SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13
of the Securities and Exchange Act of 1934
Date of Report: September 12, 1996
DATA SYSTEMS NETWORK CORPORATION
(Exact Name of Registrant as Specified in Charter)
MICHIGAN 1-13424 38-2649874
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
34705 W. 12 Mile Rd., Suite 300
Farmington Hills, Michigan 48331
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, incl. area code: (810) 489-7117
Item 2. Acquisition of Assets.
(a) Purchase of Assets. On September 12, 1996, Data Systems Network
Corporation, a Michigan corporation ("DSNC") purchased certain tangible
personal property, executory contracts and other assets (the "Acquired
Assets") of Information Decisions, Incorporated, a Michigan corporation
("IDI") and System Constructs, Inc., a New York corporation ("SCI") (each a
"Seller" and collectively, the "Sellers") used by the Sellers in the conduct
of the business of the network systems integration division of SofTech, Inc.,
a Massachusetts corporation ("SofTech"), which is the sole shareholder of the
Sellers (the "Acquisition"). The Acquisition was made pursuant to the terms
and conditions of an Asset Purchase Agreement by and among DSNC, the Sellers
and SofTech, dated as of September 12, 1996 (the "Agreement"). A copy of the
Agreement is attached hereto as Exhibit 2.2. DSNC intends to continue to use
the Acquired Assets in the network systems integration business.
As consideration for the Acquired Assets, at the closing of the
Agreement, DSNC paid $890,000, assumed certain liabilities of the Sellers and
issued 540,000 shares of DSNC common stock to SofTech (collectively, the
"Purchase Price"). The cash portion of the Purchase Price was financed
through cash reserves on hand. The Purchase Price is subject to certain post-
closing adjustments described in Section 2.2(c) and (d) of the Agreement.
Pursuant to the Agreement, SofTech agrees not to sell or otherwise
dispose of the shares of DSNC common stock received as part of the Purchase
Price except as provided in the Registration Rights Agreement (defined below)
and agrees to distribute such shares at the time and in the manner provided in
the Registration Rights Agreement. After September 12, 1996 until the earlier
of three years from that date or such time as SofTech shall have distributed
or sold all such shares, SofTech agrees not to (i) acquire "beneficial
ownership" (as such term is defined in Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder (the "Exchange Act")) of DSNC common stock other than from DSNC,
(ii) participate in any "solicitation" of "proxies" (as such terms are used in
the Exchange Act) to vote any voting securities of DSNC; (iii) form, join or
participate in a "group" (as defined in the Exchange Act) or otherwise act,
alone or in concert with others, to seek to control or influence the
management, Board of Directors or policies of DSNC; (iv) vote such shares
other than in the same manner and proportion (whether for, against or
abstaining on any proposal) as the other shareholders of DSNC vote shares with
respect to any matter submitted to the shareholders of DSNC (or, if the board
of directors of SofTech determines in good faith that its fiduciary duties so
require, not to vote such shares in any manner on such a proposal); or (v)
transfer voting rights with respect to such shares.
Registration Rights Agreement. In connection with the Acquisition,
DSNC and SofTech executed a Registration Rights Agreement, dated September 12,
1996 (the "Registration Rights Agreement"). The Registration Rights Agreement
provides for the timing and manner of distribution of the shares of DSNC
common stock issued to SofTech as part of the Purchase Price (the "Shares")
and requires DSNC to register such shares with the Securities and Exchange
Commission for sale or distribution by SofTech or its successors, assigns,
distributees and transferees (collectively, the "Holders") under certain
circumstances. A copy of the Registration Rights Agreement is attached hereto
as Exhibit 10.17 and is incorporated herein by reference.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired. It is impractical at
the time of filing this report to provide the required financial statements of
the business acquired. Required financial statements will be filed as soon as
practicable, but not later than 60 days after this report must be filed.
(b) Pro Forma Financial Information. It is impractical at the time
of filing this report to povide the required pro forma financial information.
Required pro forma financial information will be filed as soon as practicable,
but not later than 60 days after this report must be filed.
(c) Exhibits.
2.2 Asset Purchase Agreement, dated September 12, 1996, by and among DSNC,
IDI, SCI and SofTech. Schedules to the Agreement, listed on pp iii-
iv of the Table of Contents of the Agreement, have not been filed,
but will be provided to the Commission supplementally upon request.
10.17 Registration Rights Agreement, dated as of September 12, 1996, made
and entered into by DSNC and SofTech.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
DATA SYSTEMS NETWORK CORPORATION
Date: September 23, 1996 /s/ Philip M. Goy
By: Philip M. Goy
Its: Chief Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
2.2 Asset Purchase Agreement, dated September 12, 1996, by and
among DSNC, IDI, SCI and SofTech.
10.17 Registration Rights Agreement, dated as of September 12, 1996,
made and entered into by DSNC and SofTech.
Exhibit 2.2
ASSET PURCHASE AGREEMENT
by and among
DATA SYSTEMS NETWORK CORPORATION,
a Michigan corporation,
INFORMATION DECISIONS,INCORPORATED
a Michigan corporation,
SYSTEM CONSTRUCTS, INC.,
a New York corporation,
and
SOFTECH, INC.,
a Massachusetts corporation
September 12, 1996
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF ACQUIRED ASSETS
Page
Section 1.1 Purchase and Sale.... ........................ 1
Section 1.2 Assumption of Certain Liabilities ............ 3
Section 1.3 Defined Terms ................................ 6
ARTICLE II
PURCHASE PRICE
Section 2.1 Purchase Price ............................... 12
Section 2.2 Payment of Purchase Price .................... 12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
SELLERS AND SHAREHOLDER
Section 3.1 Organization ................................. 14
Section 3.2 Qualification; Location of
Business and Assets ....................................... 15
Section 3.3 Authorization, Consent and
Enforceability............................................. 15
Section 3.4 Subsidiaries and Investments.................. 15
Section 3.5 No Conflict or Violation...................... 15
Section 3.6 Financial Condition and Liabilities........... 16
Section 3.7 Absence of Certain Changes.................... 17
Section 3.8 Investment Representation..................... 18
Section 3.9 Inventories .................................. 19
Section 3.10 Title......................................... 19
Section 3.11 Properties.................................... 19
Section 3.12 Condition of Acquired Assets.................. 19
Section 3.13 Benefit Plans................................. 20
Section 3.14 Tax Returns and Taxes .........................21
Section 3.15 Authorizations................................ 21
Section 3.16 Patents, Trademarks, Licenses, etc............ 21
Section 3.17 Litigation and Proceedings.................... 22
Section 3.18 Compliance with Laws.......................... 23
Section 3.19 Insurance Coverage............................ 23
Section 3.20 Contracts..................................... 23
Section 3.21 Product Liability and Warranty Claims......... 24
Section 3.22 Employee Relations ........................... 24
Section 3.23 Insider Interests ............................ 25
Section 3.24 No Other Agreements to Sell the Acquired
Assets .................................................... 25
Section 3.25 Purchase Commitments and Outstanding
Bids....................................................... 26
Section 3.26 Customers, Distributors and Suppliers......... 26
Section 3.27 Payments...................................... 26
Section 3.28 Conduct of Business........................... 27
Section 3.29 Brokers and Finders .......................... 27
Section 3.30 Minutes....................................... 27
Section 3.31 Disclaimer ................................... 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Section 4.1 Organization ................................ 27
Section 4.2 Authorization, Consent and enforceability.... 27
Section 4.3 No Conflict or Violation..................... 28
Section 4.4 Shares Issued................................ 28
Section 4.5 Brokers and Finders.......................... 28
Section 4.6 SEC Filings ................................. 28
Section 4.7 Disclaimer .................................. 39
ARTICLE V
POST-CLOSING OBLIGATIONS
Section 5.1 Covenant Not to Compete; Nonsolicitation..... 29
Section 5.2 Taxes........................................ 30
Section 5.3 Bulk Transfer Laws .......................... 30
Section 5.4 Employee Matters ............................ 31
Section 5.5 Third Party Consents ........................ 31
Section 5.6 Press Releases............................... 32
Section 5.7 Regulatory Filings; Financial Statements..... 32
Section 5.8 Post-Closing Inventory Purchases
and Sales................................................. 32
Section 5.9 Current Litigation .......................... 33
Section 5.10 Retention of Shares by Shareholder .......... 34
Section 5.11 Change in Name............................... 34
Section 5.12 Nasdaq Filing................................ 35
ARTICLE VI
CLOSING
Section 6.1 Closing Date ................................ 35
Section 6.2 Transactions to be Effected at the closing .. 35
Section 6.3 Further Assurances .......................... 36
ARTICLE VII
INDEMNIFICATION
Section 7.1 Indemnification by Sellers and
Shareholder.............................................. 37
Section 7.2 Indemnification by Buyer.................... 38
Section 7.3 Claims...................................... 39
Section 7.4 Survival.................................... 40
Section 7.5 Limitations on Indemnification by Sellers
and Shareholder ......................................... 40
Section 7.6 Mitigation of Losses........................ 41
Section 7.7 Remedies.................................... 41
ARTICLE VIII
GENERAL
Section 8.1 Arbitration................................. 41
Section 8.2 Exhibits and Schedules...................... 42
Section 8.3 Amendment................................... 42
Section 8.4 Extension; Waiver........................... 42
Section 8.5 Entire Agreement; No Third Party
Beneficiaries ........................................... 43
Section 8.6 Choice of Law............................... 43
Section 8.7 Notices .................................... 43
Section 8.8 Counterparts; Headings ..................... 44
Section 8.9 Expenses.................................... 44
Section 8.10 Successors and Assigns...................... 44
Section 8.11 Severability................................ 44
Section 8.12 Reference to Sellers; IDI as Agent ......... 44
EXHIBITS:
Exhibit A Assumption Agreement
Exhibit B Bill of Sale
Exhibit C Opinion of Seller's Counsel
Exhibit D Opinion of Buyer's Counsel
Exhibit E Registration Rights Agreement
Exhibit G IDI License
Exhibit H New York Local Counsel Opinion
Exhibit I Michigan Local
Counsel Opinion
SCHEDULES:
Schedule 1.1(a) Administrative Assets
Schedule 1.1(b) Excluded Assets
Schedule 1.2(b) Excluded Liabilities
Schedule 3.2 Location of Business and Assets
Schedule 3.3 Authorizations, Approvals and Consents
Schedule 3.4 Subsidiaries and Investments
Schedule 3.6A Seller Financial Statements
Schedule 3.6B Preclosing Balance Sheet
Schedule 3.7 Material Adverse Change in Seller
or Business
Schedule 3.10 Permitted Liens
Schedule 3.11 Leased Items
Schedule 3.13 Plans
Schedule 3.15 Authorizations
Schedule 3.16 Patents, Trademarks, Licenses, etc.
Schedule 3.17 Litigation
Schedule 3.18 Noncompliance
Schedule 3.19 Insurance Coverage
Schedule 3.20 Contracts
Schedule 3.21 Products Liability and Warranty Claims
Schedule 3.22 Employee Relations
Schedule 3.23 Insider Interests
Schedule 3.25 Purchase Commitments and Outstanding Bids
Schedule 3.26 Customers, Distributors and Suppliers
Schedule 5.8 Inventory
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement")
is made as of September 12, 1996, by and among DATA
SYSTEMS NETWORK CORPORATION, a Michigan corporation
("Buyer"), INFORMATION DECISIONS, INCORPORATED, a
Michigan corporation ("IDI"), SYSTEM CONSTRUCTS,
INC., a New York corporation ("SCI") (each a
"Seller" and collectively, the "Sellers"), and
SOFTECH, INC., a Massachusetts corporation, the sole
shareholder of Sellers ("Shareholder").
A. Sellers own certain assets which they use
in theconduct of the business of the SofTech Network
Systems Group (the "Business"). Shareholder is the
sole owner, of record and beneficially, of all of
Sellers' issued and outstanding capital stock.
B. Sellers wish to sell to Buyer, and Buyer
wishes to purchase from Sellers, the Acquired
Assets, upon the terms and subject to the conditions
of this Agreement.
NOW THEREFORE, in consideration of the
foregoing premises and the respective covenants,
representations, warranties and conditions
hereinafter set forth, and for other good and
valuable consideration, the receipt and adequacy of
which is hereby acknowledged, the parties agree as
follows:
I. PURCHASE AND SALE OF ACQUIRED ASSETS
1.1 Purchase and Sale. Upon the terms and
subject to the conditions of this Agreement, Sellers
and Shareholder agree to sell, assign, transfer,
convey and deliver, or cause to be sold, assigned,
transferred, conveyed and delivered, to Buyer and
Buyer agrees to purchase, at the Closing, all the
Acquired Assets free and clear of all liens,
encumbrances, liabilities or obligations, except
Permitted Liens and those expressly assumed by Buyer
pursuant to Section 1.2(a).
(a) Acquired Assets. The term "Acquired
Assets" means the business, properties, assets,
goodwill and rights of Sellers as a going concern,
tangible or intangible, as of the Effective Date,
used by Sellers either exclusively or primarily in
connection with the Business (other than the
Excluded Assets) set forth below:
(i) all tangible personal property, including
without limitation, manufactured and purchased parts,
machinery, furniture, equipment, tools, vehicles,
trailers, office furnishings and supplies of Sellers
as of the Effective Date;
(ii) all Intellectual Property Rights, including all
such items listed on Schedule 3.16;
(iii) cash and cash equivalents received in
connection with activities occurring on or after the
Effective Date, and accounts receivable and notes
receivable accrued on or after the Effective Date
relating exclusively or primarily to the Business;
(iv) all right, title and interest of Sellers in, to
and under all executory Contracts that are listed on
Schedule 3.20, all unfilled purchase and customer
orders and all other executory Contracts that are
not required to be listed in such Schedule and which
were entered into in the ordinary course of the
Business relating exclusively or primarily to the
Business;
(v) all rights, claims, deposits, prepayments,
refunds (including, but not limited to, co-op
reimbursements and similar manufacturer rebates),
rights of recovery, rights of recoupment, causes of
action and choses in action (including, but not
limited to, rights of collection, setoff and
indemnification) of Sellers existing on the
Effective Date relating exclusively or primarily to
the Business, but excluding claims set forth on
Schedule 1.1(b);
(vi) the administrative, support and other
infrastructure relating to services supplied by a
Seller or Shareholder to the Business set forth on
Schedule 1.1(a); and
(vii) all of the goodwill and all other intangible
property of whatever nature or description relating
exclusively or primarily to the Business.
(b) Excluded Assets. The term "Excluded Assets"
means:
(i) minute books, stock records, articles of
incorporation, bylaws, tax returns and similar
corporate records of Sellers and Shareholder;
(ii) the rights of Sellers and Shareholder to any of
their claims for any federal, state, local or
foreign Tax refunds;
(iii) Sellers' and Shareholder's rights under this
Agreement;
(iv) real property owned by a Seller or Shareholder;
(v) cash and cash equivalents (other than cash
and cash equivalents included in Section
1.1(a)(iii)), accounts receivable and notes
receivable accrued prior to the Effective Date;
(vi) all inventory of the Business;
(vii) all assets of Sellers and Shareholder not
used exclusively or primarily in connection with the
Business, including in particular all assets of the
computer-aided design ("CAD") division of Sellers
and Shareholder;
(viii) all books of account, general, financial
and accounting records, files, invoices, customers
and suppliers lists and all other data owned or used
by a Seller relating to the Business or the Acquired
Assets;
(ix) all right, title and interest of Sellers in, to
and under all Authorizations relating exclusively or
primarily to the Business; and
(x) the assets, properties or rights set forth on
Schedule 1.1(b).
1.2 Assumption of Certain Liabilities.
(a) Certain Liabilities Assumed. Upon the terms
and
subject to the conditions of this Agreement, and
subject to Section 1.2(b), Buyer shall execute and
deliver to Sellers on the Closing Date an Assumption
Agreement pursuant to which Buyer shall assume and
agree to pay, perform and discharge in accordance
with sound business practice and the terms of the
liabilities set forth below, the following, and only
the following, liabilities, which shall be referred
to herein collectively as the "Assumed Liabilities":
(i) all obligations and liabilities of a Seller
under
the Contracts which are acquired by Buyer pursuant
to the provisions of this Agreement, and with
respect to which Buyer succeeds to the rights of a
Seller thereunder, to the extent that such
obligations and liabilities accrue from and after
the Effective Date, together with all reserves
accrued by a Seller with respect to such obligations
and liabilities as set forth on the Closing Balance
Sheet;
(ii) accrued liabilities set forth on the
Closing Balance Sheet relating to accrued vacation
pay, bonuses and other employee benefits with
respect to employees of the Business who become
employees of Buyer on the Closing Date (but not
including liabilities retained by Sellers and
Shareholder under Section 5.4); and
(iii) liabilities of the Sellers relating
exclusively
or primarily to the Business which accrue on or
after the Effective Date.
(b) Liabilities Not Assumed. Except as set forth
in
Section 1.2(a), Buyer shall not assume or agree to
pay, perform or discharge any obligations,
liabilities, Contracts or commitments of a Seller or
Shareholder of any kind or nature whatsoever (such
obligations, liabilities, Contracts and commitments
other than those set forth in Section 1.2(a) are
referred to herein as the "Excluded Liabilities").
