UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996
Commission file Number 1-13424
Data Systems Network Corporation
Michigan 38-92649874
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
34705 W. 12 Mile Rd., Suite 300 48331
Farmington Hills, Michigan
(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code:
(810)489-7117
Indicate by check mark whether the registrant(1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date:
Common Stock, $1 Par Value - 2,715,000 shares as of
April 30, 1996
<PAGE>
<TABLE>
PART I. - FINANCIAL INFORMATION
Item 1. Financial statements.
DATA SYSTEMS NETWORK CORPORATION
STATEMENT OF OPERATIONS
FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<CAPTION>
Three months ended
March 31
__________________
1996 1995
_________ __________
<S> <C> <C>
Net sales $4,246,349 $6,605,314
Service revenue 767,515 470,686
---------- ----------
Total revenues 5,013,864 7,076,000
Cost of sales 3,728,824 5,739,248
Cost of service revenues 233,800 317,299
---------- ---------
Total cost of revenues 3,962,624 6,057,547
Gross Profit 1,051,240 1,018,453
Selling expenses 473,148 484,124
General and administrative
expenses 404,357 256,029
---------- ---------
Total operating expenses 877,505 740,152
Income from operations 173,735 279,300
Other income(expenses)
Interest expense (92,378) (91,046)
Interest income 85,200 43,594
---------- ---------
Net income before minority
interest in subsidiary 166,557 231,848
Less minority interest
in subsidiary (53,027)
---------- ---------
Net income 113,530 231,848
<CAPTION>
Three Months Ended March 31,
1996 1995
------------------------ -----------------------
Primary Fully Diluted Primary Fully Diluted
<S> <C> <C> <C> <C>
Earnings per commmon
shares: $0.04 $0.04 $0.08 $0.09
Weighted number of
shares outstanding: 2,589,903 2,889,903 2,670,000 2,970,000
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
DATA SYSTEMS NETWORK CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, 1996 December 31, 1995
______________ ______________
(unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $3,249,788 $3,171,544
Accounts receivable (net of
allowance of $61,088 and
$67,086 March 31, 1996 and
December 31, 1995, respectively) 4,788,864 5,249,771
Notes Receivable 412,409 692,387
Inventories,net 1,008,154 992,922
Other current assets 196,813 294,296
--------------- --------------
Total Current Assets 9,656,028 10,400,860
Service Parts, net 1,114,744 1,169,781
Property and Equipment, net 593,877 297,029
Other Assets 74,247 70,743
Goodwill, net (note 3) 999,350
---------------- --------------
TOTAL ASSETS $12,432,246 $11,938,413
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
<S> <C> <C>
Current Liabilities
Bank line of credit(Note 2) $3,910,912 $3,956,000
Current portion of long-term debt 130,322 213,039
Accounts payable(Note 4) 3,431,327 3,449,520
Accrued liabilities 538,495 514,693
Deferred maintenance revenues 396,995 228,060
---------- ----------
Total Current Liabilities $8,408,051 $8,361,312
Long Term Debt,less current portion 380,537 100,000
Minority Interest In Subsidiary 53,027
Stockholders' Equity
Preferred stock
Common stock par value $0.01 per share
Authorized 10,000,000 shares
Issued and outstanding - 2,715,000
shares at March 31, 1996 and
December 31, 1995. 27,150 27,150
Additional paid-in capital 6,385,047 6,385,047
Accumulated deficit (2,821,566) (2,935,096)
----------- -----------
Total Stockholders' Equity $3,590,631 $3,477,101
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $12,432,246 $11,938,413
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
<TABLE>
DATA SYSTEMS NETWORK CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
<CAPTION>
1996 1995
<S> <C> <C>
Cash Flow From Operating Activities:
Income From Operations $113,530 $231,848
_______ _______
Adjustments To Reconcile Net
Income to Net Cash Provided by
Operating Activities
Depreciation and amortization 90,351 85,694
Provision for doubtful receivables 21,121 2,925
Provision for inventory obsolesence 8,331 4,313
Asset contributions received (80,000)
Changes in assets & liabilities
Accounts and notes receivable 439,786 (874,105)
Investment in affiliate 279,978
Inventories (23,563) (857,682)
Other current assets 90,423 (34,917)
Service parts (5,019) 14,150
Other assets (3,504) (11,312)
Accounts payable (18,193) 1,774,884
Accrued liabilities 123,802 (98,890)
Deferred maintenance revenues 168,935 13,798
_______ _______
Net Cash generated by
operating activities $1,285,978 $170,716
_______ _______
Cash Flow From Investing Activities:
Acquisition of property, plant &
equipment $(54,012) $(32,736)
Purchase of subsidiary, net
of cash acquired $(1,025,917)
----------- --------
Net Cash used in Investing
Activities $(1,079,929) $(32,736)
Cash Flow From Financing Activities:
Net repayments under bank line
of credit $(45,088) $(9,407)
Payment of principal on long-
term debt (82,717) (39,447)
_______ _______
Net Cash used by
Financing Activities $(127,805) $(48,854)
_______ _______
Net increase in cash 78,244 89,116
Cash at Beginning of Year $3,171,544 $3,196,038
_______ _______
Cash at End of Period $3,249,788 $3,285,154
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
[FN]
DATA SYSTEMS NETWORK CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
Note 1. Basis of Presentation
The accompanying unaudited interim financial statements of the Company,
have been prepared in accordance with generally accepted accounting principles
for interim financial information and should be read in conjunction with
the Company's audited financial statements and Notes contained in the
Company's Form 10-K for the year ended December 31, 1995. The condensed
consolidated financial statements include all adjustments, consisting of
normal reocurring adjustments, necessary for a fair presentation of results
of of operations for the periods presented. The results of such interim
periods are not necessarily indicative of the results of operations for the
full year. The consolidated financial statements include the financial
statements of Data Systems Network Corporation and the majority-owned
subsidiary Unified Network Services. All significant intercompany balances
and transactions have been eliminated in consolidation.
[FN]
Note 2. Bank line
The Company has a bank line of credit of $7.5 million bearing interest at
.75% over the bank's prime rate (effective rate of 9% at March 31, 1996). The
current agreement extends until February 1, 1997 and can be terminated at any
time by the Company or the bank. Borrowings under the line of credit are due
on demand. Borrowing limits are determined based on a collateral formula
which includes 85% of qualified trade receivables less than 90 days old and
25% of eligible inventory and spare parts. The line is collateralized by
substantially all of the Company's assets. The line of credit agreement
contains certain covenants requiring the Company's receivables to be genuine
and free of all other encumbrances and requiring the Company's inventory
financed under the term agreement to be kept at designated locations and
free from all other encumbrances. Subsequent to July 28, 1995, the inventory
covenants are restricted to apply solely to the inventory financed through
this agreement, exclusive of any and all inventories financed under the IBM
Credit Corporation Agreement (see Note 4).
[FN]
Note 3. Acquisitions
On February 22, 1996, the Company purchaseed 70% (or 7,000 shares) of
Unified Network Services, Inc. for $7,000. As of March 31, 1996, the
Company's balance sheet and results of operations are consolidated, with
appropriate adjustments to reflect intercompany transactions and minority
interest. The acquisition of UNS was accounted for as a purchase.
Accordingly, the purchase price was allocated to the net assets acquired
based upon their estimated fair market value. The excess of the purchase
price over the estimated fair market value of the net assets acquired
amounted to approximately $999,000, which is being accounted for as
goodwill and is being amnortized over 20 years using a straight-line method.
This allocation was based on preliminary estimates and may be revised at
a later date.
[FN]
Note 4. Credit Line
On July 28, 1995, the Company entered into a secured finance agreement
with IBM Credit Corporation. For the period ending March 31, 1996, the
current agreement extends a maximum of $1,250,000 in secured funds to be used
exclusively for the acquisition of inventory for resale, limited to those
products manufactured by Apple, Compaq, Hewlett Packard, IBM and Lexmark. Use
of this credit line is at the Company's option. To secure payment of all
current debt under this agreement, IBM Credit Corporation was granted a first
security interest in the Company's inventory equal to the amount of the
outstanding debt. This agreement allows for interest-free financing if paid
within thirty days of invoicing. The agreement also provides for a variable
discount option, ranging from .5% to 1.0% off of the invoice ,if paid within
fifteen days. This agreement can be terminated at any time by the Company or
the lender. The terms and conditions of this financing agreement can be
changed at the discretion of IBM Credit Corporation.
<PAGE>
DATA SYSTEMS NETWORK CORPORATION
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
March 31, 1996
Item 2-Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following analysis of financial condition and results of operations of
the Company shoud be read in conjunction with the Company's financial
statements and notes thereto included under Item 1. Financial Statements.
Results of Operations
Three Months Ended March 31, 1996 Compared to Three Months Ended
March 31, 1995.
Revenues. Total revenues decreased 29.6% to $5 million for the
three months ended March 31, 1996 from $7.1 million for the same period
in 1995. This decrease was attributable to the 35.7% decrease in net sales,
whcih resulted primarily from the Company's intensified
focus on larger projects with longer sales cycles, and substantially longer
sales lead time and gross profit increased to 21.8% of of total revenue
from 14.4% for the same period in 1995. After the February 22, 1996
acquisition of 70% of the outstanding common stock of Unified Network
Services ("UNS"), the operations of UNS also contributed to the overall
increase in gross profit through the addition of higher margin network
management product and service revenue. Returns and allowances increased in
both dollars and percentage of sales for the three months period in 1996
compared with the same period in 1995, primarily due to two projects that
required product exchanges to accomodate customer configuration
modifications. Product returns increased slightly to $186,899 or 3.7% of
total revenues in the three month period in 1995 from $173,096 or 2.4% of
total revenues for the same period in 1995.
Service revenues increased $297,000 to 15.3% of total revenues in the
three month period ended March 31, 1996 from 6.7% in the corresponding period
of 1995. A significant percentage of the service revenue increase resulted
from the sale of project design and installation service generated from both
DSNC and UNS. To a lesser extent, the completion of services related to 1995
hardware sales contracts contributed to the overall increase.
