SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 12, 1999
SoftNet Systems, Inc.
(Exact name of registrant as specified in charter)
New York 1-5270 11-1817252
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
650 Townsend Street, Suite 225, San Francisco, CA 94103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 365-2500
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
(a) On February 12, 1999, Kansas Communications,
Inc., a Kansas corporation ("KCI"), a wholly owned subsidiary of SoftNet
Systems, Inc., a New York corporation ("SoftNet"), sold substantially all of its
assets to Convergent Communications Services, Inc., a Colorado corporation
("Convergent") (the "Disposition") pursuant to an Asset Purchase Agreement,
filed as Exhibit 2.7 to this report, by and among KCI and Convergent, dated as
of February 12, 1999 (the "Purchase Agreement').
KCI disposed of all of its right, title and interest to and in
substantially all assets, properties and rights (of any kind, nature, character
and description, whether tangible or intangible, whether accrued, contingent or
otherwise, wherever located) owned by KCI as of January 31, 1999, which included
(i) trade accounts receivable, inventory, prepaid assets and personal property,
such as all equipment, fixtures, furniture, supplies and other personal property
owned, utilized or held for use by KCI in its business; (ii) all rights of KCI
under the leases of real property and personal property used in connection with
its business that are listed on the schedules to the Purchase Agreement under
the heading "Assumed Leases"; (iii) contracts involving all rights of KCI
(including, without limitation, all of KCI's right to receive goods and services
and to assert claims and to take other action with respect to breaches, defaults
and other violations pursuant to such contracts) under all contracts, agreements
and commitments that are listed on the schedules to the Purchase Agreement under
the heading "Assumed Contracts", (iv) all of KCI's right, title and interest in
and to all goodwill, licenses, trade names (including, without limitation, the
names "Kansas Communications" and "BT Services," together with all derivations
and variations of such names, but specifically excluding the name "SoftNet
Business Solutions," together with all derivations and variations of such name),
assumed names, trade dress, business identifiers, trademarks, service marks,
copyrights, applications and registrations for any of the foregoing, trade
secrets, confidential information, know-how, causes of action (including all
claims for infringement), claims (including contractual claims), contractual
rights or agreements granting any right, title, license or privilege with
respect to intellectual property and all other intangible assets relating to,
used in or held for use in the operation of KCI's business; (v) all records,
computer software and documents, computer source codes and programs, books,
supplier, dealer and customer lists, catalogs and technical data, work orders,
credit information and correspondence, operating data, drawings, blueprints,
specifications, designs, financial information, product data and records,
account information, sales leads, sales representative information, and all
other records and documents used in connection with the operation of KCI's
business, but specifically excluding KCI's Articles of Incorporation (with all
amendments thereto), Bylaws (with all amendments thereto), corporate minutes and
documents relating to the qualification of Seller as a domestic or foreign
corporation in Kansas, Missouri and Wisconsin; and (vi) all sales literature,
promotional literature, catalogs, sales and marketing materials and similar
materials relating to KCI's business, but excluding any literature containing
the named "SoftNet" and any literature that is the basis for any pending or
threatened litigation.
KCI explicitly retained its rights to certain assets,
specifically, cash, goodwill recorded on the closing balance sheet and
intercompany receivables and collectibles between KCI and SoftNet.
KCI retained its obligations to pay, perform and discharge its
debts, liabilities and obligations, whether actual, contingent or accrued, known
or unknown. KCI indemnified Convergent against such liabilities; however,
Convergent assumed the obligation to pay, perform and discharge in accordance
<PAGE>
with their terms certain obligations and liabilities of KCI as of January 31,
1999, which include advances on contracts, capital lease obligations, trade
accounts payable, accrued vacation time for employees, accrued commissions,
accrued warranties and miscellaneous accrued repairs and deferred maintenance.
KCI received from Convergent approximately $6,300,000 in the
following manner in connection with the Disposition: (i) $1,500,000 in cash, of
which $100,000 had previously been paid in the form of a deposit; (ii)
$2,000,000 principal amount secured promissory note (the "Secured July Note")
bearing an interest rate of 11% and payable on or before July 1, 1999; (iii)
$1,000,000 principal amount secured promissory note (the "Secured Purchaser's
Note") bearing an interest rate of 8% and payable on or before February 11,
2000; (iv) $1,500,000 principal amount secured promissory note (the "Secured
Contingent Note," together with the Secured July Note and the Secured
Purchaser's Note, the "Notes") bearing an interest rate of 8% and payable on or
before February 11, 2000; and (v) 30,000 shares of common stock of Convergent's
parent company, Convergent Communications, Inc., a Colorado corporation, valued
at $10 per share.
The Notes are secured by all of the assets purchased by
Convergent under the Purchase Agreement pursuant to a Security Agreement by and
between KCI and Convergent, dated as of February 12, 1999 (the "Security
Agreement"). Each Note has a cross-default provision, and nonpayment of amounts
when due is a default that allows KCI to foreclose on the assets purchased
pursuant to the Purchase Agreement. Convergent can prepay the principal amount
without penalty. KCI has the option to accelerate payment of the Secured July
Note in the event Convergent completes an equity or debt financing (as defined
in the Security Agreement).
In the event KCI's balance sheet for the period ended January
31, 1999 indicates net working capital and assets of less than $2,200,000, the
principal amount of the Secured Contingent Note will be reduced dollar for
dollar by the difference between $2,200,000 and the amount of net working
capital and assets indicated. In the event such balance sheet indicates net
working capital and assets of greater than $2,200,000, then KCI will receive
additional stock of Convergent Communications, Inc. determined by dividing the
difference between the amount of net working capital and assets indicated and
$2,200,000 by 10, and rounding up to the nearest whole number. KCI will
reimburse Convergent for any accounts receivable reflected on KCI's December 31,
1998 balance sheet that remain uncollected after April 30, 1999. In the event
the amount net fixed assets as identified on KCI's balance sheet as of January
31, 1999 is $50,000 or greater than the value of the net fixed assets identified
on the fixed asset inventory list prepared by the Purchaser, then the Secured
Contingent Note will be reduced. All taxes imposed in connection with the sale
and transfer of the Purchased Assets to Convergent will be borne by KCI.
There was no material relationship between SoftNet or KCI or
any of their respective affiliates, directors or officers or, to the knowledge
of SoftNet or KCI, any associate of any director or officer of SoftNet or KCI,
on the one hand, and Convergent, on the other hand, prior to the Disposition.
The description of the agreement set forth herein does not
purport to be complete and is qualified in its entirety by reference to the
provisions of the Purchase Agreement and acillary documents, filed as Exhibits
2.7, 2.8, 2.9, 2.10, 2.11 and 2.12 of this report and incorporated hereby by
reference.
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
(a) Financial Statements. Not applicable.
(b) Pro Forma Financial Information. Pro forma financial information
for SoftNet is included at the end of this Report.
(c) Exhibits. The following documents are filed as exhibits to this
report:
1. Exhibit 2.7 - Asset Purchase Agreement, dated as of
February 12, 1999, by and between Convergent and KCI (all exhibits and
schedules are immaterial and have been excluded; such exhibits and
schedules will be furnished supplementally upon request by the
Securities and Exchange Commission).
2. Exhibit 2.8 - Bill of Sale, Assumption of Liabilities and
Assignment of Contracts, dated as of February 12, 1999, by and between
Convergent and KCI.
3. Exhibit 2.9 - Secured July Note, dated as of February 12,
1999, by Convergent in favor of KCI in the principal amount of
$2,000,000.
4. Exhibit 2.10 - Secured Purchaser's Note, dated as of
February 12, 1999, by Convergent in favor of KCI in the principal
amount of $1,000,000.
5. Exhibit 2.11 - Secured Contingent Note, dated as of
February 12, 1999, by Convergent in favor of KCI in the principal
amount of $1,500,000.
6. Exhibit 2.12 - Security Agreement, dated as of February 12,
1999, by and between Convergent and KCI.
7. Exhibit 99.1 - Press Release, dated November 10, 1998,
issued by SoftNet, announcing the letter of intent to enter sell KCI.
8. Exhibit 99.1 - Press Release, dated February 12, 1999,
issued by SoftNet, announcing the completion of the Disposition.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
SoftNet Systems, Inc.
---------------------
(Registrant)
Date: February 26, 1999 By: /s/Douglas S. Sinclair
------------------------------
Douglas S. Sinclair
Chief Financial Officer
<PAGE>
SoftNet Systems, Inc.
Exhibit Index
to Form 8-K
Exhibit No. Description
2.7 Asset Purchase Agreement, dated as of February 12, 1999,
by and between Convergent and KCI.
2.8 Bill of Sale, Assumption of Liabilities and Assignment of
Contracts, dated as of February 12, 1999, by and
between Convergent and KCI.
2.9 Secured July Note, dated as of February 12, 1999, by
Convergent in favor of KCI in the principal amount of
$2,000,000.
2.10 Secured Purchaser's Note, dated as of February 12, 1999,
by Convergent in favor of KCI in the principal amount of
$1,000,000.
2.11 Secured Contingent Note, dated as of February 12, 1999, by
Convergent in favor of KCI in the principal amount of
$1,500,000.
2.12 Security Agreement, dated as of February 12, 1999, by and
between Convergent and KCI.
99.1 Press Release, dated November 10, 1998, issued by SoftNet,
announcing the letter of intent to enter sell KCI.
99.2 Press Release, dated February 12, 1999, issued by SoftNet,
announcing the completion of the Disposition.
<PAGE>
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements have been prepared by the management of SoftNet Systems, Inc. (the
"Company") from its historical financial statements included in Form 10-K/A for
the fiscal year ended September 30, 1998 as filed with the Securities and
Exchange Commission ("SEC") on February 3, 1999 and in Form 10-Q for the
quarterly period ended December 31, 1998 as filed with the SEC on February 16,
1999. The unaudited pro forma consolidated condensed statements of operations
for the year ended September 30, 1998 and the three months ended December 31,
1998 reflect adjustments as if the Company had substantially sold all of the
assets of the Company's wholly-owned subsidiary, Kansas Communications, Inc.
("KCI") (the "KCI Disposition"), as described in the accompanying notes, as of
October 1, 1997. The unaudited pro forma consolidated condensed balance sheet as
of December 31, 1998 reflect adjustments as if the KCI Disposition, as described
in the accompanying notes, had occurred as of December 31, 1998.
The unaudited pro forma consolidated condensed financial statements should
be read in conjunction with the notes included herewith, the Company's audited
consolidated financial statements and notes thereto as of September 30, 1998 and
1997 and for the three years ended September 30, 1998, the Company's unaudited
consolidated condensed financial statements as of, and for the three months
ended, December 31, 1998 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the Company's most recent Form
10-K/A and 10-Q filings.
The unaudited pro forma consolidated condensed financial statements do not
purport to represent what the Company's results of operations or financial
position would have been had the KCI Disposition occurred on the dates
specified, or to project the Company's results of operations or financial
position for any future period or date. The pro forma adjustments are based upon
available information and certain assumptions that management believes are
reasonable under the circumstances. In the opinion of management, all
adjustments have been made that are necessary to present fairly the pro forma
data. Actual amounts could differ from those set forth below.
<PAGE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Condensed Balance Sheet
(in thousands)
<TABLE>
<CAPTION>
As of December 31, 1998
---------------------------------------------------------
Disposition
Historical Adjustments (1) Pro Forma
------------- ------------------- ---------------
Assets
Current assets:
<S> <C> <C> <C>
Cash $ 4,329 $ 1,400 (b) $ 5,729
Accounts receivable, net.............................. 3,819 3,819
Current portion of gross investment in leases......... 1,239 1,239
Inventories........................................... 1,195 1,195
Other current assets.................................. 1,146 4,500 (b) 5,646
------------- ------------------- ---------------
Total current assets............................ 11,728 5,900 17,628
Restricted cash............................................ 800 800
Property and equipment, net................................ 9,880 9,880
Gross investment in leases, net of current portion......... 1,717 1,717
Other assets............................................... 1,772 300 (b) 2,072
Net assets associated with discontinued operations......... 3,813 (3,813) (a) --
------------- ------------------- ---------------
Total assets.......................................... $ 29,710 $ 2,387 $ 32,097
============= =================== ===============
Liabilities, Redeemable Convertible Preferred Stock and
Shareholders' Deficit
Current liabilities:
Accounts payable and accrued expenses................. $ 10,862 $ (100) (b) $ 10,762
Current portion of long-term debt..................... 1,855 1,855
Other current liabilities............................. 1,086 1,086
------------- ------------------- ---------------
Total current liabilities....................... 13,803 13,703
Long-term debt, net of current portion..................... 9,430 9,430
Other long-term liabilities................................ 518 518
Redeemable convertible preferred stock..................... 15,754 15,754
Shareholders' deficit:
Common stock and capital in excess of par value............ 46,739 46,739
Deferred stock compensation................................ (303) (303)
Accumulated deficit........................................ (56,231) 2,487 (c) (53,744)
------------- ------------------- ---------------
Total shareholders' deficit........................... (9,795) 2,487 (7,308)
------------- ------------------- ---------------
Total liabilities, redeemable convertible preferred
stock and shareholders' deficit................. $ 29,710 $ 2,387 $ 32,097
============= =================== ===============
- ---------------------------
<FN>
(1) References in parenthetical are to Note 2 to the unaudited pro forma
consolidated condensed financial statements.
</FN>
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
<PAGE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
Unaudited Pro Forma Consolidated Condensed Statements of Operations
(in thousands, except per share data)
<TABLE>
<CAPTION>
For the year ended For the three months ended
September 30, 1998 (1) December 31, 1998 (1)
-------------------------------------------- -------------------------------------------
Disposition Disposition
Historical Adjustments Pro Forma Historical Adjustments Pro Forma
----------- ------------- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 14,060 $ -- $ 14,060 $ 4,296 $ -- $ 4,296
Cost of sales........................ 10,628 10,628 2,967 2,967
----------- ------------- ----------- ------------ ------------- ----------
Gross profit.................... 3,432 3,432 1,329 1,329
Operating expenses................... 19,265 19,265 7,339 7,339
----------- ------------- ----------- ------------ ------------- ----------
Loss from continuing operations...... (15,833) (15,833) (6,010) (6,010)
Other income (expense):
Interest expense................. (1,416) (1,416) (569) (569)
Other income..................... 320 284 (e) 604 217 217
----------- ------------- ----------- ------------ ------------- ----------
Income (loss) from continuing
operations before discontinued
operations....................... (16,929) 284 (16,645) (6,362) (6,362)
Income (loss) from discontinued
operations....................... (73) 73 (d) -- 139 (139) (d) --
Extraordinary item - gain on sale of
business.......................... -- 2,865 (f) 2,865 -- --
----------- ------------- ----------- ------------ ------------- ----------
Net income (loss).................... (17,002) 3,222 (13,780) (6,223) (139) (6,362)
Preferred dividends.................. (343) (343) (243) (243)
----------- ------------- ----------- ------------ ------------- ----------
Net income (loss) applicable to
common shares.................... $ (17,345) $ 3,222 $ (14,123) $ (6,466) $ (139) $ (6,605)
=========== ============= =========== ============ ============= ==========
Basic and diluted earnings (loss) per share:
Continuing operations............ $ (2.29) $ (2.25) $ (0.76) $ (0.76)
Discontinued operations.......... (0.01) -- 0.02 --
Extraordinary item............... -- 0.39 -- --
Preferred dividends.............. (0.05) (0.05) (0.03) (0.03)
----------- ------------ ---------
===========
Net loss applicable to common
shares................... $ (2.35) $ (1.91) $ (0.77) $ (0.79)
=========== =========== ============ =========
Shares used to compute basic and
diluted earnings (loss) per share 7,391 7,391 8,374 8,374
=========== =========== ============ =========
- ---------------------------
<FN>
(1) References in parenthetical are to Note 2 to the unaudited pro forma consolidated condensed financial statements.
</FN>
</TABLE>
See accompanying notes to unaudited pro forma consolidated condensed financial
statements.
<PAGE>
SOFTNET SYSTEMS, INC. AND SUBSIDIARIES
Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements
(1) The KCI Disposition
The unaudited pro forma consolidated condensed financial statements reflect
adjustments for the KCI Disposition, in which the Company sold substantially all
of the assets of its wholly-owned subsidiary for Total Proceeds (as defined
below) of $6,300,000, consisting of:
o Cash paid at closing of $1,500,000, of which $100,000 had previously
been paid in the form of a deposit in November 1998 (the "Cash
Proceeds");
o Receipt of a $2,000,000 secured promissory note payable within 138 days
of the closing date, which bears interest at 11.0% per annum (the
"First Promissory Note");
o Receipt of a $1,000,000 secured promissory note payable upon the first
anniversary date of the closing, which bears interest at 8.0% per annum
(the "Second Promissory Note");
o Receipt of a $1,500,000 secured promissory note payable upon the first
anniversary date of the closing, which bears interest at 8.0% per annum
(the "Third Promissory Note", together with the First Promissory Note
and Second Promissory Note, the "Notes");
o Receipt of 30,000 shares of common stock of the acquiring company's
parent company, Convergent Communications, Inc., valued at $10 per
share, or $300,000 (the "Equity Proceeds", together with the Cash
Proceeds and Notes, the "Total Proceeds").
(2) Pro Forma Adjustments
The unaudited pro forma consolidated condensed balance sheet gives effect
to the following acquisition adjustments:
(a) Represents the removal of the net assets of KCI, which the Company
previously identified as discontinued operations in its historical
financial statements, consisting of the following (in thousands):
Accounts receivable, net......................... $ 1,847
Inventories...................................... 2,490
Prepaid expenses................................. 99
Property and equipment, net...................... 398
Other assets..................................... 22
Accounts payable and accrued expenses............ (1,710)
Capital lease obligation......................... (71)
Deferred revenue................................. (901)
-----------
Subtotal.................................. 2,174
Goodwill, net.................................... 1,639
===========
Total net assets associated with
discontinued operations................ $ 3,813
===========
All such assets were sold in the KCI Disposition with the exception
of goodwill, which the Company has written-off in conjunction with
the KCI Disposition. The cash of KCI has also been excluded from the
sale; however, the Company has appropriately reflected the cash of
KCI with the Company's other cash balances in its historical balance
sheet.
