UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File Number: 001-13211
INFORMATION MANAGEMENT ASSOCIATES, INC.
(Exact name of registrant as specified in its charter)
Connecticut 06-1289928
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
One Corporate Drive, Suite 414
Shelton, Connecticut 06484
(203) 925-6800
(Address and telephone number of principal executive offices)
Indicate by check mark whether the Registration (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
The number of shares of the Registrant's Common Stock, no par value, outstanding
on May 8, 1998 was 9,667,128.
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INFORMATION MANAGEMENT ASSOCIATES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION..............................................1
Item 1: Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997.............................................1
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1998 and 1997....................2
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1998 and 1997....................3
Notes to Condensed Consolidated Financial Statements..........4
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................7
PART II. OTHER INFORMATION...........................................20
Item 2: Changes in Securities and Use of Proceeds............................20
Item 5: Other Information....................................................21
SIGNATURES....................................................................23
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31, December 31,
1998 1997
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents............................ $23,046 $24,271
Accounts receivable, net............................. 16,591 14,815
Other current assets................................. 2,348 1,420
------- -------
Total current assets.............................. 41,985 40,506
Equipment, net.......................................... 2,529 2,279
Goodwill................................................ 1,031 --
Purchased software...................................... 719 --
Other assets, net....................................... 1,258 1,137
------- --------
$47,522 $43,922
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of capital lease obligations...... 197 232
Accounts payable and accrued liabilities............. 7,530 4,375
Deferred revenues.................................... 5,150 1,686
-------- --------
Total current liabilities......................... 12,877 6,293
Other long-term liabilities............................. 575 599
Shareholders' equity:
Common stock, no par value; 9,667,128 shares outstanding
at March 31, 1998 and 9,236,037 shares outstanding
at December 31, 1997............................ 54,566 51,102
Shares to be issued in connection with acquisition...... 564 --
Cumulative translation adjustment....................... (68) (101)
Accumulated deficit..................................... (20,992) (13,971)
------ ------
Total shareholders' equity........................ 34,070 37,030
-------- --------
$47,522 $43,922
====== ======
The accompanying notes are an integral part of these
condensed consolidated financial statements
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INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
March 31,
1998 1997
Revenues:
License fees.................................... $ 5,315 $ 3,802
Services and maintenance........................ 4,778 3,654
--------- --------
Total revenues............................... 10,093 7,456
Cost of revenues:
Cost of license fees............................ 121 71
Cost of services and maintenance................ 2,588 1,952
--------- ---------
Total cost of revenues....................... 2,709 2,023
Gross profit....................................... 7,384 5,433
Operating expenses:
Sales and marketing............................. 3,915 2,648
Product development............................. 1,706 1,532
General and administrative...................... 1,299 1,092
Acquired product development costs.............. 7,658 --
--------- -------
Total operating expenses..................... 14,578 5,272
Operating income (loss)............................ (7,194) 161
Other income (expense)............................. 267 (257)
Loss before provision for income taxes............. (6,927) (96)
Provision for income taxes......................... 94 90
----------- -----------
Net loss........................................... (7,021) (186)
Accretion of preferred stock dividends............. -- 191
------------ -----------
Loss applicable to common shareholders............. $ (7,021) $ (377)
========== ==========
Diluted/Basic net loss per share................... $ (0.75) $ (0.09)
=========== ==========
Shares used in computing diluted and basic
earnings per share.. 9,324 4,293
========== =========
The accompanying notes are an integral part of these
condensed consolidated financial statements
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INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
March 31,
1998 1997
Cash Flows from Operating Activities:
Net loss.............................................. $ (7,021) $ (186)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization...................... 280 345
Charge for acquired product development costs...... 7,658 --
Changes in operating assets and liabilities,
exclusive of effects of acquisitions:
Accounts receivable, net........................... (979) (873)
Other current assets............................... (756) (316)
Other assets, net.................................. (105) (414)
Accounts payable and accrued liabilities........... 47 273
Deferred revenues.................................. 1,216 1,388
Other long-term liabilities........................ (24) (16)
------- -------
Net cash provided by operations............. 316 201
------- -------
Cash Flows from Investing Activities:
Acquisition of equipment.............................. (352) (556)
Cash paid in connection with acquisitions............. (1,247) -------
Payment of acquisition related deal costs............. (585) --
------- -------
Net cash used in Investing Activities....... (2,184) (556)
------- -------
Cash Flows from Financing Activities:
Proceeds from exercise of stock options............... 645 --
Repayment of capital lease obligations................ ( 35) (72)
------- -------
Net Cash Provided by Financing Activities... 610 (72)
------ -------
Effect of Exchange Rate Changes.......................... 33 (105)
------- -------
Net Decrease in Cash and Cash Equivalents................ (1,225) (532)
Cash and Cash Equivalents, beginning of period........... 24,271 3,073
------- -------
Cash and Cash Equivalents, end of period................. $23,046 $ 2,541
======= =======
Supplemental Disclosure of Non-cash Activities:
Accretion of Series A preferred stock in
lieu of dividends.................................. $ --- $103
Accretion of Series B preferred stock
in lieu of dividends............................... --- 88
Issuance of common stock in connection with
acquisitions....................................... 3,383 ---
The accompanying notes are an integral part of these
condensed consolidated financial statements
3
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INFORMATION MANAGEMENT ASSOCIATES, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
The accompanying condensed consolidated financial statements have been
prepared by Information Management Associates, Inc. and its wholly owned
subsidiary Information Management Associates Limited (together, the "Company"),
without audit, 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. However, the Company believes that the disclosures are adequate to
make the information presented not misleading. These condensed consolidated
financial statements and the notes thereto should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 1997.
The unaudited information has been prepared on the same basis as the
annual financial statements, and in the opinion of the Company's management,
reflects all normal recurring adjustments necessary for a fair presentation of
the information for the periods presented. Operating results for any quarter are
not necessarily indicative of the results for any future periods.
2. Business Acquisitions
On March 30, 1998, the Company acquired substantially all of the net
assets of Marketing Information Systems, Inc. (MIS) and Telemar Software
International, LLC (TSI) (the Acquisitions), each of which markets proprietary
call center software focused on the IBM AS/400 user market.
The aggregate purchase price of $9.4 million consisted of $1.3 million
of cash, 254,841 shares of common stock valued at $3.4 million, $4.1 million of
net assumed liabilities and $585,000 of transaction costs. Of the 254,841
shares, 42,508 shares (valued at $564,000) have been placed in escrow and will
be released from escrow no later than March 30, 1999, subject to the
satisfactory collection of accounts receivable and the absence of any
indemnification claims. The value of the common stock was determined based on
the average trading price of the Company's common stock for the two days prior
to, the day of, and the two days after, the date that the terms of the
Acquisitions were announced.
The Acquisitions have been accounted for under the purchase method of
accounting and the aggregate purchase price was allocated to the acquired assets
and assumed liabilities based on their estimated value. Of the aggregate
purchase price, $7.7 million was allocated to acquired product development costs
and charged to operations at the date of acquisition, $719,000 was allocated to
purchased software and will be amortized over three years and $1.0 million was
allocated to goodwill and will be amortized oven seven years. The estimated fair
values are
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subject to further refinement; however, the Company does not expect that the
final allocation of the purchase price will differ materially from the
preliminary allocation included above.
The Company's results from operations, exclusive of the charge to
operations related to the acquired product development costs, were not
materially impacted as a result of the Acquisitions.
3. Earnings (Loss) Per Share
The Company has adopted the provisions of Statement of Financial
Accounting No. 128, Earnings Per Share (SFAS 128) and the Securities and
Exchange Commission Staff Accounting Bulletin 98 (SAB 98), effective December
31, 1997. SFAS 128 established new standards for computing and presenting
earnings (loss) per share. Under SFAS 128, earnings (loss) per share is computed
both under the basic and dilutive methods. Basic earnings (loss) per share is
computed by dividing income (loss) available to common shareholders by the
weighted average number of common shares outstanding; dilutive earnings (loss)
per share is computed by giving effect to all dilutive potential common share
equivalents that were outstanding during the period. Dilutive common share
equivalents include stock options, warrants and convertible preferred stock. SAB
98 eliminates the requirement to include in earnings (loss) per share the
dilutive effect of certain stock options granted during the twelve months
preceding an initial public offering, calculated using the treasury stock method
and the initial public offering price.
The calculation of basic and diluted earnings (loss) per share are as follows
(in thousands except per share amounts):
Quarter Ended March 31,
1998 1997
Basic/Diluted earnings (loss) per share:
Net loss applicable to common shareholders...... $(7,021) $(377)
======== ======
Weighted average shares outstanding............. 9,324 4,293
===== ======
Basic/Diluted earnings (loss) per share......... $ (0.75) $(0.09)
======= ======
The March 31, 1998 calculation of diluted earnings (loss) per share does not
include stock options as the effect on diluted earnings (loss) per share would
have been antidilutive. The March 31, 1997 calculation of diluted earnings
(loss) per share does not include the exercise of stock options, the conversion
of Series A and Series B preferred stock or the conversion of the redeemable
common stock warrants as the effect on diluted earnings per share would have
been antidilutive.
4. Revenue Recognition
As of January 1, 1998, the Company adopted Statement of Position 97-2,
Software Revenue Recognition, which was effective for transactions that the
Company entered into after December 31, 1997. The adoption of SOP 97-2 did not
have a material adverse affect on the revenues or earnings of the Company for
the quarter ended March 31, 1998.
5
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5. Comprehensive Income
As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, Reporting Comprehensive Income (SFAS 130). SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. Comprehensive income is a more inclusive financial reporting
methodology that includes disclosure of certain financial information that
historically has not been recognized in the calculation of net income. For the
quarter ended March 31, 1998, the primary difference between reported net loss
and comprehensive net loss was a cumulative translation adjustment of $33,000.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company develops, markets and supports customer interaction
software designed to increase the productivity and revenue-generating
capabilities of mid-size to large-scale telephone call centers. The Company's
EDGE TeleBusiness software ("EDGE") is a suite of applications and tools that
enable businesses to automate telebusiness activities (telemarketing, telesales,
account management, customer service and customer support) on an enterprise-wide
basis. The Company complements its EDGE products by offering its clients
professional consulting, technical support and maintenance services.
On March 30, 1998, the Company acquired substantially all of the net
assets of Marketing Information Systems, Inc. (MIS) and Telemar Software
International, LLC (TSI) (The Acquisitions), each of which markets proprietary
call center software focused on the IBM AS/400 user market.
The aggregate purchase price for the two acquisitions was approximately
$9.4 million, consisting of cash, common stock, assumption of liabilities, and
payment of certain expenses. See Part II -- Item 5. Other Information of this
Form 10-Q for a description of the acquisitions.
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations should be read in conjunction with the
condensed Consolidated Financial Statements and the Notes thereto included
elsewhere in this Form 10-Q. Statements in the following discussion which
express "belief", "anticipation" or "expectation", as well as other statements
which are not historical fact, and statements as to product compatibility,
design, features, functionality and performance insofar as they may apply
prospectively, are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995 and the Company's actual results could
differ materially from those expressed in these forward-looking statements as a
result of certain factors, including those set forth under "Factors That May
Affect Future Results" and elsewhere in this Form 10-Q.
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RESULTS OF OPERATIONS
The following table sets forth the percentage of total revenues for
certain items in the Company's Consolidated Statement of Operations for the
three months ended March 31, 1998 and 1997.
Three Months Ended
March 31,
1998 1997
(unaudited) (unaudited)
Revenues:
License fees........................ 52.7% 51.0%
Services and maintenance............ 47.3 49.0
Total revenues.................. 100.0 100.0
Cost of revenues:
License fees........................ 1.2 1.0
Services and maintenance............ 25.6 26.2
Total cost of revenues.......... 26.8 27.2
Gross profit.............................. 73.2 72.8
Operating expenses:
Sales and marketing................. 38.8 35.5
Product development................. 16.9 20.6
General and administrative.......... 12.9 14.6
Acquired product development costs.. 75.9 --
Total operating expenses........ 144.5 70.7
Operating income (loss)................... (71.3) 2.1
Other income (expense).................... 2.6 (3.4)
Loss before provision for income taxes.... (68.7) (1.3)
Provision for income taxes................ 0.9 1.2
Net loss.................................. (69.6)% (2.5)%
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The following table sets forth each component of revenue, the cost of
such revenue expressed as a percentage of such revenue for the periods
indicated:
Three Months Ended
March 31,
1998 1997
---- ----
Cost of license fees.......................... 2.3% 1.9%
Cost of services and maintenance.............. 54.2% 53.4%
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Revenues
License Fees. License fee revenues consist of revenues from initial
licenses for the Company's software products and license upgrades to existing
customers for additional users or modules. Total license fees increased 39.8%
from $3.8 million, or 51.0% of total revenues, in the quarter ended March 31,
1997 to $5.3 million, or 52.7% of revenues, in the quarter ended March 31, 1998.
The increase in license fees was primarily attributable to an increase in the
average size of customer licenses, increased market awareness and acceptance of
the Company's software products and increased productivity resulting from
expansion of the Company's sales and marketing organization.
Services And Maintenance. Service and maintenance revenues derive from
professional services associated with the implementation and deployment of the
Company's software products and maintenance fees for ongoing customer support.
Services and maintenance revenues increased by 30.8% from $3.7 million, or 49.0%
of total revenues, in the quarter ended March 31, 1997 to $4.8 million, or 47.3%
of total revenues, in the quarter ended March 31, 1998. The increase in services
and maintenance was primarily attributable to the significant increase in
software licenses.
Cost of Revenues
Cost of License Fees. Cost of license fees consists primarily of the
costs of media packaging, documentation, third party software and software
production personnel. Cost of license fees increased 70.4% from $71,000, or 1.9%
of the related license revenues, in the quarter ended March 31, 1997 to
$121,000, or 2.3% of the related license revenues, in the quarter ended March
31, 1998. The increase in the cost of license fees was primarily attributable to
an increase in the cost of third party products resold by the Company.
Cost of Services And Maintenance. Cost of services and maintenance
consists primarily of salaries, bonuses, benefits and other costs related to the
installation, implementation, training and maintenance support of the Company's
software products. The cost of services and maintenance increased 32.6% from
$2.0 million, or 53.4% of service and maintenance revenues, in the quarter ended
March 31, 1997 to $2.6 million, or 54.2% of service and maintenance
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revenues, in the quarter ended March 31, 1998. The increase in cost of services
and maintenance in the quarter ended March 31, 1998 was primarily attributable
to an increase in salary, benefits and overhead related to the hiring of new
client services staff to perform increased service requests from customers.
Client services staff increased by 16 persons from March 31, 1997 to March 31,
1998.
Operating Expenses
Sales And Marketing. Sales and marketing expenses consist primarily of
commissions, salaries, bonuses and other related expenses for sales and
marketing personnel, as well as marketing, advertising and promotional expenses.
Sales and marketing expenses increased 47.8% from $2.6 million, or 35.5% of
revenues, in the quarter ended March 31, 1997 to $3.9 million, or 38.8% of
revenues, in the quarter ended March 31, 1998. The increase in sales and
marketing expenses was primarily related to the hiring of additional sales and
marketing personnel, increased commissions expense as a result of higher sales
levels and increased marketing activities, including advertising, trade shows
and promotional expenses.
Product Development. Product development expenses consist primarily of
salaries, bonuses, other related personnel expenses and consulting fees, as well
as the cost of facilities and equipment. Product development expenses increased
11.4% from $1.5 million, or 20.6% of revenues, in the quarter ended March 31,
1997 to $1.7 million, or 16.9% of revenues, in the quarter ended March 31, 1998.
The increase in product development expense in the quarter ended March 31, 1998
was primarily due to the hiring of new software development staff.
General And Administrative. General and administrative expenses
represent the costs of executive, finance and administrative support personnel,
the portion of occupancy expenses allocable to administration, unallocated
corporate expenses such as fees for legal and auditing services and bad debt
expense. General and administrative expenses increased 19.0% from $1.1 million,
or 14.6% of revenues, in the quarter ended March 31, 1997 to $1.3 million, or
12.9% of revenues, in the quarter ended March 31, 1998. The increase in general
and administrative expenses in the quarter ended March 31, 1998 was due to the
addition of accounting and administrative staff to support the growth of the
Company's business and an increase in legal and accounting fees.
Acquired Product Development Costs. Acquired product development costs
resulted from the March 30, 1998 acquisitions of MIS and TSI. There was no
similar acquisition activity during the three months ended March 31, 1997.
Other Income (Expense). Other income (expense) consists of interest
expense on debt and equipment financing less interest earned on short term
investments. Interest income increased by $245,000 from $29,000 in the quarter
ended March 31, 1997 to $274,000 in the quarter ended March 31, 1998 while
interest expense decreased from $286,000 in the quarter ended March 31, 1997 to
$7,000 in the quarter ended March 31, 1998. Interest income increased due to
income earned on investments from proceeds of the Company's initial public
offering of common stock ("IPO") and interest expense decreased due to the pay
off of debt with proceeds from the IPO.
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Provision For Income Taxes. Provision for income taxes consists of
foreign and state income and withholding taxes. The provision for income taxes
increased from $90,000 in the quarter ended March 31, 1997 to $94,000 in the
quarter ended March 31, 1998. At March 31, 1998, the Company had approximately
$9.2 million of U.S. Federal net operating loss carryforwards, of which
approximately $4.5 million resulted from the exercise of non-qualified stock
options, and approximately $2.2 million of state net operating loss
carryforwards which can be used, subject to certain limitations, to offset
future taxable income, if any. When realized, the tax benefits of the portion of
the net operating losses attributed to the exercise of stock options will be
credited directly to paid in capital. These U.S. Federal net operating loss
carryforwards expire through 2011 and the state net operating loss carryforwards
expire through 2002.
In addition, the Company has United Kingdom net operating loss
carryforwards of approximately $900,000 which can be utilized to offset future
taxable income and which have no expiration.
The Company's IPO resulted in a change in ownership, as defined by
Federal income tax laws and regulations. As a result of this change in
ownership, the amount of U.S. Federal net operating loss carryforwards which can
be utilized to offset Federal taxable income has an annual limitation of
approximately $4.7 million.
Liquidity And Capital Resources
At March 31, 1998, the Company had $23.0 million in cash and $16.6
million in accounts receivable. For the three months ended March 31, 1998, the
company generated net cash of $316,000 from operating activities. The net cash
of $316,000 generated from operations resulted primarily from the net loss of
$7.0 million, offset by the $7.7 million non-cash charge for acquired product
development costs related to the acquisitions of MIS and TSI, depreciation and
amortization of $280,000, and an increase in deferred revenue of $1.2 million
reduced by an increase of $979,000 in accounts receivable, and an increase of
$756,000 in other current assets. The fluctuations in operating assets and
liabilities were primarily due to the timing of operating activities, including
the timing of orders, collections of accounts receivable and the payment of
accounts payable.
For the three months ended March 31, 1998, the Company's primary
investing activities consisted of $1.3 million related to the acquisitions of
MIS and TSI, payment of acquisition related deal costs of $585,000 and $352,000
of purchases of computer and office equipment to support the company's expanding
employee base.
For the three months ended March 31, 1998, the Company's primary
financing activities consisted of the exercise of employee stock options which
provided cash proceeds of $645,000.
The Company anticipates that its current cash and cash equivalents
together with cash provided by operations will be sufficient to meet the
Company's projected working capital and other cash requirements for the
foreseeable future. The Company's future operating and capital requirements will
depend on numerous factors, including the Company's internal research and
development programs, the level of resources the Company devotes to marketing
and sales
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activities, advances in technology, the successful development and introduction
of new products and any acquisitions or strategic alliances or investments which
the Company may consider.
Year 2000 Compliance
As the year 2000 approaches, a critical business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. In brief, many existing application software
products in the marketplace were designed to only accommodate a two-digit date
position which represents the year (e.g., '95 is stored on the system and
represents the year 1995). As a result, the year 1999 (i.e., '99) could be the
maximum date value these systems will be able to accurately process. Management
is in the process of working with its products to assure that the Company's
products are year 2000 compliant. The Company also is in the process of
analyzing its own systems and requirements. Based on information currently
available, management does not anticipate that the Company will incur
significant operating expenses or be required to invest heavily in product
development or computer system improvements to be year 2000 compliant. To the
extent the Company's systems are not fully year 2000 compliant, there can be no
assurance that potential systems interruptions or the cost necessary to update
software would not have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects.
