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
August 14, 1996
(Date of Report)
Prism Group, Inc.
(Exact name of registrant as specified in its charter)
Florida 0-19987 65-0143407
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
15530 Woodinville-Redmond Road, Building B-100, Woodinville, Washington 98072
(address of principal executive offices, including zip code)
(206) 881-1609
(Registrant's telephone number, including area code)
Item 2. Acquisition or Disposition of Assets
On August 1, 1995, MicroDisk Services ("MDS") and Software Production, Inc.
("SPI"), the two software manufacturing subsidiaries of Prism Group, Inc. (the
"Company"), contributed their operating assets to form Prism Software
Production, L.L.C. ("PSP"). Despite consolidation of duplicative operations and
other actions designed to reduce costs, PSP has not been profitable. The Company
has actively marketed PSP in an attempt to preserve as much of the company's
asset value as possible for the benefit of creditors and PSP's members,
including PSP's major secured creditor, CAPCO Financial Company, Inc. ("CAPCO")
. On July 30, 1996, most of PSP's inventory and some equipment were sold to a
competitor, PAC Services, Inc. ("PAC"), pursuant to CAPCO's foreclosure rights
under Article 9 of the Uniform Commercial Code. PSP has ceased business
operations and, in fact, is precluded by the terms of the sale from competing
with the purchaser. After liquidation of assets not transferred to PAC and after
satisfaction from the PAC sale proceeds of CAPCO's indebtedness from PSP, which
totaled $924,477, PSP will have remaining funds for repayment to unsecured
creditors. These funds will be insufficient to pay creditors in full.
PAC paid $823,781 in cash at closing for the assets and related non-competes and
covenants and in addition, will pay up to an additional $249,000 by December 31,
1997 if sales from PSP customers transferred over to PAC exceed certain
thresholds.
Following this sale of PSP assets and subsequent liquidation of other PSP
assets, the only remaining business unit of the Company, and its only
significant asset, is Prism Direct, Inc. ("PDI"), which is engaged in order
processing and fulfillment services primarily in the software publishing field
and which has its own line of credit with CAPCO. In connection with the sale of
PSP assets to PAC, PDI entered into an agreement with PAC pursuant to which PDI
licensed certain of its technology to PAC, PAC agreed to use PDI for it's
sevices with respect to customers that transferred to PAC, and PDI agreed to
give PAC certain rights to its technology if it goes out of business and rights
of first refusal in the event of certain dispositions of PDI's business.
The Company is currently evaluating PDI and its prospects and is considering a
variety of alternatives with respect to PDI, primarily involving its sale or
disposition in connection with a liquidation of the Company. The Company
believes that the infusion of additional capital, within a very short time
period, is essential to continued PDI operations. The Company itself has
significant liabilities in respect of obligations to certain creditors of MDS
and SPI, as well to its own creditors, and those liabilities will make
difficult, if not impossible, any Company effort to raise capital for PDI. The
Company does not believe that PDI, on an on-going basis or upon itssale, would
gererate sufficient cash or value to satisify the Company's liabilities. As a
result of the liabilities of the Company, and in connection with the liquidation
of the remaining assets of PSP and any possible sale or other arrangement with
PDI, one or more of the Company's subsidiaries, or the Company itself, could be
subject to involuntary bankruptcy proceedings or the Company could commence a
voluntary proceeding.
Item 7. Financial Statements and Exhibits
(a) Pro Forma Financial Information
PRISM GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 1996
(Unaudited)
ASSETS
PRO FORMA
June 30, June 30
1996 1996
---- ----
Cash 756 756
Accounts Receivable, net 1,496,379 946,379
Inventories 832,027 242,626
Other current assets 565,157 565,157
------------------- -------------------
Total Current Assets 2,894,318 1,754,917
Equipment - At Cost 5,630,457 5,601,957
Less accumulated depreciation and
amortization (3,976,516) (3,951,516)
-------------- -------------------
1,653,941 1,650,441
Goodwill, net of accumulated amort 2,559,468 0
Other 23,901 23,901
------------------ -------------------
7,131,627 3,429,258
================== ===================
LIABILITIES AND STOCK HOLDERS' EQUITY
Note payable 1,233,637 409,856
Bank Overdraft
Current maturities of long-term
obligations 387,794 387,794
Accounts payable 3,929,910 3,379,910
Put option obligations - -
Accrued liabilities 658,471 658,471
------------------- -------------------
Total Current Liabilities 6,209,813 4,836,032
Long-term obligations 1,118,476 1,118,476
Minority interest in subsidiary 0 0
Deferred income taxes 0 0
Stockholders' Equity (Deficit)
Preferred stock, $100.00 par 2,573,500 2,573,500
Common stock, $.01 par value 78,723 78,723
Additional paid-in capital 5,322,744 5,322,744
Retained earnings (deficit) (8,171,630) (10,500,218)
------------------ -------------------
(196,663) (2,525,251)
------------------ -------------------
7,131,627 3,429,258
=================== ===================
(b) Exhibits:
10.32 Asset Purchase Agreement by and between Pac Services, Inc., Prism Software
Production, L.L.C. and Prism Group, Inc.
ASSET PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
1. DEFINITIONS.............................................................2
2. SALE AND TRANSFER OF ASSETS.............................................6
2.1 REPRESENTATIONS...........................................6
2.2 SALE OF FORECLOSED ASSETS.................................7
2.3 TRANSFER OF EQUIPMENT.....................................8
2.4 CAPCO'S PARTICIPATION.....................................8
3. COVENANTS AND AGREEMENTS................................................8
3.1 COOPERATION...............................................8
3.2 NOT TO SUE................................................8
3.3 NONCOMPETE................................................9
4. PURCHASE PRICE..........................................................9
4.1 AMOUNT....................................................9
4.2 ALLOCATION................................................11
5. CLOSING.................................................................11
5.1 CLOSING...................................................11
5.2 CLOSING OBLIGATIONS.......................................12
6. REPRESENTATIONS AND WARRANTIES OF SELLER................................12
6.1 ORGANIZATION AND GOOD STANDING............................12
6.2 AUTHORITY; NO CONFLICT....................................12
6.3 TITLE TO PROPERTIES; ENCUMBRANCES.........................13
6.4 INVENTORY.................................................14
6.5 TAXES.....................................................14
6.6 NO MATERIAL ADVERSE CHANGE................................14
6.7 EMPLOYEE BENEFITS.........................................14
6.8 COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
AUTHORIZATIONS................................14
6.9 LEGAL PROCEEDINGS; ORDERS.................................15
6.10 ABSENCE OF CERTAIN CHANGES AND EVENTS.....................15
6.11 CONTRACTS; NO DEFAULTS....................................15
6.12 EMPLOYEES.................................................16
6.13 LABOR RELATIONS; COMPLIANCE...............................16
6.14 DISCLOSURE................................................16
6.15 BROKERS OR FINDERS........................................16
7. REPRESENTATIONS AND WARRANTIES OF BUYER.................................17
7.1 ORGANIZATION AND GOOD STANDING........................... 17
7.2 AUTHORITY; NO CONFLICT....................................17
7.3 CERTAIN PROCEEDINGS.......................................17
7.4 BROKERS OR FINDERS........................................18
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.....................18
8.1 ACCURACY OF REPRESENTATIONS...............................18
8.2 SELLER'S PERFORMANCE......................................18
8.3 ADDITIONAL DOCUMENTS......................................18
8.4 NO PROCEEDINGS............................................19
8.5 NO CLAIM REGARDING ASSET OWNERSHIP OR SALE
PROCEEDS..................................................19
8.6 NO PROHIBITION............................................19
9. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE...................19
9.1 ACCURACY OF REPRESENTATIONS...............................20
9.2 BUYER'S PERFORMANCE.......................................20
9.3 NO INJUNCTION.............................................20
10. TERMINATION............................................................20
10.1 TERMINATION EVENTS........................................20
10.2 EFFECT OF TERMINATION.....................................21
11. INDEMNIFICATION; REMEDIES..............................................21
11.1 SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
KNOWLEDGE...................................21
11.2 INDEMNIFICATION AND PAYMENT OF DAMAGES BY SELLER
AND PARENT....................................21
11.3 INDEMNIFICATION AND PAYMENT OF DAMAGES BY
BUYER.....................................................22
11.4 RIGHT OF SET-OFF......................... ................22
11.5 PROCEDURE FOR INDEMNIFICATION--THIRD PARTY
CLAIMS....................................................23
11.6 PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMS...............24
12. GENERAL PROVISIONS.....................................................24
12.1 EXPENSES..................................................24
12.2 PUBLIC ANNOUNCEMENTS......................................24
12.3 CONFIDENTIALITY...........................................25
12.4 NOTICES...................................................25
12.5 JURISDICTION; SERVICE OF PROCESS..........................27
12.6 FURTHER ASSURANCES........................................27
12.7 WAIVER........................................... ........27
12.8 ENTIRE AGREEMENT AND MODIFICATION.........................28
12.9 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY
RIGHTS....................................................28
12.10 SEVERABILITY..............................................28
12.11 SECTION HEADINGS, CONSTRUCTION............................28
12.12 TIME OF ESSENCE...........................................29
12.13 GOVERNING LAW.............................................29
12.14 COUNTERPARTS..............................................29
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement") is made as of July 30, 1996, by Pac
Services, Inc., a Washington corporation ("Buyer"), Prism Software Production,
L.L.C., a Washington limited liability company ("Seller"), and Prism Group,
Inc., a Florida corporation ("Parent"). CAPCO Financial Company, Inc. ("CAPCO"),
a Washington corporation, is a party to this Agreement solely pursuant to its
rights as a secured creditor of Seller under RCW 62A.9-503 and 9-504.
RECITALS
A. Seller, Buyer and Parent have executed a letter of intent dated July 16, 1996
(the "Letter of Intent") pursuant to which Buyer intended (i) to buy, and Seller
intended to sell, certain Assets (as defined below), (ii) to secure from Seller
and Parent their cooperation, covenant not to sue and agreement not to compete,
and (iii) to acquire assignments of certain Applicable Contracts (as defined
below).
B. Seller, Buyer and Parent desire to enter into this Agreement, which sets
forth the terms and conditions of Buyer's purchase of the Assets; Seller's and
Parent's cooperation, covenant not to sue and agreement not to compete; and
Seller's assignment of the Applicable Contracts.