Without limiting the foregoing, Buyer shall not
assume or become liable to pay, perform or
discharge, any of the following:
(i) any liability or obligation of a Seller or
Shareholder arising or incurred in connection with
the negotiation, preparation and execution of this
Agreement and the transactions contemplated hereby,
including, without limitation, fees and expenses of
counsel, accountants, advisers, brokers and others
(including without limitation any brokers, finders
or originators fees or commissions);
(ii) any product liability, property damage,
personal injury, product warranty or similar claim for injury
to person or property, regardless of when made or
asserted, which arises out of or is based upon any
express or implied representations, warranty,
agreement or guarantee made by a Seller or
Shareholder, or alleged to have been made by a
Seller or Shareholder, or which is imposed or
asserted to be imposed by operation of law, in
connection with any service performed or product
sold or leased by or on behalf of a Seller or
Shareholder on or prior to the Effective Date,
including without limitation any claim relating to
any product delivered in connection with the
performance of such service and any claim seeking
recovery for consequential damage, lost revenue or
income; provided that the foregoing is not intended
to exclude Buyer's assumption of obligations of
Sellers pursuant to Section 1.2(a) to provide
services under Contracts included in the Acquired
Assets;
(iii) except as provided in Section 1.2(a)(ii), any
obligations or liabilities of a Seller or
Shareholder arising under or in connection with any
Plans (whether or not legally binding) providing
benefits to any present or former employee of a
Seller or Shareholder (including, without
limitation, any liability retained by Sellers and
Shareholder under Section 5.4 of this Agreement);
(iv) any obligations or liabilities of a Seller
or Shareholder for any present or past employees,
agents or independent contractors of a Seller or
Shareholder, including, without limitation, any
employee severance or termination claims, any
liabilities under any "plant closing" laws or other
similar claims, or any claims for commissions with
respect to any sales occurring on or before the
Effective Date;
(v) any liability with respect to the litigation,
investigations and other similar matters set forth
on Schedule 3.17 or otherwise pending or threatened
with respect to the conduct of the Business on or
prior to the Effective Date;
(vi) except as provided in Section 5.2(c), any
obligations or liabilities of a Seller or
Shareholder which result from any Taxes, including,
without limitation, any Taxes or expenses arising
from or associated with the conveyance and transfer
from Sellers and Shareholder to Buyer of the
Acquired Assets;
(vii) any obligations or liabilities of a
Seller or Shareholder for worker's compensation
claims or unemployment compensation claims;
(viii) any obligations or liabilities of a Seller or
Shareholder under any Environmental Laws;
(ix) any obligations or liabilities of a Seller
or Shareholder for borrowed money or liabilities,
other than the Assumed Liabilities, to creditors of
Seller;
(x) any obligations or liabilities of a Seller or
Shareholder relating to the Excluded Assets;
(xi) any obligations or liabilities of a Seller
or Shareholder which are undisclosed, which are
contingent and not an obligation or liability under
a Contract to be acquired pursuant to the provisions
of this Agreement or which are contingent
obligations relating to purchase orders or discrete
projects under a Contract which contemplates
multiple orders or projects and for which orders or
projects a Seller has received payment or accrued an
account receivable;
(xii) any obligation or liability owed to a Seller or
Shareholder or any of their affiliates; and
(xiii) any obligation or liability set forth in
Schedule 1.2(b).
1.3 Defined Terms. As used herein, the terms below
shall have the following meanings. Any of these
terms, unless the context otherwise requires, may be
used in the singular or plural depending upon the
reference.
"Acquired Assets" shall have the meaning set forth in
Section 1.1(a) of this Agreement.
"Adjusted Amount" shall have the meaning set forth in
Section 2.2(d) of this Agreement.
"Assumed Liabilities" shall have the meaning
set forth in Section 1.2(a) of this Agreement.
"Assumption Agreement" shall mean an agreement in the
form attached to this Agreement as Exhibit A.
"Authorizations" shall mean all franchises,
licenses, permits, consents, easements, rights,
applications, filings, registrations and other
authorizations from any foreign,
domestic, federal, state or local governmental
authority relating exclusively or primarily to the
conduct of the Business.
"Average Period" shall have the meaning set forth in
Section 2.2(d) of this Agreement.
"Average Price" shall have the meaning set forth in
Section 2.2(d) of this Agreement.
"Balance Sheet Date" shall mean May 31, 1996.
"Bill of Sale" shall mean a general assignment
and bill of sale in the form attached to this
Agreement as Exhibit B.
"Business" shall have the meaning set forth in
Recital A to this Agreement.
"Buyer" shall have the meaning set forth in the
Preamble to this Agreement.
"Buyer Documents" shall mean this Agreement,
the Assumption Agreement, the Registration Rights
Agreement, the IDI License and all other agreements
related thereto to be delivered by Buyer.
"Buyer's Common Stock" shall mean the Common Stock,
$.01 par value, of Data Systems Network Corporation.
"CAD" shall have the meaning set forth in Section
1.1(b) of this Agreement.
"Claim" shall have the meaning set forth in
Section 7.3 of this Agreement.
"Claimant" shall have the meaning set forth in
Section 7.3 of this Agreement.
"Closing" shall have the meaning set forth in Section
6.1 of this Agreement.
"Closing Balance Sheet" shall mean a statement
of accounts prepared by Sellers and Shareholder as
of the close of business on the Effective Date
reflecting the book value of the Acquired Assets and
the Assumed Liabilities as of such date, in each
case prepared in accordance with generally accepted
accounting principles and consistent with the
Preclosing Balance Sheet and Sellers' and
Shareholder's financial records, which have been
maintained in accordance with generally accepted
accounting principles, except as agreed to by the
Buyer and Sellers and set forth in the notes
thereto.
"Closing Date" shall have the meaning set forth in
Section 6.1 of this Agreement.
"COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985 (including any amendments
thereof, and the regulations and published
interpretations thereunder).
"Contracts" shall mean contracts, leases,
mortgages, indentures, agreements, Plans,
instruments, undertakings,
commitments, obligations, purchase and customer
orders, insurance policies, warranties and all other
legally binding arrangements, whether oral or
written, to which a Seller or Shareholder is a party
and which relate exclusively or primarily to the
Business.
"Defending Party" shall have the meaning set forth in
Section 7.3(b) of this Agreement.
"Effective Date" shall mean September 3, 1996.
"Environmental Laws" shall mean (i) any
federal, state and local law, statute, ordinance,
rule, regulation, license, permit, Authorization,
approval, consent, court order, judgment, decree,
injunction, code, requirement or agreement with any
governmental entity, relating to pollution (or the
cleanup of the environment), human health or the
protection of air, water vapor, surface water,
groundwater, drinking water supply, land (including
its surface and subsurface), plant and animal life
or any other natural resource, or concerning
exposure to, or the use, storage, recycling,
treatment, generation, transportation, processing,
handling, labeling, production or disposal of
Hazardous Substances, in each case as amended, and
as now or hereafter in effect, and (ii) any common
law or equitable doctrine (including, without
limitation, injunctive relief and tort doctrines
such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations
for injuries or damages due to or threatened as a
result of the presence of, exposure to, or ingestion
of, any Hazardous Substance. The term Environmental
Law includes, without limitation, the Federal
Comprehensive Environmental Response Compensation
and Liability Act of 1980; the Superfund Amendments
and Reauthorization Act; the Federal Water Pollution
Control Act; the Federal Clean Air Act; the Federal
Clean Water Act; the Federal Resource Conservation
and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto); the Federal
Solid Waste Disposal Act; the Federal Toxic
Substances Control Act; the Federal Insecticide,
Fungicide and Rodenticide Act; the Federal
Occupational Safety and Health Act of 1970; the
Michigan Air Pollution Act; the Michigan
Environmental Protection Act; the Michigan
Environmental Response Act; the Michigan Goemaere-
Anderson Wetland Protection Act; the Michigan
Hazardous Waste Management Act; the Michigan Inland
Lakes and Streams Act; the Michigan Leaking
Underground Storage Tank Act; the Michigan Liquid
Industrial Wastes Act; the Michigan Polychlorinated
Biphenyls Compounds Act; the Michigan Safe Drinking
Water Act; the Michigan Solid Waste Management Act;
the Michigan Underground Storage Tank Regulatory
Act; and the Michigan Water Resources Commission
Act; in the case of each, as amended and as now or
hereafter in effect.
"ERISA" shall mean the Employee Retirement
Income Security Act of 1974 (including any
amendments thereof, and the regulations and
published interpretations thereunder).
"Excluded Assets" shall have the meaning set forth in
Section 1.1(b) of this Agreement.
"Excluded Liabilities" shall have the meaning
set forth in Section 1.2(b) of this Agreement.
"Hazardous Substance" means any substance
presently listed, defined, designated, considered or
classified as hazardous, toxic, radioactive or
dangerous, or otherwise regulated, under any
Environmental Law, whether by type or by quantity,
including any substance containing any such
substance as a component. Hazardous Substance
includes, without limitation, any toxic waste,
pollutant, contaminant, hazardous substance, toxic
substance, hazardous waste, special waste,
industrial substance or waste, petroleum, petroleum
product, or petroleum-derived substance or waste,
radon, radioactive material, asbestos, asbestos-
containing material, urea formaldehyde foam
insulation, lead and polychlorinated biphenyl.
"IDI" shall have the meaning set forth in the
Preamble to this Agreement.
"IDI License" shall mean an agreement
substantially in the form attached to this Agreement
as Exhibit G.
"Indemnitor" shall have the meaning set forth in
Section 7.3 of this Agreement.
"Intellectual Property Rights" shall mean all
of Sellers' and Shareholder's right, title and
interest in, to and under all domestic and foreign
patents (including all reissues, divisions,
continuations, and extensions thereof), patent
applications, patent rights, inventions,
improvements to inventions, drawings, designs,
proprietary information or other rights with respect
thereto, trademarks, trademark registrations,
service marks, service mark applications, trademark
registration applications, tradenames used by a
Seller or Shareholder either exclusively or
primarily in connection with the Business, all other
names and slogans embodying business, product or
service goodwill (excluding the names "Information
Decisions, Incorporated" and "SofTech, Inc."), all
variations of such names, copyrights, computer
software, specifications, data, designs, trade
secrets, technology, know-how, processes and
confidential and proprietary information used by a
Seller or Shareholder either exclusively or
primarily in connection with the Business (including
any being developed) and all goodwill associated
therewith, whether or not subject to statutory
registration, and all license agreements to which a
Seller or Shareholder is a party (as licensor or
licensee) relating to any of the foregoing.
"IRC" shall mean the Internal Revenue Code of
1986 (including any amendments thereof, and the
regulations and published interpretations
thereunder).
"IRS" shall mean the Internal Revenue Service.
"Issued Rights and Applications" shall have the
meaning set forth in Section 3.16 of this Agreement.
"Knowledge" shall mean actual knowledge of
senior management of the respective party, after
reasonable investigation.
"Laws" shall mean all laws, ordinances, orders,
regulations and other governmental requirements.
"License Agreements" shall have the meaning set forth
in Section 3.16 of this Agreement.
"Litigation" shall have the meaning set forth in
Section 5.9 of this Agreement.
"Losses" shall have the meaning set forth in Section
7.1 of this Agreement.
"M.C.L.A." shall mean the Michigan Compiled Laws
Annotated.
"MESC" shall have the meaning set forth in Section
5.2(b) of this Agreement.
"MESC Form 1027" shall have the meaning set forth in
Section 5.2(b) of this Agreement.
"Michigan Tax Certificate" shall have the meaning set
forth in Section 5.2(a) of this Agreement.
"Net Asset Value" shall have the meaning set forth in
Section 2.2(c) of this Agreement.
"1933 Act" shall have the meaning set forth in
Section 3.8 of this Agreement.
"Notice" shall mean a written notification
describing, with reasonable specificity, a breach of
representation or warranty or any other claim for
indemnity.
"Permitted Liens" shall have the meaning set forth in
Section 3.10 of this Agreement.
"Plans" shall mean all plans, contracts, programs and
arrangements with respect to employees engaged in
the Business, including, but not limited to
employment agreements, union contracts and
supplemental agreements, pensions, profit sharing
arrangements, bonuses, deferred compensation,
retirement, stock option, restricted stock, phantom
stock, disability, death benefit, severance, medical
and hospitalization, insurance, vacation, dependent
care, salary continuation, and other employee
benefit plans, programs or arrangements, now or at
any time maintained by a Seller or Shareholder or
under which a Seller or Shareholder has or had any
obligations in respect of any employee engaged in
the Business.
"Preclosing Balance Sheet" shall mean the
unaudited statement of accounts of the Business as
of the close of business on July 31, 1996 reflecting
the book value of the Acquired Assets and Assumed
Liabilities as of such date, in each case prepared
in accordance with generally accepted accounting
principles and consistent with Sellers' and
Shareholder's financial records, which have been
maintained in accordance with generally accepted
accounting principles, except as agreed to by the
Buyer and Sellers and set forth in the notes
thereto.
"Purchase Price" shall have the meaning set forth in
Section 2.1 of this Agreement.
"Registration Rights Agreement" shall mean an
agreement substantially in the form attached to this
Agreement as Exhibit E.
"SCI" shall have the meaning set forth in the
Preamble to this Agreement.
"SEC" shall mean the United States Securities and
Exchange Commission.
"SEC Reports" shall have the meaning set forth in
Section 4.6 of this Agreement.
"Securities Laws" shall have the meaning set forth in
Section 4.6 of this Agreement.
"Seller" and "Sellers" shall have the meaning
set forth in the Preamble to this Agreement.
"Seller Documents" shall mean this Agreement,
the Bill of Sale, the IDI License, the Registration
Rights Agreement and all other agreements,
conveyances and assignments related thereto to be
delivered by a Seller or Shareholder.
"Seller Financial Statements" shall mean
unaudited, internal statements of revenues and
contribution margin for the fiscal year ended May
31, 1996, and related unaudited, internal statements
of assets and liabilities at May 31, 1996, relating
to the Business, prepared by Sellers and Shareholder
in the normal course of business, which statements
were derived from Sellers' and Shareholder's books
and records.
"Shareholder" shall have the meaning set forth in the
Preamble to this Agreement.
"Taxes" shall mean any federal, state, local or
foreign taxes, assessments, interest, penalties,
deficiencies, fees and other governmental charges or
impositions (including without limitation all income
tax, unemployment compensation, social security,
payroll, sales and use, excise, privilege, property,
ad valorem, franchise, license, school and any other
tax or similar governmental charge or imposition
under the laws of the United States or any state or
municipal or political subdivision thereof or any
foreign country or political subdivision thereof).
"Tax Returns" shall mean all federal, state,
local and foreign tax returns, reports, statements
and other similar filings required to be filed by a
Seller or Shareholder.
II. PURCHASE PRICE
2.1 Purchase Price. The purchase price for
the Acquired Assets shall be 540,000 shares of
Buyer's Common Stock and $890,000 (collectively, the
"Purchase Price") subject to the post-closing
adjustments described in Section 2.2.
2.2 Payment of Purchase Price. The Purchase Price
shall be paid as follows:
(a) At the Closing, Buyer shall pay to Sellers
the sum of $890,000 by wire transfer of immediately
available federal funds to such account(s) as Seller
shall designate;
(b) At the Closing, Buyer shall deliver to
Shareholder a certificate representing the shares of
Buyer's Common Stock to be conveyed pursuant to
Section 2.1;
(c) A post-closing adjustment to the Purchase Price
shall be made as follows:
(i) Within thirty (30) days after the
Closing, a Closing Balance Sheet will be prepared by
Sellers and Shareholder and shall be furnished to
Buyer. With respect to the preparation of the
Closing Balance Sheet, Sellers and Shareholder agree
that the Buyer and the Buyer's independent public
accountants and other representatives shall have the
right to review and observe the taking of a physical
inventory of the tangible Acquired Assets and shall
have full and complete access during regular
business hours to all books and account, workpapers
and other records and files of Sellers and
Shareholder in the possession or under the control
of Sellers and Shareholder, and Sellers and
Shareholder shall use their reasonable best efforts
to cause their independent public accountants to
provide such access to all workpapers (including,
without limitation, workpapers relating to the audit
of Shareholder's consolidated financial statements
as of and for the fiscal years ended May 31, 1995
and 1996) and supporting collateral documents of or
in the possession of such accountants. Sellers will
provide Buyer with written notice at least five
business days prior to the taking of such physical
inventory of the time and place at which such
physical inventory will be taken. The Closing
Balance Sheet, together with notes thereto, shall
(A) be in accordance with the books and records of
Sellers and Shareholder, (B) present fairly the financial
information it purports to present regarding the
Business as of such date, and (C) except as agreed
to by Buyer and Sellers and disclosed in the notes
thereto, be prepared in accordance with generally
accepted accounting principles on a basis consistent
with the Preclosing Balance Sheet, the Sellers' and
Shareholder's financial records and the information
disclosed in the Shareholder's consolidated
financial statements and notes thereto filed as part
of Shareholder's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996 with respect to the
Acquired Assets and the Assumed Liabilities. The
Closing Balance Sheet shall be reviewed by Buyer
within thirty (30) days of the date it is furnished
to Buyer. If any questions should arise during such
review which Sellers and Buyer cannot resolve
between themselves, such questions shall be referred
to the independent accountants representing each of
the parties, who shall within fifteen (15) days
thereafter attempt to resolve such questions, and
any decision mutually agreeable to such accountants
shall be binding upon both Seller and Buyer. If,
after fifteen (15) days, the independent accountants
of Sellers and Buyer are unable to arrive at a
resolution of any issue relating to the Closing
Balance Sheet, such independent accountants will
appoint a third accounting firm satisfactory to each
of them, which shall be directed to resolve such
questions within thirty (30) days thereafter, and
whose decision shall be final and binding on both
parties. One-half of the cost of such third
accounting firm shall be paid by Sellers and one-
half of such cost shall be paid by Buyer.
