement or conflict with) asserted rights of
others with respect to any Intellectual Property used by Seller in the SI
Business.
4.11. Taxes. All Taxes relating to the Assets have been or will be paid in
full when due unless protested in good faith by Seller, and there is no Lien or
claim of any taxing authority on,
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or threatened against, any of the Assets, and Seller has withheld and paid in
connection with amounts paid or owing to any employees employed by Seller,
independent contractors, creditors or other third parties with respect to the SI
Business. Seller shall remain responsible for and retain all liability with
respect to federal, state and local Tax matters relating to Seller for all
periods prior to and including the Closing Date regardless of when such Taxes
are assessed.
4.12. Bulk Sales Compliance and Transfer Taxes. Neither the sale and
transfer of the Assets to be acquired pursuant to this Agreement, will result in
or be subject to: (a) any law pertaining to bulk sales or transfers which
either: (i) makes such sales or transfers ineffective as to creditors of Seller
or (ii) exposes Buyer to liabilities asserted by creditors of Seller; or (b) any
federal, state or local sales, use, transfer, excise or license tax, fee or
charge applicable to any of the Assets to be acquired.
4.13. Contracts. Except as set forth on Schedule 4.13 attached hereto, all
Assumed Contracts have been duly and validly executed by all parties, and are in
full force and effect as of the date hereof. No event has occurred or condition
or state of facts exists which, after notice or the passage of time, would
constitute a material default under any such Assumed Contract, as to time or
manner of performance, or as to warranties thereunder, or otherwise. All
Assumed Contracts will continue to be binding in accordance with their
respective terms until their respective expiration dates, and Seller does not
expect any such contracts to result in a material loss to the SI Business.
Seller is not subject to any liability or payment resulting from renegotiation
of amounts paid it under any Assumed Contract with the government of the United
States or any agency, department or other subdivision thereof.
(a) Except as set forth in Schedule 4.13:
(i) Seller is, and at all times has been, in material compliance
with all applicable terms and requirements of each Assumed Contract under which
Seller has any obligation or liability;
(ii) to Seller's Knowledge, no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give Seller or other Person the
right to declare a default or exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate, or modify, any Assumed
Contract; and
(iii) Seller has not given to or received from any other Person,
at any time since March 31, 1998, any notice or other communication (whether
oral or written) regarding any actual, alleged, possible, or potential violation
or breach of, or default under, any Assumed Contract.
(b) There are no renegotiations of, attempts to renegotiate, or, to
the Knowledge of Seller, outstanding rights to renegotiate any material amounts
paid or payable to Seller under any Assumed Contracts with any Person and to the
Knowledge of Seller, no such Person has made written demand for such
renegotiation.
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4.14. Customers and Suppliers. Schedule 4.14 is a true and complete listing
all of the customers of the SI Business during Seller's fiscal year ended March
31, 1998 and for the three month period ended June 30, 1998, and the top 4
suppliers to the SI Business based on dollar amount who collectively filled at
least 94% of Seller's purchase orders for the SI Business within the last six
months. Seller has no knowledge of any claims or complaints by its customers or
suppliers that would have a material adverse effect on the Assets, the SI
Business, or the transactions contemplated hereunder.
4.15. Personnel Matters. Schedule 4.15 hereto is a true and correct
schedule setting forth as of the date hereof, the names, job designations and
addresses of each of the Former IntraNet Employees, the current remuneration of
each, including fringe benefits, and the basis for determining such remuneration
if other than a fixed salary rate, and the allocation of the $35,000 payable to
the Former IntraNet Employees under Section 3.2(b).
4.16. Employee Benefit Matters.
(a) Buyer will not be subject to any obligations or liability under any
of the Employee Plans. The term "Employee Plans" refers to all employment
contracts, employee benefit plans as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), pension plans,
bonus, profit sharing, stock option or other agreements or arrangements,
including any hospitalization, disability or other insurance plans, vacation and
sick pay policies, or any other employee fringe benefit plan providing for
employee benefits to which Seller is a party or by which Seller is bound in
connection with the SI Business. Buyer is not responsible for any severance pay
or other payments on account of termination by Seller of any of the Former
IntraNet Employees or other employees of Seller.
(b) None of the Employee Plans is a "multi-employer plan" as defined in
Section 3(37) of ERISA.
(c) In each case where Seller, its parent or any affiliate has
terminated a defined benefit pension plan that is subject to Title I of ERISA
relating to the employees of the SI Business, assets have been sufficient so
that all required benefits in fact have been provided. As of the Closing,
Seller will terminate the Former IntraNet Employees under the current terms and
conditions of its Employee Plans.
4.17. No Significant Items Excluded. Other than the Excluded Assets and
Seller's vendor reseller relationships, there are no assets or properties of
Seller or agreements, contracts or commitments to which Seller is a party that
are of material importance to the ongoing operation of the SI Business by Buyer
that are not being transferred to Buyer under the terms of this Agreement. To
Seller's Knowledge, the Assets are suitable and sufficient for the operation and
conduct of the SI Business as presently operated and conducted by the Seller.