Cost of Revenues. The cost of revenues decreased to 79% of total
revenues for the three month period ended March 31, 1996 from 85.6% for the
same period in 1995. The cost of service revenue decreased to 30.5% of
service revenues for the three month period ended March 31, 1996 from
67.4% for the same period in 1995, due primarily to the Company's first
quarter success at managing the service revenue growth towards a mix of more
profitable installation, training and design offerings. The cost of sales
decreased to 87.8% of net sales for the three month period ended
March 31, 1996 compared to 95.2% for the same period in 1995. The Company
attributes this decrease both to the shift towards the sale of advanced
technology products and to the implementation of the 1996 sales compensation
plan that encourages increased product and service gross margins, in lieu of
increased sales volume. As a result of the improvements in cost of revenues,
the integration of UNS' focus on network management systems, and DSNC's
network engineering and installation expertise, the Company is establishing
a stong position in the rapidly growing area of remote monitoring systems.
Operating Expenses. Selling, general and administrative expense
increased $141,623 to 17.6% of total revenue for the three month period
ended March 31, 1996 compared to 4.8% of total revenue for the same period in
1995. The increase was primarily attributable to both one time and ongoing
costs associated with the addition of UNS and to a lesser degree, to the
costs associated with ongoing design and initialization phases of the
Company's enhanced internal dispatch, financial and distribution system. The
Company expects to install this system during the current fiscal year which
is expected to significantly improve its service dispatch and sales tracking
capabilities. The Company believes this implementation is a necessary
enhancement to its infrastructure to support its organizational growth goals,
to increase the quality of its customer service response time and to offer
a more efficient utilization of its technical resources.
Other (Expense) Income. Interest expense remained stable for the
three months ended March 31, 1996 compared to the same period in 1995.
Interest income increased by $41,606 for the three months ended March 31,
1996 as a result of short term investments of a portion of the public
offering proceeds and interest earned on the Company's 1995 UNS note
receivable.
Financial Condition
The Company finances its business primarily through funds generated
internally through operations, trade credit, and advances under its $7.5
million line of credit with NBD Bank N.A. (the "Bank"). The line of credit
is secured by substantially all of the Company's assets, bears interest
at .75% over the Bank's prime rate (effective rate of 9% at March 31, 1996)
and is due on demand of the Bank. Borrowing under the line of credit is
limited by a formula determined from time to time by the Bank and currently
is calculated as the sum of 85% of qualified receivables less than 90 days
old and 25% of eligible inventory and spare parts, as designated by the
Bank. The formula permitted total borrowings of up to $4,203,611
as of March 31, 1996 with $3,910,912 outstanding. The Company believes
that the current permitted borrowing forumula which increases borrowing
availability as the Company's sales growth generates new accounts receivable,
will support the continued growth of the Company. The term of the current
agreement extends to February 1, 1997, is renewable annually and can be
terminated at any time by the Company or the Bank.
The secured financing agreement with IBM Credit Corporation continues
to offer thirty day interest free financing on certain products (Note 4)
purchased by the Company for resale. As of March 31, 1996, IBM Credit
Corporation purchase transactions accounted for $193,465 of the total
accounts payable balance.
On February 22, 1996, the Company exercised its option to purchase
7,000 shares of common stock of UNS which represents 70% of the
issued and outstanding common stock of UNS on a fully diluted basis,
for a nominal cash consideration. The UNS acquisition had a net
negative effect on cash flow of $1,025,917 as a result of UNS' negative
net worth. The agreeent also requires the Company to make an
additional loan to UNS in an amount not exceeding a total loan
outstanding of $500,000 at any one time.
The Company had a positive net cash flow of $78,244, primarily resulting
from a decrease in trade and notes receivable, offset by the effect of
the purchase of UNS. Working capital as of March 31, 1996
was $1.35 million.
The Company believes that the combination of present cash balances,
future operating cash flows, and credit facilities will be adequte to fund
the Company's internal growth and current short and long term cash flow
requirements. Future trends for revenue and profitibility continue to be
difficult to predict. The foregoing statement is a "forward looking
statement" within the meaning of the Securities and Exchange act of 1934
and is subject to a number of risks and uncertainties. These include
general business conditions, the Company's ability to keep pace with
technology changes and the associated capital requirements, and the success
of the Company's strategy to shift its revenue mix away from product sales
towards service revenue.
<PAGE>
PART II - OTHER INFORMATION
Item #1 Legal Proceedings
None
Item #6 Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 10.16(h) Shareholder Agreement dated February 22, 1996
among DSNC and Unified Network Services
Exhibit 10.16(i) Stock Purchase Agreement dated February 22, 1996
among DSNC and Unified Network Services
Exhibit 11. Computation of Earnings per share
Exhibit 27. Financial Data Schedule
B. Reports on Form 8-K
None filed
<PAGE>
DATA SYSTEMS NETWORK CORPORATION
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly cause this report to be signed on its
behalf by the undersigned thereunto duly authorized.
Data Systems Network Corporation
Registrant
May 14, 1996 Julie A. Vitale-Johnston
Date Julie A. Vitale-Johnston
Controller and Principal Accounting Officer
May 14, 1996 Michael W. Grieves
Date Michael W. Grieves
President and Chief Executive Officer
[DESCRIPTION] Shareholder Agreement dated February 22, 1996
THIS SHAREHOLDER AGREEMENT (the "Agreement") is made as of February 22 ,
1996, by and among Data Systems Network Corporation, a Michigan corporation
("DSNC"), Kirk Duble ("Duble") and David Scranton ("Scranton") (each of DSNC,
Duble and Scranton a "Shareholder", and collectively, the "Shareholders"),
and Unified Network Services, Inc., a North Carolina corporation (the
"Company").
W I T N E S S E T H:
WHEREAS, the total authorized capital of the Company is 100,000 shares of
Common Stock, $1.00 par value (the "Common Stock"), of which 10,000 are
issued and outstanding;
WHEREAS the Shareholders own all of the issued and outstanding Common
Stock as follows:
Shareholder Number of Shares
DSNC 7,000
Duble 1,500
Scranton 1,500
WHEREAS, the Company and the Shareholders desire to provide continuity in
the management and policies of the Company in the event of the transfer of
shares of the Common Stock by a Shareholder, to establish a fair value for
the Common Stock of the Company, and to govern certain other rights of the
Shareholders;
NOW, THEREFORE, in consideration of the premises and the mutual promises and
agreements hereinafter set forth, the parties hereto agree as follows:
I. STOCK SUBJECT TO AGREEMENT
All of the Common Stock of the Company, whether now owned or hereafter
acquired by the Shareholders, shall be subject to this Agreement.
II. STOCK TRANSFERS
The transfer of any Common Stock shall be subject to the following
provisions: 2.01 Permitted transfers.
(a) Outright to family members. Any Shareholder who is a natural
person may transfer all or any part of his Common Stock to persons who are his
descendants, his siblings, or the descendants of a sibling, except that
a transfer for a valuable consideration that exceeds the purchase price
per share determined pursuant to Section 2.04(b) shall be subject to the
provisions of Section 2.02. Descendants shall include any person who is
legally adopted before his 19th birthday by the Shareholder or his
sibling on who qualifies as a descendant under this provision.
(b) Outright to Employees of the Company. Duble and Scranton may
each transfer all or any part of his Common Stock to no more than five
persons who are employees of the Company.
(c) To a revocable trust. A Shareholder who is a natural person may
transfer all or part of his Common Stock to a trust that is exclusively for
his lifetime benefit and over which he holds an unqualified power of
revocation if that trust will also qualify under the following Section
2.01(d) whenever the trust becomes irrevocable.
(d) To an irrevocable trust. A Shareholder who is a natural person
may transfer all or a part of his Common Stock during his life or after his
death to an irrevocable trust for the benefit of his spouse or of one or
more persons to whom an outright transfer by gift is permitted by Section
2.01(a).
(e) Transfer to an affiliated entity. Any Shareholder that is
a corporation may transfer all or part of its Common Stock to a parent,
subsidiary or other entity that is affiliated with the corporation.
2.02 Transfers requiring consent or first refusal.
(a) Unless permitted under Section 2.01 or 2.02(b) or prior written
consent is obtained from the Company and the Shareholders who hold legal
title to 66-2/3% of the Company's outstanding shares of Common Stock, a
Shareholder may not:
(i) transfer, sell or pledge any Common Stock to a natural
person, corporation, partnership, trust (other than one described in Sections
2.01(c), 2.01(d) or 2.01(e)) or other entity; or
(ii) grant an irrevocable proxy; or
(iii) transfer Common Stock to a voting trust.
(b) Except as permitted under Sections 2.01 or 2.02(a), a Shareholder other
than DSNC may not sell or otherwise transfer any Common Stock to a natural
person, corporation, partnership, trust (other than one described in Sections
2.01(c), 2.01(d) or 2.01(e)) or other entity unless such Shareholder has
first satisfied the following conditions:
(i) Notice. A Shareholder who proposes to sell or otherwise
transfer shares of Common Stock (the "Subject Stock") during his lifetime to a
transferee who has submitted to such Shareholder a binding offer to
purchase the Subject Stock and who, at the time of making such offer, is
financially capable of consummating such purchase shall first give a
written notice (the "Notice") to DSNC of such offer, stating the name of
the proposed transferee, the number of shares of Common Stock to be
transferred, the closing date, the price per share at which the Subject
Stock is to be transferred or sold and all other material terms of the
proposed transfer or sale and which shall include a copy of the offer to
purchase submitted to such Shareholder.
(ii) DSNC's Option to Purchase. DSNC shall have an option to acquire all
(but not less than all) of the Subject Stock at the price and on the terms of
the proposed transfer or sale, which may be exercised by giving written
notice of DSNC's intent to exercise to the selling Shareholder on or before
the thirtieth (30th) day after receipt of the Notice of the proposed
transfer or sale. The closing of a purchase by DSNC pursuant to the
exercise of the option granted pursuant to this Section 2.02 shall occur on
the later of the closing date stated in the Notice or the 75th day
following receipt of the Notice, or such other time as the parties to the
Transfer shall agree.
(iii) Transfer. If DSNC does not exercise its option with respect to
the Subject Stock, then all of the Subject Stock may be transferred to the
transferee designated in the Notice, at the price, at the time and on the
terms described in the Notice.
2.03 Right of Duble and Scranton to Elect Repurchase of Common Stock by DSNC
or the Company.