(ii) If the value of the Acquired Assets
less the value of the Assumed Liabilities shown on
the Closing Balance Sheet (the "Net Asset Value") is
less than $200,000, Sellers shall pay the amount of
such deficiency in cash (without interest) to Buyer
within ten (10) days after the date on which Buyer
and Sellers shall have indicated their agreement to
the Closing Balance Sheet (or the date on which any
disputes relating to the Closing Balance Sheet shall
have been resolved as provided in (i) above). If
the Net Asset Value is greater than $200,000, Buyer
shall pay the amount of such excess in cash (without
interest) to Sellers within ten (10) days after the
date on which Buyer and Sellers shall have indicated
their agreement to the Closing Balance Sheet (or the
date on which any disputes relating to the Closing
Balance Sheet shall have been resolved as provided
in (i) above).
(d) A further post-closing adjustment to the
Purchase Price shall be made as follows:
(i) If the average price per share of the
Buyer's Common Stock (the "Average Price") during
the "Average Period" is less than $4.50, then Buyer,
no later than the 7th day after the last day of the
Average Period, shall provide Shareholder with a
schedule setting forth the calculation of the
Average Price and shall pay to Shareholder by wire
transfer in cash (without interest) an amount
("Adjusted Amount") equal to the product of (A)
$4.50 less the Average Price, multiplied by (B)
540,000; provided, that Buyer shall not be required
to pay more than a total of $540,000 pursuant to
this Section 2.2(d); further provided, that if the
Average Price is $4.50 or greater for the 30-day
period ending on the date Shareholder distributes
the shares of Buyer Common Stock it receives
pursuant to this Agreement pro rata to its
stockholders, Buyer shall not be required to make
any payment pursuant to this Section 2.2(d).
(ii) For purposes of determining the
Average Price, (A) the price per share on any day on
which the Buyer's Common Stock is traded on the
Nasdaq Stock Market shall be the average of the
reported high and low sales prices for such day; (B)
the Average Price shall be equal to the sum of such
daily average prices divided by the number of days
during such 30-day period on which the Buyer's
Common Stock was traded on the Nasdaq Stock Market;
and (C) any day on which the Buyer's Common Stock is
not traded on the Nasdaq Stock Market during such 30-
day period shall be disregarded.
(iii) "Average Period" shall mean the 30-
day period beginning on the 181st day following the
Closing Date; provided, that if Shareholder
distributes the shares of Buyer's Common Stock it
receives pursuant to this Agreement pro rata to its
stockholders and if the distribution date for such
distribution occurs less than 90 days prior to the
210th day following the Closing Date, the Average
Period shall not begin until the 60th day after such
distribution date and shall continue for 30 days
thereafter.
III. REPRESENTATIONS AND WARRANTIES OF SELLERS
AND SHAREHOLDER
Each Seller and Shareholder hereby, jointly and
severally, represents and warrants to Buyer as
follows:
3.1 Organization. Each Seller and Shareholder is a
corporation duly organized, validly existing and in
good standing under the laws of the state of its
incorporation. Each Seller and Shareholder has all
requisite power and authority to own or lease its
properties and assets as now owned or leased and to
carry out its business as and where now being
conducted. The copies of each Seller's charter and
bylaws, as amended to date, and Shareholder's
charter and bylaws, as amended to date, which have
been delivered to Buyer, are correct and complete
and are in full force and effect.
3.2 Qualification; Location of Business and
Assets. Each Seller and Shareholder is duly licensed
or qualified to do business as a foreign corporation
and is in good standing in each jurisdiction where
the character of the properties owned or leased or
the nature of activities conducted therein by
Sellers or Shareholder, as the case may be, require
such qualification except where the failure to be so
licensed or qualified would not have a material
adverse effect on the conduct of the Business. Set
forth on Schedule 3.2 is each location where a
Seller or Shareholder has a place of business or
owns or leases property used in the operation of the
Business. All of the employees engaged exclusively
or primarily in the conduct of the Business are
located in the States of Michigan, New York and
North Carolina.
3.3 Authorization, Consent and Enforceability.
The execution, delivery and performance of the
Seller Documents have been duly authorized by all
necessary corporate and shareholder action on the
part of Sellers and Shareholder. Except as set forth
on Schedule 3.3, no authorization, approval or
consent of, and no registration or filing with, any
governmental or regulatory official, body or
authority or of any party to any material Contract
to which a Seller or Shareholder is a party or to
which any of the Acquired Assets is subject, is
required for the execution, delivery and performance
of this Agreement by Sellers and Shareholder. This
Agreement and the other Seller Documents have been
duly executed and delivered by Sellers and
Shareholder and constitute the legal, valid and
binding obligations of Sellers and Shareholder,
enforceable against them in accordance with their
respective terms. All of each Seller's capital
stock is owned by Shareholder.
3.4 Subsidiaries and Investments. Except as
set forth on Schedule 3.4, Sellers and Shareholder
hold no stock or other interest, either of record,
beneficially or equitably, in any firm, venture,
corporation, partnership or other entity and have no
subsidiaries.
3.5 No Conflict or Violation. Neither the execution
nor delivery of this Agreement or the other Seller
Documents, nor the consummation by Sellers or
Shareholder of the transactions contemplated hereby
or thereby, nor the compliance with and fulfillment
of the terms and provisions hereof or thereof by
Sellers and Shareholder will violate any provision
of the charter or bylaws of a Seller or Shareholder
or violate, conflict with or result in a breach of
or constitute a default under, any term, condition,
or provision of (a) any existing Law to which a
Seller or Shareholder is subject, (b) any order,
judgment, injunction, award or decree of any court,
arbitrator, or governmental or regulatory official,
body or authority which is applicable to a Seller or
Shareholder, or (c) any material Contract to which a
Seller or Shareholder is a party, by which any of
them may have rights or by which any of the Acquired
Assets may be bound or affected, or give any party
with rights thereunder the right to terminate,
modify, accelerate or otherwise change the existing
rights or obligations of a Seller or Shareholder
thereunder, or result in the creation of any lien,
charge or encumbrance on any of the Acquired Assets.
3.6 Financial Condition and Liabilities. The Seller
Financial Statements and the Preclosing Balance
Sheet, attached hereto as Schedules 3.6A and 3.6B,
respectively, (a) are correct and complete and
consistent with the books and records of Sellers and
Shareholder; (b) have been prepared in accordance
with Sellers' and Shareholder's internal accounting
practices and procedures with respect to the
preparation of the Shareholder's consolidated
financial statements, which consolidated financial
statements are prepared in accordance with generally
accepted accounting principles consistently applied
throughout the periods involved in conformity with
past practice, except as stated therein; (c) fairly
present the information they purport to present for
the periods indicated; and (d) with respect to the
Seller Financial Statements,subject to the proviso
at the end of the following sentence, reflect all
costs incurred in the operation of the Business.
Sellers and Shareholder have no liability or
obligation of any nature, whether due or to become
due, absolute, contingent or otherwise relating to
the Business, the Acquired Assets or the Assumed
Liabilities except (x) to the extent fully reflected
as a liability in the Seller Financial Statements
(to the extent required by generally accepted
accounting principles) and (y) liabilities incurred
in the ordinary course of business since the date of
the Seller Financial Statements; provided, however,
that such statements do not represent separate
financial statements for the Business as a stand-
alone entity nor do Sellers or Shareholder maintain
such separate financial statements for the Business,
and such statements include (to the extent indicated
therein) allocations of certain shared services
(e.g., telecommunications) but do not include
allocations of corporate overhead and certain other
charges and expenses of Shareholder reported in its
consolidated financial statements. The Closing
Balance Sheet will fairly present the Acquired
Assets and the Assumed Liabilities as of the
Effective Date in accordance with the books and
records of Sellers and Shareholder and will be
prepared on a basis consistent with the preparation
of the Preclosing Balance Sheet and the Seller
Financial Statements.
3.7 Absence of Certain Changes. Except as set
forth on Schedule 3.7, since the Balance Sheet Date,
there has not been any material adverse change in
the business, condition (financial or otherwise),
results of operations or assets of any Seller or
Shareholder with respect to the Business. Without
limiting the generality of the foregoing, since that
date, Sellers and Shareholder have not with respect
to the Business:
(a) incurred any liabilities, other than liabilities
incurred in the ordinary course of business
consistent with past practice, or discharged or
satisfied any lien or encumbrance, or paid any
liabilities, other than in the ordinary course of
business consistent with past practice, or failed to
pay or discharge when due any liabilities of which
the failure to pay or discharge has caused or will
cause any damage or risk of material loss to it or
any of its assets or properties;
(b) created, incurred, assumed or guaranteed
any indebtedness for money borrowed, or mortgaged,
pledged or subjected any of its assets to any
mortgage, lien, pledge, security interest,
conditional sales Contract or other encumbrance of
any nature whatsoever, except for Permitted Liens;
(c) made or suffered any amendment or termination of
any agreement, Contract, commitment, lease or Plan
to which it is a party or by which it is bound, or
cancelled, modified or waived any substantial debts
or claims held by it or waived any rights of
substantial value, whether or not in the ordinary
course of business;
(d) suffered any damage, destruction or loss,
whether or not covered by insurance, (i) adversely
affecting its business, operations, assets,
properties or prospects, or (ii) of any item or
items carried on its books of account individually
or in the aggregate at more than $10,000, or
suffered any repeated, recurring or prolonged
shortage, cessation or interruption of supplies or
utility or other services required to conduct its
business and operations;
(e) made commitments or agreements for capital
expenditures or capital additions or betterments
exceeding in the aggregate $10,000, except such as
may be involved in ordinary repair, maintenance or
replacement of its assets;
(f) increased the salaries or other compensation of,
or made any advance (excluding advances for ordinary
and necessary business expenses) or loan to, any of
its employees or made any increase in, or any
addition to, other benefits to which any of its
employees may be entitled;
(g) changed any of the accounting principles
followed by it or the methods of applying such
principles;
(h) entered into any transaction, Contract or
extension other than in the ordinary course of
business consistent with past practice; or
(i) operated the Business other than in the ordinary
course consistent with past practice so as to
preserve the Business intact, to keep available to
the Business the services of employees of the
Sellers and preserve the goodwill of its suppliers,
customers, distributors and others having business
relations with it.
3.8 Investment Representation.
Shareholder is acquiring shares of Buyer's
Common Stock pursuant to this Agreement for its
own account for investment purposes and not
with a view to or for the transfer, assignment,
resale or any unregistered distribution (as
that term is defined under the Securities Act
of 1933, as amended, or the regulations
promulgated thereunder (collectively, the "1933
Act")) thereof, in whole or in part, except in
compliance with the provisions of the 1933 Act
or an exemption from registration thereunder.
Shareholder has no present plans to enter into
any such contract, undertaking, agreement or
arrangement in violation of the 1933 Act.
Shareholder understands that a stop-transfer
order will be placed on the stock-transfer
books of Buyerrespecting the certificates
evidencing any shares of Buyer's Common Stock
issued pursuant to this Agreement and that such
certificates shall bear, until such time as
such shares have been registered under the 1933
Act or shall have been transferred by means of
an exemption therefrom in accordance with an
opinion of counsel satisfactory to Buyer that
such registration is not required, the
following legend or one substantially similar
thereto:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN
OPINION OF COUNSEL SATISFACTORY TO DATA SYSTEMS
NETWORK CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED. TRANSFER OF THE SHARES REPRESENTED BY
THIS CERTIFICATE IS ALSO SUBJECT TO AN ASSET
PURCHASE AGREEMENT AND A REGISTRATION RIGHTS
AGREEMENT, EACH DATED AS OF SEPTEMBER 12, 1996.
VOTING RIGHTS OF THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO SUCH ASSET PURCHASE
AGREEMENT. A COPY OF THE ASSET PURCHASE AGREEMENT
AND THE REGISTRATION RIGHTS AGREEMENT ARE ON FILE AT
THE REGISTERED OFFICE OF DATA SYSTEMS NETWORK
CORPORATION.
plus any legend that may be required under any applicable
state law.
3.9 Inventories. (a) All inventory of Sellers
included in Schedule 5.8: (i) was acquired and has been
maintained in the ordinary course of the Business; (ii) is
of good and merchantable quality; (iii) consists
substantially of a quality, quantity and condition usable,
leasable or saleable in the ordinary course of the
Business; and (iv) is valued at the lower of cost
(determined on a first in, first out basis) or market
value on a basis consistent with that reflected in the
Seller Financial Statements and the audited May 31, 1996
consolidated financial statements of Shareholder.
3.10 Title. Sellers own outright all of the
Acquired Assets (to the extent each Acquired Asset is
capable of being owned), free and clear of all mortgages,
claims, security interests, easements, rights of way,
liens or other encumbrances of any nature whatsoever,
except for liens set forth on Schedule 3.10 ("Permitted
Liens").
3.11 Properties. Set forth on Schedule 3.11 is a
correct list of all real and personal properties leased by
Sellers in the Business. There is no pending
condemnation, expropriation, eminent domain or similar
proceeding affecting all or any portion of any of such
real properties and, to the Knowledge of Sellers and
Shareholder, no such proceeding is contemplated. Sellers
and Shareholder have not received any notice of any
violation of, or default under, any Law relating to leased
properties used in the Business which remains uncured or
has not been dismissed. All leases and licenses pursuant
to which Shareholder and Sellers lease or license real or
personal property from others and which are included in
the Acquired Assets are valid and effective in accordance
with their respective terms, and there is not, under any
of such leases or licenses, any existing default or event
of default (or event which with notice or lapse of time,
or both, would constitute a default, or would constitute a
basis of force majeure or other claim of excusable delay
or nonperformance). Sellers and Shareholder have received
no notice of any state of facts that reasonably causes
them to believe that such properties do not conform in all
material respects to all applicable Laws or contractual
requirements relating to their construction, use or
operation.
3.12 Condition of Acquired Assets. All of the
buildings, structures and fixtures leased by a Seller or
Shareholder for use in the Business and included in the
Acquired Assets are in good operating condition and
repair, subject only to ordinary wear and maintenance and
are usable in the regular and ordinary course of business.
All of the personal property owned or leased by Sellers
and Shareholder which is material to the Business, and
included in the Acquired Assets is in good operating
condition and repair, subject only to ordinary wear and
maintenance, and is usable in the regular and ordinary
course of business. No Person other than Sellers owns any
equipment or other tangible assets or properties situated
on the premises of Sellers and Shareholder used
exclusively or primarily in the Business or necessary to
the operation of the Business, except for leased items
disclosed on Schedule 3.11 and for items of immaterial
value.
3.13 Benefit Plans.
(a) Schedule 3.13 contains a true and complete list
of all Plans.
(b) Except as specifically set forth in Schedule
3.13 with respect to any and all of the Plans: (i) Sellers
and Shareholder are in compliance in all material respects
with the requirements prescribed by any and all statutes,
orders or governmental rules or regulations applicable to
such Plans, including but not limited to ERISA and the
IRC; (ii) neither Sellers and Shareholder nor any other
"disqualified person" or "party in interest," within the
meanings of Section 4975 of the IRC and Section 3(14) of
ERISA, respectively, has engaged in any "prohibited
transactions," as such term is defined in Section 4975 of
the IRC or Section 406 of ERISA, which could,
following the Closing Date, subject any Plan (or its
related trust), the Buyer or any officer, director or
employee of the Buyer, to any tax or penalty imposed under
the IRC or ERISA; (iii) there are no actions, suits or
claims pending (other than routine claims for benefits)
or, to the Knowledge of Sellers and Shareholder,
threatened against any Plan or against the assets of any
Plan; and (iv) there are no leased employees (as defined
in IRC Section 414(n)) that must be taken into account
under any Plan pursuant to IRC Section 414(n)(3).
(c) No Plan is a "multiple employer plan," within the
meaning of the IRC or ERISA, or a "multiemployer plan,"
within the meaning of Section 3(37) of ERISA.
(d) Sellers and Shareholder have complied with the
reporting and disclosure requirements of ERISA and with
applicable federal and state securities laws.
(e) Sellers and Shareholder have made or will make
by the time required by applicable law all required
employer contributions, including any salary deferrals and
matching contributions, to each Plan which is a defined
contribution plan (as defined in ERISA Section 3(34)) for
all prior plan years and for the current plan year through
the Closing Date.
3.14 Tax Returns and Taxes.
(a) All Tax Returns with respect to any Taxes have
been filed with the appropriate governmental agencies in
all jurisdictions in which such Tax Returns are required
to be filed, and all such Tax Returns properly reflect the
liabilities of Sellers and Shareholder for Taxes for
periods, property or events covered thereby.
(b) All Taxes, including without limitation, those
which are called for by the Tax Returns, or heretofore or
hereafter claimed to be due by any taxing authority from
Sellers or Shareholder, have been properly accrued or
paid.
(c) There are no Tax liens (other than any lien for
current Taxes not yet due and payable) on any of the
assets or properties of Sellers or Shareholder.
(d) Sellers and Shareholder have no Knowledge of any
basis for any additional assessment of any Taxes.
(e) Sellers and Shareholder have made all deposits
required by Law to be made with respect to employees'
withholding and other employment Taxes, including without
limitation the portion of such deposits relating to Taxes
imposed upon Sellers and Shareholder.
3.15 Authorizations. Sellers own, hold, possess or
lawfully use in the operation of the Business all
Authorizations which are necessary to conduct the Business
as now conducted or for the ownership and use of the
Acquired Assets, free and clear of all liens, charges,
restrictions and encumbrances and in material compliance
with all Laws. All such Authorizations are listed on
Schedule 3.15. Sellers are not in default, nor have they
received any notice of any claim of default, with respect
to any such Authorization. To the Knowledge of Sellers
and Shareholder, all such Authorizations are in full force
and effect and are renewable by their terms or in the
ordinary course of business without the need to comply
with any special qualification procedures or to pay any
amounts other than routine filing fees. Except as set
forth on Schedule 3.15, no notice to, declaration, filing
or registration with, or Authorization, consent or
approval of, or Authorization from, any governmental or
regulatory body or authority, or any other person or
entity, is necessary to be made or obtained by Sellers or
Shareholder in connection with the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated by the Agreement.