4.18. Issuance of Additional Shares.
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(i) Except with respect to the registration rights granted to the
Seller pursuant to the terms of this Agreement, the Additional Shares which may
be issued to Seller are not being registered under the Act on the basis of the
statutory exemption provided by Section 4(2) thereof, relating to transactions
not involving a public offering, and Osage's reliance on the statutory exemption
thereof is based in part on the representations contained in this Agreement;
(ii) Seller represents (a) that it has, or as of the Closing, will
have reviewed such quarterly, annual and periodic reports of Osage as have been
filed with the Securities and Exchange Commission (the "Reports") and that it
has such knowledge and experience in financial and business matters that it is
capable of utilizing the information set forth therein concerning Osage to
evaluate the risk of investing in Osage; (b) that it has been advised that the
Additional Shares to be issued by Osage, if any, will not be registered under
the Act, except as otherwise provided in this Agreement, and accordingly, the
Seller may only be able to sell or otherwise dispose of such shares in
accordance with Rule 144 or except as otherwise provided in this Agreement; (c)
that the Additional Shares will be held for investment and not with a view to,
or for resale in connection with the public offering or distribution thereof;
(d) that the Additional Shares so issued will not be sold without registration
thereof under the Act (unless such shares are subject to registration or in the
opinion of counsel to Osage an exemption from such registration is available),
or in violation of any law; and (e) that the certificate or certificates
representing the Additional Shares which may be issued will be imprinted with a
legend in form and substance substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THESE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION, OR THE AVAILABILITY OF AN EXEMPTION FROM
REGISTRATION, UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, BASED ON AN OPINION LETTER OF COUNSEL FOR THE
COMPANY OR A NO-ACTION LETTER FROM THE SECURITIES AND
EXCHANGE COMMISSION."
and Osage is hereby authorized to notify its transfer agent of the status of
the Additional Shares and to take such other action including, but not limited
to, the placing of a "stop-transfer" order on the transfer agent's books and
records to assure compliance with the Act.
(iii) Seller has, either upon the date hereof or before the
Closing hereunder, been afforded the opportunity to review and is familiar with
the Reports and has based its decision to invest solely on the information
contained therein, and the information contained within this Agreement and the
associated exhibits and schedules, and has not been furnished with any other
literature, prospectus or other information except as included in the Reports or
this Agreement; and
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(iv) Seller understands that no federal or state agency has
approved or disapproved the Additional Shares, passed upon or endorsed the
merits of the transfer of such shares set forth within this Agreement, or made
any finding or determination as to the fairness of such shares for investment.
4.19 Brokers' Fees. No broker, finder or other person or entity acting in a
similar capacity has participated on behalf of Seller in connection with the
transactions contemplated by this Agreement. Seller has not incurred any
Liability for brokers' fees, finders' fees, agents' commissions or other similar
forms of compensation in connection with this Agreement or the transactions
contemplated hereby.
4.20 Full Disclosure. Neither this Agreement, including all exhibits and
schedules and other closing documents, nor any other financial statement,
document or other instrument heretofore or hereafter furnished by Seller to
Buyer in connection with the transaction contemplated herein, contains or will
contain any untrue statement of any material fact or, to the Knowledge of
Seller, omit or will omit to state any material fact required to be stated in
order to make such statement, information, document or other instruments, in
light of the circumstances in which they are made, not misleading. No
representation or warranty by Seller in this Agreement and no statement
contained in any Disclosure Schedule to this Agreement contains any untrue
statement of a material fact, or, to the Knowledge of Seller, omits to state a
material fact necessary to make the statements contained therein, in light of
the circumstances in which they are made, not misleading.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF OSAGE AND SUB
Osage and Sub represent and warrant to Seller as follows:
5.1. Organization and Standing of Osage and Sub. Each of Osage and Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
5.2. Authorization and Enforceability. Each of Osage and Sub has all
requisite corporate power and authority to enter into this Agreement and the
Related Documents to which it is a party and to carry out the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. All necessary and appropriate action has been taken by Osage and
Sub with respect to the execution and delivery of this Agreement and each of the
Related Documents and the performance of their respective obligations hereunder
and thereunder. The execution and delivery of this Agreement and the Related
Documents and the consummation of the contemplated transactions by Osage and Sub
will not (a) result in the breach of any of the terms or conditions of, or
constitute a default under, the Certificate of Incorporation or the By-Laws of
Osage and Sub or (b) violate any Law or any order, writ, injunction or decree of
any Governmental Authority. This Agreement and any Related Documents to which
Osage or Sub is a party constitute valid and binding obligations of Osage or
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Sub, as the case may be, enforceable against Osage or Sub in accordance with
their respective terms.
5.3. No Conflict With Other Agreements. Neither the execution and delivery
of this Agreement or the Related Documents nor the carrying out of the
transactions contemplated hereby will result in any violation, termination or
modification of, or conflict with, any material agreement to which Buyer is a
party, which would affect Buyer's ability to consummate the transactions
contemplated by this Agreement in a timely fashion.
5.4. Additional Shares. The Additional Shares, if any, delivered by Osage
pursuant to Section 3.5 hereof will be validly and legally issued, free and
clear of any and all Liens, and will be fully paid and non-assessable.
5.5. Approval. The Board of Directors of each of Osage and Sub has approved
the execution of this Agreement and the transactions contemplated thereby.
5.6. Brokers' Fees. Neither Osage nor Sub has incurred any liability for
brokers' fees, finders' fees, agents' commissions or other similar forms of
compensation in connection with this Agreement or the transactions contemplated
hereby for which Seller shall have any responsibility.