Factors That May Affect Future Results
In addition to the other information in this Form 10-Q, readers should
carefully consider the following factors in evaluating the Company and its
business. Statements in this Form 10-Q which express "belief", "anticipation" or
"expectation", as well as other statements which are not historical fact, and
statements as to product compatibility, design, features, functionality and
performance insofar as they may apply prospectively, are forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 and the Company's actual results could differ materially from those
expressed in these forward-looking statements as a result of numerous factors,
including those set forth below, and elsewhere in this Form 10-Q.
History of Operating Losses; Uncertainty of Future Operating Results.
The Company incurred significant net operating losses in each of 1992, 1993,
1994, 1995 and the first quarter of 1998 and had an accumulated deficit of $21.0
million as of March 31, 1998. The Company's operating history makes the
prediction of future operating results difficult or impossible. Accordingly,
although the Company has recently experienced revenue growth, such growth should
not be considered indicative of future revenue growth, if any, or of future
operating results. There can be no assurance that any of the Company's business
strategies will be successful or that the Company will be able to achieve or
sustain profitability on a quarterly or annual basis in the future.
Fluctuations in Quarterly Performance. The Company's quarterly
operating results have varied significantly in the past and may vary
significantly in the future depending upon a number of factors, many of which
are beyond the Company's control. These factors include, among others, the
ability of the Company to develop, introduce and market new and enhanced
versions of its products on a timely basis; the demand for the Company's
products; the lengthy sales cycle
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for full implementation of its products; the size, timing and contractual terms
of significant orders; the timing and significance of product enhancements and
new product announcements by the Company or its competitors; changes in the
Company's business strategies; budgeting cycles of its potential customers;
customer order deferrals in anticipation of enhancements or new products;
changes in the mix of products and services sold; changes in the amount of
revenue attributable to domestic and international sales; changes in foreign
currency exchange rates; the level of product and price competition;
cancellations or non-renewals of licenses or maintenance agreements; investments
to develop marketing and distribution channels; or changes in the level of
operating expenses. The Company is dependent upon obtaining orders in any given
quarter for delivery in that quarter in order to achieve its quarterly revenue
objectives. The timing of revenue recognition can be affected by many factors,
including the timing of contract execution and delivery, post-delivery
obligations and customer acceptance. A significant portion of the Company's
revenues in any quarter is typically derived from non-recurring, large license
fees received from a relatively small number of customers. Although particular
customers may vary from quarter to quarter, the Company expects that sales to a
limited number of customers will continue to account for a significant
percentage of its revenue in any quarter for the foreseeable future. Therefore,
the loss, deferral or cancellation of a contract, or a failure of a customer to
honor its contractual obligations (and for which the Company's reserves and
allowances may be inadequate), could have a significant impact on the Company's
operating results in a particular quarter. Conversely, to the extent that
significant sales occur earlier than expected, operating results for subsequent
three months may be adversely affected. In addition, the Company's business has
experienced and is expected to continue to experience seasonality, with stronger
demand during the three months ending in June and December than during the three
months ending in March and September, and a substantial portion of orders being
received in the last month or weeks of any given quarter.
Due to the foregoing factors, quarterly revenues and operating results
are not predictable with any significant degree of accuracy. The Company's
expense levels are based in significant part on the company's expectations as to
future revenues and are therefore relatively fixed for the short term. If
revenue levels are below expectations, the Company's business, operating
results, and financial condition are likely to be materially adversely affected.
As a result, the Company believes that period-to-period comparisons of its
results of operations are not necessarily meaningful and should not be relied
upon as indications of future performance. There can be no assurance that the
Company will be able to achieve or sustain profitability on a quarterly or
annual basis in the future. Due to all of the foregoing factors, it is likely
that in some future quarter the Company's total revenues or operating results
will be below the expectations of public market analysts and investors. In such
event, or in the event that adverse conditions prevail or are perceived to
prevail generally or with respect to the Company's business, the price of the
Company's common stock would likely be materially adversely affected.
Ability to Integrate Acquisitions. The Company completed the
acquisition of substantially all of the assets of MIS and TSI on March 30, 1998
for an aggregate purchase price of $9.4 million. The Company expensed acquired
product development costs related to these acquisitions in the aggregate amount
of $7.7 million in the first quarter of 1998, resulting in a net loss of $7.0
million for the quarter. MIS and TSI each have product lines which are focused
on the IBM AS/400 market, which has not been the market to which the Company's
EDGE products
13
<PAGE>
have been primarily directed. If the Company fails to successfully integrate the
product lines, employees, distributors and customers of MIS and TSI, the
Company's business, operating results and financial condition could be
materially adversely affected.
Product Concentration. Substantially all of the Company's revenues
during 1997 and the three months ended March 31, 1998 were attributable to the
licensing of EDGE and the provision of professional consulting, technical
support and maintenance services relating to EDGE. The Company currently expects
that the licensing of EDGE products and the provision of such related services
will account for the majority of its revenues for the foreseeable future. As a
result, factors adversely affecting the pricing of or demand for EDGE products
and services, such as competition or technological changes, could have a
material adverse effect on the Company's business, operating results and
financial condition. The Company's future financial performance will depend, in
significant part, on the continued market acceptance of its EDGE products and
the successful development, introduction and client acceptance of new and
enhanced versions of EDGE products. There can be no assurance that the Company
will continue to be successful in developing and marketing EDGE.
Lengthy Sales and Implementation Cycles; Post Delivery Obligations. The
licensing and implementation of the Company's products generally involves a
significant commitment of resources by customers and often requires the Company
to provide a significant level of education to prospective customers regarding
the use of the Company's products. As a result, the Company's sales process is
often subject to delays associated with lengthy customer approval processes that
typically accompany significant capital expenditures. For these and other
reasons, the sales cycle associated with the license of the Company's products
is often lengthy and may be subject to a number of significant delays over which
the Company has little or no control. In addition, the time required to
implement the Company's products can vary significantly with the needs of its
customers and generally extends for several months or, for larger, more complex
implementations, multiple quarters.
Depending on the contract terms and conditions, licensing fees are
recognized upon delivery of the product if no customer acceptance conditions or
significant post-delivery obligations remain and collection of the resulting
receivable is probable. However, if post- delivery obligations exist, or if the
product is subject to customer acceptance, revenue will be deferred until no
significant Company obligations exist or acceptance has occurred. In the past
some customers have failed to honor their contractual obligations by delaying
payments of a portion of license fees until implementation was complete and in
some cases have disputed the license and consulting fees charged. There can be
no assurance that the Company will not experience delays, cancellations or
disputes regarding payment in the future, which could have a material adverse
effect on the Company's business, operating results and financial condition and
cause its quarterly operating results to vary significantly in the future.
Dependence on Proprietary Technology. The Company's success and ability
to compete is dependent in part upon proprietary technology. The Company relies
primarily on a combination of copyright and trademark laws, trade secrets,
nondisclosure agreements and technical measures to protect its proprietary
rights. The Company typically enters into confidentiality or license
14
<PAGE>
agreements with its employees, distributors, clients and potential clients, and
limits access to and distribution of its software, documentation and other
proprietary information. There can be no assurance that these steps will be
adequate to deter misappropriation or independent third-party development of its
technology or to prevent an unauthorized third party from obtaining or using
information that the Company regards as proprietary. In addition, the laws of
some foreign countries do not protect or enforce proprietary rights to the same
extent as to the laws of the United States. Policing unauthorized use of the
Company's products is difficult and, while the Company is unable to determine
the extent to which piracy of its software product exists, software piracy can
be expected to be a persistent problem. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology.
Although the Company believes that its products and technology do not infringe
on any existing proprietary rights of others, the use of patents to protect
software has increased, and there can be no assurance that third parties will
not assert infringement claims in the future or, if infringement claims are
asserted, that such claims will be resolved in the Company's favor. The Company
expects that software product developers will increasingly be subject to
infringement claims as the number of products and competitors in the Company's
industry segment grows and the functionality of products in different industry
segments overlaps. Any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such royalty
or licensing agreements, if required may not be available on terms favorable to
the Company or at all, which could have a material adverse effect on the
Company's business, operating results and financial condition. In addition,
litigation may be necessary in the future to protect the Company's trade secrets
or other intellectual property rights, or to determine the validity and scope of
the proprietary rights of others. Such litigation could result in substantial
costs and diversion of resources and could have a material adverse effect on the
company's business, operating results and financial condition.
The Company has entered into agreements with a small number of its
customers requiring the Company to place its source code in escrow. The escrow
agreements typically provide that customers have a limited, non-exclusive right
to use such code in the event that there is a bankruptcy proceeding by or
against the Company, if the Company ceases to do business or if the Company
fails to meet its support obligations. The escrow agreements, and any that the
Company may enter into in the future, may increase the possibility of
misappropriation by third parties. In addition, the Company utilizes a
third-party contractor for selected product development projects which may also
increase the possibility of misappropriation by third parties.
Dependence on Indirect Marketing and Distribution Channels; Potential
Conflicts. The Company maintains co-marketing relationships with consulting and
systems integration companies to expand the visibility of its products in the
United States and internationally and distributes its products outside the
United States through remarketers and distributors. Such co- marketers,
remarketers and distributors are not under the direct control of the Company and
install and support the product lines of a number of companies. In addition, the
co-marketers, remarketers and distributors are not subject to any minimum
purchase requirements and can discontinue marketing the Company's products at
any time without cause. The consulting and systems integration companies may
also sell or co-market potentially competitive products. Accordingly, the
Company must compete for the focus and sales efforts of these third party
15
<PAGE>
entities. Additionally, selling through indirect channels may limit the
Company's contacts with its customers, potentially hindering its ability to
accurately forecast sales and revenue, evaluate customer satisfaction and
recognize emerging customer requirements. There can be no assurance that
co-marketers, remarketers and distributors will continue to distribute or
recommend the Company's products or do so successfully, or that the Company will
succeed in increasing the use of these indirect channels profitably. There can
also be no assurance that one or more of these companies will not begin to
market products in competition with the Company. The termination of one or more
of these relationships or the failure of the Company to establish additional
relationships could adversely affect the Company's business, operating results
and financial condition.
The Company's strategy of marketing its products directly to end-users
and indirectly through remarketers and distributors may result in distribution
channel conflicts. The Company's direct sales efforts may compete with those of
its indirect channels and, to the extent different resellers target the same
customers, resellers may also come into conflict with each other. Although the
Company has attempted to manage its distribution channels in a manner to avoid
potential conflicts, there can be no assurance that a distribution channel
conflicts will not materially adversely affect its relationships with existing
remarketers and distributors or adversely affect its ability to attract new
remarketers and distributors.
Need to Expand Marketing and Distribution Channels. The Company sells
its products both through its direct sales organization and through remarketers
and distributors. Part of the Company's strategy is to increase its use of
remarketers and distributors to sell its products internationally and to expand
its existing co-marketing relationships and establish new relationships with
other consulting and systems integration companies. The Company is also seeking
to expand its existing international direct sales force in order to take
advantage of international growth opportunities. The Company's ability to
achieve revenue growth in the future will depend on its success in recruiting
and training sufficient direct sales personnel and attracting and retaining
qualified remarketers and distributors. The Company has at times experienced and
continues to experience difficulty in recruiting qualified personnel, and there
can be no assurance that the Company will be able to expand successfully its
direct sales force or other remarketing and distribution channels or that any
such expansion will result in an increase in revenues. Any failure by the
Company to expand its direct sales force or other remarketing and distribution
channels could materially and adversely affect the Company's business, operating
results and financial condition.
Emerging Markets For Call Center Customer Interaction Software;
Dependence On Increased Use of Products By Existing Customers. The market for
call center customer interaction software is relatively new and is characterized
by ongoing technological developments, frequent new product announcements and
introductions, evolving industry standards and changing customer requirements.
The Company's future financial performance will depend in large part on
continued growth in the number of organizations adopting call center customer
interaction software products on an enterprise-wide basis and on the number of
applications and software components developed for such use. There can be no
assurance that the call center customer interaction software market will
continue to grow. If this market fails to grow, or grows more
16
<PAGE>
slowly than the Company currently anticipates, the Company's business, operating
results and financial condition could be materially and adversely affected.
In addition, certain of the Company's larger customers have licensed
the Company's software on an incremental basis and there can be no assurance
that the Company's customers will expand their use of the Company's software on
an enterprise-wide basis or license new or enhanced software products introduced
by the Company. The failure of the Company's software to perform according to
customer expectations or otherwise to be deployed on an enterprise-wide basis
could have a material adverse effect on the ability of the Company to increase
revenues from existing customers.
Rapid Technological Change. The call center customer interaction
software market is characterized by rapid technological change, frequent
introductions of new products, changes in customer demands and evolving industry
standards, any of which can render existing products obsolete and unmarketable.
As a result, the Company's position in its existing markets or other markets
that it may enter could diminish rapidly by product advancements. The life
cycles of the Company's products are difficult to estimate. The Company's
product development and testing efforts are expected to require, from time to
time, substantial investments by the Company and there can be no assurance that
it will have sufficient resources to make the necessary investments. The
Company's customers have adopted a wide variety of hardware, software, database
and networking platforms, and as a result, to gain broad market acceptance, the
Company must continue to support and maintain its products on a variety of such
platforms. The Company's future success will depend on its ability to address
the increasingly sophisticated needs of its customers by supporting existing and
emerging hardware, software, database and networking platforms and by developing
and introducing enhancements to its existing products and new products on a
timely basis that keep pace with technological developments, changing customer
requirements and evolving industry standards. The success of the Company's
products may also depend, in part, on its ability to introduce products which
are compatible with the Internet, and on the broad acceptance of the Internet.
Management of Growth. The Company recently experienced rapid growth
that could place a significant strain on its management and other resources. The
Company anticipates that continued growth, if any, will require it to recruit,
hire, train and retain a substantial number of new and highly skilled product
development, managerial, finance, sales and marketing and support personnel.
Competition for such personnel is intense and the Company expects that such
competition will continue for the foreseeable future. There can be no assurance
that the Company will be successful at hiring or retaining such personnel. The
Company's ability to compete effectively and to manage future growth, if any,
will depend on its ability to continue to implement and improve operational,
financial and management information systems on a timely basis and to expand,
train, motivate and manage its work force. There can be no assurance that the
Company's personnel, systems, procedures and controls will be adequate to
support the Company's operations. If the Company's management is unable to
manage growth effectively, the quality of the Company's products and its
business, operating results and financial condition could be materially
adversely affected.
17
<PAGE>
Competition. The market for telemarketing, telesales and customer
service software is intensely competitive, rapidly evolving and highly sensitive
to new product introductions or enhancements and marketing efforts by industry
participants. The Company competes with a large number of competitors ranging
from internal information systems departments to packaged software application
vendors. The Company believes that as the United States and international
software markets continue to grow, a number of new vendors will enter the market
and existing competitors and new market entrants will attempt to develop
applications targeting additional markets. Competitors have established and may
in the future establish cooperative relationships or alliances which may
increase their ability to provide superior software solutions or services. In
addition, consolidation within the call center customer interaction software
industry could create new or stronger competitors.
Increased competition resulting from new entrants, consolidation of the
call center customer interaction software industry, cooperative relationships or
alliance could result in price reductions, reduced operating income or loss of
market share, any of which could materially adversely affect the Company's
business, operating results or financial condition. Many of the Company's
current and potential competitors have significantly greater financial,
technical, marketing, service, support and other resources, generate higher
revenues and have greater name recognition than the Company. There can be no
assurance that the Company's current or potential competitors will not develop
products comparable or superior to those developed by it or adapt more quickly
than the Company to new technologies, evolving industry trends or changing
client requirements. There can be no assurance that the Company will be able to
compete effectively against current or future competitors or that competitive
pressures faced by the Company would not materially and adversely affect its
business, operating results or financial condition.
Risks Associated With International Operations. International
operations accounted for approximately 26%, 27% and 42% of total revenues for
the years ended December 31, 1996 and 1997, and the quarter ended March 31,
1998, respectively. The Company intends to expand its international sales
activity, which will require significant management attention and financial
resources and will require the Company to establish additional foreign
operations and hire additional personnel. As of March 31, 1998 the Company
employed 38 employees who are based in Europe. There can be no assurance that
the Company will be able to maintain or increase international market demand for
its products and, to the extent the Company is unable to do so, its business,
operating results or financial condition could be materially adversely affected.
The Company's international sales are currently denominated in U.S. dollars with
respect to sales outside of the United Kingdom and Europe, and generally in
pounds sterling with respect to sales in the United Kingdom and Europe. An
increase in the value of the U.S. dollar or pound sterling relative to other
currencies could make the Company's products more expensive and, therefore,
potentially less competitive in foreign markets. Currently, the Company does not
employ currency hedging strategies to reduce this risk. In addition, the
Company's international business may be subject to a variety of other risks,
including potentially longer payment cycles and difficulties in enforcement of
contractual obligations and intellectual property rights, potentially adverse
tax consequences, increased costs associated with maintaining international
marketing efforts, costs of localizing products for foreign markets, tariffs,
duties and other trade barriers, adverse changes in regulatory requirements,
possible recessionary economies outside of the United States and political and
economic instability. There can be no assurance that such factors will not
18
<PAGE>
have a material adverse effect on the Company's future international sales, and
consequently, on its business, operating results or financial condition.
Increased Use of Third-Party Development Tools. The Company's EDGE
products include application development tools which are used to build and
modify applications. If third-party application development tools become more
widely used as a result of technological advances or customer requirements, the
Company could be required to make greater use of third-party tools in the
future, and to enter into license arrangements with such third parties, which
could result in higher royalty payments, a loss of product differentiation and
delays. Such effects or the inability of the Company to enter into commercially
reasonable licenses could have a material adverse effect on the Company's
business, operating results or financial condition.
In addition to the "Factors That May Affect Future Results" mentioned
above, the Company's business entails a variety of additional risks, which are
set forth in the Company's filings with the Securities and Exchange Commission.
19
<PAGE>
PART II: OTHER INFORMATION
Item 2: Changes in Securities and Use of Proceeds.
a. Not Applicable.
b. Not Applicable.
c. (1) On March 30, 1998, the Company issued 166,270 shares of
common stock, no par value, to Marketing Information
Systems, Inc. ("MIS"), an Illinois corporation, which
constituted a portion of the consideration for the
acquisition of substantially all of the assets of MIS.
This issuance was made in reliance upon the exemptions
contained in Rule 506 and Section 4(2) of the
Securities Act of 1933, as amended (the "Act").
(2) On March 30, 1998 the Company was issued 68,571 shares
of common stock, no par value, to the three members of
Telemar Software International, LLC, a Delaware limited
liability company ("TSI") which constituted a portion
of the consideration for the acquisition of
substantially all of the assets of TSI. This issuance
was made in reliance upon the exemption contained in
Section 4(2) of the Act.
d. Use of Proceeds
(1) On July 30, 1997, the Company's Registration Statement
on Form S-1 (the "Registration Statement"), File No.
333-22923, with respect to its initial public offering
of common stock was declared effective by the
Securities and Exchange Commission. The use of proceeds
from the offering was described in the Company's Form
10-Q for the quarter ended September 30, 1997 and the
Company's Form 10-K for the year ended December 31,
1997. Except as noted below, no information has changed
with respect to the use of proceeds from the
information set forth in the Company's Form 10-K.
(2) The Company used the net offering proceeds through
March 31, 1998 as follows:
(a) approximately $7.4 million for repayment of
indebtedness;
(b) approximately $3.8 million for working capital;
(c) approximately $21.0 million for temporary investments
primarily in commercial paper;
20
<PAGE>
(d) approximately $835,000 for the acquisition of
equipment; and
(e) approximately $1.9 million for the acquisition of
assets of MIS and TSI.
Each of these amounts is a reasonable estimate of the
amount of the net offering proceeds set forth above so
applied. The use of proceeds does not represent a material
change in the use of proceeds described in the prospectus
included in the Registration Statement.