3.16 Patents, Trademarks, Licenses etc. Set forth on
Schedule 3.16 is a correct and complete list of: (a) all
domestic and foreign (i) patents and registered
trademarks, tradenames and service marks held, owned or
used by a Seller or Shareholder exclusively or primarily
in the Business, and (ii) patent, trademark, tradename and
service mark applications filed in connection with the
Business ((i) and (ii) collectively referred to herein as
the "Issued Rights and Applications"), (b) all license and
other agreements allowing a Seller or Shareholder to use
intellectual property rights of third parties in the
United States or foreign countries entered into by a
Seller or Shareholder exclusively or primarily for use in
the Business (the "License Agreements"), and (c) all other
individually identifiable Intellectual Property Rights
which are material to the Business. Except as set forth
on Schedule 3.16, (x) no other Intellectual Property
Rights are required or necessary for Sellers to conduct
the Business in the normal course in accordance with past
practice, (y) Sellers have and own all right, title and
interest in and to or have the right to use all of the
Intellectual Property Rights that are material to the
Business (including the exclusive right to use, sell,
license or dispose of such rights and to bring actions for
infringement thereof) free and clear of any claims, liens,
licenses or encumbrances and (z) no person or entity has a
right to receive a royalty or similar payment in respect
of any of the Intellectual Property Rights of the Sellers
relating exclusively or primarily to the Business. Sellers
and Shareholder have taken appropriate actions and made
appropriate applications and filings pursuant to
applicable federal and state law to perfect, protect and
maintain its interests in the Issued Rights and
Applications that are material to the Business. Except as
set forth in Schedule 3.16, neither Sellers nor
Shareholder have Knowledge of any infringements of, or
claims or assertions of infringement of, any of the
Intellectual Property Rights owned by a Seller, and no
Seller or Shareholder has taken or, to Sellers' and
Shareholder's Knowledge, omitted to take, any action which
would have the effect of waiving any of their respective
rights relating to any of such Intellectual Property
Rights that are material to the Business. There have been
no claims, and, to the Knowledge of Sellers and
Shareholder, there is no reasonable basis for any material
claim, challenging the scope, validity or enforceability
of any of the Intellectual Property Rights that are
material to the Business. To the Knowledge of Sellers and
Shareholder, the manufacture, sale or use of any products
now or heretofore manufactured or sold by the Business did
not and does not infringe (nor has any claim been made
that any such action infringes) the intellectual property
rights of others. Each of the License Agreements is in
full force and effect and there has occurred no default on
the part of a Seller which is continuing in respect of any
License Agreement.
3.17 Litigation and Proceedings. Except as set forth
on Schedule 3.17, there is no litigation, investigation,
arbitration or proceeding pending or, to the Knowledge of
Sellers and Shareholder, threatened against any of the
Sellers or the Shareholder or affecting the Business, the
result of which could materially adversely affect the
Business, the Acquired Assets or the transactions
contemplated hereby. There are presently pending no
outstanding judgments, decrees, orders or assessments of
fines or penalties of any court or any governmental or
administrative agency against or affecting the Acquired
Assets or the Business. Schedule 3.17 lists all fines
(civil and criminal), penalties, written claims (other
than short or long-term disability or medical claims),
actions, suits, settlement agreements, administrative or
arbitration proceedings or investigations completed and
any final order, writ, judgment, injunction, decree,
determination or other award of any court or any
governmental agency issued, which is related to the
Business or the Acquired Assets, from January 1, 1994 to
the date hereof, in each case to the extent that any one
of the foregoing items involves an amount in excess of
$10,000.
3.18 Compliance with Laws. Except as set forth on
Schedule 3.18, (a) the Business has been conducted in
compliance in all material respects with all applicable
Laws, whether federal, state, local or foreign, and (b)
Sellers and Shareholder are not in default under or in
violation of any Law promulgated by any governmental
agency having authority over them which default or
violation would have material adverse effect on the
Business or the Acquired Assets. No notice, citation,
summons or order has been issued and no investigation or
review is pending or, to the Knowledge of Sellers and
Shareholder, threatened by any governmental or other
entity with respect to any alleged violation by a Seller
or Shareholder of any such Laws with respect to the
Business or the Acquired Assets nor, to the Knowledge of
Sellers and Shareholder, is there any event or condition
presently existing which would reasonably be expected to
constitute a material default or violation. Sellers have
given to the employees listed on Schedule 3.22 any written
notice required by M.C.L.A. 423.506 and have complied with
M.C.L.A. 423.507 with respect to the release of
information from personnel records and have complied with
all other Laws with respect to the release of information
from personnel records.
3.19 Insurance Coverage. Set forth on Schedule 3.19
is a complete and correct list of all policies of
insurance relating to the Business, or covering any of the
Acquired Assets, indicating for each policy the carrier,
risks insured against, coverage limits, deductible
amounts, premium rate, expiration date, all outstanding
claims thereunder and whether the terms of such policy
provide for retrospective premium adjustments. All such
policies are outstanding and in full force and effect and
shall be kept in full force and effect by Sellers and
Shareholder through the Closing Date.
3.20 Contracts. Except as set forth on Schedule
3.20, none of the Sellers nor Shareholder is or currently
proposes to become a party to any of the following
exclusively or primarily relating to the Business:
(a) Contract involving the provision of
products and/or services by a Seller or Shareholder in
exchange for consideration of $10,000 or more;
(b) Contract to lease real or personal property
or;
(c) Any other Contract to be transferred or
assigned hereunder.
Except as set forth on Schedule 3.20, each of the
Contracts listed on Schedule 3.20 in response to this
Section under which Buyer is to acquire rights or
obligations hereunder is valid and enforceable in
accordance with its terms and sets forth in writing all
obligations of Sellers and Shareholder thereunder except
as otherwise arising by operation of Law; Sellers and
Shareholder are, and to the Knowledge of Sellers and
Shareholder all other parties thereto are, in compliance
in all material respects with the provisions thereof;
Sellers and Shareholder are not, and to their Knowledge no
other party thereto is, in default in the performance,
observance or fulfillment of any material obligation,
covenant or condition contained therein; and no event has
occurred which with or without the giving of notice or
lapse of time, or both, would constitute a default
thereunder. Except as set forth on Schedule 3.20, no
Contract described in Schedule 3.20 requires the consent
of any party to its assignment in connection with the
transactions contemplated hereby. True and complete
copies of all Contracts listed on Schedule 3.20 have been
delivered to Buyer.
3.21 Product Liability and Warranty Claims. Except
as set forth on Schedule 3.21, there are no liabilities of
or claims against a Seller or Shareholder and, to the
Knowledge of Sellers and Shareholder, no liabilities or
claims are threatened against a Seller or Shareholder,
with respect to any product liability (or similar claim)
of a Seller or Shareholder or product warranty (or similar
claim) of a Seller or Shareholder that relates to any
product manufactured or sold by a Seller or Shareholder in
the Business, except for standard warranty and maintenance
obligations made in the ordinary course of the Business to
purchasers of its products and services. To the Knowledge
of Sellers and Shareholder, there are no facts or
circumstances which might reasonably give rise to any such
material liabilities or claims, except for such standard
warranty and maintenance obligations.
3.22 Employee Relations. Except as set forth on
Schedule 3.22, no Seller or Shareholder is a party to any
labor agreement with respect to their respective employees
with any labor organization, union, group or association,
and no employee unions (nor any other similar labor or
employee organizations under local statutes, custom or
practice) exist or have existed during the past three
years covering employees of a Seller or Shareholder
engaged in the Business. In the past three years, except
as set forth on Schedule 3.22, Sellers and Shareholder
have not experienced and are not experiencing any attempt
by organized labor or its representatives to make a Seller
or Shareholder conform to demands of organized labor
relating to its employees or to enter into a binding
agreement with organized labor that would cover such
employees. Except as disclosed on Schedule 3.22, there is
no labor strike or labor disturbance pending or, to the
Knowledge of Sellers and Shareholder, threatened against a
Seller or Shareholder nor is any grievance currently being
asserted by any past or present employee, and in the past
five years, Sellers and Shareholder have not experienced a
work stoppage or other labor difficulty other than routine
grievances in the ordinary course of business which are no
longer pending. Except as set forth on Schedule 3.22
(including, without limitation, any equal employment or
similar claim), with respect to the employment of
employees engaged in the Business, Sellers and Shareholder
are in compliance in all material respects with all
applicable Laws respecting employment practices, terms and
conditions of employment and wages and hours and are not
engaged in any unfair labor practice. There is no unfair
labor practice charge or complaint against a Seller or
Shareholder pending or to the knowledge of Seller or
Shareholder, threatened before the National Labor
Relations Board or any other domestic or foreign
governmental agency with respect to employees engaged in
the Business and Sellers and Shareholder do not have any
Knowledge of any facts or information which would give
rise to any material such charge or complaint. To the
Knowledge of Sellers and Shareholder (but without the
obligation to conduct an independent investigation with
regard thereto), the services of all employees of Sellers
and Shareholder engaged in the Business and listed on
Schedule 3.22 will continue to be available for the
continuation of the Business after consummation of the
transactions contemplated hereby. Schedule 3.22 lists the
names, positions and current pay rates of all employees of
a Seller or Shareholder engaged exclusively or primarily
in the Business and a summary of all compensation paid to
such employees (including bonus and incentive
compensation, stated separately) for the fiscal year ended
May 31, 1996 and estimated for the current fiscal year.
3.23 Insider Interests. Except as set forth on
Schedule 3.23, (i) no officer or director of a Seller or
Shareholder has any interest in any property, real or
personal, tangible or intangible, including, without
limitation, the Intellectual Property Rights used in or
pertaining to the Business, (ii) no such person has any
business relationship with a Seller, except as an officer,
employee or director and except for Shareholder's rights
as a shareholder of Sellers, and (iii) none of the
Sellers, their officers and directors, Shareholder or its
officers and directors owns directly or indirectly or has
any controlling investment in any corporation or other
entity which is a competitor of or which does business,
directly or indirectly with the Business.
3.24 No Other Agreements to Sell the Acquired Assets.
Neither Sellers nor Shareholder have any commitment or
legal obligation, absolute or contingent, to any other
person or firm other than Buyer to sell, assign, transfer
or effect a sale of the Acquired Assets, to sell or effect
a sale of all or substantially all of the assets of a
Seller, to sell or effect a sale of a majority of the
capital stock of a Seller, to effect any merger,
consolidation or other reorganization of a Seller, or to
enter into any agreement or cause the entering into an
agreement with respect thereto.
3.25 Purchase Commitments and Outstanding Bids. All
accepted and unfulfilled orders for the sale of
merchandise or services entered into by a Seller or
Shareholder exclusively or primarily in the Business, and
the aggregate of all Contracts or commitments for the
purchase of merchandise or supplies by them exclusively or
primarily in the Business, were made in the ordinary
course of business consistent with past practice. Except
as set forth on Schedule 3.25, as of the date of this
Agreement, there are no claims against a Seller or
Shareholder to return merchandise by reason of alleged
overshipments, defective merchandise or otherwise, or of
merchandise in the hands of customers under an
understanding that such merchandise would be returnable.
Except as set forth on Schedule 3.25, there is no
outstanding bid, proposal, Contract or unfilled order
which relates to the Acquired Assets which is or would, if
accepted, reasonably be expected to result in a net loss
to a Seller or Shareholder. Except as reflected on
Schedule 3.25, Sellers and Shareholder have no prepayments
or deposits from customers for products to be shipped, or
services to be performed in the Business, by a Seller or
Shareholder after the Closing Date.
3.26 Customers, Distributors and Suppliers. Schedule
3.26 sets forth a complete and accurate list of the names
and addresses and nature of the relationship between a
Seller and (i) customers, distributors and other agents
and representa- tives of the Business with annual sales
greater than $100,000 during the fiscal year ended May 31,
1996, showing the approximate total sales in dollars by
Sellers and Shareholder to each such customer during such
fiscal year with respect to the Business; and (ii)
suppliers of the Business with purchases greater than
$100,000 during the fiscal year ended May 31, 1996,
showing the approximate total purchases in dollars by
Sellers and Shareholder from each supplier during such
fiscal year. Except as set forth on Schedule 3.26, since
May 31, 1996, there has been no material adverse change in
the business relationship of Sellers and Shareholder with
any customer, distributor or supplier named in Schedule
3.26. Except as set forth on Schedule 3.26, Sellers and
Shareholder have not received direct communication from
any customer, distributor or supplier named on Schedule
3.26 of any intention to terminate or materially reduce
purchases from or supplies to Sellers and Shareholder. As
a result of the transactions contemplated hereby, no
payment, penalty, or other similar obligation or
remuneration may or will be required to be made or paid by
Buyer or Sellers to any such customer, distributor, agent
or other representative under any of the Contracts being
assumed by Buyer as part of the Acquired Assets.
3.27 Payments. Neither the Sellers nor the
Shareholder has directly, nor has any current agent,
current representative or current employee of any of them
has, directly or indirectly, paid or delivered any fee,
commission or other sum of money or item or property,
however characterized, to any finder, agent, government
official or other party, in the United States or any other
country, which is in any manner related to the Business,
the Acquired Assets or the operations of Sellers and
Shareholder relating thereto, which is, or may be with the
passage of time or discovery, illegal under any federal,
state or local Law (including, without limitation, the
U.S. Foreign Corrupt Practices Act) or any other country
having jurisdiction; and Sellers and Shareholder have not
participated, directly or indirectly, in any boycotts or
other similar practices affecting any of its actual or
potential customers and Sellers and Shareholder have at
all times done business in an open and ethical manner.
3.28 Conduct of Business. The Acquired Assets and
the assets described in Section 1.1(b) hereto (with the
exception of Section 1.1(b)(vii)) are all of the assets
used exclusively or primarily by Sellers and Shareholder
to conduct the Business as currently being conducted.
3.29 Brokers and Finders. No Seller or Shareholder
has employed any broker or finder or incurred any
liability for any financial advisory fees, brokerage fees,
commissions or finders' fees, and no broker or finder has
acted directly or indirectly for a Seller or Shareholder,
in connection with this Agreement or the transactions
contemplated herein, except for Covington Associates,
whose fees shall be paid by Sellers and Shareholder.
3.30 Minutes. Sellers and Shareholder acknowledge
that Buyer had no opportunity to review the minute books
of Sellers or Shareholder prior to the Closing. Sellers
and Shareholder affirm that such minute books contain no
information that would be in any way inconsistent with the
representations and warranties made in this Article III.
3.31 Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED HEREIN, SELLERS AND SHAREHOLDER
DISCLAIM ALL WARRANTIES, EXPRESS, IMPLIED OR STATUTORY,
INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR
PURPOSE.
IV. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Sellers and
Shareholder as follows:
4.1 Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the
laws of the state of its incorporation. Buyer has all
requisite power and authority to own or lease its
properties and assets as now owned or leased and to carry
out its business as and where now being conducted. The
copies of Buyer's articles of incorporation and bylaws, as
amended to date, which have been delivered to Sellers and
Shareholder, are correct and complete and are in full
force and effect.
4.2 Authorization, Consent and Enforceability. The
execution, delivery and performance of the Buyer Documents
have been duly authorized by all necessary corporate and
shareholder action on the part of Buyer. Except as set
forth on Schedule 4.2, no authorization, approval or
consent of, and no registration or filing with, any
governmental or regulatory official, body or authority or
of any party to any material contract to which Buyer is a
party or to which any of its property or assets is
subject, is required for the execution, delivery and
performance of this Agreement and the other Buyer
Documents by Buyer. This Agreement and the other Buyer
Documents have been duly executed and delivered by Buyer
and constitute the legal, valid and binding obligation of
Buyer enforceable in accordance with their terms.
4.3 No Conflict or Violation. Neither the execution
nor the delivery of this Agreement or the other Buyer
Documents, nor the consummation by Buyer of the
transactions contemplated hereby or thereby, nor the
compliance with and fulfillment of the terms and
provisions hereof or thereof by Buyer will violate any
provision of the articles of incorporation or bylaws of
Buyer or violate, conflict with or result in a breach of
or constitute a default under, any term, condition, or
provision of (a) any existing Law to which Buyer is
subject, (b) any order, judgment, injunction, award or
decree of any court, arbitrator or governmental or
regulatory official, body or authority which is applicable
to Buyer, or (c) any material agreement or instrument to
which Buyer is a party or by which it is bound.
4.4 Shares Issued. The shares of Buyer's Common
Stock issued pursuant to this Agreement are duly
authorized and will, upon issuance in accordance with this
Agreement, be validly issued, fully paid and non-
assessable.
4.5 Brokers and Finders. Buyer has not employed any
broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or
finders' fees, and no broker or finder has acted directly
or indirectly for Buyer, in connection with this Agreement
or the transactions contemplated herein.