5.7. Full Disclosure. Neither this Agreement, including all exhibits and
schedules and other closing documents, nor any other financial statement,
document or other instrument heretofore or hereafter furnished by Osage or Sub
to Seller in connection with the transaction contemplated hereby, or any
information furnished by Osage or Sub taken as a whole contains or will contain
any untrue statement of any material fact or omit or will omit to state any
material fact required to be stated in order to make such statement,
information, document or other instruments, in light of the circumstances in
which they are made, not misleading. There is no fact known to Osage or Sub
which may have a material adverse effect on the business, prospects, financial
condition or results of operations of Osage or Sub taken as a whole or of any of
their properties or assets which has not been set forth in this Agreement as an
exhibit or schedule hereto.
ARTICLE 6
CLOSING
6.1. Closing. Subject to satisfaction or waiver of all conditions precedent
set forth in Sections 8 and 9 of this Agreement, the closing of the transactions
contemplated by this Agreement (the "Closing") shall take place on October 15,
1998 or the day on which the last of the conditions precedent set forth in
either Section 8 or 9 of this Agreement is fulfilled (the "Closing Date") or at
such other time, date and place as the parties may agree.
6.2. Obligations of Seller. At or prior to the Closing, Seller shall
deliver to Buyer, in each case, in form and substance satisfactory to Buyer:
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(a) an Assignment and Bill of Sale, in the form attached hereto as
Exhibit "B," and such other instruments of transfer or assignment as shall be
necessary or appropriate to vest in the Buyer good and marketable title to the
Assets;
(b) copies of all of the Assets which are in the form of
documentation, including without limitation, customer contracts, customer lists,
employment contracts, personnel records, maintenance contracts and configuration
files.
(c) a certificate of the Chief Executive Officer or President of
Seller, dated as of the Closing Date, to the effect that (1) all of the
representations and warranties made by the Seller upon the execution and
delivery of this Agreement remain true and correct as of the Closing Date and
(2) Seller has performed and complied with in all material respects all of the
covenants, agreements and obligations set forth in this Agreement to be
performed or complied with by it on or prior to the Closing Date;
(d) copies of resolutions adopted by the Board of Directors of Seller
duly authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated hereby, certified by an
appropriate officer as being true and correct as of the Closing Date;
(e) an opinion of counsel to Seller, dated as of the Closing Date, in
form and substance acceptable to the Buyer and its counsel; and
(f) such other documents as may be described in Article 8 of this
Agreement.
6.3. Obligations of Osage and Sub. At the Closing, Osage and Sub shall
deliver:
(a) the Closing Purchase Price, including the Note, in accordance with
Article 3 of this Agreement;
(b) a certificate of the Chief Executive Officer or President of
Buyer, dated as of the Closing Date, to the effect that (1) all of the
representations and warranties made by the Buyer upon the execution and delivery
of this Agreement remain true and correct as of the Closing Date and (2) Buyer
has performed and complied with in all material respects all of the covenants,
agreements and obligations set forth in this Agreement to be performed or
complied with by it on or prior to the Closing Date;
(c) copies of resolutions adopted by the Board of Directors of Buyer
duly authorizing and approving the execution of this Agreement and the
consummation of the transactions contemplated hereby, certified by an
appropriate officer as being true and correct as of the Closing Date;
(d) an opinion of counsel to Buyer, dated as of the Closing Date, in
form and substance acceptable to the Seller and its counsel; and
(e) such other documents as may be described in Article 9 of this
Agreement.
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6.4. Further Documents or Necessary Action. Buyer and Seller each agree to
take all such further actions on or after the Closing Date as may be necessary,
desirable or appropriate in order to confirm or effectuate the transactions
contemplated by this Agreement.
ARTICLE 7
COVENANTS AND AGREEMENTS
Seller covenants to and agrees with Buyer, and Buyer covenants to and
agrees with Seller, as follows:
7.1. Conduct of Business Pending the Closing. During the period from the
date of this Agreement to the Closing Date, Seller shall conduct its business
operations in the ordinary and usual course and to maintain its records and
books of account in a manner consistent with prior periods. Seller shall
exercise reasonable efforts to preserve intact the present business organization
and personnel of Seller and the present goodwill of Seller with persons having
business dealings with it. Except as otherwise required or contemplated hereby,
Seller further covenants and agrees that, from the date of this Agreement to the
Closing Date, it shall not, without the written consent of Buyer:
(a) enter into any negotiations, discussions or agreements
contemplating, affecting or respecting the Assets or Seller's ability to
transfer the Assets;
(b) enter into any negotiations, discussions or agreements
contemplating or respecting the acquisition of Seller or any material asset
thereof (other than in the ordinary course of business), whether through a sale
of stock, a merger or consolidation, the sale of all or substantially all of the
assets of Seller, any type of recapitalization or otherwise;
(c) incur any Liabilities or take any action that would diminish the
value of the Assets;
(d) take any action which would interfere with or prevent performance
of this Agreement; or
(e) engage in any activity or enter into any transaction which would
be inconsistent in any respect with any of the representations, warranties or
covenants set forth in this Agreement, as if such representations, warranties
and covenants were made at a time subsequent to such activity or transaction and
all references to the date of this Agreement were deemed to be such later date.