Item 5: Other Information:
On March 30, 1998, the Company acquired substantially all of the assets
of Marketing Information Systems, Inc.("MIS"), and Telemar Software
International, LLC ("TSI"), each of which markets proprietary call center
software focused on the IBM AS/400 user market. TSI had acquired the assets
related to the Telemar product line from the Company in September 1996. On April
20, 1998, the Company also entered into a co-marketing agreement with IBM
relating to marketing products to customers utilizing the AS/400 hardware
platform.
The purchase price for the assets of MIS was $6.0 million. In
connection with the acquisition of MIS, the Company hired 26 former employees of
MIS, including three employees located in The Netherlands, where the Company has
established an office. As a result of the acquisition, the Company has added 10
new distributors and remarketers, including 10 international distributors.
The purchase price for the assets of TSI was $3.4 million. In
connection with the acquisition of the assets of TSI, the Company hired 17
former employees of TSI. As a result of the acquisition, the Company has added
one new international distributor.
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Asset Purchase Agreement dated March 30, 1998 by and
among the Registrant, Marketing Information Systems,
Inc., MSM Systems Europe B.V., John B. Kennedy, Edison
Ventures Fund II, L.P., and Edison Ventures Fund II-PA,
L.P.
2.2 Asset Purchase Agreement dated March 30, 1998 between
the Registrant and Telemar Software International LLC.
27.1 Financial Data Schedule.
21
<PAGE>
(b) Reports on Form 8-K
Not Applicable.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 14, 1998 /s/ Albert R. Subbloie, Jr. President, Chief Executive
--------------------------- Officer and Director
Albert R. Subbloie, Jr. (Principal Executive
Officer)
Dated: May 14, 1998 /s/ Gary R. Martino Chairman of the Board of
---------------------------- Directors, Chief Financial
Gary R. Martino Officer, Treasurer and
and Director (Principal
Financial and
Accounting Officer)
23
<PAGE>
ASSET PURCHASE AGREEMENT
Dated
March 30, 1998
<PAGE>
TABLE OF CONTENTS
SECTION 1. PURCHASE AND SALE OF ASSETS.......................1
1.1. Purchase and Sale of Assets.......................1
1.2. Intent of the Parties.............................5
1.3. Excluded Assets...................................5
SECTION 2. ASSUMPTION OF LIABILITIES...................................5
2.1. Enumeration of Assumed Liabilities................5
2.2. Liabilities Not Assumed...........................6
SECTION 3. PRICE AND PAYMENT...........................................8
3.1. Purchase Price....................................8
3.2. Method of Payment.................................9
3.3. Legended Certificates.............................9
3.4. Adjustments to Purchase Price.....................9
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND
SHAREHOLDERS......................................11
4.1. Organization.....................................11
4.2. Power and Authority..............................11
4.3. No Conflict......................................11
4.4. Required Government Consents.....................12
4.5. Required Contract Consents.......................12
4.6. Title to Property; Bulk Sales....................12
4.7. Condition of Property............................13
4.8. Inventory........................................13
4.9. Title to Intellectual Property...................13
4.10. Adequacy of Technical Documentation..............14
4.11. Contracts--General...............................14
4.12. Third-Party Components in Software Programs......15
4.13. Third-Party Interests or Marketing Rights
in Software Programs.....................15
4.14. Leases...........................................15
4.15. [RESERVED].......................................16
4.16. Financial Statements.............................16
4.17. Undisclosed Liabilities..........................16
4.18. Conduct of Business..............................16
4.19. Major Vendors and Customers......................17
4.20. Litigation.......................................17
4.21. Court Orders, Decrees, and Laws..................18
4.22. Taxes............................................19
4.23. Personnel and Compensation.......................20
4.24. Insurance Polices................................22
4.25. Sufficiency of Rights............................22
4.26. Broker's or Finder's Fees........................23
4.27. Related-Party Transactions.......................23
4.28. Disclosure.......................................23
4.29. Truth at Closing.................................23
4.30. Materiality Defined..............................23
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<PAGE>
4.31. Investment Representations.......................24
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER....................25
5.1. Organization.....................................25
5.2. Power and Authority..............................25
5.3. No Conflict......................................25
5.4. IMA SEC Documents................................25
5.5. IMA Shares.......................................26
5.6. Broker's or Finder's Fees........................26
SECTION 6. [RESERVED].................................................26
SECTION 7. [RESERVED].................................................26
SECTION 8. ACCOUNTING MATTERS.........................................26
8.1. March 16, 1998 Balance Sheet.....................26
SECTION 9. [RESERVED].................................................26
SECTION 10. [RESERVED]................................................26
SECTION 11. CLOSING...................................................26
11.1. Closing..........................................26
11.2. Actions at Closing...............................27
11.3. Further Assurances...............................28
11.4. Further Assurances of Buyer......................28
SECTION 12. COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING...........28
12.1. Tax Matters......................................28
12.2. Allocation of Purchase Price.....................29
12.3. Transfer Taxes...................................29
12.4. Non-Compete......................................29
12.5. Nonsolicitation of Personnel.....................30
12.6. Registration Rights..............................30
12.7. Consents.........................................30
SECTION 13. CERTAIN TRANSITION MATTERS................................31
13.1. Hiring of Employees..............................31
13.2. COBRA............................................31
SECTION 14. INDEMNITY.................................................31
14.1. Indemnification by Seller........................31
14.2. Indemnification by Buyer.........................31
14.3. Notice of Claim..................................32
14.4. Defense..........................................32
14.5. Survival.........................................33
14.6. Setoff Against Holdback Amount...................33
14.7. Basket and Cap...................................34
14.8. Exclusive Remedy.................................34
14.9. Distribution to Seller After the
First Anniversary of Closing.............34
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<PAGE>
SECTION 15. CONFIDENTIALITY...........................................34
15.1. Confidentiality Obligation of Seller
and Shareholders Following Closing.......34
15.2. Permitted Disclosures............................35
15.3. Scope of Confidential Information................35
SECTION 16. [RESERVED]................................................35
SECTION 17. MISCELLANEOUS.............................................35
17.1. Entire Agreement.................................35
17.2. Parties Bound by Agreement; Successors
and Assigns..............................35
17.3. Counterparts.....................................36
17.4. Headings.........................................36
17.5. Modification and Waiver..........................36
17.6. Expenses.........................................36
17.7. Notices..........................................36
17.8. Arbitration......................................37
17.9. Governing Law....................................38
17.10. Public Announcements.............................38
17.11. Third-Party Beneficiaries........................38
17.12. "Including"......................................38
17.13. References.......................................38
iii
<PAGE>
[The Registrant will furnish supplementally to the Commission a copy of any
omitted schedule upon request.]
SCHEDULES
Schedule A Description of Software Products
Schedule 1.1.a Inventory
Schedule 1.1.c Software Contracts
Schedule 1.1.d Computer Equipment
Schedule 1.1.e Office Furniture
Schedule 1.1.f Leases
Schedule 1.1.g General Contracts
Schedule 1.1.h Real Property
Schedule 1.1.j Authorizations
Schedule 1.1.k Accounts Receivable
Schedule 1.1.l Intellectual Property
Schedule 1.1.m Insurance Policies
Schedule 1.1.o Liquid Assets
Schedule 1.1.q Business Interests
Schedule 1.3 Excluded Assets
Schedule 2.1.c Certain Contract Liabilities
Schedule 2.1.d Assumed Liabilities
Schedule 3.1.f Paid Liabilities
Schedule 3.3 Restrictive Legend
Schedule 4.3 Conflicts
Schedule 4.4 Required Government Consents
Schedule 4.5 Required Contract Consents
Schedule 4.7 Condition of Property
Schedule 4.9.b Copyright Notices
Schedule 4.9.c Trade Secrets
Schedule 4.10 Technical Documentation
Schedule 4.13 Software Licenses
Schedule 4.16 Financial Statements
Schedule 4.17 Undisclosed Liabilities
Schedule 4.18.a Ordinary Course of Business
Schedule 4.18.b Material Adverse Change
Schedule 4.18.c Absence of Particular Events
Schedule 4.18.d Absence of Joint Ventures, Etc.
Schedule 4.19 Major Vendors and Customers
Schedule 4.20.a Litigation
Schedule 4.20.b Historic Litigation
Schedule 4.21.a Compliance with Laws
Schedule 4.21.c Environmental Compliance
Schedule 4.22.a State Sales Tax Summary
Schedule 4.22.b State Sales Taxes, etc.
Schedule 4.23.a List of Personnel
Schedule 4.23.b Compensation, etc.
Schedule 4.23.c Retirement Plans
Schedule 4.24 Insurance Policies
Schedule 4.25 Sufficiency of Rights
Schedule 4.26 Broker's or Finder's Fees
Schedule 4.27 Related-Party Transactions
Schedule 11.2.h Opinion of Seller's Counsel
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<PAGE>
Schedule 11.2.i Opinion of Buyer's Counsel
Schedule 11.2.j Employment Agreements
Schedule 11.2.k Non-Competition Agreement of Seller
Schedule 11.2.l Non-Competition Agreement of Kennedy
Schedule 12.2 Allocation of Purchase Price
Schedule 13.1 Hiring of Employees
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<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), made and entered into
this 30th day of March, 1998, by and among Marketing Information Systems, Inc.,
an Illinois corporation ("MIS"), MSM Systems Europe B.V., a Dutch limited
liability company and a wholly-owned subsidiary of MIS ("Subsidiary", and,
together with MIS, "Seller"), Information Management Associates, Inc., a
Connecticut corporation ("Buyer"), John B. Kennedy ("Kennedy"), Edison Ventures
Fund II, L.P. ("EVF II") and Edison Ventures Fund II-PA, L.P. ("EVF II-PA" and,
together with Kennedy and EVF II, the "Shareholders");
WITNESSETH:
WHEREAS, the business of Seller (the "Software Business") consists
primarily of the acquisition, development, marketing, distribution, licensing,
maintenance, and support of the systems and applications computer programs
described in Schedule A attached hereto (the "Software Programs");
WHEREAS, the Seller desires to transfer, and Buyer desires to purchase
substantially all of the assets of Seller, and in consideration therefor, Buyer
shall agree to assume, certain liabilities of Seller arising in connection with
the Software Business, all upon the terms and conditions set forth herein;
WHEREAS, Seller expects to terminate the employment or engagement of a
number of employees involved with the Software Business, and Buyer desires to
hire or retain certain of such employees, all upon the terms and conditions set
forth herein; and
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, and agreements of the parties hereinafter set forth, the parties
hereto, intending to be legally bound, do hereby agree as follows:
SECTION 1. PURCHASE AND SALE OF ASSETS
1.1. Purchase and Sale of Assets. Upon the terms and subject to the
conditions of this Agreement, and upon the basis of the covenants,
representations and warranties of Seller and Shareholders set forth below, Buyer
agrees to purchase, accept, and acquire from Seller, and Seller agrees to sell,
transfer, assign, convey, and deliver to Buyer, at the Closing, all right,
title, and interest of Seller in and to all of the rights and assets, real,
personal, and mixed, tangible or intangible relating to the Software Business,
as owned or held by Seller, which assets shall hereinafter collectively be
referred to as the "Assets." Without
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in any way limiting the generality of the foregoing, the Assets shall include
all right, title and interest owned or held by Seller in the following:
a. Inventories. All inventories of (1) computer program code (in all media)
and materials, including the Software Programs; (2) program documentation,
including user materials; and (3) all other unused or reusable materials,
stores, and supplies, in each case to the extent used in, relating to, or
arising out of the Software Business (the "Inventory"). As of the Closing Date,
the Inventory consists of the Inventory listed by category and volume level in
Schedule 1.1.a.
b. Technical Documentation. All technical and descriptive materials (other
than Inventory) relating to the acquisition, design, development, use, or
maintenance of computer code and program documentation and materials in the
Software Business (the "Technical Documentation").
c. Software Contracts. All contracts, agreements, licenses, and other
commitments and arrangements, oral or written, with any person or entity
respecting the ownership, license, acquisition, design, development,
distribution, marketing, use, or maintenance of computer program code, related
technical or user documentation, and databases, in each case relating to or
arising out of the Software Business (the "Software Contracts"). The Software
Contracts consist of the items listed and classified in Schedule 1.1.c as (1)
licenses from third parties (development and/or marketing); (2) licenses from
third parties (internal use only); (3) development contracts, work-for-hire
agreements, and consulting and employment agreements; (4) distributorships,
dealerships, franchises, and manufacturer's representative contracts; (5)
licenses and sublicenses to others; and (6) maintenance, support, or enhancement
agreements.
d. Computer Equipment. All equipment and devices (including data processing
hardware and related telecommunications equipment, media, and tools) used in the
Software Business (the "Computer Equipment"), including Seller's rights under
all related warranties. The Computer Equipment consists of all items listed in
Schedule 1.1.d.
e. Office Furniture. All office furniture and fixtures used in the Software
Business (the "Office Furniture"). The Office Furniture consists of all items
listed in Schedule 1.1.e.
f. Leases. The entire leasehold or rental interest arising under leases of
(collectively, the "Leases"):
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(1) Real property, including buildings, structures, and other
improvements located thereon, fixtured therein, and appurtenances
thereto, and easements and other rights relative thereto;
(2) Equipment, including data processing hardware and associated
telecommunications equipment, media, and tools;
(3) Office furnishings and fixtures; and
(4) Other personality, in each case as used in the Software Business.
The Leases consist of all leases listed in Schedule 1.1.f.
g. Other Contracts. All contracts, agreements, licenses, commitments,
arrangements, and permissions respect the Software Business (the "General
Contracts") to the extent not otherwise classified as Software Contracts in
Schedule 1.1.c, Leases in Schedule 1.1.f or Insurance Policies in Schedule
1.1.m. The General Contracts consist of the items listed in Schedule 1.1.g.
h. Real Property. All real property used in the Software Business,
including the buildings, structures, and other improvements located thereon, the
fixtures contained therein, and the appurtenances thereto, and the easements and
other rights relating thereto (the "Real Property"). As of the Closing Date, the
Real Property consists of the property listed in Schedule 1.1.h.
i. Business Records. All business and marketing records, including
accounting and operating records, asset ledgers, inventory records, budgets,
personnel records, payroll records, customer lists, employment and consulting
agreements, supplier lists, information and data respecting leased or owned
equipment, files, correspondence and mailing lists, advertising materials and
brochures, and other business records used in the Software Business (the
"Business Records") provided that, the Business Records shall not include the
corporate minute books or stock ledger of Seller or records related solely to
the Excluded Assets or the Excluded Liabilities.
j. Authorizations. All governmental approvals, authorizations,
certifications, consents, variances, permissions, licenses, and permits to or
from, or filings, notices, or recordings to or with, federal, state, and local
governmental
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authorities (the "Authorizations"), but subject, as to the reassignability to
Buyer, to the procurement of the Required Government Consents (listed in
Schedule 4.4). The Authorizations consist of the items listed in Schedule 1.1.j.
k. Accounts Receivable. All accounts receivable, including all license fees
and maintenance fees and charges owing or to become owing to Seller under
Software Contracts, in each case relating to or arising from the Software
Business (the "Accounts Receivable"). The Accounts Receivable consist of the
items listed in Schedule 1.1.k.
l. Intellectual Property. All patents, trademarks, service marks, trade
names, and copyrights (including registrations, licenses, and applications
pertaining thereto), and all other intellectual property rights, trade secrets,
and other proprietary information, processes, and formulae used in the Software
Business or otherwise necessary for the ownership and use of the Assets and the
conduct of the Software Business (the "Intellectual Property"). The Intellectual
Property includes the registered trademarks and service marks, the reserved
trade names, the registered copyrights, and the filed patent applications and
issued patents listed in Schedule 1.1.l.
m. Insurance Policies. All insurance and reinsurance, surety, bonding, or
indemnity policies, binders, or contracts, and the benefits of any prior
insurance coverage to the extent still available, as established or obtained
with respect to the Software Business (the "Insurance Policies") provided that
the Insurance Policies shall not include insurance coverages relating to
Excluded Liabilities or life insurance policies naming John B. Kennedy as
insured. The Insurance Policies consist of the items listed in Schedule 1.1.m.
n. Claims. All claims Seller may have against any person relating to or
arising from the Assets or the Software Business, including rights to recoveries
for damages or defective goods, to refunds, insurance claims, and choses in
action ("Claims").
o. Liquid Assets. The deposits, other receivable items, prepaid expense
items, and investments that are identified in Schedule 1.1.o plus all other
cash, cash equivalents, deposits, notes receivable, other receivable items, and
investments, and all other products and proceeds of any Assets, arising from the
Software Business.
p. Goodwill and Intangible Assets. The goodwill and intangible assets of
the Business together with the exclusive right to Buyer to represent itself as
carrying on the Software Business in continuation of and in succession to
Seller, the right to all
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operating and trade names associated with the Software Business including,
without limitation, the names "Marketing Information Systems, Inc." and "MSM
Systems Europe", or any variations of such name, as part of or in connection
with the Software Business, all telephone listings, telephone numbers and
telephone advertising contracts, all lists of customers and prospective
customers, files, books and records and other information relating to the day to
day carrying on of the Software Business, all necessary licenses and
authorizations and any other rights used in connection with the Software
Business (the "Goodwill").
q. Business Interests, Participations, and Ownership Positions. All
interests, participations, and ownership positions held by Seller in any
corporation, partnership, joint venture, co- marketing arrangement, or similar
enterprise or undertaking relating to the Software Business. Such Assets consist
of the items contained in Schedule 1.1.q.
1.2. Intent of the Parties. Although the Schedules to this Agreement are
intended to be complete, to the extent any rights or assets of Seller primarily
relate to the Software Business or are otherwise necessary for the ownership and
use of the Assets and the conduct of the Software Business, but are not properly
itemized or do not appear on the applicable Schedules where required, then,
unless this Agreement otherwise provides directly for Buyer to provide for or
obtain such rights or assets in a different way, the general language of Section
1.1 shall govern and such rights and assets shall nonetheless be deemed
transferred to Buyer at Closing.
1.3. Excluded Assets. Seller shall not sell or assign to Buyer, and Buyer
shall not purchase or accept assignment from Seller of, the assets identified in
Schedule 1.3 (the "Excluded Assets").
SECTION 2. ASSUMPTION OF LIABILITIES
2.1. Enumeration of Assumed Liabilities. At and after the Closing, Buyer
shall assume and agree to pay or perform only the liabilities and obligations of
Seller that arise out of the Software Business or the Assets and are expressly
identified in this Section 2.1 (the "Assumed Liabilities") or are represented by
any other covenant, agreement, or indemnity of Buyer in this Agreement or the
other agreements and instruments to be executed and delivered by Buyer in
connection with this Agreement. Subject to the express exclusions set forth in
Section 2.2, the Assumed Liabilities shall consist of the following:
a. Trade Payables. All accrued trade payables of Seller arising out of the
Software Business, but only to the extent such items are reflected on the face
of the March 16, 1998 Balance
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Sheet (as defined in Section 8.1 below) or have arisen after March 16, 1998 in
the ordinary course of the Software Business and appear on the Closing Date
Balance Sheet under the same caption as such items appear on the March 16, 1998
Balance Sheet.
b. Accrued Taxes. The accrued portion of Seller's liability for state and
local tangible or intangible property taxes, but only to the extent such amount
is reflected in the March 16, 1998 Balance Sheet or has arisen after March 16,
1998 in the ordinary course of the Software Business and appears on the Closing
Date Balance Sheet under the same caption as it appears on the March 16, 1998
Balance Sheet.
c. Contracts. All payment and performance obligations arising out of or
relating to (1) the Software Contracts; (2) the Leases; and (3) the General
Contracts, in each case after the Closing Date, except to the extent
attributable to (a) any breach or default by Seller under any of the same on or
before the Closing Date or (b) any material liability or obligation outside the
ordinary course of business except for any such liability which is set forth on
Schedule 2.1.c attached hereto.
d. Other Accrued Liabilities. The liabilities set forth on Schedule 2.1.d,
all of which are recorded in the March 16, 1998 Balance Sheet, together with
liabilities arising since March 16, 1998 in the ordinary course of the Software
Business and appearing on the Closing Date Balance Sheet under the same captions
as such liabilities appeared on the March 16, 1998 Balance Sheet.
e. The Buyer Loan. The outstanding principal of and accrued interest on the
loan from Buyer to Seller.