(b) Represents the Total Proceeds received by the Company for the KCI
Disposition consisting of an increase in cash of $1,400,000 and a
reduction of accounts payable and accrued liabilities of $100,000
for the Cash Proceeds; an increase in other current assets of
$4,500,000 for the Notes and an increase in other assets of $300,000
for the Equity Proceeds, which the Company plans to hold as a
long-term investment.
<PAGE>
(c) Represents the gain on sale for the KCI Disposition of $2,487,000.
The unaudited pro forma consolidated condensed statements of operations
give effect to the following acquisition adjustments:
(d) Represents the removal of KCI's profits and losses, which the
Company previously identified as discontinued operations in its
historical financial statements.
(e) Represents the additional interest income due to the Notes of
$284,000 for the year ended September 30, 1998. For purposes of the
pro forma financial information presented herein, the Notes are
assumed to be repaid in full as of October 1, 1998.
(f) Represents the recognition of the gain related to the KCI
Disposition. As of September 30, 1997, the net assets associated
with the discontinued operations of KCI were $3,435,000, resulting
in a gain of $2,865,000 as of October 1, 1997.
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT ("Agreement") is made as of this 1st day
of February, 1999, by and between CONVERGENT COMMUNICATIONS SERVICES, INC., a
Colorado corporation ("Purchaser"), whose address is 400 Inverness Drive South,
Fourth Floor, Englewood, Colorado 80112, and KANSAS COMMUNICATIONS, INC., a
Kansas corporation ("Seller"), whose address is 8206 Marshall Drive, Lenexa,
Kansas.
WHEREAS, Seller is engaged in the business of providing telephone
service, equipment and installation, and maintenance throughout Missouri, Kansas
and Wisconsin (the "Business").
WHEREAS, Seller uses the trade names "BT Services" in Missouri, "Kansas
Communications" in Kansas and "SoftNet Business Solutions" in Wisconsin.
Purchaser wishes to acquire the rights Seller has to the trade names "BT
Services" and "Kansas Communications," but not to the trade name "SoftNet
Business Solutions."
WHEREAS, Purchaser intends to buy, and Seller intends to sell,
substantially all of the assets of Seller that relate directly or indirectly to
Seller's Business, upon the terms and conditions set forth in this Agreement. In
addition, Purchaser desires to assume certain specific liabilities of Seller as
set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, both parties agree as follows:
1. Transfer of Assets. Subject to the terms and conditions of this Agreement,
Seller agrees to sell and deliver to Purchaser, and Purchaser agrees to purchase
from Seller, as of the Closing Balance Sheet Date (as defined herein), all of
Seller's right, title and interest to and in all assets, properties and rights
(of any kind, nature, character and description, whether tangible or intangible,
whether accrued, contingent or otherwise, wherever located) owned by Seller as
of the Closing Balance Sheet Date that relate to or are used in, or otherwise
associated with, the Business (the "Purchased Assets"); provided, however,
Seller will retain and not transfer to Purchaser the assets described in Section
2 of this Agreement (the "Excluded Assets"). The Purchased Assets shall include,
without limitation, the following:
1.1. Personal Property. All equipment, fixtures, furniture, supplies and other
personal property owned, utilized or held for use by Seller in the Business,
including, without limitation, the equipment and other assets described on
Schedule 1. 1 (the "Personal Property").
1.2. Leases. All rights of Seller under the leases of real property and Personal
Property used in connection with Seller's Business which are listed on Schedule
1.2 under the heading "Assumed Leases." The leases referred to in this Section
1.2 are referred to herein as the "Assumed Leases." The Assumed Leases shall not
include, however, and Purchaser shall not assume, any other lease that is not an
Assumed Lease (collectively, the "Excluded Leases").
1.3. Contracts. All rights of Seller (including, without limitation, all of
Seller's right to receive goods and services and to assert claims and to take
other action with respect to breaches, defaults and other violations pursuant to
such contracts) under all contracts, agreements and commitments which are
identified on Schedule 1.3.A; provided that the assumption of such contracts,
agreements and commitments by Purchaser shall not constitute a waiver of any
rights of indemnification or other rights under this Agreement which Purchaser
may have by virtue of such contract, or any of its provisions, constituting a
breach of any representation or warranty made by Seller herein. The contracts
referred to in this Section 1.3 are referred to herein as the "Assumed
Contracts." The Assumed Contracts shall not include, however, and Purchaser
shall not assume, any other contract which is not an Assumed Contract,
including, without limitation, those contracts set forth under the heading
"Excluded Contracts" on Schedule 1.3.B (collectively, the "Excluded Contracts").
1.4. Intangible Assets. All of Seller's right, title and interest in and to all
goodwill, licenses, trade names (including, without limitation, the names
"Kansas Communications" and "BT Services," together with all derivations and
variations of such names, but specifically excluding the name "SoftNet Business
Solutions," together with all derivations and variations of such name), assumed
names, trade dress, business identifiers, trademarks, service marks, copyrights,
applications and registrations for any of the foregoing, trade secrets,
confidential information, know-how, causes of action (including all claims for
infringement), claims (including contractual claims), contractual rights or
agreements granting any right, title, license or privilege with respect to
intellectual property and all other intangible assets relating to, used in or
held for use in the operation of the Business (the "Intangible Assets"),
including, without limitation, the Intangible Assets listed on Schedule 1.4.
1.5. Intentionally Omitted.
1.6. Records and Documents. All records, computer software and documents,
computer source codes and programs, books, supplier, dealer and customer lists,
catalogs and technical data, work orders, credit information and correspondence,
operating data, drawings, blueprints, specifications, designs, financial
information, product data and records, account information, sales leads, sales
representative information, and all other records and documents used in
connection with the operation of the Purchased Assets, but specifically
excluding Seller's Articles of Incorporation (with all amendments thereto),
Bylaws (with all amendments thereto), corporate minutes and documents relating
to the qualification of Seller as a domestic or foreign corporation in Kansas,
Missouri and Wisconsin.
1.7. Prepaid Assets. All of Seller's rights to prepaid deposits, lease payments,
insurance and other prepaid items, including, without limitation, those prepaid
items listed on Schedule 1.7 (the "Prepaid Assets").
1.8. Literature. All sales literature, promotional literature, catalogs, sales
and marketing materials and similar materials relating to the Business, but
excluding any literature containing the named "SoftNet" and any literature that
is the basis for any pending or threatened litigation. Purchaser shall be
entitled to use all such materials in the operation of the Purchased Assets.
1.9. Vehicles. All automobiles, trucks, trailers, automotive equipment and other
vehicles owned, leased or used in connection with the operation of the Business,
including, without limitation, those listed on Schedule 1.9 (the "Vehicles").
1.10. Accounts Receivable. All of Seller's accounts receivable and all evidences
of indebtedness and rights, including contingent rights, to receive payment from
any other person or entity, including, without limitation, those items listed on
Schedule 1.10.A (the "Accounts Receivable"), but excluding the receivables
listed on Schedule 1.10.B due from the Shareholder of Seller under the heading
"Excluded Receivables." The term "Shareholder" shall mean SoftNet Systems, Inc.,
the sole shareholder of Seller.
1.11. Inventory. All of Seller's inventory used in connection with the Business,
including, but not limited to, the inventory items listed on Schedule 1.11 (the
"Inventory").
1.12. No Encumbrances. Except as specifically assumed by Purchaser in Section 3
of this Agreement, Seller shall transfer the Purchased Assets free and clear of
all liabilities, obligations, liens, security interests and encumbrances.
2. Assets Excluded From Sale. There shall be excluded from sale under this
Agreement those assets specifically identified on Schedule 2 (the "Excluded
Assets").
3. Liabilities.
3.1. Excluded Liabilities. Except as specifically provided in Section 3.2,
Purchaser shall not assume, and shall not be obligated to pay, perform or
discharge any debts, liabilities or obligations of Seller, whether actual,
contingent or accrued, known or unknown, including, but not limited to, any
Employee Payments (as defined in Section 8.19 of this Agreement), which
liabilities shall be retained by Seller and shall hereafter be referred to as
the "Excluded Liabilities." Seller shall indemnify and hold Purchaser harmless
(which indemnity and hold harmless shall be indefinite and not subject to the
duration or other limitations in Section 15) against any Excluded Liabilities.
3.2. Assumed Liabilities. Subject to the terms and conditions of this Agreement,
Purchaser shall assume and pay, perform and discharge in accordance with their
terms only the following obligations and liabilities of Seller as of the Closing
Balance Sheet Date (the "Assumed Liabilities"):
(a) liabilities identified on Schedule 3.2 which arise under the Assumed
Leases and Assumed Contracts; and
(b) those liabilities which Purchaser specifically agrees to assume and
are specifically identified on Schedule 3.2.
4. Purchase Price.
4.1. Amount. In consideration of Seller's sale, assignment and transfer of the
Purchased Assets and the performance by Seller of all the terms, covenants and
provisions of this Agreement on its part to be kept and performed, Purchaser
shall (subject to adjustment as set forth in Section 4.3) assume the Assumed
Liabilities set forth on Schedule 3.2 and pay to Seller a purchase price of
approximately $6,200,000 (the "Purchase Price").
4.2. Manner of Payment of the Purchase Price. The Purchase Price shall be paid
to Seller in the following manner:
(a) $100,000 has previously been paid by Purchaser to Seller as an earnest
money deposit on November 11, 1998, and shall be applied towards the
Purchase Price on the Closing Date (as defined herein).
(b) $1,400,000 shall be paid in immediately available funds to Seller, in
accordance with Seller's written payment instructions, on the Closing
Date.
(c) $2,000,000 shall be paid pursuant to a secured promissory note in
favor of Seller in the form attached hereto as Exhibit A (the "Secured
July Note"), which shall be secured by a security agreement in the
form attached hereto as Exhibit B, on the Closing Date.
(d) 30,000 shares of common stock, no par value, (the "Convergent Stock",
and together with the Additional Shares (as defined herein), referred
to herein as the "Convergent Stock") of Purchaser's parent company,
Convergent Communications, Inc., a Colorado corporation
("Convergent"), which Seller and Purchaser have agreed is valued at
$10.00 per share for a total of $300,000 shall be issued as follows:
Purchaser shall cause Convergent to deliver a treasury request to
Convergent's transfer agent directing the issuance to Seller of 30,000
shares of Convergent Stock. In order to evidence such transfer and
issuance of the Convergent Stock, Purchaser shall cause Convergent to
deliver a copy of the treasury request issued to Convergent's transfer
agent to Seller on the Closing Date. The share certificate evidencing
the Convergent Stock shall be delivered to Seller by Convergent's
transfer agent within twenty (20) days of the Closing Date.
(e) $1,000,000 shall be paid pursuant to a secured promissory note in
favor of Seller in the form attached hereto as Exhibit C ("Secured
Purchaser's Note"), which shall be secured by a security agreement in
the form attached hereto as Exhibit B, on the Closing Date.
(f) $1,500,000, less any adjustments made pursuant to Section 4.3(a),
shall be paid pursuant to a secured promissory note in favor of Seller
in the form attached hereto as Exhibit D ("Secured Contingent Note"),
which shall be secured by a security agreement in the form attached
hereto as Exhibit B, not later than twenty (20) days of the Closing
Date.
4.3. Adjustments to the Purchase Price.
(a) Within fifteen (15) days of the Closing Date (the "Adjustment Date"),
Seller shall deliver to Purchaser the Seller's balance sheet prepared
by Seller for the period ended January 31, 1999 (the balance sheet is
referred to herein as the "Closing Balance Sheet," and the date of
such Closing Balance Sheet is referred to herein as the "Closing
Balance Sheet Date"). If the Closing Balance Sheet indicates net
working capital and assets of less than $2,200,000 (such amount being
referred to herein as the "Deficiency Amount"), the Purchase Price,
and thereby the Secured Contingent Note, shall each be reduced dollar
for dollar by the Deficiency Amount. If the Closing Balance Sheet
indicates net working capital and assets greater than $2,200,000 (such
amount being referred to herein as the "Share Increase"), the Purchase
Price shall be increased dollar for dollar by the Share Increase and
shall be paid to Seller in additional shares of Convergent Stock,
rounded to the nearest $10.00 (the "Additional Shares"). "Net working
capital" shall be calculated for illustration purposes as set forth in
the second column of Seller's Balance Sheet (as defined herein) set
forth on Schedule 4.3. Cash as of the Closing Balance Sheet Date shall
remain with Seller, and the Purchaser shall pay this amount to Seller
on the Adjustment
Date.
(b) Seller shall reimburse Purchaser on a dollar for dollar basis for any
accounts receivable reflected on the Seller's Balance Sheet that
remain uncollected after April 30, 1999 (the "Uncollected Accounts
Receivable") in the manner described in this Section 4.3(a). Prior to
April 30, 1999, Purchaser shall make reasonable efforts to collect
such receivables in the ordinary course of its business. Within thirty
(30) days of April 30, 1999, Purchaser shall have the right to: (i)
reduce the Allowance for Doubtful Accounts reflected on the Seller's
Balance Sheet on a dollar for dollar basis to the extent of the
Uncollected Accounts Receivable, and (ii) to the extent that the
amount of the Uncollected Accounts Receivable is greater than the
Allowance for Doubtful Accounts reflected on the Seller's Balance
Sheet, offset any such Uncollected Accounts Receivable from the
amounts owing to Seller under the Secured Contingent Note and then the
Secured Purchaser's Note, in that order. Purchaser shall notify Seller
of the Uncollected Accounts Receivable and assign to Seller the right
to pursue any claims arising out of such Uncollected Accounts
Receivable for Seller's benefit in connection therewith.
(c) In the event that the Fujitsu Consent (as defined in Section 11.3(a))
has not been delivered to Purchaser in accordance with Section 11.3(a)
within forty-five (45) days of the Closing Date, the Purchase Price
and the Secured Contingent Note shall each be reduced in the amount of
$600,000; provide, however, if the Fujitsu Consent is delivered to
Purchaser prior to the maturity date of the Secured Contingent Note,
the $600,000 will be reinstated in the Secured Contingent Note and
shall be due and payable in accordance with the terms of such Note. In
the event that the three (3) Executone Assignments and Amendments (as
defined in Section 11.3(b)) and the consents to the transfer or
assignment of the Assumed Contracts identified as Items 1 through 9 on
Schedule 1.3.A, have not been delivered to Purchaser in accordance
with Section 11.3(b) within forty-five (45) days of the Closing Date,
the Purchase Price, and thereby the Secured Contingent Note, shall
each be reduced in the amount of $10,000 for each such consent or
Executone Assignment and Amendment that has not been delivered;
provided, however, that the adjustment shall not exceed $90,000.
(d) Within 45 days of the Closing Date, Purchaser shall have completed a
written inventory of all of the fixed assets that comprise the fixed
assets being purchased hereunder (the "Fixed Asset Inventory List"),
which is identified on the Closing Balance Sheet as "net fixed assets"
(the "Fixed Asset Value"). If the Fixed Asset Value is $50,000 or
greater than the value reflected on the Fixed Asset Inventory List,
then the Purchase Price and the Secured Contingent Note shall each be
reduced dollar for dollar as of the Closing Date to reflect the
decrease in value. If the Fixed Asset Value is within $50,000 of the
value reflected on the Fixed Asset Inventory List, then there shall be
no adjustment to the Purchase Price pursuant to this Section 4.3(d).
(e) In the event that the outstanding principal amount of the Secured
Contingent Note or the Secured Purchaser's Note is required to be
adjusted in accordance with this Section 4.3, Purchaser shall execute
and deliver to Seller an Allonge Endorsement in the form attached
hereto as Exhibit H-1 or Exhibit H-2, whichever the case may be (the
"Allonge Endorsement"), and Seller shall attach such Allonge
Endorsement to the Secured Contingent Note or the Secured Purchaser's
Note, as the case may be. Upon execution and delivery of any Allonge
Endorsement by Purchaser to Seller, the respective Secured Contingent
Note or Secured Purchaser's Note, as the case may be, shall
automatically be deemed to be amended to reflect any adjustment to the
outstanding principal and interest amounts of such Note in accordance
with the terms of this Agreement with no further action required by
Purchaser.
4.4. Allocation of Purchase Price. The Purchase Price shall be assigned and
allocated to the Purchased Assets in the manner mutually agreed upon by the
parties within 20 days of the Closing Date and in accordance with the allocation
to be described in Schedule 4.4 attached hereto.
4.5. Payments of Transfer Tax. All taxes imposed in connection with the sale and
transfer of the Purchased Assets to Purchaser shall be borne by Seller and
Seller shall indemnify and hold Purchaser harmless with respect to any such tax
which might be levied on or collected from Purchaser.
5. Intentionally Omitted.
6. Closing. The closing of this transaction, including the transfer of all of
the Purchased Assets and the assumption of the Assumed Liabilities), shall take
place at the offices of Freeborn & Peters, 950 Seventeenth Street, Suite 2600,
Denver, Colorado at 10:00 a.m. on the 12th day of February, 1999 (the "Closing
Date").
7. Representations and Warranties of Purchaser. As material representations to
induce Seller to enter into this transaction, Purchaser makes the following
representations and warranties to Seller, each of which is true and correct as
of the Closing Date:
7.1. Corporate Organization. Purchaser is a corporation duly organized and
existing in good standing under the laws of the State of Colorado and has filed
all reports required to be filed with the Secretary of State of the State of
Colorado and has all corporate power and authority to own, operate and lease its
properties and carry on its businesses as now conducted. Purchaser is duly
licensed and qualified to transact business as a foreign corporation and is in
good standing in each of the jurisdictions in which such qualification is
necessary whether by reason of the ownership or leasing of its properties or the
conduct or nature of its business.
7.2. Authorization of Agreement. Purchaser has all corporate power and authority
to execute and deliver this Agreement and to consummate the transactions
provided for herein and the execution and delivery of this Agreement by
Purchaser and the performance of its obligations to be performed hereunder have
been duly authorized by all necessary and appropriate action by Purchaser's
Board of Directors. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
conflict with or result in a breach of, or constitute a default under, the terms
or conditions of Purchaser's Articles of Incorporation or Bylaws, or any order,
judgment or decree or any agreement or instrument to which Purchaser is a party
or by which Purchaser or its assets are bound or affected. This Agreement is,
and each other agreement and document to be executed by Purchaser will be when
so executed, a valid and binding obligation of Purchaser enforceable in
accordance with its terms.