(a) Right to Elect Repurchase of Shares. Duble and Scranton shall have
the right to elect to have their shares of Common Stock repurchased from time to
time following each of the Company's fiscal years ended December 31, 1997,
1998 and 1999 (collectively, the "Repurchase Period") as provided in this
Section 2.03(a). Following each of the Company's fiscal years comprising
the Repurchase Period, DSNC shall notify each of the other Shareholders
and their permitted transferees, if any, appearing as shareholders on the
stock transfer records of the Company of the filing date of its Form 10-K
report with the Securities and Exchange Commission, which notice (the
"Shareholder
Election Notice") shall state that each of such persons shall have the
right for that year to require the repurchase of a number of shares of the
Company's Common Stock which he holds as determined in accordance with the
following formula (the "Put Option Shares"):
"Adjusted Outstanding Amount"
X
"Holder's Pro Rata Share"
X
.10
Number of Put Option Shares
"Adjusted Outstanding Amount" =
(Total number of shares of Common Stock outstanding as of the end of the
relevant fiscal year end) + (Total number of shares previously repurchased
by the Company, adjusted to give effect to stock splits and stock
dividends occurring subsequent to each such repurchase)
"Holder's Pro Rata Share" =
(Number of shares owned by the shareholder) / (Total number of shares
owned by Duble, Scranton and their transferees)
Duble and Scranton and their permitted transferees may each exercise his
right to have the shares of Common Stock comprising his Put Option Shares
repurchased by delivering written notice to the Company within 30 days
from the filing date of DSNC's Form 10-K for such fiscal year (the
"Shareholder Election Date"). If the Shareholder Election Date is a
Saturday, Sunday or holiday, such notice may be delivered to the Company
on the following business day. Upon receipt of such notice, the Company
shall
(b) Repurchase Price. The payment for the shares of Common
Stock repurchased pursuant to Section 2.03(a) shall be based on a repurchase
ratio, which shall be DSNC's price to earnings ratio, if DSNC's net income
is greater than zero, or DSNC's price to net sales ratio, if DSNC's net
income is zero or less than zero, for DSNC's applicable fiscal year (the
"Repurchase Ratio"). The Repurchase Ratio shall be set based on the closing
price for DSNC's common stock on the Shareholder Election Date. The price
per share to be paid for shares to be repurchased under this Section 2.03
(the "Repurchase Price") shall be as follows:
(i) if the Repurchase Ratio is based on DSNC's price to earnings ratio,
then the Repurchase Price shall be equal to (A) 10% multiplied by the
Repurchase Ratio, multiplied by the lesser of (I) the net amount of the
Company's net income for the year included in DSNC's net income for the year
(after deduction of minority interest, if any) and (II) DSNC's net income for
the year, divided by (B) the total number of Put Option Shares owned at
that time by all shareholders of the Company; or
(ii) if the Repurchase Ratio is based on DSNC's price to net sales
ratio, then the Repurchase Price shall be equal to (A) 10% multiplied by the
Repurchase Ratio, multiplied by the lesser of (I) the net amount of the
Company's net sales for the year included in DSNC's net sales for the year
(after deduction of minority interest, if any) and (II) DSNC's net income
for the year, divided by (B) the total number of Put Option Shares owned at
that time by all shareholders of the Company.
The Repurchase Price shall be computed by DSNC's independent auditors based
upon financial information of DSNC and the Company contained in their
audited financial statements for the applicable fiscal year (before
extraordinary items). The determination of DSNC's auditors on the
valuation of the shares of Common Stock shall be final and binding on all
parties to this Agreement.
(c) Payment of Repurchase Price. DSNC or the Company, as the case may
be, shall have the option to pay the Repurchase Price for shares of Common
Stock repurchased pursuant to Section 2.03(a) either in cash or DSNC common
stock, which shall be valued at the closing price on the Shareholder
Election Date; provided, however, that DSNC agrees to use its best efforts
to obtain the prior approval of DSNC's shareholders in the event
shareholder approval for such issuance is required by any exchange or
quotation on which DSNC Common Stock is traded or quoted. If the Company
elects to pay in DSNC common stock, DSNC agrees to issue to the Company
sufficient shares of DSNC common stock to enable the Company to pay the
repurchase price on a timely basis.
2.04 Rights of DSNC and the Company to Repurchase Shares of Common Stock
owned by Duble and Scranton and their Permitted Transferees.
(a) Right to Repurchase Shares of Duble or Scranton and their
Permitted Transferees if another Shareholder Exercises Rights under Section
2.03(a).
If any of Duble, Scranton or their permitted transferees elects to have his
shares of Common Stock repurchased pursuant to the terms of Section 2.03(a),
then such election shall require all transferees of Duble and Scranton
(including those which did not so elect) to sell to the Company and DSNC, and
the Company and DSNC shall have the right to repurchase from such transferees
the number of shares of Common Stock that such transferees would have other
wise had the right to require the Company or DSNC to repurchsed pursuant to
section 2.03(a) for the applicable fiscal year. The company or DSNC, as the
case may be, maynotify such transferees of its intention to exercise its
right to repurchase such shares in writing within 35 days after the date
DSNC's Form 10-K report is filed (the "Company Election Date"). The shares
to be repurchased shall be repurchased at a price determined in accordance
with Section 2.03(b). The Company or DSNC, as the case may be, may pay the
repurchase price in cash or shares of DSNC common stock valued at the closing
price on the Company Election Date. If the Company elects to pay the
repurchase price in common stock, DSNC shall issue to the Company sufficient
shares of DSNC common stock to enable the Company to pay the repurchase price
on a timely basis. A date 30 days from the Company Election Date shall be
the date set for payment of shares of Common Stock, and the delivery of such
shares to the Company or DSNC. If such payment date falls on a Saturday,
Sunday, or holiday, the Company or DSNC, as the case may be, shall have
until the following business day to pay such transferees for such shares
of Common Stock.
(b) Right to Repurchase Shares owned at end of Repurchase Period.
The Company and DSNC shall have the right to repurchase shares of Common
Stock that the other Shareholders own at the end of Repurchase Period at
any time upon 30 days written notice. The Company or DSNC, as the case
may be, shall pay the other Shareholders a repurchase price computed in
accordance with the terms and procedures described in Section 2.03(b) (as
adjusted for the appropriate percentage of Common Stock that the Company
or DSNC is purchasing), except that the repurchase price shall be based on
DSNC's and the Company's most recent quarterly or annual financial
statements, as the case may be. The Company or DSNC, as the case may be,
shall have the option to pay the repurchase price either in cash or DSNC
common stock, which shall be valued at the closing price on the notice date.
If the Company elects to pay the repurchase price in DSNC common stock, DSNC
agrees to issue to the Company sufficient shares of DSNC common stock to
enable the company to pay the repurchase price on a timely basis.
(c) Right to Repurchase Common Stock in the Event of Acquisition of DSNC
common stock. If another entity acquires 51% or more of DSNC's common stock
or DSNC is a party to a merger, consolidation or similar transaction in which
it is not the surviving corporation, DSNC and the Company shall have the
right to repurchase Duble's and Scranton's remaining Common Stock interest in
the Company based on a ratio of the per share price offered for DSNC's common
stock in the transaction divided by DSNC's latest annual or quarterly net
income, if positive, or net sales, if DSNC's net income is negative (the
"Acquisition Ratio") upon 10 days written notice. The valuation of Duble's
and Scranton's remaining Common Stock interest in the Company shall be
computed in accordance with the terms and procedure set forth in Section 2.03
(b)(as adjusted for the appropriate percentage of Common Stock that the
Company or DSNC is purchasing), except that references to the Repurchase
Ratio shall be replaced with references to the Acquisition Ratio. DSNC or
the Company, as the case may be, shall have the option to repurchase
Duble's and Scranton's remaining Common Stock interest in the Company by
payment in cash, DSNC common stock or securities of the acquiring company.
DSNC common stock and securities of the acquiring company used to
repurchase Duble's and Scranton's remaining Common Stock interest shall be
valued at the price of such securities on the notice date.
(d) Right to Repurchase Common Stock in the event of the Sale of All or
substantially All of DSNC's Assets. IF all or substantially all of DSNC's
assets are sold to a company that is not affiliated with DSNC, then DSNC
and the Company shall have the right upon 30 days written notice to
repurchase Duble's and Scranton's remainng Common Stock interest in the
Company based on the terms and procedure set forth in Section 2.03(b). (as
adjusted for the appropriate percentage of Common Stock that the Company or
DSNC is purchasing), except that the repurchase price shall be based upon
DSNC's and the Company's most recent annual or quarterly financial
statements, as the case may be. The Company or DSNC, as the case may be,
shall have the right to pay the repurchase price in cash or DSNC common
stock, which shall be valued at the closing price on the notice date. If
the Company elects to pay the repurchase price in DSNC common stock, then
DSNC agrees to issue to the Company suffifient shares of DSNC common stock
to enable the Company to pay the price on a timely basis.
(e) Other Rights to Repurchase Common Stock.
(i)Bid. At any time until termination of this agreement, DSNC may submit
a written bid (a "Bid) to Duble and Scranton (together "D&S"), or D&S may
submit a bid to DSNC, setting forth the cash price per share at which DSNC
or D&S, as the case may be (the "Bidder"), would purchase all of the
outstanding Common Stock owned by the other Shareholder(s) and their direct
or indirect transferees and undertaking to repayk, or cause to be repaid,
all indebtedness owd by the Company to the sellers(s) of the Common Stock.
A Bid may not be revoked except with the written consent of DSNC and D&S.
A Bid by D&S must be signed by both Duble and Scranton for this Section 2.04
(e) to be operative.
(ii) Repsonse. Within 30 days after the Bid is submitted, D&S, if they are
not the Bidder (such party to be referred to as the "Responder(s)") shall
submit to the Bidder wirtten notice of their or its election to (A) sell
all of the Responder(s) shares of Common Stock at the price and on the
terms set forth in the Bid and receive payment for all of the indebtedness
owed by the Company to the Responder(s) or (B) purchse all direct or
indirect transferees at the price and on the terms set forth in the Bid
and cause all indebtedness owed by the Company to the Bidder and such
transferees to be repaid. If D&S are the Responders, such notice must be
signed by both
Duble and Scranton. The failure of a REsponder to submit a timely notice in
response to a Bid shall be treated as an election to sell the Responder(s)
Common Stock and receive payment for indebtedness owned by the Company to
the Responder(s). An electioned or deemed election by D&S as Responders to
sell their Common Stock and an election by DSNC as Responder to purchase
Common Stock owned by D&S shall require DSNC to purchase, and D&S and all
prior direct or indirect transferees of Duble or Scranton to sell, all of
the Common Stock owned by D&S and such transferees in accordance with clause
(III) below. An election or deemed election by DSNC as Responder to sell
its Common Sotck and an election by D&S as Responders to purchase Common
Stock owned by DSNC shall require D&S to purchase, and DSNC and all prior
direct or indirect transferees of DSNC to sell, all of the Common Stock
owned by DSNC and such transferees in accordance with clause (iii) below.