7.2. Access By Buyer; Confidentiality. During the period from the date of
this Agreement to the Closing Date, Seller shall cause Buyer, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets (including the Assets),
Liabilities, operations, contracts, files, personnel, financial and tax
information and other data and information of Seller, and shall cooperate with
Buyer in
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conducting its due diligence investigation of Seller; provided that such access
shall not unreasonably interfere with the normal operations and employee
relationships of Seller. Seller shall provide Buyer with copies of all reports
and/or filings it makes with the Securities and Exchange Commission from the
date hereof through Closing. All information provided to or learned by Buyer as
a result of such access or otherwise in connection with the transactions
contemplated by this Agreement shall be held in confidence.
7.3. Access By Seller; Confidentiality. During the period from the date of
this Agreement to the Closing Date, Buyer shall cause Seller, its agents and
representatives to be given full access during normal business hours to the
premises, buildings, offices, books, records, assets, liabilities, operations,
contracts, files, personnel, financial and tax information and other data and
information of Buyer, and shall cooperate with Seller in conducting its due
diligence investigation of Buyer; provided that such access shall not
unreasonably interfere with the normal operations and employee relationships of
Buyer. Buyer shall provide Seller with copies of all reports and/or filings it
makes with the Securities and Exchange Commission from the date hereof through
the Closing. All information provided to or learned by Seller as a result of
such access or otherwise in connection with the transactions contemplated by
this Agreement shall be held in confidence.
7.4. Notice of Breach or Failure of Condition. Seller and Buyer agree to
give prompt notice to the other of the occurrence of any event or the failure of
any event to occur that might preclude or interfere with the timely satisfaction
of any condition precedent to the obligations of Seller or Buyer under this
Agreement.
7.5. Best Efforts. Seller and Buyer shall use their respective best efforts
to obtain all consents or approvals necessary to bring about the satisfaction of
the conditions required to be performed, fulfilled or complied with by them
pursuant to this Agreement and to take or cause to be taken all action, and to
do or cause to be done all things, necessary, proper or advisable under
applicable Laws to consummate and make effective the transactions contemplated
by this Agreement as expeditiously as practicable.
7.6. Registration Rights Agreement. Osage agrees that, to the extent that
any Additional Shares are issued to Seller pursuant to Section 3.5, as soon as
practicable within either (a) ninety (90) days after the issuance of such
Additional Shares, or (b) if Osage is eligible to file a registration statement
on Form S-3, within thirty (30) days after the issuance of such Additional
Shares, it shall, at its sole expense, use its best efforts to file with the
Securities and Exchange Commission a registration statement (the "Registration
Statement") which shall register public resale of the Additional Shares so
issued. The terms upon which the registration of such shares shall be effected
are set forth in the Registration Rights Agreement to be entered into by Osage
and Seller, substantially in the form attached hereto as Exhibit "C".
7.7. Exclusive Dealing. In consideration of Buyer expending considerable
time and expenses in connection with the transactions contemplated in this
Agreement, including those incurred for due diligence inquiries and legal fees,
Seller hereby covenants and agrees that until the later of (i) sixty (60) days
after the date on which this Agreement automatically expires
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pursuant to Section 12.4 and (ii) the date on which this Agreement is terminated
pursuant to Sections 12.4, 12.2 or 12.3, Seller will not, directly or
indirectly, through any representative or otherwise, solicit or entertain offers
from, negotiate with or in any manner encourage, discuss, accept or consider any
proposal of any other person relating to the acquisition of the Assets, in whole
or in part, whether directly or indirectly, through purchase, merger,
consolidation or otherwise.
7.8. Records. During the period commencing as of the Closing Date and
ending on the second anniversary of the Closing Date, Seller shall continue to
be obligated to deliver any and all Records to Buyer as Buyer may reasonably
request in writing within a reasonable period of time following Seller's receipt
of each such request unless, due to circumstances beyond Seller's control, it is
impracticable for Seller to do so, in which event Seller shall deliver the
requested Records to Buyer as soon as practicable.
7.9. Contracts to be Subcontracted.
(a) Following the Closing, Seller shall subcontract Sub to perform
those obligations of the Seller existing as of the Closing Date to provide
services under the Contracts listed in Table 1 of Schedule 7.9 (the "Sub
Subcontracted Contracts"), to the extent such obligations are identified in
Schedule 7.9. Sub shall bill Seller for the services provided under the Sub
Subcontracted Contracts at the hourly service rate specified in such Contracts,
less $25.00 per hour.
(b) Sub shall also subcontract Sun Microsystems, Inc. ("Sun")
following the Closing to perform the obligations of Seller existing as of the
Closing Date to provide services under the Contracts listed in Table 2 of
Schedule 7.9 (the "Sun Subcontracted Contracts"). Seller shall bill the
customers under the Sun Subcontracted Contracts for the services provided
thereunder and remit 90% of such billed amount to Sub upon Seller's receipt
thereof, and shall be entitled to retain 10% of such billed amount.
(c) To the extent that Sub does not receive the payments specified in
Section 7.9(a) from Seller for services provided under the Sub Subcontracted
Contracts within ninety (90) days after the date of invoice by Buyer, or the
payments specified in Section 7.9(b) for services provided by Sun under the Sun
Subcontracted Documents within ninety (90) days after the date of invoice by
Sub, Buyer shall have a Claim under Section 11.2 for such amounts.
7.10. Reporting Consideration Paid to the Former IntraNet Employees. Seller
agrees to report in 1998 W-2 Forms for the Former IntraNet Employees the $35,000
of the Closing Purchase Price paid to such employees under Section 3.2(c). Sub
agrees to report in 1999 W-2 Forms for the Former IntraNet Employees the $65,000
of the Closing Purchase Price paid to such employees under Section 3.2(d).