7.3. Disclosure. No representation or warranty by Purchaser contained in this
Agreement or in any writing to be furnished pursuant hereto or previously
furnished to Seller contains or will contain any untrue statement of fact or
omits or will omit to state any fact required to make the statements therein
contained not misleading. All statements and information contained in any
certificate, instrument, disclosure schedule or document delivered by or on
behalf of Purchaser shall be deemed representations and warranties by Purchaser.
7.4. Consents. Purchaser shall have delivered to Seller copies of all consents
from any person or entity not a party to this Agreement whose consent is
necessary or desirable for the execution and performance of this Agreement by
Purchaser, on or prior to the Closing Date.
7.5. Purchase Price Allocation. Purchaser represents, warrants and covenants to
Seller to report the transaction contemplated by this Agreement as a sale and
purchase of the Purchased Assets in the specific amounts to be described on
Schedule 4.4 for purposes of federal, state and local taxes or filings required
to be made under the Securities Exchange Act of 1934, as amended, after the
Closing Date and shall not take any position to the contrary in any tax return
or proceeding before any taxing authority. Purchaser shall cooperate fully with
Seller, shall execute any documents reasonably requested by Seller, and shall
furnish appropriate information and testimony, upon request, with respect to any
liability asserted by taxing authorities, all without payment of further
consideration; provided such tax liability relates to the Purchased Assets or
Assumed Liabilities after the Closing Date.
7.6. Brokers and Finders. Neither Purchaser nor any affiliate nor any officer or
director thereof has engaged any finder or broker in connection with the
transactions contemplated hereunder.
7.7. Convergent Stock. The Convergent Stock will, upon issuance, be duly
authorized, fully paid and non-assessable.
8. Representations and Warranties of Seller. As material representations to
induce Purchaser to enter into this transaction, Seller makes the following
representations and warranties to Purchaser, each of which is true and correct
as of the Closing Date:
8.1. Corporate Organization. Seller is a corporation duly organized and existing
in good standing under the laws of the State of Kansas and has filed all reports
required to be filed with the Secretary of State of the State of Kansas and has
all corporate power and authority to own, operate and lease its properties and
carry on its businesses as now conducted. Seller is duly licensed and qualified
to transact business as a foreign corporation and is in good standing in each of
the jurisdictions in which such qualification is necessary whether by reason of
the ownership or leasing of its properties or the conduct or nature of its
business. Seller is a wholly-owned subsidiary of Shareholder.
8.2. Authorization of Agreement. Seller has all corporate power and authority to
execute and deliver this Agreement and to consummate the transactions provided
for herein and the execution and delivery of this Agreement by Seller and the
performance of its obligations to be performed hereunder have been duly
authorized by all necessary and appropriate action by Seller's Board of
Directors. Subject to the provisions of Section 8.30, the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
do not and will not conflict with or result in a breach of, or constitute a
default under, the terms or conditions of Seller's Articles of Incorporation or
Bylaws, or any order, judgment or decree or any agreement or instrument to which
Seller is a party or by which Seller or its assets are bound or affected. This
Agreement is, and each other agreement and document to be executed by Seller
will be when so executed, a valid and binding obligation of Seller enforceable
in accordance with their terms.
8.3. Financial Statements. Seller has delivered to Purchaser copies of the
balance sheets of Seller as of September 30, 1997, September 30, 1998, and
December 31, 1998 (the later balance sheet is referred to herein as "Seller's
Balance Sheet," and the date of such Seller's Balance Sheet being referred to
herein as the "Seller's Balance Sheet Date") and the related unaudited statement
of income and cash flows of Seller for the period then ended, all of which are
complete and correct, have been prepared from the books and records of Seller
consistently maintained throughout the periods indicated and fairly present the
financial condition of Seller as of their respective dates and the results of
its operations for the periods covered thereby. Seller's books of account are
complete and correct and have been maintained in accordance with sound business
practices, including the maintenance of an adequate system of internal controls.
8.4. Absence of Undisclosed Liabilities. To the best knowledge of Seller, and
except as set forth on Schedule 8.4, there are no liabilities or obligations,
direct or indirect, absolute or contingent, or any outstanding evidence of
indebtedness, including any open purchase orders, arising out of or relating to
the Business or the Purchased Assets, except (i) as fully reflected or as
specifically reserved against on the Seller's Balance Sheet, and (ii)
liabilities incurred in the ordinary course of business after the Seller's
Balance Sheet Date, consistent with Seller's prior practice, which, in the
aggregate, do not result in any adverse change in the financial condition of the
Business or the Purchased Assets from that set forth in Seller's Balance Sheet.
8.5. Business Changes. Except as set forth on Schedule 8.5, since the Seller's
Balance Sheet Date, there has not been:
(a) with respect to the Business, Seller or the Purchased Assets, any
material adverse change in condition or prospects (financial or
other); (ii) material damage, destruction or loss (whether or not
covered by insurance); or (iii) material transaction outside the
ordinary course of business;
(b) any sale, lease, transfer, assignment, abandonment or other
disposition of any asset that if owned by Seller on the Closing Date
would have been a Purchased Asset (other than in the ordinary course
of business);
(c) any notice or indication of termination or potential termination of
any other material contract, lease or relationship, which, in any case
or in the aggregate, has or may have an adverse effect upon the
Business or the Purchased Assets;
(d) any change in the rate of compensation, commission, bonus or other
direct or indirect remuneration payable or to be paid, or any
agreement or promise to pay, conditionally or otherwise, any extra
compensation to any officer, director or employee of Seller, other
than in the ordinary course of business consistent with past practice;
(e) any other change in the selling, pricing, advertising or personnel
practices of Seller inconsistent with Seller's prior practice and
prudent business practices prevailing in the industry;
(f) any payment of any liability other than those then required to be
discharged or satisfied or current liabilities shown on the Seller's
Balance Sheet and current liabilities incurred since the Seller's
Balance Sheet in the ordinary course of business and consistent with
past practices;
(g) any intercompany loans or payments, dividends or transfers of cash or
other assets by Seller out of the ordinary course of business other
than the payments to the Shareholder of the cash reflected on the
Closing Balance Sheet in accordance with Section 4.3(a);
(h) any material deviation from the ordinary and usual course of
conducting the operation of the Business;
(i) any mortgage, pledge or creation of any lien, charge, security
interest or other encumbrance on any of the Purchased Assets;
(j) any change or modification of Seller's accounting methods or
practices;
(k) any indebtedness incurred by Seller for money borrowed;
(1) any capital expenditures in excess of $50,000;
(m) any negotiations or contract for the sale of the Business, or any part
thereof or for the purchase of another business, whether by merger,
consolidation, exchange of capital stock or otherwise (other than
negotiations with respect to this Agreement);
(n) any declaration of payment of dividends upon or in respect of any of
its shares of capital stock, or redemption or obligation to redeem any
of its shares of capital stock or other securities, other than the
payments to the Shareholder of the cash reflected on the Closing
Balance Sheet in accordance with Section 4.3(a); or
(o) any encounter with any labor union organizing activity, any actual or
threatened employee strikes, works stoppages, slowdowns or lockouts or
any material change in its relations with its employees, agents,
customers and suppliers.
8.6. Title to Purchased Assets. Except as set forth on Schedule 8.6, Seller has
good, indefeasible and marketable title to all Purchased Assets, free and clear
of all mortgages, security interests, title retention agreements, options to
purchase, rights of first refusal, liens, easements, encumbrances, restrictions
and other burdens of any nature whatsoever ("Liens"). Except for the Liens set
forth on Schedule 8.6, and subject to the provisions of Section 8.30, none of
the Purchased Assets are subject to any restrictions with respect to the
transferability thereof and Seller has complete and non-restricted power and
right to sell, assign, convey and deliver the Purchased Assets to Purchaser as
contemplated hereby. On the Closing Date, Purchaser will receive good and
marketable title to all the Purchased Assets, free and clear of all Liens, but
subject to any Liens disclosed on Schedule 8.6 and the provisions of Section
8.30.
8.7. Condition of Purchased Assets. To the best knowledge of Seller, (i) no
maintenance outside the ordinary course of business is needed with respect to
the Purchased Assets, and (ii) the Purchased Assets are in all respects in good
condition and working order (reasonable wear and tear excepted).
8.8. Inventory. The inventory reflected on the Seller's Balance Sheet, or
thereafter acquired and as set forth on Schedule 1.11, is, after the reserve for
obsolete inventory, merchantable, or suitable and usable for the production or
completion of merchantable products, for sale in the ordinary course of business
as first quality goods at normal mark-ups, none of such item is obsolete or
below standard quality, and each item of such inventory reflected in the Balance
Sheet and the books and records of Seller and set forth on Schedule 1.11 is
valued at the lower of cost (on a last-in, first-out basis) or market. The
Purchased Assets include the quantity of each type of such inventory to meet the
normal requirements of Seller's business and operations.
8.9. Personal Property. The Personal Property reflected on the Closing Balance
Sheet or otherwise set forth on Schedule 1.1 or delivered by Seller pursuant to
Section 11.3(j), contains a true and complete list of all equipment, fixtures,
furniture, supplies and other personal property owned, utilized or held for use
by Seller in the Business.
8.10. Contracts and Leases. To the best knowledge of Seller, except as set forth
on Schedule 8.10, and subject to the provisions of Section 8.30: (i) Seller does
not have any oral or written rights, obligations, powers of attorney, contracts,
agreements, instruments, or leases with respect to the Business or the Purchased
Assets other than the Assumed Leases and Assumed Contracts and the Excluded
Leases and Excluded Contracts listed on Schedule 1.2 and Schedule 1.3,
respectively; (ii) all Assumed Leases and Assumed Contracts are legally valid
and binding and in full force and effect with respect to the parties thereto;
and (iii) neither Seller nor any of the other parties to any of the Assumed
Leases and Assumed Contracts are in default or breach thereof, and Seller has no
notice or knowledge of any claimed breach, or of the occurrence of any event
which after the passage of time or the giving of notice or both would constitute
a breach by any party to any Assumed Lease and Assumed Contract. Subject to the
provisions of Section 8.30, (i) none of the rights of Seller under the Assumed
Leases and the Assumed Contracts will be impaired in any respect by the
consummation of the transactions contemplated by this Agreement, and (ii) the
Assumed Leases and Assumed Contracts are validly assignable and all of the
rights of Seller thereunder will be enforceable by Purchaser after the Closing
Date without the consent or agreement of any other party.
8.11. Litigation and Proceedings; Product Liability; Liquidation.
(a) Except as set forth on Schedule 8.11, there is no suit, action or
legal, administrative, arbitrative or other proceeding pending or
threatened against Seller affecting the Purchased Assets, and, to the
best knowledge of Seller, Seller is not under investigation, nor has
Seller received any written notice of any proceeding which is with
respect to any charge concerning violation of any law or
administrative regulation, federal, local or state, in respect to the
operation of the Purchased Assets.
(b) There have been no product liability claims and similar claims,
actions, litigation or other proceedings relating to products, or
services rendered by Seller which are presently pending or, to the
best knowledge of Seller, which are threatened, or which have been
asserted or commenced against Seller within the past two (2) years, in
which a party thereto either requested injunctive relief (whether
temporary or permanent) or alleged damages in excess of $5,000
(whether or not covered by insurance), in respect to the operation of
the Purchased Assets.
(c) Seller has not adopted any plan of liquidation or dissolution
affecting the Purchased Assets.
8.12. Government Licenses and Permits. To the best knowledge of Seller: (i)
Seller has all state, county and city governmental licenses and permits
necessary to operate the Business and own and use the Purchased Assets as
conducted, owned and used prior to the Closing Date and such licenses and
permits are in full force and effect; (ii) Seller is not aware of any rights of
Seller under such licenses and permits which are not transferable to Purchaser
under applicable law solely upon the assignment of such licenses and permits by
Seller to Purchaser hereunder or which will not be exercisable by Purchaser
after the consummation of the transactions contemplated by this Agreement; and
(iii) Seller is not aware of and has not received any written notice of any
proceeding which is pending or threatened regarding the revocation or limitation
of any such governmental license or permit and, to the best knowledge of Seller,
there is no such basis or grounds for any revocation or limitation of any such
governmental license or permit.
8.13. Taxes. Except as set forth on Schedule 8.13, all federal, state, county
and local property, income, excise, sales, transfer, use, gross receipts, ad
valorem, payroll and other taxes, fees and assessments imposed on the Business
of Seller as of the Closing Balance Sheet Date and payable by Seller and all
federal and state payroll taxes required to be withheld by Seller as of the
Closing Balance Sheet Date have been or will be on the Closing Date duly, timely
and fully reported, paid and discharged except where extensions have been
applied for and granted and where such extensions have not expired. Except as
set forth on Schedule 8.13, all federal, state, county, local and other tax
returns required to be filed by or on behalf of Seller have been timely filed
and, when filed, were true and correct in all respects. From the Seller's
Balance Sheet Date until the Closing Balance Sheet Date, Seller shall pay all
taxes as and when the same become due and payable.
8.14. Intangible Assets. Schedule 1.4 contains a true and complete list of all
trademarks, trade names, trade dress, service marks, copyrights and licenses
thereof relating to the Business and all pending applications and applications
to be filed therefor used or to be used in the operation of the Business, all of
which are fully assignable and are being transferred hereunder to Purchaser free
and clear of any adverse interests. Except as set forth on Schedule 1.4, all
other trade secrets, confidential information, and know-how used in the
operation of the Business are fully assignable and are being transferred
hereunder free and clear of any adverse claims or interests, and no licenses,
sublicenses, covenants or agreements have been granted or entered into by Seller
relating to any such trademarks, trade names, service marks, licenses,
applications trade secrets, know-how, and other confidential information and
intangible assets. To the best knowledge of Seller, the Business and the use of
its products by customers have not involved any infringement, and there exists
no basis for any claim of infringement, of any trademarks, trade names, service
marks, copyrights, licenses, or intangible assets of others. Seller does not
require any of such rights or intangible assets that it does not already have
(and which are being transferred to Purchaser) in order to conduct its business
as currently being conducted or proposed to be conducted. There are no
inquiries, investigations or claims or litigation challenging or threatening to
challenge Seller's right, title and interest with respect to its continued use
and right to preclude others from using any such trade rights or intangible
assets. To the best knowledge of Seller, all such trade rights or intangible
assets of Seller are valid and enforceable and there are no equitable defenses
to enforcement based on any act or omission of Seller, and no other person is
infringing on the trade rights and intangible assets of Seller.
8.15. Compliance with Law. To the best knowledge of Seller, Seller and the
operations of the Business and the use of the Purchased Assets are in compliance
with all applicable federal, state, local and international laws or ordinances
and any other rule or regulation of any international, federal, state or local
agency or body, including, without limitation, all energy, safety,
environmental, zoning, health, trade practice, anti-discrimination, antitrust,
wage, hour and price control laws, orders, rules or regulations. Schedule 8.15
lists all citations issued to Seller in the past two (2) years from any city,
state or federal agency, and except as set forth on Schedule 8.15, all citations
that have been issued have been properly remedied. Seller has not received any
written notice of any proceeding which is from any governmental body claiming
any violation or alleged violation of any law, ordinance, code, rule or
regulation or requiring, or calling attention to the need for, any work,
repairs, construction, alterations or installation on or in connection with the
Purchased Assets or the Business with which Seller has not complied. To the best
knowledge of Seller, Seller has no liability (whether accrued, absolute,
contingent, direct or indirect) for past or continuing violations of any law,
ordinance, code, rule or regulation. Except as set forth on Schedule 8.13, all
reports and returns required to be filed by Seller with any governmental
authority have been filed and were accurate and complete when filed.
To the best of Seller's knowledge, no payments of cash or
other consideration have been made to any person, entity or government by Seller
or by any agent, employee, officer, director, Shareholder or other person or
entity on behalf of Seller which were unlawful under the laws of the United
States or any state or other governmental authority.
8.16. Accounts Receivable. Set forth on Schedule 1.10 is a complete and accurate
list of all Accounts Receivable of Seller as of the Seller's Balance Sheet Date.
All of the Accounts Receivable reflected on the Seller's Balance Sheet arose in
the ordinary course of business and represent amounts payable by a buyer for
goods actually sold or services actually performed and are currently collectible
at the aggregate recorded amounts thereof, less the reserve for bad debts
reflected on the Seller's Balance Sheet, and are not subject to any
counterclaims or setoffs (other than Purchaser's right to setoff under the terms
of this Agreement). Accounts Receivable arising after the Seller's Balance Sheet
Date through the Closing Date, have arisen in the ordinary course of business
and represent amounts payable by a buyer for goods actually sold or services
actually performed and are current and collectible at the aggregate recorded
amounts thereof, less a reserve for bad debts consistent with the reserve stated
on the Seller's Balance Sheet.
8.17. Environmental Matters. To the best knowledge of Seller: (i) Seller has
duly complied with, and the operation of the Business, equipment and other
assets in the facilities owned or leased by Seller are in compliance with the
provisions of all applicable federal, state and local environmental, health and
safety laws, statutes, ordinances, rules and regulations of any governmental or
quasi governmental authority relating to (a) error omissions, (b) discharges to
surface water or ground water, (c) solid or liquid waste disposal, (d) the use,
storage, generation, handling, transport, discharge, release or disposals of
toxic or hazardous substances or waste, (e) the emission of non-ionizing
electromagnetic radiation, or (f) other environmental, health or safety matters,
including, without limitation, the Comprehensive Environmental Response
Compensation Liability Act of 1980, as amended by the Superfund Amendments and
Authorization Act of 1986, the Occupational Safety and Health Act, the Resource
Conservation and Recovery Act of 1976, as amended, the Federal Water Pollution
Control Act of 1970, the Safe Drinking Water Act of 1974, the Toxic Substances
Control Act of 1976, the Emergency Planning and Community Right to Know Act of
1986, as amended, and the Clean Air Act, as amended (collectively "Environmental
and Health Laws") or the Federal Communications Act, as amended ("FCC Laws");
(ii) there are no investigations, administrative proceedings, judicial actions,
orders, claims or notices which are pending, anticipated or threatened against
Seller relating to violations of the Environmental and Health Laws or FCC Laws,
and (iii) Seller has not received notice of, and does not know or have any
reason to suspect, any facts which might constitute a violation of any
Environmental and Health Laws or FCC Laws which relate to the use, ownership or
occupancy of any property or facilities used by Seller in connection with the
operation of Seller's Business or any activity of Seller's Business which would
result in a violation or threatened violation of any Environmental and Health
Laws or FCC Laws.