4.6 SEC Filings. (a) Buyer has filed all required
forms, reports and documents with the SEC since June 30,
1995 (collectively, the "SEC Reports"), all of which were
prepared in accordance with the applicable requirements of
the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder (the
"Securities Laws"). As of their respective dates (or, if
such SEC Report was amended, as of the date of such
amendment), the SEC Reports (i) complied as to form in all
material respects with the applicable requirements of the
Securities Laws and (ii) did not contain any untrue
statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make
the statements made therein, in light of the circumstances
under which they were made, not misleading. Each of the
consolidated balance sheets of Buyer included in or
incorporated by reference into the SEC Reports (including
the related notes and schedules) fairly presents the
consolidated financial position of Buyer on a consolidated
basis as of its date and each of the consolidated
statements of income, stockholders' equity and cash flows
of Buyer included in or incorporated by reference into the
SEC Reports (including any related notes and schedules)
fairly presents the results of operations, stockholders'
equity or cash flows, as the case may be, of Buyer on a
consolidated basis for the periods set forth therein
(subject, in the case of unaudited statements, to normal
year-end audit adjustments which would not be material in
amount or effect), in each case in accordance with
generally accepted accounting principles consistently
applied during the periods involved, except as may be
noted therein and except, in the case of the unaudited
statements, as permitted by the Securities Laws. All
registration statements filed by Buyer with the SEC since
its Common Stock became registered under the Securities
Laws complied as to form in all material respects with the
applicable requirements of the 1933 Act and the rules and
regulations promulgated thereunder. Buyer is, and will
use its reasonable best efforts to remain, during the
period required by the Registration Rights Agreement,
eligible to use Form S-3 to register, on behalf of the
Shareholder, the shares of Buyer's Common Stock issued
pursuant to this Agreement. There are currently 2,715,000
shares of Buyer Common Stock issued and outstanding.
(b) Buyer has furnished to Sellers and
Shareholder true and complete copies of (i) its Form 10-K
annual report for the year ended December 31, 1995, as
filed with the SEC, (ii) its notice of annual meeting of
shareholders and related proxy statement, dated May 30,
1996 as sent to shareholders for use in connection with
the 1996 annual meeting of shareholders, and (iii) its
Form 10-Q quarterly reports and any Form 8-K current
reports filed with the SEC subsequent to December 31,
1995.
4.7 Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND
WARRANTIES CONTAINED HEREIN, BUYER DISCLAIMS ALL
WARRANTIES, EXPRESS, IMPLIED OR STATUTORY.
V. POST-CLOSING OBLIGATIONS
5.1 Covenant Not to Compete; Nonsolicitation. Until
the third anniversary of the Closing Date, Sellers and
Shareholder shall not, (a) in any geographic location in
which Buyer currently does business or in which the
Business is currently conducted by a Seller or
Shareholder, engage or participate in or assist others in
engaging or participating in the network integration
business as an owner, general partner, controlling
shareholder of a privately-held corporation or shareholder
to the extent of five percent (5%) or more of the
outstanding shares of a publicly-held corporation, either
directly or indirectly, or (b) without Buyer's prior
written consent, which consent will not be unreasonably
withheld, directly or indirectly, solicit for employment,
hire as an employee, consultant or contractor or otherwise
engage any employee who was employed by a Seller or
Shareholder in connection with the operation of the
Business on the Closing Date or within six months prior to
the Closing Date. Notwithstanding the foregoing, nothing
shall restrict Sellers and Shareholder in any way from
pursuing opportunities relating to and conducting its
business that is not being sold to Buyer, principally its
CAD division.
5.2 Taxes.
(a) State Taxes. Except as otherwise provided in
this Agreement, Sellers and Shareholder shall comply with,
and pay all taxes, interest, and penalties as may be due
and unpaid under all state laws (including, without
limitation, the laws of Michigan, Massachusetts, North
Carolina and New York) for periods prior to the close of
business on the Closing Date and which relate to the
Business, the Acquired Assets or the employees of a Seller
or Shareholder engaged in the Business, including, without
limitation, the provisions of M.C.L.A. 205.27a, and IDI
shall deliver to the Buyer the receipt or certificate
contemplated under M.C.L.A. 205.27a from the applicable
Michigan taxing authority showing that such taxes,
including sales, use, withholding and single business tax,
interest, and penalties have been paid or are not due (the
"Michigan Tax Certificate").
(b) Unemployment Contributions; MESC Form 1027. IDI
has completed a Business Transferor's Notice to Transferee
of Unemployment Tax Liability and Rate ("MESC Form 1027")
and has delivered such MESC Form 1027 in accordance with
the provisions of M.C.L.A. 421.15(g) to Buyer at least two
(2) business days prior to the date hereof and such notice
is true and correct in all material respects. IDI shall
honor and make all applicable unemployment contributions
and interest due to the Michigan Employment Security
Commission (the "MESC") with respect to its employees
under all Michigan laws. Sellers and Shareholder shall
make all applicable unemployment contributions and
interest payments under all other applicable state Laws
(including, without limitation, the laws of North Carolina
and New York) and shall timely provide all certificates
and notices required under such Laws relating to
unemployment contributions, including, without limitation,
delivery to Buyer of a receipt or certificate showing that
such unemployment contributions and interest have been
paid or are not due, pursuant to N.C. Gen. Stat. 96-10.
(c) Sales or Transfer Taxes. Buyer and Sellers
shall each pay one-half of any and all transfer taxes and
transfer document recording fees, if any, assessed on or
applicable to the conveyance of personal property
hereunder.
5.3 Bulk Transfer Laws. Buyer hereby waives com
pliance by Sellers and Shareholder with the provisions of
any so-called "bulk transfer law" of any jurisdiction in
connection with the sale of the Acquired Assets to Buyer.
Sellers and Shareholder, jointly and severally, agree to
indemnify and hold harmless Buyer, in accordance with
Article VII of this Agreement, from and against any and
all liabilities that may be asserted by third parties
against Buyer as a result of noncompliance with any such
bulk transfer law except with respect to the Assumed
Liabilities.
5.4 Employee Matters.
(a) Employment Offer to Certain Employees. The
employment by Sellers of all of the employees listed on
Schedule 3.22 shall cease at the Closing and Buyer shall
simultaneously offer employment to such employees.
Effective as of the Closing, Buyer shall make available to
such employees the group medical and other welfare plans
(within the meaning of Section 3(1) of ERISA) as are
provided to Buyer's employees. Buyer shall waive any
preexisting condition restrictions and treat service time
with a Seller as service time with the Buyer for purposes
of determining eligibility and satisfying waiting period
requirements to participate in any such employee benefit
plans of Buyer. Nothing contained in this Agreement
shall confer upon any employee of a Seller or Shareholder
any right with respect to continuance of employment with
Buyer, nor shall anything herein interfere with the right
of Buyer to terminate the employment of an employee at any
time, with or without cause, or modify the terms and
conditions of the employment, if any, of any such
employee.
(b) Employee Benefit Plans. Buyer, Sellers and
Shareholder agree as follows with respect to the employee
benefit plans of Sellers and Shareholder:
(i) COBRA Benefits. Sellers and Shareholder
shall offer COBRA benefits, and will maintain Plans
necessary to provide such benefits for the periods
required by COBRA, to all of the employees of a Seller or
Shareholder engaged in the Business as and to the extent
required by COBRA.
(ii) Assumed Plans. Buyer shall not assume any
Plans of Sellers or Shareholder.
(iii) Multiemployer Plans. Buyer shall have no
obligation with respect to any multiemployer Plan or any
multiemployer welfare Plan. Buyer shall not assume any
liability or obligation with respect to any withdrawal
liability that may result from the sale of assets to Buyer
pursuant to this Agreement.
(c) Accruals for Vacation Pay, Bonuses, Etc. Buyer
shall provide to the employees listed in Schedule 3.22 the
benefits relating to the reserves transferred to Buyer
pursuant to Section 1.2(a)(ii).
(d) Obligations of Sellers and Shareholder.
Effective as of the Closing Date, except as otherwise
specifically provided in this Section 5.4 and in Section
1.2(a), Sellers and Shareholder shall retain the liability
for, and the responsibility for administration of, the
accumulated benefit obligations of the employees of
Sellers and/or Shareholder under all Plans of Sellers
and/or Shareholder, and Sellers and Shareholder shall
indemnify and hold harmless Buyer from and against all
such liabilities.
5.5 Third Party Consents. To the extent that rights
of Sellers under any Contract or other Acquired Asset to
be assigned to Buyer hereunder may not be assigned without
the consent of another person which has not been obtained,
this Agreement shall not constitute an agreement to assign
the same if an attempted assignment would constitute a
breach thereof or be unlawful, and Sellers and
Shareholder, at their expense, shall use their reasonable
best efforts to obtain any such required consent(s) as
promptly as possible; provided, that in use of their
reasonable best efforts under this Section 5.5, Sellers
and Shareholder will not be obligated to pay any
additional consideration or provide any guarantee in order
to obtain any consent, approval or waiver. If any such
consent shall not be obtained or if any attempted
assignment would be ineffective or would impair Buyer's
rights under the asset in question so that Buyer would not
in effect acquire the benefit of all such rights, Sellers
and Shareholder, to the maximum extent permitted by Law
and the asset, shall act after the Closing as Buyer's
agents in order to obtain for it the benefits thereunder
and cooperate with Buyer in any other reasonable
arrangement designed to provide such benefits to Buyer.
To the maximum extent permitted by Law and any Contract
for which such a consent or assignment shall not have been
obtained, Shareholder and Sellers agree to subcontract the
Contract to Buyer, and Buyer agrees to perform the
Contract in accordance with its terms.
5.6 Press Releases. Except as required by
applicable Law, no party to this Agreement shall give
notice to third parties or otherwise make any public
statement or releases concerning this Agreement or the
transactions contemplated hereby except for such written
information as shall have been approved as to form and
content by the other parties, which approval shall not be
unreasonably withheld.
5.7 Regulatory Filings; Financial Statements. The
parties hereto shall prepare and give or make any
necessary notices or filings under any other federal,
state or local Laws (including, without limitation,
reports on Form 8-K in accordance with the requirements of
the Securities Laws) that may be required in connection
with this Agreement and the transactions hereby
contemplated. Sellers and Shareholder, at their own cost,
as soon as reasonably practicable and in no event later
than fifty (50) days after the Closing Date, shall (a)
provide to Buyer such financial statements of the
Business, with a report thereon by the independent public
accountants of Shareholder, as are required by Rule 3-
05(b)(iv) of the SEC's Regulation S-X (or such shorter
period as may be required by Rule 3-05 as determined by
Buyer in good faith), and (b) use their reasonable best
efforts to obtain the consent of
Shareholder's independent public acountants to the use of
such financial statements and report in the Current Report
on Form 8-K to be filed by Buyer with the SEC.
5.8 Post-Closing Inventory Purchases and Sales.
Sellers and Shareholder represent that Schedule 5.8 is a
true, complete and correct list of the inventory of the
Business owned by and in the possession of the Sellers on
the Effective Date and, for each item of such inventory,
an amount representing the lower of Sellers' cost
(determined on a first in, first out basis) or market
value on a basis consistent with that reflected in the
Seller Financial Statements and the audited May 31, 1996
consolidated financial statements of Shareholder. Buyer
agrees that it will assist Sellers and Shareholder after
the Closing Date in liquidating the inventory listed on
Schedule 5.8. To this end, with respect to each purchase
order received by Buyer pursuant to the provisions of this
Agreement or after the Closing Date until all of the items
on Schedule 5.8 have been sold or have been returned to
vendors for credit, Buyer agrees to first determine
whether the corresponding items identified in the purchase
order are included on Schedule 5.8 and remain unsold or
unreturned by Sellers at such time, and if such is the
case and such items are in good and merchantable
condition, Buyer agrees to purchase from Sellers and
Sellers agree to sell to Buyer such items of Sellers'
inventory at a price equal to the amount for such item set
forth on Schedule 5.8 (f.o.b. Sellers' shipping point).
The purchase price for such items will be paid by Buyer in
cash no later than the fifth business day after such items
are shipped. In addition, Buyer agrees (a) to assist
Sellers and Shareholder in returning items of inventory
listed on Schedule 5.8 to vendors for credit; (b) to
cooperate with Sellers in good faith in their attempts to
arrange the sale or return of items which, after the
Closing Date, are no longer in good and merchantable
condition; (c) to provide Shareholder with a complete and
correct report of all shipments of such items on a bi-
weekly basis; (d) not to remove the inventory from its
current location except in connection with such shipments;
(e) to provide Shareholder with full access to such
inventory during regular business hours upon reasonable
advance notice; (f) to execute, at Shareholder's expense,
such documentation as may be reasonably requested by
Shareholder to acknowledge Sellers' ownership of such
inventory, including Uniform Commercial Code notice
filings; and (g) to the extent such inventory is in
Buyer's possession, to take reasonable care of the
inventory equivalent to the care Buyer takes with regard
to its own inventory. Sellers and Shareholder agree to
provide Buyer with an updated Schedule 5.8 on a bi-weekly
basis listing those items which continue to be available
for sale and are in good and merchantable condition, and
with such updated Schedule 5.8 shall separately list on a
supplemental schedule (x) items which have been shipped
pursuant to an order from Buyer since the most recent
report, (y) items which have been removed from Schedule
5.8 since the most recent report because they are no
longer in good and merchantable condition and (z) items
which are otherwise no longer available for sale since the
most recent report.
5.9 Current Litigation. Sellers and Shareholder
agree to continue the current litigation captioned
"Information
Decisions, Inc. vs. Robert L. Mock et al.", C.A. No. 96
83930-CK (State Of Michigan, Ingham County) (the
"Litigation"), to consult with Buyer on a regular basis
after the Closing Date regarding the status and progress
of such litigation and any related settlement negotiations
and to use their reasonable best efforts to obtain
preliminary injunctive relief in such case prohibiting
Robert Mock from directly or indirectly engaging in any
competing business transaction or relationship with the
State of Michigan or any of its offices, departments,
agencies or bureaus for a period of time to be mutually
determined and agreed upon by Shareholder, Sellers and
Buyer based upon the facts and circumstances known at the
time such determination is made. In the event Sellers and
Shareholder determine not to pursue the Litigation
further, Sellers and Shareholder agree promptly to assign
to Buyer for $1.00 their claims against the defendants for
breach of contract, breach of fiduciary duty, breach of
the common law obligation not to compete, misappropriation
of proprietary and confidential information, tortious
interference with contractual relationships, unjust
enrichment and any other claims for relief arising out of
the defendants' actions as described in the complaint,
dated July 1, 1996, filed with respect to such case.
5.10 Retention of Shares by Shareholder. Shareholder
agrees not to sell, assign, transfer, distribute or
otherwise dispose of the shares of Buyer's Common Stock
received at the Closing pursuant to Section 2.1 of this
Agreement except as provided in the Registration Rights
Agreement and Shareholder agrees to distribute such shares
at the time and in the manner provided in the Registration
Rights Agreement. After the Closing Date until the
earlier of three years from the date hereof or such time
as Shareholder shall have distributed or sold all such
shares (including any shares acquired from Buyer pursuant
to a stock split, stock dividend, recapitalization or
otherwise), Shareholder agrees not to (i) acquire
"beneficial ownership" (as such term is defined in Section
13(d) of the Securities Laws) of any shares of Buyer's
Common Stock other than from Buyer, (ii) participate in
any "solicitation" of "proxies" (as such terms are used in
the proxy rules of the SEC) to vote any voting securities
of Buyer; (iii) form, join or participate in a "group" (as
defined in the Securities Laws) or otherwise act, alone or
in concert with others, to seek to control or influence
the management, Board of Directors or policies of Buyer;
(iv) vote such shares other than in the same manner and
proportion (whether for, against or abstaining on any
proposal) as the other shareholders of Buyer vote shares
with respect to any matter submitted to the shareholders
of Buyer (or, if the board of directors of Shareholder
determines in good faith that its fiduciary duties so
require, not to vote such shares in any manner on such a
proposal); or (v) transfer voting rights with respect to
such shares.
5.11 Change in Name. Not later than the 15th day
following the Closing Date, SCI shall make such filings
and pay such fees as are required to change its corporate
name on the date of such filing to another name bearing no
similarity to "System Constructs, Inc.", including but not
limited to a charter amendment filed with the New York
Secretary of State and an appropriate name change notice
for each state where SCI is qualified to do business. After
the Closing Date, neither Sellers nor Shareholder shall do
business as, or use in the conduct of any of their
businesses or otherwise, the foregoing name or any similar
name.
5.12 Nasdaq Filing. Not later than the fifth
business day following the Closing Date, Buyer shall file
with the Nasdaq Stock Market the required notice of
issuance of the shares of Buyer's Common Stock pursuant to
this Agreement.
VI. CLOSING
6.1 Closing Date. The closing of the transactions
contemplated by this Agreement (the "Closing") shall take
place at the offices of Dykema Gossett PLLC, 400
Renaissance Center, Detroit, Michigan 48243, at the time
and date this Agreement is signed (such time and date
being herein called the "Closing Date").
6.2 Transactions to be Effected at the Closing. At
the Closing:
(a) Sellers and Shareholder shall deliver to Buyer:
(i) a duly executed Bill of Sale and such other
assignments or instruments of conveyance (including,
without limitation, those described in Sections 1.1(a) and
3.16) sufficient to convey to Buyer outright ownership of
the Acquired Assets (to the extent such Acquired Assets
are capable of being owned), free and clear of all liens,
claims and encumbrances except as set forth on Schedule
3.10 as of the Closing Date in form and substance
reasonably satisfactory to Buyer and its counsel;
(ii) an opinion of Goodwin, Procter & Hoar LLP,
counsel to Sellers and Shareholder, in form and substance
of that attached hereto as Exhibit C;
(iii) certificates from each lessor of any
leased real property listed in Schedule 3.11 consenting to
the assignment of such lease to Buyer;
(iv) a duly executed Registration Rights
Agreement;
(v) a Michigan Tax Certificate;
(vi) a duly executed IDI License;
(vii) a true and complete electronic (i.e.
floppy disk) copy of all electronic records and data owned
or used by a Seller or Shareholder relating primarily or
exclusively to the Business or the Acquired Assets (except
that no personnel records pertaining to disciplinary
reports, letters of reprimand or other records of
disciplinary action which are dated more than four years
prior to the date hereof
shall be delivered);
(viii) a true and complete copy of all personnel
records relating to the employees listed on Schedule 3.22
(provided that no personnel records pertaining to
disciplinary reports, letters of reprimand or other
records of disciplinary action dated more than four years
prior to the date hereof shall be delivered);
(ix) written assignments in recordable form of
all Issued Rights and Applications, if any;
(x) an opinion of Kleinburg, Kaplan, Wolff &
Cohen, P.C. in the form attached hereto as Exhibit H;
(xi) an opinion of May, Simpson & Strote in the
form attached hereto as Exhibit I; and
(xii) such other documents as Buyer or its
counsel may reasonably request to demonstrate satisfaction
of the conditions and compliance with the agreements set
forth in this Agreement.