2.2. Liabilities Not Assumed. Without in any way expanding the specificity
and limitation of Section 2.1, Buyer shall not assume or be responsible for any
of the following liabilities or obligations expressly identified in this Section
2.2 (the "Excluded Liabilities"):
a. Nonenumerated Liabilities. Any liability or obligation of Seller of any
kind, known or unknown, contingent or otherwise, not either enumerated as an
Assumed Liability in Section 2.1 or resulting from any other covenant,
agreement, or indemnity of Buyer in this Agreement or the other agreements and
instruments to be executed and delivered by Buyer in connection with this
Agreement.
b. Taxes. Except as provided in Section 2.1.b with respect to the current
portion of property taxes, all Taxes (as defined below), whether arising out of
the transactions contemplated by this Agreement or otherwise.
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c. Violations of Law. Any liability or obligation resulting from violations
of any applicable laws or regulations by Seller prior to the Closing Date or
infringement of third-party rights or interests.
d. Employee Liabilities. Any employee liabilities relating to present and
past employees of the Seller or Software Business with respect to plans,
programs, policies, commitments, and other benefit entitlement established or
existing on or prior to Closing (whether or not such liabilities are accrued or
payable at Closing, and whether or not such liabilities are contingent in
nature), including:
(1) Any liability or obligation for workers' compensation.
(2) Any current or future liabilities to employees retiring on,
before, or after Closing, and their dependents.
(3) Any current or future liabilities for benefits that may have been
accrued or earned by any employees associated with the Software
Business on or before Closing under any pension plans relating to
service prior to the Closing Date.
(4) Any current or future liabilities for claims incurred prior to
Closing and related expenses with respect to any employees
associated with the Software Business under any welfare or
disability plans established or existing at or prior to Closing,
regardless of when filed with Buyer, Seller, or the claims
administrator for any such plan.
(5) Any retrospective premium on pension, savings, thrift, or
profit-sharing plan contribution relating to any employees
associated with the Software Business incurred or accrued prior
to the Closing Date, regardless of when invoiced or recorded.
(6) Any monetary liability for severance payments that may arise at
any time in favor of any of Seller's employees under any plan,
program, policy, commitment, or other benefit entitlement.
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e. Product Liability. Any liability or obligation for product liability or
warranty claims or damage claims arising out of defects in or failures of any
product, program, or material of Seller or the Software Business provided,
distributed, licensed, or delivered prior to the Closing Date except for
warranty claims under written software license agreements which are listed on
Schedule 1.1.c of which Buyer receives written notice within 90 days after
shipment of the software to the customer and normal maintenance services to
correct errors in standard and custom code licensed to SKF up to a maximum cost
of $20,000 (including the cost of Buyer's employees calculated at normal hourly
rates).
f. Incidents to Excluded Assets. Any liability or obligation associated
with any of the Excluded Assets.
g. Litigation. Any Litigation (as defined in Section 4.20) pending or
threatened against Seller or the Assets.
h. Improperly Recorded Liabilities. Any liability or obligation that under
generally accepted accounting principles ("GAAP") would be required to be
accrued and reflected in the Closing Date Balance Sheet, but is not included
therein, regardless of the materiality of such items individually or in the
aggregate.
i. Liabilities of Seller under Acquisition Documents. Any liability or
obligation of Seller under this Agreement or the other documents and instruments
executed or delivered to Buyer in connection with the transactions contemplated
hereby including, without limitation, all liabilities for expenses of Seller's
financial consultants, accountants and counsel.
j. Obligations Relating to Seller's Securities. All obligations with
respect to common stock, preferred stock, warrants, stock options or other
securities or rights to acquire securities issued by Seller, including without
limitation all accrued dividends and obligations to purchase or redeem such
securities.
SECTION 3. PRICE AND PAYMENT
3.1. Purchase Price. On the terms and subject to the conditions of this
Agreement, and upon the basis of the covenants, representations and warranties
of Seller and Shareholders contained herein, the aggregate purchase price for
the Assets (the "Purchase Price") shall consist of the following consideration,
which Buyer agrees to pay or deliver to Seller as described below: (a) $730,000
in cash by wire transfer on the Closing Date, on transfer of good and valid
title to the Assets to Buyer in accordance with this Agreement, or such other
date as the parties or their attorneys agree in writing; (b) within five (5)
business
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days following the Closing Date, 143,762 shares (the "Closing Shares") of common
stock of Buyer, no par value ("Common Stock") (such shares to be registered on
the books of the Buyer in the name of Seller); (c) 42,508 shares of Common Stock
(such shares to be registered on the books of the Buyer in the name of Seller)
(the "Holdback Amount" and, together with the Closing Shares, the "IMA Shares"),
provided, that the number of IMA Shares which comprise the Holdback Amount shall
be subject to reduction and cancellation pursuant to the provisions of and in
accordance with the terms and conditions set forth in Sections 3.4 and 14.6
hereof; (d) assumption by Buyer of the Assumed Liabilities; (e) up to $85,000 as
reimbursement to Seller for employee severance expenses paid by Seller within
the six month period after the Closing Date relating to employees of Seller as
of the Closing Date to whom Buyer does not offer employment (the "Severance
Expense"); and (f) $237,448.19, which is equal to the aggregate amount of
certain liabilities on the March 16, 1998 Balance Sheet which are set forth on
Schedule 3.1.f (the "Paid Liabilities").
3.2. Method of Payment. All payments of cash from one party to another
under this Agreement shall be made by wire transfer of immediately available
federal funds in United States dollars to an account designated in writing by
the party to receive such payment.
3.3. Legended Certificates. Certificates evidencing the IMA Shares
comprising the Holdback Amount issuable to the Seller will be legended with the
legend set forth on Schedule 3.3 (the "Holdback Legend") and held by the
Secretary of Buyer. The Holdback Legend will be removed from IMA Shares
comprising the Holdback Amount on or after the first anniversary of the Closing
provided that no adjustments have been made in the Purchase Price pursuant to
Section 3.4 below and, provided, further, that no indemnification claims have
been made or are then pending against Seller. The certificates evidencing all of
the IMA Shares shall also bear the legend set forth in Section 4.31.a hereof.
3.4. Adjustments to Purchase Price.
a. Shortfall Amount. The parties agree that as of Closing, the net amount
of (x) Assets less (y) Assumed Liabilities (the "Final Net Assets") will not be
less than ($1,224,318). To the extent that the Final Net Assets are less than
($1,224,318), as determined by the balance sheet of Seller as of the Closing
which shall be prepared by Buyer (the "Closing Date Balance Sheet") and subject
to the dispute resolution procedure described in this paragraph, the Purchase
Price shall be reduced by an amount (the "Shortfall Amount") equal to the amount
by which Final Net Assets are less than ($1,224,318). The Closing Date Balance
Sheet shall be prepared in accordance with GAAP and Seller's accounting
principles consistent with the accounting principles used to prepare the March
16, 1998 Balance Sheet. In the preparation of
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the Closing Date Balance Sheet, the Excluded Liabilities shall not be treated as
liabilities of the Software Business, nor shall the Excluded Assets be treated
as assets of the Software Business. Also in the preparation of the Closing Date
Balance Sheet, (a) the carrying value of the Assets shall be their historical
cost and shall not be increased or otherwise adjusted based on any allocation of
the Purchase Price and (b) the net operating loss of Subsidiary, to the extent
it is transferred to a Buyer subsidiary organized in the Netherlands within
ninety (90) days after the Closing and such subsidiary is entitled to use it,
the net operating loss shall be valued at its net present value using a
reasonable discount rate and other reasonable assumptions; and (c) no adjustment
in the Closing Date Balance Sheet shall be made with respect to the revenue
recognition treatment of the SKF agreement. Such Closing Date Balance Sheet
shall be prepared on the basis that no item should have been excluded for lack
of materiality. Buyer shall prepare and deliver the Closing Date Balance Sheet
to Seller not later than 30 days after the Closing and the Seller and its
independent certified public accountants shall have the opportunity to review
such Closing Date Balance Sheet and the books and records of the Seller relating
thereto. If the Seller does not notify Buyer within 30 days of its receipt of
the Closing Date Balance Sheet that it objects to any item included in such
Closing Date Balance Sheet, then such Closing Date Balance Sheet shall be deemed
to be final for purposes of determining any adjustment pursuant to this Section.
If Seller objects to one or more items in such Closing Date Balance Sheet, it
shall specify its objection in writing to Buyer and Buyer and Seller shall
attempt to resolve such differences within 15 days after Buyer's receipt of
Seller's objection. If such objection is not resolved within such 15 day period,
Deloitte & Touche LLP, Hartford, Connecticut office, shall act as arbiter (the
"Arbiter") to resolve such dispute not later than 90 days after Closing. The
determination of the Arbiter shall be final. The fees of the Arbiter shall be
shared equally by Buyer and Seller. Any Shortfall Amount shall reduce the
Holdback Amount in accordance with Section 14.6 hereof.
b. Accounts Receivable Shortfall. The parties agree that as of one hundred
eighty (180) days following the Closing, the dollar amount of collections with
respect to the Accounts Receivable received by the Buyer ("Accounts Receivable
Collections") shall not be less than the amount which is equal to (x) the amount
of Accounts Receivable set forth on the Closing Date Balance Sheet less (y) the
amount of bad debt reserves set forth in the Closing Date Balance Sheet (the
"Net Accounts Receivable"). To the extent that the Accounts Receivable
Collections are less than the Net Accounts Receivable, such shortfall (the
"Accounts Receivable Shortfall") shall reduce the Holdback Amount in accordance
with Section 14.6 hereof. Buyer agrees that it will use commercially reasonable
efforts to collect the Accounts Receivable, provided that, such efforts shall
not include commencing any legal
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action or proceeding. Any uncollected Accounts Receivable after such 180 day
period for which Buyer recoups by reducing the Holdback Amount shall be assigned
to Seller who shall be entitled to collect such Accounts Receivable in any
commercially reasonable manner.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND
SHAREHOLDERS
Seller and Shareholders jointly and severally hereby represent and warrant
to Buyer as follows, and acknowledge and confirm that Buyer is relying upon such
representations and warranties in connection with the purchase of Assets:
4.1. Organization. Each of MIS and Subsidiary is a corporation validly
existing and in good standing under the laws of the State or other jurisdiction
where it is organized, with the corporate power and authority to conduct its
business (including the Software Business) and to own and lease its properties
and assets (including the Assets) and, as to the conduct of the Software
Business and the use and ownership of the Assets specifically, is not required
to be qualified or licensed to do business as a foreign corporation in any other
states or jurisdiction, except where the failure to be qualified or licensed
would not have a material adverse effect on its financial condition or
operations.
4.2. Power and Authority. Seller and each Shareholder has the power and
authority or legal capacity to execute, deliver, and perform this Agreement and
the other agreements and instruments to be executed and delivered by it in
connection with the transactions contemplated hereby and thereby, has taken all
necessary corporate, partnership or other action to authorize the execution and
delivery of this Agreement and such other agreements and instruments and the
consummation of the transactions contemplated hereby and thereby. Seller and
each of the Shareholders has duly executed and delivered this Agreement. This
Agreement is, and the other agreements and instruments to be executed and
delivered by Seller and Shareholders in connection with the transactions
contemplated hereby shall be, the legal, valid, and binding obligations of
Seller and Shareholders, respectively, enforceable in accordance with their
terms.
4.3. No Conflict. Except as set forth in Schedule 4.3, neither the
execution and delivery of this Agreement and the other agreements and
instruments to be executed and delivered in connection with the transactions
contemplated hereby or thereby, nor the consummation of the transactions
contemplated hereby or thereby, will violate or conflict with (1) except insofar
as Required Government Consents are to be procured prior to Closing,
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any federal, state, or local law, regulation, ordinance, zoning requirement,
governmental restriction, order, judgment, or decree applicable to Seller, the
Software Business, or the Assets, (2) any provision of any charter, bylaw or
other governing or organizational instrument of Seller or any Shareholder, or
(3) except insofar as Required Contract Consents are to be procured prior to
Closing, any mortgage, indenture, license, instrument, trust, contract,
agreement, or other commitment or arrangement to which Seller is a party or by
which Seller, any of the Shareholders or any of the Assets is bound.
4.4. Required Government Consents. Except for (1) the filing and/or
recording of deeds and other instruments of conveyance, transfer, or assignment
required by federal copyright, patent, or trademark laws or the laws of the
states in which the Assets are located, to occur upon Closing; and (2) the
further exceptions set forth in Schedule 4.4 (the foregoing items (1) and (2)
being referred to herein as the "Required Government Consents"), no approval,
authorization, certification, consent, variance, permission, license, or permit
to or from, or notice, filing, or recording to or with, federal, state, or local
governmental authorities is necessary for the execution and delivery of this
Agreement and the other agreements and instruments to be executed and delivered
in connection with the transactions contemplated hereby or thereby by Seller or
Shareholders or the consummation by Seller or Shareholders of the transactions
contemplated hereby or thereby, or (2) the ownership and use of the Assets and
the conduct of the Software Business (including by Buyer).
4.5. Required Contract Consents. Except as set forth in Schedule 4.5 (such
scheduled items being referred to herein as the "Required Contract Consents"),
no approval, authorization, consent, permission, or waiver to or from, or
notice, filing, or recording to or with, any person (other than the governmental
authorities addressed in Section 4.4) is necessary for (1) the execution and
delivery of this Agreement and the other agreements and instruments to be
executed and delivered in connection with the transactions contemplated hereby
or thereby by Seller or Shareholders or the consummation by Seller or
Shareholders of the transactions contemplated hereby; (2) the transfer and
assignment to Buyer at Closing of the Software Contracts, the Leases, the
General Contracts, or the Insurance Policies, or (3) the ownership and use of
the Assets and the conduct of the Software Business (including by Buyer).
4.6. Title to Property; Bulk Sales.
a. Good and Marketable Title. Buyer at Closing shall obtain good and
marketable title to all of the Assets (i.e., the Inventories, Technical
Documentation, Office Furniture and Business
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Records), free and clear of all title defects, liens, (including, without
limitation, a lien for any Tax) restrictions, claims, charges, security
interests, or other encumbrances of any nature whatsoever, including any
mortgages (except for the Leases listed in Schedule 1.1.f) leases, chattel
mortgages, conditional sales contracts, collateral security arrangements, or
other title or interest retention arrangements provided that, for purposes of
this representation, Seller and each of the Shareholders may assume with Buyer's
permission that Buyer shall have fully paid at closing all secured debt which
constitutes an Assumed Liability.
b. Bulk Sales. There are no "bulk sales" or similar laws applicable to the
sale of the Assets under this Agreement.
4.7. Condition of Property. Except as set forth in Schedule 4.7, all of the
tangible Assets are in good operating order, condition, and repair, ordinary
wear and tear excepted, and are suitable for use in the Software Business in the
ordinary course. There has been no material change in the condition of the
Assets since each time was inspected by a representative of the Buyer.
4.8. Inventory. All Inventory is of usable quality and includes no material
amount of obsolete or discontinued items or items that cannot be used by Buyer
in the Software Business in the ordinary course. All Inventory has been recorded
using the "First- In, First-Out" accounting method.
4.9. Title to Intellectual Property.
a. Ownership. Except for the rights and licenses validly and effectively
established by the Software Contracts, Seller owns, Buyer shall receive at
Closing, and the Intellectual Property includes, all patents, trademarks,
service marks, trade names, and copyrights (including registrations, licenses,
and applications pertaining thereto) and all other intellectual property rights,
trade secrets, and other proprietary information, processes, and formulae used
in the Software Business or otherwise necessary for the ownership and use of the
Assets and the conduct of the Software Business. Schedule 1.1.l sets forth all
registered trademarks and service marks, all reserved trade names, all
registered copyrights, and all filed patent applications and issued patents
listed in Schedule 1.1.l used in the Software Business or otherwise necessary
for the conduct of the Software Business as heretofore conducted.
b. Procedures for Copyright Protection. Schedule 4.9.b sets forth the form
and placement of the proprietary legends and copyright notices displayed in or
on the Software Programs. In no instance has the eligibility of the Software
Programs for protection under applicable copyright law been
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forfeited to the public domain by omission of any required notice or any other
action.
c. Procedures for Trade Secret Protection. Seller has promulgated and used
its best efforts to enforce the trade secret protection program set forth in
Schedule 4.9.c. Insofar as Seller knows, there has been no material violation of
such program by any person or entity. The source code and system documentation
relating to the Software Programs (1) have at all times been maintained in
confidence and (2) have been disclosed by Seller only to employees and
consultants having "a need to know" the contents thereof in connection with the
performance of their duties to Seller.
d. Personnel Agreements. To Seller's and Shareholders' knowledge, all
personnel, including employees, agents, consultants, and contractors, who have
contributed to or participated in the conception and development of the Software
Programs, Technical Documentation, or Intellectual Property on behalf of Seller
either (1) have been party to a "work-for-hire" arrangement or agreement with
Seller, in accordance with applicable federal and state law, that has accorded
Seller full, effective, exclusive, and original ownership of all tangible and
intangible property thereby arising, or (2) have executed appropriate
instruments of assignment in favor of Seller as assignee that have conveyed to
Seller full, effective, and exclusive ownership of all tangible and intangible
property thereby arising.
e. Absence of Claims. No claims have been assorted by any person or entity
to the use of the Intellectual Property, and Seller does not know of any valid
basis for any such claim. To Seller's and Shareholders' knowledge, the use of
the Intellectual Property, such as patents and trademarks, by the Seller does
not infringe on the rights of any person.
4.10. Adequacy of Technical Documentation. Except as set forth in Schedule
4.10, the Technical Documentation includes the source code, system
documentation, statements of principles of operation, and schematics for all
Software Programs, as well as any pertinent commentary or explanation that may
be necessary to render such materials understandable and usable by a trained
computer programmer. The Technical Documentation also includes any program
(including compilers), "workbenches," tools, and higher level (or "proprietary")
language used for the development, maintenance, and implementation of the
Software Program.
4.11. Contracts--General. The Software Contracts listed in Schedule 1.1.c,
the General Contracts listed in Schedule 1.1.g, and the Insurance Policies
listed in Schedule 1.1.m constitute all contracts, agreements, licenses, and
other commitments and arrangements in effect as of the date hereof, other than
the Leases addressed by Section 4.14, that either (1) involve expenditure of
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more than $5,000 or (2) require performance by any party thereto more than six
(6) months after the Closing Date. To Seller's knowledge, all such contracts are
valid, binding, and enforceable in accordance with their terms and are in full
force and effect. There are no existing defaults by Seller under any such
contracts and no act, event, or omission has occurred that, whether with or
without notice, lapse of time, or both, would constitute a default thereunder.
4.12. Third-Party Components in Software Programs. Seller has validly and
effectively obtained the right and license to use, copy, modify, and distribute
the third-party programming and materials contained in the Software Programs and
Technical Documentation pursuant to the Software Contracts identified as
"licenses from third parties (development and/or marketing)" or "Licenses from
third parties (internal use only)" in Schedule 1.1.c. The Software Programs and
Technical Documentation contain no other programming or materials in which any
third party may claim superior, joint, or common ownership, including any right
or license. The Software Programs and Technical Documentation do not contain
derivative works of any programming or materials not owned in their entirety by
Seller and included in the Assets.
4.13. Third-Party Interests or Marketing Rights in Software Programs.
Seller has not granted, transferred, or assigned any right or interest in the
Software Programs, the Technical Documentation, or the Intellectual Property to
any person or entity, except pursuant to the Software Contracts identified as
"distributorships, dealerships, franchises, and manufacturer's representative
contracts" or "licenses and sublicenses to others" in Schedule 1.1.c. Except as
set forth in Schedule 4.13, all Software Contracts identified as "licenses and
sublicenses to others' in Schedule 1.1.c constitute only end-user agreements,
each of which grants the end-user thereunder solely the nonexclusive right and
license to use identified Software Programs and related user documentation, for
internal purposes only, on a single or multiple central processing unit (CPU).