8.18. Labor Matters.
(a) Seller is not a party to or bound by any union collective bargaining
agreements or other labor contracts. Seller is not, with respect to
the operation of the Business, a party to any pending arbitration or
grievance proceeding or other claim relating to any labor contract.
Seller has no knowledge of any such action in respect to the operation
of the Purchased Assets.
(b) Seller is not bound by any court, administrative agency, tribunal,
commission or board decree, judgment, decision, arbitration agreement
or settlement relating to collective bargaining agreements, conditions
of employment, employment discrimination or attempts to organize a
collective bargaining unit which in any case may materially and
adversely affect Seller, the Business or the Purchased Assets, and
Seller has no notice or knowledge of any employment discrimination,
safety or unfair labor practice or other employment-related
investigation, claim or allegation against or in respect of the
operation of the Purchased Assets.
(c) Seller has made all required payments to the appropriate governmental
authorities with respect to applicable unemployment compensation
reserve accounts for Seller's employees. Seller has no regular
full-time employees except in Kansas, Missouri and Wisconsin.
8.19. Employment Contracts. Except as set forth on Schedule 8.19, Seller has no
employment contract with any person, nor any contract with any employee,
involving termination, retirement or severance pay, deferred compensation,
profit sharing or pension plans, employee benefit plans or other employee
benefits or post-employment benefits of any kind. Except as specifically set
forth on Schedule 3.2 and identified as account numbers 2301, 2302 and 2303,
Purchaser shall not assume any liabilities of Seller to any former or current
employee of Seller for compensation, bonus, severance, vacation, employee
benefits or any other fee or wage payment of any kind or nature, including, but
not limited to, any payments under COBRA or any disability or unemployment
insurance policies (collectively, "Employee Payments").
8.20. Insurance. Seller is insured by reputable insurers and through the Closing
Date will be adequately insured against all liabilities and risks and in at
least such amounts as are usually carried by prudent business persons engaged in
the same or similar lines of business (and in the case of property casualty
insurance, at least at replacement cost). All premiums on policies due to the
Closing Date have been paid, and no notice has been received nor does Seller
have any reason to believe, that any such insurance is in default, will be
canceled or not renewed, or will be renewed at premium rates materially in
excess of the premiums used in preparing the financial statements of the
Business.
8.21. Disabled Employees. No employee of Seller is eligible for long-term
disability but has not yet been certified as such, and (ii) no employee of
Seller is on medical leave. Seller shall remain solely liable and responsible
for, and Purchaser shall have no liability or responsibility whatsoever for, any
Employee Payments.
8.22. Subsidiaries. Seller has no subsidiaries. The Business has not been
operated through any other direct or indirect subsidiary or affiliate of
Seller's Shareholder.
8.23. Year 2000 Compliance.
(a) Except as set forth on Schedule 8.23, (i) the Purchased Assets,
including, but not limited to, all of the computer hardware, software,
and embedded microcontrollers in noncomputer equipment ("the Computer
Systems"), which are used by Seller in the Business, are or can be
made Year 2000 Compliant (as defined below) and (ii) Seller has
received certifications from the critical service providers it relies
upon that all such providers, including, but not limited to, Fujitsu
Business Communication Systems, Inc. and Executone Information
Systems, Inc., concerning their stated compliance with Year 2000
issues.
(b) For purposes of this Section 8.23, "Year 2000 Compliant" shall mean
that the Computer Systems meet each of the following criteria
(1) the functions, calculations, and other computing processes of the
Computer Systems (collectively, "Processes") perform in a consistent manner
regardless of the date in time on which the Processes are actually performed and
regardless of the date data input into the Computer Systems, whether before, on
or after January 1, 2000 and whether or not the data is affected by leap years;
(2) the Computer Systems accept, calculate, compare, sort, extract,
sequence, return and display and otherwise process date data in a consistent
manner regardless of the dates used in such date data, whether before, on or
after January 1, 2000;
(3) the Computer Systems will function without interruptions caused by
the date in time on which the Processes are actually performed or by the date
data input to the Computer Systems, whether before, on, or after January 1,
2000;
(4) the Computer Systems accept and respond to two-digit year-date
input in a manner that resolves any ambiguities as to the century in a defined,
predetermined, and appropriate manner;
(5) the Computer Systems store and display date data in ways that are
unambiguous as to the determination of the century; and
(6) no date data will cause the Computer Systems to perform an
abnormally ending routine or function within the Processes or generate incorrect
values or invalid results.
8.24. Disclosure. To the best of Seller's knowledge, there exists no fact,
condition or threatened development of any nature not otherwise disclosed in
this Agreement, or the Exhibits, Schedules and attachments hereto, that would be
materially adverse to the Purchased Assets or the operation of the Business. No
warranty or representation by Seller contained in this Agreement, including any
exhibit, schedule (including any attachment to any schedule), financial
statement or certificate prepared or furnished in connection hereto, or in any
writing to be furnished pursuant hereto or previously furnished to Purchaser,
contains or will contain any untrue statement of fact or omits or will omit to
state any fact required to make the statements therein contained not misleading.
All statements and information contained in any certificate, instrument,
disclosure schedule or documents delivered by or on behalf of Seller shall be
deemed representations and warranties by Seller.
8.25. Accuracy of Documents and Information. The copies of all instruments,
agreements, other documents and written information set forth as, or referenced
in, Exhibits, Schedules and attachments to this Agreement or specifically
required to be furnished pursuant to this Agreement to Purchaser by Seller are
complete and correct in all material respects.
8.26. Purchase Price Allocation. Seller represents, warrants and covenants to
Purchaser to report the transaction contemplated by this Agreement as a sale and
purchase of the Purchased Assets in the specific amounts to be described on
Schedule 4.4 for purposes of federal, state and local taxes or filings required
to be made under the Securities Exchange Act of 1934, as amended, after the
Closing Date, and shall not take any position to the contrary in any tax return
or proceeding before any taxing authority. Seller shall cooperate fully with
Purchaser, shall execute any documents reasonably requested by Purchaser and
shall furnish appropriate information and testimony, upon request, with respect
to any liability asserted by taxing authorities, all without payment of further
consideration; provided such tax liability relates to the Purchased Assets or
Assumed Liabilities as conducted by Seller prior to the Closing Date.
8.27. Brokers and Finders. Except for Shoreline Pacific Institutional Finance,
which has been engaged solely by Seller, neither Seller nor any affiliate nor
any officer or director thereof has engaged any finder or broker in connection
with the transactions contemplated hereunder.
8.28. Records and Documents. To Seller's knowledge, the records and documents
required to be provided pursuant to Section 1.6 constitute all of the records
and documents used in connection with, or which are necessary or desirable to
operate, the Purchased Assets.
8.29. Stock Representations. Seller: (i) intends to acquire the shares of the
Convergent Stock solely for the purpose of investment and not for the resale and
distribution thereof, and has no present intention to offer, sell, pledge,
hypothecate, assign or otherwise dispose of the same except in accordance with
this Section 8.29; (ii) understands and acknowledges that the sale of such
shares of Convergent Stock will not be registered under the Securities Act of
1933, as amended (the "Securities Act"), and that the Convergent Stock and the
Additional Shares being acquired pursuant to this Agreement constitute
"restricted securities" as that term is defined under Rule 144 promulgated under
the Securities Act and may not be sold except pursuant to a registration
statement under the Securities Act or pursuant to an exemption available under
federal and applicable state Securities laws, and such shares of Convergent
Stock may be required to be held indefinitely unless the shares of Convergent
Stock are subsequently registered under the Securities Act or an exemption from
such registration is available, (iii) agrees that it will not offer, sell,
pledge, hypothecate, transfer, assign or otherwise dispose of any such shares of
Convergent Stock unless such shares of Convergent Stock and such offer, pledge,
hypothecation, transfer, assignment or other disposition shall be registered or
exempt from registration under the Securities Act and shall comply with all
applicable federal and state securities laws, and (iv) agrees and acknowledges
that the stock certificates representing the shares of Convergent Stock will
contain a legend restricting the transferability of the shares as provided
herein and that stop order instructions may be imposed by Convergent's transfer
agent restricting the transferability of the Convergent Stock.
8.30. Accuracy of Representations. In the event that any of the foregoing
representations or warranties should be inaccurate as of the Closing Date,
Seller shall have forty-five (45) days from the Closing Date by which to cure
such inaccuracy (the "Cure Period"). Seller shall have delivered to Purchaser
all consents to the transfer or assignment of the Assumed Contracts and the
Assumed Leases on or prior to the expiration of the Cure Period. In the event
that Seller fails to deliver the consents to the transfer or assignment of the
Assumed Contracts identified as Items 1 through 10 on Schedule 1.3.A on or prior
to the expiration of the Cure Period, the Purchase Price, and thereby the
Secured Contingent Note, shall automatically be adjusted in accordance with
Section 4.3(c).
9. Seller's Employees and Customers. Purchaser is not a successor business to
Seller nor any operation of Seller. Purchaser shall not be liable for any
obligations which Seller has on any contracts, including employment contracts,
existing or future workers compensation claims, employment discrimination
claims, unfair labor practice claims, compensation or Employee Payments, except
those obligations, if any, specifically identified in Section 1 and on Schedule
3.2, and any other obligations which Purchaser specifically assumes in writing.
Purchaser is purchasing the Purchased Assets only, and is not assuming any
employment contracts for any employees or any obligations under agreements
entered into by Seller in its own right and Purchaser shall not be liable for
any sums owed to customers by Seller, except those obligations, if any,
specifically identified in Section 1 and on Schedule 3.2, and any other
obligations which Purchaser specifically assumes in writing.
10. Representations, Covenants and Agreements of Purchaser. Purchaser hereby
represents, covenants and agrees that:
10.1. Accuracy of Representations and Warranties. Each of the representations
and warranties of Purchaser contained in this Agreement or in any schedule,
certificate or other document delivered by Purchaser is true and correct in all
respects, and Purchaser has performed and satisfied all of its covenants,
conditions and agreements and shall have delivered to Seller all documents and
agreements required by this Agreement to be performed, satisfied or delivered by
Purchaser on or prior to the Closing Date.
10.2. Deliveries on the Closing Date. Purchaser shall have delivered or caused
to be delivered to Seller the following documents on or prior to the Closing
Date:
(a) An executed original of this Agreement, the Secured July Note,
the Secured Purchaser's Note, the Security Agreement and UCC-1
financing statements to be filed in the States of Colorado,
Kansas, Wisconsin and Missouri in connection with the Security
Agreement, which have been executed by Purchaser; provided,
however, that Seller shall be responsible for preparing and
delivering the UCC-1 financing statements to Purchaser on or
prior to the Closing Date.
(b) A copy of the treasury request issued to Convergent's transfer
agent pursuant to Section 4.2(d).
(c) Certified copies of resolutions adopted by the Board of
Directors of Purchaser authorizing the execution of this
Agreement and the purchase of the Purchased Assets and the
assumption of the Assumed Liabilities in accordance with the
terms hereof.
(d) Certified copies of resolutions adopted by the Board of
Directors of Convergent authorizing the issuance of the
Convergent Stock.
(e) An opinion of Purchaser's counsel substantially in the form of
Exhibit F.
(f) An Officer's Certificate executed by an authorized officer of
Purchaser certifying that all of Purchaser's representations
and warranties contained in Section 7 are true and correct on
the Closing Date.
(g) A copy of Convergent's Form 10-Q for the quarterly period
ended September 30, 1998, previously provided to the holders
of the senior notes of Convergent.
10.3. Deliveries During the Cure Period. Purchaser shall have delivered, or
caused to be delivered, to Seller the following documents on or prior to the
expiration of the Cure Period:
(a) A stock certificate representing 30,000 shares of Convergent
Stock.
(b) A stock certificate representing the Additional Shares, if
any.
(c) An executed original of the Secured Contingent Note.
10.4. Cooperation in Obtaining Consents. Purchaser shall use commercially
reasonable efforts in response to any reasonable request of Seller to assist
Seller in obtaining any consent of third parties necessary for the consummation
of the transactions contemplated by this Agreement during the Cure Period.
10.5. Waiver of Compliance with Bulk Sales Laws. Purchaser hereby waives
compliance by Seller with the requirements of any so called bulk sales or
transfers laws of any jurisdiction in connection with the sale of the Purchased
Assets to Purchaser; but such waiver shall not affect the obligation of Seller
under Section 15 to indemnify Purchaser and hold Purchaser harmless from and
against any loss, liability, damage or expense which Purchaser may suffer or
sustain or to which Purchaser may become subject as a result of or in connection
with the failure by Seller to so comply.
10.6. Access to Books and Records After the Closing Date. For a period of three
(3) years following the Closing Date, Purchaser agrees to maintain in a
reasonably accessible place any books and records delivered to Purchaser
pursuant to Section 1.6, to provide Seller and its representatives reasonable
access to such books and records during normal business hours and to provide
copies of such books and records to Seller or its representatives, at Seller's
expense. Purchaser agrees to notify Seller prior to disposing of any such books
and records and, upon request made within sixty (60) days after receipt of such
notice, to deliver such books and records to Seller at Seller's expense.
10.7. Change of Name. As of the Closing Date, Purchaser shall refrain from using
the name "SoftNet Business Solutions."
11. Representations, Covenants and Agreements of Seller. Seller hereby
represents, covenants and agrees that:
11.1. Accuracy of Representations and Warranties. Each of the representations
and warranties of Seller contained in this Agreement or in any schedule,
certificate or other document delivered by Seller is true and correct in all
respects, and Seller has performed and satisfied all of its covenants,
conditions and agreements and shall have delivered to Purchaser all documents
and agreements required by this Agreement to be performed, satisfied or
delivered by Seller on or prior to the Closing Date.
11.2. Deliveries on the Closing Date. Seller shall have delivered or caused to
be delivered to Purchaser the following documents at or prior to the Closing
Date, unless otherwise specified herein:
(a) An executed original of this Agreement and the Bill of
Sale, Assumption of Liabilities and Assignment of Contracts in the form attached
hereto as Exhibit D.
(b) Certified copies of resolutions adopted by the Board of
Directors and Shareholder of Seller authorizing the execution of this Agreement
and the sale of the Purchased Assets to Purchaser in accordance with the terms
hereof.
(c) Certificate of status or good standing of Seller issued by
the Secretaries of States of the States of Kansas, Missouri and Wisconsin, dated
within two weeks of the Closing Date.
(d) An opinion of Seller's Counsel substantially in the form
of Exhibit G.
(e) Executed UCC-2 Termination Statements for each of the
Liens identified as UCC-1 file numbers 2177983, 2177984, 2177985, 2587559.
(f) Written payment instructions with respect to the payment
of the cash portion of the Purchase Price to be paid on the Closing Date.
(g) An Officer's Certificate executed by an authorized officer
of Seller certifying that all of Seller's representations and warranties
contained in Section 8 are true and correct on the Closing Date.
(h) All necessary governmental approvals, permits and licenses
required for the performance by Seller for the closing of the transactions
contemplated by this Agreement.
(i) Copies of the balance sheets of Shareholder as of
September 30, 1997 and September 30, 1998 and statements of income and cash
flows of Shareholder for the 12-month period then ended, all of which have been
reviewed by Shareholder's independent certified public accountants.
(j) Copies of all invoices not otherwise attached to Schedule
1.1 reflecting Personal Property that Purchaser has acquired hereunder.
(k) Such other documents as Purchaser reasonably deems
necessary or appropriate to vest in it good and marketable title to all or any
part of the Purchased Assets, free and clear of all liens, encumbrances and
other rights as provided in this Agreement
11.3. Deliveries During the Cure Period. Seller shall have delivered, or caused
to be delivered, to Purchaser the following documents on or prior to the
expiration of the Cure Period:
(a) Written consents to the transfer or assignment to
Purchaser of the Purchased Assets, including the Assumed Contracts and Assumed
Leases, in a form and substance reasonably satisfactory to Purchaser; including
but not limited to, consent to the transfer or assignment of the contract
between Seller and Fujitsu Business Communication Systems, Inc., dated March 4,
1994 (the "Fujitsu Consent").
(b) Evidence satisfactory to Purchaser that the three (3)
contracts between Seller and Executone Information Systems, Inc., each dated
October 1, 1996 (collectively, the "Executone Contracts") have been assigned to
Purchaser and amended (the "Executone Assignments and Amendments"), which
Assignment and Amendment shall delete Section 1 regarding "Competing Products"
(as such term is defined therein), or, in the alternative, Seller shall deliver
to Purchaser a written waiver of Section 1 of the Executone Contracts executed
by Executone or a written consent executed by Executone providing for the
ability of Purchaser to sell such "Competing Products."
(c) Executed UCC-2 Amendments for each of the Liens identified
on Schedule 8.6, naming Purchaser as the debtor.
(d) A general ledger account reconciliation of Seller as of
January 31, 1999.
(e) Evidence satisfactory to Purchaser that Nations Bank is
the successor-in-interest to the Bank IV, N.A. Equipment Lease Agreement No.
01-1130-001, dated July 22, 1996 and the Boatmen's National Bank Equipment Lease
Agreement No. 01-1130-02, dated January 17, 1997.
11.4. Access to Books and Records After the Closing Date. For a period of three
(3) years following the Closing Date, Seller agrees to maintain in a reasonably
accessible place any books and records not delivered to Purchaser hereunder
relating to the Business, to provide Purchaser and its representatives
reasonable access to such books and records during normal business hours and to
provide copies of such books and records to Purchaser or its representatives, at
their expense. Seller agrees to notify Purchaser prior to disposing of any such
books and records and, upon request made within sixty (60) days after receipt of
such notice, to deliver such books and records to Purchaser at Purchaser's
expense.