(b) Buyer shall deliver to Sellers and Shareholder:
(i) the payment of the Purchase Price as
provided in Section 2.2;
(ii) an appropriately executed Assumption
Agreement, IDI License and Registration Rights Agreement;
(iii) an opinion, dated the Closing Date, from
Dykema Gossett PLLC, counsel for Buyer, in form and
substance of that attached hereto as Exhibit D;
(iv) a letter from the Pacific Stock Exchange
approving the listing of the shares of Buyer's Common
Stock to be issued pursuant to Section 2.1 of this
Agreement; and
(v) such other documents as Sellers or
Shareholder or their counsel may reasonably request to
demonstrate satisfaction of the conditions and compliance
with the agreements set forth in this Agreement.
6.3 Further Assurances. (a) Sellers and Shareholder
from time to time after the Closing, at Buyer's request,
will execute, acknowledge and deliver to Buyer such
otherinstruments of conveyance and transfer, and will take
such other actions (including, without limitation, the
institution and prosecution of legal proceedings) and
execute and deliver such other documents, certifications
and further assurances, as Buyer may reasonably require in
order to vest more effectively in Buyer, or to put Buyer
more fully in possession of, any of the Acquired Assets,
or to better enable Buyer to complete, perform or
discharge any of the Assumed Liabilities. Each of the
parties hereto will cooperate with the other and execute
and deliver to the other parties hereto such other
instruments and documents and take such other actions as
may be reasonably requested from time to time by any other
party hereto as necessary to carry out, evidence and
confirm the intended purposes of this Agreement.
(b) Sellers and Shareholder agree to retain (i)
all books of account, general, financial and accounting
records, files, invoices, customers and suppliers lists,
and all other data owned or used by a Seller or
Shareholder relating to the Business or the Acquired
Assets, and (ii) all tax returns, related schedules and
workpapers, and all records and other documents relating
thereto (collectively, the "Tax Documents") until the
fifth anniversary of the date hereof, or, with respect to
the Tax Documents, until the expiration of the applicable
statute of limitations (including extensions). Sellers
and Shareholder will afford duly authorized employees and
representatives of Buyer free and full access during
regular business hours to all such records and will permit
such employees and representatives to make abstracts from
or to take copies of any such records or to obtain
temporary possession of any such records, all as may be
reasonably required by Buyer.
(c) After the Closing, Buyer agrees to make
available to Shareholder and Sellers the field service and
system engineers of the Business to provide services in
connection with implementations occurring prior to the
date hereof at Buyer's standard rates for such employees.
VII. INDEMNIFICATION
7.1 Indemnification By Sellers and Shareholder.
Sellers and Shareholder hereby, jointly and severally,
shall indemnify and hold harmless Buyer and its officers,
directors, employees, shareholders, agents and affiliates
from and against any and all claims, liabilities,
obligations, losses, costs, expenses (including without
limitation, reasonable legal, accounting and similar fees
and expenses), litigation, proceedings, fines (civil or
criminal), taxes, levies, imposts, duties, deficiencies,
assessments, charges, penalties, allegations, demands,
damages (including but not limited to direct, incidental
and actual punitive damages foreseen or unforeseen, known
or unknown, fixed or contingent, and matured or
unmatured), civil and criminal violations of law,
settlements and judgments of any kind or nature whatsoever
(individually a "Loss" and collectively "Losses"), which
any of them may incur arising out of any one or more of
the following:
(a) any breach of any representation or
warranty of a Seller or Shareholder contained in this
Agreement or the other Seller Documents for which a Notice
is given pursuant to Section 7.3 within the period set
forth in Section 7.4;
(b) any breach or violation of any of the
covenants made by a Seller or Shareholder in this
Agreement;
(c) any and all liabilities of a Seller or
Shareholder of any nature, whether due or to become due,
whether accrued, absolute, contingent or otherwise,
existing on the Closing Date or arising out of any
transactions entered into, or any state of facts existing,
on or prior to such date, except the Assumed Liabilities;
(d) any litigation, claim or proceeding
relating
to (x) the conduct of the Business by a Seller or
Shareholder on or prior to the Closing Date, or (y) the
ownership, use and possession of the Acquired Assets in
the conduct of the Business on or prior to the Closing
Date;
(e) the operations of Sellers and Shareholder
prior to the Closing Date and not related to the Business;
(f) any actions, judgments, costs and expenses
(including reasonable attorneys' and accountants' fees and
all other expenses incurred in investigating, preparing or
defending any litigation or proceeding, commenced or
threatened) incident to any of the foregoing or the
enforcement of this Section 7.1;
(g) any liabilities arising out of
noncompliance with any bulk transfer or other similar
laws; and
(h) any outstanding claims against the lessee
under any lease assigned to the Buyer in connection with
this Agreement, any outstanding defaults or events which,
but for the giving of notice or the passage of time, or
both, would constitute defaults and the failure of the
copy of each such lease provided to Buyer to be a true,
accurate and complete copy of such lease.
7.2 Indemnification by Buyer. Buyer hereby agrees
to indemnify and hold harmless Sellers and Shareholder
from and against all Losses which any of them may incur
arising out of any one or more of the following:
(a) any breach of any representation or
warranty of Buyer contained in this Agreement or the other
Buyer Documents for which a Notice is given pursuant to
Section 7.3 within the period set forth in Section 7.4;
(b) any breach or violation of any of the
covenants made by Buyer in this Agreement;
(c) any actions, judgments, costs and expenses
(including reasonable attorneys' fees and all other
expenses incurred in investigating, preparing or defending
any litigation or proceeding commenced or threatened)
incident to any of the foregoing or the enforcement of
this Section 7.2;
(d) the Assumed Liabilities;
(e) any litigation, claim or proceeding
relating to (x) the conduct of the Business by Buyer after
the Closing Date, or (y) the ownership, use and possession
of the Acquired Assets in the conduct of the Business
after the Closing Date; and
(f) the operations of Buyer after the Closing
Date and not related to the Business.
7.3 Claims. If either party desires to make a claim
against the other under Sections 7.1 or 7.2 hereof which
does not involve a claim by any person other than the
parties, then such party shall make such claim by promptly
delivering Notice to the other. If either party (the
"Claimant") desires to make a claim for indemnity against
the other (the "Indemnitor") under this Agreement which
involves a demand, claim or threat of litigation or the
actual institution of any action, suit or proceeding
(collectively, a "Claim") by a person other than the
parties, then such Claim will be made in the following
manner and be subject to the following terms and
conditions unless otherwise provided for in this
Agreement:
(a) Notice. The Claimant will give prompt
Notice (and, if served with a complaint, not later than
seven days after such service) to the Indemnitor of any
Claim at any time served on or instituted against the
Claimant with respect to which the Claimant believes it
would have a right of indemnification under this
Agreement, setting forth in reasonable detail the facts
relating to such claim and the basis for its alleged right of
indemnification under this Agreement; provided, that failure to give
Notice as provided above shall not relieve Indemnitor of
its obligations under this Article VII except to the
extent Indemnitor is actually prejudiced thereby. In
providing such Notice, the Claimant shall only state the
existence of such Claim and shall not admit or deny the
validity of the facts or circumstances out of which such
Claim arises. Solely for purposes of determining whether
the Claimant is entitled to indemnification under this
Agreement, the alleged facts or circumstances on which
such Claim is based shall be deemed to be true.
(b) Responsibility for Defense. Within thirty
(30) days after receipt of any such Notice, but not less
than five (5) business days prior to the time the Claimant
is required to respond to a Claim (subject to the proviso
contained in Section 7.3(a)), the Indemnitor will, by
giving written notice to the Claimant, have the right to
assume responsibility for the defense of the Claim in the
name of the Claimant or otherwise as the Indemnitor may
elect; provided, however, that the Indemnitor's
determination to conduct the defense of a Claim shall in
no way be deemed a conclusive admission of an obligation
to indemnify hereunder. Otherwise, the Claimant will have
responsibility for the defense of the Claim. Subject to
the provisions of subsections (c) and (d) below, the party
having responsibility for defense of a Claim (the
"Defending Party") will have the full authority to defend,
cure, adjust, compromise, or settle such Claim or appeal
any judgment or ruling of a court or other tribunal in
connection with such Claim in its own name and/or in the
name of the other party.
(c) Right to Participate. Notwithstanding a
Defending Party's responsibility for the defense of a
Claim, the other party shall have the right to
participate, at its own expense and with its own counsel,
in the defense of a Claim and the Defending Party will
consult with the other party from time to time on matters
relating to the defense of such Claim. The Defending
Party shall provide the other party with copies of all
pleadings and material correspondence relating to such
Claim.
(d) Settlement. A Defending Party will provide
the other party with timely written notice of any proposed
adjustment, compromise, or other settlement, including
equitable or injunctive relief, of a Claim which the
Defending Party intends to propose or accept. If the other
party fails to provide the Defending Party with timely
written notice of objection to such settlement, then the
Defending Party shall have the authority to propose or
accept such settlement and enter into any agreement, in
its own name and/or in the name of the other party, giving
legal effect to all aspects of such settlement. If the
other party objects to such settlement, then the Defending
Party may, if it so elects, tender the defense to the
other party by paying to such other party the amount of
money proposed to be paid in settlement of the Claim, in
which case the Defending Party shall have no further
liability to the other party hereunder with respect to
such Claim and the other party shall have full authority
for the future defense of such Claim and full
responsibility for any and all liabilities, obligations,
costs and expenses resulting therefrom.
7.4 Survival. The representations and warranties of
each party contained in this Agreement shall survive the
Closing Date until June 30, 1997. Any claim for indemnity
under Sections 7.1(a) or 7.2(a) shall be asserted within
the foregoing period, except that any claim relating to
Taxes may be asserted until the 60th day after the running
of the applicable statute of limitations with respect to
the taxable period to which the particular claim relates
and except that no time limitation applies to Losses
relating to Assumed Liabilities or Excluded Liabilities.
7.5 Limitations on Indemnification by Sellers
and Shareholder. Notwithstanding the foregoing Section
7.1, the right of the Buyer to indemnification under
Section 7.1 shall be subject to the following provisions:
(a) No indemnification shall be payable to
Buyer by a Seller or Shareholder pursuant to Section 7.1
unless the total of all Losses for which indemnification
is or has been claimed pursuant to Section 7.1 shall
exceed $47,000 in the aggregate (whereupon Buyer will be
entitled to indemnification from and against all Losses
relating back to the first dollar).
(b) No indemnification shall be payable to the
Buyer pursuant to Section 7.1 for Losses in excess of
$1,500,000 in the aggregate (exclusive of Losses relating
to Excluded Liabilities and the failure of Sellers and
Shareholder to comply with applicable bulk sales laws, as
to which there shall be no such limitation and which shall
not be counted toward such limitation).
7.6 Mitigation of Losses. A Claimant shall be
entitled to recover the full amount of any Losses incurred
due to the matter for which indemnification is sought,
including reasonable attorney's fees incurred in
connection therewith, but any recovery shall be net of any
economic benefit to which the Claimant is entitled due to
such Losses, including, without limitation, (a) any tax
refund reduction or benefit, (b) any insurance proceeds
(excluding self-insured amounts and deductible amounts)
and (c) any warranty reimbursements. Notwithstanding the
foregoing, insurance proceeds to which a Claimant may be
entitled shall not reduce the Losses recoverable from the
Indemnifying Party if the Claimant shall determine, in
good faith, that filing a claim therefore would be likely
either to result in (x) a significant increase in the
premiums payable with respect to the continuation of such
insurance coverage or (y) the cancellation of the
applicable policy.
7.7 Remedies. The rights and remedies of each party
hereto arising by reason of the breach of any
representation or warranty, or the default in any
covenant, condition or undertaking by any other party
hereto, shall be limited to those set forth in this
Agreement, provided that any party may seek specific
performance or other equitable relief with respect to the
breach or default in any covenant, undertaking or
agreement by the other party hereto.
VIII. GENERAL
8.1 Arbitration. Subject to Section 2.2(c), in the
event that the parties are unable to agree on any matter,
including any controversy arising out of or relating to
this Agreement, the unresolved matter shall be resolved by
arbitration if a request for arbitration, as provided
herein, is given. Arbitration shall be initiated by one
party's making a written demand on the other party and
simultaneously filing copies of said written demand with
the American Arbitration Association ("AAA") in the county
in which the respondent in such arbitration resides.
Within ten (10) business days after receipt of such
written demand, each party shall designate one arbitrator.
These two arbitrators shall, within ten (10) business days
after their appointment, select a third arbitrator. In
the event that the first two arbitrators are unable to
agree upon a third arbitrator, then the arbitrators shall
apply to the AAA to designate and appoint the third
arbitrator. In the event the party upon whom the original
arbitration demand was served shall fail to designate its
arbitrator within the ten (10) business day period, the
arbitrator designated by the party requesting arbitration
shall act as the sole arbitrator and shall be deemed to be
the single, mutually approved arbitrator to resolve the
matter. The arbitrator shall cause a hearing to be held
within sixty (60) calendar days after a party gives notice
of its intention to arbitrate and shall render an award
within ninety (90) calendar days of such notice.
The place of arbitration shall be the county in which
the respondent resides. Arbitration shall be conducted
under the auspices of the AAA, and the AAA Rules shall
govern all proceedings unless otherwise provided herein.
In case of conflict between the AAA Rules and this
Agreement, the provisions of this Agreement shall govern.
The parties shall have the right of discovery in
accordance with the Federal Rules of Civil Procedure
except that discovery may commence immediately upon the
service of the demand for arbitration. A party's
unreasonable refusal to cooperate in discovery shall be
deemed to be refusal to proceed with arbitration, and,
until the arbitration panel is complete, the parties may
enforce their rights (including the right of discovery) in
the circuit courts of the county in which the respondent
resides. Such enforcements in the courts shall not
constitute a waiver of a party's right to arbitration.
Upon the completion of the appointment of the arbitration
panel, the arbitrators shall have the power to enforce the
parties' discovery rights. It is expressly agreed that
material subject to discovery shall include written
documents that must be created from information that
currently exists only in machine-readable form.
The fees and expenses of arbitration (including
reasonable attorneys' fees) shall be paid by the party
that does not prevail on all issues presented in the
arbitration proceeding; provided that if neither party
shall prevail on all issues presented to the arbitrators,
then the arbitrators shall allocate such fees and expenses
in accordance with each party's pro rata share, based on
the extent to which each party prevailed on the issues
presented. The parties expressly covenant and agree to be
bound by the decision of the arbitration panel and accept
any such decision as the final determination of the matter
in dispute. A judgment of any court with proper
jurisdiction may be rendered upon any award, which award
may include equitable relief, made pursuant to this
Agreement. In no event shall any demand for arbitration be
made after the date that institution of legal or equitable
proceedings based upon the claims, dispute or other matter
would be barred by the applicable statute of limitations
or otherwise barred by this Agreement.
8.2 Exhibits and Schedules. All exhibits and
schedules referred to herein are intended to be and hereby
are specifically made a part of this Agreement.
References to the Agreement herein shall be construed as
references to the Agreement together with all exhibits and
schedules.
8.3 Amendment. This Agreement may not be amended
except by an instrument in writing signed on behalf of
each of the parties hereto.
8.4 Extension; Waiver. The parties hereto may (a)
extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b)
waive any inaccuracies in the representations and
warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive
compliance by the other party with any of the agreements
or conditions contained herein. Any agreement on the part
of a party hereto to any such extension or waiver shall be
valid if set forth in an instrument in writing signed on
behalf of such party.
8.5 Entire Agreement; No Third Party Beneficiaries.
This Agreement (a) constitutes the entire Agreement
between the parties pertaining to the subject matter
hereof and supersedes all prior and contemporaneous
agreements, understandings, negotiations and discussions,
whether oral or written, of the parties, and (b) is not
intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
8.6 Choice of Law. This Agreement shall be governed
by, construed, interpreted and the rights of the parties
determined in accordance with the Laws of the State of
Michigan without giving effect to any choice or conflict
of law provision or rule that would cause the application
of the Laws of any jurisdiction other than the State of
Michigan.
8.7 Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if
delivered personally or mailed by registered or certified
mail, postage prepaid, return receipt requested (such
mailed notice to be effective on the date such receipt is
acknowledged) as follows:
If to Buyer, addressed to:
Data Systems Network Corporation
34705 W. 12 Mile Road, Suite 300
Farmington Hills, Michigan 48331
Attention: President
With a copy to:
Dykema Gossett PLLC
400 Renaissance Center
Detroit, Michigan 48243-1668
Attention: Aleksandra A. Miziolek, Esq.
If to a Seller or Shareholder, addressed
to:
c/o Information Decisions,
Incorporated 3260 Eagle Park Drive, N.E.
Grand Rapids, MI 49505
Attention: President
With a copy to:
Goodwin, Procter & Hoar LLP Exchange Place
Boston, Massachusetts 02109-2881
Attention: Jeffrey D. Plunkett, Esq.
or to such other place and with such other copies as either
party may designate as to itself by written notice to the
others.
