U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file number 0-26604
DIGITAL DESCRIPTOR SYSTEMS, INC.
- - --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 23-2770048
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
2010-F Cabot Boulevard, Langhorne, Pennsylvania 19047
- - --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(215) 752-0963
- - --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes______X________ No__________
The number of shares outstanding of each of the issuer's classes of common
equity as of May 8, 1996:
Title of Each Class Number of Shares Outstanding
------------------- ----------------------------
Common Stock 2,468,750
($.001 par value)
Transitional Small Business Disclosure Format (check one):
Yes_______________ No_____X______
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PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
DIGITAL DESCRIPTOR SYSTEMS, INC.
BALANCE SHEETS
31-Mar 31-Mar
ASSETS 1995 1996
---- ----
(unaudited) (unaudited)
Current assets:
Cash 0 1,727,480
Restricted cash 0 150,000
Short-term Investments 0 389,343
Accounts receivable, net of allowance for
doubtful accounts $138,085 in 1995 and 213,487 852,140
$135,070 in 1996
Unbilled 0 22,422
Accounts receivable - officers and directors 4,500 56,300
Accounts receivable - other 15,631 1,325
Inventories 251,014 201,353
Prepaid expenses 33,461 76,918
Other 0 16,981
--------- ---------
Total current assets 518,093 3,494,262
Deposits 13,150 8,442
Furniture and equipment, net 121,438 303,532
Purchase Software, net 0 137,500
--------- ---------
652,681 3,943,736
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable 841,502 186,268
Notes Payable 0 50,000
Deferred income 332,713 341,752
Accrued expenses 11,657 420,418
Due to affiliates 166,279 0
--------- ---------
Total current liabilities 1,352,151 998,438
Notes Payable 0 75,000
Shareholder's equity:
Common stock, $.001 par value, 10,000,000
shares authorized; 2,408,750 and 1,000,000
issued and outstanding 03/31/96 and 03/31/95 10,000 2,409
Additional paid-in capital 4,280,510 9,885,788
Unearned compensation 0 -104,000
Accumulated deficit -4,360,843 -6,913,899
--------- ---------
Total shareholder's equity (deficit) -70,333 2,870,298
--------- ---------
1,281,818 3,943,736
========= =========
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DIGITAL DESCRIPTOR SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
31-Mar 31-Mar
1995 1996
---- ----
(unaudited) (unaudited)
Cash flows from operating activities:
Net loss -164,762 -663,959
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Provision for doubtful accounts receivable 0 -3,015
Depreciation and amortization 14,360 75,559
Amortizaton of unearned compensation 0 6,000
Changes in assets and liabilities:
Receivables 43,462 -125,760
Inventories -160,173 16,159
Prepaid expenses and other -8,533 69,759
Accounts payable 278,578 -143,291
Accrued expenses and other liabilities -21,254 171,386
Deferred revenue 154,132 -185,588
Other noncurrent assets -9,050 -852
Due to affiliates 89,292 -71,913
------- -------
Net cash provided by (used in) operating activities 216,052 -855,515
------- -------
Cash flows from investing activities:
Equipment purchases -10,462 -45,190
Purchase Software Acquisition 0 -137,500
------- -------
Net cash used in investing activities -10,462 -182,690
------- -------
Cash flows from financing activities:
Deferred offering costs -216,635 0
Repayment of note payable 0 -12,500
Net cash used in financing activities -216,635 -12,500
------- -------
Increase (decrease) in cash -11,045 -1,050,705
Cash at beginning of period 11,045 2,778,185
------- -------
Cash at end of period 0 1,727,480
------- -------
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DIGITAL DESCRIPTOR SYTEMS, INC.
STATEMENT OF OPERATIONS
Three months ended
31-Mar 31-Mar
1995 1996
---- ----
(unaudited) (unaudited)
Sales 429,110 910,057
Cost of sales 228,613 518,375
------- ---------
Gross profit 200,497 391,682
------- ---------
Operating expenses:
Sales and marketing 69,249 262,341
Research and development 15,833 166,427
Depreciation and amortization 14,360 75,559
General and administrative 265,817 590,167
------- ---------
Total Operating expenses 365,259 1,094,494
------- ---------
Loss from operations (164,762) (702,812)
Interest income 0 41,349
Interest expense 0 (2,496)
Net loss (164,762) (663,959)
======== ========
Net loss per share (unaudited) (0.16) (0.28)
Weighted average shares outstanding 1,000,000 2,408,750
<PAGE>
DIGITAL DESCRIPTOR SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A-BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and article 10 of
Regulation S-X. Accordingly they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1996
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1996.
On August 10, 1995, Compu-Color, Inc. merged into the Company. The financial
statements reflect the combined results of the Company and its predecessor,
Compu-Color, Inc.
<PAGE>
Item 2. Management's Discussion and Analysis
Results of Operations
Sales increased 112% in the first quarter of 1996 to $910,057 up $480,947 over
the first quarter of 1995. For the first three months gross profit of $391,682
increased $191,185 or 95% against the same period in 1995. The sales increase
was primarily due to an increase in the amount of installations completed and
contracts awarded to the Company.
The Company expects general and administrative expenses to increase at a
moderate rate with increases in volume and personnel. Sales and marketing
expenses are expected to increase at a moderate pace as the Company continues to
expand its geographic market. Total operating expenses for the three months
ended March. 31, 1996 increased 200% over the three months ended March. 31,
1994. General and administrative expenses increased $324,350 or 122% to $590,167
for the three months ended March 31, 1996 as compared to the same period in
1995, primarily due to the increase in the number of employees and related
employee expenses, along with a one time non-cash charge for compensation
expense of $262,800 relating to stock grants to outside advisors. Sales and
marketing increased $193,092 or 279% to $262,341 for the three months ended
March 31, 1996 as compared to the same period in 1995, primarily due to the
increased sales personnel hired by the Company in an effort to increase both
sales volume and geographic territory. Research and development expenses
increased $150,594 or 951% for the three months ended March 31, 1996 as compared
to the same period in 1995. The increases were due to increases in personnel and
external development costs as the Company continues to investigate and develop
new products as well as enhancing it's current product line. Overall the
Company's net loss increased to $663,959 compared to $164,762 for the same three
month period of 1996 and 1995 respectively.
Liquidity and Sources of Capital
Cash Flows from operations were a negative $855,515 for the three months ended
March. 31, 1996 as compared to a positive $216,052 in the comparable period of
1995. This was primarily due to the loss for the first three months along with a
reduction in accounts payable and deferred income.
Due to a large backlog of orders at year end, in addition to our new sales, and
the loss of one of the Company's' two system installers, who are highly trained
and not easily replaced, the Company was not able to install the number of
systems it had anticipated thereby causing the Company to report lower than
anticipated revenues for the quarter.
<PAGE>
PART II
OTHER INFORMATION
Item 5. On January, 1996, the Company acquired all of the assets of VISATEX
Corporation, including the proprietary rights to the VISATEX products,
Compu-Sketch, Compu-Scene and FotoFile which are compatible with the
Company's core product, Compu-Capture(R). Compu-Sketch is a
comprehensive program to generate, touch-up and enhance composites;
Compu-Scene is a computerized drafting program for drawing crime and
accident scenes; and Fotofile is a mug-shot system similar to
Compu-Capture(R). The purchase price for the VISATEX assets was
$100,000 in cash plus potential additional payments equal to the
greater of 10% of revenues from, or a fixed commission on sales of,
VISATEX products for the three year period ending December 31, 1998.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.20 Agreement for the Sale of Assets by and between Visatex
Corporation and Digital Descriptor Systems, Inc.
10.21 Consultants and Advisors Compensation Plan adopted
February 8, 1996. (The Consultants and Advisors
Compensation Plan was filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-8, File No.
333-3420, and is incorporated herein by reference).
10.22 Demand Note dated March 3, 1996 in the principal amount
of $45,500 made by Garrett U. Cohn in favor of the
Company.
(b) Reports on Form 8-K
The Company was not required to and did not file a Form 8-K during the
quarter ended March 31, 1996.
<PAGE>
SIGNATURE PAGE
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DIGITAL DESCRIPTOR SYSTEMS,
INC.
Date: May 10, 1996 By: /s/ Garrett U. Cohn
----------------------
Garrett U. Cohn, President and
Chief Executive Officer
Date: May 10, 1996 By: /s/ Michael Pellegrino
-------------------------
Michael Pellegrino, Vice
President Finance and Chief
Financial Officer
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description of Document
- - ------ -----------------------
10.20 Agreement for the Sale of Assets by and between
Visatex Corporation and Digital Descriptor Systems, Inc.
10.21 Consultants and Advisors Compensation Plan adopted
February 8, 1996. (The Consultants and Advisors
Compensation Plan was filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-8,
File No. 333-3420, and is incorporated herein
by reference).
10.22 Demand Note dated March 3, 1996 in the principal
amount of $45,500 made by Garrett U. Cohn in favor
of the Company.
Exhibit 10.20
AGREEMENT FOR THE SALE OF ASSETS
BY AND BETWEEN
VISATEX CORPORATION
AND
DIGITAL DESCRIPTOR SYSTEMS, INC.
THIS AGREEMENT is executed as of this ___ day of January, 1996, by and
among VISATEX CORPORATION, a California corporation (the "Company") and DIGITAL
DESCRIPTOR SYSTEMS, INC., a Delaware corporation ("Purchaser").
R E C I T A L S
(c) The Company develops, licenses, distributes and maintains computer
software for facial identification, classification, storage and crime analysis
for use by law enforcement agencies (the "Business"); and
(d) Purchaser desires to acquire all of the assets of the Business from the
Company.
THEREFORE, in consideration of the mutual agreements, covenants and
provisions contained herein, Purchaser and the Company hereby mutually agree to
the terms and conditions which follow.