There are no contracts, agreements, licenses, and other commitments and
arrangements in effect with respect to the marketing, distribution, licensing,
or promotion of the Software Programs or any other Inventory, the Technical
Documentation, or the Intellectual Property by any independent salesperson,
distributor, sublicensor, or other remarketer or sales organization, except for
the Software Contracts identified as "distributorships, dealerships, franchises,
and manufacturer's representative contracts" in Schedule 1.1.c.
4.14. Leases. The Leases listed in Schedule 1.1.f constitute all leasing or
rental contracts, agreements, and other commitments and arrangements in effect
as of the date hereof that either (1) have an annual rental, if any individual
instance, in excess of $5,000, or (2) continue in effect for a period of twelve
(12)
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months or longer without allowing Seller (and, following the Closing, Buyer) to
terminate without penalty for any reason upon the delivery of any required
action. To Seller's and Shareholders' knowledge, all Leases are valid, binding,
and enforceable in accordance with their terms and are in full force and effect.
To Seller's and Shareholders' knowledge, there are no existing defaults by
Seller thereunder, and no act, event, or omission has occurred that, whether
with or without notice, lapse of time, or both, would constitute a default
thereunder.
4.15. [RESERVED]
4.16. Financial Statements. Schedule 4.16 sets forth combined income
statements, balance sheets, and statements of changes in financial position of
the Seller as of December 31, 1995, December 31, 1996, December 31, 1997 and the
March 16, 1998 Balance Sheet (collectively, the "Financial Statements"),
prepared in accordance with GAAP, consistently applied with the principles and
procedures employed in prior periods by the Seller. The Financial Statements
properly reflect all Assets and Assumed Liabilities as then in existence. The
Financial Statements fairly present the results of operation and the financial
position of the Seller as of the dates thereof and the periods then ended in
conformity with GAAP consistently applied with the principles and procedures
employed in prior periods by the Seller.
4.17. Undisclosed Liabilities. Except as set forth in Schedule 4.17, there
are no material liabilities or obligations, secured or unsecured (whether
absolute, accrued, contingent, or otherwise, and whether due or to become due),
of a nature required by GAAP to be reflected in a balance sheet of the Software
Business evidencing the Assets and the Assumed Liabilities in their entirety,
except such liabilities and obligations that either (1) are accrued and reserved
against in the Financial Statements or (2) have arisen or been incurred in the
ordinary course of business since the dates of the Financial Statements.
4.18. Conduct of Business.
a. Ordinary Course of Business: No Removal or Disposal of Assets. Except as
set forth in Schedule 4.18.a, since March 16, 1998, Seller has operated the
Software Business in the ordinary course consistent with past practices, and has
not removed or disposed of any assets that were assets of the Software Business
as of March 16, 1998, except in the ordinary course.
b. No Material Adverse Change. Except as set forth in Schedule 4.18.b,
since March 16, 1998, there has been no material adverse change in the Software
Business or the Assets or in the financial condition, operations, or prospects
of the Software Business.
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c. Absence of Particular Events. Except as set forth in Schedule 4.18.c,
since March 16, 1998, Seller has not (1) suffered any damage or destruction
adversely affecting the Software Business or involving the Assets in the amount
of $5,000 in any one instance; (2) increased the compensation payable or to
become payable to employees of Seller involved in the Software Business having
annual earnings in excess of $20,000 per year or declared any bonus; (3)
incurred any liability or obligation relating to the Software Business other
than in the ordinary course consistent with past practice; (4) made any change
in any method, practice, or principle of accounting involving the Software
Business or the Assets; (5) paid, loaned, or advanced any material monetary
amount or other asset to, or sold, transferred, or leased any asset to, any
employee involved in the Software Business except for normal compensation
involving salary and benefits; or (6) agreed to take any action described in
this Section 4.18.c.
d. Absence of Joint Ventures, etc. Except as set forth in Schedule 4.18.d,
Seller is not a party to any joint venture or other similar agreement or
arrangement that involves any sharing of profits of the Software Business or the
Assets or is similar to or competitive with the Software Business, other than
the Software Contracts identified as "licenses from third parties (development
and/or marketing)" or "distributorships, dealerships, franchises, and
manufacturer's representative contracts" in Schedule 1.1.c.
4.19. Major Vendors and Customers. Schedule 4.19 lists each licensor,
developer, remarketer, distributor, and supplier of property or services to, and
each licensee, end-user, or customer of, the Software Business, to whom Seller
paid or billed in the aggregate $5,000 or more during the most recent fiscal
year, together with, in each case, the amount paid or billed during such period.
Except as set forth in Schedule 4.19, to the best knowledge of Seller and the
Shareholders, there is no reason why the relationship with any such person or
entity might not be continued by Buyer, after its acquisition of the Software
Business.
4.20. Litigation. Except as set forth in Schedule 4.20.a, no claim, action,
suit, proceeding, inquiry, hearing, arbitration, administrative proceeding, or
to Seller's knowledge, investigation (collectively, "Litigation") is pending,
or, to Seller's best knowledge, threatened against Seller, its present or former
directors, officers or employees, or any party to any Software Contract,
affecting, involving or relating to the Software Business or any of the Assets.
Except as set forth in Schedule 4.20.b, no Litigation has been brought within
the last five (5) years against Seller affecting, involving, or relating to the
Software Business or any of the Assets. Neither Seller nor any of the
Shareholders knows of any facts that could reasonably be expected to serve as
the basis for Litigation against Buyer upon acquisition of the
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Software Business, or relating to the Software Business or the Assets.
4.21. Court Orders, Decrees, and Laws.
a. Compliance With Laws. Except as set forth in Schedule 4.21.a, there is
no outstanding or, to Seller's or Shareholders' best knowledge, threatened
order, writ, injunction, or decree of any court, governmental agency, or
arbitration tribunal against Seller affecting, involving, or relating to the
Software Business or the Assets. Seller is not in violation of any applicable
federal, state, or local law, regulation, ordinance, zoning requirement,
governmental restriction, order, judgment, or decree affecting, involving, or
relating to the Software Business or the Assets except where noncompliance has
no material adverse effect upon the financial condition, operation, or prospects
of the Software Business (including under ownership by Buyer) or the Assets, and
Seller has received no notices of any allegation of any such violation. The
foregoing shall be deemed to include laws and regulations relating to the
federal patent, copyright, and trademark laws, state trade secret and unfair
competition laws, and to all other applicable laws, including equal opportunity,
wage and hour, and other employment matters, and antitrust and trade regulation
laws.
b. Adequacy of Authorizations. The Authorizations constitute all approvals,
authorizations, certifications, consents, variances, permissions, licenses, or
permits to or from, or filings, notices, or recordings to or with, federal,
state, or local governmental authorities that are required for the ownership and
use of the Assets and the conduct of the Software Business under federal, state,
and local law, regulation, ordinance, zoning requirement, governmental
restriction, order, judgment, or decree. Seller is in compliance with all terms
and conditions of such required Authorizations. All of the Authorizations are in
full force and effect, and, to the best of Seller's knowledge, no suspension or
cancellation of any of them is being threatened, nor will any of the
Authorizations be affected by the consummation of the transactions described in
this Agreement, except to the extent any such Authorizations are transferable
only upon receipt of the Required Government Consents. Seller is in compliance
with all other applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and timetables contained in
those laws or contained in any law, regulation, code, plan, order, decree,
judgment, notice, or demand letter issued, entered, promulgated, or approved
thereunder relating to or affecting the Software Business.
c. Environmental Compliance. Except as set forth in Schedule 4.21.c,
neither Seller, nor, to the best of Seller's and Shareholders' knowledge, any
prior owner, user, controller, or
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occupant, nor any tenant, subtenant, prior tenant, or prior subtenant has ever
used Hazardous Materials (as hereinafter defined) on, from, or affecting the
Assets or any facility, site, area, or property owned, used, controlled, or
occupied by the Software Business, including the Real Property, in any manner
that violates any federal, state, or local law, regulation, governmental
restriction, order, judgment, or decree governing the use, storage, treatment,
transportation, manufacture, handling, production, or disposal of Hazardous
Materials. For purposes hereof, "Hazardous Materials" include any flammable
materials, explosives, radioactive materials, hazardous materials, hazardous
wastes, hazardous or toxic substances, or related materials defined in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended (42 USC ss.ss. 9601 et seq.), the Hazardous Materials Transportation
Act, as amended (49 USC ss.ss. 1801 et seq.), and the Resource Conservation and
Recovery Act, as amended (42 USC ss.ss. 6901 et seq.), and in the regulations
adopted and publications promulgated pursuant thereto, or any other federal,
state, or local environmental law, ordinance, rule, or regulation. The term
"material" includes asbestos, polychlorinated biphenyls, kerosene, and fuel oil.
The term "release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing into
the environment. The term "environment" means any surface or groundwater water
supply, land, surface, or subsurface strata or the ambient air.
4.22. Taxes.
a. Definition of Taxes. "Taxes" means any federal, state, county, local, or
foreign taxes, charges, fees, levies, or other assessments, including all net
income, gross income, sales and use, ad valorem, transfer, gains, profits,
excise, franchise, real and personal (including tangible and intangible)
property, gross receipt, capital stock, production, business and occupation,
disability, employment, payroll, license, estimated, stamp, custom duties,
severance or withholding taxes or charges imposed by an governmental entity, and
includes any interest and penalties (civil and criminal) on or additions to any
such taxes and any expenses incurred in connection with the determination,
settlement or litigation of any Tax liability. Without limiting the generality
of the preceding sentence, "Taxes" shall include the liability of the Seller for
taxes imposed in whole or in part upon the wages of Seller's employees which the
Seller has a duty to withhold and remit to any governmental entity as well as
taxes imposed upon the Seller and calculated with reference in whole or in part
to the wages of Seller's employees (including, without limitation, FICA and
FUTA) (those taxes described by this sentence being sometimes hereinafter
referred to as "Wage Taxes").
b. Definition of Tax Return. "Tax Return" means a report, return or other
information required to be supplied to a
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governmental entity with respect to Taxes, including, where permitted or
required, combined or consolidated returns for any group of entities that
includes Seller or any Subsidiary.
c. Seller has filed all Tax Returns that it was required to file. All such
Tax Returns were correct and complete in all respects. All Taxes owed by Seller
(whether or not shown on any Tax Return) have been paid. Seller is not the
beneficiary of any extension within which to file any Tax Return.
d. Except as set forth in Schedule 4.22.a, Seller has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder, or other
third party.
e. State Sales Taxes, etc. Schedule 4.22.b identifies (1) each jurisdiction
in which the Software Business is conducted in which sales, use, excise, or
intangible taxes are due or paid on Software Programs or other Inventory sold or
licensed by Seller in conjunction with the Software Business and (2) the
Software Programs or other Inventory subject to taxation in such jurisdiction.
4.23. Personnel and Compensation.
a. List of Personnel. Set forth in Schedule 4.23.a is a true and complete
list of the names and current compensation levels of (1) all salaried or annual
employees and (2) all consultants involved in the Software Business.
b. Compensation, etc. Except as set forth in Schedule 4.23.b, Seller is not
subject to, and has no obligation under, any employment, consulting, or
collective bargaining contracts, deferred compensation, pension (as defined in
Section 3(2) of the Employee Retirement Income Security Act (ERISA),
profit-sharing, bonus, stock option, stock appreciation, stock purchase, or
other nonqualified benefit or compensation commitments, benefit plans,
arrangements, or plans, including any welfare plans (as defined in Section 3(1)
of ERISA), fringe benefit arrangements, or multi-employer plans (as defined in
Section 3(37)(A) of ERISA) of or pertaining to the present or former employees
involved in the Software Business. Seller has complied with all of its
obligations under the foregoing in all material respects.
c. Retirement Plans. Schedule 4.23.c identifies all of the retirement
plans, by plan name and plan year, that Seller has established for the benefit
of persons who are or were involved in the Software Business (the "Plans"). The
Plans and their administration are the sole responsibility of Seller.
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d. Pension Benefit Guaranty Corporation. No liability to the Pension
Benefit Guaranty Corporation has been incurred with respect to the Plans. All
premiums due and payable to the Pension Benefit Guaranty Corporation with
respect to the Plans have been paid. The Pension Benefit Guaranty Corporation
has not instituted proceedings to terminate any of the Plans. No event has
occurred, and there exists no condition or set of circumstances, that presents a
risk that any part or future termination of any of the Plans could result in
liability on the part of the Company to the Pension Benefit Guaranty
Corporation. No notice of a reportable event (within the meaning of Section
4043(b) of ERISA) has been filed by the plan administrator of any of the Plans
with the Pension Benefit Guaranty Corporation, nor has any such reportable event
occurred.
e. No Accumulated Deficiency. None of the Plans has an accumulated funding
deficiency, as defined in Section 302(a)(2) of ERISA. In addition, each of the
Plans is fully funded such that assets for each Plan equal or exceed the present
value of accrued benefits based on the actuarial assumptions included in
Schedule 21(c), which assumptions include interest rates, incidence of turnover,
and mortality and disability.
f. Submission to Buyer for Review. All documents, including plan and trust
instruments, annual reports, and actuarial reports, relating to the Plans for
the Plans' most recently ended Plan years, have been furnished to Buyer for its
review.
g. Multi-employer Plan. Neither Seller or any predecessor in interest
thereto, nor thereto, nor any trade or business under common control with Seller
or any predecessor in interest thereto (within the meaning of Section 414(i) of
the Internal Revenue Code) has ever contributed to any pension Plan that is a
Multi-employer Plan for the benefit of employees involved in the Software
Business.
h. Adequate Reserves for Welfare Plans. For welfare plans (as defined in
Section 3(2) of ERISA) listed (or required to be listed) in Schedule 4.23.b,
reserves have been established by Seller or its insurance companies at least
sufficient to pay all claims incurred under the provisions of such plans on or
prior to the Closing Date. Seller has not received notice of, nor does it know
any basis for, any retrospective premium charge for claims relating to any
period prior to the Closing Date under such contracts.
i. Compliance with Laws. Seller is in compliance with all applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and occupational safety and health pertaining to
the Software Business and the employees involved in the Software Business, and
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is not engaged in any unfair labor practice within the meaning of Section 8 of
the National Labor Relations Act. There is no unfair labor practice, charge, or
complaint or any other matter against or involving Seller pending or, to the
knowledge of Seller, threatened before the National Labor Relations Board or any
court of law pertaining to the Software Business or the employees involved in
the Software Business. There is no labor strike, dispute, slowdown, or stoppage
pending or threatened against Seller pertaining to the Software Business or the
employees involved in the Software Business. No certification or decertification
question or organizational drive exists or has existed within the past twelve
(12) months respecting the Software Business or the employees involved in the
Software Business. Seller has not experienced any organized work stoppage or
other labor difficulty involving the employees of the Software Business. There
are no charges, investigations, administrative proceedings, or formal complaints
of discrimination (including discrimination based upon sex, age, marital status,
race, national origin sexual preference, handicap, or veteran status) pending
or, to the knowledge of Seller, threatened before the Equal Employment
Opportunity Commission or any federal, state, or local agency or court against
Seller pertaining to the Software Business or the employees of the Software
Business, and, to the knowledge of the Seller, no basis for any such charge,
investigation, administrative proceeding, or complaint exists. There have been
no audits of the equal employment opportunity practices of Seller pertaining to
the Software Business or the employees involved in the Software Business.
4.24. Insurance Polices. Schedule 1.1.m lists all Insurance Policies
relating to the Software Business or the Assets in force as of the Closing Date,
naming Seller as an insured or beneficiary or as a loss-payable payee or for
which Seller has paid or is obligated to pay all or part of the premiums. Other
than as set forth in Schedule 4.24, Seller has not received notice of any
pending or threatened termination or retroactive premium increase with respect
thereto; and Seller is in compliance with all conditions contained therein, the
noncompliance with which could result in termination of insurance coverage or
increased premiums for prior or future periods. There are no pending material
claims against such insurance by Seller as to which insurers have denied
liability or are defending under any reservation of rights, and, to the
knowledge of Seller, there exists no material claim under such insurance that
has not been properly filed by Seller.
4.25. Sufficiency of Rights. Except as set forth in Schedule 4.25, and
assuming the renewal or continuation of all business arrangements (other than
the termination of certain employees) currently in place (and, to the best of
Seller's knowledge, no reason exists why such renewal or continuation in favor
of Buyer could be obstructed), the Assets constitute all of
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the properties, rights, and privileges necessary for the continuation of the
conduct of the Software Business by Buyer in substantially the same manner as it
has been operated by Seller during the twelve (12)-month period preceding the
closing.
4.26. Broker's or Finder's Fees. Except as disclosed on Schedule 4.26,
Seller has not authorized any person to act as broker or finder or in any other
similar capacity in connection with the transactions contemplated by this
Agreement in any manner that may or will impose liability on Buyer.
4.27. Related-Party Transactions. Except as disclosed in Schedule 4.27,
Seller is not a party to any contract, agreement, license, lease, or arrangement
with, or any other commitment to, directly or indirectly, (1) any shareholder;
(2) any officer or salaried employee of the Software Business in office within
two (2) years of the date of execution hereof; (3) any corporation, trust, or
other entity in which any such officer or salaried employee has a material
equity or participating interest; or (4) or any partnership in which any such
officer or salaried employee has a partnership or participating interest, in
each case, relating to or involving the Software Business, the Assets, or the
Assumed Liabilities, except, in each instance, for existing compensation
arrangements listed in Schedule 4.23. Each such contract, agreement, license,
lease, arrangement, and commitment was entered into by Seller in the ordinary
course of business upon terms that are fair and reasonable to the Seller without
regard to the status and relationship of such other parties.
4.28. Disclosure. No representation, warranty, or statement made by Seller
or Shareholders in this Agreement or in any document or certificate furnished or
to be furnished to Buyer pursuant to this Agreement contains or will contain any
untrue statement or omits or will omit to state any material fact necessary to
make the statements contained herein or therein not misleading. Seller has
disclosed to Buyer all facts known or reasonably available to Seller that are
material to the financial condition or operation of the Software Business, the
Assets, and the Assumed Liabilities.
4.29. Truth at Closing. All of the representations, warranties, and
agreements of Seller contained in this Article IV shall be true and correct and
in full force and effect on and as of the Closing Date.
4.30. Materiality Defined. For purposes of this Agreement, each reference
to any material adverse effect upon the financial condition, operation, or
prospects of the Software Business (including under ownership by Buyer) or the
Assets, or any other reference to a material item or circumstance, shall be
construed to include any act, omission, event, or circumstances that would
entail loss, liability, damage, or expense to Buyer (with respect
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to the rights and benefits expected by Buyer to be obtained under this
Agreement) of $5,000 in any single instance, whether under one or more
representations, warranties, covenants, or agreements contained herein, or
$25,000 in the aggregate, taken as a whole under all representations,
warranties, covenants, and agreements contained herein.
4.31. Investment Representations.
a. The Seller is acquiring the IMA Shares issued pursuant to this Agreement
for investment and not with a view to the distribution thereof. The Seller
acknowledges that the IMA Shares have not been registered under the Securities
Act of 1933, as amended (the "1933 Act") by reason of a specific exemption from
the registration requirements thereof which depends upon, among other things,
the bona fide nature of the investment intent of the Seller, as expressed
herein. The Seller acknowledges that the IMA Shares must be held indefinitely
unless the IMA Shares are subsequently registered under the 1933 Act or an
applicable exemption from the registration requirements thereof is available.
Each certificate representing the IMA Shares and any other securities
issued in respect of the IMA Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
permitted by law) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws, rules or regulations):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT EXCEPT PURSUANT TO AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
b. The members of the Board of Directors of MIS and the Subsidiary are
sophisticated in business and financial matters and capable of evaluating the
merits and risks of an investment in the IMA Shares.
c. Seller has been provided with copies of the following documents: (i)
Prospectus, dated July 30, 1997 relating to Buyer's initial public offering of
common stock; (ii) Form 10-Q of Buyer for the quarter ended June 30, 1997; (iii)
Form 10-Q of Buyer for the quarter ended September 30, 1997; and (iv) the Form
10-K of Buyer for the year ended December 31, 1997 (collectively, the "IMA SEC
Documents"), containing certain financial and other information regarding Buyer.