11.5. Continued Assistance. Seller shall refer to Purchaser in writing, as
promptly as practicable, any letters, orders, notices, requests, inquiries and
other communications relating to the Business, together with notice of any
telephone calls received with respect to the Business. Seller shall use its
reasonable efforts to refer any such contacts or inquiries to Purchaser by
instructing the inquiring party to contact Purchaser at the address and phone
number listed in Section 17.5. Seller shall use its reasonable best efforts to
cooperate in an orderly transfer of the Business and to assist Purchaser in the
successful continuation of the operation of the Business. After the Closing
Date, Seller shall promptly transfer and deliver to Purchaser upon Seller's
receipt any cash or other property that Seller may receive in respect of any
Assumed Contract or Assumed Lease. From time to time, Seller shall execute,
acknowledge and deliver such documents, instruments or assurances and take such
other actions as Purchaser may reasonably request to more effectively assign,
convey and transfer the Purchased Assets.
11.6. Change of Name. As of the Closing Date, Seller shall immediately cease to
use, and thereafter refrain from using, the trade names "BT Services" and
"Kansas Communications," and shall file any and all documents required to allow
Purchaser to use such name or any variation thereof, if any.
11.7. Limitations on Certain Corporate Actions. Seller agrees that from and
after the Closing Date and for a period of two (2) years, Seller will not (a)
dissolve or otherwise terminate its legal existence, or (b) merge or consolidate
with any other corporation in a merger consolidation in which it is not the
surviving or resulting corporation.
12. Intentionally Omitted.
13. Intentionally Omitted.
14. Indemnification by Purchaser.
14.1. Indemnification. Purchaser and its successors shall indemnify, defend and
hold Seller, each of Seller's subsidiaries, Shareholder, affiliates, officers,
directors, employees, agents, successors and assigns (Seller and such persons,
collectively, "Seller's Indemnified Persons") harmless from and against any
demand, claim, damage, liability, loss (which shall include any diminution in
value), cost, deficiency or expense (including, but not limited to, interest,
penalties, costs of preparation and investigation, and the reasonable fees,
disbursements and expenses of attorneys, accountants and other professional
advisors (collectively, the "Seller's Losses") imposed or incurred by Seller's
Indemnified Persons, directly or indirectly, arising out of, resulting from or
relating to:
(a) any inaccuracy in or breach of any representation or warranty
of Purchaser pursuant to this Agreement in any respect,
whether or not Seller's Indemnified Persons relied thereon or
had knowledge thereof, including schedules and documents
delivered pursuant hereto;
(b) any failure of Purchaser to duly perform or observe any term,
provision, expectation, covenant or agreement to be performed
or observed by Purchaser pursuant to this Agreement or any of
the documents contemplated by this Agreement;
(c) the operation of the Purchased Assets after the Closing Date;
(d) any action, suit, investigation, proceeding, demand,
assessment, audit, judgment and claim resulting from the
operation of the Purchased Assets and discharge of the Assumed
Liabilities by Purchaser after the Closing Date; or
(e) acts or omissions in connection with business activities
conducted or to be conducted by Purchaser, including, without
limitation, the sale of goods or provision of services after
the Closing Date.
14.2. Procedures. The procedural rules set forth in Section 15.2 shall apply
with respect to indemnification by Purchaser except that the parties' respective
obligations under Section 15.2 shall be reversed as appropriate.
14.3. Survival of Indemnification. The obligations of Purchaser to indemnify and
hold Seller's Indemnified Persons harmless shall survive for the applicable
statute of limitations.
14.4. Remedies Cumulative. The remedies provided by this Section 14 shall be
cumulative and shall not preclude the assertion by Seller's Indemnified Persons
of any other rights or the seeking of any other remedies against Purchaser.
15. Indemnification by Seller.
15.1. Indemnification. Seller and its successors shall indemnify, defend and
hold Purchaser, each of Purchaser's subsidiaries, shareholders, affiliates,
officers, directors, employees, agents, successors and assigns (Purchaser and
such persons, collectively, "Purchaser's Indemnified Persons") harmless from and
against any demand, claim, damage, liability, loss (which shall include any
diminution in value), cost, deficiency or expense (including, but not limited
to, interest, penalties, costs of preparation and investigation, and the
reasonable fees, disbursements and expenses of attorneys, accountants and other
professional advisors) (collectively, the "Purchaser's Losses") imposed or
incurred by Purchaser's Indemnified Persons, directly or indirectly, arising out
of, resulting from or relating to:
(a) any inaccuracy in or breach of any representation or warranty
of Seller pursuant to this Agreement in any respect, whether
or not Purchaser's Indemnified Persons relied thereon or had
knowledge thereof, including schedules and documents delivered
pursuant hereto;
(b) any failure of Seller to duly perform or observe any term,
provision, expectation, covenant or agreement to be performed
or observed by Seller pursuant to this Agreement or any of the
documents contemplated by this Agreement;
(c) any and all liabilities or obligations of Seller other than
the Assumed Liabilities, including, but not limited to, any
fines, penalties, interest or other changes that may be
imposed as a result of any tax returns of Seller that have
been or were required to be, filed on or prior to the Closing
Date, including, without limitation, tax returns for which
extensions have been granted and tax returns for liabilities
accruing prior to the Closing Balance Sheet Date;
(d) any material misrepresentations in or omissions from any
Exhibit, Schedule or other attachment to this Agreement;
(e) any action, suit, investigation, proceeding, demand,
assessment, audit judgment, claim, including any
employment-related claim relating to the time period on or
prior to the Closing Date (collectively "Claims"), even though
such claims may not be filed or come to light until after the
Closing Date;
(f) acts or omissions in connection with business activities
conducted or to be conducted by Seller, including, without
limitation, the sale of goods or provision of services prior
to the Closing Date;
(g) any fees or expenses owed or owing to Shoreline Pacific
Institutional Finance;
(h) any failure to comply with the laws of any jurisdiction
relating to bulk transfers which may be applicable in
connection with the transfer of the Purchased Assets to
Purchaser other than nonpayment of the Assumed Liabilities; or
(i) Schedules 8.4, 8.9, 8.11, 8.13, 8.15, 8.16 and 8.19.
The obligations of Seller to indemnify and hold Purchaser's
Indemnified Persons harmless as described herein shall survive after the Closing
Date and the consummation of the transactions contemplated by this Agreement.
15.2. Procedures. Purchaser's Indemnified Persons shall give Seller prompt
written notice of any written claim, demand, assessment, action, suit or
proceeding to which the indemnity set forth in this Section 15 applies (the
"Indemnification Notice"). If the document evidencing such claim or demand is a
court pleading, Purchaser shall give such notice within ten (10) days of receipt
of such pleading, otherwise, Purchaser shall give such notice within thirty (30)
days of the date it receives written notice of such claim. Failure to give
timely notice, including the Indemnification Notice, of a matter which may give
rise to an indemnification claim shall not affect the rights of Purchaser's
Indemnified Persons to collect such Loss from Seller so long as such failure to
so notify does not materially adversely affect Seller's ability to defend such
Loss against a third party.
If Purchaser's Indemnified Persons' request for indemnification arises from
the claim of a third party, the written notice, including the Indemnification
Notice, shall permit Seller to assume control of the defense of any such claim,
or any litigation resulting from such claim. Failure by Seller to notify
Purchaser's Indemnified Persons of its election to defend a complaint by a third
party within ten (10) days shall be a waiver by Seller of its right to respond
to such complaint and within thirty (30) days after notice thereof shall be a
waiver by Seller of its right to assume control of the defense of such claim or
action. If Seller assumes control of the defense of such claim or litigation
resulting therefrom, Seller shall take all reasonable steps necessary in the
defense or settlement of such claim or litigation resulting therefrom and Seller
hold Purchaser's Indemnified Persons, to the extent provided in this Section 14,
harmless from and against all Seller's Losses arising out of or resulting from
any settlement approved by Seller or any judgment in connection with such claim
or litigation. Notwithstanding Seller's assumption of the defense of such
third-party claim or demand, Purchaser's Indemnified Persons shall have the
right to participate in the defense of such third-party claim or demand at its
own expense. Seller shall not, in the defense of such claim or litigation,
consent to entry of any judgment or enter into any settlement, except in either
case with written consent of Purchaser's Indemnified Persons, which consent
shall not be unreasonably withheld. Purchaser's Indemnified Persons shall
furnish Seller in reasonable detail all information Purchaser's Indemnified
Persons may have with respect to any such third-party claim and shall make
available to Seller and its representatives all records and other similar
materials which are reasonably required in the defense of such third-party claim
and shall otherwise cooperate with and assist Seller in the defense of such
third-party claim.
If Seller does not assume control of the defense of any such
third-party claim or litigation resulting therefrom, Purchaser's Indemnified
Persons may defend against such claim or litigation in such manner as it may
reasonably deem appropriate, and Seller shall indemnify Purchaser's Indemnified
Persons from any Purchaser's Loss indemnifiable under Section 14.1 incurred in
connection therewith.
All statements of fact contained in any written statement,
certificate, schedule, exhibit, or other document delivered to Purchaser by or
on behalf of Seller pursuant to Section 7 of this Agreement shall be deemed
representations and warranties of Seller hereunder.
15.3. Survival of Indemnification. The obligations of Seller to indemnify and
hold Purchaser's Indemnified Persons harmless shall survive for three years from
the Closing Date.
15.4. Remedies Cumulative. The remedies provided by this Section 15 shall be
cumulative and shall not preclude the assertion by Purchaser's Indemnified
Persons of any other rights or the seeking of any other remedies against Seller.
15.5. Right to Set-Off. Purchaser shall have the right to set off any amounts,
including amounts owed under the Secured Contingent Note and the Secured
Purchaser's Note, in that order, owed by Purchaser to Seller for any of
Purchaser's Losses that may arise hereunder. In the event that the outstanding
principal amount of the Secured Contingent Note or the Secured Purchaser's Note
is required to be adjusted in accordance with this Section 15.5, Purchaser shall
execute and deliver to Seller an Allonge Endorsement in the form attached hereto
as Exhibit H-1 or Exhibit H-2, whichever the case may be (the "Allonge
Endorsement"), and Seller shall attach such Allonge Endorsement to the Secured
Contingent Note or the Secured Purchaser's Note, as the case may be. Upon
execution and delivery of any Allonge Endorsement by Purchaser to Seller, the
respective Secured Contingent Note or Secured Purchaser's Note, as the case may
be, shall automatically be deemed to be amended to reflect any adjustment to the
outstanding principal amount of such Note in accordance with the terms of this
Agreement with no further action required by Purchaser.
16. Covenants Not to Compete; Non-Solicitation.
16.1. Seller's Non-Compete. Seller agrees that for a period of one (1) year from
the Closing Date (the "Non-Compete Period"), Seller and its affiliates shall
not, directly or indirectly, own, manage, operate, control or participate in the
ownership, management, operation or control of a business that provides
telephone service, equipment and installation and maintenance within any area or
at any location constituting a Relevant Area. For the purposes of this Section
16, the "Relevant Area" shall be defined for the purposes of this Agreement as
any area located within, or within fifty (50) miles of, the legal boundaries or
limits of, any city within which the Purchaser or any parent, subsidiary or
affiliate thereof is providing telephone service, equipment and installation and
maintenance, has commenced the acquisition of any authorizations, rights of way
or facilities or has commenced the construction of facilities for the purposes
of providing telephone service, equipment and installation or maintenance or has
announced the intention to provide telephone service, equipment and installation
and maintenance.
17. Miscellaneous.
17.1. Amendment and Severability. This Agreement may be amended, modified or
altered only by the express written agreement executed by Purchaser and Seller.
If any provision of this Agreement or the application thereof to any party or
circumstances shall for any reason be held invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other provisions of this Agreement and this Agreement shall be construed as
if such invalid, illegal, or unenforceable provision had never been part of this
Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
17.2. Definition of Knowledge. In this Agreement, any reference to the knowledge
or awareness of Seller shall mean the knowledge of Garrett Girvan, Mark
Phillips, James Walker, Tom Zalewski, Rick Prosser and Keri Lambertz after each
of them individually shall have made the inquiry that a reasonably prudent
business person would have made with respect to such matters.
17.3. Definition of Material Adverse Effect. In this Agreement, any reference to
a material adverse effect shall mean any event, change or effect that is
materially adverse to the condition (financial or otherwise), properties,
assets, liabilities, business, operations or results of operations, taken as a
whole, and is specific to the Seller and not an effect arising from or in
connection with changes in Seller's industry.
17.4. Waiver. The failure of Seller or Purchaser to insist, in any or more
instances, upon performance of any of the terms or conditions of this Agreement,
shall not be construed as a waiver or relinquishment of any rights granted
hereunder or the future performance of any such term, covenant or condition.
Moreover, Purchaser's or Seller's decision to close this transaction
notwithstanding its constructive or actual knowledge of the breach by Seller or
Purchaser of one or more of their representations, warranties or obligations
hereunder shall not relieve such parties of their indemnification obligations
hereunder with respect to such breach; in such case, Purchaser and Seller
specifically are relying upon each other's indemnification obligation, as well
as the underlying representation, warranty or contractual obligation. All rights
and remedies granted in this Agreement to Purchaser and Seller shall be
cumulative and nonexclusive of all other rights and remedies that Purchaser and
Seller may have.
17.5. Notices. Any notice to be given hereunder shall be given in writing and
(a) personally delivered; (b) sent by telecopier, facsimile transmission or
other electronic means of transmitting written communications; or (c) sent to
the parties at their respective addresses indicated herein by registered or
certified U.S. mail, return receipt requested and postage prepaid; or (d) by
private overnight mail courier service. The respective addresses to be used for
all such notices, demands or requests are as follows:
in the case of Purchaser, to:
Convergent Communications Services, Inc.
400 Inverness Drive South
Fourth Floor
Englewood, CO 80112
Attn: Legal Department
Telephone:(303) 749-3000
Facsimile: (303) 749-3113
with a copy to:
Freeborn & Peters
950 Seventeenth Street
Suite 2600
Denver, CO 80202
Attn: Robin Bambach, Esq.
Telephone: (303) 628-4200
Facsimile: (303) 628-4240
and in the case of Seller, to
Kansas Communications, Inc.
650 Townsend, Suite 225
San Francisco, CA 94103-4908
Attn: Steven M. Harris, Esq.
Telephone: (415) 365-2500
Facsimile: (415) 365-2555
with a copy to:
Jeffer, Mangels, Butler & Marmaro, LLP
One Sansome Street, Twelfth Floor
San Francisco, CA 94104
Attn: William S. Solari, III, Esq.
Telephone: (415) 398-8080
Facsimile: (415) 398-5584
or to such other address as Seller or Purchaser may designate by notice in
writing to the other. If personally delivered, such communication shall be
deemed delivered upon actual receipt; if electronically transmitted pursuant to
this Section 17.5, such communications shall be deemed delivered the next
business day after transmission (and the sender shall bear the burden of proof
of delivery); if sent by overnight courier pursuant to this Section 17.5, such
communication shall be deemed delivered upon receipt; and if sent by U.S. mail
pursuant to this Section 17.5, such communication shall be deemed delivered as
of the date of delivery indicated on the receipt issued by the relevant postal
service, or, if the addressee fails or refuses to accept delivery as of the date
of such failure or refusal.
17.6. Benefit. This Agreement shall be binding upon and inure to the benefit and
burden of the parties hereto, their successors and assigns. This Agreement may
not be assigned by any party without the express written consent of the other
party, which consent may be withheld in the sole discretion of the party
requiring such consent.
17.7. No Third Party Beneficiaries. This Agreement shall be for and inure to the
benefit of Purchaser and Seller and there shall be no third party beneficiaries
thereto. Specially excluded from any beneficial status hereunder are Seller's
creditors, employees, customers and suppliers.
17.8. Expenses; Taxes. All expenses incurred by Seller or Purchaser in
connection with the transactions contemplated hereby, including, without
limitation, legal and accounting fees, shall be the responsibility of and for
the account of the party who ordered the particular service or incurred the
particular expense, except (a) as otherwise provided herein, and (b) any and all
federal, state or local income, sales, use or other taxes or charges arising out
of, resulting from or relating to Seller's sale of the Purchased Assets, and any
and all real or personal property taxes or assessments applicable to the period
before the Closing Date, shall be paid by Seller.
17.9. Governing Law and Forum. This Agreement shall be construed under the laws
of the state of Colorado and any action to enforce, construe or modify this
Agreement shall be brought in an appropriate court of competent jurisdiction in
Colorado.
17.10. Entire Agreement. This Agreement, together with the Exhibits, the
Schedules and other documents to be delivered pursuant hereto, including that
certain side letter agreement dated February 12, 1999 between Purchaser and
Seller, constitute the entire agreement among the parties hereto and there are
no agreements, representations or warranties which are not set forth herein. All
prior negotiations, agreements and understandings are superseded hereby. All
parties being represented by counsel, no one party shall be deemed the drafter
of this Agreement with respect to its interpretation.
17.11. Paragraph Headings. The Section and paragraph headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17.12. Time of the Essence. Time is of the essence of this Agreement and the
obligations of the parties hereunder.
17.13. Survival of Representations and Warranties. The representations and
warranties of Purchaser and Seller provided herein shall survive after the
Closing Date for a period of three (3) years following the Closing Date.
17.14. Counterparts. This Agreement may be executed in one or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
17.15. Confidentiality. Seller and Purchaser agree to not disclose the terms and
conditions of this Agreement except (i) as may be required to fulfill
obligations hereunder; (ii) as may be required by law, regulation, custom or
judicial or administrative proceeding; or, (iii) as and to the extent such
information becomes known to the general public through no fault of either party
in tangible, demonstrable form. Both parties shall take reasonable precautions
to insure that their respective employers, employees and agents also treat such
information in a confidential manner. The obligations of confidentiality shall
survive the consummation of the transactions herein set forth.
17.16. Public Announcement. Each party acknowledges and agrees that either party
may make a public announcement of the transactions contemplated by this
Agreement any time after the Closing Date provided that the other party approves
the form and substance of any such public announcement prior to its release,
which approval shall not be unreasonably withheld.