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ARTICLE 8
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
All obligations of Buyer under this Agreement are subject to the
satisfaction by Seller at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Buyer:
8.1. Representations and Warranties True at Closing. The representations
and warranties of Seller contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made again on the Closing Date.
8.2. Performance. Seller shall have performed and complied in all material
respects with all agreements and conditions required by this Agreement to be
performed or complied with by Seller prior to or at the Closing, including,
without limitation, the delivery to Buyer of the documents listed in Section
6.2.
8.3. No Adverse Changes. Except as contemplated by this Agreement, there
shall have been no material adverse change in the condition, prospects, Assets,
business or operations, financial or otherwise, of Seller from the date of the
Financial Information to the Closing Date.
8.4. Litigation. On the Closing Date, there shall not be any pending or
threatened Proceedings in any court or by or before any Governmental Authority
with a view to seek, or in which it is sought, to restrain or prohibit the
consummation of the transactions contemplated by this Agreement or in which it
is sought to obtain divestiture, rescission or damages in connection with the
transactions contemplated by this Agreement and no investigation by any
Governmental Authority shall be pending which might result in any such
Proceeding.
8.5. Necessary Consents. All statutory requirements for the valid
consummation by Buyer of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
8.6. Certificate. Seller shall have delivered to Buyer a certificate, dated
as of the Closing Date, of the Seller to the effect that the conditions set
forth in Sections 8.1, 8.2, 8.3, 8.4 and 8.7 have been satisfied.
8.7. Consents. Seller shall have provided written consents to the
acquisition of the Assets by Buyer from all appropriate Governmental Authorities
(to the extent so required by law) in form and substance reasonably acceptable
to Buyer.
8.8. Due Diligence. Buyer shall have completed, to its satisfaction, a due
diligence review of the financial condition, results of operations, properties,
assets, liabilities, business and prospects of Seller.
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8.9. Employment Arrangements. Each of the Former IntraNet Employees shall
have executed and delivered an employment letter or employment agreement in form
and substance acceptable to Buyer, setting forth the material terms of such
employees' continued employment by Sub following Closing.
8.10. Escrow Agreement. Seller shall have executed and delivered the Escrow
Agreement.
8.11. Registration Rights Agreement. Seller shall have executed and
delivered the Registration Rights Agreement.
8.12. Stock Pledge Agreement. Seller shall have executed and delivered the
Stock Pledge Agreement.
ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
All obligations of Seller under this Agreement are subject to the
satisfaction by Buyer at or before the Closing of all of the following
conditions, except to the extent expressly waived in writing by Seller:
9.1. Representations and Warranties True at Closing. The representations
and warranties of Buyer contained in this Agreement shall have been true and
correct in all material respects when made and shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made again on the Closing Date.
9.2. Performance. Buyer shall have performed and complied, in all material
respects, with all agreements and conditions required by this Agreement to be
performed or complied with by Buyer prior to or at the Closing.
9.3. Intentionally omitted.
9.4. Necessary Consents. All statutory requirements for the valid
consummation by Seller of the transactions contemplated by this Agreement shall
have been fulfilled and all authorizations, consents, waivers, approvals or
other actions by any Governmental Authority or third party which are required
for the consummation of the transactions contemplated by this Agreement shall
have been received and shall be in full force and effect.
9.5. Certificate. Buyer shall have delivered to Seller a certificate, dated
as of the Closing Date, to the effect that the conditions set forth in Sections
9.1 and, 9.2 have been satisfied.
9.6. Employment Agreements. Sub shall have executed and delivered to each
of the Former IntraNet Employees an employment letter or employment agreement in
form and substance acceptable to Sub setting forth the material terms of such
employee's employment by Sub.
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9.7. Escrow Agreement. Osage and Sub shall have executed and delivered the
Escrow Agreement and delivered the Escrow Fund to the Escrow Agent hereunder.
9.8. Registration Rights Agreement. Osage shall have executed and delivered
the Registration Rights Agreement.
9.9. Stock Pledge Agreement. Jack R. Leadbeater shall have executed and
delivered the Stock Pledge Agreement.
ARTICLE 10
NON-COMPETITION
10.1. Covenant Not to Compete. For a period of three (3) years after the
Closing Date, Seller agrees that neither it nor any person or entity directly or
indirectly controlling, controlled by or under common control with Seller and
having its principal operations in the Restricted Area (as defined below) will
anywhere in the Restricted Area, either individually or as owner, partner,
stockholder, investor, lender or otherwise, compete with the SI Business. The
term "Restricted Area" shall mean the five states of Minnesota, North Dakota,
South Dakota, Iowa and Wisconsin.
10.2. Covenant Not to Disclose. Seller agrees that as the owner of the SI
Business, it possesses certain data and knowledge of operations of the SI
Business which are proprietary in nature and confidential, including, without
limitation, trade secrets (collectively, the "Confidential Information").