C. CAPCO has a perfected first priority security interest in all of the
Foreclosed Assets pursuant to a financing arrangement with Seller and has
exercised its remedies in connection with a default by Seller under its
financing arrangement with Seller. CAPCO desires to sell the Foreclosed Assets
to Buyer through a private sale under the provisions of the Washington Uniform
Commercial Code and in accordance with the terms and conditions of this
Agreement.
D. CAPCO is a party to this Agreement solely for purposes of Article 2, Section
5.2.3 of Article 5 and Sections 12.2 through 12.7 and 12.9 through 12.14. of
Article 12.
E. Buyer and Seller acknowledge and agree that this Agreement shall be the
complete agreement between the parties and shall supersede the Letter of Intent.
AGREEMENT
The parties, intending to be legally bound, agree as follows:
I. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings specified
or referred to in this Section 1:
A. "Applicable Contracts" means those contracts and agreements listed on
Exhibit 1.1.
B. "Assets" is defined as the Inventory, the Applicable Contracts and the Other
Assets.
C. "Best Efforts" means the efforts that a prudent Person desirous of achieving
a result would use in similar circumstances to ensure that such result is
achieved as expeditiously as possible.
D. "Breach" of a representation, warranty, covenant, obligation, or other
provision of this Agreement or any instrument delivered pursuant to this
Agreement is deemed to have occurred if there is or has been (a) any inaccuracy
in or breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision, or (b) any claim (by any
Person) or other occurrence or circumstance that is or was inconsistent with
such representation, warranty, covenant, obligation, or other provision, and the
term "Breach" means any such inaccuracy, breach, failure, claim, occurrence, or
circumstance.
E. "Buyer" as defined in the first paragraph of this Agreement.
F. "Closing" as defined in Section 5.1.
G. "Closing Date" the date and time as of which the Closing actually takes
place.
H. "Consent" any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
I. "Contemplated Transactions" all of the transactions contemplated by this
Agreement, including:
1. The sale of the Assets to Buyer;
2. The execution, delivery, and performance of the assignments and transfer
documents for the Applicable Contracts and the Master Service Agreement.
3. The performance by Buyer and Seller of their respective covenants and
obligations under this Agreement.
J. "Contract" any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
K. "Customers" is defined in Section 3.1.2.
L. "Damages" is defined in Section 10.2.
M. "Deferred Amount" is defined in Section 4.1.2.
N. "Encumbrance" any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
O. "Equipment" means those items listed on Exhibit 1.15.
P. "Foreclosed Assets" means all Assets.
Q. "Governmental Authorization" any approval, consent, license, permit, waiver,
or other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
R. "Governmental Body" any:
1. nation, state, county, city, town, village, district, or other jurisdiction
of any nature;
2. federal, state, local, municipal, foreign, or other government;
3. governmental or quasi-governmental authority of any nature (including any
governmental agency, branch, department, official, or entity and any court or
other tribunal);
4. multi-national organization or body; or
5. body exercising, or entitled to exercise, any administrative, executive,
judicial, legislative, police, regulatory, or taxing authority or power of any
nature.
S. "Inventory" is defined as those items listed on Exhibit 1.19.
T. "IRC" the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
U. "IRS" the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.
V. "Knowledge" an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
1. such individual is actually aware of such fact or other matter; or 2. a
prudent individual could be expected to discover or otherwise become aware of
such fact or other matter in the course of conducting a reasonably comprehensive
investigation concerning the existence of such fact or other matter.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
W. "Legal Requirement" any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
X. "Order" any award, decision, injunction, judgment, order, ruling, subpoena,
or verdict entered, issued, made, or rendered by any court, administrative
agency, or other Governmental Body or by any arbitrator.
Y. "Ordinary Course of Business" an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if: 1. such action is
consistent with the past practices of such Person and is taken in the ordinary
course of the normal day-to-day operations of such Person; 2. such action is not
required to be authorized by the board of directors of such Person (or by any
Person or group of Persons exercising similar authority) [and is not required to
be specifically authorized by the parent company (if any) of such Person]; and
3. such action is similar in nature and magnitude to actions customarily taken,
without any authorization by the board of directors (or by any Person or group
of Persons exercising similar authority), in the ordinary course of the normal
day-to-day operations of other Persons that are in the same line of business as
such Person.
Z. "Organizational Documents" (a) the articles or certificate of incorporation
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate of limited partnership of a limited partnership; (d) any
charter or similar document adopted or filed in connection with the creation,
formation, or organization of a Person; and (e) any amendment to any of the
foregoing. AA. "Other Assets" means those accounts other than the accounts
receivable which Seller has sold or is obligated to sell to CAPCO and all
general intangibles, including customer lists, trade secrets, customer history,
and all information reasonably necessary for Buyer to conduct the business
previously conducted by Seller.
BB. "PDI" means Prism Direct, Inc., an entity controlled by Parent.
CC. "Person" any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
DD. "Proceeding" any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
EE. "Representative" with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
FF. "Seller" as defined in the first paragraph of this Agreement.
GG. "Tax" any tax (including any income tax, capital gains tax, value-added tax,
sales tax, property tax, gift tax, or estate tax), levy, assessment, tariff,
duty (including any customs duty), deficiency, or other fee, and any related
charge or amount (including any fine, penalty, interest, or addition to tax),
imposed, assessed, or collected by or under the authority of any Governmental
Body or payable pursuant to any tax-sharing agreement or any other Contract
relating to the sharing or payment of any such tax, levy, assessment, tariff,
duty, deficiency, or fee. HH. "Tax Return" any return (including any information
return), report, statement, schedule, notice, form, or other document or
information filed with or submitted to, or required to be filed with or
submitted to, any Governmental Body in connection with the determination,
assessment, collection, or payment of any Tax or in connection with the
administration, implementation, or enforcement of or compliance with any Legal
Requirement relating to any Tax. II. "Threatened" a claim, Proceeding, dispute,
action, or other matter will be deemed to have been "Threatened" if any demand
or statement has been made (orally or in writing) or any notice has been given
(orally or in writing), or if any other event has occurred or any other
circumstances exist, that would lead a prudent Person to conclude that such a
claim, Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
II. SALE AND TRANSFER OF ASSETS
A. REPRESENTATIONS
1. Seller and Parent represent and warrant to Buyer and CAPCO as follows: a)
that, pursuant to Seller's financing arrangement with CAPCO, Seller has sold
certain accounts receivable to CAPCO, including certain accounts receivable owed
to Seller by one of its customers, Wall Data, Inc. ("Wall Data"), and that full
collection of such accounts receivable is guaranteed by Seller, which obligation
is secured by a first priority security interest in favor of CAPCO in the
Foreclosed Assets, including the proceeds thereof;
b) that, pursuant to the course of dealings among Seller, Wall Data, and certain
of Seller's vendors who have provided to Seller supplies and services required
for Seller's fulfillment of its contract with Wall Data ("Wall Data Vendors"),
Seller is obligated and Wall Data may also be obligated to pay the Wall Data
Vendors for such supplies and services; c) that Wall Data has committed pursuant
to an Agreement Adjusting Receivable between Wall Data and Seller dated July 30,
1996 to pay the Wall Data Vendors the sum of $556,631 (the "Deduction Amount")
or to deduct such Deduction Amount from the accounts receivable it owes to
Seller; and d) that Wall Data's commitment referenced in clause (c) above
constitutes an event of default under Seller's financing arrangement with CAPCO
giving rise to CAPCO's rights to foreclose its security interest in the
Foreclosed Assets.
2. Seller hereby waives any and all rights it may have to receive notice of
default under RCW 62A Ch. 9 or the CAPCO financing arrangement or otherwise. 3.
Seller acknowledges CAPCO's right to take possession of the Foreclosed Assets
pursuant to RCW 62A.9-503 and CAPCO's right to sell the Foreclosed Assets at a
private sale pursuant to RCW 62A.9-504. 4. Seller acknowledges and agrees that
the method, manner, time, place, and terms of the sale of the Foreclosed Assets
in accordance with Section 2.2 below are commercially reasonable, and Seller
hereby renounces any right to notification of the sale. 5. In connection with
its guaranty of Seller's obligations under Seller's financing arrangement with
CAPCO, Parent hereby undertakes all of the foregoing acknowledgments in this
Section 2.1. 6. CAPCO hereby represents and warrants that, pursuant to its
financing arrangements with Seller, it has a perfected security interest in the
Foreclosed Assets and the proceeds thereof which security interest, to the best
knowledge of CAPCO, is a first priority security interest and that Seller is in
default under Seller's financing arrangement with CAPCO.
B. SALE OF FORECLOSED ASSETS
1. Pursuant to RCW 62A.9-504(3), CAPCO hereby sells to Buyer and Buyer hereby
buys the Foreclosed Assets as a purchaser in good faith for the Purchase Price
set forth in Section 4.1 below and in accordance with the other terms and
conditions of this Agreement. 2. At Closing, Buyer shall pay the Cash Amount (as
defined in Section 4.1.1) to CAPCO, and CAPCO shall apply that amount, in
accordance with RCW 62A.9-504(1) and the financing arrangement between Seller
and CAPCO, against the amount due and owing by Seller under its financing
arrangement with CAPCO. 3. The Deferred Amount (as defined in Section 4.1.2)
shall be paid to CAPCO as provided in Section 4.1.2 and applied by CAPCO, in
accordance with RCW 62A.9-504(1) and the financing arrangement between Seller
and CAPCO, against any amounts which remain due and owing by Seller under its
financing arrangement with CAPCO; PROVIDED, HOWEVER, that in the event that no
amounts remain due and owing by Seller under its financing arrangement with
CAPCO and CAPCO has acknowledged this fact in writing, the Deferred Amount shall
be paid to Seller as provided in Section 4.1.2.
4. Seller and Parent hereby agree to indemnify, hold harmless and, at the
discretion of CAPCO, defend CAPCO from any claim (whether or not suit is
instituted) by any person relating to the commercial reasonableness of the sale
of the Foreclosed Assets and the application of the Purchase Price from that
sale.
5. The Contract of Sale [and] Security Agreement between Seller and CAPCO and
the Guaranty by Parent of that agreement are not modified or amended in any
respect and remain in full force and effect. Furthermore, any declaration by
CAPCO of default by Seller under the Contract of Sale [and] Security Agreement
shall not be affected by the terms of this Agreement.