A G R E E M E N T
ARTICLE I
SALE OF ASSETS
1.1 Assets. Subject to the terms and conditions of this Agreement,
Purchaser hereby agrees to purchase from the Company, and the Company hereby
agrees to sell, assign, transfer, convey and deliver to Purchaser, as of January
1, 1996, all of the property, assets, interests and rights owned by the Company
as of the Closing in the Business (in each case, free and clear of all liens,
claims, security interests and encumbrances whatsoever) including, without
limitation, the following:
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(a) all of the Company's intangible rights and properties, all
trademarks and service marks, trademark and service mark registrations and
trademark and service mark applications, trade names, assumed names,
service names, copyrights, copyright registrations, patents and patent
applications, patent, copyright and trademark licenses, franchises and all
other licenses, trade secrets, computer programs and software, however
stored, including but not limited to software routines, tools, source code,
object code, algorithms, build procedures, and related documentation,
inventions, discoveries and improvements, shop rights and know-how owned or
used by the Company in the conduct of the Business (collectively
"Intellectual Property"), including certain computer software products (the
"Software Products") all as set forth on Schedule 1.1(a);
(b) equipment, machinery, fixtures and furniture used in connection
with the Business (the "Equipment") all of which are set forth on Schedule
1.1(b);
(c) work in process of the Business ("Work In Process");
(d) the corporate name of the Company - "Visatex Corporation" -
including all assumed names and other names used by the Company in
connection with the Business provided, however, that the Company may
continue to use its name through August 31, 1996, for the sole purpose of
winding up its business; and
(e) all of the good will of the Business, customer lists, sales leads,
prospects lists, mailing lists, advertising and promotional material, and
administrative and accounting information with respect to Work in Process
and books and records with respect to Intellectual Property and other
Assets of the Business;
provided, however, Purchaser shall not purchase and the Company shall not sell
any of the Excluded Assets as defined in Section . The assets to be conveyed
hereunder, including the Assumed Contracts described below, are referred to
collectively as the "Assets."
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1.2 Assumed Contracts. The Company shall assign and Purchaser shall assume
as of January 1, 1996 all right, title and interest in and to and all
obligations under those certain contracts and agreements listed on Schedule 1.2
(the "Assumed Contracts").
1.3 Work in Process. Purchaser shall assume all Work in Process of the
Company as of January 1, 1996, including ongoing fixed bid projects, time and
material consulting (and any maintenance and support agreements listed in
Schedule 1.2). The amounts paid or payable by a customer with respect to Work in
Process shall be prorated as of January 1, 1996 by Purchaser and the Company
based on the relative amount of work performed prior to the Closing Date and to
be performed after the Closing Date.
1.4 Excluded Assets. Purchaser shall not purchase and the Company shall not
sell those assets of the Company, including any assets used or useful in the
Business, which are listed on Schedule 1.4.
1.5 Sale. The sale of the Assets and the other transactions referred to in
this Agreement are collectively referred to as the Sale.
ARTICLE II
CLOSING DATE
2.1 Closing. The Closing shall be held on January 2, 1996 at 10:00 a.m., or
on such later date as the parties may agree, at the business office of the
Company located at 1745 Dell Avenue, Campbell, California 95008. At the Closing,
Purchaser shall deliver to the Company, by cashier's check or wire transfer in
accordance with the written instructions of the Company, the amount of $100,000;
the parties will execute, deliver and exchange the bills of sale, assignment and
assumption agreements, certificates, opinions, letters, and other documents
necessary in the reasonable opinion of counsel for each party to transfer the
Assets from the Company to Purchaser.
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2.2 Closing Prorations. At the Closing, the parties shall prorate all
costs and expenses of the Business as of January 1, 1996. The Company shall be
responsible for all costs and expenses incurred by the Company for the Business
on or before December 31, 1995. The Purchaser shall be responsible for all costs
and expenses incurred after December 31, 1995. All revenues paid or payable with
respect to the Work in Process shall be prorated as provided in Section 1.1(c),
1.3.
2.3 Transfer of Software Products. At the Closing, the Company shall
deliver to Purchaser a master copy of all computer programs and other software
included in the Assets, including each Software Product (in both source code and
object code form), and shall deliver to Purchaser all additional copies of the
Software Products and any other software included in the Assets, or the Company
shall follow Purchaser's instructions regarding the destruction of all such
copies.
ARTICLE III
PURCHASE PRICE
3.1 Purchase Price. Subject to adjustment for any losses under Section
12.1, Purchaser shall pay to the Company the purchase price (the "Purchase
Price") by cashier's check or wire transfer in accordance with the instructions
of the Company in the following amounts and in the following manner:
(a) an amount equal to One Hundred Thousand Dollars ($100,000) payable
at the Closing, plus
(b) a portion of the Revenues (as defined below) earned by Purchaser
in connection with the licensing and maintenance of certain software (the
"Royalties"), calculated and payable as follows:
(i) Purchaser shall pay to the Company as the Royalties the
greater of:
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(1) Ten percent (10%) of the Revenues (as defined below in
subsection ) earned by Purchaser, during the three (3) years
following January 1, 1996, from the licensing and maintenance of
the Software Products listed on Schedule 1.1(a), any derivatives
thereof developed by Purchaser (the "Derivatives"), and any of
Purchaser's CompuCapture products licensed to a customer who
converts to the use of such products in place of the Company's
FotoFile product ("CompuCapture Replacement Products"), or
(2) The total commissions based on the commission rates, as
set forth in Schedule 3.1(b)(i), for each of the Software
Products licensed to customers during the three (3) year period
following January 1, 1996, determined according to the minimum
rate per site where the Software Products, Derivatives or
CompuCapture Replacement Products are installed.
(ii) For purpose of calculating the Royalties, a site licensing
any of the Software Products, Derivatives or CompuCapture Replacement
Products (a "Site") is defined as an agency address, provided,
however, that with respect to agencies with multiple regions,
substations or offices (such as large police departments or county,
state or federal agencies), each address at which a licensed copy of a
Software Product, Derivative or CompuCapture Replacement Product is
installed or which is accessing a network where such software is
installed shall be treated as a separate Site.
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(iii) The "Revenues" earned by Purchaser under this Section shall
mean the sum of:
(1) all amounts collected from customers of Purchaser
(including former customers of the Company) for license fees
incurred during the three (3) year period following January 1,
1996, minus any rebates or refunds paid by Purchaser in
connection with such fees, plus
(2) the) net profits realized by Purchaser in connection
with its software maintenance services provided to customers of
Purchaser (including former customers of the Company), after
deducting any and all of Purchaser's costs and expenses incurred
in providing such maintenance services, during the three (3) year
period following January 1, 1996.
(iv) Other than the prepayment of Royalties pursuant to section
below, the first payment of Royalties shall be due on or before
January 30, 1997 for the one-year period following the Closing Date.
Thereafter, all payments of Royalties shall be calculated (pursuant to
Section 3.1(b)(i)) and paid on a quarterly basis within thirty (30)
days after the end of each quarter, with the final Royalty payment due
within thirty (30) days after the third anniversary of the Closing
Date.
(c) On or before January 31, 1996 (the "Initial Royalty Payment
Date"), Purchaser shall pay to the Company, an amount equal to Sixty
Thousand Dollars ($60,000), as a prepayment of the Royalties which will
become due and owing after Closing under 3.1(b). During the three (3) years
during which Royalties become due, the first Twenty Thousand Dollars
($20,000) of Royalties due each year will be deducted from the amount of
Royalties otherwise due from Purchaser to the Company.
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3.2 Monthly Reports. Within twenty-five (25) days after the last day of
each month, Purchaser shall provide to the Company a monthly report which sets
forth all collected Revenues for the preceding month with the name, address and
phone number of the customer making payment and the date of payment. Purchaser
shall keep accurate books and records in sufficient detail to determine the
collected Revenues of Purchaser. Purchaser shall permit the Company to
reasonably examine, inspect and audit its books and records from time to time,
however, no more often than once during each six (6) month period, while the
Royalties are due. Review, inspection or audit of books and records shall be by
an authorized representative of the Company during usual business hours at the
principal office of Purchaser upon reasonable advance notice or the Company may
require that Purchaser copy and send relevant documentation to the Company or
its representative at the Company's expense. The Company shall bear the full
cost of any such audit or inspection, provided, however, that if such audit or
inspection reveals that the Royalties paid by Purchaser for any period were more
than five percent (5%) less than the amount actually due, then the Purchaser
shall reimburse the Company for the expense of the audit or inspection and shall
promptly pay to the Company the full amount of such underpayment.
3.3 Offset for Losses. The payment of Royalties shall be subject to offset
at any time on or prior to the date on which such Royalties are due for any loss
incurred by Purchaser, as defined and provided for in Article XII; provided that
Purchaser may, in its sole discretion, assert such claim directly against the
Company. In the event the Purchaser claims the benefit of such an offset, but
such loss is subsequently found not to be substantiated under Article XII in
whole or in part, the amount to which Purchaser is not entitled shall be paid to
the Company promptly upon such determination.
3.4 Sales Taxes. The Purchase Price to the Company shall be a net price,
and Purchaser shall be liable for sales or use tax, if any, based upon, or in
relationship to the transactions herein, assessed by California or any other
state or county taxing authorities.
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ARTICLE IV
COVENANTS, REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the exhibits and schedules attached hereto
(collectively the "Visatex Disclosure Schedules"), as of the date of this
Agreement the Company makes the following covenants, representations and
warranties to Purchaser, all of which shall remain in effect as of the Closing
Date:
4.1 Legal Status. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. The
Company is not qualified as a foreign corporation to do business in any other
jurisdiction and the character of its properties owned or held under lease and
the nature of its activities do not make qualification necessary. The Company
shall deliver to Purchaser complete and correct copies of its Articles of
Incorporation (certified by the Secretary of State of California) and By-Laws
(certified by the Secretary of the Company) as in effect on the date of this
Agreement and the Closing Date.
4.2 Subsidiaries and Affiliates; Conflicts of Interest. The Company has no
subsidiaries nor will any be in existence on the Closing Date. Neither the
Company nor any of the directors or officers of the Company or any member of a
family of any such person owns directly or indirectly any interest in, or is a
director, officer or employee of, any corporation, partnership, firm,
association or business organization (other than any entity the equity
securities of which are listed on a national securities exchange or quoted in
the National Association of Securities Dealers Automated Quotation System where
less than 1% of the voting power of any such entity is owned by any of such
persons directly or indirectly) which is a competitor, potential competitor,
supplier or customer of the Company.
4.3 Authorization, etc. The Company has full corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The Board
of Directors of the Company and by their unanimous consent the holders of
sixty-six
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and two-thirds percent (66 2/3%) all of the shares of stock of the Company have
taken or by the Closing Date will have taken all actions required by law, the
Company's Articles of Incorporation, its By-Laws or otherwise to be taken by
them to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, and no other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding agreement of the Company.
4.4 Financial Statements. The Company has delivered to Purchaser the
unaudited financial statements of the Company through [October 31, 1994]. The
Financial Statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods indicated
(unless otherwise specified) and the Financial Statements present fairly the
financial condition of the Company on such dates and the results of its
operation for the periods then ended (subject, in the case of interim
statements, to normal year-end adjustments which will not be material in amount
or effect).