The directors of Seller have been
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provided with opportunities to meet with and ask questions of Buyer's management
regarding the Buyer's business, financial condition and prospects.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
5.1. Organization. Buyer is a corporation validly existing and in good
standing under the laws of the State of Connecticut with the corporate power and
authority to conduct its business and to own and lease its properties and
assets. Buyer is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each state in which the failure to be so
qualified or licensed would have a material adverse effect on its financial
condition or operations.
5.2. Power and Authority. Buyer has the power and authority to execute,
deliver, and perform this Agreement and the other agreements and instruments to
be executed and delivered by it in connection with the transactions contemplated
hereby and thereby, and Buyer has taken all necessary corporate action to
authorize the execution and delivery of this Agreement, the issuance of the IMA
Shares and such other agreements and instruments and the consummation of the
transactions contemplated hereby and thereby. This Agreement is, and, when such
other agreements and instruments are executed and delivered, the other
agreements and instruments to be executed and delivered by Buyer in connection
with the transactions contemplated hereby and thereby shall be, the legal,
valid, and binding obligation of Buyer, enforceable in accordance with their
terms.
5.3. No Conflict. Neither the execution and delivery of this Agreement and
the other agreements and instruments to be executed and delivered in connection
with the transactions contemplated hereby or thereby, nor the consummation of
the transactions contemplated hereby or thereby, will violate or conflict with
(1) except insofar as Required Government Consents are to be procured prior to
Closing, any federal, state, or local law, regulation, ordinance, zoning
requirement, governmental restriction, order, judgment, or decree applicable to
Buyer (except that, for purposes of compliance with applicable securities laws,
Buyer has relied upon the representations and warranties of Seller contained
herein), (2) any provision of any charter, bylaw or other governing or
organizational instrument of Buyer, or (3) except insofar as Required Contract
Consents are to be procured prior to Closing, any mortgage, indenture, license,
instrument, trust, contract, agreement, or other commitment or arrangement to
which Buyer is a party or by which Buyer is bound except for such
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violations or conflicts which would not have a material adverse effect on Buyer.
5.4. IMA SEC Documents. None of the IMA SEC Documents (as defined in
Section 4.31.c) contained, when filed, any untrue statement of a material fact
or omitted to state a material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading.
5.5. IMA Shares. The IMA Shares to be issued to Seller pursuant to this
Agreement have been duly authorized and will be validly issued, fully paid and
nonassessable when issued.
5.6. Broker's or Finder's Fees. Buyer has not authorized any person to act
as broker, finder, or in any other similar capacity in connection with the
transactions contemplated by this Agreement.
SECTION 6. [RESERVED]
SECTION 7. [RESERVED]
SECTION 8. ACCOUNTING MATTERS
8.1. March 16, 1998 Balance Sheet. Seller has prepared a balance sheet of
the Seller, based on regular operating records and procedures, that represents
the assets, liabilities and stockholders' equity of Seller as they existed on
March 16, 1998. For purposes of this Agreement, such balance sheet shall be
referred to as the "March 16, 1998 Balance Sheet." Seller represents and
warrants that the March 16, 1998 Balance Sheet was prepared using accounting
principles and practices that are consistent with those used in the preparation
of the Financial Statements for the years ended December 31, 1995, 1996 and
1997, except as otherwise required to conform to GAAP.
SECTION 9. [RESERVED]
SECTION 10. [RESERVED]
SECTION 11. CLOSING
11.1. Closing. The closing of the purchase and sale of the Assets and the
transfer and assumption of the Assumed Liabilities
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(the "Closing") shall take place at the offices of LeBoeuf, Lamb, Greene &
MacRae, L.L.P., Goodwin Square, 225 Asylum Street, Hartford, CT 06103, at 9:00
a.m. on March 30, 1998 or (the "Closing Date").
11.2. Actions at Closing. At Closing, Buyer and Seller shall take the
following actions, in addition to such other actions as may otherwise be
required under this Agreement:
a. Wage Taxes. Prior to Closing, Seller shall either (i) submit reasonable
proof that it has paid all Wage Taxes or (ii) agree to allow Buyer to have the
option to divert from the Purchase Price an amount not in excess of the
liabilities for such items set forth on the March 16, 1998 Balance Sheet to
satisfy any Wage Tax. If Buyer exercises its option under this Section 11.2.a,
Seller shall reasonably cooperate with Buyer. This Section 11.2.a shall not be
construed as an assumption by Buyer of any liability for any Wage Tax, nor shall
this Section 11.2.a be construed as creating an obligation on Buyer to divert
any amount of the Purchase Price.
b. Copies of Consents. Seller shall deliver to Buyer copies of all Required
Contract Consents and all Required Government Consents.
c. Conveyance Instruments. Seller shall deliver to Buyer such warranty
deeds, bills of sale, assignments, and other instruments of conveyance and
transfer as Buyer may reasonably request to effect the assignment to Buyer of
the Assets.
d. Entry Into Premises. Seller shall give Buyer complete and unrestricted
access to the facilities of the Seller at sites subject to the Leases.
e. Master Copy of Software Programs. Seller shall deliver to Buyer a master
copy of each Software Program (in both source code and object code form).
f. Payment of Purchase Price. Buyer shall pay cash component of the
Purchase Price to Seller in full by wire transfer of immediately available funds
to an account or accounts designated by Seller. On the Closing Date, Buyer shall
instruct the transfer agent to issue and deliver to Seller the IMA Shares
(except for IMA Shares comprising the Holdback Amount), which shares shall be
delivered to Seller within five (5) business days after Closing.
g. Assumption Agreement. Buyer shall deliver to Seller an assumption
agreement pursuant to which Buyer assumes and agrees to pay and perform the
Assumed Liabilities.
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h. Opinion of Seller's Counsel. Seller shall cause its counsel to deliver
to Buyer a legal opinion in the form of Schedule 11.2.h.
i. Opinion of Buyer's Counsel. Buyer shall cause its counsel to deliver to
Seller a legal opinion in the form of Schedule 11.2.i.
j. Employment Agreements. Kennedy shall have entered into a contract
providing for his employment by Buyer in the form attached hereto as Schedule
11.2.j.
k. Non-Compete Agreement of Seller. Seller shall enter into the non-compete
agreement set forth in Schedule 11.2.k.
l. Non-Compete Agreement of Kennedy. Kennedy shall enter into the
non-compete agreement set forth in Schedule 11.2.l.
m. Statutory Declaration. Seller shall deliver to Buyer a Statutory
Declaration of Seller that Seller is not a "non-resident of Illinois" for the
purposes of all applicable income tax legislation;
n. Secretary's Certificate. Seller shall deliver to Buyer a Secretary's
Certificate of Seller in form and substance satisfactory to Buyer, including,
without limitation, the following: (a) Certified copies of the Articles of
Incorporation; (b) Bylaws; (c) Good Standing Certificates: foreign and domestic;
(d) Certified Resolution of Stockholders and Directors approving the
transaction; (e) List of Officers; and (f)Incumbency Certificate.
11.3. Further Assurances of Seller and Shareholders. At and after the
Closing, without further consideration, Seller and Shareholders shall take all
such other action and shall procure or execute, acknowledge, and deliver all
such further certificates, conveyance instruments, consents, and other documents
as Buyer or its counsel may reasonably request (1) to vest in Buyer, and perfect
and protect Buyer's right, title, and interest in, and enjoyment of, the Assets
and the Software Business, or (2) to ensure more effectively the compliance of
Seller with its agreements, covenants, warranties, and representations under
this Agreement.
11.4. Further Assurances of Buyer. At and after the Closing, Buyer shall
take all such actions as Seller or its counsel may reasonably request to ensure
more effectively the compliance of Buyer with its agreements, covenants,
warranties and representations under this Agreement.
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SECTION 12. COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING
12.1. Tax Matters.
a. Seller's Right and Responsibility for Preclosing Tax Matters. Seller
shall have the right and responsibility to direct the handling of all Tax
matters affecting or relating to the conduct of the Software Business prior to
the Closing Date, including the prosecution of all administrative and judicial
remedies, the settlement of all issues, and the execution of agreements,
consents, or waivers, extending the statute of limitations, provided that no
such action, agreement, or stipulation shall have any effect on the Tax position
or liability of Buyer, including as successor to the Software Business, or
result in any increase in the Assumed Liabilities.
b. Buyer's Cooperation. Buyer shall use its reasonable efforts to provide
Seller such assistance as it may reasonably request in connection with matters
relating to Taxes, including information with respect to Seller's preparation of
any returns of Taxes, any audit or other examination by any Taxing authority,
any judicial or administrative proceeding relating to Seller's liability for
Taxes, or any claims arising hereunder respecting the Software Business. Buyer
shall retain and provide Seller with records or information which may be
relevant to any such return, audit, examination, proceeding, or determination,
and Buyer shall retain all such books and records for so long as necessary in
keeping with applicable statutes of limitations.
12.2. Allocation of Purchase Price. The Purchase Price shall be allocated
to the Assets and Assumed Liabilities as set forth in Schedule 12.2, and all Tax
returns and reports filed by Seller and Buyer with respect to the transactions
contemplated by this Agreement shall be consistent with that allocation.
12.3. Transfer Taxes. All sales, transfer, and similar Taxes and fees
(including all recording fees, if any) incurred in connection with this
Agreement and the transactions contemplated hereby shall be borne by Seller and
Seller shall file all necessary documentation with respect to such Taxes.
12.4. Non-Compete. In consideration of the agreements of Buyer contained in
this Agreement, including Buyer's agreement to purchase the Assets, for a period
of ten (10) years after the Closing Date, Seller shall not (except as otherwise
specifically permitted herein), directly or indirectly, for its own accounts, or
as a partner, member, employee, advisor or agent of any partnership or joint
venture, or as a trustee, officer, director, shareholder, employee, advisor or
agent of any corporation, trust, or other business organization or entity, own,
manage, join, participate in, encourage, support, finance, be engaged in, have
an interest in,
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give financial assistance or advice to, permit the respective names to be used
in connection with or be concerned in any way in the ownership, management,
operation or control of, or be connected in any manner with any business which
is or may be engaged in the computer software licensing, computer software
development or computer software consulting or systems integration businesses,
or any business related to any of the foregoing, anywhere in the world. Seller
acknowledges and agrees that the current market for the Software Programs
extends throughout the world and it is therefore reasonable to prohibit Seller
each from competing with Buyer anywhere in the world.
12.5. Nonsolicitation of Personnel. In consideration of the agreements of
Buyer contained in this Agreement, including Buyer's agreement to purchase the
Assets, for a period of ten (10) years after the Closing Date, Seller agrees
that it shall not solicit, divert, or recruit, for its own benefit or for the
benefit of any other person or entity, any managerial or executive employee of
the Seller whom Buyer has hired.
12.6. Registration Rights. Buyer shall use its commercially reasonable
efforts to prepare, file and cause to become effective a registration statement
(the "Registration Statement") on Form S-3 under the Securities Act of 1933, as
amended, relating to the resale of the IMA Shares held by Seller, except for the
IMA Shares comprising the Holdback Amount, within ninety (90) days after July
30, 1998, provided however that Buyer's obligation to effect such a registration
is expressly conditioned upon (i) the Buyer satisfying the conditions for a
Registration Statement on Form S-3 at the time of filing; and (ii) the Seller
providing to Buyer all information regarding the Seller which is required to be
included in such Registration Statement. Buyer shall only be obligated to effect
one such registration and shall only be obligated to keep such Registration
Statement effective until the earlier of (x) one hundred eighty (180) days from
the date it first becomes effective or (y) or until the date all IMA Shares
proposed to be sold by Seller have been sold. Buyer and Seller shall enter into
such other agreements in connection with any such registration as are reasonably
necessary or appropriate and mutually satisfactory to the parties.
12.7. Consents. To the extent that a claim can be made successfully that
the transactions contemplated hereby will constitute the assignment of any
contract, lease, commitment, sales order, purchase order, account, license,
permit, membership or undertaking of Seller requiring the consent of another
party thereto, this Agreement shall not constitute an agreement to assign the
same if an attempted assignment would constitute a breach thereof.
Notwithstanding the foregoing, Buyer agrees that it will use its commercially
reasonable efforts to obtain the consent of the other necessary parties to the
assignment of all such
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contracts, leases, commitments, sales orders, purchase orders, accounts,
licenses, permits, memberships and undertakings, and Seller agrees to use its
commercially reasonable efforts to assist in obtaining any such consent. If any
such consent is not obtained, Seller and Buyer will cooperate in any
commercially reasonable and lawful arrangement designed to provide Buyer the
benefits under any such documents.
SECTION 13. CERTAIN TRANSITION MATTERS
13.1. Hiring of Employees. Seller shall use its best efforts to enable
Buyer to hire, on such terms as Buyer may reasonably establish, such of the
employees of the Seller associated with the operation or management of the
Software Business as Buyer may specify on or before Closing. The Buyer agrees to
offer employment, on such terms as Buyer shall determine in its sole discretion,
to each of Seller's employees listed on Schedule 13.1.
13.2. COBRA. Seller shall be responsible for the collection of premiums and
all related costs of benefits offered under the continuation of benefits
provisions of the Consolidated Omnibus Budget Reconciliation Act for all
employees of the Software Business and their dependents not kept in the
continuous employ of Seller following Closing.
SECTION 14. INDEMNITY
14.1. Indemnification by Seller. Seller shall indemnify, defend, and hold
harmless Buyer and its respective successors and assigns and the directors,
officers, employees, and agents of each (collectively, the "Buyer Group"), at,
and at any time after, the Closing, from and against any and all demands,
claims, actions, or causes of action, assessments, losses, damages, liabilities,
costs, and expenses, including reasonable fees and expenses of counsel, other
expenses of investigation, handling, and litigation, and settlement amounts,
together with interest and penalties (collectively, a "Loss" or "Losses"),
asserted against, resulting to, imposed upon, or incurred by the Buyer Group,
directly or indirectly, by reason of, resulting from, or arising in connection
with any of the following:
a. Shortfalls. The Shortfall Amount and the Accounts Receivable Shortfall,
if any.
b. Breach of Obligation. Any breach of any representation, warranty, or
agreement of Seller or Shareholders contained in or made pursuant to this
Agreement, including the agreements, schedules, exhibits and other instruments
contemplated hereby.
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c. Excluded Liabilities. Any liabilities or obligations of any kind or
nature whatsoever, whether accrued, absolute, contingent, or otherwise, known or
unknown, arising out of or in connection with the conduct of the Software
Business or the ownership or use of the Assets prior to the Closing Date, except
for the Assumed Liabilities.
14.2. Indemnification by Buyer. Buyer shall indemnify, defend, and hold
harmless Seller and its successors and assigns and the directors, officers,
employees, and agents of each (collectively, the "Seller Group"), at, and at any
time after, the Closing, from and against any and all Losses asserted against,
resulting to, imposed upon, or incurred by the Seller Group, directly or
indirectly, by reason of, resulting from, or arising in connection with any of
the following:
a. Breach of Obligation. Any breach of any representation, warranty, or
agreement of Buyer contained in or made pursuant to this Agreement, including
the agreements, schedules, exhibits and other instruments contemplated hereby.
b. Assumed Liabilities. Any claims, debt, liability or obligation which
constitutes an Assumed Liability.
14.3. Notice of Claim. The party entitled to indemnification hereunder (the
"Claimant") shall promptly deliver to the party liable for such indemnification
hereunder (the "Obligor") notice in writing (the "Required Notice") of any claim
for recovery under Section 14.1 or 14.2, specifying in reasonable detail the
nature of the Loss, and, if known, the amount, or an estimate of the amount, of
the liability arising therefrom (the "Claim"). The Claimant shall provide to the
Obligor as promptly as practicable thereafter information and documentation
reasonably requested by the Obligor to support and verify the claim asserted,
provided that, in so doing, it may restrict or condition any disclosure in the
interest of preserving privileges of importance in any foreseeable litigation.
14.4. Defense. If the facts pertaining to the Loss arise out of the claim
of any third party (other than a member of the Buyer Group or Seller Group, the
Obligor may assume the defense or the prosecution thereof, including the
employment of counsel or accountants, at its cost and expense. The Claimant
shall have the right to employ counsel separate from counsel employed by the
Obligor in any such action and to participate therein, but the fees and expenses
of such counsel employed by the Claimant shall be at its expense. The Claimant
shall have the right to determine and adopt (or, in the case of a proposal by
Obligor, to approve) a settlement of such matter in its reasonable discretion,
except that Claimant need not consent to any settlement that (1) imposes any
nonmonetary obligation or (2) Obligor does not agree to pay in
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full. The Obligor shall not be liable for any settlement of any such claim
effected without its prior written consent, which shall not be unreasonably
withheld. Whether or not the Obligor chooses to so defend or prosecute such
claim, all the parties hereto shall cooperate in the defense or prosection
thereof and shall furnish such records, information, and testimony, and attend
such conferences, discovery proceedings, hearings, trials, and appeals, as may
be reasonably requested in connection therewith.
14.5. Survival. The representations, warranties, covenants and agreements
of the parties to this Agreement and its schedules, or documents delivered
pursuant to the provisions of this Agreement or in connection with the
transactions contemplated hereunder will survive the Closing Date and,
notwithstanding the closing of the purchase and sale provided for in this
Agreement, will continue in full force and effect, provided that, the
representations, warranties, covenants and agreements of the parties in this
Agreement, except for the covenants set forth in Sections 11.3, 11.4, 12, 15 and
17 hereof, which shall survive for the periods set forth therein, and the
covenants set forth in Section 14, which shall survive with respect to any
Losses arising from the breach of the covenants set forth in Section 11.3, 11.4,
12, 15 and 17 for the periods set forth therein, shall expire on the first
anniversary of the Closing Date and no claim for indemnification resulting from
the breach of any such representation, warranty, covenant or agreement shall be
brought after the first anniversary of the Closing Date, provided, however, that
claims for indemnification under Sections 11.3, 11.4, 12, 15 and 17 hereof may
be made for the periods set forth therein, and under Section 14 with respect to
a breach of the covenants set forth in Sections 11.3, 11.4, 12, 15 and 17 for
the periods set forth therein.
14.6. Setoff Against Holdback Amount. Subject to Section 14.7 the Buyer
shall have the right to recoup all or any part of (i) any Losses which are
indemnified pursuant to Section 14.1; (ii) the Shortfall Amount, if any,
pursuant to Section 3.4.a; and (iii) the Accounts Receivable Shortfall pursuant
to Section 3.4.b by notifying the Seller that the Buyer is reducing the Holdback
Amount through the cancellation of certificates evidencing the Holdback Amount,
with an aggregate value equal to the amount of Losses, the Shortfall Amount or
the Accounts Receivable Shortfall, as the case may be, based on a value of
$11.7625 per share. Cancellation of IMA Shares comprising the Holdback Amount
shall constitute Buyer's sole and exclusive remedy with respect to the
obligations of Seller for Losses, the Shortfall Amount or the Accounts
Receivable Shortfall under Sections 14.1, 3.4.a and 3.4.b hereof, respectively,
provided that, Buyer's remedies for the breach of the Seller's covenants set
forth in Sections 11.3, 12, 15 and 17 and Section 14 but only with respect to
the breach of the Seller's covenants set forth in Section 11.3, 12, 15 and 17
hereof shall not be limited to the Holdback Amount.
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If within fifteen (15) calendar days after delivery by the Buyer to the
Seller of the notice referred to in this Section, the Buyer has not received
from the Seller a written objection to any or all of the claims for
indemnification, subject to Section 14.7 hereof, the Buyer shall be entitled to
cancel the number of IMA Shares comprising the Holdback Amount which is equal to
the amount of Losses specified in such claim for indemnification in accordance
with the first sentence of this Section. If within such fifteen (15) day period,
the Buyer received from the Seller a written objection to the claim for
indemnification, then the Buyer and the Seller will negotiate, in good faith for
a period of fifteen (15) calendar days as to whether the claims in question is
valid. If no such agreement is reached, the matter will be submitted to
arbitration pursuant to Section 17.8 hereof. Within five (5) days after receipt
by Buyer of a certified copy of an arbitration award with respect to the
dispute, the Buyer shall be entitled to cancel IMA Shares comprising the
Holdback Amount with a value (determined in accordance with the first sentence
of this Section) equal to the amount of any arbitration award in favor of Buyer.