C. TRANSFER OF EQUIPMENT
At Closing, Seller shall transfer to Buyer and Buyer shall accept from Seller
the Equipment as payment in full of that certain promissory note in the
principal amount of Thirty Thousand Dollars ($30,000.00) dated July 9, 1996.
D. CAPCO'S PARTICIPATION
CAPCO has executed this Agreement only with respect to Article 2, Section 5.2.3
of Article 5 and Sections 12.2 through 12.7 and 12.9 through 12.14 of Article 12
and assumes no liability or obligation other than as set forth in those
Sections.
III. COVENANTS AND AGREEMENTS
A. COOPERATION
1. Prior to Closing, Seller shall have terminated the employment of each of its
present employees that Buyer has agreed to hire. Seller agrees that all
compensation or other benefits due such employees, including without limitation
accrued vacation pay, will be paid on or before August 2, 1996. 2. Seller
agrees, at no cost to Buyer, to assist Buyer for a thirty (30) day period after
Closing by working with Seller's customers listed on Exhibit 3.1.2 ("Customers")
to preserve their goodwill for Buyer's benefit. Seller shall cause its employee,
Colin Aldworth, to be available to provide such assistance to Buyer. Colin
Aldworth shall not be required to work full time, but shall be available on
reasonable notice to provide such assistance.
B. NOT TO SUE
Seller and Parent hereby agree that neither Seller nor Parent shall at any time
commence, prosecute, or cause or permit to be prosecuted any action at law or in
equity, or any proceeding of any description in any court against Buyer, its
representatives, stockholders, controlling persons or affiliates, arising,
directly or indirectly, from or in connection with Buyer's hiring of Seller's
employees, Buyer's solicitation of Customers and Buyer's use of Seller's
information in connection with the foregoing.
C. NONCOMPETE
1. For a period of three (3) years following Closing, neither Seller nor Parent
nor any of their affiliates shall engage, whether directly or indirectly and
whether or not for compensation, in any business or activity previously carried
on by Seller within Washington without the written consent of Buyer. For
purposes of the foregoing, an activity previously carried on by Seller means the
business of software disk (floppy or CD-ROM) duplication and/or packaging and
assembly of disks and other software components. The foregoing shall not in any
fashion restrict Seller from disposing of its remaining assets in liquidation of
such assets or restrict Parent or its affiliates from undertaking activities of
the type currently undertaken by PDI or America's Print Source, Inc. If Parent
or any of its affiliates acquires a controlling interest in America's Print
Source, Inc., Parent shall not, and shall ensure that its affiliates and
America's Print Source, Inc. shall not, solicit customers currently served by
Buyer in the print brokerage business. 2. Buyer hereby agrees that for a period
of three (3) years after Closing Buyer shall not provide to Customers and the
entities controlled by such Customers its call center arena,
fulfillment/distribution services and inbound telemarketing services unless
Seller, Parent, PDI or the entity which acquires rights to SPECTRA and agrees to
continue providing such services to Customers has failed to perform such
services to industry standards or has failed to provide pricing consistent with
that prevailing in the industry. Buyer agrees that for a period of three (3)
years following Closing, Buyer shall not provide print brokerage services to
Wall Data for products supplied as of the date of Closing by America's Print
Source. 3. Because the amount of damage which will be suffered by a Breach of
the covenants of Sections 3.3.1 or 3.3.2 may be difficult or impossible to
calculate (but may be substantial), the nonbreaching party shall be entitled to
injunctive relief or specific performance in the event of such a Breach. The
remedies provided by this Section 3.3.3 shall be in addition to any other
remedies that may be available in law or equity.
IV. PURCHASE PRICE
A. AMOUNT
The total purchase price and consideration to be paid for the Assets and
covenants of Seller and Parent ("Purchase Price") shall be One Million Seventy
Three Thousand Seven Hundred Eighty-One Dollars ($1,073,781.00) as adjusted and
paid as follows: 1. At Closing, Buyer shall pay as provided in Section 2.2 and
subject to the provisions of Section 4.1.3 and 4.1.4, in cash (the "Cash
Amount") the sum of Eight Hundred Twenty Four Thousand Seven Hundred Eighty-One
Dollars ($824,781.00) less (i) $1,000 required to assume the lease, and (ii)
increased by the amount, if any, of the excess of the Inventory Value (as
defined below) at Closing over $589,401.00 or decreased by the amount, if any,
of the excess of $589,401.00 over the Inventory Value at Closing. The price
allocated to Inventory is an approximation as of July 16, 1996. On or before
Closing, Seller and Buyer shall jointly take and value the Inventory (the
"Inventory Value") at the lower (a) of cost or (b) of market; and 2. Buyer shall
pay as provided in Section 2.2 a deferred amount (the "Deferred Amount") equal
to Two Hundred Forty Nine Thousand Dollars ($249,000.00), with no interest, in
four (4) equal payments of principal of Sixty Two Thousand Two Hundred Fifty
Dollars ($62,250.00) beginning thirty (30) days following the date on which
Buyer generates Eight Million Dollars ($8,000,000.00) in gross sales to
Customers, with payment installments to be made in equal intervals through to
December 31, 1997, with the last installment due on December 31, 1997; provided,
however, if Buyer has not breached an agreement with a major Customer and has
performed to industry standards and has provided pricing consistent with that
prevailing in the industry and has not generated Eight Million Dollars
($8,000,000.00) in gross sales to Customers as of June 30, 1997, but has
generated gross sales of at least Five Million Dollars ($5,000,000.00), then the
Deferred Amount shall be equal to Two Hundred Forty Nine Thousand Dollars
($249,000.00) multiplied by a fraction, the numerator of which is the excess of
the amount of such gross sales over Five Million Dollars ($5,000,000.00) and the
denominator of which is Three Million Dollars ($3,000,000.00), and such Deferred
Amount shall be paid in four equal payments on August 1, 1997; September 20,
1997; November 10, 1997 and December 31, 1997. If Buyer has not generated Eight
Million Dollars ($8,000,000.00) in gross sales to Customers as of June 30, 1997
and has breached an agreement with a major Customer or not performed to industry
standards or not priced consistent with prices prevailing in the industry or has
otherwise stopped providing such services to Customers, then Buyer shall pay the
Deferred Amount in four (4) equal quarterly payments of Sixty Two Thousand Two
Hundred Fifty Dollars ($62,250.00) on August 1, 1997; September 20, 1997;
November 10, 1997; and December 31, 1997. In the event Buyer fails to make a
payment when due, or in the event of Buyer's insolvency or bankruptcy or the
like, at Seller's option, the entire Deferred Amount shall become due and
payable. With respect to customers that, prior to this Agreement were served by
both parties, gross sales to customers shall not include sales of types of
products and services that, prior to this Agreement, were sold to Customers by
Buyer and were not sold to Customers by Seller. 3. Seller shall within five (5)
days after Closing make a return and pay any tax owed as a result of Seller's
operation of its business prior to Closing, and Buyer, at its sole option, may
notify the Washington Department of Revenue of its purchase of the Assets
pursuant to WAC 458-20-216. 4. For purposes of allowing Seller to determine
Buyer's compliance with the provisions of Section 4.1.2, Buyer shall give to
Seller reasonable access, on reasonable prior notice, to Buyer's sales records
relating to sales to Customers, provided that Seller maintains all such records
and information in confidence.
B. ALLOCATION
The Purchase Price shall be allocated as follows:
Inventory $673,100
Covenants Not to Sue or Compete $100,000
Other Assets and Applicable Contracts $300,681
The parties acknowledge that such allocations were determined pursuant to arm's
length bargaining regarding the fair market values of the Assets in accordance
with the provisions of Code Section 1060. The parties agree to be bound by the
allocations set forth in the Price Allocation Schedule for all federal, state
and local tax purposes, including for purposes of determining any income, gain,
loss, depreciation or other deductions in respect of such assets. The parties
further agree to prepare and file all Tax Returns (including Form 8594 under the
Code) in a manner consistent with such allocations and will not take any
position contrary to such allocations in any administrative or judicial
proceeding. Notwithstanding the immediately preceding two sentences, if the
Internal Revenue Service, or some other governmental taxing authority,
challenges the allocations contained in the Price Allocation Schedule in any
administrative or judicial proceeding, the Seller or the Buyer, as the case may
be, shall be allowed to settle or compromise such dispute in such manner as that
party determines to be practicable, irrespective of whether such settlement is
contrary to the specific terms of the Price Allocation Schedule regarding
purchase price allocations; provided, however, that such settlement or
compromise shall not relieve the settling or compromising party from any of its
obligations under Section 7 of this Agreement. This Section is solely for tax
purposes and is subject to the concurrence of Grant, Thornton L.L.P.
V. CLOSING
A. CLOSING
The purchase and sale (the "Closing") provided for in this Agreement will take
place at the offices of Buyer's counsel at 3000 First Interstate Center, 999
Third Avenue, Seattle, Washington 98104, at 3:00 p.m. (local time) on July 30,
1996, or at such other time and place as the parties may agree. Subject to the
provisions of Section 9, failure to consummate the purchase and sale provided
for in this Agreement on the date and time and at the place determined pursuant
to this Section 3.1 will not result in the termination of this Agreement and
will not relieve any party of any obligation under this Agreement.
B. CLOSING OBLIGATIONS
At the Closing:
1. Seller will deliver to Buyer:
a) Bills of sale for the Equipment in the form attached hereto as Exhibit 5.2.1;
b) Assignments, consents and all other documentation required to transfer the
Applicable Contracts to Buyer; and
2. Buyer will deliver:
a) An amount equal to that required pursuant to Section 4.1.1. by cashier's
check to CAPCO; and
b) Resale and other certificates to benefit from sales and use tax exemptions,
and with respect to the Equipment, if it does not qualify as manufacturing
equipment, the amount of sales tax to be collected by Seller, payable by check
to the Department of Revenue.
3. CAPCO will deliver to Buyer:
(a) A Bill of Sale for the Foreclosed Assets in the form attached hereto as
Exhibit 5.2.3.
VI. REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Parent jointly and severally represent and warrant to Buyer as
follows:
A. ORGANIZATION AND GOOD STANDING
1. Seller is a limited liability company duly organized, validly existing, and
in good standing under the laws of Washington, with full power and authority to
conduct its business as it is now being conducted, to own or use the properties
and assets that it purports to own or use, and to perform all its obligations
under Applicable Contracts.
B. AUTHORITY; NO CONFLICT
1. This Agreement constitutes the legal, valid, and binding obligation of Seller
and Parent, enforceable against Seller and Parent in accordance with its terms.