4.5 Absence of Changes. Except as set forth on Schedule 4.5and other than
pursuant to, or as contemplated by, this Agreement and the various related or
ancillary documents and agreements contemplated hereby or executed in connection
herewith (all of which, including this Agreement, are referred to as the
"Transaction Documents"), since the date of the most recent Balance Sheet
delivered to Purchaser, there has not been with respect to the Company:
(a) any material change in the condition (financial or other),
properties, assets, business or prospects of the Company except changes in
the ordinary course of business which have not in any one case or in the
aggregate been materially adverse, and no such changes are anticipated by
the Company or its Shareholders;
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(b) any damage, destruction or loss (whether covered by insurance or
not) materially and adversely affecting the business, property, assets,
goodwill or prospects of the Company taken as a whole;
(c) any application, registration or other procedure initiated for the
purpose of securing one or more patents, trademarks, tradenames, copyrights
or any other proprietary or intellectual property rights in or to any of
the Intellectual Property, by the Company or by any other party;
(d) any material sale, lease, abandonment or other disposition by the
Company of any interest in real property or other than in the ordinary
course of business, any machinery, equipment, inventory (whether deemed
obsolete or not) or other operating property;
(e) any sale, assignment, transfer, license or other disposition by
the Company of any patent, trademark, trade name, brand name, copyright (or
any application for any patent, trademark or copyright), invention,
process, know-how, formula or trade secret or interest thereunder or other
intangible asset; or
(f) any other occurrence, event or condition that has or, to the best
of the Company's knowledge after reasonable inquiry, may have a material
adverse effect on the condition (financial or other), properties, assets,
business, goodwill or prospects of the Company.
4.6 No Violation of Statute or Contract. Except as set forth on Schedule
4.6, neither the execution and delivery of this Agreement, nor the compliance
with the terms and provisions of this Agreement on the part of the Company will
(i) conflict with or result in a breach or violation of any of the
terms, conditions or provisions of, or constitute a default (or an event
which, with notice or lapse of time or both would constitute a default)
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under, (A) the Articles of Incorporation or By-Laws of the Company, or
(B) any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to the Company, or any of its properties,
assets, licenses or permits, which the Company reasonably expects would
have a materially adverse effect on the condition (financial or otherwise),
results of operations or business of the Company, or
(ii) violate, conflict with, result in a breach of any provisions of,
constitute a default (or any event which, with notice or lapse of time or
both, would constitute a default) under, result in the termination of,
accelerate the performance required by, or result in the creation of any
lien, security interest, charge or other encumbrance upon any of the
respective assets of the Company under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust,
shareholders' agreement, license, lease, or other agreement, instrument or
obligation to which the Company is a party, or by which the Company or its
properties or assets may be bound or affected which, to the best of the
Company's knowledge, would have a materially adverse effect on the
condition (financial or otherwise), results of operations or business of
the Company taken as a whole.
4.7 Regulatory Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, any government or regulatory authority
is required to be obtained or made by the Company in connection with the
execution, delivery and performance by the Company of this Agreement.
4.8 Accounts Receivable. Schedule 4.8 sets forth a complete and accurate
schedule of the accounts receivable (billed and unbilled) as of November 30,
1995 and an aging of the accounts as of that date. At the Closing the Company
shall deliver to Purchaser an updated schedule of the accounts receivable
(billed and unbilled) as of the Closing Date, together with an aging of the
accounts.
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4.9 Prepaid Expenses. Schedule 4.9 sets forth all prepaid expenses of the
Company as of November 30, 1995. At the Closing, the Company will deliver an
updated Schedule 4.9 for all prepaid expenses to be assigned to Purchaser at the
Closing.
4.10 Real Property. The Company does not own any interest in real property.
The Company leases approximately 2,097 square feet of space at 1745 Dell Avenue,
Campbell, California 95008 under a Lease Agreement with Dell Associates II, a
general partnership, dated August 8, 1986, as amended (the "Lease"). The Company
has delivered or shall deliver a true and correct copy of the Lease to
Purchaser.
4.11 Tangible Personal Property. Schedule 4.11 sets forth a complete and
accurate description (specifying the location of each item) of tangible personal
property which is
(a) owned by, leased or consigned to the Company (identified as owned,
leased or consigned) and
(b) with respect to owned property is reflected on the Company's books
(except for Work in Process), together with a list of all security
interests or other encumbrances in the personal property.
All personal property is in good operating condition and repair and is adequate
and sufficient for all operations now conducted by the Company. The property
listed on Schedule 4.11 constitutes all tangible personal property necessary for
the Company's conduct of its business.
4.12 Deposits. Schedule 4.12 sets forth a description of the deposits made
by the Company or which the Company is holding as of the date of this Agreement
which will be assigned to Purchaser, together with a description of the nature
of such deposits. The Company will update Schedule 4.12 as of the Closing Date.
4.13 Title and Assets. The Company has good and marketable title to all of
the Assets, free and clear of restrictions on or conditions to transfer or
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assignment, and free and clear of mortgages, liens, pledges, charges,
encumbrances, equities, claims, easements, rights of way, covenants, conditions,
or restrictions, except as disclosed in this Agreement and the Schedules.
4.14 Intellectual Property.
(a) Description. Schedule 1.1(a) sets forth a complete description of
all trademarks and service marks, trademark and service mark registrations
and trademark and service mark applications, trade names, assumed names,
service names, copyrights, copyright registrations, patents and patent
applications, patent, copyright and trademark licenses, franchises and all
other licenses, trade secrets, computer programs and software, source code,
build procedures, algorithms, and related documentation, inventions,
discoveries and improvements, shop rights and know-how owned or used by the
Company in the conduct of its business (collectively "Intellectual
Property" which includes the "Software Products"). Except as noted on
Schedule 1.1(a), the Company owns, or is licensed or otherwise has the
exclusive right to use, all Intellectual Property used in or necessary for
the conduct of its business as currently conducted.
(b) No Infringement by the Company. Except as set forth in Schedule
4.14(b), no claim has been asserted by any person with respect to the
ownership, use, transfer, license or other disposition of any Intellectual
Property or challenging or questioning the validity or effectiveness of any
license or agreement with respect thereto, and the Company does not know of
any valid basis for any such claim; and to the best of the Company's
knowledge after reasonable inquiry, the use of Intellectual Property by the
Company, the development, use, license or distribution of any software
program or process, tool, aid or routines by the Company does not and after
the Closing Date is not reasonably expected to, infringe on the rights of
any person, if used, distributed, licensed or sold in the same manner as
used by the Company prior to the Closing Date.
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(c) No Infringement by Other Parties. To the best of the Company's
knowledge after reasonable inquiry, no third party is known or believed by
the Company to be infringing on any Intellectual Property.
(d) Procedures for Copyright Protection. Schedule 4.14(d) sets forth
the form and placement of the proprietary legends and copyright notices
displayed in or on the Software Products. To the best of the Company's
knowledge, after reasonable inquiry, in no instance has the eligibility of
the Software Products for protection under applicable copyright law been
forfeited to the public domain by omission of any required notice or any
other action.
(e) Procedures for Trade Secret Protection. The Company has used its
best efforts as is customary and reasonable in its industry to institute
and follow certain safeguards to protect its trade secrets. Insofar as the
Company knows, there has been no material violation of such safeguards by
any person or entity. The source code and system documentation relating to
the Software Products
(i) have at all times been maintained in confidence and
(ii) have been disclosed by the Company only to employees and
consultants having "a need to know" the contents thereof in connection
with the performance of their duties to the Company.
(f) Personnel Agreements. All personnel, including employees, agents,
consultants, and contractors, who have contributed to or participated in
the conception and development of the Software Products, related technical
documentation (the "Technical Documentation"), or Intellectual Property on
behalf of the Company either
(i) have been party to a "work-for-hire" arrangement or agreement
with the Company, in accordance with applicable federal and state law,
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that has accorded the Company full, effective, exclusive, and original
ownership of all tangible and intangible property thereby arising, or
(ii) have executed appropriate instruments of assignment in favor
of the Company as assignee that have conveyed to the Company full,
effective, and exclusive ownership of all tangible and intangible
property thereby arising.
(g) Adequacy of Technical Documentation. To the best of the Company's
knowledge, the Technical Documentation includes the source code, system
documentation, statements of principles of operation, and schematics for
all Software Products, as well as any pertinent commentary or explanation
that may be necessary to render such materials understandable and usable by
a trained computer programmer. The Technical Documentation also includes
any program (including compilers), "workbenches," tools, and higher level
(or "proprietary") language necessary for the development, maintenance, and
implementation of the Software Products.
(h) Third-Party Components in Software Products. Schedule 4.14(h) sets
forth and identifies any Software Products, Technical Documentation or
other Intellectual Property which is licensed by Company ("Licensed
Material"). The Company has validly and effectively obtained the right and
license to use, copy, modify, and distribute any Licensed Material.
(i) Third-Party Interests or Marketing Rights in Software Products.
The Company has not granted, transferred, or assigned any right or interest
in the Software Products, the Technical Documentation or the Intellectual
Property to any person or entity, except pursuant to the agreements listed
in Schedule 1.2. Except as set forth in Schedule 1.2, all such agreements
constitute only end-user agreements, each of which grants the end-user
thereunder solely the nonexclusive right and license to use one or more
identified Software Product(s) and related user documentation, for internal
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purposes only, on a single central processing unit (CPU), on a single
network or under the terms of a site license. There are no contracts,
agreements, licenses, and other commitments and arrangements in effect with
respect to the marketing, distribution, licensing, or promotion of the
Software Products, the Technical Documentation or the Intellectual Property
by any independent salesperson, distributor, sublicensor, or other
remarketer or sales organization.
(j) Limitation on Warranty. The Company does not warrant that the
Software Products, the Technical Documentation or the Intellectual Property
will meet any specified or unspecified requirements or operate in any
specified or unspecified combinations that Purchaser may select for use;
that the Software Products, the Technical Documentation or the Intellectual
Property is error free; or that all defects in the Software Products, the
Technical Documentation or the Intellectual Property will be corrected. No
oral or written statement by the Company or by a representative of the
Company shall create a warranty or increase the scope of this warranty. The
Company does not warrant that the Software Products, the Technical
Documentation or the Intellectual Property is free from any virus, software
routine or other program designed to permit unauthorized access, to
disable, to erase, or otherwise to harm software, hardware or data, or to
perform any other such actions.