17.17. Attachments. All Exhibits, Schedules and attachments to this Agreement
are made a part of this Agreement by this reference. Any information disclosed
in an Exhibit, Schedule or attachment shall be deemed to be disclosed and
incorporated into any other Exhibit, Schedule or attachment where such
disclosure would be appropriate.
17.18. Additional Documentation. Seller shall from time to time, subsequent to
the Closing Date, at Purchaser's request and without further consideration,
execute and deliver such other instruments of conveyance, assignment and
transfer and take such other action as Purchaser reasonably may require in order
more effectively to effectuate the transfer of the Purchased Assets.
17.19. Arbitration. Notwithstanding anything to the contrary herein, in the
event that there is any dispute arising pursuant to or in any way related to
this Agreement or the transactions contemplated hereby, the parties shall first
attempt to resolve the dispute between each other. The party claiming the
dispute shall provide written notification to the other party detailing the
nature and facts of the dispute. The parties shall attempt to resolve the
dispute within thirty (30) days, or such other longer period of time as the
parties may mutually agree. In the event that the parties fail to resolve the
dispute within the thirty (30) day period, or such other longer period as shall
have been agreed upon by the parties, the dispute shall be settled by
arbitration at a mutually agreed upon location in Denver, Colorado; provided,
however, that nothing in this Section 17.19 shall restrict the right of any
party to apply to a court of competent jurisdiction for emergency relief pending
final determination of a claim by arbitration in accordance with this Section
17,19; and further provided, that in the event the dispute involves an amount of
money to be paid to a party, the arbitration shall only be commenced to the
extent of the disputed amount. All arbitration shall be conducted in accordance
with the rules and regulations of the American Arbitration Association, in force
at the time of any such dispute. Each party shall pay its own expenses
associated with such arbitration, provided that the prevailing party in any
arbitration shall be entitled to reimbursement of reasonable attorneys' fees and
expenses (including, without limitation, arbitration expenses) relating to such
arbitration. The decision of the arbitrators, based upon written findings of
fact and conclusions of law, shall be binding upon the parties; and judgment in
accordance with that decision may be entered in any court having jurisdiction
thereof. In no event shall the arbitrators be authorized to grant any punitive,
incidental or consequential damages of any nature or kind whatsoever.
17.20. Force Majeure. This Agreement and the obligations of the parties
hereunder shall not be impaired or invalidated and a party shall not be in
breach hereof if such party is unable to fulfill any of its obligations
hereunder or is delayed in doing so by reason of strike, labor troubles, acts of
God or any cause beyond the reasonable control of such party.
[The remainder of this page intentionally left blank.]
<PAGE>
17.21. Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will construed against the party drafting such agreement or document.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed by their duly authorized representatives on the day and year first
above written.
CONVERGENT COMMUNICATIONS
SERVICES, INC., a Colorado corporation
By:________________________________
Name: John R. Evans
Title: Chief Executive Officer
KANSAS COMMUNICATIONS, INC.,
a Kansas corporation
By: _______________________________
Name: Garrett J. Girvan
Title: Vice President
<PAGE>
SCHEDULES
Schedule 1.1 Personal Property
Schedule 1.2 Assumed Leases
Schedule 1.3.A. Assumed Contracts
Schedule 1.3.B Excluded Contracts
Schedule 1.4 Intangible Assets
Schedule 1.7 Prepaid Assets
Schedule 1.9 Vehicles
Schedule 1.10.A Accounts Receivable
Schedule 1.10.B Excluded Receivables
Schedule 1. 11 Inventory
Schedule 2 Excluded Assets
Schedule 3.2 Assumed Liabilities
Schedule 4.3 Closing Statement
Schedule 4.4 Allocation of Purchase Price
Schedule 8.4 Disclosed Liabilities
Schedule 8.6 Title to Purchased Assets
Schedule 8.10 Impairment of Contracts and Leases
Schedule 8.11 Litigation and Proceedings
Schedule 8.13 Taxes
Schedule 8.15 Compliance with Law
Schedule 8.19 Employee Contracts
Schedule 8.23 Year 2000 Compliance
<PAGE>
EXHIBITS
Exhibit A Secured July Note
Exhibit B Security Agreement
Exhibit C Secured Purchaser Note
Exhibit D Secured Contingent Note
Exhibit E Bill of Sale, Assumption of Liabilities
and Assignment of Contracts
Exhibit F Form of Purchaser's Counsel Opinion
Exhibit G Form of Seller's Counsel Opinion
Exhibit H-1 Allonge Endorsement to the Secured Contingent Note
Exhibit H-2 Allonge Endorsement to the Secured Purchaser's Note
BILL OF SALE, ASSUMPTION OF LIABILITIES
AND ASSIGNMENT OF CONTRACTS
THIS BILL OF SALE, Assumption of Liabilities and Assignment of
Contracts ("Bill of Sale") is made this 12th day of February 1999, by and
between Convergent Communications Services, Inc., a Colorado corporation
("Purchaser") whose address is 400 Inverness Drive South, Fourth Floor,
Englewood, Colorado 80112, and Kansas Communications, Inc., a Kansas corporation
("Seller"), whose address is 650 Townsend, Suite 225, San Francisco, California
94103-4908.
WHEREAS, Seller and Purchaser have entered into an Asset Purchase
Agreement, dated as of February 1, 1999 (the "Agreement"), providing for, among
other things, the transfer to Purchaser of substantially all of the assets of
Seller that relate directly or indirectly to Seller's Business for consideration
in the amount and on the terms and conditions provided for in the Agreement.
"Business" means Seller's business of providing telephone service, equipment and
installation and maintenance throughout Missouri, Kansas and Wisconsin.
WHEREAS, all capitalized terms used herein and not otherwise defined
herein shall have the respective definitions or meanings ascribed to such terms
in the Agreement.
WHEREAS, to carry out the intent and purpose of the Agreement, Seller
is executing and delivering to Purchaser this instrument evidencing the vesting
in Purchaser of all of Seller's right, title and interest in and to the
Purchased Assets, on the terms and conditions set forth in the Agreement, in
addition to such other instruments which Purchaser shall have otherwise received
or may hereafter receive pursuant to the Agreement.
NOW, THEREFORE, for good and valuable consideration, the adequacy and
receipt of which is hereby acknowledged by Seller, and subject to the terms and
conditions of this Bill of Sale, the parties hereto agree as follows:
1. Transfer of the Purchased Assets. Seller hereby grants, sells, conveys,
assigns, transfers, delivers and sets over unto Purchaser, its successors and
assigns, all of the Purchased Assets, including, without limitation, the
following:
1.1. Personal Property. All equipment, fixtures, furniture, supplies and other
personal property owned, utilized or held for use by Seller in the Business,
including without limitation, the equipment and other assets described on
Schedule 1.1 to the Agreement (the "Personal Property").
1.2. Leases. All rights of Seller under the leases of real property and Personal
Property used in connection with Seller's Business which are listed on Schedule
1.2 to the Agreement under the heading "Assumed Leases."
1.3. Contracts. All rights of Seller (including, without limitation, all of
Seller's right to receive goods and services and to assert claims and to take
other action with respect to breaches, defaults and other violations pursuant to
such contracts) under all contracts, agreements and commitments which are
identified on Schedule 1.3.A to the Agreement; provided that the assumption of
such contracts, agreements and commitments by Purchaser shall not constitute a
waiver of any rights of indemnification or other rights under the Agreement
which Purchaser may have by virtue of such contract, or any of its provisions,
constituting a breach of any representation or warranty made by Seller therein.
1.4. Intangible Assets. All of Seller's right, title and interest in and to all
goodwill, licenses, trade names (including, without limitation, the names
"Kansas Communications" and "BT Services," together with all derivations and
variations of such names, but specifically excluding the name "SoftNet Business
Solutions," together with all derivations and variations of such name), assumed
names, trade dress, business identifiers, trademarks, service marks, copyrights,
applications and registrations for any of the foregoing, trade secrets,
confidential information, employee agreements and covenants respecting
intellectual property, causes of action (including all claims for infringement),
claims (including contractual claims), contractual rights or agreements granting
any right, title, license or privilege with respect to intellectual property and
all other intangible assets relating to, used in or held for use in the
operation of the Business (the "Intangible Assets"), including, without
limitation, the Intangible Assets listed on Schedule 1.4 to the Agreement.
1.5. Licenses and Permits. All of Seller's rights in all government licenses,
approvals, permits, registrations and authorizations (and any applications for
the foregoing) relating to, used in or held for use in the operation of the
Purchased Assets, listed on Schedule 1.5 to the Agreement.
1.6. Records and Documents. All records, computer software and documents,
computer source codes and programs, books, supplier, dealer and customer lists,
catalogs and technical data, work orders, credit information and correspondence,
operating data, drawings, blueprints, specifications, designs, financial
information, product data and records, account information, sales leads, sales
representative information, and all other records and documents used in
connection with the operation of the Purchased Assets.
1.7. Prepaid Assets. All of Seller's rights to prepaid deposits, lease payments,
insurance and other prepaid items listed on Schedule 1.7 to the Agreement.
1.8. Literature. All sales literature, promotional literature, catalogs, sales
and marketing materials and similar materials relating to the Business, but
excluding any literature containing the name "SoftNet" and any literature which
is the basis for any pending or threatened litigation. Purchaser shall be
entitled to use all such materials in the operation of the Purchased Assets.
1.9. Vehicles. All automobiles, trucks, trailers, automotive equipment and other
vehicles owned, leased or used in connection with the operation of the Business,
including, without limitation, those listed on Schedule 1.9 to the Agreement.
1.10. Accounts Receivable. All of Seller's accounts receivable and all evidence
of indebtedness and rights, including contingent rights, to receive payment from
any other person or entity, including, without limitation, those items listed on
Schedule 1.10.A to the Agreement.
1.11. Inventory. All of Seller's inventory used in connection with the Business,
including, but not limited to, the inventory items listed on Schedule 1.11.
To the extent that any Purchased Asset is not assignable
without the consent of another person or entity, and to the extent such consent
is not obtained prior to Closing, this Bill of Sale shall, subject to the rights
of any such person or entity, constitute an assignment of Seller's interest in
such Purchased Asset.
2. Assets Excluded From Sale. The provisions of Section 1 notwithstanding,
Seller shall not sell, transfer, assign, convey or deliver to Purchaser, and
Purchaser shall not purchase or accept those assets specifically identified in
Schedule 2 to the Agreement (the "Excluded Assets").
3. Liabilities.
3.1. Excluded Liabilities. Except as specifically provided in Section 3.2,
Purchaser shall not assume, and shall not be obligated to pay, perform or
discharge any debts, liabilities or obligations of Seller, whether actual,
contingent or accrued, known or unknown, including, but not limited to, any
Employee Payments (as defined in Section 8.19 of the Agreement), which
liabilities shall be retained by Seller.
3.2. Assumed Liabilities. Subject to the terms and conditions of the Agreement,
Purchaser hereby agrees to assume and pay, perform and discharge in accordance
with their terms only the following obligations and liabilities of Seller:
(a) liabilities identified on Schedule 3.2 to the Agreement which arise
under the Assumed Leases and Assumed Contracts; and
(b) those liabilities which Purchaser specifically agrees to assume and
are specifically identified on Schedule 3.2 to the Agreement.
4. Power of Attorney. Seller hereby constitutes and appoints Purchaser, its
successors and assigns, the true and lawful attorney of Seller, with full power
of substitution, in the name of Purchaser, or in the name of Seller, but for the
benefit and at the expense of Purchaser:
(a) to collect, demand and receive the Purchased Assets hereby sold and
transferred to Purchaser;
(b) to institute and prosecute any and all actions, suits or proceedings
which Purchaser may deem proper in order to collect, assert or enforce
any claim, right or title of any kind in or to the Purchased Assets
hereby sold and transferred to Purchaser, to defend or compromise any
and all actions, suits or proceedings in respect of any of the
Purchased Assets, and to do all such acts and things in relation
thereto as Purchaser shall deem advisable;
(c) to take any and all reasonable actions designed to vest more fully in
Purchaser the Purchased Assets hereby sold and transferred to
Purchaser, and in order to provide for Purchaser the benefit, use,
enjoyment and possession of the Purchased Assets.
Seller acknowledges that the foregoing powers are coupled with
an interest and shall be irrevocable by it or by its subsequent dissolution or
in any manner or for any reason. Purchaser shall be entitled to retain for its
own account any amounts collected pursuant to the foregoing powers, including
any amounts payable as interest with respect thereto.
5. No Rights in Third Parties. Nothing expressed or implied in this Bill of Sale
is intended to confer upon any person, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Bill of Sale.
6. Successors and Assigns. This Bill of Sale is executed pursuant to
the Agreement and is entitled to the benefits thereof and shall be binding upon
and inure to the benefit of Seller and Purchaser and their respective successors
and assigns.
IN WITNESS WHEREOF, the parties have caused this Bill of Sale to be
executed by their duly authorized representatives as of the day and year first
above written.
KANSAS COMMUNICATIONS, INC.
By: __________________________________
Name: Garrett J. Girvan
Title: Vice President
ATTEST:
(seal)
By: __________________________________
Steven M. Harris, Secretary
CONVERGENT COMMUNICATIONS SERVICES, INC.
By: __________________________________
Name: John R. Evans
Title: Chief Executive Officer
ATTEST:
(seal)
By: __________________________________
$2,000,000.00 February 12, 1999
SECURED JULY NOTE
FOR VALUE RECEIVED, the undersigned, Convergent Communications Services, Inc., a
Colorado corporation ("CCSI"), whose address is 400 Inverness Drive South,
Fourth Floor, Englewood, Colorado 80112, promises to pay to Kansas
Communications, Inc. ("KCI"), or order, at KCI's offices at 650 Townsend Avenue,
Suite 225, San Francisco, California 94103-4908, or at such other place as the
holder of this Secured July Note may from time to time designate, the principal
sum of $2,000,000.00 (Two Million Dollars), together with interest thereon at
the rate or rates hereafter specified pursuant to this Note ("Note"). The
following terms shall apply to this Note:
1. Asset Purchase Agreement. This Note is being delivered to KCI pursuant to,
and subject to, the terms and conditions of that certain Asset Purchase
Agreement, dated as of February 1, 1999, between KCI and CCSI (the "Agreement"),
whereby CCSI is acquiring the Purchased Assets (as defined in the Agreement)
from KCI, on the terms and conditions set forth in the Agreement.
2. Interest Rate. From the date of this Note until all sums due and owing
hereunder, whether principal, interest, charges, fees or other sums, have been
paid in full, interest shall accrue on the unpaid principal balance at a rate
equal to Eleven Percent (11%) simple interest (the "Interest Rate").
3. Calculation of Interest. Interest shall be calculated on the basis of a three
hundred sixty (360) day year applied to the actual number of days the principal
balance is outstanding.
4. Terms of Repayment. Principal shall be paid in a single lump sum payment on
or before July 1, 1999 (the "Maturity Date"). Interest shall be payable in
arrears on the first day of each month, beginning on March 1, 1999.
5. Acceleration Rights. If there is an "Equity or Debt Financing" as that term
is defined in the Security Agreement (as defined herein), at the option of KCI,
an amount of principal due under this Note equal to the product of the amount of
unpaid principal on this Note multiplied by the ratio of the aggregate amount of
such Equity or Debt Financing divided by ($25,000,000) Twenty-Five Million
Dollars shall be accelerated and such principal and interest thereon shall be
immediately due and payable.
6. Application of Payments. Unless otherwise agreed or required by applicable
law, all payments made hereunder shall be applied first to any unpaid collection
costs and late charges, then to accrued unpaid interest, and any remaining
amount to principal.
7. Prepayment. CCSI shall have the right to prepay the principal balance of this
Note in full or in part at any time during the term hereof. Payments or
prepayments when made, shall be first applied to all accrued interest to the
date of payment, then to any damages, penalties, fees, costs or other charges
accrued and payable pursuant to this Note, and the remainder shall be applied to
payment of the outstanding principal balance. No prepayment shall relieve the
obligation of CCSI to make the next accruing installment due hereunder and the
amount of such future installments shall not be changed after any such
prepayment.
8. Security for Note. This Note and the payments due hereunder are secured,
inter alia, by the Security Agreement of even date herewith, between CCSI and
KCI (the "Security Agreement"). Reference is hereby made to the Security
Agreement (which is incorporated herein by reference as fully and with the same
effect as if set forth herein at length) for a description of the collateral, a
statement of the covenants and agreements contained therein, a statement of the
rights, remedies, and security afforded thereby, and all matters therein
contained.
9. No Waiver. No delay on the part of any holder hereof in exercising any rights
hereunder and no waiver of any payment shall operate as a waiver of any power or
right on the non-performance or upon default or non-payment of any obligation
above mentioned.
10. Severability. If any provision hereof shall be deemed or declared to be
unenforceable, invalid or void, the same shall not impair the other provisions
of this Note, which shall be enforced in accordance with their respective terms.
11. Binding Nature. This Note shall inure to the benefit of and be enforceable
by KCI, its successors and assigns and any other person to whom KCI may grant an
interest in CCSI's obligations hereunder, and shall be binding upon and
enforceable against CCSI and CCSI's successors and assigns.
12. Choice of Law. This Note shall be governed, construed and interpreted
strictly in accordance with the laws of the State of Colorado.
13. Notice. All notices served under this Note shall be in writing and shall be
served by certified or registered mail, confirmed telephone facsimile, courier
service or personal delivery, to the party at its address or fax number
appearing below, or to such other address or fax number as specified by notice
by such party to the other parties hereunder. Except as otherwise provided in
this Note, service of any such notice shall be deemed effective on the earlier
of the day of (i) actual delivery, or (ii) seventy-two (72) hours after deposit
in the United States mail, registered or certified, or (iii) receipt of fax
confirmation. The addresses of both parties are:
CCSI: Convergent Communications Services, Inc.
400 Inverness Drive South, Fourth Floor
Englewood, CO 80112
Attn: Legal Department
Tel: (303) 749-3000
Fax: (303) 749-3113
KCI: Kansas Communications, Inc.