Seller and Parent each have the absolute and unrestricted right, power,
authority, and capacity to execute and deliver this Agreement and to perform
their obligations under this Agreement. 2. Neither the execution and delivery of
this Agreement nor the consummation or performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time):
a) Contravene, conflict with, or result in a violation of (A) any provision of
the Organizational Documents of Seller or Parent, or (B) any resolution adopted
by the board of directors, or stockholders or members of Seller or Parent; b)
Contravene, conflict with, or result in a violation of, or give any Governmental
Body or other Person the right to challenge any of the Contemplated Transactions
or to exercise any remedy or obtain any relief under, any Legal Requirement or
any Order to which either Seller or Parent, or any of the Assets, may be
subject; c) Contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by Seller or that otherwise relates to the business of, or any of
the Assets;
d) Cause Buyer or Seller to become subject to, or to become liable for the
payment of, any Tax;
e) Cause any of the Assets to be reassessed or revalued by any taxing authority
or other Governmental Body;
f) Contravene, conflict with, or result in a violation or breach of any
provision of, or give any Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or g) Result in the imposition or
creation of any Encumbrance upon or with respect to any of the Assets.
Neither Seller nor Parent is or will be required to give any notice to or obtain
any Consent from any Person in connection with the execution and delivery of
this Agreement or the consummation or performance of any of the Contemplated
Transactions.
C. ENCUMBRANCES TITLE TO PROPERTIES;
Subject to Buyer's security interest in the Equipment, Seller has good and
marketable title to the Equipment, free and clear of all Encumbrances, and such
Equipment is not subject to any agreement for its sale to, or use by, third
parties. Pursuant to RCW 62A.9-504(4)(b), Buyer will have title to the
Foreclosed Assets free and clear of any security interest or lien of CAPCO and
any security interest or lien subordinate thereto.
D. INVENTORY
All Inventory consists of a quality and quantity usable and salable in the
Ordinary Course of Business. CAPCO has a perfected and enforceable first
priority security interest in the Foreclosed Assets.
E. TAXES
1. Seller has filed or caused to be filed all Tax Returns that are or were
required to be filed by or with respect to it pursuant to applicable Legal
Requirements. Seller has paid, or made provision for the payment of, all Taxes
that have or may have become due pursuant to those Tax Returns or otherwise, or
pursuant to any assessment received by Seller. There exists no proposed tax
assessment against Seller. All Taxes that Seller is or was required by Legal
Requirements to withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper Governmental Body or other
Person. 2. All Tax Returns filed by Seller are true, correct, and complete.
F. NO MATERIAL ADVERSE CHANGE
Since the date of the Letter of Intent, there has not been any material adverse
change in Seller's relationships with Customers, and Seller has not made an
assignment for the benefit of creditors, or commenced or had commenced against
it any proceeding in bankruptcy, insolvency, or reorganization pursuant to the
bankruptcy laws.
G. EMPLOYEE BENEFITS
Seller has performed all of its obligations to its employees that are to be
hired by Buyer.
COMPLIANCE WITH LEGAL REQUIREMENTS; GOVERNMENTAL
Seller is and has been in full compliance with each material Legal Requirement
that is or was applicable to it or to the use of any of the Assets.
H. LEGAL PROCEEDINGS; ORDERS
1. Except for the declaration of default by CAPCO, there is no pending
Proceeding that has been commenced by or against Seller or that otherwise
relates to or may affect any of the Assets and that challenges, or that may have
the effect of preventing, delaying, making illegal, or otherwise interfering
with, any of the Contemplated Transactions. To the best of Seller's knowledge,
Exhibit 6.9.1(a) contains a complete list of all pending litigation against
Seller. To the Knowledge of Seller, (1) no such Proceeding has been Threatened,
and (2) no event has occurred or circumstance exists that may give rise to or
serve as a basis for the commencement of any such Proceeding. 2. There is no
Order to which Seller or any of the Assets is subject, and Seller is not subject
to any Order that relates to the Assets. 3. Seller is in full compliance with
all of the terms and requirements of each Order to which it, or any of the
Assets, is or has been subject; no event has occurred or circumstance exists
that may constitute or result in (with or without notice or lapse of time) a
violation of or failure to comply with any term or requirement of any Order to
which Seller or any of the Assets is subject; and Seller has not received any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding any actual, alleged, possible, or potential
violation of, or failure to comply with, any term or requirement of any Order to
which Seller or any of the Assets is or has been subject.
I. ABSENCE OF CERTAIN CHANGES AND EVENTS
Since the date of the Letter of Intent and subject to preparation for the
transactions contemplated by this Agreement, Seller has conducted its business
only in the Ordinary Course of Business and there has not been any:
1. Sale (other than sales in the Ordinary Course of Business), lease, or other
disposition of any Asset or mortgage, pledge, or imposition of any lien or other
encumbrance on any Asset; 2. Agreement, whether oral or written, by Seller to do
any of the foregoing.
J. CONTRACTS; NO DEFAULTS
1. Exhibit 1.1 contains a complete and accurate list, and Seller has delivered
to Buyer true and complete copies, of each Applicable Contract. 2. Seller is,
and at all times has been, in full compliance with all material applicable terms
and requirements of each Applicable Contract each other Person that has or had
any obligation or liability under any Applicable Contract under which Seller has
or had any rights is in full compliance with all material applicable terms and
requirements of such Applicable Contract; no event has occurred or circumstance
exists that (with or without notice or lapse of time) may contravene, conflict
with, or result in a violation or breach of, or give Seller or any other Person
the right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any
Applicable Contract; and Seller has not given to or received from any other
Person any notice or other communication (whether oral or written) regarding any
actual, alleged, possible, or potential violation or breach of, or default
under, any Applicable Contract.
EMPLOYEES As of Closing, Seller shall have no deferred payment or other
obligation due to any employees that will be hired by Buyer.
K. LABOR RELATIONS; COMPLIANCE
Seller has not been and is not a party to any collective bargaining or other
labor agreement.
L. DISCLOSURE
1. No representation or warranty of Seller in this Agreement omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading.
2. No notice given pursuant to Section 5.5 will contain any untrue statement or
omit to state a material fact necessary to make the statements therein or in
this Agreement, in light of the circumstances in which they were made, not
misleading. 3. There is no fact known to Seller that has specific application to
either Seller or the Assets (other than general economic or industry conditions)
and that materially adversely affects the Assets.
M. BROKERS OR FINDERS
Seller, Parent and their agents have incurred no obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
VII. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
A. ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing, and in good standing
under the laws of the State of Washington.
B. AUTHORITY; NO CONFLICT
1. This Agreement constitutes the legal, valid, and binding obligation of Buyer,
enforceable against Buyer in accordance with its terms. Buyer has the absolute
and unrestricted right, power, and authority to execute and deliver this
Agreement and to perform its obligations under this Agreement. 2. Neither the
execution and delivery of this Agreement by Buyer nor the consummation or
performance of any of the Contemplated Transactions by Buyer will give any
Person the right to prevent, delay, or otherwise interfere with any of the
Contemplated Transactions pursuant to: a) Any provision of Buyer's
Organizational Documents; b) Any resolution adopted by the board of directors or
the stockholders of Buyer; c) Any Legal Requirement or Order to which Buyer may
be subject; or d) Any Contract to which Buyer is a party or by which Buyer may
be bound.
Buyer is not and will not be required to obtain any Consent from any Person in
connection with the execution and delivery of this Agreement or the consummation
or performance of any of the Contemplated Transactions.
C. CERTAIN PROCEEDINGS
There is no pending Proceeding that has been commenced against Buyer and that
challenges, or may have the effect of preventing, delaying, making illegal, or
otherwise interfering with, any of the Contemplated Transactions. To Buyer's
Knowledge, no such Proceeding has been Threatened.
D. BROKERS OR FINDERS
Buyer and its agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
VIII. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE
Buyer's obligation to purchase the Assets and to take the other actions required
to be taken by Buyer at the Closing is subject to the satisfaction, at or prior
to the Closing, of each of the following conditions (any of which may be waived
by Buyer, in whole or in part):
A. ACCURACY OF REPRESENTATIONS
All of the representations and warranties of Seller and Parent in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date.
B. SELLER'S PERFORMANCE
All of the covenants and obligations that Seller and Parent, or either of them,
are required to perform or to comply with pursuant to this Agreement at or prior
to the Closing (considered collectively), and each of these covenants and
obligations (considered individually), must have been duly performed and
complied with in all material respects.
C. ADDITIONAL DOCUMENTS
Each of the following documents must have been delivered to Buyer:
1. An opinion of Preston Gates & Ellis, dated the Closing Date, in the form of
Exhibit 8.3.1;
2. Certified copies of approval of the members of Seller to this Agreement and
the Contemplated Transactions; 3. A certified copy of the approval of the board
of directors of Parent to this Agreement and the Contemplated Transactions; 4.
Such other documents as Buyer may reasonably request for the purpose of (i)
evidencing the accuracy of any of Seller' representations and warranties, (ii)
evidencing the performance by either Seller of, or the compliance by either
Seller with, any covenant or obligation required to be performed or complied
with by such Seller, (iii) evidencing the satisfaction of any condition referred
to in this Section 8, or (iv) otherwise facilitating the consummation or
performance of any of the Contemplated Transactions.
D. NO PROCEEDINGS
Since the date of this Agreement, there must not have been commenced or
Threatened against Buyer, or against any Person affiliated with Buyer, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
E. NO CLAIM REGARDING ASSET OWNERSHIP OR SALE PROCEEDS
Other than CAPCO's declaration of default, there must not have been made or
Threatened by any Person any claim asserting that such Person (a) is the holder
or the beneficial owner of, or has the right to acquire or to obtain beneficial
ownership of, the Assets or (b) is entitled to all or any portion of the
Purchase Price.
F. NO PROHIBITION
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Buyer or any Person affiliated with Buyer to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
G. SPECTRA AGREEMENTS
Buyer and Prism Direct, Inc. ("PDI") shall have executed agreements satisfactory
to Buyer in Buyer's sole discretion (a) for provision of PDI's services, using
SPECTRA, to Customers and (b) for the use of the SPECTRA software to support
manufacturing for Customers in connection with PDI services and to provide
PDI-type services for Customers if PDI ceases business operations as provided in
that Agreement.