4.15 Material Contracts. The Assumed Contracts are all of the contracts,
commitments, agreement, licenses or arrangements necessary for the operation of
the Business. Purchaser shall have no obligation or liability under or assume
any responsibility, by operation of law or otherwise, for any contract other
than the Assumed Contracts.
4.16 Permits and Licenses. To the best of the Company's knowledge after
reasonable inquiry, Schedule 4.16 sets forth a complete and accurate list of all
governmental permits, licenses and certifications issued to the Company. To the
best of the Company's knowledge after reasonable inquiry, such permits, licenses
and certifications constitute all such permits, licenses and certifications
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necessary for the conduct of the business by the Company. All of such permits,
licenses and certifications are in full force and effect. To the best of the
Company's knowledge after reasonable inquiry, no violations are known to the
Company to exist or have been recorded with respect to any of such permits,
licenses or certifications and no proceeding is pending (other than
reapplication pursuant hereto) or known to the Company to be threatened with
respect to any permit, license or certification.
4.17 Claims and Litigation. There is no litigation, proceeding, demand,
action or claim pending and the Company has not been notified of any threatened
litigation, proceeding, demand, action or claim, now or at any time in the last
five (5) years against the Company before any court or governmental or other
regulatory or administrative agency or commission, except as set forth on
Schedule.
4.18 Labor Relations Matters. To the best of its knowledge, the Company is
in compliance in all material respects with all applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and is not engaged in any unfair labor practice. The Company
has not been notified of any unfair labor practice complaint against the Company
pending before the National Labor Relations Board, any state labor relations
board or any other court or tribunal. Within the last five (5) years there has
not been any, and there is currently no labor strike, dispute, slowdown or
stoppage actually pending or threatened against or affecting the Company or any
of its operations. No grievance nor any arbitration proceeding arising out of or
under any labor agreement is pending and no claim therefor exists. The Company
has no collective bargaining agreements or other agreements with labor
organizations.
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4.19 Tax Matters
(a) Except as set forth on Schedule 4.19, each of the Company, or any
affiliated, combined or unitary group of which the Company is or was a
member, as the case may be, has
(i) filed when due with the appropriate federal, state, local,
foreign and other governmental agencies, all tax returns, estimates
and reports required to be filed by it,
(ii) paid when due and payable all requisite federal, state,
local or foreign taxes, levies, imposts, duties, licenses and
registration fees and charges of any nature whatsoever, including
interest and penalties thereon and unemployment and social security
taxes ("Taxes").
(b) The Company has withheld from employee wages and paid over to the
proper governmental authorities all amounts required to be so withheld and
paid over.
4.20 Benefit Plans.
(a) For purposes of this Agreement, the term "Employee Plan" includes
all pension, retirement, disability, medical, dental or other health plans,
life insurance or other death benefit plans, profit sharing, deferred
compensation, stock option, bonus or other incentive plans, vacation
benefit plans, severance plans, or other employee benefit plans or
arrangements, including, without limitation, any "pension plan" as defined
in Section 3(2) of the Employee Retirement Income Security Act of 1974
("ERISA") and any "welfare plan" as defined in Section 3(1) of ERISA,
whether or not funded, and whether written or oral, to which the Company is
a party or bound or with respect to which the Company may otherwise have
any liability (including any such plan maintained by the Company within the
last three calendar years) or with respect to which the Company has made
any payments or contributions covering any employee of the Company within
the last three calendar years.
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(b) Except as set forth on Schedule 4.20, the Company does not have
nor sponsor any Employee Plan whether formal or informal. The Company does
not have any legally binding commitment, whether formal or informal, to
create any Employee Plan. Except as set forth on Schedule 4.20, no separate
trust is maintained in conjunction with any such plan.
4.21 ERISA Matters.
(a) Any trust created under an Employee Plan that is an employee
pension benefit plan qualifiable under Section 401 of the Code has been
determined by the Internal Revenue Service to be a "qualified" trust within
the meaning of the Code.
(b) The Company does not maintain or contribute to and has not in the
last five (5) years maintained or contributed to any multi-employer plan.
4.22 Environmental Matters. To the best of its knowledge after reasonable
inquiry, the Company is in compliance with all terms and conditions of the
required permits, licenses and authorizations, and is also in compliance with
all other applicable limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules and timetables contained in
all federal, state and local laws ("Environmental Laws") relating to pollution
or protection of the environment, including laws relating to emissions,
discharges, releases or threatened releases of pollutants, contaminants,
chemicals, or industrial, hazardous or toxic materials or wastes into the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, chemicals, or industrial,
hazardous or toxic materials or wastes or contained in any regulation, code,
plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder. To the best of its knowledge after
reasonable inquiry, the Company is not aware of, nor has it received notice of,
any past, present or future events, conditions, circumstances, activities,
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practices, incidents, actions or plans which may interfere with or prevent
continued compliance in all material respects, or which may give rise to any
common law or legal liability, or otherwise form the basis of any claim, action,
suit, proceeding, hearing or investigation, based on or related to any
Environmental Law.
4.23 Compliance with Applicable Law. To the best of the Company's knowledge
after reasonable inquiry, the Company has in the past complied and is presently
complying, in all material respects, with all applicable laws (whether statutory
or otherwise), rules, regulations, orders, ordinances, judgments or decrees of
all governmental authorities (federal, state, local or otherwise) (collectively,
"Laws").
4.24 Hazardous Substances. To the best of its knowledge after reasonable
inquiry, the Company has not during the past five years generated or otherwise
owned or possessed, stored, treated, disposed of, or transported any Hazardous
Substances. As used herein, the term "Hazardous Substances" means any hazardous
or toxic substance, material or waste listed, classified, defined or regulated
under applicable federal, state or local Laws, regulations or judicial
interpretations thereof, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended, the
Resource Conservation and Recovery Act, and any applicable provisions and the
regulations and publications promulgated pursuant to said Laws.
4.25 Full Disclosure. No representation, warranty or covenant in this
Agreement, nor any statements, financial statements, certificates, schedules or
exhibits furnished to Purchaser pursuant hereto, or in connection with the
transactions contemplated hereby, contains any untrue statement of a material
fact, or omits to state a material fact necessary to make the statements
contained therein in the light of the circumstances under which they were or are
to be made, not misleading. Neither the Company nor the Shareholders have any
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information which leads any of them to believe that there is any impending
materially adverse change in the business of the Company.
ARTICLE V
COVENANTS, REPRESENTATIONS AND WARRANTIES OF PURCHASER
As of the date hereof, Purchaser makes the following covenants,
representations and warranties to the Company, all of which shall remain in
effect as of the Closing Date:
5.1 Legal Status.
(a) Purchaser is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware.
(b) Purchaser has the corporate power to own and lease its property
and to carry on its business as and where such property is now owned or
leased or such business is conducted on the date hereof.
5.2 Authorization. Purchaser has full corporate power and authority to
enter into this Agreement and to perform its obligations hereunder. The Board of
Directors of Purchaser has taken or by the Closing Date will have taken all
actions required by law, its Articles of Incorporation, its By-Laws or otherwise
to be taken by it to authorize the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby and, no other corporate
proceedings on the part of Purchaser are necessary to authorize this Agreement
and the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Purchaser and constitutes a valid and binding
agreement of Purchaser.
5.3 Regulatory Approvals. No consent, approval or authorization of, or
declaration, filing or registration with, any government or regulatory authority
is required to be obtained or made by Purchaser in connection with the
execution, delivery and performance by Purchaser of this Agreement.
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ARTICLE VI
CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATION TO CLOSE
The obligations of Purchaser to consummate the transactions set forth in
this Agreement as provided hereunder are subject to the satisfaction, or waiver
in writing by Purchaser, on or prior to the Closing Date, of each of the
following conditions:
6.1 Corporate Action. All corporate and other actions necessary to
authorize this Agreement and to consummate the transactions contemplated hereby
by the Company shall have been duly taken on or prior to the Closing Date, and
the Company shall have delivered to Purchaser a certificate of the Company to
that effect together with a certified copy of resolutions of the Board of
Directors and Shareholders of the Company authorizing the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
6.2 Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same effect as though
all such representations and warranties had been made as of such date and there
shall have been delivered to Purchaser certificates validly executed by an
authorized officer of the Company, to that effect, dated as of the Closing Date.
6.3 Investigations. Neither Purchaser's investigation of the Company, nor
of the Visatex Disclosure Schedules hereto, nor Purchaser's investigation of any
other document delivered to Purchaser as contemplated by this Agreement, shall
have revealed any facts or circumstances that, in the good faith judgment of
Purchaser, reflect in a materially adverse way on the Assets, the Assumed
Contracts, or the operations or prospects of the Business.
6.4 Performance of Obligations. Each and all of the covenants and
agreements of the Company to be performed or complied with pursuant to this
Agreement shall have been duly performed and complied with in all material
respects or duly
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waived by Purchaser and there shall have been delivered to Purchaser a
certificate validly executed by an authorized officer of the Company to that
effect, dated as of the Closing Date.
6.5 Opinion of Counsel. Purchaser shall have been furnished an opinion,
dated the Closing Date, of counsel for the Company in a form acceptable to
Purchaser, except that Purchaser shall not require any opinion on the good
standing status and tax clearance status of the Company.
6.6 Governmental Approvals. Any and all approvals and authorizations of,
filings and registrations with, and notifications to, any governmental or
regulatory authority required for the execution and delivery of this Agreement
by the Company and the performance of its obligations hereunder shall have been
duly obtained or made and shall be in full force and effect.
6.7 Litigation. At the Closing Date, there shall be no litigation pending
or threatened in which any injunction is or may be sought against or seeking
damages from the Company or Purchaser in connection with the Sale.
6.8 Obtain Consents. At or prior to the Closing Date, the Company shall
have obtained any consent, authorization, approval or exemption required to be
obtained or made by it in connection with the transfer of the Assets, not
otherwise waived in writing by Purchaser.
ARTICLE VII
CONDITIONS PRECEDENT TO INITIAL ROYALTY PAYMENT DATE
The obligations of Purchaser to pay the Royalty prepayment pursuant to
Section 3.1(c) are subject to the satisfaction, or waiver in writing by
Purchaser, on or prior to the Initial Royalty Payment Date, of each of the
following conditions:
7.1 Bulk Sale Compliance. Purchaser and the Company shall send a notice of
the transaction contemplated under this Agreement, in compliance with the
provisions of Sections 6101-6111 of the California Commercial Code, to all known
creditors of the Company, publish the same notice at least once in a newspaper
of general circulation in Santa Clara County, California, record the same notice
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with the County of Santa Clara, and deliver by certified mail the same notice to
the tax collector of the County of Santa Clara. The Company shall pay or settle
any and all creditors claims, if any, made against the Company as a result of
such publication of such notice.