(iii) Purchase and Sale. If the Responder(s) elect to sell, the Bidder
shall purchase and the Responder(s) (and their transferees) shall sell all
of the Common Stock owned by Responder(s) and their transferees at the price
set forth in the Bid, and Bidder shall repay or cause to be repaid all
indebtedness owed by the Company to the Responder(s) and their transferees,
within 60 days after receipt of the notice of the Responder(s) election. If
the Responder(s) elect to purchase the Bidder's Common Stock, the Bidder's
(and the Bidder's transferees') Common Stock shall be sold by the Bidder
(and the Bidder's transferees) and purchased by the Responder(s) at the
price set forth in the Bid, and the Responder(s) shall repay or cause to be
repaid all indebtedness owed by the Company to the Bidder and the Bidder's
transferees, within 60 days after receipt of the notice of the Responder(s)
election. If the purchaser of the Common Stock pursuant to this Section
2.04(e) does not tender payment as provided in this clause (iii) within such
60-day period (a "Defaulting Purchaser"), the other party (i.e., D&S if they
are not the Defaulting Purchaser or DSNC if it is not the Defaulting
Purchaser) shall have the right, but not the obligation, to purchase the
Defaulting Purchaser's Common Stock at a cash price equal to 90% of the
price set forth in the Bid within 120 days after receipt of the notice of
the Responder(s) election provided that all indebtedness owed by the Company
to the Defaulting Purchaser is repaid at the time of such purchase.
2.05 Securities Matters. Duble, Scranton and their permitted
transferees agree that they will acquire any shares of DSNC common stock issued
to them pursuant to Section 2.03 and 2.04 for their own accounts and not with a
view to, or for resale in connection with, any distribution thereof, and that
they have no present intention of selling or distributing such DSNC common
stock. They understand that the DSNC common stock that may be acquired by
them pursuant to Sections 2.03 and 2.04 will not be registered under the
Securities Act of 1933, as amended (the "Act"), or under any state
securities law, by reason of a specific exemption from the registration
provision of the Act and state securities laws that depend upon, among other
things, the bona fide nature of such Shareholders' investment intent as
expressed herein. The Shareholders acknowledge that the DSNC common stock
they acquire hereunder must be held indefinitely unless subsequently
registered under the Act and applicable state securities laws or an
exemption from such registration is available. Each such Shareholder agrees
that he has had the opportunity to review the forms 10-K, 10-Q, and 8-K and
all related materials DSNC has filed under the Securities Exchange Act of
1934, as amended, with the Securities and Exchange Commission.
III. REPURCHASE IN THE EVENT OF DEATH
3.01 Death of a Shareholder. Upon the death of a Shareholder who is
a natural person, the Company shall repurchase, and the fiduciary of the
deceased Shareholder's estate shall sell, all of the Common Stock owned by the
deceased Shareholder in accordance with Article III at the price described in
Section 2.03(b) (as adjusted for the appropriate percentage of Common Stock
that the Company or DSNC
is purchasing), except that the
repurchase price shall be based upon DSNC's and the Company's most recent
annual or quarterly financial statements, as the case may be.
3.02 Purchase of Insurance.
(a) Policies. The Company shall insure the life of each Shareholder who
is a natural person, naming itself as the beneficiary of the policies. All
policies shall be listed on Schedule A attached hereto and made a part
hereof, and the policies and any proceeds received thereunder shall be held
by the Company in trust for the purpose of this Agreement. The Company
shall have the right to take out additional insurance policies on the life
of any Shareholder who is a natural person whenever in the opinion of the
Board of Directors of the Company, additional insurance may be required to
carry out the Company's obligations under this Agreement. The Company
shall pay all of the premiums on the insurance policies taken out by it
pursuant to this Agreement and shall give proof of the payment to each of
the Shareholders within (15) days after the due date of each premium. The
Company agrees to keep such policies in full force and effect. The Company
shall not reduce the amount of any of the insurance policies listed on
Schedule A without the agreement of all of the parties hereto.
(b) Rights of Ownership. The Company shall be the sole owner of
the policies issued to it and may apply to the payment of premiums any
dividends declared and paid on the policies.
3.03 Payment of Purchase Price of Common Stock on Death. The purchase
price for the Common Stock set forth in Section 2.03(b) shall be paid, to
the extent of any net insurance proceeds of any policy of insurance on the
life or the deceased shareholder for which the Company is the beneficiary,
in cash to the estate of the decedent and/or his beneficiary within 10 days
of the receipt of the insurance proceeds by the Company and the remaining
portion of the purchase price shall be paid, at the option of the Company,
in cash or with a promissory note issued in accordance with Article IV. In
the event there is no designated beneficiary, the Company reserves the
right to withhold the payment for such shares until the legal
representative of said estate is qualified by the appropriate letters of
authority.
3.04 Delivery of Common Stock. Upon the payment to the estate of
the deceased Shareholder of the purchase or redemption price, the legal
representative shall endorse and deliver to the Company all certificates
representing the shares of Common Stock owned by the deceased Shareholder and
any other documents necessary to effectuate the transfer. If any
certificates or other documents are not delivered to the Company pursuant
to this Section 3.04, the shares of Common Stock repurchased or redeemed by
the Company shall be automatically deemed cancelled without any further
action by teh parties and shall not entitle the holder thereof to any
rights as a Shareholder of the Company whatsoever.
3.05 Purchase of Insurance Policies on Withdrawal of Party. In the
event that a Shareholder who is a natural person ceases to be the owner of any
shares of Common Stock of the Company such Shareholder shall have the right
to purchase from the Company the insurance policy procured on such
Shareholder's life listed on Schedule A for a price equal to the cash
surrender value of the policy at the date of the purchase by such
Shareholder. This right to purchase may only be exercised and the payment
must be made within two business days of the date that the Shareholder
ceases being a holder of the Company's Common Stock. Upon proper exercise
of the right of purchase granted by this Section 3.05 and upon receipt of
payment the Company shall deliver the policies to the Shareholder and shall
execute any necessary instruments of transfer. In event any policies of
insurance subject to the foregoing option are not so purchased, such
policies shall be released from the terms of this Agreement.
3.06 Purchase of Insurance Policies on Termination. Each Shareholder who
is a natural person shall have the right, within 30 days after termination
of this Agreement as provided in Article VI, to purchase from the Company
policies of insurance on his life at a price equal to the cash surrender
value of the policies on the date of termination. Upon receipt of the
purchase price, the Company shall deliver the policies to the respective
purchasers and shall execute any necessary instruments of transfer. The
insured, upon request of its Shareholders, shall have no further rights on
any policies not purchased within the above 30 day period.
IV. PAYMENT BY PROMISSORY NOTE
4.01 Payment By Promissory Note. In the event that the Company
repurchases a Shareholder's Common Stock in connection with the Shareholder's
death, termination of affiliation or disability or pursuant to Section 5.02,
the Company may pay the portion of the purchase price that is not covered by
life insurance proceeds in (60) equal monthly installments. The first
installment shall be paid at the time the endorsed stock certificates are
delivered to the Company. Any remaining installments shall be evidenced by
a promissory note bearing interest at an annual rate the greater of ten
percent (10%) or the minimum rate required by the Internal Revenue Code of
1986, as amended, to avoid unstated interest or original issue discount.
The promissory note shall permit prepayment at any time without penalty and
shall provide for immediate paymeht of the balance due on default in
payment of principal or interest.
V. CORPORATE AND STOCK RELATED MATTERS.
5.01 Endorsement on Stock Certificates. All stock certificates issued
by the Company shall bear the following endorsement:
Any transfer or encumbrance of this certificate or any share of stock
represented thereby is restricted and is subject to a Shareholder Agreement
dated , 1996 (the "Shareholder Agreement"), copies of which
are on file at the registered office of the corporation. The acceptance of a
transfer of this certificate constitutes acceptance by the transferee of
all of the provisions of that Shareholder Agreement.
5.02 Foreclosure of Encumbrances on Common Stock; Attachments or
Levies upon Common Stock. If an encumbrance upon any Common Stock is
foreclosed, or if any Common Stock shall be attached or otherwise levied
upon, a person who acquires an interest in such Common Stock shall hold such
interest subject to this Agreement. At any time after the acquisition of such
interest, the Company may purchase any number of such shares of Common
Stock by giving written notice to the Shareholder whose shares are
encumbered, attached, or levied upon, and the Shareholder shall be deemed to
be the agent of any person who has acquired such interest. In the event of
such a purchase, the purchase price set forth in Section 2.03(b) (as adjusted
for the appropriate percentage of Common Stock that the Company is
purchasing), except that the repurchase price shall be based upon DSNC's and
the Company's most recent annual or quarterly financial statements. as the
case may be. Payment shall be made, at the option of the Company, by cash
or a promissory note issued by the Company in accordance with Article IV,
except that no interest shall be payable upon any unpaid principal balance.
5.03 Transferees to be Bound by this Agreement. The acceptance of
any shares of Common Stock shall constitute acceptance by any transferee of
all provisions in this Agreement, and the transferee shall execute a copy of
this Agreement as a condition precedent both to the transfer of any shares
to him, her or it on the books of the Company and to acquiring any rights as a
shareholder.
5.04 Indebtedness of Selling Shareholder. In connection with any repurchase
of a selling Shareholder's shares of Common Stock by the Company pursuant
to Sections 2.03, 2.04, 3.01 or 5.02, the repurchase price shall be
reduced by
the amount of any indebtedness of the selling or the deceased Shareholder
to the Company, as the case may be, and such indebtedness shall be canceled
to the extent of the reduction.