Seller covenants and agrees that it will not, at any time after the Closing,
reveal, divulge or make known to any person (other than Buyer) or use for its
own account or for the account of any person, firm, corporation or other
organization any Confidential Information which is included in the Assets,
except to the extent that such information is in the public domain. In the
event that Seller is requested or required (by oral question or request for
information or documents in any legal Proceeding, interrogatory, subpoena, civil
investigative demand or similar process) to disclose any Confidential
Information, Seller will notify Buyer promptly of the request or requirement so
that Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section 10.2. If, in the absence of a protective order or
the receipt of a waiver hereunder, Seller nonetheless is, on the advice of
counsel, compelled to disclose any Confidential Information to any tribunal or
else stand liable for contempt, Seller may disclose the Confidential Information
to the tribunal; provided, however, that Seller shall use its best efforts to
obtain, at the request of Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the Confidential Information
required to be disclosed as Buyer shall designate.
10.3. Remedies. It is recognized that damages in the event of breach of
this Article 10 would be difficult, if not impossible, to ascertain, and it is
therefore agreed that Buyer, in addition to and without limiting any other
remedy or right it may have, shall have the right to an injunction or other
equitable relief in any court of competent jurisdiction enjoining any such
23
<PAGE> 25
breach. The existence of this right shall not preclude any other rights and
remedies at law or in equity which Buyer or Seller may have.
10.4. Invalidity. It is the desire and intent of the parties to this
Agreement that the provisions of this Article 10 shall be enforced to the
fullest extent permissible under the Law. If any particular provisions or
portion of this Article shall be adjudicated to be invalid or unenforceable,
this Article shall be deemed amended to delete therefrom or restrict the
application of such provision or portion adjudicated to be invalid or
unenforceable to the extent (but only to the extent) required to render such
provision or portion valid and enforceable, such amendment to apply only with
respect to the operation of such Article in the particular jurisdiction in which
such adjudication is made.
ARTICLE 11
INDEMNIFICATION AND RELATED MATTERS
11.1. Survival of Representations and Warranties. The representations and
warranties contained in this Agreement, the schedules and exhibits hereto, and
any agreement, document, instrument or certificate delivered hereunder,
including the Related Documents, shall survive the Closing until the two year
anniversary of the Closing Date; provided, that the representations and
warranties contained in Sections 4.11 and 4.16 shall not terminate until the
expiration of any applicable statute of limitations; provided, further, that the
representations and warranties contained in Section 4.4 shall not terminate but
shall continue indefinitely.
11.2. Indemnification by Seller.
(a) Seller agrees to indemnify each of Osage and Sub (individually, an
"Indemnified Party" and collectively, "Indemnified Parties") against and hold
each harmless from the following:
(i) any liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation or warranty by
Seller in this Agreement, in any Related Document to which Seller was a
signatory or in any other agreement or document delivered by or on behalf of
Seller in connection with the transactions contemplated by this Agreement;
(ii) any liability of Seller not expressly assumed by Buyer under
the terms of this Agreement;
(iii) any liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or obligation made
or incurred by Seller in this Agreement, in any Related Document to which Seller
was a signatory or in any other agreement or document delivered by or on behalf
of Seller in connection with the transactions contemplated by this Agreement;
and
24
<PAGE> 26
(iv) any and all reasonable costs and expenses (including
reasonable legal and accounting fees) related to any of the foregoing. In the
event that Buyer makes a Claim which is determined by a court of competent
jurisdiction to be without reasonable basis in law or fact, Buyer shall bear all
reasonable costs and expenses (including court costs and reasonable legal and
accounting fees), incurred by Seller in investigating and defending against such
Claim.
Buyer shall offset any amounts due to it under this Section 11.2 against the
Escrow Fund to the extent amounts in the Escrow Fund are available. Seller has
the right to satisfy any obligations under this Section 11.2 in excess of the
amounts in the Escrow Fund, by tendering to Buyer any Additional Shares issued
and received under Section 3.5 for surrender to Osage and cancellation. For the
purposes hereof, the value of the Additional Shares surrendered to satisfy any
Claims hereunder shall be the value accorded such shares under Section 3.5(e).
11.3. Indemnification by Buyer. Osage and Sub shall jointly and severally
indemnify Seller (an "Indemnified Party") against and hold it harmless from the
following:
(a) any liability, loss, damage or deficiency resulting from or
arising out of any inaccuracy in or breach of any representation or warranty by
Buyer in this Agreement in any Related Document or in any other agreement or
document delivered by or on behalf of Buyer in connection with the transactions
contemplated by this Agreement;
(b) any liability, loss, damage or deficiency resulting from or
arising out of any breach or nonperformance of any covenant or obligation made
or incurred by Buyer in this Agreement, in any Related Document, or in any other
agreement or document delivered by or on behalf of Buyer in connection with the
transactions contemplated by this Agreement; and
(c) any and all reasonable costs and expenses (including reasonable
legal and accounting fees) related to any of the foregoing. In the event that
Seller makes a Claim which is determined by a court of competent jurisdiction to
be without reasonable basis in law or fact, Seller shall bear all reasonable
costs and expenses (including court costs and reasonable legal and accounting
fees), incurred by Buyer in investigating and defending against such Claim,
which indemnification obligation of Seller shall be secured by the Escrow Fund
held pursuant to the terms of the Escrow Agreement, and Buyer shall have the
right of offset with respect thereto.
11.4. Third Party Claims.
(a) If any Proceeding (including, without limitation, negotiations
with federal, state, local or foreign tax authorities) shall be threatened or
commenced by a third party in respect of which a party (an "Indemnified Party")
may make a Claim hereunder, the Indemnified Party shall notify the party
obligated to indemnify such party hereunder (the "Indemnifying Party") to that
effect with reasonable promptness (so as to not prejudice such party's rights)
after the commencement or threatened commencement of such Proceeding, and the
Indemnifying Party shall have the opportunity to defend against such Proceeding
(or, if the Proceeding involves to a significant extent matters beyond the scope
of the indemnity provisions contained herein, those Claims that are covered
hereby), subject to the limitations set forth below.