7.2 Good Standing and Tax Clearance Certificate. Purchaser shall have
received a certified certificate from the California Secretary of State
attesting that the Company is in good standing as of the Closing Date, and a
certificate of tax for the Company from the California Franchise Tax Board.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATION TO CLOSE
The obligations of the Company to consummate this Agreement as provided
hereunder are subject to the satisfaction, or waiver in writing by the Company,
on or prior to the Closing Date, of each of the following conditions:
8.1 Corporate Action. All corporate and other actions necessary to
authorize the consummation of the transactions contemplated hereby by Purchaser
shall have been duly taken prior to the Closing Date, and Purchaser shall have
delivered to the Company a certificate of Purchaser to that effect together with
a certified copy of resolutions of the Board of Directors of Purchaser
authorizing the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, all in form and substance satisfactory to
the Company and its counsel.
8.2 Representations and Warranties. The representations and warranties of
Purchaser set forth in this Agreement shall be true and correct in all material
respects on and as of the Closing Date with the same effect as though all such
representations and warranties had been made as of such date and there shall
have been delivered to the Company certificates validly executed by an
authorized officer of Purchaser to that effect, dated as of the Closing Date.
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8.3 Performance of Obligations. Each and all of the covenants and
agreements of Purchaser to be performed or complied with pursuant to this
Agreement shall have been duly performed and complied with in all material
respects or duly waived by the Company and there shall have been delivered to
the Company a certificate validly executed by an authorized officer of Purchaser
to that effect, dated as of the Closing Date.
8.4 Opinion of Counsel. The Company shall have been furnished an opinion,
dated the Closing Date, of counsel for Purchaser, in a form acceptable to the
Company.
8.5 Governmental Approvals. Any and all approvals and authorizations of,
filings and registrations with, and notifications to, any governmental or
regulatory authority required for the execution and delivery of this Agreement
by Purchaser, the performance of its obligations hereunder and the transactions
contemplated by this Agreement, not otherwise waived in writing by the Company,
shall have been duly obtained or made and shall be in full force and effect.
8.6 Litigation. At the Closing Date, there shall be no litigation pending
or threatened in which any injunction is or may be sought against or seeking
damages from the Shareholders, the Company or Purchaser in connection with the
transaction contemplated hereby.
ARTICLE IX
OPERATION OF THE COMPANY PRIOR TO THE CLOSING DATE
During the period from the date of this Agreement to January 1, 1996,
except as otherwise consented to by Purchaser in writing, the Company will and
from January 1, 1996 to the Closing Date the Purchaser carry on its business in,
and only in, the usual, regular and ordinary course in substantially the same
manner as previously conducted and, to the extent consistent with such business,
use all reasonable efforts to preserve intact its present business organization,
keep available the services of its present officers and employees, and preserve
its relationships with customers, licenses, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall be
unimpaired in all material respects at the Closing Date.
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The Company will not sell, assign, transfer, license or otherwise dispose of any
Intellectual Property prior to the Closing Date without the written consent of
Purchaser.
ARTICLE X
POST-CLOSING COVENANTS OF THE COMPANY AND PURCHASER
10.1 Non-Competition and Non-Solicitation.
(a) Non-Competition. For a period of three (3) years after the Closing
Date, the Company and Don Sumner and Deborah Sumner shall not engage,
directly or indirectly, in the business of acquiring, developing,
marketing, distributing, licensing, or maintaining systems and application
computer programs having any function similar to, competitive with, or
substitutable for, the Software Products, anywhere in the United States,
except as a customer or authorized distributor of Purchaser or otherwise
with Purchaser's consent (which may be withheld in Purchaser's sole
discretion). The Company acknowledges and agrees that the current market
for the Software Products extends throughout North America and it is
therefore reasonable to prohibit the Company from competing with Purchaser
anywhere in such territory. The Company further acknowledges that Purchaser
enters into this Agreement in reliance on its ability to use, modify,
license, market, distribute and maintain the Software Products free from
any competition from the Company.
(b) Nonsolicitation. For a period of three (3) years after the Closing
Date, the Company and Don Sumner shall not solicit, divert, or recruit,
directly or indirectly, for its own benefit or for the benefit of any other
person or entity, any customer or any employee of Purchaser.
(c) Remedies. The Company expressly acknowledges and agrees that the
Business is highly competitive and that a violation of any of the
provisions of this Section 10.1 would cause immediate and irreparable harm,
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loss and damage to Purchaser not adequately compensable by a monetary
award. Without limiting any of the other remedies available to Purchaser at
law or in equity, or Purchaser's right or ability to collect money damages,
the Company agrees that any actual or threatened violation of any of the
provisions of this Section 10.1 may be immediately restrained or enjoined
by any court of competent jurisdiction, and that a temporary restraining
order or emergency, preliminary or final injunction may be issued in any
court of competent jurisdiction. Except as otherwise provided in this
Agreement, the provisions of this Section 10.1 shall survive the
termination of this Agreement.
(d) Enforcement. It is the desire of the parties that the provisions
of this Section 10.1 be enforced to the fullest extent permissible under
the laws and public policies in each jurisdiction in which enforcement
might be sought. Accordingly, without in any way limiting the general
application of Section 18.6 of this Agreement, if any particular portion of
this Section 10.1 shall ever be adjudicated as invalid or unenforceable, or
if the application thereof to any party or circumstance shall be
adjudicated to be prohibited by or invalidated by such laws or public
polices, such section or sections shall be deemed amended to delete
therefrom such portions so adjudicated, such deletions to apply only with
respect to the operation of such section or sections in the particular
jurisdictions so adjudicating on the parties and under the circumstances as
to which so adjudicated.
10.2 Consulting Services. For a period of ninety (90) days following
January 1, 1996, the Company agrees to make available to the Purchaser without
expense to the Purchaser, the services of Don Sumner to consult with the Company
with respect to the Business, provided, however, that in the event on-site
consultation is required, the Purchaser shall pay Don Sumner Seventy Five
Dollars ($75) per hour for such consulting services. The Purchaser shall not
require Don Sumner to consult more than ten percent (10%) of his time during any
month.
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10.3 Lease. Purchaser and the Company agree to cooperate and to take any
action necessary to terminate the Company's Lease with Dell Associates II for
the Company's Campbell, California facility. Purchaser shall not under any
circumstances be obligated to assume the Company's Lease, and Purchaser shall
have no liability to the Company or to the landlord in connection with such
Lease. Purchaser agrees to pay to the Company an amount equal to the rent due
under such Lease for any month or part of a month during which the Purchaser
occupies such facility.
10.4 Allocation of Purchase Price. The Purchase Price shall be allocated to
the Assets and Assumed Liabilities as set forth in Schedule 10.4, and all tax
returns and reports filed by the Company and Purchaser with respect to the
transactions contemplated by this Agreement shall be consistent with that
allocation.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made by the parties hereto as to any
fact or condition existing on or before the Closing Date of this Agreement, in
any Schedule hereto, in the Closing Balance Sheet or in any certificate
delivered pursuant hereto, shall survive the closing of all transactions
pursuant to this Agreement and remain in full force and effect for the period of
thirty-six (36) months following the Closing Date.
ARTICLE XII
INDEMNIFICATION
12.1 The Company Indemnification. The Company will indemnify, defend and
hold harmless Purchaser, and its shareholders, directors, officers, employees,
agents, successors and assigns from and against all damages, losses,
liabilities, costs, expenses, assessments, taxes, penalties, fines, claims,
demands, actions, suits and proceedings, including, reasonable attorneys',
accountants' and other professionals' fees, costs and expenses of investigation
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and defense, and disbursements incurred therewith, after offset by any related
insurance proceeds or other recovery, and with offset for any reduction of taxes
realized on account of such losses and solely to the extent of any accrued and
unpaid Royalty amount due on or prior to January 31, 1999, arising out of or
resulting from any of the following:
(a) Breach of Obligation. Any material breach of any representation,
warranty, or agreement of the Company contained in or made pursuant to this
Agreement or any Schedule attached hereto, including the agreements and
other instruments contemplated hereby and the financial statements and
documents delivered pursuant hereto;
(b) Liabilities. Any material liabilities or obligations of any kind
or nature whatsoever, whether accrued, absolute, contingent, or otherwise,
known or unknown, arising out of or in connection with the conduct of the
Business or the ownership or use of the Assets prior to the Closing Date;
(c) Failure to Obtain Consents. Any failure to obtain any material
consents from any third parties as required under this Agreement;
(d) Noncompliance with Bulk Sales Law. Any failure to comply with any
"bulk sales" or similar laws relating to notices to creditors; and
(e) Incidental Matters. To the extent not covered by the foregoing,
any and all material demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expense, including
reasonable attorneys', accountants' and other professionals' fees and
expenses, other expenses of investigation, handling, and litigation and
settlement amounts, together with interest and penalties, incident to the
foregoing.
12.2 Purchaser Indemnification. Purchaser will indemnify, defend and hold
harmless the Company and its shareholders, directors, officers, employees,
agents, successors and assigns from and against all damages, losses,
liabilities, costs, expenses, assessments, taxes, penalties, fines, claims,
demands, actions, suits and proceedings, including, reasonable attorneys',
29
<PAGE>
accountants' and other professionals' fees, costs and expenses of investigation
and defense, and disbursements incurred therewith, after offset by any related
insurance proceeds or other recovery, and with offset for any reduction of taxes
realized on account of such losses, arising out of or resulting from any of the
following:
(a) Breach of Obligation. Any material breach of any representation,
warranty, or agreement of Purchaser contained in or made pursuant to this
Agreement or any Schedule attached hereto, including the agreements and
other instruments contemplated hereby and the documents delivered pursuant
hereto; and
(b) Incidental Matters. To the extent not covered by the foregoing,
any and all material demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expense, including
reasonable attorneys', accountants' and other professionals' fees and
expenses, other expenses of investigation, handling, and litigation and
settlement amounts, together with interest and penalties, incident to the
foregoing.