650 Townsend, Suite 225
San Francisco, CA 94103-4980
Attn: General Counsel
Tel: (415) 365-2500
Fax: (415) 365-2555
14. General. CCSI hereby waives presentment, protest, demand or notice of any
kind in connection with any failure to pay when due the indebtedness evidenced
by this Note. If CCSI fails to pay the indebtedness when due, CCSI agrees to pay
holder's reasonable legal fees and expenses incurred in connection with the
enforcement of this Note.
15. Amendments. This Note may not be amended or modified except by an instrument
in writing expressing such intention executed by the parties sought to be bound
thereby.
16. Cross-Default. The occurrence of a default or event of default under any
other agreement for leased property or for borrowed money to which CCSI is a
party or a guarantor, if the effect of such default or event of default would
permit the obligations of CCSI thereunder to become due prior to the expressed
maturity date and after any applicable cure period, shall be an event of default
hereunder.
17. Event of Default. It shall be an event of default under this Note if
Purchaser has not paid Seller all amounts due and owing to Seller on the
Maturity Date; provided, however, Purchaser shall have ten (10) days from the
date of written notice of such default to cure such event of default (the "Cure
Period"). If such event of default has not been cured or waived by the
expiration of the Cure Period, Seller shall be entitled to foreclose on the
Purchased Assets in accordance with the terms of the Security Agreement.
IN WITNESS WHEREOF, CCSI has executed this Note on the date first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.
By:______________________________________
Name: John R. Evans
Title: Chief Executive Officer
$1,000,000.00 February 12, 1999
SECURED PURCHASER'S NOTE
FOR VALUE RECEIVED, the undersigned, Convergent Communications
Services, Inc., a Colorado corporation ("CCSI"), whose address is 400 Inverness
Drive South, Fourth Floor, Englewood, Colorado 80112, promises to pay to Kansas
Communications, Inc. ("KCI"), or order, at KCI's offices at 650 Townsend, Suite
225, San Francisco, California 94103-4908, or at such other place as the holder
of this Secured Purchaser's Note may from time to time designate, the principal
sum of $1,000,000.00 (One Million Dollars), together with interest thereon at
the rate or rates hereafter specified pursuant to this Secured Purchaser's Note
("Note"). The following terms shall apply to this Note:
1. Asset Purchase Agreement. This Note is being delivered to KCI pursuant to,
and subject to, the terms and conditions of that certain Asset Purchase
Agreement dated as of February 1, 1999, between KCI and CCSI (the "Agreement"),
whereby CCSI is acquiring the Purchased Assets (as defined in the Agreement)
from KCI, on the terms and conditions set forth in the Agreement.
2. Interest Rate. From the date of this Note until all sums due and owing
hereunder, whether principal, interest, charges, fees or other sums, have been
paid in full, interest shall accrue on the unpaid principal balance at a rate
equal to Eight Percent (8%) simple interest (the "Interest Rate").
3. Calculation of Interest. Interest shall be calculated on the basis of a three
hundred sixty (360) day year applied to the actual number of days the principal
balance is outstanding.
4. Terms of Repayment. All sums due hereunder, including principal, interest,
charges and fees, shall be paid in a single lump sum payment on or before
February 11, 2000.
5. Application of Payments. Unless otherwise agreed or required by applicable
law, all payments made hereunder shall be applied first to any unpaid collection
costs and late charges, then to accrued unpaid interest, and any remaining
amount to principal.
6. Prepayment. CCSI shall have the right to prepay the principal balance of this
Note in full or in part at any time during the term hereof. Payments or
prepayments when made, shall be first applied to all accrued interest to the
date of payment, then to any damages, penalties, fees, costs or other charges
accrued and payable pursuant to this Note, and the remainder shall be applied to
payment of the outstanding principal balance. No prepayment shall relieve the
obligation of CCSI to make the next accruing installment due hereunder and the
amount of such future installments shall not be changed after any such
prepayment.
7. Security for Note. This Note and the payments due hereunder are secured,
inter alia, by the Security Agreement of even date herewith, between CCSI and
KCI (the "Security Agreement"). Reference is hereby made to the Security
Agreement (which is incorporated herein by reference as fully and with the same
effect as if set forth herein at length) for a description of the collateral, a
statement of the covenants and agreements contained therein, a statement of the
rights, remedies, and security afforded thereby, and all matters therein
contained.
8. Right to Set Off. This Note and the payments due hereunder are subject to the
right to set off by CCSI in accordance with the terms of Section 15.5 of the
Agreement.
9. No Waiver. No delay on the part of any holder hereof in exercising any rights
hereunder and no waiver of any payment shall operate as a waiver of any power or
right on the non-performance or upon default or non-payment of any obligation
above mentioned.
10. Severability. If any provision hereof shall be deemed or declared to be
unenforceable, invalid or void, the same shall not impair the other provisions
of this Note, which shall be enforced in accordance with their respective terms.
11. Binding Nature. This Note shall inure to the benefit of and be enforceable
by KCI, its successors and assigns and any other person to whom KCI may grant an
interest in CCSI's obligations hereunder, and shall be binding upon and
enforceable against CCSI and CCSI's successors and assigns.
12. Choice of Law. This Note shall be governed, construed and interpreted
strictly in accordance with the laws of the State of Colorado.
13. Notice. All notices served under this Note shall be in writing and shall be
served by certified or registered mail, confirmed telephone facsimile, courier
service or personal delivery, to the party at its address or fax number
appearing below, or to such other address or fax number as specified by notice
by such party to the other parties hereunder. Except as otherwise provided in
this Note, service of any such notice shall be deemed effective on the earlier
of the day of (i) actual delivery, or (ii) seventy-two (72) hours after deposit
in the United States mail, registered or certified, or (iii) receipt of fax
confirmation.
The addresses of both parties are:
CCSI: Convergent Communications Services, Inc.
400 Inverness Drive South, Fourth Floor
Englewood, CO 80112
Attn: Legal Department
Tel: (303) 749-3000
Fax: (303) 749-3113
KCI: Kansas Communications, Inc.
650 Townsend, Suite 225
San Francisco, CA 94103-4908
Attn: General Counsel
Tel: (415) 365-2500
Fax: (415) 365-2555
14. General. CCSI hereby waives presentment, protest, demand or notice of any
kind in connection with any failure to pay when due the indebtedness evidenced
by this Note. If CCSI fails to pay the indebtedness when due, CCSI agrees to pay
holder's reasonable legal fees and expenses incurred in connection with the
enforcement of this Note.
15. Amendments. This Note may not be amended or modified except by an instrument
in writing expressing such intention executed by the parties sought to be bound
thereby; provided, however, that this Note may be amended from time to time in
accordance with Section 4.3(e) or Section 15.5 of the Agreement pursuant to an
Allonge Endorsement in the form attached to the Agreement as Exhibit H-2.
16. Cross-Default. The occurrence of a default or event of default under any
other agreement for leased property or for borrowed money to which CCSI is a
party or a guarantor, if the effect of such default or event of default is to
permit the obligations of CCSI thereunder to become due prior to the expressed
maturity date and after any applicable cure period, shall be an event of default
hereunder.
17. Event of Default. It shall be an event of default under this Note if
Purchaser has not paid Seller all amounts due and owing to Seller on the
Maturity Date; provided, however, Purchaser shall have ten (10) days from the
date of written notice of such default to cure such event of default (the "Cure
Period"). If such event of default has not been cured or waived by the
expiration of the Cure Period, Seller shall be entitled to foreclose on the
Purchased Assets in accordance with the terms of the Security Agreement.
IN WITNESS WHEREOF, CCSI has executed this Note on the date first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.
By:______________________________________
Name: John R. Evans
Title: Chief Executive Officer
$1,500,000.00 February 12, 1999
SECURED CONTINGENT NOTE
FOR VALUE RECEIVED, the undersigned, Convergent Communications
Services, Inc., a Colorado corporation ("CCSI"), whose address is 400 Inverness
Drive South, Fourth Floor, Englewood, Colorado 80112, promises to pay to Kansas
Communications, Inc. ("KCI"), or order, at KCI's offices at 650 Townsend, Suite
225, San Francisco, California 94103-4908, or at such other place as the holder
of this Secured Contingent Note may from time to time designate, the principal
sum of $1,500,000.00 (One Million Five Hundred Thousand Dollars), together with
interest thereon at the rate or rates hereafter specified pursuant to this
Secured Contingent Note ("Note"). The following terms shall apply to this Note:
1. Asset Purchase Agreement. This Note is being delivered to KCI pursuant to,
and subject to, the terms and conditions of that certain Asset Purchase
Agreement dated as of February 1, 1999, between KCI and CCSI (the "Agreement"),
whereby CCSI is acquiring the Purchased Assets (as defined in the Asset Purchase
Agreement) from KCI, on the terms and conditions set forth in the Agreement.
2. Interest Rate. From the date of this Note until all sums due and owing
hereunder, whether principal, interest, charges, fees or other sums, have been
paid in full, interest shall accrue on the unpaid principal balance at a rate
equal to Eight Percent (8%) simple interest (the "Interest Rate").
3. Calculation of Interest. Interest shall be calculated on the basis of a three
hundred sixty (360) day year applied to the actual number of days the principal
balance is outstanding.
4. Terms of Repayment. Unless sooner declared due in accordance with the terms
of this Note, all sums due hereunder, including principal, interest, charges and
fees, shall be paid in one lump sum on or before February 11, 2000 (such date in
either case being defined as the "Maturity Date").
5. Acceleration Rights. At the option of KCI, the payment of all principal,
interest and all other sums due and owing in accordance with the terms of this
Note shall be accelerated and such principal, interest and other amounts shall
be immediately due and payable, upon thirty (30) days prior written notice to
CCSI, upon the completion of an equity or debt financing with net proceeds in
excess of $25,000,000 by CCSI's parent company, Convergent Communications, Inc.,
a Colorado corporation ("Convergent"). "Equity or debt financing" shall mean any
change in the paid in capital as shown on the balance sheet of Convergent as a
result of a sale of common or preferred stock and shall mean any additional debt
incurred by Convergent whether from a bond offering, or a new line of credit or
an increase in a line of credit beyond that on the balance sheet of Convergent
as of December 31, 1998.
6. Application of Payments. Unless otherwise agreed or required by applicable
law, all payments made hereunder shall be applied first to any unpaid collection
costs and late charges, then to accrued unpaid interest, and any remaining
amount to principal.
7. Prepayment. CCSI shall have the right to prepay the principal balance of this
Note in full or in part at any time during the term hereof. Payments or
prepayments when made, shall be first applied to all accrued interest to the
date of payment, then to any damages, penalties, fees, costs or other charges
accrued and payable pursuant to this Note, and the remainder shall be applied to
payment of the outstanding principal balance. No prepayment shall relieve the
obligation of CCSI to make the next accruing installment due hereunder and the
amount of such future installments shall not be changed after any such
prepayment.
8. Security for Note. This Note and the payments due hereunder are secured,
inter alia, by the Security Agreement of even date herewith, between CCSI and
KCI (the "Security Agreement"). Reference is hereby made to the Security
Agreement (which is incorporated herein by reference as fully and with the same
effect as if set forth herein at length) for a description of the collateral, a
statement of the covenants and agreements contained therein, a statement of the
rights, remedies, and security afforded thereby, and all matters therein
contained.
9. Right to Set-Off. This Note and the payments due hereunder are subject to the
right of set off by CCSI in accordance with the terms of Section 15.5 of the
Agreement.
10. No Waiver. No delay on the part of any holder hereof in exercising any
rights hereunder and no waiver of any payment shall operate as a waiver of any
power or right on the non-performance or upon default or non-payment of any
obligation above mentioned.
11. Severability. If any provision hereof shall be deemed or declared to be
unenforceable, invalid or void, the same shall not impair the other provisions
of this Note, which shall be enforced in accordance with their respective terms.
12. Binding Nature. This Note shall inure to the benefit of and be enforceable
by KCI, its successors and assigns and any other person to whom KCI may grant an
interest in CCSI's obligations hereunder, and shall be binding upon and
enforceable against CCSI and CCSI's successors and assigns.
13. Choice of Law. This Note shall be governed, construed and interpreted
strictly in accordance with the laws of the State of Colorado.
14. Notice. All notices served under this Note shall be in writing and shall be
served by certified or registered mail, confirmed telephone facsimile, courier
service or personal delivery, to the party at its address or fax number
appearing below, or to such other address or fax number as specified by notice
by such party to the other parties hereunder. Except as otherwise provided in
this Note, service of any such notice shall be deemed effective on the earlier
of the day of (i) actual delivery, or (ii) seventy-two (72) hours after deposit
in the United States mail, registered or certified, or (iii) receipt of fax
confirmation.
The addresses for both parties are as follows:
CCSI: Convergent Communications Services, Inc.
400 Inverness Drive South, Fourth Floor
Englewood, Colorado 80112
Attn: Legal Department
Telephone: (303) 749-3000
Facsimile: (303) 749-3113
KCI: Kansas Communications, Inc.
650 Townsend, Suite 225
San Francisco, California 94103-4908
Attn: General Counsel
Telephone: (415) 365-2500
Facsimile: (415) 365-2555
15. General. CCSI hereby waives presentment, protest, demand or notice of any
kind in connection with any failure to pay when due the indebtedness evidenced
by this Note. If CCSI fails to pay the indebtedness when due, CCSI agrees to pay
holder's reasonable legal fees and expenses incurred in connection with the
enforcement of this Note.
16. Amendments. This Note may not be amended or modified except by an instrument
in writing expressing such intention executed by the parties sought to be bound
thereby; provided, however, that this Note may be amended from time to time in
accordance with Section 4.3(e) or Section 15.5 of the Agreement pursuant to an
Allonge Endorsement in the form attached to the Agreement as Exhibit H-1.
17. Cross-Default. The occurrence of a default or event of default under any
other agreement for leased property or for borrowed money to which CCSI is a
party or a guarantor, if the effect of such default or event of default would
permit the obligations of CCSI thereunder to become due prior to the expressed
maturity date and after any applicable cure period, shall be an event of default
hereunder.
18. Event of Default. It shall be an event of default under this Note if
Purchaser has not paid Seller all amounts due and owing to Seller on the
Maturity Date; provided, however, Purchaser shall have ten (10) days from the
date of written notice of such default to cure such event of default (the "Cure
Period"). If such event of default has not been cured or waived by the
expiration of the Cure Period, Seller shall be entitled to foreclose on the
Purchased Assets in accordance with the terms of the Security Agreement.
IN WITNESS WHEREOF, CCSI has executed this Note on the date first above
written.
CONVERGENT COMMUNICATIONS SERVICES, INC.
By ______________________________________
Name: John R. Evans
Title: Chief Executive Officer
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("Agreement") is made and entered into as of
the 12th day of February, 1999, by and between CONVERGENT COMMUNICATIONS
SERVICES, INC., a Colorado corporation ("CCSI") whose address is 400 Inverness
Drive South, Fourth Floor, Englewood, Colorado 80112, and the KANSAS
COMMUNICATIONS, INC., a Kansas corporation ("KCI"), whose address is 650
Townsend, Suite 225, San Francisco, California 94103-4908. All terms not
otherwise defined herein shall have their meanings as defined that certain Asset
Purchase Agreement, dated as of February 1, 1999 ("Asset Purchase Agreement").
RECITALS
A. CCSI and KCI have entered into the Asset Purchase Agreement, whereby
CCSI is acquiring the Purchased Assets from KCI, on the terms and conditions set
forth in the Asset Purchase Agreement.
B. Pursuant to the Asset Purchase Agreement, CCSI has delivered to KCI
a Secured Purchaser's Note totaling $1,000,000.00 (the "Secured Purchaser's
Note"), a Secured July Note totaling $2,000,000.00 (the "Secured July Note"),
and a Secured Contingent Note totaling $1,500,000.00 (the "Secured Contingent
Note," and together with the Secured Purchaser's Note and the Secured July Note,
referred to collectively herein as the "Note").
C. Pursuant to the Asset Purchase Agreement and the Note, CCSI is
obligated to deliver this Agreement to KCI to secure payment of the Note.
NOW THEREFORE, in consideration of the premises and the mutual
promises, representations, warranties and covenants hereinafter set forth, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. Definitions. The following terms have the meanings set forth below,
unless the context requires otherwise:
1.1 "Act" means the Uniform Commercial Code as adopted and in
effect in the State of Colorado, and any act that may be substituted therefor,
as from time to time amended.
1.2 "Agreement" means this Agreement, together with all
exhibits, riders, supplements, addenda and additions now or hereafter attached
hereto or made a part hereof, and all amendments hereof.
1.3 "Collateral" means and includes the Purchased Assets as
such term is defined in Section 1 of the Asset Purchase Agreement and all
proceeds and products of the Purchased Assets. For purposes of this Agreement,
the term "proceeds" means KCI's interest in whatever is receivable or received
when Purchased Assets or proceeds are sold, collected, exchanged, liquidated,
dissolved or otherwise disposed of, whether such disposition is voluntary or
involuntary, and includes, without limitation: (i) any claims against third
parties for loss or damage to or destruction of any of the foregoing; and (ii)
insurance policies or insurance proceeds covering any of the above including all
rights to payment and return premiums with respect to any insurance relating
thereto.
1.4 "Equity or Debt Financing" shall mean any change in the
paid in capital as shown on the balance sheet of either CCSI or Convergent
Communications, Inc., a Colorado Corporation ("Convergent") as a result of a
sale of common or preferred stock and shall mean any additional debt incurred by
either CCSI or Convergent whether from a bond offering, or a new line of credit
or an increase in a line of credit beyond that on the balance sheet of CCSI or
Convergent as of December 31, 1998.
1.5 "Event of Default" means the occurrence of any of the
following events:
1.5.1 the failure of CCSI to fulfill any of the
Obligations (as defined herein) as and when due;
1.5.2 the commencement by or against CCSI of any
bankruptcy, insolvency, arrangement, reorganization,
receivership or other similar proceeding under any federal or
state law;
1.5.3 the failure or inability of CCSI to pay its
debts generally as they become due;
1.5.4 the occurrence of a default or event of default
under any other agreement for leased property or for borrowed
money to which CCSI is a party or a guarantor, if the effect
of such default or event of default would permit the
obligations of CCSI thereunder to become due prior to the
expressed maturity date, and after any applicable cure period;
1.5.5 the sale of substantially all of the assets of
CCSI or the merger of CCSI with or into any other unaffiliated
entity.