VI. CORPORATE GOVERNANCE
6.01 Board of Directors. The Board of Directors of the Company
shall consist of five members, three of whom shall be selected by DSNC, one
of whom shall be elected by Duble and one of whom shall be elected by Scranton;
provided that neither Duble nor Scranton shall be entitled to representation
on the Board of Directors in the event that he is no longer a Shareholder of
the Company and the number of members comprising the Board of Directors shall
be reduced accordingly upon the resignation of any director pursuant to this
proviso. The Shareholders agree to vote their shares in accordance with this
agreement under Section 55-7-31 of the North Carolina Business Corporation
Act and shall be in effect for a period of 10 years from the date of
this Agreement. The shareholders agree to renew this voting agreement
if this Agreement is in effect thereafter.
6.02 Major Decisions. The following actions shall require the
unanimous consent of the Board of Directors:
(i) selling, transferring, exchanging or otherwise disposing of more than
25% of the Company's assets (other than in the ordinary course of business);
(ii) incurring any debt of the Company in excess of $25,000 (except trade
debt incurred in the ordinary course of business);
(iii) obligating the Company as a surety, guarantor or accommodation party
to any obligation in excess of $25,000;
(iv) any merger, consolidation, recapitalization or share exchange to
which the Company is a party; and
(v) any dissolution, liquidation or winding up of the Company's affairs.
VII. NONCOMPETITION AND CONFIDENTIALITY
7.01 Confidentiality. Each of DSNC, Duble, Scranton and their permitted
transferees agree that they will not at any time disclose to others any trade
secrets or confidential information about the Company's business or any of
its proprietary rights except as required in the ordinary course of
performing any employment duties for the Company. Any inventions,
proprietary information or discoveries resulting from any work done by
Duble, Scranton or their permitted transferees shall be promptly disclosed
to the Company and become its exclusive property, and they agree to sign and
deliver at any time any instruments confirming such exlusive ownership by
the Company.
VIII. TERMINATION
8.01 Termination. This Agreement shall terminate upon the occurrence of any
of the following events:
(a) Cessation of the Company's business as determined by its Board of
Directors, which determination shall be final and binding on the parties;
(b) The bankruptcy, receivership, or dissolution of the Company;
(c) The written agreement of all of the Shareholders who are parties to
the Agreement; or
(d) At such time as only one Shareholder is surviving or otherwise in
existence.
Upon the termination of this Agreement, each Shareholder shall surrender to
the Company the certificates for his Common Stock and the Company shall
issue to him in lieu thereof new certificates for equal number of shares
without the endorsements set forth in Section 5.01.
IX. MISCELLANEOUS
9.01 Agreement Drafted by DSNC's Attorney. The Shareholders each
acknowledge that counsel for DSNC, Dykema Gossett PLLC, prepared this
Agreement on behalf of and in the course of its representation of DSNC, and
that:
(a) He or she has been advised by DSNC's counsel that a conflict
of interest may exist between his or her interest and those of the Company,
DSNC and the other Shareholders; and
(b) He or she has been advised by DSNC's counsel to seek the advice of
independent counsel and has had an opportunity to seek such independent
advice; and
(c) He or she has received no representations from DSNC's counsel about
the tax consequences of this Agreement but has been advised that this
Agreement may have tax consequences; and
(d) He or she has been advised by DSNC's counsel to seek the advice of
independent tax counsel and has had the opportunity to seek such independent
tax advice.
9.02 Notices. All notices, demands and other communications hereunder
shall be in writing and, unless otherwise specifically provided herein, shall
be deemed to have been duly given when physically delivered or three days
after having been deposited in the United States Mail, as certified mail
with return receipt requested and with postage prepaid, addressed to the
recipient, as follows:
If to DSNC:
Michael W. Grieves
Data Systems Network Corporation
34705 West Twelve Mile Road
Suite 300
Farmington Hills, Michigan 48331
If to Duble:
8411 Glenwood Avenue
Raleigh, North Carolina 27612
If to Scranton:
220 Dalton
Raleigh, North Carolina
27615
If to the Company:
Unified Network Services,
Inc. 8411 Glenwood Avenue
Raleigh, NC 27612
Such names and addresses may be changed by written notice.
9.03 Entire Agreement and Amendments. This Agreement contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein and may be amended or terminated only by a written
instrument executed by Duble, Scranton, DSNC (or its assigns) and the
Company; provided, that to the extent either Duble or Scranton is no
longer a shareholder of the Company, his signature is not necessary to
amend or terminate this Agreement. There are no restrictions, promises,
warranties,
9.04 Captions. The captions to the Sections and Subsections contained
in this Agreement are for reference only, do not form a substantive part of
this Agreement and shall not restrict or enlarge substantive provisions of
this Agreement.
9.05 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
9.06 Parties in Interest. This Agreement shall bind and shall inure to
the benefit of the parties hereto, their respective successors and assigns.
9.07 Assignment. No party to this Agreement shall assign, sell or
otherwise transfer this Agreement, or any of the rights, obligations or
interests arising hereunder, without the prior written consent of all of the
other parties.
9.08 Applicable Law. This Agreement shall be construed and enforced
in accordance with the laws of the State of North Carolina, except that
Section 7.01 shall be construed and enforced in accordance with the laws of
the State of Michigan.
9.09 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by an arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. It is the intention of the parties that the arbitration award
shall be final and binding, shall not be appealable and that a judgment of
any circuit court having jurisdiction thereof may be rendered upon the
award, and enforcement may be had according to its terms. The place of
arbitration shall be the offices of the American Arbitration Association in
Detroit, Michigan. Each party shall bear its own arbitration costs and
expenses. The arbitrator shall not have jurisdiction or authority to
change, alter, amend modify, add to or subtract from any of the provisions
of this Agreement. The arbitrator's sole authority shall be to interpret
or apply any clause or clauses of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the day and year first above written.
UNIFIED NETWORK SERVICES, INC.
By: /s/ Kirk Duble
Its: President
DATA SYSTEMS NETWORK
CORPORATION
By: /s/ Michael W.
Grieves Its: President
/s/ Kirk Duble
Kirk Duble
/s/ David Scranton
David Scranton
[DESCRIPTION] Stock purchase agreement
STOCK PURCHASE AGREEMENT AMONG
UNIFIED NETWORK SERVICES, INC.
AND DATA SYSTEMS NETWORK CORPORATION
This Stock Purchase Agreement (the "Agreement") is entered into as of
February 22,1996 by and among Unified Network Services, Inc., a North
Carolina corporation ("UNS"), and Data Systems Network Corporation, a
Michigan corporation ("Purchaser").
RECITALS
1. All of the outstanding capital stock of UNS is owned by Kirk Duble and
David Scranton (the "Shareholders").
2. UNS currently has outstanding promissory notes payable to DSNC in an
amount totalling $261,187.89.
3. The parties intend that, subject to the terms and conditions hereinafter
set forth, Purchaser shall purchase from UNS 7,000 shares of common stock of
UNS which, when issued and outstanding, will represent 70% of the issued and
outstanding common stock of UNS on a fully diluted basis and Purchaser shall
extend to UNS an additional loan so that the total indebtedness to Purchaser
from UNSwill be $500,000, all of which will be evidenced by a new promissory
note to be executed concurrently with the execution of this Agreement.
4. Purchaser is also entering into a Shareholder Agreement, simultaneously
with the execution of this Agreement, to purchase or to otherwise acquire
UNS's remaining outstanding common stock from Shareholders at future dates
as designated in such agreement.NOW, THEREFORE, in consideration of the
premises and the mutual covenants and agreements contained herein, the
parties hereto, intending to be legally bound, do hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF STOCK
1.1 Purchase and Sale of Stock. Subject to the terms and conditions of this
Agreement, Purchaser hereby purchases from UNS and UNS hereby sells to
Purchaser 7,000 shares of its authorized but unissued common stock, $1.00
par value, which when issued and outstanding, will equal 70% of UNS'sissued
and outstanding common stock on a fully diluted basis (the "Stock").
1.2 The Closing. The closing is hereby being held at AM on
February 22, 1996 at the "Closing Date"). UNS is hereby delivering to
Purchaser a certificate representing the Stock, registered in the name of
Purchaser against delivery of the Purchase Price (as defined below).
1.3 Consideration for the Stock. The consideration for the Stock is One
($1.00) per share, or $7,000 (the "Purchase Price"). In addition, Purchaser
agrees to make an additional loan to UNS on the date hereof in an amount
equal to Two Hundred Thirty Eight Thousand Eight Hundred Twelve and 11/100
($238,812.11) Dollars (the "Loan Amount").
1.4 Payment. The Purchase Price is hereby paid to UNS by check, and
hereby loans to UNS the Loan Amount on the terms set forth in, and the
parties agree that all other loans outstanding from UNS to the Purchaser on
the date of this Agreement shall be included under and evidenced by, the form
of Non-negotiable Promissory Note attached as Exhibit A.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF UNS
Subject to and except for information contained in the disclosures set forth
in the schedules delivered to Purchaser prior to the execution of this
Agreement, all of which are signed for identification by the parties,
attached hereto and made part hereof (the "Schedules"), UNS represents and
warrants to Purchaser that the statements made in this Article 2 are true and
complete as of the date of this Agreement. Any investigation of UNS
conducted by Purchaser or its representatives shall not affect any of the
representations and warranties hereunder.
All of the representations and warranties of UNS set forth in this Agreement
shall survive the Closing Date for a period of three (3) years.
2.1 Organization and Standing.
(a) UNS is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina and has full power
and authority to own, operate and lease its properties and to carry on its
business as now conducted, and is in good standing and duly qualified conduct
business in each of the jurisdictions in which the ownership of real
property or the conduct of its business requiressuch qualification and the
failure to be so qualified, either individually or in the aggregate, would
have a material adverse effect upon the business, properties, financial
condition, results of operations or net worth of UNS. A list of all
jurisdictions in which UNS is qualified to do business is set forth on
Schedule 2.1.
b) UNS has delivered to Purchaser complete and accurate copies of its Articles
of Incorporation and Bylaws, as amended and presently in effect, and its
minute books, which contain a complete and accurate record of all of its
directors' and Shareholders' meetings and other corporate actions taken by
its directors and Shareholders. The UNS stock books have been provided for
Purchaser's review and are complete and accurate as of the date hereof.