12.3 Notice of Claim. Promptly after service of notice of any written claim
or process on a party hereto by any third person in any matter in respect of
which indemnity may be sought from the other party hereto, the party so served
shall promptly notify the indemnifying party of the receipt thereof. The
indemnifying party shall have the right to participate in, or assume, at its own
expense, the defense of any such claim or process of settlement thereof. After
notice from the indemnifying party of its election so to assume the defense
thereof, the indemnified party shall not be liable to such indemnifying party
for any legal or other expense in connection with such defense. As long as the
indemnifying party is defending such claims diligently, the indemnified party
shall not settle, compromise or pay any claim without the consent of the
indemnifying party. Such defense shall be conducted expeditiously (but with due
regard for obtaining the most favorable outcome reasonably likely under the
circumstances, taking into account costs and expenditures) and the party to be
indemnified
30
<PAGE>
shall be advised of all significant developments. If the indemnifying party
shall fail to assume the defense of the indemnified party within a reasonable
time (not to exceed 15 days after notice of a claim) or to diligently conduct
such defense thereafter, then the indemnified party shall have the right to
assume the defense, and compromise or settle the claim, at the risk and expense
of the indemnifying party.
12.4 Offsets. To the extent that the Company is liable to Purchaser or the
shareholders of Purchaser for any losses under this Article, Purchaser shall
have the right to set-off such amounts against the Purchase Price (including
Royalties) owing to the Company.
ARTICLE XIII
LIMITATION ON LIABILITY
The Company's and Don Sumner's total and aggregate liability under this
Agreement to Purchaser shall in no event exceed the Purchase Price received by
the Company therefor.
ARTICLE XIV
TERMINATION; MODIFICATION OR WAIVER
14.1 Termination. This Agreement (including 10.1 hereof) may be terminated
at any time prior to the Closing:
(a) by mutual written agreement of Purchaser and the Company;
(b) by Purchaser or the Company, by notice to the other party, if the
Closing shall not have taken place prior to _______ __, 1996 (or such later
date as agreed to by the parties in writing), subject to any rights
accruing to the date of such notice on account of any breach of this
Agreement by the opposite party hereto.
(c) by Purchaser or the Company, if an order is issued by any court,
agency, governmental body or public authority of competent jurisdiction to
restrain, enjoin or prohibit the consummation of the transactions
contemplated by this Agreement.
14.2 Modification. This Agreement may be amended, modified and supplemented
only by written agreement of the parties hereto.
31
<PAGE>
14.3 Waiver. Any failure of Purchaser, on the one hand, or the Company, on
the other, to comply with any obligation, covenant, agreement or condition
contained herein may be expressly waived in writing by Purchaser in the case of
any such failure by the Company or by the Company in the case of any such
failure by Purchaser, but such waiver or failure to insist upon strict
compliance shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits consent
by or on behalf of any party hereto, such consent shall be given in writing in a
manner consistent with the requirements for a waiver of compliance as set forth
in this Section 14.3.
ARTICLE XV
COSTS INCIDENT TO PREPARATION OF AGREEMENT
Each of the parties hereto shall pay all costs incurred by it in connection
with and incident to the preparation, execution and delivery of this Agreement
and the performance of its respective obligations hereunder.
ARTICLE XVI
PARTIES IN INTEREST AND ASSIGNMENT
This Agreement shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and permitted assigns. This
Agreement may not be assigned by any party without the prior written consent of
all of the other parties.
ARTICLE XVII
CONFIDENTIALITY
Each party will treat as confidential any information concerning the other
party or this Sale that has been or is disclosed to such party, together with
all notes, memoranda, analyses or other writings prepared using or referring to
any confidential information (the "Confidential Material"). To the extent
practical, Confidential Material shall be marked "Proprietary" or
"Confidential". However, each party acknowledges that it may obtain confidential
information in oral discussions,
32
<PAGE>
from inspections or otherwise that can not be marked as "Proprietary" or
"Confidential." The failure to mark any information as "Proprietary" or
"Confidential" shall not mean that the information is not Confidential Material.
Confidential Material will not include information which
(i) is generally available to the public;
(ii) was known by a party on a nonconfidential basis at the time of
disclosure; or
(iii) was independently developed by a party before receiving the
Confidential Material, provided such party has evidence of the development
of the information.
ARTICLE XVIII
MISCELLANEOUS
18.1 Any notice, request, consent, waiver or other communication required or
permitted to be given hereunder shall be effective only if in writing and shall
be deemed sufficiently given only if delivered in person or sent by telegram,
cable or by certified or registered mail, postage prepaid, return receipt
requested, addressed as follows:
If to the Company:
Don Sumner, President
Visatex Corporation
13180 Ferrant Court
San Martin, California 95046
With a copy (which copy shall not constitute notice) to:
Graham & James
Attention: Perpetua B. Tranlong, Esq.
5 Palo Alto Square
3000 El Camino Real - Suite 1000
Palo Alto, California 94306
33
<PAGE>
If to Purchaser:
Garrett U. Cohn, President
Digital Descriptor Systems, Inc.
2010-F Cabot Blvd. West
Langhorne, PA 19047
Fax: (215) 752-5910
With a copy (which copy shall not constitute notice) to: to:
Steven B. Randall
Schwartz & Freeman
401 North Michigan Avenue
Suite 1900
Chicago, Illinois 60611
or to such other person or address as either such party may have specified in a
notice duly given. Such notice or communication shall be deemed to have been
given as of the date so delivered, telegraphed, cabled or mailed.
18.2 This Agreement (including the Exhibits and Schedules) and the
documents referred to herein as having been entered into by any of the parties
hereto or delivered by a party hereto to another party hereto constitute the
entire agreement and understanding of the parties relating to the subject matter
hereof and supersede all prior and contemporaneous agreements and
understandings, representations and warranties, whether oral or written,
relating to the subject matter hereof. The terms of this Agreement cannot be
changed, modified, released or discharged orally.
18.3 No delay or failure on the part of any party in exercising any rights
hereunder, and no partial or single exercise thereof, will constitute a waiver
of such rights or of any other rights hereunder.
18.4 This Agreement shall be construed and interpreted in accordance with
the laws of the State of Pennsylvania.
34
<PAGE>
18.5 Any controversy, dispute or claim between the parties arising out of,
related to or in connection with this Agreement or the performance or breach
hereof (except for any breach or any claim of breach under Section 10.1) shall
be submitted to and settled by arbitration conducted by the American Arbitration
Association in Chicago, Illinois, in accordance with its commercial arbitration
rules as then in effect; provided that the arbitration shall be by a single
arbitrator mutually selected by Purchaser and the Company, and if the parties do
not agree within twenty (20) days after the date of notification of a request
for such arbitration made by either of the parties, the selection of the single
arbitrator shall be made by the American Arbitration Association in accordance
with said rules. In addition to, and not in substitution for any and all other
relief in law or equity that may be granted by the arbitrator, the arbitrator
may grant equitable relief and specific performance to compel compliance
hereunder. The determination of the arbitrator shall be accompanied by a written
opinion of the arbitrator and shall be final, binding and conclusive on the
parties, and judgment on the arbitrator's award, including without limitation
equitable relief and specific performance, may be entered in and enforced by any
court having jurisdiction thereof, in accordance with paragraph 18.4 hereof.
Fees and expenses of the American Arbitration Association and of the arbitrator
shall be borne as shall be determined by the arbitrator, and the arbitrator may
in his discretion award attorneys' fees and expenses in addition to any other
remedy that is allowed and regardless of whether such remedy includes an award
of damages.
18.6 The unenforceability or invalidity of any Article or Section or
provision of this Agreement shall not affect the enforceability or validity of
the balance of this Agreement.
18.7 The headings of the Articles and Sections contained in this Agreement
are for reference purposes only and shall not in any way affect the meaning,
interpretation, enforceability or validity of this Agreement.
35
<PAGE>
18.8 This Agreement may be executed in any number of counterparts, each of
which so executed will be deemed to be an original, but all of which together
will constitute one and the same agreement.
18.9 Neither the Company nor Purchaser, nor the shareholders or
representatives of either of them, shall make any public announcement or
disclosure (except as otherwise permitted herein or required by law) with
respect to any of this Agreement or any related transactions, without the prior
written consent of the party affected thereby, which consent shall not be
unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PURCHASER: COMPANY:
DIGITAL DESCRIPTOR SYSTEMS, INC., VISATEX CORPORATION,
a Delaware corporation California corporation
By: /s/ Garrett U. Cohn By: /s/ Don Sumner
----------------------- ---------------------
IN WITNESS WHEREOF, the following persons execute this Agreement on the
date first above written to evidence their agreement to Article X.
/s/ Don Sumner /s/ Deborah Sumner
-------------------- -----------------------
Don Sumner Deborah Sumner
36
<PAGE>
SCHEDULE 1.1(a)
INTELLECTUAL PROPERTY (& SOFTWARE PRODUCTS)
QuikSketch
QuikSketch-EF
CompuSketch - for IBM
CompuSketch - for Macintosh
FotoFile
FotoFile - RMS interface module
BionicArtist - (Image library and Macro for Photofinish, a 3rd party commercial
product)
CompuScene - for IBM (templates for VISIO, a 3rd party commercial product)
CompuScene - for Mac (templates for Macdraft, a 3rd party commercial product)
Disguiser - (Image library and Macro for Photofinish, a 3rd party commercial
product)
<PAGE>
MARS - (Application program for Alpha4 Database, a 3rd party commercial product)
Products in development
FotoFind
FacePublisher (Image library for PicturePublisher, a 3rd party commercial
product)
General technology
Purchaser is granted a non-exclusive right to use the following technologies:
C-modules of a general nature
C++modules of a general nature
Version-making utilities
Text string handling functions (for ease of modification and
internationalization) Build process procedure and utility files
<PAGE>
SCHEDULE 1.1(b)
EQUIPMENT
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
LOBBY
1 DESK, WOOD 2.5' x 5'
1 CONF. TABLE, FOLDING 3' x 6'
5 FILE CABINETS, METAL 4 DRAWERS
1 CHAIR, SECRETARY ROLLER
2 CHAIRS, STRAIGHT
4 FILE DRAWER, PULLOUT LETTER, 24" HERMAN MILLER
1 FILE DRAWER, PULLOUT LETTER, 48" HERMAN MILLER
DIVIDER H. = 5' HERMAN MILLER
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
PROD.RM. 1 COMPUTER, M.S. 8MB. RAM 386,84MB,120MB
1 VGA 14", COLOR
1 MODEM 14.4KB ROBOTICS
1 COMPUTER,APPLE MAC+ 1 MB. APPLE
1 HARD DRIVE, EXT. 32MB PL30
1 HARD DRIVE, EXT. 40MB EVEREX
1 FLOPPY DRIVE, EXT. 3.5, DD APPLE
1 IMAGEWRITER PRINTER APPLE
1 PRINTER WIDE CARRIAGE PANASONIC
1 PRINTER LETTER SIZE PANASONIC
2 BOOK SHELF, WOOD 5 SHELVES 1'x 2.5'
1 BOOK SHELF, WOOD 2 SHELVES 1'x 3'
1 RACK, METAL 4 SHELF 16"x 36"
2 DESK CHAIR, ROLLER
1 DESK CHAIR EXEC. STYLE
1 CHAIR, STRAIGHT
1 DESK, WOOD 29"x 5' W/SIDE ARM
1 WHITE BOARD 4'x 8'
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
KEVIN'S OFF.