25
<PAGE> 27
(b) If the Indemnifying Party elects to defend against any Proceeding
(or, as described in the preceding parenthetical in Section 10.4(a), above, one
or more claims relating thereto), the Indemnifying Party shall notify the
Indemnified Party to that effect with reasonable promptness. In such case, the
Indemnified Party shall have the right to employ its own counsel and participate
in the defense of such matter, but the fees and expenses of counsel shall be at
the expense of the Indemnified Party unless the employment of such counsel at
the expense of the Indemnifying Party shall have been authorized in writing by
the Indemnifying Party.
(c) Any party granted the right to direct the defense of a threatened
or actual Proceeding hereunder shall: (i) keep the other party fully informed of
material developments in the Proceeding at all stages thereof; (ii) promptly
submit to the other party copies of all pleadings, responsive pleadings, motions
and other similar legal documents and papers received in connection with the
Proceeding; (iii) permit the other party and its counsel, to the extent
practicable, to confer on the conduct of the defense of the Proceeding; and (iv)
to the extent practicable, permit the other party and its counsel an opportunity
to review all legal papers to be submitted prior to their submission. The
parties shall make available to each other and each other's counsel and
accountants all of its or their books and records relating to the Proceeding,
and each party shall render to the other such assistance as may be reasonably
required in order to insure the proper and adequate defense of the Proceeding.
The parties shall use their respective good faith efforts to avoid the waiver of
any privilege of either party.
(d) The assumption of the defense of any matter by an Indemnifying
Party shall not constitute an admission of responsibility to indemnify or in any
manner impair or restrict such party's rights to later seek reimbursement of its
costs and expenses if the Indemnifying Party had no indemnification obligation
under this Agreement with respect to such matter. An Indemnifying Party may
elect to assume the defense of a matter at any time during the pendency of such
matter, even if initially such party did not elect to assume such defense, so
long as such assumption at such later time would not prejudice the rights of the
Indemnified Party. No settlement of a matter by the Indemnified Party shall be
binding on an Indemnifying Party for purposes of such party's indemnification
obligations hereunder.
11.5. Limitations. The remedies provided in this Article 11 will not be
exclusive of or limit any other remedies that may be available to Buyer or the
other Indemnified Parties. Notwithstanding the foregoing, (a) no Indemnifying
Party shall incur any indemnification obligations under this Article 11 unless
and until the aggregate amount of Claims incurred by the Indemnified Party
reaches $35,000 (the "Indemnification Threshold"), at which time the
Indemnifying Party shall be liable in full for all such Claims incurred by the
Indemnified Party, including the first $35,000 of Claims; provided, however,
that neither Seller nor Buyer shall incur indemnification obligations under this
Article 11 in excess of the sum of the Closing Purchase Price and the Additional
Shares earned pursuant to Section 3.5 hereof (such shares to be valued in
accordance with the terms of Section 3.5(e)) (the "Maximum Indemnification
Threshold"), and (b) neither Buyer nor Seller shall be entitled to bring any
Claim under this Article 11 after the second (2nd) anniversary of the Closing
Date, except for Claims relating to (i) fraud or intentional misrepresentation
and Sections 4.11 and 4.16, as to which an Indemnified Party may make a claim
for indemnity until the expiration of the period of the applicable statute
26
<PAGE> 28
of limitations, if any; and (ii) Section 4.4, as to which an Indemnified Party
may make a Claim for indemnity at any time. Notwithstanding any provision to
the contrary contained in this Agreement, each of Buyer and Seller shall be
liable to indemnify the other party in full for fraud or intentional
misrepresentation, without regard to the Indemnification Threshold or the
Maximum Indemnification Threshold, except that damages arising from fraud or
intentional misrepresentation shall be considered in assessing whether the
Indemnification Threshold has been satisfied. For the purposes of this Article
11, the phrase "fraud or intentional misrepresentation" shall mean any
fraudulent or intentional misrepresentation, or reckless disregard, of a
material fact or condition existing on or prior to the Closing Date, or the
intentional or reckless omission of a material fact or condition existing on or
prior to the Closing Date.
ARTICLE 12
TERMINATION
12.1. Termination by Mutual Consent. At any time prior to the Closing, this
Agreement may be terminated by the mutual written consent of Seller and Buyer
without liability on the part of Seller or Buyer.
12.2. Termination Upon Breach or Default. If Seller or Buyer shall
materially default in the observance or in the due and timely performance of any
of the covenants contained in this Agreement, or if there shall have been a
material breach by any of the parties of any of the representations or
warranties set forth in this Agreement, the other party may, upon written notice
and a reasonably opportunity to cure, terminate this Agreement, without
prejudice to its rights and remedies available at law, including the right to
recover expenses, costs and other damages.
12.3. Termination Based Upon Failure of Conditions. If any of the
conditions of this Agreement to be complied with or performed by a party on or
before the Closing Date, shall not have been complied with or performed in all
material respects by such date and such noncompliance or nonperformance shall
not have been waived in writing by the other party, the party to whom the
benefit of such condition runs may, upon written notice, terminate this
Agreement, without prejudice to its or their rights and remedies available under
law, including the right to recover expenses, costs and other damages.