8.8 Counterparts; Headings. This Agreement may be
executed in one or more counterparts, each of which shall be
deemed an original, but all of which together shall
constitute one and the same instrument. The headings of the
several Articles and Sections herein are inserted for
convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this
Agreement.
8.9 Expenses. Regardless of whether the transactions
contemplated hereby are consummated, each party hereto shall
pay its or their own expenses incident to this Agreement and
all action taken in preparation for carrying this Agreement
into effect.
8.10 Successors and Assigns. This Agreement, and all
rights and powers granted hereby, will bind and inure to the
benefit of the parties hereto and their respective
successors and assigns.
8.11 Severability. If at any time subsequent to the
date hereof, any provision of this Agreement shall be held
by any court of competent jurisdiction to be illegal, void
or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such
provision shall have no effect upon and shall not impair the
enforceability of any other provision of this Agreement.
8.12 Reference to Sellers; IDI as Agent. For purposes
of this Agreement, all references to Sellers shall include
references to both IDI and SCI and each representation,
warranty, covenant and other obligation of Sellers shall be
deemed to be a representation, warranty, covenant or
obligation of both IDI and SCI, jointly and severally.
Whenever any action is to be taken or withheld by Sellers,
or notice or other document is to be delivered to Sellers,
it shall be deemed taken or withheld and such delivery is
deemed to have been given if taken, withheld by or given to
IDI.
IN WITNESS WHEREOF, the parties have executed this
Agreement as of the date first above written.
DATA SYSTEMS NETWORK CORPORATION
By: Michael W. Grieves
Its: Chairman, President and
Chief Executive Officer
INFORMATION DECISIONS, INCORPORATED
By: Joseph P. Mullaney
Its: Vice President and
Chief Financial Officer
SYSTEM CONSTRUCTS, INC.
By: Joseph P. Mullaney
Its:Vice President and
Chief Financial Officer
SOFTECH, INC.
By: Norman Rasmussan
Its: President and Chief Executive Officer
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement")
is made and entered into as of September 12, 1996 by Data
Systems Network Corporation, a Michigan corporation (the
"Company"), and SofTech, Inc., a Massachusetts corporation
("SofTech"), for itself and on behalf and for the benefit of
its successors, assigns, distributees and transferees
(collectively, the "Holders" and each a "Holder").
WHEREAS, the Company is a party to a certain Asset
Purchase Agreement (the "Asset Purchase Agreement"), of even
date herewith, with SofTech, Information Decisions,
Incorporated ("IDI"), a Michigan corporation, and System
Constructs, Inc. ("SCI"), a New York corporation;
WHEREAS, as part of the purchase price for the assets
to be acquired pursuant to the Asset Purchase Agreement, the
Company will issue to SofTech 540,000 shares (the "Shares")
of its Common Stock, $.01 par value (the "Common Stock");
WHEREAS, SofTech intends to distribute the Shares at
the time and in the manner provided in this Agreement;
WHEREAS, in order to induce SofTech, IDI and SCI to
enter into the Asset Purchase Agreement, the Company has
agreed to provide certain registration rights to the Holders
with respect to the Shares;
NOW, THEREFORE, the Company for the benefit of the
Holders agrees as follows:
Section 1. Definitions.
As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
Advice: As set forth in Section 4(d).
Cut-Off Period: As set forth in Section 2(c).
Division: The Division of Corporation Finance of the
SEC.
Exchange Act: The Securities Exchange Act of 1934, as
amended from time to time.
Favorable No-Action Letter: As set forth in Section
2(a)(1).
Holder: As set forth in the preamble.
Holder's Questionnaire: A questionnaire in the form
attached hereto as Exhibit A.
Majority Holders: At any time, Holders of Registrable
Securities who would then hold a majority of the Registrable
Securities.
NASD: The National Association of Securities Dealers, Inc.
No-Action Request: As set forth in Section 2(a)(1).
Person: Any individual, partnership, corporation,
trust or other entity.
Public Registration Event: As set forth in Section
2(a)(2).
Prospectus: A prospectus included in the Shelf
Registration Statement, including any preliminary
prospectus, and any such prospectus as amended or
supplemented by any prospectus supplement with respect to
the terms of the offering of any portion of the Registrable
Securities covered by the Shelf Registration Statement, and
by all other amendments and supplements to such prospectus,
including post-effective amendments, and in each case
including all material incorporated by reference therein.
Registrable Securities: The Shares, excluding Shares
which have been sold or otherwise disposed of under the
Shelf Registration Statement.
Registration Expenses: Any and all expenses incident
to performance of or compliance with this Agreement,
including, without limitation: (i) all SEC, stock exchange
or NASD registration and filing fees, (ii) all fees and
expenses incurred in connection with compliance with state
securities or blue sky laws (including reasonable fees and
disbursements of counsel in connection with blue sky
qualification of any of the Registrable Securities and the
preparation of a Blue Sky Memorandum) and compliance with
the rules of the NASD, (iii) all expenses of any Persons in
preparing or assisting in preparing, word processing,
printing and distributing the Shelf Registration Statement,
Prospectus, certificates and other documents relating to the
performance of and compliance with the Agreement, (iv) all
fees and expenses incurred in connection with the listing,
if any, of any of the Registrable Securities on any
securities exchange or exchange pursuant to Section 3(h)
hereof, and (v) the fees and disbursements of counsel for
the Company and of the independent public accountants of the
Company, including the expenses of any special audits or
"cold comfort" letters, if any, required by or incident to
such performance and compliance. Registration Expenses shall
specifically exclude underwriting discounts and commissions,
brokerage or dealer fees, the fees and disbursements of
counsel, accountants or other representatives of a selling
Holder, and transfer taxes, if any relating to the sale or
disposition of Registrable Securities by such Holder, all of
which shall be borne by such Holder in all cases.
Registration Notice: As set forth in Section 2(c)(ii)
hereof.
Rule 144: Rule 144 promulgated under the Securities
Act, as such rule may be amended from time to time.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended
from time to time.
Shareholder Registration Event: As set forth in
Section 2(a)(2)(iii).
Shares: As set forth in the recitals.
Shelf Registration: A registration required to be
effected pursuant to Section 2 hereof.
Shelf Registration Statement: A "shelf" registration
statement of the Company and any other entity required to be
a registrant with respect to such shelf registration
statement pursuant to the requirements of the Securities Act
which covers all of the Registrable Securities on an
appropriate form under Rule 415 under the Securities Act, or
any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement,
including post-effective amendments, in each case including
the Prospectus contained therein, all exhibits thereto and
all materials incorporated by reference therein.
SofTech Registration Event: As set forth in Section
2(a)(2)(ii).
Suspension Notice: As set forth in Section 4(d).
Section 2. Shelf Registration Under the Securities
Act.
(a)(1) Filing of No-Action Request. As soon as
practicable and not later than the 30th day after the date
of this Agreement, the Company shall cause to be filed with
the SEC, on behalf of itself and SofTech, a request for a
"noaction" letter from the Division (the "No-Action
Request") stating that it will not recommend enforcement
action if SofTech distributes the Shares pro rata to its
shareholders as a dividend without registration under the
Securities Act and that the Shares received by SofTech
shareholders will not be "restricted securities" within the
meaning of Rule 144 (a "Favorable No-Action Letter"). The
cost of preparing the No-Action Request will be borne
equally by the Company and SofTech. The parties agree to
respond to any requests from the Division for additional
information as promptly as reasonably possible so as to
expedite the Division's response to the No-Action Request to
the extent practicable. To that end, the parties will
promptly and fully inform each other of correspondence with
the Division, whether written or oral, concerning the No-
Action Request. Promptly following the filing of the No-
Action Request, the Company agrees to begin preparation of
the Shelf Registration Statement; provided, that the Company
shall not be required to file the Shelf Registration
Statement with the SEC or any other regulatory authority
unless and until required to do so pursuant to Section
2(a)(2).
(2) Filing of Shelf Registration Statement;
Distribution of Shares. The Company's obligation to file a
Shelf Registration Statement and SofTech's obligation to
distribute the Shares shall be determined in accordance with
clauses (i), (ii), (iii), (iv) and (v) below. The Company's
obligation to file a Shelf Registration Statement shall also
be subject to Sections 2(c) and 4 hereof.
(i) Upon receipt of a Favorable No-Action Letter
from the Division, the parties to this Agreement shall have
no further obligation under this Agreement, except that (A)
SofTech shall promptly distribute the Shares pro rata to its
shareholders and (B) the parties shall pay bear the costs of
preparing the No-Action Request and pay the Registration
Expenses and other expenses in accordance with Sections
2(a)(1) and 2(b). If the Division indicates in writing that
it will not recommend enforcement action if SofTech
distributes the Shares pro rata to its shareholders as a
dividend without registration under the Securities Act, an
opinion of counsel shall not be required to be delivered
pursuant to Section 3.8 of the Asset Purchase Agreement or
otherwise in connection with such distribution.
(ii) If, after the No-Action Request is filed, (A)
the Division determines not to issue a Favorable No-Action
Letter and indicates that it is unable to concur that the
proposed distribution by SofTech would not involve a sale
within the meaning of Section 2(3) of the Securities Act,
or (B) the Company withdraws the No Action Request or (C) the
Division fails to make any determination with respect to the
No-Action Request within a period of 60 days after the filing of
the No-Action Request ((A), (B) and (C) are referred to herein as a
"SofTech Registration Event"), then not later than (x) the earlier of
(I) the 30th day after the earlier of the Company's receipt
of written notice of such determination in (A) above or the
withdrawal by the Company of the No-Action Request or (II)
the 75th day after the date the No-Action Request is filed,
or (y) the 14th day after the Company's receipt of a
Holder's Questionnaire from SofTech, whichever is later, the
Company shall cause to be filed with the SEC a Shelf
Registration Statement on behalf of SofTech registering the
pro rata distribution of the Shares by SofTech to its
shareholders in accordance with the terms hereof and will
use its reasonable best efforts to cause such Shelf
Registration Statement to be declared effective by the SEC
as soon as reasonably practicable. Promptly after the Shelf
Registration Statement has been declared effective by the
SEC and SofTech has been notified by the Company that the
Registrable Securities have been registered or qualified, or
are exempt from registration or qualification, in each state
in which a shareholder of record of SofTech on the record
date for such distribution resides, SofTech shall distribute
the Shares pro rata to its shareholders.
(iii) If, after the No-Action Request is
filed, the Division determines not to issue a Favorable No
Action Letter and indicates that although it will not
recommend enforcement action if SofTech distributes the
Shares pro rata to its shareholders as a dividend without
registration under the Securities Act, it does not concur
that the Shares received by SofTech shareholders will not be
"restricted securities" within the meaning of Rule 144 (a
"Shareholder Registration Event"), then not later than (x)
the 30th day after the Company's receipt of written notice
of such determination or (y) the 14th day after the
Company's receipt of Holder's Questionnaires from the
Majority Holders, whichever is later, the Company shall
cause to be filed with the SEC a Shelf Registration
Statement providing for the sale by the Holders of all of
the Registrable Securities in accordance with the terms
hereof and will use its reasonable best efforts to cause
such Shelf Registration Statement to be declared effective
by the SEC as soon as reasonably practicable. SofTech shall
distribute the Shares pro rata to its shareholders promptly
following the Company's receipt of such notice of
effectiveness.
(iv) If the making of the distribution at the time
required in clauses (i), (ii) or (iii) above would have a
material adverse effect on SofTech and if a delay in the
making of the distribution would materially reduce such
effect on SofTech, Buyer shall, upon the written request of
SofTech, permit SofTech to delay the making of the
distribution for a reasonable time to be mutually determined
and agreed to by Buyer and SofTech and SofTech shall
reimburse Buyer for any expenses incurred as a result of
such delay.
(v) If (A) at the time a distribution of the
Shares by SofTech is required due to the occurrence of a
SofTech Registration Event or a Shareholder Registration
Event, SofTech's Board of Directors reasonably determines in
good faith that the financial condition of SofTech has
deteriorated since the closing of the Asset Purchase
Agreement to the extent that a pro rata distribution of the
Shares to its shareholders would be materially detrimental
to SofTech's ability to continue its operations or (B) the
Division's written determination with respect to the No
Action Request permits neither the distribution of the
Shares by SofTech pro rata to its shareholders without
registration under the Securities Act nor the registration
of such distribution under the Securities Act ((A) and (B)
are referred to herein as a "Public Registration Event"),
then not later than (x) the 30th day after the earlier of
the Company's receipt of written notice of such
determination or (y) the 14th day after the Company's
receipt of a Holder's Questionnaire from SofTech, whichever
is later, the Company shall cause to be filed with the SEC a
Shelf Registration Statement on behalf of SofTech
registering the sale of the Shares by SofTech to the public
in accordance with the terms hereof and will use its
reasonable best efforts to cause such Shelf Registration
Statement to be declared effective by the SEC as soon as
reasonably practicable.
(3) Period of Effectiveness. The Company agrees to use
its reasonable efforts to keep the Shelf Registration
Statement continuously in effect under the Securities Act
until paragraph (k) of Rule 144 is available for the sale of
the Registrable Securities by the Holder(s) thereof
(assuming for such purpose that no such Holder is an
"affiliate" as defined in Rule 144) or, if the Shelf
Registration Statement is filed in response to a Public
Registration Event, the date which constitutes the earliest
date SofTech could have sold all of the Registrable
Securities in accordance with Section 4(h) hereof following
the effective date of the Shelf Registration Statement.
Such Shelf Registration Statement shall be available for the
sale of the Registrable Securities in accordance with the
intended method or methods of distribution by the selling
Holders thereof and shall comply as to form in all material
respects with the requirements of the applicable form.
(b) Expenses. Registration Expenses in connection with
the registration pursuant to Section 2(a) shall be paid by
SofTech to the extent of the first $20,000 of such Expenses.
The amount of Registration Expenses exceeding $20,000 shall
be borne equally by SofTech and the Company. Each Holder
shall pay all underwriting discounts and commissions,
brokerage or dealer fees, the fees and disbursements of
counsel, accountants or other representatives of such Holder
and transfer taxes, if any, relating to the sale or
disposition of the Holder's Registrable Securities.
(c) Inclusion in Shelf Registration Statement After a
Shareholder Registration Event. (i) Following a Shareholder
Registration Event, SofTech shall, within seven days after
such Event, cause to be delivered to its shareholders a form
of Holder's Questionnaire at the time the Shares are
distributed by SofTech to its shareholders. Following a
Shareholder Registration Event, any Holder who desires to be
eligible to make offers and sales of its Registrable
Securities at the time the Shelf Registration Statement
becomes effective shall deliver a completed and executed
Holder's Questionnaire to the Company no later than fourteen
(14) days prior to the filing of the Shelf Registration
Statement with the SEC. Any Holder who does not deliver a
Holder's Questionnaire (completed and executed) to the
Company prior to such date shall not be eligible to make
offers or sales pursuant to the Shelf Registration Statement
at the time it becomes effective, but shall have the right
thereafter to deliver to the Company a Registration Notice
as contemplated by Section 2(c)(ii).
(ii) Following a Shareholder Registration Event,
if the Company receives a Holder's Questionnaire and a
written notice from a Holder that such Holder desires to
make offers and sales of Registrable Securities under the
Shelf Registration Statement (a "Registration Notice") at
any time during the 30-day period (the "Cut-Off Period")
beginning on the date provided in Section 2(c)(i) above, the
Company will prepare and file with the SEC on or before the
30th day after the end of the Cut-Off Period, a post
effective amendment to the Shelf Registration Statement or a
supplement to the Prospectus (whichever may be required by
the Securities Act and the related rules and regulations of
the SEC) to permit each Holder delivering a Registration
Notice and Holder's Questionnaire within the time prescribed
above to make offers and sales under the Shelf Registration
Statement; provided, that the Company shall not be required
to file more than a total of one such post-effective
amendment or Prospectus supplement; further provided, that
such Holders shall not be eligible to make offers and sales
pursuant to the Shelf Registration Statement until such
amendment or supplement is filed (and, in the case of an
amendment, has become effective with the SEC and all
relevant state securities authorities); and further
provided, that the Company shall have no obligation under
this Section 2(c)(ii) unless the Shelf Registration
Statement has been declared effective and remains in effect
on such date. Any Holder who does not provide the Company
with a Registration Notice and a Holder's Questionnaire
before the end of the Cut-Off Period and who was not
eligible to make offers and sales under the Shelf
Registration Statement at the time it became effective shall
not be permitted to make offers and sales pursuant to the
Shelf Registration Statement.
Section 3. Registration Procedures.
In connection with the obligations of the Company with
respect to the Shelf Registration Statement pursuant to
Section 2 hereof, and subject to Sections 3(a) and 4, the
Company shall do the following during the period in which
the Shelf Registration Statement is required to be kept
effective:
(a) Amendments; Comment Responses. (i) Prepare and
file with the SEC such amendments and post-effective
amendments to the Shelf Registration Statement as may be
necessary to keep the Shelf Registration Statement effective
for the applicable period; (ii) upon the occurrence of any
event contemplated by Section 3(d)(iv) hereof, use its
reasonable efforts promptly to prepare and file a supplement
or prepare, file and obtain effectiveness of a posteffective
amendment to the Shelf Registration Statement or a related
Prospectus or any document incorporated therein by reference
or file any other required document so that, as thereafter
delivered to the purchasers of the Registrable Securities,
such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact required to
be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; (iii) cause each Prospectus to be
supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 or any
similar rule that may be adopted under the Securities Act;
and (iv) respond promptly to any comments received from the
SEC with respect to the Shelf Registration Statement, or any
amendment, post-effective amendment or supplement relating
thereto.