1 COMPUTER, MAC SE 20 MB. APPLE
1 MONITOR, B&W 14" 'EXE'
1 DESK, METAL 2.5'x 5'
1 BOOKCASE, WOOD 3 SHELF, 1' x 2'
1 CHAIR, EXEC. STYLE W/ROLLERS
1 LAMP, ADJUSTABLE FLOR. & INCAND.
DIVIDER H = 5' HERMAN MILLER
- - --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WAREHOUSE
1 PRINTER, LASER LASERWRITER PLUS APPLE
1 FAX MACHINE PRIORITY FAX 2000 EPSON
1 BOOKCASE, WOOD 3 SHELF, 14" x 36" H = 45"
1 BOOKCASE, WOOD 4 SHELF, 15" x 30" H = 5'
2 BOOKCASE, WOOD 5 SHELF, 10" x 32" H = 64"
1 BOOKCASE, WOOD 5 SHELF, 14" x 27"
1 RACK, METAL 3 SHELF, 1' x 2.5' H = 5'
6 RACK, METAL 4 SHELF, 1.5' X 3' H = 70"
1 TABLE, WOOD (DESK) 2' X 4' H = 30"
DIVIDER H = 5' HERMAN MILLER
1 DESK, METAL 2.5 X 5'
1 COMPUTER, 286 50 MB., 2 MB. COMPUSTAR
1 MONITOR, COLOR, VGA 14" HYUNDIA
2 OPTICAL DRIVE, EXT. 500 MB. PANASONIC
1 FLOPPY DRIVE, EXT. 3.5" EASY FLOPPY
3 FILE CABINET 4 DRAWER, LETTER
1 FILE CABINET, FIREPROOF 4 DRAWER, LETTER
6 TABLE, FOLDING 2.5' X 6'
1 COMPUTER, PORTABLE 486, 8 MB., 210 MB. SONGTECH
(LCD)
2 MONITOR, COLOR 14" SONY,
MITSUBISHI
1 COMPUTER, MINITOWER 386SX, 8 MB.,
480 MB. M.S.
1 PRINTER, LASER ACTION LASER 1500 EPSON
1 LIGHT TABLE COPYMATE II
1 TABLE, UTILITY 2 SHELF, 3' X 6'
1 SHRINK WRAP MACHINE 22" TRACO MFG.
1
1 T.V. 12", B&W M.W.
1 VIDEO CAMERA 8 MM SONY
1 VIDEO CAMERA VHS QUASAR
1 MICROWAVE OVEN G.E.
1 COFFEE MAKER 10 CUP PROCTOR-SILEX
- - --------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
WAREHOUSE
#2
1 BOX FAN
1 PEDESTAL FAN
3 DESK CHAIR W/ ROLLERS
3 FILE DRAWER, PULLOUT LETTER, 24" HERMAN
MILLER
1 PAPER CUTTER
4 CHAIRS, STRAIGHT
1 CASE, TRANSIT ZERO
1 TRIPOD, CAMERA
1 FAX MACHINE EPSON
1 FIRE EXTINGUISHER DRY, 4 LBS
- - --------------------------------------------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GENERAL
16 TELEPHONE, 12 BUTTON MODEL KXT 123230 PANASONIC
1 SWITCH MODULE, PHONE MODEL 1232, 12 L. PANASONIC
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
GRANT'S OFF.
1 COMPUTER, 486, 16 MB 420 MB., 810 MB M.S.
1 MONITOR, COLOR SVGA 14" IMPRESSION 5
1 PRINTER, FX 860 9 PIN EPSON
1 FILING CABINET, METAL 4 DRAWER, LETTER
1 TABLE, FOLDING 2.5' X 6'
1 DESK, METAL 2.5' X 5'
2 CHAIR, EXEC W/ROLLERS
1 BOOKCASE, WOOD 5 SHELF, H = 60"
1 BOOKCASE, METAL 4 SHELF, H = 52"
1 WHITEBOARD 2' X 3'
DIVIDER H = 5'
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
DON'S RM.
1 COMPUTER, M.S. 486-16 8 MB., 210 MB.
1 MONITOR 14", COLOR
1 MODEM 14.4 KB
1 COMPUTER, APPLE MAC LC 8 MB. 80 MB. APPLE
1 HARD DRIVE, EXT. 240 MB.
1 SCANNER ES 1200 C EPSON
1 MONITOR APPLE
3 FILE CABINET 2 DWR., LEGAL
1 FILE CABINET 4 DWR., LETTER
1 DESK, WOOD 3' X 6'
1 CHAIR, ROLLER EXEC STYLE
1 CHAIR, STRAIGHT
1 WHITE BOARD 3' X 4'
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
STEVE
KLEMENT
1 FAX MACHINE
1 PRINTER, LASER TEXAS INST
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
SHELF 1 COMPUTER, MAC SE 40 MB. APPLE
KEVIN'S 1 HARD DRIVE, EXT. 20 MB. DATA FRAME
SHELF 1 HAND SCANNER SCANMAN H7M-1 LOGITECH
FLOATING 1 COMPUTER, LAPTOP 8 MB., 130 MB. WYSE
SPARE OFFICE 1 MONITOR, COLOR 14" INTRA
1 CHAIR, EXEC. TYPE W/ ROLLERS
1 CHAIR, STRAIGHT
1 DESK, METAL 2.5' X 5'
- - --------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------
LOCATION QTY. DESCRIPTION SIZE MAKE
- - --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CONF. RM
1 T.V., COLOR 20" PANASONIC
1 V.C.R., SVHS RCA
1 V.C.R., VHS QUASAR
1 V.C.R., VHS EMERSON
1 V.C.R., VHS (COLOR PROB.) CURT. MATHES
1 T.V. RACK, 2 SHELF 42" W/ ROLLERS
3 TAPE REWINDERS VHS
1 VIDEO SW. BOX 1 IN, 5 OUT ARCHER
1 VIDEO DIST. AMP 1 IN, 4 OUT VIDEO ACC.
CORP
1 TBC/FRAME SYNC AP-41-SF HOTRONIC, INC.
4 CHAIRS STRAIGHT
1 WHITE BOARD 3' X 4'
1 CONF. TABLE, ROUND 42" DIAM
- - --------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE 1.2
ASSUMED CONTRACTS
* Visatex software - Support Contracts - See attached list
* Visatex software - Rentals - See attached list
* Copier Lease - Lease Partners
* Copier Maintenance - Rabbit Copiers
* Building Lease (until terminated)
* Workers Comp Insurance - ITT Hartford
* Liability Insurance - ITT Hartford
* General Business Insurance (fire, etc.) - ITT Hartford
* Various building expenses (until cancelled)
Action Maintenance - Janitorial Alhambra - Water
AnswerPlus - Answering service AT&T - Phone
Bell South - TN Office phone Green Valley - trash
Kaiser - Health Ins. for G. Martin PacBell - Phone
PageNet - Pager (1) PG&E - Power
Sonitrol - Alarm System UPS
<PAGE>
<TABLE>
<CAPTION>
RENTALS
- - ---------------------------------------------------------------------------------------
1 AGENCY NAME PRODUCT $/YEAR YEARS OPN BILLING
REMAIN INV MONTH
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2 ADA CO ID QSK 480 4 MAY
3 ARKANSAS UN QSK 775 3 OCT
4 BOON CO MO QSK 480 3 MAR
5 BOSTON COLLEGE QSK EF 875 + 457 1-1/2 AUG
(IN 97)
6 CARIBOU NC QSK 480 1 JUL
7 CERES CA QSK EF 875 2 JAN
8 CHATHAM CO GA QSK 405 1 JAN
9 CLOVIS CA QSK (MAC) 900 1 JUN
10 COOL VALLEY MO QSK 480 2 MAR
11 DEERFIELD IL QSK 480 1 APR
12 FAIRVIEW PA QSK 480 3 JAN
13 FARGO ND QSK 480 1 JUL
14 FORT WAYNE IN QSK 1250 2 DEC
15 GLENWOOD IL QSK 480 2 JUN
16 GOOD LETTERVILLE TN QSK 480 2 SEP
17 HALLENDALE FL QSK 900 1 NOV
18 HOMETOWN IL QSK EF 875 3 APR
19 JEFFERSON LEWIS QSK 1250 1 1 DEC
BOSES NY
20 JEFFERSON TECH COL C'sc 100 OPEN END APR
OH TEMPLATES
21 JEFFERSON TECH COL 10 KEYS 750 OPEN END MAY
OH
22 KANE CO IL QSK 816 1 JUL
23 LAKE STATION IN QSK 480 2 OCT
24 LAS VEGAS NV QSK EF 875 1 1 SEP
25 LIMA OH QSK 480 1 APR
- - ----------------------------------------------------------------------------------------
<CAPTION>
RENTALS
- - ---------------------------------------------------------------------------------------
1 AGENCY NAME PRODUCT $/YEAR YEARS OPN BILLING
REMAIN INV MONTH
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2 LOMPOC CA QSK 480 3 MAR
3 LOS ALAMOS NM QSK EF 875 2 MAR
4 LOS DATAS QSK 480 1 FEB
5 LOUISVILLE UNIV KY QSK EF 875 1 JUL
6 MECHANICSBURG PA QSK 480 3 FEB
7 MORGAN HILL CA QSK
8 NORRIDGE IL QSK 480 3 APR
9 PENNINGTON CO SD QSK 1250 1 DEC
10 PIKES PEAK CAL CO KEYS 420 OPEN END JUL
11 PLEASANT GROVE QSK 480 1 JAN
12 QUINCY IL QSK 480 1 JUL
13 REDDING CA QSK 900 1 AUG
14 SOMERVILLE MA QSK EF 660 1 JUL
15 SOMERVILLE MA QSK EF 790 4 JUL
16 SPARTANBURG CO SC QSK 480 3 MAY
17 TRACY CA QSK 480 2 1 OCT
18 POSTAL INSP IL QSK EF 875 2 OCT
- - ---------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
19 US STEEL IN QSK 480 4 MAR
20 WARD CO ND QSK 408 3 SEP
21 WEST NEW YORK NJ QSK 480 2 SEP
22 WINDSOR ONT CAN QSK EF 875 2 JAN
23 WOODRIDGE IL QSK 980 1 APR 96
24 WOODRIDGE IL QSK 316 1 APR 97
25 YAKIMA WA QSK 1250 1 FEB
- - ---------------------------------------------------------------------------------------
</TABLE>
SOFTWARE SUPPORT
- - --------------------------------------------------------------------------------
1 AGENCY NAME PRODUCT $/YEAR REMAINING OPEN INV'S
- - --------------------------------------------------------------------------------
2 BOSTON U. QSK EF 12/31/95
3 DUPAGE SO FF. CSKETCH 8/31/96
4 EAU CLAIRE SO FF 12/31/95
5 GA INST TECH CSK MAC 7/31/96
6 HALIFAX PD CSK CSCENE 9/30/95 NOT PAID 96
7 IDAHO DLE CSK CSCENE 7/31/96
8 KENOSHA FF, CSK, CSCENE 12/31/95
9 LANGLADE SO FF 12/31/96
10 LEAGUE CITY PD CSKETCH 8/31/96
11 MARINA PD FF, QSK 12/31/96
12 MI STATE PD CSCENE 7/31/96
13 NESPIN CSCENE 9/30/95 NOT PAID 96
14 OVERLAND PD FF, CSKETCH 12/31/95
15 PASADENA PD FF 12/31/96
16 US POSTAL INSP FF 10/31/96
17 VALPARAISO PD FF, CSKETCH 12/31/95
18 WEBSTER PD QSK 4/30/96
19 WOODRIDGE CSK, QSK-EF 7/31/96
<PAGE>
SCHEDULE 1.4
EXCLUDED ASSETS
*Computer - 486-33
With copies of all Visatex software, text files for User Manuals and
Literature. Don Sumner requires this to fulfill consulting Agreement.