ARTICLE 13
GENERAL
13.1. Entire Agreement. This Agreement, and the exhibits and schedules
hereto and the agreements specifically referred to herein, including the Related
Documents, set forth the entire agreement and understanding of Seller and Buyer
in respect of the transactions contemplated hereby and supersede all prior
agreements, arrangements and understandings relating to the subject matter
hereof. No representation, promise, inducement or statement of intention has
been made by Seller or Buyer that is not embodied in this Agreement or in the
documents specifically
27
<PAGE> 29
referred to herein and neither Seller nor Buyer shall be bound by or liable for
any alleged representation, promise, inducement or statement of intention not so
set forth.
13.2. Binding Effect; Benefits; Assignment. The terms of this Agreement
shall be binding upon, inure to the benefit of and be enforceable by and against
Seller and its successors and authorized assigns, and Buyer and its successors
and authorized assigns. Nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies under or by
reason of this Agreement except as expressly indicated herein. Neither Seller
nor Buyer shall assign any of their respective rights or obligations under this
Agreement to any other person, firm or corporation without the prior written
consent of the other party, except that Buyer may assign its rights and
obligations under this Agreement to a direct or indirect wholly-owned subsidiary
of Osage, although Buyer shall remain fully responsible for all of its
obligations under this Agreement.
13.3. Construction. The headings of the sections and paragraphs of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise modify any of the terms or provisions hereof. The
language used in this Agreement shall be deemed to be the language chosen by the
parties to this Agreement to express their mutual intent, and no rule of strict
construction shall be applied against any party.
13.4. Amendment and Waiver. This Agreement may be amended, modified,
superseded or canceled and any of the terms, covenants, representations,
warranties or conditions hereof may be waived only by a written instrument
executed by Seller and Buyer or, in the case of a waiver, by or on behalf of the
party waiving compliance.
13.5. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware as applicable to contracts
made and to be performed in Delaware, without regard to conflict of laws
principles.
13.6 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be determined by binding
arbitration applying the laws of the State of Delaware as set forth in Section
13.5 hereof. Any arbitration pursuant to this Agreement shall be conducted in
Phoenix, Arizona before the American Arbitration Association in accordance with
its arbitration rules. The arbitration shall be final and binding upon all the
parties (so long as the award was not procured by corruption, fraud or undue
means) and the arbitrator's award shall not be required to include factual
findings or legal reasoning. The arbitrator(s) may award the prevailing party
reasonable attorneys' fees and other legal expenses incurred in connection with
the arbitration proceeding. Judgment on the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof.
13.7 Public Disclosure. Except as required by Law, neither Buyer nor Seller
shall make any public disclosure of the existence or terms of this Agreement or
the transactions contemplated hereby without the prior written consent of the
other party, which consent shall not be unreasonably withheld. In the event that
Seller or Buyer determines that the disclosure of the existence or terms of this
Agreement is required by Law, such party shall so notify the other
28
<PAGE> 30
parties and shall provide to the other party a copy of any such public
disclosure prior to releasing the same.
13.8 Notices. All notices, requests, demands and other communications to be
given pursuant to the terms of this Agreement shall be in writing and shall be
deemed to have been duly given if hand delivered, sent by overnight mail by a
nationally recognized overnight delivery service or mailed first class, postage
prepaid:
(a) If to Seller:
Robert F. Olson, President
IntraNet Solutions, Inc.
8091 Wallace Road Eden
Prairie, MN 55344
Telephone: (612) 903-2000
Telecopier: (612) 829-5424
with a copy to:
William Mower, Esq.
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, MN 55402
Telephone: (612) 672-8358
Telecopier: (612) 672-8397
(b) If to Buyer:
Jack Leadbeater, Chief Executive Officer
Osage Systems Group, Inc.
1661 E. Camelback Road, Suite 245
Phoenix, Arizona 85016
Telephone: (602) 241-5782
Telecopier: (602) 274-9154
with a copy to:
Stephen M. Cohen, Esq.
Buchanan Ingersoll Professional Corporation
Eleven Penn Center, 14th Floor
1835 Market Street
Philadelphia, Pennsylvania 19103
Telephone: (215) 665-3873
Telecopier: (215) 665-8760
29
<PAGE> 31
Either party may change its address by prior written notice to the other party.
13.9 Counterparts. This Agreement may be executed in counterparts, each of
which when so executed shall be deemed to be an original and such counterparts
shall together constitute one and the same instrument. A facsimile signature on
any counterpart shall be deemed to be an original signature.
13.10 Expenses. Each party shall pay their own respective expenses, costs
and fees incurred in connection with the negotiation, preparation, execution and
delivery of this Agreement and each of the Related Documents and the
consummation of the transactions contemplated hereby, including, without
limitation, the fees and expenses of their respective legal counsel, accountants
and financial advisors.
30
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
OSAGE SYSTEMS GROUP, INC.
By: /s/ Jack Leadbeater
--------------------
Jack Leadbeater, Chief Executive Officer
OSAGE SYSTEMS GROUP MINNEAPOLIS,
INC.
By: /s/ Jack Leadbeater
--------------------
Jack Leadbeater, Chief Executive Officer
INTRANET SOLUTIONS, INC.
By: /s/ Robert F. Olson
--------------------
Robert F. Olson, President
31
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0
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