14.7. Basket and Cap. a. Seller shall not be responsible for any Losses
under Section 14.1, any Shortfall Amount or any Accounts Receivable Shortfall
unless the aggregate amount of (i) Losses under Section 14.1, (ii) any Shortfall
Amount and (iii) any Accounts Receivable Shortfall (collectively, the "Total
Losses") exceeds One Hundred Thousand Dollars ($100,000) in the aggregate (the
"Seller Basket"). In the event that the Severance Expense incurred by Buyer is
less than $85,000, the difference between the actual expense and $85,000 will be
treated as an increase to the amount of the Seller Basket six months after
Closing. Seller shall be responsible for all Total Losses in excess of the
Seller Basket; provided, that Seller's and Shareholders' liability for Total
Losses shall not exceed Five Hundred Thousand Dollars ($500,000) in the
aggregate (the "Seller Cap"). Seller's liability for breach of the covenants
contained in Sections 11.3, 12, 15 and 17 hereof shall not be subject to the
Seller Basket or the Seller Cap.
b. Buyer shall not be responsible for any Losses under Section 14.2 unless
the aggregate amount of Losses under Section 14.2 exceeds $100,000 in the
aggregate (the "Buyer Basket"). Buyer shall be liable for all such Losses in
excess of the Buyer Basket, provided, that Buyer's liability for Losses shall
not exceed Five Hundred Thousand Dollars ($500,000) in the aggregate (the "Buyer
Cap").
14.8. Exclusive Remedy. The provisions of this Section 14 shall constitute
the exclusive remedy of the parties with respect to any claims for Losses
resulting from or arising out of the provisions of this Agreement which may be
asserted after the Closing; provided that, the foregoing shall not preclude any
claim
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for injunctive or other non-monetary equitable relief or any claim based on
fraud or intentional misrepresentation.
14.9. Distribution to Seller After the First Anniversary of Closing. As
promptly as practicable following the first anniversary of the Closing Date, and
in any event not more than five (5) days after the first anniversary of the
Closing Date, the excess, if any, of the Holdback Amount over the aggregate of
all Losses, Shortfall Amount and Accounts Receivable Shortfall payable to Buyer
pursuant to this Article 14 shall be delivered to Seller. Notwithstanding the
foregoing, if any claim for indemnification has been submitted to arbitration
but not finally resolved, then a portion of the Holdback Amount equal to the
amount of any and all such unresolved claims shall be held by Buyer until such
claims have been resolved.
SECTION 15. CONFIDENTIALITY
15.1. Confidentiality Obligation of Seller and Shareholders Following
Closing. Following the occurrence of Closing, Seller and Shareholders shall, and
shall use its and their respective best efforts to cause Seller's and
Shareholders' personnel and agents to, hold in strict confidence, not disclose
to any person without the prior written consent of Buyer, and not use in any
manner whatsoever, any confidential business or technical information remaining
in its or their possession concerning the Software Business or the Assets. Such
confidential information specifically includes all source code, system and user
documentation, and other Technical Documentation pertaining to the Software
Programs, including any proposed design and specifications for future products
and products in development, marketing plans, and all other technical and
business information concerning the Software Business. Promptly following
Closing, Seller and Shareholders shall surrender to Buyer or destroy all
materials remaining in their possession containing any such confidential
information, including all copies, extracts, adaptations, and transcriptions
thereof.
15.2. Permitted Disclosures. Notwithstanding Section 15.1, the Seller and
Shareholders may disclose confidential information (1) where necessary to any
regulatory authorities or governmental agencies pursuant to legal process or (2)
if required by court order or decree.
15.3. Scope of Confidential Information. For purposes of this Agreement,
information shall not be deemed confidential (1) if such information is
available in full from public sources; (2) if such information is received from
a third party not under an obligation to keep such information confidential; or
(3) if the recipient can conclusively demonstrate that such information was
independently developed by the recipient.
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SECTION 16. [RESERVED]
SECTION 17. MISCELLANEOUS
17.1. Entire Agreement. This Agreement (including the Schedules hereto),
and the other certificates, agreements, and other instruments to be executed and
delivered by the parties in connection with the transactions contemplated
hereby, constitute the sole understanding of the parties with respect to the
subject matter hereof. No amendment, modification, or alteration of the terms or
provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.
17.2. Parties Bound by Agreement; Successors and Assigns. The terms,
conditions, and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of Seller and Shareholders, Buyer may
assign its rights, duties, or obligations hereunder or any part thereof to any
other person or entity, which shall thereupon become Buyer, provided that at the
time of such assignment Buyer unconditionally and irrevocably guarantees the
payment and performance of any duties or obligations so assigned.
17.3. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
17.4. Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
17.5. Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party that is entitled to
the benefits thereof. No waiver of any of the provisions of this Agreement shall
be deemed to or shall constitute a waiver of any other provision hereof (whether
or not similar).
17.6. Expenses. Seller, Shareholders and Buyer shall each pay all of its
own costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby, including fees and expenses of its own
financial consultants, accountants, and counsel.
17.7. Notices. Any notice, request, instruction, or other document to be
given hereunder by any party hereto to any other
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party hereto shall be in writing and delivered personally or sent by registered
or certified mail, postage prepaid, or overnight courier:
if to Seller and Shareholders to:
Marketing Information Systems, Inc
1940 Oak Avenue, Suite 4000
Evanston, IL 60201
Attention: John B. Kennedy
with a copy to:
D'Ancona & Pflaum
30 North LaSalle Street, Suite 2900
Chicago, IL 60602
Attention: Suzanne Saxman, Esq.
if to Buyer to:
Information Management Associates, Inc.
One Corporate Drive
Shelton, CT 06484
Attention: Michael P. McGroarty, Esq.
with a copy to:
LeBoeuf, Lamb, Greene & MacRae
Goodwin Square
225 Asylum Street
Hartford, CT 06103
Attention: Thomas L. Fairfield, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice that is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party (or its agent for notices hereunder). Any notice that is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the fourth business day after
the day it is so placed in the mail.
17.8. Arbitration. In the event of any dispute, claim or controversy
concerning, arising out of or relating to this Agreement, its effect, the breach
thereof, or the transactions contemplated by it, including issues of
arbitrability, the same shall be settled by arbitration in accordance with the
Federal Arbitration Act (Title 9 of the U.S. Code) and the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA Rules"). The
arbitration shall be before one neutral arbitrator to
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be selected in accordance with the AAA Rules and whose decision shall be
rendered in writing. The results of the arbitration shall be final and binding
upon the parties, with costs paid by the party who does not prevail in the
arbitration as determined by the arbitrator, and judgment on the award may be
entered in any court having jurisdiction thereof. In rendering the award, the
arbitrator shall determine the rights and obligations of the parties according
to the substantive and procedural laws of the State of Illinois. The arbitration
shall be held in Chicago, Illinois, or at such other place as may be selected by
mutual agreement of the parties. The arbitrator shall have no authority to award
punitive damages or any other damages not measured by the prevailing party's
actual damages, and may not, in any event, make any ruling, finding or award
that does not conform to the terms and conditions of this Agreement. Neither
party nor the arbitrator may disclose the existence, content, or results of any
arbitration hereunder without the prior written consent of both parties, unless
required to do so by order of a governmental authority, or as required by either
party's auditors in connection with the preparation of audited financial
statements, or as required by the disclosure requirements of any U.S. or foreign
securities law, regulation or stock exchange rule, or if a petition to enforce
arbitration is necessary to be filed with a court of competent jurisdiction.
17.9. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Illinois without giving effect to the
principles of conflicts of law thereof.
17.10. Public Announcements. Seller and Buyer shall consult with each other
before issuing any press releases or otherwise making any public statements with
respect to this Agreement and the transactions contemplated hereby. Neither
Seller nor Buyer shall issue any such press release or make any public statement
without the agreement of the other party, except as such party's counsel advises
in writing may be required by law.
17.11. Third-Party Beneficiaries. With the exception of (1) the parties to
this Agreement, (2) the Buyer Group and (3) the Seller Group, with respect to
the matters inuring to their benefit under Section 14, there shall exist no
right of any person to claim a beneficial interest in this Agreement or any
rights occurring by virtue of this Agreement.
17.12. "Including". Words of inclusion shall not be construed as terms of
limitation herein, so that references to "included" matters shall be regarded as
nonexclusive, noncharacterizing illustrations.
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17.13. References. Whenever reference is made in this Agreement to any
Article, Section, or Schedule, such reference shall be deemed to apply to the
specified Article or Section of this Agreement or the specified Schedule to this
Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf on the date indicated.
INFORMATION MANAGEMENT ASSOCIATES,
INC.
By: /s/ Gary R. Martino
_________________________
Gary R. Martino
Chairman
MARKETING INFORMATION SYSTEMS, INC.
By: /s/ John B. Kennedy
_________________________
John B. Kennedy
President
MSM SYSTEMS EUROPE B.V.
By: /s/ John B. Kennedy
_________________________
John B. Kennedy
President
[Asset Purchase Agreement]
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SHAREHOLDERS:
/s/ John B. Kennedy
______________________________
John B. Kennedy
EDISON VENTURES FUND II, L.P.
By: /s/ John H. Martinson
______________________________
John H. Martinson
GP Edison Partners II, L.P.
EDISON VENTURES FUND II-PA, L.P.
By: /s/ John H. Martinson
____________________________
John H. Martinson
GP Edison Venture Fund II, L.P.
[Asset Purchase Agreement]
41
ASSET PURCHASE AGREEMENT
Asset Purchase Agreement dated as of March 30, 1998, between INFORMATION
MANAGEMENT ASSOCIATES, INC., a Connecticut corporation (the "Buyer"), and
TELEMAR SOFTWARE INTERNATIONAL, LLC, a Delaware limited liability company (the
"Seller").
WHEREAS, the Buyer desires to purchase from the Seller substantially all of
the Seller's assets and properties relating to Seller's business (the
"Business") as hereinafter specified;
WHEREAS, the Seller is willing to sell, transfer, convey and assign the
same to the Buyer upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and representations hereinafter stated, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE 1
Definitions
The following capitalized terms shall have the following meaning in this
Agreement:
1.1 "Accounts Receivable" has the meaning set forth in Section 2.1(a)
hereof.
1.2 "Administrative Services Termination Agreement" has the meaning set
forth in Section 11.5 hereof.
1.3 "Assigned Contracts" has the meaning set forth in Section 2.1(b)
hereof.
1.4 "Assumption Agreement" has the meaning set forth in Section 12.3
hereof.
1.5 "Bill of Sale" has the meaning set forth in Section 11.3 hereof.
1.6 "Code" means computer programming code. Except as otherwise specified,
Code shall include both Object Code and Source Code.
(a) "Object Code" means the machine-readable form of the Code.
(b) "Source Code" means the human-readable form of the Code, including all
comments and any procedural code such as job control language.
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1.7 "Copyright Interests" means all the interests that Seller may own, or
have the right to sublicense hereunder, in registered or unregistered copyrights
and copyright registrations in the United States and any renewal or extension
thereof, together with all other copyright interests accruing by reason of
international copyright conventions and any moral rights pertaining thereto,
including the right to sue for, settle or release any past, present or future
infringement thereof.
1.8 "Documentation" means all written materials (and machine-readable text
subject to display and printout) that relate to and/or describe particular Code.
Except as otherwise specified, Documentation shall include Development
Documentation and User Documentation.
(a) "Development Documentation" means all Documentation used in conjunction
with Source Code in the development process.
(b) "User Documentation" means all Documentation in the form of
instructions and manuals provided to end-user customers.
1.9 "Effective Date" shall have the meaning given such term in the Recitals
hereof.
1.10 "Litigation" has the meaning set forth in Section 9.7 hereof.
1.11 "Note" has the meaning set forth in Article 7 hereof.
1.12 "Products" means all forms of Code and Documentation owned by Seller,
including, without limitation, those listed in Schedule 1.12 attached hereto.
1.13 "Purchased Assets" has the meaning set forth in Section 2.1 hereof.
1.14 "Related Documents" means the Bill of Sale, the Assumption Agreement,
the Sublease Termination Agreement, the Administrative Services Termination
Agreement and the Security Agreement Termination Agreement.
1.15 "Security Agreement Termination Agreement" has the meaning set forth
in Section 11.6 hereof.
1.16 "Sublease Termination Agreement" has the meaning set forth in Section
11.4 hereof.
1.17 "Subsidiary" means a corporation, company, or other entity (1) more
than fifty percent (50%) of whose outstanding shares or securities (representing
the right to vote for the election of directors or other managing authority) are
owned or controlled, directly or indirectly, by a party hereto, or (2) that does
not have outstanding shares of securities, as may be the case
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in a partnership, joint venture, or unincorporated association, but more than
fifty percent (50%) of the ownership interest representing the right to make the
decisions for such corporation, company, or other entity is, now or hereafter,
owned or controlled, directly or indirectly, by a party hereto. Such
corporation, company, or other entity shall be deemed to be a Subsidiary only so
long as such ownership or control exists.
1.18 "Trademark Interests" means all interests Seller may own, or have the
right to sublicense hereunder, in the United States and foreign common law
trademarks, service marks, logos, designs, product and business identifiers and
tradedress including, without limitation, those set forth in Schedule 1.18
attached hereto and all registrations and applications for registration thereof,
including the right to sue for, settle, or release any past, present, or future
infringement thereof or unfair competition involving the same.
ARTICLE 2
Transfer of Assets and Grant of Licenses
2.1 Transfer of Assets. Upon the terms and subject to the conditions of
this Agreement, and upon the basis of the covenants, representations and
warranties of Seller set forth below, at the closing referred to in Article 8
hereof (the "Closing") Buyer agrees to purchase, accept, and acquire from
Seller, and Seller agrees to sell, transfer, assign, convey, and deliver to
Buyer, all right, title, and interest of Seller in and to all of the rights and
assets, real, personal, and mixed, tangible or intangible relating to the
Business, as owned or held by Seller, which assets shall hereinafter
collectively be referred to as the "Purchased Assets." Without in any way
limiting the generality of the foregoing, the Purchased Assets shall include all
right, title and interest owned or held by Seller in the following:
(a) the accounts receivable owned by Seller, including, without limitation,
the accounts receivable described in Schedule 2.1(a) attached hereto ("Accounts
Receivable").
(b) all rights, privileges and claims of the Seller (including, without
limitation, rights and claims to refunds and adjustments) in, to and under
license agreements, maintenance agreements and other agreements and contracts
relating to the Business, including without limitation, those which are listed
on Schedule 2.1(b) (the "Assigned Contracts");
(c) all equipment and devices (including data processing hardware and
related telecommunications equipment, media, and tools) used in the Business
(the "Computer Equipment"), including Seller's rights under all related
warranties;
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(d) all office furniture and fixtures used in the Business (the "Office
Furniture");
(e) the Trademark Interests and Copyright Interests and all other
intellectual property rights, trade secrets and proprietary information,
processes and formulae used in the Business or necessary for the ownership and
use of the Purchased Assets;
(f) copies of the Products;
(g) all claims Seller may have against any person relating to or arising
from the Purchased Assets or the Business, including rights to recoveries for
damages or defective goods, to refunds, insurance claims, and chooses in action
("Claims");
(h) copies of all books, records, sales brochures and marketing information
directly relating to the Business;
(i) the goodwill and intangible assets of the Business, the right to all
operating and trade names associated with the Business including, without
limitation, the names "Telemar Software International" or any variations of such
name, as part of or in connection with the Business, all telephone listings,
telephone numbers and telephone advertising contracts, all lists of customers
and prospective customers, files, books and records and other information
relating to the day to day carrying on of the Business, all necessary licenses
and authorizations and any other rights used in connection with the Business
(the "Goodwill").
To the extent either party collects or is in receipt of any monies, credits
or other property or funds or payments (including securities) relating to
accounts receivable, refunds, prepayments or otherwise that the other party
hereto is entitled to receive pursuant to the terms of this Agreement, and that
are or should have been paid or delivered to the other party hereto, such party
receiving those monies, credits, or other property or funds shall immediately
notify the other party and forward same to such other party within five (5) days
of its receipt thereof.
ARTICLE 3
[INTENTIONALLY RESERVED]
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ARTICLE 4
Instruments of Conveyance and
Transfer, Records, Access, Etc.
4.1 At the Closing, the Seller shall deliver to the Buyer the Bill of Sale
with respect to the Purchased Assets.
4.2 The Buyer shall, following the Closing, give to the Seller and its
authorized representatives such access, during normal business hours and upon
prior notice, to such books and records constituting part of the Purchased
Assets as shall be reasonably necessary for the Seller to review and utilize in
connection with its preparation and filing of tax returns regarding the Business
for periods prior to the Closing Date, and the opportunity to make extracts and
copies of such books and records at the expense of the Seller. The Buyer agrees
that it shall not, for a period of six (6) years following the Closing, destroy
or cause to be destroyed any such books or records without first obtaining the
consent of the Seller.
ARTICLE 5
Assumption of Liabilities
5.1 Assumption of Liabilities. The Buyer shall assume the following
liabilities and obligations of the Seller relating to the Business:
(a) All liabilities and obligations of the Seller as of the Closing Date of
every kind or nature whatsoever, whether known or unknown, liquidated or
unliquidated, absolute or contingent, accrued or unaccrued, asserted or
unasserted, and whether, appearing on the March 27, 1998 Balance Sheet (as
hereinafter defined) including, without limitation, all accounts payable to
third parties, (ii) accrued expenses payable, (iii) commissions payable, (iv)
sales tax payable which is not delinquent, and (v) other current liabilities,
including, all those liabilities listed on Exhibit 5.1(a) attached hereto, but
excluding the Excluded Liabilities (as hereinafter defined);
(b) all liabilities and obligations arising on or after the Closing
relating to the Purchased Assets;
(c) broker fee payable to Southport Partners, L.P. in an amount not to
exceed $200,000(the "Broker Fee"); and
(d) to the extent it is determined that Seller shall be responsible for the
payment of any additional expenses of a nature set forth in Schedule 7.1(a)
hereof for liabilities incurred prior to the Closing Date, Buyer shall increase
the Purchase Price (as
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set forth in Article 7 hereof) by such amount, such increase to be payable in
cash.
For convenience of reference, the liabilities and obligations of the Seller
being assumed by the Buyer as aforesaid are hereinafter collectively called the
"Assumed Liabilities."
ARTICLE 6
Obligations Not Being Assumed
6.1 Excluded Liabilities. Notwithstanding any other provision to the
contrary in this Agreement, the following liabilities and obligations (the
"Excluded Liabilities") are expressly excluded from the obligations and
liabilities to be assumed by Buyer hereunder: (i) liabilities for any and all
income, franchise, gains or profits taxes or other similar taxes owed by Seller,
(ii) any and all liabilities and obligations to the members of Seller, including
all liabilities and obligations for indemnification; (iii) all liabilities and
obligations of Seller under this Agreement and the Related Documents or with
respect to or arising out of the transactions contemplated hereby or thereby;
(iv) liabilities set forth on Schedule 7.1(a), together with liabilities that
would be reflected under the same caption subject to Section 5.1(d) hereof and
(v) legal and other costs and expenses of Seller with respect to the
transactions contemplated herein and in the Related Documents except for the
Broker Fee, Buyer shall not be responsible to pay, perform or discharge, any of
such Excluded Liabilities:
6.2 Excluded Assets. Buyer and Seller agree that Buyer will not acquire any
cash, cash equivalents, or bank accounts of Seller (hereinafter, the "Excluded
Assets").
ARTICLE 7
Purchase Price and Payment
7.1 Purchase Price. The consideration for the Purchased Assets (the
"Purchase Price"), shall consist of the following: (a) $279,758.69 in cash
payable by check or wire transfer at Closing, which is equal to the aggregate
amount of certain liabilities on the March 27, 1998 Balance Sheet which are set
forth on Schedule 7.1(a) (the "Paid Liabilities"), (b) within seven (7) business
days following the Closing Date, deliver to Seller's designees an aggregate of
68,571 shares of common stock, no par value per share of Buyer (the "IMA
Shares") as set forth on Schedule 7.1(b), (c) forgiveness of the outstanding
principal of and accrued interest on that certain promissory note of Seller in
favor of Buyer in the original principal amount of $650,000 dated September 1,
1996 (the "Note"), (d) forgiveness of $374,822 in expenses payable to Buyer
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as shown on the March 27, 1998 Balance Sheet, and (e) assumption by Buyer of the
Assumed Liabilities.