IX. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE
Seller's obligation to sell the Assets and to take the other actions required to
be taken by Seller at the Closing is subject to the satisfaction, at or prior to
the Closing, of each of the following conditions (any of which may be waived by
Seller, in whole or in part):
A. ACCURACY OF REPRESENTATIONS
All of Buyer's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
B. BUYER'S PERFORMANCE
All of the covenants and obligations that Buyer is required to perform or to
comply with pursuant to this Agreement at or prior to the Closing (considered
collectively), and each of these covenants and obligations (considered
individually), must have been performed and complied with in all material
respects.
C.. NO INJUNCTION
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the sale of the Assets by Seller to Buyer, and (b) has
been adopted or issued, or has otherwise become effective, since the date of
this Agreement.
D. SPECTRA AGREEMENT
Buyer and PDI shall have executed an agreement for provision of PDI's services,
using SPECTRA, to Customers.
X. TERMINATION
A. TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be terminated:
1. By either Buyer or Seller if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
waived; 2. By Buyer if any of the conditions in Section 8 has not been satisfied
as of the Closing Date or if satisfaction of such a condition is or becomes
impossible (other than through the failure of Buyer to comply with its
obligations under this Agreement) and Buyer has not waived such condition on or
before the Closing Date; or by Seller, if any of the conditions in Section 9 has
not been satisfied of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Seller to comply with
its obligations under this Agreement) and Seller has not waived such condition
on or before the Closing Date; 3. By mutual consent of Buyer and Seller; or 4.
By either Buyer or Seller if the Closing has not occurred (other than through
the failure of any party seeking to terminate this Agreement to comply fully
with its obligations under this Agreement) on or before August 1, 1996, or such
later date as the parties may agree upon.
B. EFFECT OF TERMINATION
Each party's right of termination under Section 10.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 10.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.1 and 11.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
XI. INDEMNIFICATION; REMEDIES
A. SURVIVAL; RIGHT TO INDEMNIFICATION NOT AFFECTED BY
All representations, warranties, covenants, and obligations in this Agreement,
the certificates delivered pursuant to Sections 5.2.1(c) and 5.2.2(b), and any
other certificate or document delivered pursuant to this Agreement will survive
the Closing. The right to indemnification, payment of Damages or other remedy
based on such representations, warranties, covenants, and obligations will not
be affected by any investigation conducted with respect to, or any Knowledge
acquired (or capable of being acquired) at any time, whether before or after the
execution and delivery of this Agreement or the Closing Date, with respect to
the accuracy or inaccuracy of or compliance with, any such representation,
warranty, covenant, or obligation. The waiver of any condition based on the
accuracy of any representation or warranty, or on the performance of or
compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations. B. INDEMNIFICATION AND
PAYMENT OF DAMAGES BY SELLER AND PARENT
Seller and Parent, jointly and severally, will indemnify and hold harmless Buyer
and its Representatives, stockholders, controlling persons, and affiliates
(collectively, the "Indemnified Persons") for, and will pay to the Indemnified
Persons the amount of, any loss, liability, claim, damage (excluding
consequential damages), expense (including costs of investigation and defense
and reasonable attorneys' fees) or diminution of value, whether or not involving
a third-party claim (collectively, "Damages"), arising, directly or indirectly,
from or in connection with: 1. Any Breach of any representation or warranty made
by Seller or Parent in this Agreement or any other certificate or document
delivered by Seller or Parent pursuant to this Agreement; 2. Any Breach by
either Seller or Parent of any covenant or obligation of Seller or Parent in
this Agreement; 3. Any claim by any Person for brokerage or finder's fees or
commissions or similar payments based upon any agreement or understanding
alleged to have been made by any such Person with either Seller or Parent (or
any Person acting on their behalf) in connection with any of the Contemplated
Transactions. The remedies provided in this Section 11.2 will not be exclusive
of or limit any other remedies that may be available to Buyer or the other
Indemnified Persons.
C. INDEMNIFICATION AND PAYMENT OF DAMAGES BY BUYER
Buyer will indemnify and hold harmless Seller, and will pay to Seller the amount
of any Damages arising, directly or indirectly, from or in connection with (a)
any Breach of any representation or warranty made by Buyer in this Agreement or
in any certificate delivered by Buyer pursuant to this Agreement, (b) any Breach
by Buyer of any covenant or obligation of Buyer in this Agreement, or (c) any
claim by any Person for brokerage or finder's fees or commissions or similar
payments based upon any agreement or understanding alleged to have been made by
such Person with Buyer (or any Person acting on its behalf) in connection with
any of the Contemplated Transactions.
RIGHT OF SET-OFF
Upon notice to Seller specifying in reasonable detail the basis for such
set-off, Buyer may set off any amount to which it may be entitled under this
Section 11 against amounts otherwise payable under Section 4.1.2. The exercise
of such right of set-off by Buyer in good faith, whether or not ultimately
determined to be justified, will not constitute an event of default under this
Agreement. Neither the exercise of nor the failure to exercise such right of
set-off will constitute an election of remedies or limit Buyer in any manner in
the enforcement of any other remedies that may be available to it.
D. PROCEDURE FOR INDEMNIFICATION--THIRD PARTY CLAIMS
1. Promptly after receipt by an indemnified party under Section 11.2 or 11.3 of
notice of the commencement of any Proceeding against it, such indemnified party
will, if a claim is to be made against an indemnifying party under such Section,
give notice to the indemnifying party of the commencement of such claim, but the
failure to notify the indemnifying party will not relieve the indemnifying party
of any liability that it may have to any indemnified party, except to the extent
that the indemnifying party demonstrates that the defense of such action is
prejudiced by the indemnifying party's failure to give such notice. 2. If any
Proceeding referred to in Section 11.5.1 is brought against an indemnified party
and it gives notice to the indemnifying party of the commencement of such
Proceeding, the indemnifying party will be entitled to participate in such
Proceeding and, to the extent that it wishes (unless (i) the indemnifying party
is also a party to such Proceeding and the indemnified party determines in good
faith that joint representation would be inappropriate, or (ii) the indemnifying
party fails to provide reasonable assurance to the indemnified party of its
financial capacity to defend such Proceeding and provide indemnification with
respect to such Proceeding), to assume the defense of such Proceeding with
counsel satisfactory to the indemnified party and, after notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such Proceeding, the indemnifying party will not, as long as it
diligently conducts such defense, be liable to the indemnified party under this
Section 11 for any fees of other counsel or any other expenses with respect to
the defense of such Proceeding, in each case subsequently incurred by the
indemnified party in connection with the defense of such Proceeding, other than
reasonable costs of investigation. If the indemnifying party assumes the defense
of a Proceeding,(i) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (ii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to an
indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party. 3. Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld). 4. Seller and Parent hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding is brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters alleged
therein, and agree that process may be served on Seller or Parent with respect
to such a claim anywhere in the world.
E. PROCEDURE FOR INDEMNIFICATION--OTHER CLAIMSER CLAIMS
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
XII. GENERAL PROVISIONS
A. EXPENSES
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. In the event of termination of this Agreement, the
obligation of each party to pay its own expenses will be subject to any rights
of such party arising from a breach of this Agreement by another party. In the
event of any litigation arising out of or in connection with this Agreement
(including without limitation, appeals), the prevailing party shall be entitled
to recover from the other its reasonable attorneys' fees and costs.
Notwithstanding any provision herein to the contrary, CAPCO shall be entitled to
recover from Seller its collection costs and expenses pursuant to the financing
arrangement between Seller and CAPCO.
B. PUBLIC ANNOUNCEMENTS
Subject to applicable Legal Requirements, any public announcement or similar
publicity with respect to this Agreement or the Contemplated Transactions will
be issued, if at all, at such time and in such manner as Buyer determines
following prior consultation with Seller. Unless consented to by Buyer in
advance or required by Legal Requirements, prior to the Closing Seller shall
keep this Agreement strictly confidential and may not make any disclosure of
this Agreement to any Person. Seller and Buyer will consult with each other
concerning the means by which Seller's employees, customers, and suppliers and
others having dealings with Seller will be informed of the Contemplated
Transactions, and Buyer will have the right to be present for any such
communication.
C. CONFIDENTIALITY
Between the date of this Agreement and the Closing Date, Buyer and Seller will
maintain in confidence, and will cause the directors, officers, employees,
agents, and advisors of Buyer and Seller to maintain in confidence any written
information stamped "confidential" when originally furnished by another party in
connection with this Agreement or the Contemplated Transactions whether before
or after its execution, unless (a) such information is already known to such
party or to others not bound by a duty of confidentiality or such information
becomes publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Contemplated
Transactions, or (c) the furnishing or use of such information is required by
legal proceedings.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request and shall not use or disclose such information.
D. NOTICES
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
Seller: Prism Software Production L.L.C./Prism Group, Inc.
15530 Woodinville-Redmond Road
Woodinville, WA 98072-6930
Attention: N.M. (Joe) Morris
Facsimile No.: (206) 402-3110
with a copy to: Preston Gates & Ellis
5000 Columbia Seafirst Center
701 Fifth Avenue
Seattle, WA 98104
Attention: Stephan H. Coonrod/Margaret Niles
Facsimile No.: (206) 623-7022
Buyer: Pac Services, Inc.
17735 N.E. 65th Street
Redmond, WA 98052
Attention: Catherine K. Boshaw
Facsimile No.: (206) 869-9779
with a copy to: Short Cressman & Burgess P.L.L.C.
3000 First Interstate Center
999 Third Avenue
Seattle, WA 98104-4088
Attention: Susan Thorbrogger
Facsimile No.: (206) 340-8856
CAPCO: CAPCO Financial Company, Inc.
720 Sixth Street South
Suite 200
P.O. Box 2394
Kirkland, WA 98083
Attention: Steven M. Shaughnessy
Facsimile No.: (206) 827-7870
with a copy to: Adolph & Bintinger, P.S.
701 Fifth Avenue
Suite 7100
Seattle, WA 98104
Attention: Paul M. Bintinger
Facsimile No.: (206) 682-3203
E. JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of Washington, County of King, and each of the
parties consents to the jurisdiction of such court (and of the appropriate
appellate court) in any such action or proceeding and waives any objection to
venue laid therein. Process in any action or proceeding referred to in the
preceding sentence may be served on any party anywhere in the world.
F. FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
G. WAIVER
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
H. ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter (including the Letter of Intent) and constitutes (along
with the documents referred to in this Agreement) a complete and exclusive
statement of the terms of the agreement between the parties with respect to its
subject matter. This Agreement may not be amended except by a written agreement
executed by the party to be charged with the amendment. Notwithstanding any
provision herein to the contrary, this Agreement shall not amend, modify or
otherwise affect any agreement related to the financing arrangement between
Seller and CAPCO.
I. ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties, provided that Seller may assign its rights
under Section 4.1.2, subject at all times to Buyer's set-off rights. Subject to
the preceding sentence, this Agreement will apply to, be binding in all respects
upon, and inure to the benefit of the successors and permitted assigns of the
parties. Nothing expressed or referred to in this Agreement will be construed to
give any Person other than the parties to this Agreement any legal or equitable
right, remedy, or claim under or with respect to this Agreement or any provision
of this Agreement. This Agreement and all of its provisions and conditions are
for the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
J. SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
K. SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for convenience only and
will not affect its construction or interpretation. All references to "Section"
or "Sections" refer to the corresponding Section or Sections of this Agreement.
All words used in this Agreement will be construed to be of such gender or
number as the circumstances require. Unless otherwise expressly provided, the
word "including" does not limit the preceding words or terms.
L. TIME OF ESSENCE
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
M. GOVERNING LAW
This Agreement will be governed by the laws of the State of Washington without
regard to conflicts of laws principles.
N. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of
the date first written above.
BUYER: SELLER:
PAC SERVICES, INC. PRISM SOFTWARE PRODUCTION L.L.C.
By: PRISM GROUP, INC., Manager
By:
Title: By: N.M. Morris
Title: President
CAPCO: PARENT:
CAPCO FINANCIAL COMPANY, INC. PRISM GROUP, INC.
By: By:
Title: Title:
10.33 Master Services Agreement by and between Pac Services, Inc. and Prism
Direct, Inc.
MASTER SERVICES AGREEMENT
This Master Services Agreement ("Agreement") is entered into this 30th day of
July, 1996 by and between Prism Direct, Inc. ("PDI"), a Washington corporation
with principal offices at 15530 Woodinville-Redmond Road, Woodinville,
Washington 98072-6930, and Pac Services, Inc. ("PAC"), a Washington corporation
with principal offices at 17735 NE 65th Street, Redmond, Washington 98052.
1. Recitals.
1.1 PAC. PAC provides software duplication and manufacturing services to clients
in the software industry. Pursuant to that certain Asset Purchase Agreement of
even date herewith among PAC, Prism Group, Inc. ("Prism"), and Prism Software
Production, L.L.C. ("PSP"), the latter two of which are affiliates of PDI, PAC
has acquired certain assets of PSP used in software manufacturing, and PAC
expects to provide software manufacturing services to certain parties that
formerly obtained software manufacturing services from PSP. 1.2 PDI. PDI
provides shipping, fulfillment, and telephone sales services, as more fully
described below ("Services"). Prior to the execution of the Asset Purchase
Agreement, PDI provided Services directly to some of the clients that obtained
software manufacturing services from PSP. 1.3 SPECTRA. PDI provides the Services
using its proprietary software known as SPECTRA (TM). In connection with
providing the Services to clients, PDI grants limited purpose licenses of
SPECTRA labeling and bar-code modules to software manufacturers that provide
manufacturing services to clients that obtain the Services of PDI. 1.4 Purposes
of Agreement. The parties to this Agreement desire for PDI to continue to
provide Services directly to the former clients of PSP, which are henceforth to
obtain manufacturing services from PAC rather than PSP. In addition, PAC desires
to use PDI's Services and PDI desires to provide Services to PAC to support
PAC's manufacturing for clients other than those formerly served by PSP. In both
scenarios, PDI desires to grant to PAC and PAC desires to receive the limited
purpose license to SPECTRA that is necessary to enable PAC efficiently to
coordinate its manufacturing services with the Services to be provided by PDI.
Furthermore, the parties desire to cooperate with one another so as to better
serve their mutual clients. The purposes of this Agreement are to describe the
Services to be provided by PDI to PAC and other aspects of the relationship
between PDI and PAC, to grant the SPECTRA license, and to establish a framework
for future expansion of services to be provided by PDI to PAC and clients. 2.
Scope of Services. The Services are generally described in Addendum A, which is
attached to and incorporated in this Agreement. However, the particular Services
to be provided may vary from one Client to another, as described in Section 3
below. 3. Nature of Relationships. PDI provides Services through two types of
relationships, as follows: 3.1 Services to PDI Clients. Pursuant to agreements
in place as of the date of this Agreement, as the same may be modified from time
to time, and pursuant to agreements to be executed in the future, PDI provides
Services directly to clients. These clients of PDI include software producers
that previously obtained software manufacturing services from PSP, and include
software producers who currently obtain software manufacturing services from PAC
as well as from other services providers. The clients of PDI that are covered by
this Agreement are only those clients of PDI that also are clients of PAC and
were previously clients of PSP ("PDI Clients"). The particular Services to be
provided to each PDI Client are described more fully in the respective
agreements between PDI and each PDI Client. PDI Clients pay PDI directly for
such Services in accordance with the terms of the respective agreements. 3.2
Services to PAC. PDI may also provide Services to and for the benefit of clients
of PAC ("PAC Clients") in accordance with the terms of this Agreement. The
particular Services to be provided to each PAC Client are described more fully
in the respective agreement between PAC and each PAC Client, subject to the
approval of PDI as provided in Section 4.1 below. PAC may pay PDI for such
Services as provided in Section 4.3 below, or PDI may be paid directly by the
PAC Clients.
4. Procedures for PAC Clients.
4.1 In General. PAC will enter into separate service agreements with individual
PAC Clients ("PAC Client Agreements") covering the entire scope of services to
be provided by PAC, including the Services to be provided by PDI as an outsource
provider pursuant to this Agreement. With respect to each PAC Client Agreement,
PDI and PAC shall negotiate as to the scope of the Services to be provided by
PDI and the price to be paid by PAC, or by mutual agreement between PAC and PDI,
by the PAC Client, to PDI for such Services. PDI shall be obligated to provide
Services to PAC with respect to any PAC Client Agreement only upon PDI's
approval in writing of an appropriate rider to be attached to and incorporated
in this Agreement. The scope of services and related pricing schedule for each
PAC Client Agreement are subject to review after the first ninety (90) days
following execution of the PAC Client Agreement. 4.2 Pricing. All prices are
negotiated on a case by case basis depending on the scope of the Services to be
provided to the PAC Client. 4.3 Payment Terms. The following payment terms shall
apply with respect to all PAC Clients: 4.3.1 PDI may require new PAC Clients to
pay reasonable set-up charges, as appropriate.
4.3.2 PDI will bill PAC, or, by mutual agreement between PAC and PDI, PAC
Clients, for ongoing service fees on a weekly basis with terms of net thirty
(30) days. PDI will bill freight charges on a weekly basis under a separate
invoice with terms of net seven (7) days. In both cases, the weekly billing
schedule will be 1st-7th, 8th-14th, 15th-21st, 22nd through the last day of the
month. 4.3.3 PDI may cease providing Services with respect to any PAC Client
Agreement and may retain all funds paid to date or assets held by PDI if PAC or
PAC Clients fail timely to make any payment required with respect to a PAC
Client Agreement. All fees, costs, and expenses shall be payable to PDI
according to the schedule described above. In addition to all other remedies
available under this Agreement and at law or in equity, PDI reserves the right
to charge 1 1/2% per month (18% per annum) interest on all unpaid amounts that
are in excess of thirty (30) days past due.
5. Procedures for PDI Clients.
5.1 In General. PDI and PAC will each enter into an agreement with each PDI
Client regarding the services to be provided by each party to such PDI Client.
The parties shall in good faith keep one another informed of any material
development or discussions between themselves and each PDI Client that may have
an impact on the PDI Client's relationship with the other party. Each party
shall separately and directly bill each PDI Client unless otherwise agreed. 5.2
Pricing. PDI's agreements with PDI Clients ("PDI Client Agreements") each
establish the price at which PDI shall provide the Services, and each allow for
pricing reviews from time to time and upon any renewal of an expiring PDI Client
Agreement. In the event PDI determines that a price increase is required under
any PDI Client Agreement, PDI shall provide PAC thirty (30) days notice of such
proposed price increase. PAC shall have the option to take on itself any portion
or all of the proposed increase so as to minimize or eliminate the increase
required to be paid by the PDI Client to PDI and thereby to enhance PAC's
relationship with the affected PDI Client. PAC shall exercise such option by
giving notice to PDI at any time prior to expiration of the thirty (30) day
period. PDI will provide to PAC for review such supporting or relevant
information as reasonably requested by PAC. 5.3 Payment Terms. Upon PAC's
exercise of the option under Section 5.2, PDI shall thereafter create two bills
for each affected PDI Client Agreement, as follows: PDI shall bill the PDI
Client as previously, and PDI shall separately bill PAC for such amount as PAC
has undertaken to pay. Payment terms shall be consistent with PDI's practice
under Section 4.3, above. 5.4 Delinquent Accounts. PDI shall notify PAC of all
delinquent PDI Client accounts and, prior to any cessation of Services, shall
coordinate with PAC so as to minimize any disruption to PAC. 5.5 Software
Manufacturer of Preference. PDI agrees that PAC shall be its preferred software
manufacturer and that, when appropriate circumstances arise, PDI shall refer new
clients to PAC with respect to such new clients' needs for software
manufacturing or any other services provided by PAC. Notwithstanding anything in
this Agreement to the contrary, PDI may deal directly with any new client to
which PDI commences providing Services, and may provide Services to clients who
are not also obtaining software manufacturing services from PAC.
6. Dedicated Representatives.
6.1 PDI Account Manager. PDI shall appoint one qualified staff member ("PDI
Account Manager") who will (1) have authority to act for PDI; (2) submit
material and information requests to PAC as necessary to service mutual Clients;
(3) provide access to PDI's staff to answer questions; and (4) provide schedules
and plans to PAC for review and/or approval if and when necessary. PDI may
replace the PDI Account Manager at any time upon written notice to PAC. 6.2 PAC
Vendor Manager. PAC shall appoint one qualified staff member ("PAC Vendor
Manager"), who will (1) have authority to act for PAC and to make binding
decisions with respect to this Agreement; (2) review promptly information
supplied by PDI; (3) provide and assume responsibility for accuracy of PAC
information and data required by this Agreement; (4) provide access to PAC staff
to answer questions; and (5) provide training to PDI as necessary to provide
support for mutual Clients. PAC may replace the PAC Vendor Manager at any time
upon written notice to PDI. 7. Time of Essence. Time is of the essence of this
Agreement and of all requirements and requests by one party to the other for
information or other items necessary or appropriate for the efficient and timely
performance of PDI Client Agreements and PAC Client Agreements.