2.2 Capitalization. The authorized capitalization of UNS consists of one
hundred thousand (100,000) shares of Common Stock, $1.00 par value, three
thousand (3,000) shares of which are issued and outstanding and owned by
Shareholders. No other shares of capital stock of UNS are issued or
outstanding. All of the shares of Stock when issued will be validly issued,
fully paid and nonassessable, and will have been issued in full compliance
with all applicable federal and state securities laws. There are no options,
calls, preemptive or subscription rights, registration rights, rights of
refusal, warrants or other securities or rights outstanding which are
convertible into, exercisable for or relate to any shares of capital stock
of UNS. Any repurchases by UNS of any of its securities have been in
accordance with all applicable laws.
2.3 Subsidiaries. UNS does not own directly or indirectly any interest or
have any investment (whether debt or equity) in any corporation, partnership,
joint venture or other business, except short-term investments for the purpose
of cash management.
2.4 Financial Statements. UNS has previously delivered to the Purchaser
the following financial statements (collectively, the "Financial
Statements"): an audited balance sheet and statements of operations, changes
in stockholders' equity, and cash flow as of and for the fiscal year ended
December 31, 1995 for UNS. December 31, 1995 is referred to herein as the
"Final Balance Sheet Date." The Financial Statements fairly present the
properties, assets, financial position and results of operations of UNS as
absolute or contingent, arising out of transactions entered into or any state
of facts existing as of the dates of the Financial Statements, except to the
extent reflected therein. All material transactions between UNS and the
Shareholders (other than in their capacity as UNS directors or employees of
UNS) occurring or accruing during the periods covered by the Financial
Statements and any significant items of income or expense which are unusual
or of a non-recurring nature are separately disclosed in the Financial
statements.
2.5 Obligations to and from the Shareholders and Employees. Schedule
2.5 contains a description of all indebtedness owed to UNS by the Shareholders,
any relative of the Shareholders, any entity owned or controlled in whole or in
part by any such person (collectively, the "Related Persons"), or any employee
of UNS on the Final Balance Sheet Date, or thereafter loaned by UNS to any
Related Person or employee, and all such indebtedness as of the Final Balance
Sheet Date is reflected as an asset of UNS in the Financial Statements prepared
as of such date. Schedule 2.5 contains a description of all indebtedness owed
each Related Person or any employee of UNS by UNS on the Final Balance Sheet
Date, and thereafter loaned by each Related Person or employee, and all such
indebtedness as of the Final Balance Sheet date is reflected as a liability
of UNS in the Financial Statements.
2.6 Accounts Payable. A listing of all accounts payable as of the Final
Balance Sheet date which UNS is or will become obligated to pay has
previously been made available to Purchaser. Except as set forth on
Schedule 2.6, all of UNS's accounts payable incurred since the Final Balance
Sheet Date are trade payables arising in the ordinary and usual course of
its business.
2.7 Authority of UNS. UNS has full corporate power and authority to
execute, deliver and perform its obligations under this Agreement. The Board
of Directors of UNS has duly authorized the execution and delivery of this
Agreement and the performance by UNS of its obligations hereunder and no
other corporate proceedings on the part of UNS are necessary to authorize
this Agreement and theperformance by UNS of its obligations hereunder.
This Agreement is (assuming the due execution and delivery by the other
parties hereto) a binding obligation of UNS, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other similar laws relating to or affecting
the right of creditors generally and except as enforcement is subject to
general principles of equity.
2.8 No Breach of Statute or Contract. The execution and delivery of this
Agreement by UNS, and the performance and consummation by UNS of
the transactions contemplated by this Agreement, do not result in any conflict
with, breach or violation of or default, termination, forfeiture or lien under
(or upon the failure to give notice or the lapse of time, or both, result in
any conflict with, breach or violation of or default, termination or
forfeiture or lien under) any terms or provisions of UNS's Articles of
Incorporation of Bylaws, or any statute, rule, regulation, judicial or
governmental deree, order or judgment, or any mortgage, indenture, agreement,
lease or other instrument to which UNS is a party or to which any of UNS's
assets is subject.
2.9 Government Authorizations and Required Consents. No consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority or any other third party is required for
the execution and delivery by UNS of this Agreement or the consummation by
UNS of any of the transactions contemplated by this Agreement.
2.10 Tax and Other Returns and Reports. Except as set forth in Schedule 2.10,
UNS has duly filed all federal, state, local, foreign and other tax reports and
returns required to be filed by it and has duly paid all taxes, interest,
penalties, assessments, deficiencies and other charges due or claimed to be
due from it by all taxing authorities including, without limitation, those
due in respect of its properties, income, franchise, sales and uses, licenses
and payrolls. All such tax returns and reports were correct and complete in
all respects. The reserves for taxes contained in the Final Balance Sheet
are adequate to cover UNS's tax liabilities as of the Final Balance Sheet
date and the reserves for taxes carried on the books of UNS on the date of
this Agreement are adequate to cover its tax liabilities as of such date.
Since the Final Balance Sheet date, UNS has not incurred any tax liabilities
other than in the ordinary course of business. There are no tax liens upon
any of the properties or assets, real, personal or mixed, tangible or
intangible, of UNS (other than liens for current taxes not yet due).
Except as reflected in the Final Balance Sheet, there
are no pending claims asserted for, or, to the best knowledge of UNS,
questions relating to, taxes, interest, penalties, assessments or deficiencies
against UNS and there is no basis for any such question or claim. UNS has
not executed or filed with any taxing authority any agreement extending the
period for assessment or collection of any taxes. The tax returns of UNS
have not been audited by any governmental agencies.
2.11 Conduct of Business. Since the Final Balance Sheet date, there have not
been any material adverse changes, either individually or in the aggregate, in
the general affairs, business, prospects, properties, financial position,
results of operations, or net worth of UNS. The business affairs of UNS have
since such date been conducted in the usual and ordinary course; after the
close of business on such date no transaction has taken place or contract
entered into other than in the usual and ordinary course of business; and
specifically, without limitation of the foregoing, except in the usual and
ordinary course of business, no sales, removals or deliveries of inventory,
machinery, fixtures or other tangible or intangible assets of any nature have
been made since the Final Balance Sheet date by UNS.
2.12 Casualties. Since the Final Balance Sheet date there have not been
any casualties affecting UNS or loss, damage or destruction of or to any of
the properties used by it in connection with its business.
2.13 Subsequent Events. Except as disclosed in Schedule 2.13 since the
Final Balance Sheet Date, UNS has not:
(i) issued any capital stock or declared or paid any dividend or made
any other payment from capital or surplus or made any other distribution
with respect to its capital stock in cash or property of any nature, or direct
or indirectly redeemed, purchased or otherwise acquired or recapitalized or
reclassified any of its capital stock or liquidated in whole or in part;
(ii) merged or consolidated with any other corporation,
(iii) created, incurred or assumed or committed to create, incur or assume
any indebtedness, obligation or other liability, whether accrued, absolute
or contingent, except for accounts payable or other current liabilities which
were incurred in the usual and ordinary course of business (except for a
capital expenditure or series of related capital expenditures in an aggregate
amount of greater than $20,000);
(iv) mortgaged, pledged or otherwise encumbered any of its assets;
(v) raised salaries, hourly rates, fringe benefits or the rate of bonuses
or commissions or other compensation (except for normal increases consistent
with past practice),
(vi) varied insurance coverage with respect to the coverage which was in
effect on the Final Balance Sheet date,
(vii) altered or amended its Articles of Incorporation or Bylaws;
(viii) entered into, amended or terminated any contract, agreement,
franchise, permit or license, other than in the usual and ordinary course of
business;
(ix) sold, transferred or otherwise disposed of any assets, other than
inventory or accounts receivable, with an aggregate book value of greater than
$20,000; or
(x) agreed to do any of the things described in the preceding clauses (i)
through (ix).
2.14 Undisclosed Events or Facts. To the best knowledge of UNS, there are no
events, transactions, circumstance, conditions or other facts (including,
without limitation, any contemplated, proposed or pending governmental laws,
rules or regulations) which, either individually or in the aggregate, (i) would
have a material adverse effect on the general affairs, business, prospects,
properties, financial position, results of operations or net worth of UNS, or
(ii) should be disclosed in order to make any exhibit, document, statement,
schedule, representation or warranty contained herein or delivered pursuant
hereto not misleading.
2.15 Real Property and Leasehold Interests.
(a) Schedule 2.15(a)(i) lists all real property owned by UNS, (ii) lists all
leases of real property under which UNS is a lessee, and (iii) describes all
buildings and other material improvements located on each such property.
UNS has good and marketable title to all real property listed as owned on
Schedule 2.15, free and clear of all liens, encumbrances, restrictions, leases,
easements, or claims whatsoever, except as set forth on Schedule 2.15.
UNS has delivered to Purchaser copies of all leases referred to above. UNS
has valid and enforceable leasehold interests under all of such leases, subject
to the terms and conditions set forth therein. All such leases are valid and
full force and effect, and neither UNS nor the respective lessors are in
default in any material respect thereunder, and there does not exist any
event with which notice or the lapse of time or both would constitute a
material default thereunder except for the nonpayment of rent, taxes or other
amounts not yet due and payable.
2.16 Material Contracts. UNS has listed on Schedule 2.16 and furnished
to Purchaser copies of all of the existing written executory material contracts
and written commitments of UNS of any kind or nature (including, without
limiting the generality of the foregoing, all labor agreements, leases, notes
or other evidences of indebtedness, mortgages, pension, stock option, stock
purchase, bonus, profit sharing and other employee or executive benefit plans
or agreements, sales representation agreements, purchase orders, commitments,
and powers of attorney) except:
(i) each contract with a customer made in the usual and ordinary course
of business for the sale of finished goods whereby UNS is obligated to deliver
less than $5,000 in invoice value of finished goods in each transaction or
series of related transactions; and
(ii) purchase commitments made in the ordinary course of business at
prevailing prices after the date hereof and each purchase commitment made
on or prior to the date hereof which is not in excess of $5,000 in each
transaction or series of related transactions.
The aggregate purchase orders or purchase commitments outstanding on the
date hereof not made in the ordinary course of business do not exceed $10,000.
Except as set forth on Schedule 2.16 such purchase orders and purchase
commitments may be cancelled at any time without penalty.