*Accounts Receivables
All invoices dated prior to Dec. 31, 1995
*Cash in banks
*Rent Deposit - $1575.00
<PAGE>
SCHEDULE 3.1(b)
MINIMUM COMMISSION RATES
QuikSketch $170
QuikSketch-EF $335
CompuSketch - for IBM $445
CompuSketch - for Macintosh $445
FotoFile $300 Base +$120/station or $1000/site
Fotofile - RMS interface module $180
CompuScene $ 60
Disguiser $100
MARS $180
FotoFind $400
FacePublisher $100
<PAGE>
SCHEDULE 4.5
CHANGES IN CONDITION
N/A
<PAGE>
SCHEDULE 4.6
VIOLATION OF STATUTE OR CONTRACT
N/A
<PAGE>
SCHEDULE 4.8
ACCOUNTS RECEIVABLE
- - --------------------------------------------------------------------------------
Customer Date Invoice Amount
- - --------------------------------------------------------------------------------
Mesquite 11/15/95 111551 56.25
Eau Claire 11/1/95 1763 250.00
Kenosha 11/1/95 1764 250.00
Valparaiso 11/1/95 1769 250.00
Boston Univ. 11/1/95 1770 100.00
Travis CO SO 11/7/95 1773 2995.00
Wyomissing 11/20/95 1777 240.00
Orange 11/28/95 1781 195.00
Charlotte 11/29/95 1782 56.25
Somerville 11/28/95 1780 660.00
New Castle 12/13/95 1795 595.00
Ward CO SO 12/2/95 1784 480.00
Galveston 12/1/95 1786 1250.00
Jefferson 12/1/95 1787 1250.00
Pennington 12/1/95 1788 1250.00
LAPD 10/30/95 1754 4324.59
Clovis 6/1/95 1662 960.75
Redding 8/1/95 1696 947.25
Las Vegas NV 0/1/95 1720 875.00
Arkansas U 10/1/95 1747 775.00
Jefferson Tch 4/30/95 1643 750.00
Langlade 1/19/95 1557 500.00
Halifax 8/1/95 1698 100.00
Pitkin 11/16/94 1507 50.00
Lenoir City 12/18/95 1798 3995.00
Miami Beach 12/27/95 1802 1000.00
Boston U 12/20/95 1799 100.00
Cascade 12/24/95 1801 75.00
Del Rio 12/29/95 1803 3345.00
Derry Borough 5/25/95 52551 18.30
Morgan Hill 9/1/94 1438 974.25
- - --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 4.9
PREPAID EXPENSES
Kaiser health insurance - Jan 96 for Grant Martin - $145.38
<PAGE>
SCHEDULE 4.11
TANGIBLE PERSONAL PROPERTY
See Log 1.1(b)
<PAGE>
SCHEDULE 4.12
DEPOSITS
Building Lease = $1575.00
<PAGE>
SCHEDULE 4.14(b)
CLAIMS ASSERTED BY THIRD PARTIES
N/A
<PAGE>
SCHEDULE 4.14(d)
PROCEDURES FOR COPYRIGHT PROTECTION
The company used its best efforts to use the Trademark superscript (TM) at least
once in each advertisement, press release, or sales literature for all products
listed in Schedule 1.1 (c)
The company used its best efforts to place the following copyright notice on all
manuals, disk labels, and opening screens of software published by the company.
C Copyright (year(s)) Visatex Corporation
<PAGE>
SCHEDULE 4.14 (h)
SOFTWARE PRODUCTS LICENSED BY COMPANY
* Zing Compressing software for use in Fotofile
(200 installations left)
* Accusoft Image library for use in Fotofile
* TBase tools for use in Fotofile
* SunShow Imaging library for use in FotoFile
* Visual Release Installer program for producing products & demos
<PAGE>
SCHEDULE 4.16
GOVERNMENTAL PERMITS AND LICENSES
Business License - Campbell CA
Reseller Permit - SRGH 26-773013
Export License - Certified under GTDR
<PAGE>
SCHEDULE 4.17
CLAIMS AND LITIGATION
N/A
<PAGE>
SCHEDULE 4.19
TAX MATTERS
N/A
<PAGE>
SCHEDULE 4.20
COMPANY SPONSORED EMPLOYEE PLANS
N/A except Kaiser Medical for Grant Martin
Company pays 50%, 50% Payroll Deduction
<PAGE>
SCHEDULE 10.4
TAX ALLOCATION
10% of the Purchase Price shall be allocated to the tangible equipment and
assets of the Company, and 90% of the Purchase Price shall be allocated to the
Company's intangible rights, properties and goodwill.
EXHIBIT 10.22
DEMAND NOTE
$45,500.00 March 3, 1996
Langhorne, Pennsylvania
FOR VALUE RECEIVED, GARRETT U. COHN ("Borrower"), hereby promises to pay on
demand to the order of DIGITAL DESCRIPTOR SYSTEMS, INC. with its principal place
of business at 2010-F Cabot Boulevard, Langhorne, Pennsylvania 19047, or any
successor holder of this Note ("Lender"), at the Lender's principal place of
business, or such other place or places as Lender from time to time may
designate in writing, the principal sum of FORTY-FIVE THOUSAND FIVE HUNDRED AND
00/100 DOLLARS ($45,500.00), together with interest from the date of this Note
on the unpaid principal balance outstanding from time to time at the annual rate
of one percent (1%) in excess of the rate of interest announced or published
from time to time by The Wall Street Journal as the prime or equivalent rate of
interest (such announced or published rate of interest referred to as the "Prime
Rate").
Interest shall be payable on the first day of each calendar quarter
commencing on July 1, 1996 and continuing on the first day of each October,
January, April and July thereafter until this Note is paid in full or otherwise
discharged.
Interest hereunder shall be computed on the basis of actual days elapsed
based upon a three hundred sixty (360) day year. The interest rate shall be
adjusted in an amount equal to any increase or decrease in the Prime Rate on the
date of such adjustment. It is expressly agreed that the use of the term "Prime
Rate" is not intended nor does it imply that said rate of interest is a
preferred rate of interest or one which is offered to the most creditworthy
customers of any bank or financial institution.
1. Prepayment. This Note may be prepaid in whole or part, at any time and
from time to time without premium or penalty.
2. Waivers. The acceptance by Lender of any payment, partial or otherwise,
made after the time when it becomes due will not establish a custom or
constitute a waiver by Lender of any right to enforce prompt payment thereof or
a waiver of any other default or the same default on another occasion. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY WAIVES DEMAND, PRESENTMENT
FOR PAYMENT, PROTEST AND NOTICE OF NON-PAYMENT AND PROTEST.
3. Fees, Expenses and Other Charges. If at any time or times, Lender
attempts to or enforces any of Lender's rights and remedies against Borrower,
the reasonable costs and expenses incurred by Lender in such enforcement shall
be an additional liability, payable by Borrower to Lender on demand. Without
limiting the generality of the foregoing, such expenses, costs, charges and fees
include: (i) attorneys' fees, costs and expenses; (ii) accountants' fees, costs
and expenses; (iii) court costs and expenses; (iv) court reporter fees, costs
and expenses; (v) long distance telephone charges; and (vi) telegram, telecopy,
facsimile, messenger and overnight courier charges.
4. Amendments and Modifications. This Note may not be amended or modified,
nor shall any revision hereof be effective, except by an instrument in writing
expressing such intention executed by Lender and Borrower.
5. Choice of Law. This Note shall be governed and controlled as to
validity, enforcement, interpretation, construction and effect by the statutes,
laws and decisions of the State of Pennsylvania.
1
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as
of the day and year first above written.
/s/ Garrett U. Cohn
----------------------
GARRETT U. COHN
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Digital Descriptor Systems, Inc. financial statements for the three month period
ending March 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,266,823
<SECURITIES> 0
<RECEIVABLES> 987,210
<ALLOWANCES> 135,070
<INVENTORY> 201,353
<CURRENT-ASSETS> 3,494,262
<PP&E> 733,780
<DEPRECIATION> 430,248
<TOTAL-ASSETS> 3,943,736
<CURRENT-LIABILITIES> 998,438
<BONDS> 75,000
0
0
<COMMON> 2,409
<OTHER-SE> 2,867,889
<TOTAL-LIABILITY-AND-EQUITY> 2,870,298
<SALES> 910,057
<TOTAL-REVENUES> 910,057
<CGS> 518,375
<TOTAL-COSTS> 262,341
<OTHER-EXPENSES> 832,153
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (702,812)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (663,959)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