8. License to SPECTRA.
8.1 Grant of License. PDI hereby grants to PAC and PAC hereby accepts a
non-exclusive royalty-free license to use SPECTRA for the purposes set forth in
Section 8.2 below for the duration of this Agreement.
8.2 Permitted Uses. PAC may use the SPECTRA modules known as Assembly, Labeling,
and Maintenance. Assembly may be used to build and label pallets and
masterpacks, and to scan serial numbers into the system as containers are being
built if the product is serialized. Labeling may be used to generate product,
UPC, and serial number label, with SPECTRA providing format information, UPC
codes, and descriptions. Maintenance may be used to build products into SPECTRA,
including adding or subtracting part descriptions, serial flags, default
masterpack quantities, component parts, UPC codes, etc. PAC may use any other
SPECTRA module currently utilized by PSP in its manufacturing process.
8.3 Special Grants.
(a) For a period of three (3) years following the date of this Agreement, PAC
shall have the rights set forth in paragraph (d) below in the event PDI ceases
doing business as its business is described in Section 1.2 above. PDI shall not
be deemed to have ceased doing business if it has transferred all or
substantially all of its assets in accordance with paragraph (b) below. (b) For
a period of three (3) years following the date of this Agreement, PAC shall have
the rights set forth in paragraphs (c) and (d) below in the event PDI receives a
bona fide offer to transfer its business to an entity that conducts a subtantial
volume of software manufacturing in the State of Washington, conducts its
software manufacturing business primarily in the State of Washington, and is
headquartered in the State of Washington. For purposes of the previous sentence,
an offer to transfer PDI's business shall include any of the following events:
(i) A proposal for PDI to merge with a third party such that the company
resulting from such merger would no longer controlled by Prism Group, Inc.; or
(ii) An offer from a third party for PDI to sell all or substantially all of its
assets; or (iii) A proposal for Prism Group, Inc. to sell a controlling block of
its stock in PDI.
(c) PAC shall have the right of first refusal with respect to any offer to
transfer PDI's business. Upon receipt of a bona fide offer under paragraph (b)
and before consummating any such transaction, PDI shall give PAC a written
notice setting forth the proposed terms thereof ("Transfer Notice"). The
Transfer Notice shall include the indentity of the proposed transferree, any
consideration to be received by PDI, and all other material terms of the
proposed transfer. PAC shall have the option to undertake the proposed
transaction on the same terms and conditions as those proposed. If PAC elects to
exercise this option, PAC shall notify PDI within twenty (20) days following
receipt of Transfer Notice. If PAC fails timely to exercise the option, PDI may
then proceed at any time within ninety (90) days after delivering the Transfer
Notice to consummate the proposed transfer, but only on the precise terms
specified in the Transfer Notice. If the transfer is not consummated within the
ninety (90) day period, then PDI shall again become subject to all of the terms
of this paragraph (c). If PAC timely exercises the option, the transaction shall
be closed within forty-five (45) days after notice of the election is received
by PDI. (d) Upon the occurrence of an event set forth in paragraphs (a) or (b)
above, and if PAC fails to exercise the option set forth in paragraph (c) above,
then PAC shall have the option to receive, and PDI shall grant upon PAC's
exercise of such option within twenty (20) days of such event, a perpetual
non-exclusive royalty-free license to SPECTRA, including the source code, for
use solely in connection with PAC's software manufacturing for software producer
clients at PAC's facilities in the State of Washington. Such license shall not
include the right to provide third parties access to the source code. PAC shall
at all times use reasonable efforts to keep the SPECTRA software confidential.
PAC shall be responsible for paying all costs associated with the use of this
license, including costs associated with transferring any part of SPECTRA to
PAC.
8A. Noncompete.
8A.1. Agreement Not to Compete. For a period of three (3) years following the
date of this Agreement, PDI shall not engage, whether directly or indirectly and
whether or not for compensation, in any business or activity previously carried
on by PSP within the State of Washington without the written consent of PAC. For
purposes of the foregoing, an activity previously carried on by PSP means the
business of software disk (floppy or CD-ROM) duplication and/or packaging and
assembly of disks and other software components. The foregoing shall not in any
fashion restrict PDI from disposing of its assets in liquidation or restrict PDI
from continuing its current activities or undertaking activities of the type
currently undertaken by America's Print Source, Inc. If PDI acquires a
controlling interest in America's Print Source, Inc. at any time during such
three (3) year period, then PDI shall not, and shall ensure that America's Print
Source shall not, solicit customers currently served by PAC in the print
brokerage business as set fourth in Addendum C. 8A.2 Damages. Because the amount
of damage that will be suffered by a breach of the covenant set forth in Section
8A.1 may be difficult or impossible to calculate (but may be substantial), the
nonbreaching party shall be entitled to injunctive relief or specific
performance in the event of such a breach. The remedies provided by this Section
8A.2 shall be in addition to any other remedies that may be available in law or
equity. 8B. Fourth Shift MRP. PDI will install, maintain and support equipment
used in the operation of the Fourth Shift MRP module and will provide the right
to use the Fourth Shift MRP software on such equipment, as necessary for PAC to
service all accounts serviced by PSP using such equipment and software as of the
date of this agreement.
9. Confidential Information.
9.1 Nondisclosure; Permitted Uses. Each party shall keep confidential and not
disclose any confidential information it (the "Receiving Party") may receive
from the other party ("Disclosing Party") under this Agreement, including
without limitation information about PAC Clients, PDI Clients, and other clients
of either party; scripts, training materials, and other information about PDI's
system and Services; and trade secrets and other proprietary information of the
Disclosing Party, but not including information that is or hereafter becomes
known to the public through no fault of the Receiving Party, from and after the
date of such public disclosure. Confidential information may be used by the
Receiving Party only for the purposes of carrying out its rights and obligations
under this Agreement. 9.2 Return of Confidential Information. Upon the
Disclosing Party's request, the Receiving Party shall deliver to the Disclosing
Party all confidential information of the Disclosing Party, including all
documents, copies, and other items, of whatever media, comprising or containing
any such confidential information.
10. Inventory.
10.1 Ownership. To enable PDI to perform the Services, PAC will provide
inventory of PDI Clients and PAC Clients to PDI. PAC will deliver such inventory
to PDI at PAC's facilities and PDI shall be responsible for transportation of
such inventory to PDI's facilities. Unless informed by PAC to the contrary, all
such inventory is owned by the respective PDI Clients and PAC Clients, who may
remove inventory at any time except as provided otherwise in PDI Client
Agreements. PDI shall take such steps as may be reasonably requested by PAC or
Clients to confirm the ownership of such inventory, including by way of example
but without limitation, public notification of such ownership and cooperation in
the filing of UCC-1 financing statements for information purposes.
10.2 Insurance. PDI shall at all times during the term of this Agreement
maintain insurance on the inventory owned by PDI Clients and PAC Clients
substantially in accordance with the insurance policy attached to this Agreement
as Addendum C. 11. Limitation Of Liability. PDI's liability arising out of or in
connection with execution of this Agreement whether for breach of contract,
breach of warranty, or failure of essential purpose or otherwise, shall be
limited to the amount of the fees collected for the Services rendered for the
transaction(s) in question. PDI shall not be responsible or liable for loss of
business or consequential, indirect, or punitive damages for failure to provide
services . The foregoing limitations shall also apply to PDI's affiliated
companies and officers, directors and employees of PDI and such affiliates. 12.
No Warranty. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, PDI MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND PDI HEREBY DISCLAIMS ALL
IMPLIED WARRANTIES, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY
OR OF FITNESS FOR A PARTICULAR PURPOSE. 13. Term; Termination. The Term of the
Agreement is one (1) year, renewable automatically upon the anniversary date of
this Agreement for each subsequent year, unless either party provides sixty (60)
days written notice of its intent to terminate. Notwithstanding provisions of
this Agreement, this Agreement may be terminated prior to the expiration of its
term as set forth below.
14. Default; Remedies.
14.1 Events of Default. The following events constitute a default under this
Agreement: 14.1.1 Either party materially breaches a term of this Agreement and
such breach continues for a period of thirty (30) days after the breaching party
has been notified of the breach, or 14.1.2 Either party shall cease conducting
business in the normal course, become insolvent, make a general assignment for
the benefit of creditors, suffer or permit the appointment of a receiver for its
business or assets, or shall avail itself of or become subject to any proceeding
under any statute relating to insolvency or the protection of rights of
creditors. 14.2 Remedies. In addition to all other remedies available under this
Agreement, at law, or in equity, in the event of a default the license granted
under Section 8.1 of this Agreement and all rights of the defaulting party to
use confidential information of the other party shall immediately terminate.
15. Miscellaneous.
15.1 Entire Agreement. This agreement, together with its addenda, riders, and
other attachments, represent the entire agreement between the parties with
respect to the subject matter of this Agreement, and supersede all prior oral or
written agreements, understandings and representations between the parties,
either written or verbal. This Agreement may be amended only by written
instruments signed by both parties hereto.
15.2 Independent Contractor. Each party hereto shall be and remain an
independent contractor and nothing herein shall be deemed to constitute the
parties as partners. Further, neither party shall have any authority to act, or
attempt to act, or represent itself, directly or by implication, as an agent of
the other or in any manner assume or create, or attempt to assume or create, any
obligation on behalf of or in the name of the other, nor shall either be deemed
the agent or employee of the other. 15.3 Assignment. This Agreement may not be
assigned by either party without the prior written consent of the other;
provided, however, that either party may assign this Agreement to a subsidiary
or entity controlling, controlled by or under common control with such party, as
long as such party notifies the other party in writing. The provisions hereof
shall be binding upon and inure to the benefit of the parties, their successors
and permitted assigns. 15.4 Attorneys' Fees. If legal action is taken to enforce
any provision of this Agreement, the prevailing party shall be entitled to
recover reasonable attorneys' fees and costs incurred therefrom. 15.5 Governing
Law. This Agreement shall be construed and enforced in accordance with the laws
of King County and the State of Washington.