2.17 Validity of Material Contracts. To the best knowledge of UNS, all
of the material contracts, obligations, commitments, agreements, undertakings,
arrangements or leases referred to in this Agreement or any exhibit or schedule
hereto are valid and binding obligations of the parties thereto enforceable in
accordance with their respective terms, except to the extent that enforcement
may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting the rights of
creditors generally and except as enforcement thereof is subject to general
principles of equity, and there are no liabilities of any of the parties there
arising from any material breach of or default in any provision of any such
contract, obligation, commitment, agreement, undertaking, arrangement or
lease, nor has there been any event which would permit the acceleration of
any obligation of any party thereto,
which would cause the creation of a lien or encumbrance upon any asset of
UNS or which would excuse UNS, in whole or in part, from performing its
obligations thereunder. Since December 31, 1995, except as set forth on
Schedule 2.17, neither UNS nor Shareholders have any information which
might reasonably indicate that any of the customers or suppliers of UNS
intends to cease purchasing from, selling to or dealing with UNS in the
manner inwhich such transactions have previously occurred, nor has any
information been brought to the attention of any of them which might
reasonably lead UNS to believe any customer or supplier intends to alter in
any significant respect the amount of such purchases, sales or the extent of
dealings with UNS or would alter in any significant respect such purchases,
sales or dealings in the event of the consummation of the transactions
contemplated hereby; provided, however, that UNS does not represent or
warrant that the change of ownership of UNS contemplated by this
Agreement will not have an effect on the continuing relationship of UNS
with its customers or suppliers.
2.18 Previous Conduct of Business. All of the transactions of UNS with
third persons have been conducted on an arm's length basis. Except as set
forth on Schedule 2.18, to the best knowledge of UNS, none of the officers,
directors or key employees of UNS (including purchasing agents or departmental
managers) has any direct or indirect interest, ownership (other than through
noncontrolling investments in securities of any publicly held corporations) or
profit participation in businesses with which UNS has had transactions or which
are its competitors or potential competitors. No significant portion of the
sale or other ongoing business relationships of UNS are dependent upon the
friendship or the personal relationships (other than those customary within
business generally) of the Shareholders or any of the officers, directors or
key employees of UNS. Except as reflected on the Final Balance Sheet or on
Schedule 2.18, UNS does not have any outstanding loans or other advances to
any officer, director or employee of UNS except for travel advances in the
usual and ordinary course of business. Since December 31, 1995, UNS has not
forgiven or cancelled, without receiving full consideration, any indebtedness
owing to it by the Shareholders or any officer, director or employee of UNS.
2.19 Compliance with Laws; Litigation; and Product Liability. To the
best knowledge of UNS,
(a) With regard to UNS's business, assets, business practices and products,
UNS has complied in all material respects with all applicable laws,
regulations, orders and other requirements of governmental authorities.
(b) Neither UNS nor Shareholders are subject to any judicial,
governmental or administrative order, judgment or decree which relates to
the business or operations of UNS. No investigation, proceeding or other
litigation of any kind or nature to which UNS may be a party is now pending
or, to the best knowledge of UNS, threatened. Except as set forth on Schedule
2.19, no claim which has not ripened into litigationor other proceeding has
been made or, to the best knowledge of UNS, threatened against it; and no
facts, circumstances or conditions exist which might reasonably give rise to
such claims, investigations, proceedings or litigation.
2.20 Labor Relations. Except as specifically disclosed in Schedule 2.20:
(a) UNS is not presently and has not in the past been a party to any
pension, retirement, profit sharing, savings, bonus, incentive, deferred
compensation, group health insurance or group life insurance plan or
obligation, employee welfare benefit plan, other employee benefit plan or to
any collective bargaining agreement or other contracts, written or oral, with
any trade or labor union, employees' association or similar organization.
(b) There are no labor disputes to which UNS is a party and, since
January 1, 1995, no employees of UNS have been represented by any union or
other labor organization. Since January 1, 1995, no union or other labor
organization has petitioned the National Labor Relations Board for election to
represent any employees of UNS, and to the best knowledge of UNS, no such
petition is currently threatened. UNS has no union and no labor organization
currently actively soliciting union authorization cards and there has been no
recent substantial increase in complaints from employees concerning wages,
terms of employment or working conditions.
(c) UNS has no knowledge that an officer or key employee of UNS is
considering the termination of his employment.
(d) UNS has complied in all material respects with all applicable laws and
regulations relating to the employment of labor, including, without limitation,
any rule, regulation or order promulgated under the Occupational Safety and
Health Act of 1970, as amended. UNS has withheld all amounts required by law
or agreement to be withheld from wages for the payment of any tax or
contribution.
2.21 Inventories. All inventories reflected in the Financial Statements are
valued at the lower of cost (first in, first out) or market except as set
forth in Schedule 2.21. All of the inventories (including raw materials,
work in process and finished goods) of UNS are in good condition, are not
obsolete, are nondefective and are usable or saleable within one year from
the date hereof in the usual and ordinary course of business as conducted as
of the date hereof. All inventory of UNS is in the physical possession or
control of UNS at its place of business.
2.22 Tangible Personal Property. All tangible personal property owned or
used by UNS is situated at the business premises of UNS and is currently used
connection with its business.Except as set forth in the Financial Statements or
Schedule 2.22, UNS has good and marketable title to all tangible personal
property of any kind used in connection with its business free and clear of all
liens, leases, encumbrances or claims whatsoever.
2.23 Intellectual Property. Schedule 2.23 contains lists of all material
copyrights, patents, trademarks, trade names and service marks whether
registered or common law, and all applications therefore that are pending or in
the process of preparation in the United States and in foreign countries,that
directly or indirectly owned by UNS or that are used or necessary for use in
UNS's business and all licenses and other agreements allowing UNS to use such
copyrights, patents, trademarks, trade names and service marks, along with
all material trade secrets and other proprietary rights used or necessary for us
business (collectively, the "Rights"), of third parties in the United
States or foreign countries. To the best knowledge of UNS, except as set
forth in Schedule 2.23, (a) UNS is the sole and exclusive owner of all
Rights and such Rights are owned free and clear of any claims, liens,
charges or encumbrances, and no governmental registration of any
of the Rights has lapsed, expired or been abandoned, opposed or cancelled;
(b) there are no
instances where it has been held or claimed, and there is no reasonable basis
upon which a valid claim may be made, that any of the respective rights of UNS
infringe the rights of any third party, or that any known existing use by any
third party infringes upon any of the rights of UNS; and UNS has been and is
now conducting its business in a manner which has not been and is not in
violation of any right of another and does not require a license or other
proprietary right to so operate its business.
2.24 Employee Compensation. Schedule 2.24 sets forth the names,
positions and annual salaries of all officers and non-hourly compensated
employees of UNS receiving compensation at an annual rate (including
bonuses, commissions and other compensation) in excess of $60,000, together
with the amount of bonuses and a description of agreements or arrangements
for commissions and other compensation or benefit of any nature to be paid or
provided to any of such persons pursuant to agreement or custom or present
understanding. There are no insurance policies on the lives of any of the
officers or other such persons, the premiums of which are paid or contributed
by UNS. No employee of UNS has accrued more than four weeks
of paid vacation.
2.25 Insurance. Schedule 2.25 identifies all policies of insurance now in
effect covering the assets, propertiesand business of UNS and all life
insurance policies maintained by UNS. UNS has delivered an accurate summary
of each of the policies listed on Schedule 2.25 to Purchaser. UNS has not
done anything by way of action or inaction which might invalidate any of such
policies in whole or in part.
2.26 No Brokers. UNS is not obligated to pay any finder's fee, brokerage
commissions or similar compensation in connection with the proposed transaction.
2.27 Dividends and Stock Purchases. Except as disclosed in Schedule 2.27,
UNS has not declared, set aside, nor made payment of any dividend or
distribution of assets to the holders of its stock nor has it repurchased any
of its capital stock.
2.28 Benefit Claims. Except as disclosed in Schedule 2.28, no person
has asserted any claim under which UNS has any liability under any health
insurance, sickness, life insurance, disability, medical, surgical, hospital,
death benefit, or any other employee benefit plan, contract or arrangement,
maintained by UNS or to which UNS is a party or may be bound, or under
any workmen's compensation or similar law, which is not fully covered by
insurance maintained with reputable, responsible financial insurers.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Subject to and except for information contained in the disclosures set forth in
the Schedules delivered to Shareholders prior to the execution of this
Agreement, all of which are signed for identification by the parties,
attached hereto and made part hereof, Purchaser represents and warrants to
UNS that the statements made in this Article 3 are true and complete as of
the date of this Agreement. Any investigation conducted by UNS or its
representatives shall not affect any of the representations and warranties
hereunder.
3.1 Organization and Standing of Purchaser. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Michigan and has all requisite power and authority to own and operate its
properties and carry on its business as now conducted.
3.2 Authority of Purchaser.
(a) Purchaser has full corporate power and authority to execute, deliver
and perform its obligations under thisAgreement. The Board of Directors and
shareholders of Purchaser have duly authorized the execution and delivery of
Agreement and the performance by Purchaser of its obligations hereunder and no
other corporate proceedings on the part of Purchaser are necessary to authorize
this Agreement, and the performance by Purchaser of its obligations hereunder.
(b) No consent, approval or authorization of, or declaration, filing or
registration with any governmental or regulatory authority or any other third
party is required for the consummation by Purchaser of the transactions
contemplated by this Agreement.
(c) The execution and delivery of this Agreement, and the performance by
Purchaser of its obligations hereunder (i) will not violate any provision of
its Articles of Incorporation or Bylaws and (ii) will not result in any
violation of, breach of or conflict with any statute, rule, regulation,
judicial or governmental decree, order or judgment, or any material mortgage,
contract, lease or instrument to which Purchaser or any of its assets is
subject.
(d) This Agreement is a binding obligation of Purchaser except to the
extent that enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the rights
creditors generally and except as enforcement is subject to general principles
of equity.
3.3 No Brokers. Purchaser is not obligated to pay any investment
banking fee, finder's fee, brokerage commission or similar compensation in
connection with the proposed transaction.
3.4 Investment. Purchaser is acquiring the Stock for investment for its
own account and not with a view to, or for resale in connection with, any
distribution thereof, and it has no present intention of selling or distributing
It understands that the Stock to be purchased by it has not been
registered under the Securities Act of 1933, as amended (the "Act"), or any
state securities law, by reason of a specific exemption from the registration
provisions of the Act and applicable state securities law that depends upon,
among other things, the bona fide nature of the Purchaser's investment intent
as expressed herein. Purchaser acknowledges that the Stock it is purchasing
must be held indefinitely unless subsequently registered under the Act or an
exemption from such registration is available. Furthermore, Purchaser
understands that no public market now exists for any of the securities issued
by UNS and that it is uncertain whether a public market will ever exist for
the Stock.