(b) Copies of Prospectus. Furnish to each Holder of
Registrable Securities who is eligible to make offers and
sales under the Shelf Registration Statement, without
charge, as many copies of each applicable Prospectus,
including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder
may reasonably request in order to facilitate the public
sale or other disposition of the Registrable Securities.
(c) Blue Sky. Use its reasonable best efforts to
register or qualify the Registrable Securities under all
applicable state securities or "blue sky" laws of, in the
case of a SofTech Registration Event, such states in which
the shareholders of SofTech of record on the record date for
the distribution of the Shares by SofTech reside or, in the
case of a Shareholder Registration Event, in such states as
any Holder of Registrable Securities who is eligible to make
offers and sales under the Shelf Registration Statement
shall reasonably request in writing, keep each such
registration or qualification effective during the period in
which the Shelf Registration Statement is required to be
kept effective or during the period offers or sales are
being made by a Holder that has delivered a Registration
Notice to the Company, whichever is shorter, and do any and
all other acts and things which may be reasonably necessary
or advisable to enable such Holder to consummate the
disposition of such Registrable Securities owned by such
Holder in each such state; provided, however, that the
Company shall not be required (i) to qualify generally to do
business in any jurisdiction or to register as a broker or
dealer in such jurisdiction where it would not be required
so to qualify or register but for this Section 3(c), (ii) to
subject itself to taxation in any such jurisdiction, (iii)
to submit to the general service of process in any such
jurisdiction or (iv) to register or qualify the Registrable
Securities in any jurisdiction in which an exemption for
such Registrable Securities or for the offer and sale
thereof by such Holder is available.
(d) Notification. Promptly notify each Holder who is
eligible to make offers and sales under the Shelf
Registration Statement when the Shelf Registration Statement
has become effective and when the Registrable Securities
have been registered or qualified in each state requested
(or that an exemption from registration or qualification is
available) and promptly notify each such Holder and each
Holder of Registrable Securities who subsequently becomes
eligible to make offers and sales under the Shelf
Registration Statement (i) when any post-effective
amendments and supplements to the Shelf Registration
Statement become effective with the SEC or any state
securities authority, (ii) of the issuance by the SEC or any
state securities authority of any stop order suspending the
effectiveness of the Shelf Registration Statement or
theinitiation of any proceedings for that purpose, (iii) if
the Company receives any notification with respect to the
suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation of
any proceeding for such purpose and (iv) of the happening of
any event during the period the Shelf Registration Statement
is effective as a result of which the Shelf Registration
Statement or a related Prospectus contains any untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein (in the case of the Prospectus, in light
of the circumstances under which they were made) not
misleading.
(e) Stop Orders. Make every reasonable effort to
obtain the withdrawal of any order by the SEC or any state
securities authority suspending the effectiveness of the
Shelf Registration Statement at the earliest possible
moment.
(f) Copies of Shelf Registration Statement and
Amendment. Furnish to each Holder of Registrable Securities
who is eligible to make offers and sales under the Shelf
Registration Statement, without charge upon request of such
Holder, one conformed copy of the Shelf Registration
Statement and any post-effective amendment thereto (without
documents incorporated therein by reference or exhibits
thereto, unless requested).
(g) Stock Certificates. Cooperate with the selling
Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any
Securities Act legend and enable certificates for such
Registrable Securities to be issued for such numbers of
shares and registered in such names as the selling Holders
may reasonably request.
(h) Earnings Statement. Make available to its
security holders, as soon as reasonably practicable, an
earnings statement covering at least 12 months which shall
satisfy the provisions of Section 11(a) of the Securities
Act and Rule 158 thereunder.
(i) Other Agreements. Refrain from entering into any
agreement which would prohibit the Company from filing and
gaining the effectiveness of the Shelf Registration
Statement in accordance with the terms hereof.
Section 4. Restrictions on Public Sale by Holders of
Registrable Securities.
In connection with and as a condition to the Company's
obligations with respect to the Shelf Registration Statement
pursuant to Sections 2 and 3 hereof, each Holder agrees as
follows:
(a) Offers and Sales. The Holder will not offer or
sell its Registrable Securities under the Shelf Registration
Statement unless (i) the Shelf Registration Statement has
become effective and has not been terminated and such Holder
is eligible to make offers and sales under the Shelf
Registration Statement pursuant to Section 2(c) hereof, (ii)
such Holder has received copies of the Prospectus (as it may
be supplemented or amended as contemplated by Section 3(a)
hereof), and (iii) if any post-effective amendment has been
filed with the SEC of which filing such Holder has received
notice, such Holder has received notice that any such post
effective amendment has become effective.
(b) Need to Use Updated Prospectus. Upon receipt of a
written notice from the Company of the happening of any
event of the kind described in Section 3(d)(iv) hereof, such
Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the Shelf Registration Statement
until such Holder receives copies of the supplemented or
amended Prospectus contemplated by Section 3(a) hereof and
receives notice that any post-effective amendment has become
effective, and, if so directed by the Company, such Holder
will deliver to the Company all copies in its possession,
other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice. In
the event that any Holder uses a Prospectus in connection
with the offer and sale of Registrable Securities covered by
such Prospectus, such Holder will use only the latest
version of such Prospectus provided to it by the Company.
(c) Notification of Sales. Upon the sale or
disposition of any of its Registrable Securities pursuant to
the Shelf Registration Statement, the Holder will promptly
notify the Company in writing of the number of Registrable
Securities then being sold or disposed of.
(d) Moratorium. If the Company determines in its good
faith judgment, after consultation with counsel, that the
filing of the Shelf Registration Statement under Section 2
hereof or the use of any Prospectus would require the
disclosure of important information which the Company has a
bona fide business purpose for preserving as confidential or
the disclosure of which would impede the Company's ability
to consummate a significant transaction, upon written notice
of such determination by the Company (a "Suspension
Notice"), the rights of the Holders to offer, sell or
distribute any Registrable Securities pursuant to the Shelf
Registration Statement or to require the Company to take
action with respect to the registration or sale of any
Registrable Securities pursuant to the Shelf Registration
Statement (including any action contemplated by Sections 2
or 3 hereof) will be suspended until the date upon which the
Company notifies the Holder in writing that suspension of
such rights for the grounds set forth in this Section 4(d)
is no longer necessary (the "Advice"); provided, however,
that the Company shall not give more than three Suspension
Notices during any period of twelve consecutive months and
in no event shall the period from the date on which any
Holder receives a Suspension Notice to the date on which any
Holder receives the Advice exceed 45 days. In the event
that the Company shall give any Suspension Notice, the
Company shall use its reasonable best efforts and take such
actions as are reasonably necessary to render the Advice as
promptly as practicable.
(e) Offering by Company. In the case of the
registration of any underwritten equity offering proposed by
the Company, SofTech shall, if requested in writing by the
managing underwriter or underwriters administering such
offering after the 90th day following the date hereof, not
effect any offer, sale or distribution of Registrable
Securities (or any option or right to acquire Registrable
Securities) during the period commencing on the 10th
business day prior to the expected effective date (which
date shall be stated in such notice) of the registration
statement covering such underwritten equity offering and
ending on the date specified by such managing underwriter in
such written request to SofTech, which date shall not be
later than six months after such expected date of
effectiveness. In this regard, the Company represents that
it has no current intention to effect an underwritten equity
offering.
(f) Additional Information. In addition to the
information set forth in the Holder's Questionnaire, the
Holder of Registrable Securities shall furnish to the
Company in writing such additional information regarding the
proposed distribution by such Holder as the Company may from
time to time reasonably request in writing.
(g) Distribution. Each Holder shall comply with the
provisions of the Securities Act with respect to the
disposition of all securities covered by the Shelf
Registration Statement during the applicable period in
accordance with the intended method or methods of
distribution stated in the then-current version of the
Prospectus.
(h) Sales by SofTech. If SofTech is permitted to make
sales of Shares to the public because a Public Registration
Event has occurred, SofTech agrees (i) that all such sales
shall comply with the manner of sale restrictions set forth
in paragraphs (f) and (g) of Rule 144 and (ii) not to sell
Shares in any one month period in excess of the limit
imposed by paragraph (e) of Rule 144 for any three month
period (without regard to the holding period, public
information and notice requirements of such Rule).
Section 5. Indemnification; Contribution.
(a) Indemnification by the Company. The Company
agrees to indemnify and hold harmless each Holder and its
officers and directors and each person, if any, who controls
the Holder within the meaning of Section 15 of the
Securities Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of
any untrue statement or alleged untrue statement of a
material fact contained in the Shelf Registration Statement
(or any amendment thereto) or any Prospectus, including all
documents incorporated therein by reference, or the omission
or alleged omission therefrom of a material fact necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading:
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of
the aggregate amount paid in settlement of any litigation,
or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, if such
settlement is effected with the written consent of the
Company; and
(iii) against any and all expense whatsoever, as
incurred (including reasonable fees and disbursements of
counsel), reasonably incurred in investigating, preparing or
defending against any litigation, or investigation or
proceeding by any governmental agency or body, commenced or
threatened, in each case whether or not a party, or any
claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under clause
(i) or (ii) above; provided, however, that the indemnity
provided pursuant to this Section 5(a) does not apply to any
Holder with respect to any loss, liability, claim, damage or
expense to the extent arising out of any untrue statement or
omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information
furnished to the Company by such Holder expressly for use in
the Shelf Registration Statement (or any amendmentthereto)or
any Prospectus.
(b) Indemnification by Holder. Each Holder severally
and not jointly agrees to indemnify and hold harmless the
Company and the other selling Holders and each of their
directors and officers (including each director and officer
of the Company who signed the Shelf Registration Statement),
and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act, to the same
extent as the indemnity contained in Section 5(a) hereof
(except that any settlement described in Section 5(a)(ii)
shall be effected with the written consent of such Holder),
but only insofar as such loss, liability, claim, damage or
expense arises out of or is based upon any untrue statement
or omission, or alleged untrue statement or omission, made
in the Shelf Registration Statement (or any amendment
thereto) or any Prospectus in reliance upon and in
conformity with written information furnished to the Company
by such selling Holder expressly for use in the Shelf
Registration Statement (or any amendment thereto) or such
Prospectus; provided, however, that such Holder shall not be
obligated to provide such indemnity to the extent that such
losses, liabilities, claims, damages or expenses result from
the failure of the Company to promptly amend or take action
to correct or supplement any such Registration Statement or
Prospectus on the basis of corrected or supplemental
information provided in writing by such Holder to the
Company expressly for such purpose. In no event shall the
liability of any Holder under this Section 5(b) be greater
in amount than the dollar amount of the proceeds received by
the Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation.
(c) Notice. Each indemnified party shall give
reasonably prompt notice to the indemnifying party of any
action or proceeding commenced against it in respect of
which indemnity may be sought hereunder, but failure so to
notify an indemnifying party (i) shall not relieve it from
any liability which it may have under the indemnity
agreement provided in Section 5(a) or (b) unless and to the
extent it did not otherwise learn of such action and the
lack of notice by the indemnified party results in the
forfeiture by the indemnifying party of substantial rights
and defenses and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided
under Section 5(a) or (b). If the indemnifying party so
elects within a reasonable time after receipt of such
notice, the indemnifying party may assume the defense of
such action or proceeding at such indemnifying party's own
expense with counsel chosen by the indemnifying party;
provided, however, that, if such indemnified party
reasonably determines that a conflict of interest exists
where it is advisable for such indemnified party to be
represented by separate counsel or that, upon advice of
counsel, there may be legal defenses available to them which
are different from or in addition to those available to the
indemnifying party, then the indemnifying party shall not be
entitled to assume such defense and the indemnified party
shall be entitled to one separate counsel at the
indemnifying party's expense. If an indemnifying party is
not so entitled to assume the defense of such action or does
not assume such defense, after having received the notice
referred to in the first sentence of this Section 5(c), the
indemnifying party will pay the reasonable fees and expenses
of counsel for the indemnified party. In such event
however, the indemnifying party will not be liable for any
settlement effected without the written consent of such
indemnifying party but, if settled with such consent, the
indemnifying party agrees to indemnify the indemnified party
or parties from and against any loss or liability by reason
of such settlement upon the terms and subject to the
conditions set forth in this Agreement. No indemnifying
party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which such indemnified
party is a party, and indemnity could have been sought
hereunder by such indemnified party, unless such settlement
includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of
such proceeding. If an indemnifying party is entitled to
assume, and assumes, the defense of such action or
proceeding in accordance with this paragraph, such
indemnifying party shall not be liable for any fees and
expenses of counsel for the indemnified parties incurred
thereafter in connection with such action or proceeding.
(d) Contribution. In order to provide for just and
equitable contribution in circumstances in which the
indemnity agreement provided for in this Section 5 is for
any reason held to be unenforceable although applicable in
accordance with its terms, the Company and the selling
Holders shall contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement incurred by the
Company and the selling Holders, in such proportion as is
appropriate to reflect the relative fault of the Company on
the one hand and the selling Holders on the other (in such
proportions that the selling Holders are severally, not
jointly, responsible for the balance), in connection with
the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any
other relevant equitable considerations. The relative fault
of the indemnifying party and indemnified party shall be
determined by reference to, among other things, whether the
action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission
to state a material fact, has been made by, or relates to
information supplied by, such indemnifying party or the
indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct
or prevent such action.
The Company and the Holders agree that it would not be
just or equitable if contribution pursuant to this Section
5(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the
equitable considerations referred to in the immediately
preceding paragraph.
Notwithstanding the foregoing, no Person guilty of
fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section
5(d), each Person, if any, who controls a Holder within the
meaning of Section 15 of the Securities Act and directors
and officers of a Holder shall have the same rights to
contribution as such Holder, and each director of the
Company, each officer of the Company who signed the Shelf
Registration Statement and each Person, if any, who controls
the Company within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as
the Company.
Section 6. Rule 144 Sales. The Company covenants that
it will file the reports required to be filed by the Company
under the Securities Act and the Exchange Act, so as to
enable any Holder to sell Registrable Securities pursuant to
Rule 144 under the Securities Act after the Holder has
satisfied the holding period requirement set forth therein.
Section 7. Miscellaneous.
(a) Amendments. The provisions of this Agreement,
including the provisions of this sentence, may not be
amended, modified or supplemented without the written
consent of the Company and Holders constituting Majority
Holders. Notice of any amendment, modification or
supplement to this Agreement adopted in accordance with this
Section 7(a) shall be provided by Company to each Holder of
Registrable Securities at least thirty (30) days prior to
the effective date of such amendment, modification or
supplement.
(b) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing
by hand delivery, registered first-class mail, telecopier or
any courier guaranteeing overnight delivery, (i) if to a
Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with
the provisions of this Section 7(b) or provided in a
Holder's Questionnaire, which address initially is, with
respect to each Holder, the address set forth in the Asset
Purchase Agreement, or (ii) if to the Company, at 34705 W.
12 Mile Road, Suite 300, Farmington Hills, Michigan 48331,
Attention: President.
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if
personally delivered; five business days after being
deposited in the mail, postage prepaid, if mailed; when
receipt is acknowledged, if telecopied; or at the time
delivered if delivered by an air courier guaranteeing
overnight delivery.
(c) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors,
assigns and transferees of each of the Company and the
Holders, including without limitation subsequent Holders. If
any successor, assignee or transferee of any Holder shall
acquire Registrable Securities, in any manner, whether by
operation of law or otherwise, such Registrable Securities
shall be held subject to all of the terms of this Agreement,
and by taking and holding such Registrable Securities such
Person shall be deemed a party hereto, shall be entitled to
receive the benefits hereof and shall be conclusively deemed
to have agreed to be bound by all of the terms and
provisions hereof.
(d) Entire Agreement. This Agreement represents the
entire agreement and understanding among the parties hereto
with respect to the subject matter hereof and supersedes any
and all prior oral and written agreements, arrangements and
understandings among the parties hereto with respect to such
subject matter.
(e) Paragraph and Section Headings. The paragraph and
section headings contained in this Agreement are for general
reference purposes only and shall not affect in any manner
the meaning, interpretation or construction of the terms or
other provisions of this Agreement.
(f) APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF MICHIGAN, APPLICABLE TO CONTRACTS TO BE MADE,
EXECUTED, DELIVERED AND PERFORMED WHOLLY WITHIN SUCH STATE,
AND, IN ANY CASE, WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES OF SUCH STATE.
(g) Severability. If at any time subsequent to the
date hereof, any provision of this Agreement shall be held
by any court of competent jurisdiction to be illegal, void
or unenforceable, such provision shall be of no force and
effect, but the illegality or unenforceability of such
provision shall have no effect upon and shall not impair the
enforceability of any other provision of this Agreement.
(h) Specific Performance. The Company and the Holders
acknowledge that there would be no adequate remedy at law if
any party fails to perform any of its obligations hereunder,
and accordingly agree that the Company and each Holder, in
addition to any other remedy to which it may be entitled at
law or in equity, shall be entitled to compel specific
performance of the obligations of another under this
Agreement in accordance with the terms and conditions of
this Agreement in any court of the United States or any
State thereof having jurisdiction.
(i) No Waiver. The failure of any party at any time
or times to require performance of any provision hereof
shall not affect the right at a later time to enforce the
same. No waiver by any party of any condition, and no
breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to
be construed as a further or continuing waiver of any such
condition or of the breach of any other provision, term,
covenant, representation or warranty of this Agreement.
(j) Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute but one
and the same original instrument.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
DATA SYSTEMS NETWORK CORPORATION
By: /s/ Michael W. Grieves
Name: Michael W. Grieves
Title: Chairman, President and
Chief Executive Officer
SOFTECH, INC.
By: /s/ Joseph P. Mullaney
Name: Joseph P. Mullaney
Title: Vice President and
Chief Financial Officer