7.2 Purchase Price Allocation. The allocation of the Purchase Price for tax
purposes among the Purchased Assets shall be determined by mutual agreement
between the Buyer and the Seller.
ARTICLE 8
Closing
The Closing shall, unless another date or place is agreed to in writing by
the parties hereto, take place at the offices of LeBoeuf, Lamb, Greene & MacRae,
L.L.P., 225 Asylum Street, Hartford, Connecticut 06103 at 10:00 a.m. local time
on March 30, 1998 (the "Closing Date").
ARTICLE 9
Representations and Warranties of the Seller
The Seller represents and warrants to the Buyer as follows:
9.1 Corporate Organization; Good Standing; Qualification and Power. The
Seller is a limited liability company validly existing and in good standing
under the laws of the State of Delaware, and the Seller has all requisite power
and authority to execute and deliver, and to perform all of its obligations
under this Agreement and the Related Documents.
9.2 Authority. The execution, delivery and performance by the Seller of
this Agreement and the Related Documents is (i) within the Seller's limited
liability company powers, (ii) has been duly authorized by all necessary limited
liability company action, and (iii) does not contravene Seller's charter or
operating agreement or any law or contractual restriction binding on Seller
except for violations which would not have a material adverse effect on the
ability of the Seller to consummate the transactions contemplated hereby. Each
of this Agreement and the Related Documents constitutes the legal, valid and
binding obligation of Seller enforceable against the Seller in accordance with
its terms.
9.3 Consents. Except as set forth on Schedule 9.3, no consent or approval
or other action by, and no notice to or filing with, any governmental authority,
regulatory body or any other third-party is required for the due execution,
delivery and performance by the Seller of this Agreement or the Related
Documents.
To the extent that any Purchased Asset may not be sold, assigned,
transferred, delivered, subleased or sublicensed (each
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such term being hereinafter referred to as a "Transfer") without the consent of
a third party, which consent Seller is unable to obtain for any reason
whatsoever, or if the transfer or attempted Transfer of any such Purchased Asset
would constitute a breach of contract or a violation of any law, writ,
injunction, decree, judgement, order or arbitration award, this Agreement shall
not constitute a Transfer or attempted Transfer of such Purchased Asset (any
such Purchased Asset shall hereinafter be referred to as a "Restricted Asset").
Seller shall use all reasonable efforts, and Buyer shall cooperate with Seller,
to obtain such consents. To the extent that any consent necessary to Transfer
any Restricted Asset is not obtained prior to the Closing Date, Seller shall use
all reasonable efforts to (i) provide to Buyer, at Buyer's request, the benefit
of such Restricted Asset, (ii) cooperate in any reasonable and lawful
arrangement designed to provide such benefits to Buyer, and (iii) enforce, at
the request and for the account of Buyer, any rights of Seller arising in
respect of any Restricted Asset against any third party.
9.4 Title to Property. The Seller holds title to all of the Purchased
Assets free and clear of liens, claims or encumbrances, except those set forth
in Schedule 9.4 attached hereto, and liens for taxes not yet due and payable.
9.5 Financial Statements. Seller has delivered to Buyer copies of unaudited
statements of income and earnings for fiscal year 1997 and the balance sheet for
the Business as of December 31, 1997 (the "1997 Financial Statement") and as of
March 27, 1998 (the "March 27, 1998 Balance Sheet" and, together with the 1997
Financial Statement, the "Financial Statements"). The Financial Statements are
complete, have been prepared in accordance with generally accepted accounting
principles, consistently applied, fairly present the financial condition of
Seller as of the respective dates thereof and disclose all liabilities of the
Seller, whether absolute, contingent, accrued or otherwise, existing as of the
date thereof which are of a nature required to be reflected in financial
statements prepared in accordance with generally accepted accounting principles.
9.6 Employees.
(a) Schedule 9.6(a) hereto contains a true and correct statement of the
names of employees related to the Business, their titles, present rates of
compensation (whether in the form of salary, bonuses, commissions, or other
supplemental compensation now or hereafter payable), and the amount of vacation
time each has accrued as of March 30, 1998.
(b) Except as set forth on Schedule 9.6(b) hereto, Seller has complied in
all material respects with all laws relating to the employment of labor,
including, without limitation, provisions thereof relating to wages, hours,
equal opportunity, collective bargaining, the Employee Retirement Income
Security Act
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of 1974 ("ERISA") and the payment of social security and other taxes, and to its
knowledge Seller is not aware of any material labor relations problems.
(c) Seller does not maintain or sponsor any defined benefit plan for its
employees under the provisions or subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") nor does Seller contribute to any
multi-employer plan covered by Title IV of ERISA.
9.7 Litigation. Except as set forth on Schedule 9.7, there is no suit,
action, administrative proceeding, arbitration or other proceeding or
governmental investigation pending or, to the knowledge of Seller, threatened,
relating to the Business ("Litigation").
9.8 Investment Representations.
(a) Seller's members are acquiring the IMA Shares issued pursuant to this
Agreement for investment and not with a view to the distribution thereof. The
Seller acknowledges that the IMA Shares have not been registered under the
Securities Act of 1933, as amended (the "1933 Act") by reason of a specific
exemption from the registration requirements thereof which depends upon, among
other things, the bona fide nature of the investment intent of Seller's members,
as expressed herein. The Seller acknowledges that the IMA Shares must be held
indefinitely unless the Shares are subsequently registered under the 1933 Act or
an applicable exemption from the registration requirements thereof is available.
Each certificate representing the IMA Shares and any other securities
issued in respect of the Shares upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall (unless
permitted by law) be stamped or otherwise imprinted with a legend in the
following form (in addition to any legend required under applicable state
securities laws, rules or regulations):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT EXCEPT PURSUANT TO AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(b) The Seller is (and the members of Seller are) sophisticated in business
and financial matters and capable of evaluating the merits and risks of an
investment in the IMA Shares.
(c) The members of Seller have been provided with copies of the following
documents: (i) Prospectus, dated July 30, 1997
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relating to Buyer's initial public offering of common stock; (ii) Form 10-Q of
Buyer for the quarter ended June 30, 1997; (iii) Form 10-Q of Buyer for the
quarter ended September 30, 1997; and (iv) Form 10-K for the year ending
December 31, 1997 (collectively, the "IMA SEC Documents") containing certain
financial and other information regarding Buyer. The members of Seller have been
provided with opportunities to meet with and ask questions of Buyer's management
regarding the Buyer's business, financial condition and prospects.
9.9 First Agreement. Buyer acknowledges that the Business was purchased by
Seller from Buyer pursuant to an Asset Purchase Agreement, dated as July 31,
1996 (the "First Agreement"), in which Buyer made various representations and
warranties to Seller about the Business. To the extent that any of the foregoing
representations and warranties, or any representations or warranties contained
in any other instrument, certificate, document or agreement delivered by Seller
in connection herewith are based upon information provided to Seller by Buyer in
connection with the First Agreement, Seller shall have no liability to Buyer
with respect thereto, whether pursuant to Section 13.2 of this Agreement or
otherwise.
ARTICLE 10
Representations and Warranties of the Buyer
10.1 Organization, Standing and Power. The Buyer is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Connecticut and the Buyer has all requisite corporate power and authority to
execute and deliver, and to perform all of its obligations under this Agreement
and the Related Documents.
10.2 Authority. The execution, delivery and performance by the Buyer of
this Agreement and the Related Documents is (i) within the Buyer's corporate
powers; (ii) has been duly authorized by all necessary corporate action; and
(iii) does not contravene Buyer's charter or by-laws or any law or contractual
restriction binding on Buyer. Each of this Agreement and the Related Documents
constitutes the legal, valid, binding obligation of Buyer enforceable against
the Buyer in accordance with its terms.
10.3 Governmental Authorization. No consent or approval or other action by,
and no notice to or filing with any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Buyer of this
Agreement or the Related Documents.
10.4 Condition of Assets. Except as expressly provided in Section 9.4, the
Buyer acknowledges that the Seller makes no representation or warranty as to the
condition of the Purchased
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Assets, and that such assets are being acquired "as is" and "where is."
ARTICLE 11
Conditions to Obligations of the Buyer
The obligations of the Buyer to perform this Agreement are subject to the
satisfaction of the following conditions unless waived by the Buyer in writing:
11.1 Representations and Warranties. Subject to Section 9.9, the
representations and warranties of the Seller set forth in Article 9 hereof shall
be true and correct in all material respects as of the date of this Agreement
and as of the Closing as though made on and as of the Closing, and the Buyer
shall have received a certificate signed by an officer of the Seller to that
effect at the Closing.
11.2 Performance of Obligations of the Seller. The Seller shall have
performed all obligations required to be performed by it prior to or on the
Closing under this Agreement, and the Buyer shall have received a certificate
signed by an officer of the Seller to that effect at the Closing.
11.3 Bill of Sale. The Buyer shall have received a duly executed bill of
sale and assignment (the "Bill of Sale") in substantially the form of Schedule
11.3 attached hereto which shall transfer, convey and assign to the Buyer the
Purchased Assets referred to in Article 2.
11.4 Sublease. Seller shall have executed a Sublease Termination Agreement
in substantially the form of Schedule 11.4 attached hereto (the "Sublease
Termination Agreement") which shall terminate that certain Sublease Agreement
between Buyer and Seller dated as of September 1, 1996.
11.5 Administrative Services Agreement. Seller shall have executed an
Administrative Services Termination Agreement in substantially the form of
Schedule 11.5 attached hereto (the "Administrative Services Termination
Agreement") which shall terminate that certain Administrative Services Agreement
between Buyer and Seller dated as of September 1, 1996.
11.6 Security Agreement Termination Agreement. Seller shall have executed a
Security Agreement Termination Agreement in substantially the form of Schedule
11.6 attached hereto which shall terminate that certain Security Agreement
between Buyer and Seller dated as of September 1, 1996.
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11.7 Investment Representation Letter. The Buyer shall have received an
Investment Representation Letter from Seller or from Seller's members
satisfactory to Buyer.
ARTICLE 12
Conditions of Obligations of the Seller
The obligations of the Seller to perform this Agreement are subject to the
satisfaction of the following conditions unless waived by the Seller in writing:
12.1 Representations and Warranties. The representations and warranties of
the Buyer set forth in Article 10 hereof shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing as
though made on and as of the Closing, and the Seller shall have received a
certificate signed by an officer of the Buyer to that effect at the Closing.
12.2 Performance of Obligations of the Buyer. The Buyer shall have
performed all obligations required to be performed by it prior to or on the
Closing under this Agreement and the Seller shall have received a certificate
signed by an officer of the Buyer to that effect at the Closing.
12.3 Assumption Agreement. The Seller shall have received a duly executed
instrument of assumption in substantially the form of Schedule 12.3 attached
hereto whereby the Buyer shall assume the Assumed Liabilities specified in
Article 5 (the "Assumption Agreement").
12.4 Sublease Termination Agreement. Buyer shall have executed the Sublease
Termination Agreement.
12.5 Administrative Services Termination Agreement. Buyer shall have
executed the Administrative Services Termination Agreement.
12.6 Security Agreement Termination Agreement. Buyer shall have executed
the Security Agreement Termination Agreement.
ARTICLE 13
Survival of Representations and Warranties;
Indemnification, Etc.
13.1 Survival. All representations and warranties made by Buyer or Seller
in this Agreement or pursuant to this Agreement, including, without limitation,
all representations and warranties made on any Exhibit or Schedule hereto or
document delivered
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hereunder, shall survive the Closing until the one hundred and eighty (180) days
following the Closing (the "Survival Date").
13.2 Indemnification by Seller. Seller hereby agrees to indemnify and to
hold Buyer and its officers, directors, stockholders and affiliates harmless
from, against and in respect of any and all losses, liabilities, damages,
actions, suits, proceedings, claims, demands, assessments, judgments, costs and
out-of-pocket expenses, including, without limitation, reasonable legal fees and
expenses, suffered or incurred by Buyer by reason of (i) subject to Section 9.9,
any untrue representation, breach of warranty or non-fulfillment of any covenant
or agreement by Seller contained in this Agreement or in any certificate,
document or instrument delivered to Buyer pursuant hereto or in connection
herewith; (ii) any liability or obligation of Seller not expressly assumed by
Buyer pursuant to this Agreement; or (iii) the enforcement of this indemnity.
13.3 Indemnification by Buyer. Buyer hereby agrees to indemnify and hold
Seller and its officers, members and affiliates harmless from, against and in
respect of any and all losses, liabilities, damages, actions suits, proceedings,
claims, demands, assessments, judgments, costs and out-of-pocket expenses,
including, without limitation, reasonable legal fees and expenses suffered or
incurred by Seller by reason of: (i) any untrue representation, breach of
warranty or non-fulfillment of any covenant or agreement by Buyer contained in
this Agreement or in any certificate, document or instrument delivered to Seller
pursuant hereto or in connection herewith including, without limitation,
satisfaction of the Assumed Liabilities; (ii) the enforcement of this indemnity;
or (iii) the operation of the Business by Buyer on and after the Closing Date.
13.4 Third Party Claims.
(a) In order for Buyer and/or its officers, directors, stockholders and
affiliates or Seller and/or its officers, members and affiliates as the case may
be, to be entitled to any indemnification provided for under this Agreement in
respect of, arising out of or involving a claim made by any person, firm,
governmental authority or corporation other than the Buyer or Seller, or their
respective successors, assigns or affiliates (a "Third Party Claim") against the
indemnified party, such indemnified party must notify the indemnifying party in
writing of the Third Party Claim promptly after receipt by such indemnified
party of written notice of the Third Party Claim. Thereafter, the indemnified
party shall promptly deliver to the indemnifying party copies of all notices
relating to the Third Party Claim.
(b) If a Third Party Claim is made against an indemnified party, the
indemnifying party will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof with counsel selected by the
indemnifying party
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(provided such counsel is not reasonably objected to by the indemnified party).
Should the indemnifying party elect to assume the defense of a Third Party
Claim, the indemnifying party will not be liable to the indemnified party for
any legal expenses subsequently incurred by the indemnified party in connection
with the defense thereof. If the indemnifying party elects to so participate in
or assume the defense of a Third Party Claim, the indemnified party will fully
cooperate with the indemnifying party in connection with such defense.
ARTICLE 14
Non-Competition; Employees, etc.
14.1 Non-Competition. In consideration of the agreements of Seller
contained herein, Seller hereby covenants that, for a period of five years from
and after the Closing, Seller and its affiliates will not (i) solicit any
present customers of Buyer that utilize Telemar(R), EDGE(R) or AdvantEdge(TM)
software; (ii) solicit any lead or prospect that has been developed by Buyer in
connection with the licensing of Telemar(R), EDGE(R) or AdvantEdge(TM) software;
(iii) develop or engage in any consulting business that competes in any manner
with the consulting business of Buyer relating to Telemar(R), EDGE(R) or
AdvantEdge(TM) software; (iv) solicit any employees of Buyer or Buyer's
affiliates for employment with Seller or Seller's affiliates; or (v) engage in
the licensing or sale of software products that are designed for a Unix-based or
IBM AS 400 platform, whether such products are developed internally or acquired
from third parties.
14.2 Employees. Buyer hereby covenants and agrees that it will make an
offer of employment to all of the persons listed in Schedule 9.6(b) attached
hereto at the salary levels set forth therein.
14.3 Disclaimer. Except as expressly provided in this Agreement, Seller
makes no representation or warranty, express or implied, with respect to the
Purchased Assets, including, but not limited to, any implied warranty of
merchantability or fitness for a particular purpose.
ARTICLE 15
Miscellaneous
15.1 Parties in Interest. This Agreement will be binding upon, inure to the
benefit of, and be enforceable by, the respective successors and assigns of the
parties hereto. This Agreement is not intended and shall not be construed to
create rights on behalf of any third parties other than the indemnified parties.
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15.2 Entire Agreement; Amendments. This Agreement and the other writings
referred to herein or delivered pursuant hereto contain the entire understanding
of the parties with respect to its subject matter. There are no representations,
promises, warranties, covenants or undertakings other than as expressly set
forth herein or therein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to its subject matter. This
Agreement may be amended only by a written instrument duly executed by the
parties, and any condition to a party's obligations hereunder may only be waived
by such party. Any waiver must be in writing.
15.3 Headings. The Article and Section headings contained in the Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
15.4 Notices. All notices, claims, certificates, requests, demands and
other communications hereunder will be given in writing and will be deemed to
have been duly given if delivered personally or mailed (by registered or
certified mail, postage prepaid) or delivered by guaranteed overnight delivery
service as follows:
If to the Buyer, to:
Information Management Associates, Inc.
One Corporate Drive, Suite 414
Shelton, Connecticut 06484
Attention: Michael P. McGroarty, Esq.
With a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
Goodwin Square, 13th Floor
225 Asylum Street
Hartford, Connecticut 06103
Attention: Thomas L. Fairfield, Esq.
-15-
<PAGE>
If to the Seller to:
Telemar Software International, LLC
One Corporate Drive, Suite 404
Shelton, Connecticut 06484
Attention: Joseph R. LeMay, Jr.
With a copy to:
Squadron, Ellenoff, Plesent & Sheinfeld, L.L.P.
551 Fifth Avenue
New York, New York 10176-0001
Attention: Stephen J. Gulotta, Jr.
or to such other address as the party to whom notice is to be given may have
furnished to the other party in writing in accordance herewith. Any notice shall
be deemed delivered (i) at the time of delivery, if delivered by hand, (ii) on
the first business day after sending, if sent by overnight delivery service, or
(iii) two business days after sending, if sent by registered or certified mail.
15.5 Bulk Sales Laws. The parties hereto hereby waive compliance with the
provisions of the "bulk sales laws" of any state which may be applicable to the
transactions contemplated hereby.
15.6 Publicity. The parties hereto agree that all public announcements
relating to this Agreement or the transactions contemplated hereby, including
announcements to employees, will be made only as may be agreed upon by the
parties hereto.
15.7 Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
15.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Connecticut.
-16-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first written above.
BUYER:
INFORMATION MANAGEMENT ASSOCIATES,
INC.
/s/ Gary R. Martino
By: ______________________________
Gary R. Martino
Chairman
SELLER:
TELEMAR SOFTWARE INTERNATIONAL, LLC
/s/ Joseph R. LeMay, Jr.
By: ______________________________
Joseph R. LeMay, Jr.
President and Chief Executive
Officer
[Asset Purchase Agreement]
-17-
<PAGE>
[The Registrant will furnish supplementally to the Commission a copy of any
ommitted schedule upon request.]
Schedules and Exhibits
1.12 Products
1.18 Trademark Interests
2.1(a) Accounts Receivable
2.1(b) Assigned Contracts
5.1(a) Certain Liabilities Assumed by Buyer
7.1(a) Certain Non-Assumed Liabilities
9.3 Consents Required
9.4 Leased Assets
9.6(a) Employees
9.6(b) Employees - Exception
9.8 Litigation
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 23,046
<SECURITIES> 0
<RECEIVABLES> 17,576
<ALLOWANCES> 985
<INVENTORY> 0
<CURRENT-ASSETS> 41,985
<PP&E> 7,655
<DEPRECIATION> 5,126
<TOTAL-ASSETS> 47,522
<CURRENT-LIABILITIES> 12,877
<BONDS> 0
0
0
<COMMON> 55,130
<OTHER-SE> (21,060)
<TOTAL-LIABILITY-AND-EQUITY> 47,522
<SALES> 5,315
<TOTAL-REVENUES> 10,093
<CGS> 121
<TOTAL-COSTS> 2,709
<OTHER-EXPENSES> 17,287
<LOSS-PROVISION> 200
<INTEREST-EXPENSE> 7
<INCOME-PRETAX> (6,927)
<INCOME-TAX> 94
<INCOME-CONTINUING> (7)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7)
<EPS-PRIMARY> (0.75)
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