ARTICLE4
COVENANTS
4.1 Amendment to Bylaws. UNS agrees that, effective as of the Closing
Date, its Bylaws shall be amended to increase the size of the Board of
Directors to five members.
4.2 Appointment of Michael Grieves as Chairman. UNS agrees that,
effective as of the Closing Date, Michael Grieves shall be appointed to serve
as Chairman of the Board.
ARTICLE 5
MISCELLANEOUS
5.1 Notices. Any notice given hereunder shall be in writing and shall be
deemed effective upon the earlier of personal delivery (including personal
delivery by telex, facsimile transfer or messenger) or the third day after
mailing by certified or registered mail, postage prepaid, as follows:
(a) If to Purchaser:
Data Systems Network Corporation
34705 W. 12 Mile Road
Suite 300
Farmington Hills, MI 48331
(b) If to UNS:
Unified Network Services, Inc.
8411 Glenwood Avenue
Raleigh, NC 27612
or to such other address as any party may have furnished in writing to the
other parties in the manner provided above.
5.2 Entire Agreement Modifications; Waiver. This Agreement shall
supersede any and all prior agreements, documents or other instruments with
respect to the matters covered hereby, including, but not limited to, the Stock
Option Agreement by and among the parties dated September 25, 1995, as
amended on October 31, 1995, December 19, 1995, January 15, 1996,
January 26, 1996 and January 31, 1996. No variation or modification of this
Agreement and no waiver of any of the provisions and conditions hereof,
unless in writing and signed by the party against whom enforcement of any
such variation, modification, waiver or consent is sought.
5.3 Captions. The captions in this Agreement are for convenience
only and shall not be considered a part of or affect the construction or
interpretation of any provision of this Agreement.
5.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original
hereof, but all of which together shall constitute one agreement.
5.5 Publicity. Except for disclosure (if any) required by any law to which
any party is subject, the timing and content of any announcements, press
releases and public statements concerning the acquisition contemplated hereby
shall require the prior approval of Purchaser.
5.6 Successors and assigns. No party may, without the prior express
written consent of each other party, assign this Agreement in whole or in part,
except that any rights of Purchaser may be assigned to a subsidiary or
affiliate company of Purchaser without the consent of UNS. This Agreement
shall be binding upon and inure to the benefit of the respective successors
and permitted assigns of the parties hereto.
5.7 Governing Law; Personal Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of Michigan
as applied to contracts made and to be performed entirely within the State of
Michigan. The parties to this Agreement hereby agree to submit to personal
jurisdiction of the courts of the State of Michigan and the United States
District Court for the Eastern District of Michigan, as well as to the
jurisdiction of all courts from which an appeal may be taken from such courts.
5.8 Expenses. Regardless of whether or not the transactions contemplated
by this Agreement are consummated, each of the parties agrees to pay its own
expenses incurred in connection with this Agreement, the transactions
contemplated hereby, the negotiations leading to the same and the preparations
made for carrying the same into effect.
5.9 Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by an arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. It is the intention of the parties that the arbitration award
shall be final and binding, shall not be appealable and that a judgment of
any circuit court having jurisdiction thereof may be rendered upon the award,
and enforcement may be had according to its terms. The place of arbitration
shall be the offices of the American Arbitration Association in Detroit,
Michigan.
Each party shall bear its ownarbitration costs and expenses. The arbitrator
shall not have jurisdiction or authority to change, alter, amend, modify, add to
subtract from any of the provisions of this Agreement. The arbitrator's
sole authority shall be to interpret or apply any clause or clauses of this
Agreement.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first above written.
UNIFIED NETWORK SERVICES, INC. DATA SYSTEMS NETWORK CORP.
BY: /s/ Kirk Duble BY: /s/ Michael W. Grieves
Name Kirk Duble Name Michael W. Grieves
Title: President Title: President
EXHIBIT A
NON-NEGOTIABLE PROMISSORY NOTE
$500,000 Raleigh, North Carolina
February 22, 1996
FOR VALUE RECEIVED, the undersigned, UNIFIED NETWORK SERVICES,
INC., a North Carolina corporation, whose address is 8411 Glenwood Avenue,
Raleigh, North Carolina 27612 (the "Borrower"), hereby promises, as provided
herein, to pay to DATA SYSTEMS NETWORK CORPORATION, a Michigan
corporation, whose address is 34705 West Twelve Mile Road, Suite 300,
Farmington Hills, Michigan 48831 (the "Lender"), in lawful money of the
United States, the principal amount of Five Hundred Thousand Dollars
($500,000), plus any unpaid interest due hereunder and reasonable costs of
collection, including, without limitation, attorneys' fees.The outstanding
principal amount under this Non-negotiable Promissory Note (the "Promissory
Note") shall be due and payable to the Lender on , 2001 (the "Maturity
Date"). Lender shall not require repayment of the principal amount hereunder
prior to the Maturity Date. The unpaid principal (and unpaid interest) due
under this Promissory Note shall bear interest on a basis of a year of 365 days
for the actual number of days elapsed in a month, at a rate of interest equal
to one percent (1.0%) per annum in excess of the prime rate as set forth in the
Wall Street Journal. Interest shall be payable hereunder on (i) , 1996;
(ii) the last day of each subsequent quarter; and (iii) on the Maturity Date.
The payments due hereunder are to be made to the Lender at the address
referenced above or at such other place or places as the Lender shall designate
from time to time in writing to the Borrower.The Borrower hereby waives
presentment for payment, protest and demand, notice of protest, demand and
of dishonor and nonpayment of this Promissory Note.Any delay on the part
of the Lender in exercising any rights hereunder shall not operate as a waiver
of such rights.This Promissory Note shall be governed by and construed,
interpreted and the rights of the parties
determined in accordance with, the laws of the State of Michigan.
AMENDMENT NO. 7 TO STOCK OPTION AGREEMENT
This Amendment No 7 to Stock Option Agreement (the "Amendment"" is enered on
February 20, 1996 y and among Unified Network Services, Inc. ("UNIFIED"),
a North Carolina Corporation, Data Systems Network Corporation, a Michigan
Corporation ("DATA"), and Kirk Duble and David Scranton (collectively
referred to herein as the ("Shareholders").
Recitals:
A. The parties have entered into that certain Stock Option Agreement (the
"Stock Option Agreement") dated September 25, 1995 pursuant to which DATA
acquired an option to purchase up to 70% of the outstanding shares of Common
Stock of UNIFIED (the "Option").
B. The parties amended the Stock Option Agreement on October 31, 1995 to
extend the term of the Option until December 31, 1995.
C. The parties amended the Stock Option Agreement on December 19, 1995 to
extend the term of the Option until January 15, 1996.
D. The parties amended the Stock Option Agreement on January 15, 1996 to
extend the term of the Option until January 26, 1996.
E. The parties amended the Stock Option Agreement on January 26, 1996 to
extend the term of the Option until January 31, 1996.
F. The parties amended the Stock Option Agreement on January 31, 1996 to
extend the term of the Option until February 16, 1996.
G. The parties amended the Stock Option Agreement on February 16, 1996 to
extend the term of the Option until February 20, 1996.
H. The parties have agreed to further amend the Stock Option Agreement to
extend the term of the Option until UNIFIED shall repay to DATA all
outstanding notes and indebtedness it owes to DATA, together with any accrued
and unpaid interest thereon.
Agreement:
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties herein have agreed as follows:
1. Amendment of Term. The last sentence of Section 1 of the Stock Option
Agreement, as amended, is hereby amended to read in its entirety as follows:
"The Option shall expire at such time as UNIFIED shall have paid to DATA
all outstanding notes and indebtedness it owes to DATA, together with any
accrued and unpaid interest thereon.
2. Entire Agreement. This Amendment No. 7, the Stock Option Agreement, as
previously amended, and the agreements specifically referenced therein
collectively constitute the entire agreement among the parties and supersede
all prior agreements, both oral and written, with respect to the subject
matter here and thereof.
3. No Other Changes. All other provisions of the Stock Option Agreement
shall remain unchanged and shall continue to be in full force and effect.
IN WITNESS WHEREOF, UNIFIED, DATA and the Shareholders have executed this
Amendment as of the day and year first above written.
UNIFIED NETWORK SERVICES, INC.
By: /s/ Kirk Duble
Its: President
DATA SYSTEMS NETWORK
CORPORATION
By: /s/ Michael W. Grieves
Its: President
THE SHAREHOLDERS OF UNIFIED
NETWORK SERVICES, INC.
/s/ Kirk Duble
<PAGE>
[DESCRIPTION] Exhibit 11. Computation of Earnings per Share
<TABLE>
<CAPTION>
DATA SYSTEMS NETWORK CORPORATION
COMPUTATION OF EARNINGS PER SHARE
Period ending March 31, 1996
- - ------------------------------------
Primary Fully Diluted
---------- ---------------
<S> <C> <C>
Number of Shares
Weighted average of
shares issued 2,889,903 2,889,903
Less shares held in excrow (300,000)
---------- --------------
Weighted average shares
outstanding 2,589,903 2,889,903
Earnings
Earnings before minority
interest in UNS $166,567 $166,567
Minority interest in UNS (53,027) (53,027)
------------ --------------
Net earnings $113,530 $113,530
Earnings per share $.04 $.04
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Mar-31-1996
<CASH> 3250
<SECURITIES> 0
<RECEIVABLES> 4850
<ALLOWANCES> 61
<INVENTORY> 1008
<CURRENT-ASSETS> 9656
<PP&E> 3141
<DEPRECIATION> 1433
<TOTAL-ASSETS> 12379
<CURRENT-LIABILITIES> 8408
<BONDS> 0
<COMMON> 27
0
0
<OTHER-SE> 3644
<TOTAL-LIABILITY-AND-EQUITY> 12432
<SALES> 5013
<TOTAL-REVENUES> 5013
<CGS> 3963
<TOTAL-COSTS> 876
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92
<INCOME-PRETAX> 114
<INCOME-TAX> 0
<INCOME-CONTINUING> 114
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