1.5.6 failure of CCSI to notify KCI in writing of the
completion of an Equity or Debt Financing.
1.6 "Liens" means any and all liens, equities, claims, prior
assignments, mortgages, charges, security interests, pledges, conditional sales
contracts, collateral security arrangements, restrictions or encumbrances
whatsoever.
1.7 "Obligations" means all indebtedness and obligations which
may at any time be owing by CCSI to KCI under the Note and the Asset Purchase
Agreement, whether currently in existence or hereafter incurred, whether such
indebtedness or obligations are absolute or contingent, joint or several,
matured or unmatured, direct or indirect.
1.8 "Permitted Liens" shall have the meaning set forth in
Section 3 hereof.
1.9 Terminology. In addition to and cumulative with such other
definitions and descriptions as herein may be provided therefor, the terms
"equipment," "inventory," "accounts," "general intangibles," "chattel paper,"
"documents of title," "goods," "consumer goods" and "instruments," if and to the
extent used herein, shall have such meanings as may be respectively ascribed to
them in the Act as in existence on the date hereof.
2. Grant of Security Interest. As a general and continuing collateral
security for payment of the Obligations and the performance by CCSI of all of
the provisions of the Note, CCSI hereby grants to KCI a security interest in and
to all of the Collateral on the terms and subject to the conditions set forth
herein and CCSI makes such further agreements with KCI in regard thereto as
hereinafter set forth.
3. Subordination. KCI hereby agrees that its security interest in and
to all of the Collateral shall be junior and subordinated in all respects to a
single first priority security interest created by CCSI's lender, or lenders
pursuant to an intercreditor agreement, in connection with any financing
arrangements it may enter into from time to time with respect to the Collateral
and the transactions contemplated by the Asset Purchase Agreement, whether such
security interest exists now or is created hereafter, provided that the assets
which are secured by such first priority lien are insured in an amount equal to
the replacement value of such collateral (the "Permitted Lien").
4. Representations and Warranties.
4.1 Ownership of Collateral. CCSI is the owner of all right,
title and interest in and to the Collateral free and clear from any and all
Liens other than (i) the Permitted Liens and (ii) the Lien created hereby, which
shall be junior to the Permitted Liens.
4.2 Right to Assign. Except as is otherwise provided herein,
CCSI has the full right, power and authority to make this assignment of the
Collateral.
4.3 Delivery. CCSI agrees to deliver all agreements, letters
of credit, promissory notes, chattel paper or anything else the physical
possession of which is necessary in order for KCI to perfect or preserve a
junior lien and security interest in and to the Collateral.
4.4 Taxes. All federal, state, county and local income,
excise, sales, transfer, use, gross receipts, ad valorem, payroll and other
taxes, fees and assessments imposed on the operations of CCSI and all federal
and state payroll taxes required to be withheld by CCSI as of CCSI's December
31, 1998 balance sheet have been or will be duly and fully reported, paid and
discharged except where extensions have been applied for and granted and where
such extensions have not expired. All federal, state, county, local and other
tax returns which are required to be filed by or on behalf of CCSI have been
filed and when filed were true and correct in all respects.
5. General Covenants.
5.1 Liens. CCSI shall keep the Collateral free and clear of
all Liens, except for (i) the Permitted Liens and (ii) the Lien created hereby,
which shall be junior to the Permitted Liens.
5.2 Casualty. CCSI shall promptly notify Holder of any
material loss of or damage to the Collateral or any part thereof.
5.3 Use of Collateral. Until there occurs an Event of Default,
CCSI may, subject to the provisions of Section 5 hereof, use the Collateral in
any lawful manner not inconsistent with this Agreement or with the terms or
conditions of any policy of insurance thereon.
5.4 Disposition of Collateral. Except in connection with the
Permitted Liens, CCSI may not sell, lease, exchange or otherwise dispose of any
of the Collateral without the prior written consent of KCI; provided, however,
that CCSI may sell, exchange or otherwise dispose of portions of the Collateral
which are obsolete, worn-out or unsuitable for continued use by CCSI if such
Collateral is replaced promptly upon its disposition with items constituting
Collateral having a market value equal or greater than Collateral so disposed of
and in which KCI shall obtain and have a Lien pursuant hereto of the same
priority as in Collateral so disposed of.
5.5 Insurance. CCSI shall insure the Collateral (fixed assets)
through extended coverage policies at the sole expense of CCSI covering the
interests of KCI as they may appear, against loss or damage by fire and other
hazards, theft, explosion, flood, and such other risks in such amount at all
times sufficient to cover the full replacement cost of the Collateral. All such
insurance policies shall name KCI as a loss payee, to the extent of the interest
of KCI, and shall also provide that no act or default of CCSI or any other
person shall affect the right of KCI to recover under such insurance policies.
All such policies shall contain provisions that such insurance policies may not
be cancelled without providing ten (10) days prior written notice to KCI. CCSI
agrees to deliver to KCI, promptly as rendered, true and correct copies of all
claim reports made to all insurance companies. CCSI and KCI agree that any
insurance proceeds received as a result of loss or damage to the Collateral will
be used to repair or replace said Collateral under the terms and conditions of
the required property insurance policies. Immediately upon the request of KCI,
CCSI shall deliver to KCI proof of payment of premiums of all insurance required
hereunder. If CCSI fails to provide or pay for any such insurance, KCI is
authorized (but not obligated) to procure the same at the expense of CCSI. CCSI
shall provide commercial general liability insurance covering bodily injury,
property damage, and fire legal liability claims. Said policy will name KCI as
an additional insured to the extent of the interest of KCI.
5.6 Adequate Books. CCSI agrees to keep and maintain the books
and records delivered in accordance with Section 1.6 of the Asset Purchase
Agreement at the offices of KCI in Lenexa, Kansas.
5.7 Reports. Whether or not the Company has a class of
securities registered under the Securities Exchange Act of 1934, CCSI shall
furnish, without cost to KCI, any reports or financial statements to KCI that
Convergent is required to deliver to its bondholders, including all such reports
and financial statements required to be filed by it under the Securities
Exchange Act of 1934, within a reasonable time after each filing.
5.8 Inspection of Books of CCSI. KCI shall have the right to
inspect the Collateral and any books and records pertaining thereto (and the
right to make extracts from and to receive from CCSI copies of such records) and
to inspect the books and records delivered to CCSI in accordance with Section
1.6 of the Asset Purchase Agreement as provided in Section 10.5 of the Asset
Purchase Agreement.
5.9 Estoppel Certificate. CCSI shall furnish to KCI, at any
time and from time to time at the reasonable request of KCI, written evidence
(in form and substance reasonably satisfactory to KCI) that CCSI has fully
complied with all of the material covenants, representations, warranties and
other agreements of CCSI and other obligations herein.
6. Preservation. CCSI will take all reasonably necessary and
appropriate measures to obtain, maintain, protect and preserve any material
Collateral consisting of intangible items including, without limitation,
registration thereof with the appropriate state or federal governmental agency
or department.
7. Remedies. Upon the occurrence and during the existence of any Event
of Default, KCI shall have all of the rights and remedies described in this
Section 7, including any subsections, and KCI may exercise any one, more or all
of such remedies, in its sole discretion, without thereby waiving any of the
others.
7.1 General Remedies of a Secured Party. KCI shall have all of
the rights and remedies of a "secured party" under the Act (regardless of
whether the Act has been enacted in the jurisdiction where the rights and
remedies are asserted), including, without limitation, the right to take
possession of any of the Collateral or the proceeds thereof by such means
(without breach of the peace) and through agents or otherwise as it may elect,
the right to sell, lease or otherwise dispose of the Collateral or any portion
thereof, the right to apply the proceeds derived therefrom to any and all of the
Obligations secured thereby in such order as KCI may elect, and, for this
purpose, the right to sign in the name of KCI any transfer, conveyance or
instrument necessary in the premises. Any such disposition of the Collateral may
be in its then condition or following any commercially reasonable preparation or
processing thereof, by public or private proceedings, by one or more contracts,
as a unit or in parcels, at any time or place and on any terms, so long as the
same are commercially reasonable.
7.2 Notice of Disposition. KCI shall give CCSI written notice
of the time and place of any public sale of the Collateral or the time after
which any other intended disposition thereof is to be made. The requirement of
sending reasonable notice shall be met if such notice is sent by reliable
overnight courier to CCSI at its last known address as shown on CCSI's records
at least five (5) business days before such disposition.
7.3 Receiver. In addition to the foregoing, KCI may appoint
any person to be a receiver (which term shall include a receiver and manager) of
the Collateral, including, without limitation, any rents and profits thereof and
may remove any receiver and appoint another in its stead, and such receiver so
appointed shall have power to take possession of the Collateral and to carry on
or concur in carrying on the business of CCSI, and to dispose of or concur in
the disposition of the Collateral or any part thereof in the manner described
hereinabove. Any such receiver shall for all purposes be deemed to be the agent
of KCI. KCI may from time to time fix the remuneration of such receiver. KCI in
appointing or refraining from appointment of such receiver shall not incur any
liability to the receiver, CCSI or otherwise.
7.4 Application of Proceeds. All moneys from time to time
received by KCI from the disposition of Collateral shall be applied by KCI:
first, in discharge of all reasonable expenses of re-taking, holding,
preserving, preparing for sale or lease, selling, leasing and the like of the
Collateral, including, without limitation, fees and expenses of any receivers
and attorneys, insurance premiums, tax payments and the like; secondly, to all
outstanding fees and other expenses owing under the Note; thirdly, accrued
interest on the Obligations; fourthly, to the principal balances of any such
Obligations; lastly, to CCSI, any residue.
8. Further Assurances. CCSI shall from time to time forthwith on KCI's
reasonable request do, make and execute, and use reasonable good faith efforts
to cause to be done, made and executed, such financing statements, certificates
of title, landlord's and mortgagee's waivers, estoppel certificates, further
assignments, documents, acts, matters and things as may be reasonably required
by KCI of or with respect to the Collateral or any part thereof or as may be
required to give effect to these presents, and in the case of CCSI's refusal to
act, CCSI hereby constitutes and appoints KCI as the true and lawful attorney of
CCSI irrevocably with full power of substitution to do, make and execute all
such statements, assignments, documents, acts, matters or things with the right
to use the name of CCSI whenever and wherever it may be reasonably deemed
necessary or expedient. CCSI hereby agrees that such power of attorney is one
coupled with an interest.
9. Dealings. KCI may grant extensions of time and other indulgences,
take and give up securities, accept compromises, grant releases and discharges
and otherwise deal with CCSI, debtors of CCSI, sureties and others and with the
Collateral and other securities as KCI may see fit, without prejudice to the
liability of CCSI or KCI's right to hold and realize upon this security.
10. General.
10.1 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Colorado.
10.2 Non-Exclusivity of Remedies. No remedy for the
enforcement of the rights of CCSI hereunder shall be exclusive of or dependent
on any other such remedy but any one or more of such remedies may from time to
time be exercised independently, successively or in combination.
10.3 Waiver. Each and every right granted to KCI under this
Agreement or allowed to KCI by law or in equity, shall be cumulative and may be
exercised from time to time by KCI in its sole discretion. No failure on the
part of KCI to exercise, and no delay in exercising, any right shall operate as
a waiver thereof, nor shall any single or partial exercise by KCI of any right
preclude any other or future exercise thereof or the exercise of any other
right.
10.4 Counterparts. This Agreement may be executed in two or
more counterparts, each of which when fully executed shall be an original, and
all of said counterparts taken together shall be deemed to constitute one and
the same agreement.
10.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the permitted successors and assigns of the
parties hereto.
10.6 Reimbursement. If any taxes, fees or other costs shall be
payable on account of the execution, issuance, delivery or recording of this
Agreement or any financing statements, certificates, documents or instruments
executed in connection herewith, by reason of any existing or hereafter enacted
federal, state or provincial statute, CCSI will pay all such taxes, fees or
other costs, including any applicable interest and penalty, and will indemnify
and hold KCI harmless from and against liability in connection therewith.
[Signature page follows]
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement by their
duly authorized representatives on the date first written above.
CONVERGENT COMMUNICATIONS KANSAS COMMUNICATIONS, INC.
SERVICES, INC.
.
By __________________________________ By ________________________________
John R. Evans, Chief Executive Officer Garrett J. Girvan, Vice President
Press Release
For more information contact:
Mark Phillips, Treasurer
SoftNet Systems
650.962.7470
Jeffrey Goldberger, Investor Relations
Stern & Co.
212.888.0044
Softnet To Sell Kansas Communiications And
Micrographics Technologies Operating Subsidiaries
Company Focuses on Expanding High-Speed Internet via Cable Business
MOUNTAIN VIEW, Calif., November 10, 1998 -- SoftNet Systems, Inc. (AMEX: SOF)
today announced it has signed separate letters of intent to sell its
telecommunications and document management businesses, Kansas Communications,
Inc. ("KCI") and Micrographic Technologies Corp. ("MTC"), in a move to
concentrate on its expanding business as the leading provider of high-speed
Internet access via cable to small and mid-sized cable operators.
Dr. Lawrence B. Brilliant, SoftNet President and Chief Executive Officer, said,
"These transactions mark a turning point for the company. We will now be able to
more clearly focus on providing Internet services to consumers and businesses
through our core cable modem business, the ISP Channel, and related services."
SoftNet said it expects to receive approximately $12 million in cash and
short-term notes from the two transactions, which are scheduled to close late
this year or early 1999. Approximately half of the proceeds will be used to pay
off existing debt while the balance will be used to fund expansion of the ISP
Channel. Following the transactions, SoftNet will have approximately 90
employees, all focused on its ISP Channel operations. The two sales are subject
to Board of Directors' approval, among other conditions and the letters of
intent are not binding until definitive documents are completed.
The company agreed to sell MTC to Global Information Distribution GmbH of
Cologne, Germany ("GID"), which is MTC's leading international distributor. MTC
is a leading provider of electronic information and document management systems
that allow customers to electronically gather information from multiple media.
KCI, Softnet's telecommunications division, will be acquired by Convergent
Communications Services, Inc. of Englewood, Colorado. KCI provides
telecommunications equipment and services throughout the Midwest from offices in
Missouri, Kansas and Wisconsin.
The ISP Channel offers an end-to-end Internet-over-cable access system. The
Company provides cable operators a turnkey service so they can rapidly enter the
high-speed Internet access business with little capital. Packaging its service
offering like a cable television programming network, the ISP Channel absorbs
key capital and operating costs related to deployment of Internet services in
exchange for a revenue sharing agreement.
According to a Forrester Research report entitled, "Broadband Hits Home," more
than 16 million households, about one-fourth of all online homes, will be using
high-speed broadband connections within the next 36-48 months. The report also
said cable companies will capture at least 80% of that market.
###
SoftNet's Internet Services Division provides comprehensive business-to-business
Internet services including Internet access and Web development along with the
"ISP Channel" branded program for cable operators. News and information are
available at www.ispchannel.com Its Document Management Division develops,
markets, installs and services electronic information and document management
systems that allow customers to electronically request and receive information
from multiple media. The Company's Telecom Division markets and installs telecom
and datacom solution.
News For Immediate Release
Contacts:
Jeffery Goldberger
SoftNet Investor Relations
Stern & Co.
212-888-0044
[email protected]
Douglas Sinclair
Chief Financial Officer
SoftNet Systems
650-962-7490
[email protected]
SoftNet Systems, Inc. Completes Sale of Kansas Communications
To Convergent Communications Services For $6.5 Million
Mountain View, California, February 12, 1999 -- SoftNet Systems, Inc. (AMEX:SOF)
today announced it has completed the sale of its Kansas Communications, Inc.
("KCI") business to Convergent Communications Services, Inc. (CCSI) of
Englewood, Colorado, for $6.5 million in cash, short-term notes and a small
amount of stock in CCSI's parent company. The sale of this business unit was a
part of SoftNet's strategy to divest its non-Internet subsidiaries and actively
focus on its expanding business as a leading provider of high-speed Internet
access, partnering with small and mid-sized cable operators.
SoftNet in November reported it had signed separate letters of intent to sell
Kansas City-based KCI, which specializes in the sale and service of telephone
systems, and Micrographic Technology Corp. ("MTC"), its document management
businesses. Completion of the MTC sale to Global Information Distribution GmbH
of Cologne, Germany, has not yet been announced.
Dr. Lawrence B. Brilliant, SoftNet's president and chief executive officer,
said, "Closing on the sale of KCI brings in additional operating funds that will
be used to pay down debt and focus on executing our high-speed cable Internet
access, VSAT, and content services objectives. These funds, coupled with the $15
million in financing secured in January, give SoftNet important resources to
channel into our core business model. On behalf of all of SoftNet's employees
and directors, I want to thank the employees of KCI for the time we have spent
together and to extend to them, as well Convergent Communications, our
congratulations and best wishes for the future."
About SoftNet Systems, Inc.
SoftNet Systems, Inc. is a leading high-speed broadband Internet access and
content services company focused on partnering with small to mid-sized cable
operators. Through its ISP Channel, the company provides a complete turnkey
Internet service To cable affiliate partners, similar to services provided by
@Home (NASDAQ:ATHM) and Time Warner's (NYSE:TWX) RoadRunner. Complementing the
affordable high-speed Internet access made available by the company, is its
LOCALE service, a series of local user-friendly community e-commerce,
information and entertainment portals built around local retailers and community
organizations in service areas of each participating cable partner. Through its
Intellicom subsidiary, the company markets a satellite-based VSAT high-speed
commercial Internet link called T1 Plus.(TM)
Intellicom also provides SoftNet with unique cost-saving technology through
these VSAT links to SoftNet's network operations center (NOC), which replace
more expensive terrestrial telecommunications data lines SoftNet's NOC is
located in Silicon Valley, while its corporate headquarters is located in San
Francisco. For further information about SoftNet and its services, please visit
www.softnet.com and www.ispchannel.com.
###
Safe Harbor statement under the Private Securities Litigation Reform Act of
1995: Except for historical information, the matters discussed in this news
release that may be considered forward-looking statements may be subject to
certain risks and uncertainties that could cause the actual results to differ
materially from those projected, including uncertainties and other risks
detailed from time to time in the Company's Securities and Exchange Commission
filings.