15.6 Force Majeure. If performance of any part of this Agreement by either PDI
or PAC is prevented or delayed by reason of cause or causes beyond the
reasonable control of the party affected (including, without limitation, acts of
God, acts of civil or military authority including governmental priorities,
strikes, or other labor disturbances, plant closures, fires, floods, epidemics,
and wars and riots), the party affected shall be excused from such performance
to the extent that it is necessarily prevented or delayed thereby during the
continuance of any such happening or event, and this Agreement shall be deemed
suspended so long as and to the extent that any such cause prevents or delays
its performance. 15.7 Notices. All notices, requests, demands and other
communications required or permitted under this Agreement shall be in writing
and shall be sent by facsimile transmission to the number set forth below, in
which case notice shall be deemed to have been duly given when transmitted with
machine confirmation of transmission, or by registered or certified mail, return
recipt requested, postage prepaid and properly addressed, in which case notice
shall be deemd to have been given when received by the address or on the third
day after mailing, whichever is earlier, or by hand delivery, in which case
notice shall be deemed to have been given when delivered, to the parties at the
following addresses or such other addresses as the parties may designate by
written notice:
If to PDI: Prism Direct, Inc.
15530 Woodinville-Redmond Road
Building A800
Woodinville, WA 98072-6930
Phone: ____________________
Fax: ______________________
Attention: __________________
If to PAC Pac Services, Inc.
17735 NE 65th Street
Redmond, WA 98052
Phone: ____________________
Fax: ______________________
Attention: __________________
15.8 Implied Waivers. The failure of either party at any time to require
performance by the other party of any provision hereof shall not affect in any
way the right to require such performance at any time thereafter. The waiver by
either party of a breach of any provision hereof shall not be taken, construed,
or held to be a waiver of the provisions itself or a waiver of any breach
thereafter or any other provision hereof.
15.9 Severability. A judicial determination that any provision of this Agreement
is invalid in whole or in part shall not affect the enforceability of those
provisions not found to be invalid. 15.10 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 instruments;
however, this Agreement shall be of no force or effect until executed by both
parties. 15.11 Authority. The individuals executing this Agreement warrant that
they have the requisite authority to do so.
PAC Services Inc.
By: Original signed by
Name: Catherine K. Boshaw
Title: CEO
Date: 07/30/96
Prism Direct, Inc.
By: Original signed by
Name: N. M. Morris
Title: President
Date: 07/30/96
Addendum A
Services offered by Prism Direct, Inc. include but are not limited to:
Fulfillment:
PDI, through its proprietary software "Spectra," provides complete inventory
management, distribution tracking and shipping activity data. Integrating bar
code technology Prism Direct will provide the following warehouse services.
I. Receiving and Warehousing
A. Receive all FGI from CLIENT or designated vendors. The receiving process will
include:
1. Verification against packing slip
2. Visual inspection of all goods to ensure product is in a sale-able condition.
3. Create inventory database in "Spectra" including quantity verified, serial
number associated with each unit and product ID number 4. CLIENT and their
manufacturing vendors will provide a printout of the serial rangeincluding the
starting, ending and any missing numbers in the sequence. Thislist will
accompany each pallet of FGI delivered to Prism Direct.
5. Scan UP label on product and create a Master Pack label with unique
identifier for tracking purposes.
B. The receiving process requires the following from CLIENT.
1. Visible UPC label
2. Serialized product must be provided in a 1S code 3 of 9 label format
3. CLIENT and their manufacturing vendors will affix a bar-code label on each
finished good unit. The serial number will contain a scannable serial number (in
its entirety) and a human readable description that intentionally excludes a
portion of the serial string.
4. Unique UPC assigned number for each SKU, including; NFR's, Evals and Upgrades
5. Proper shipping documentation, including packing slip with accurate counts
C. Locate and store all FGI in designated pallet or flow bin locations.
D. Incorporate CLIENT inventory into Prism's on-going cycle count program
II. Shipping:
A. Prism Direct will ship all Domestic and International orders on behalf of
CLIENT. Domestic orders will ship within 24 hours from the time order is
released for shipping. International orders will ship within 48 hours. Shipping
services can include:
1. UPS (Ground, 2nd Day, Next Day, International Express and Expedited)
2. DHL (Next Day, International)
3. RPS
4. LTL
5. Freight Forwarders
6. Airborne Express (Next Day, Second Day)-Shipped on CLIENT account#
7. Federal Express (Next Day Standard and Priority, International)
Shipped on CLIENT account #
8. Other, as specified by client
B. Verifying quantity and part number against packing slip
C. Capture bar-coded serial number of each unit processed
D. Linking serial number with customer data providing a
pre-registration database
E. Recording tracking number, shipping method and cost
F. Preparation of all shipping documents including, ProForma's,
SED and SLI, and Certificate of Origin.
G. Product will ship in a jiffy padded envelope or individual
shipping carton, as deemed appropriate for the number of
unites shipped on the packslip.
III. RMA Processing
A. If applicable Prism will provide a complete RMA program for CLIENT. In
conjunctions with GreenDisk, a company dedicated to the recycling of software
materials, the following services will be provided:
1. Verification of RMA number, quantities and product sku's.
2. Sorting of each finished goods and components based on customer provided
criteria
3. Recycling of all printed material, disks and CD's
4. Certificate of destruction
5. Data Entry into Spectra:
o Detailing reason for return - using pre-arranged list provided by CLIENT o
Data required for proper re-issuing of funds - Actual credit
distribution will be handled by CLIENT for non-credit card orders.
Prism Direct to complete credit memo for credit refunds
o Quantity received per RMA
o Condition of goods returned
o Outstanding issues
Prism will issue a credit to the end user for all credit card purchases
only. CLIENT will beresponsible for refunding any cash transaction.
Inbound Telemarketing and Customer Service:
I. Hours of Operation
A. Prism Direct is open for call handling Monday through Friday, 6:00 am through
6:00 p.m. B. Prism Direct will be closed in observation of the following
holidays; New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. If any holiday falls on a Saturday, the
preceding Friday will be recognized as the holiday. If any holiday falls on a
Sunday, the following Monday will be recognized as the holiday. II. Staff
telephones with representatives trained to implement CLIENT sales and marketing
objectives. III.Prism Direct will accept inbound "800" calls and collect basic
information.
A. Answer line with personalized greeting
B. Collect name, company name (if applicable), mailing address,
up to three telephone numbers, source of call and four to five
marketing questions at customer level
C. Determine purpose for the call and properly respond
D. Create a product registration with up to four demographic
questions, In addition, Prism will capture standard
registration data, such as; product number, quantity, place of
purchase, serial number(s) date of purchase, or
E. Capture the non-order customer service category and notes
1. Client provided list of categories including specific
reasons for return and standard Prism Direct categories
IV. Prism Direct will process all types of payment as follows:
A. Obtain the payment method (Cash/Check, Visa, MasterCard, American Express,
PO)
B. Cash/Check orders not placed until actual order shipped - entered as
non-order activity of order pending. Receipt of funds will result in entry of
order with the origin of mail. C. COD Orders - Prism will accept COD purchases
on behalf of CLIENT. A $4.75 surcharge will be charged to the customer for all
COD issues. It is understood that Prism will not assume responsibility for
collection of any COD shipments. Prism will develop the telemarketing script and
train the TSR's to encourage credit card purchases and offer COD charges as a
final alternative only. D. Purchase Orders - Hard copies of PO will be required
before placement entered as non-order activity until received. Receipt of PO
will result in entry of order with the origin of fax or mail. Hard copy to be
batched and sent to CLIENT daily. E. Credit Cards orders will attempt
authorization, with CLIENT's merchant account through DMGT. Order will not
allocate or ship until authorization is received. System will attempt to
authorize up to three business days consecutively.
a) If authorization is not received, outbound (non-order phone activity) will be
attempted up to three times to obtain alternate payment method. If contact is
not made after three attempts, order will be canceled.
F. Obtain shipping method and ship to address
G. Enter product number and quantity. Confirm amount of order, including tax and
shipping and handling.
V. Prism Direct will implement the cross-sell and upsell strategy developed with
CLIENT to attempt to create additional revenue opportunities during the standard
order process.
VI. Order Processing Services
If applicable:
A. Prism Direct will collect orders and other communications from the dedicated
Post Office box one time per day, on a daily basis
B. Prism Direct will receive faxed orders from customers or client throughout
the day
C. Prism Direct will receive e-mailed orders from client throughout the day.
D. Prism Direct will process all orders received by 1:00 p.m. on the same day
E. Set-up customer name, company name (if applicable), billing address, source,
telephone number and up to four marketing questions
F. Verify acceptable payment method. For check orders, verify within the
acceptable over/under range, as established by client.
G. Unacceptable payment methods or amounts outside of acceptable over/under
range, outdated offers will either result in an outbound call or a generic
letter with a check box reason will be sent to customer
H. Improperly routed communications will be forwarded to client
I. Enter shipping method and ship to address
J. Enter product number and quantity.
VII. Check Processing
A. Prism Direct will cancel all checks, upon receipt
B. Checks will be canceled with client provided stamp.
C. Up to 25 checks per batch/deposit, per day
1. Batch information includes date, batch number,
customer name, order number, check
number, check amount and transaction number
D. Prism Direct will make checking deposits to a local
Woodinville branch. If local branch is not available, client
will, at their option, set-up an account at a Woodinville bank
or have checks sent to client for deposit at their expense.
VIII. Literature Fulfillment
Prism Direct will fulfill literature requests with prepackaged kits.
A. Print label with customer name, company name (if applicable),
mailing address
B. Affix label to literature kits
C. Seal, meter and mail
IX. CLIENT will provide and maintain stock at Prism Direct for:
A. All literature that Prism Direct is responsible for mailing
B. Mailing envelopes
C. Company Letterhead
Outbound Telemarketing and Customer Solicitations
I. Program and Script Evaluation
II. Outbound Telemarketing
A. Create an enticing outbound script in unison with the CLIENT.
The script will focus on the following:
o High contact and close
o 4-5 responses to overcome objections
o Other goals as determined by CLIENT
B. Prism's outbound representatives will attempt contact within
two outbound calls.The outbound reps. will make one pass
through the list, then make a second until the objective
is achieved. The following will be deemed as attempts:
o Contact
Contact may include the following:
Closed sale - obtaining customer and credit card
information
Request for product literature, if applicable
Other - as deemed appropriate by KIII
o Voice Mail
o Reception
o No answer
C. Prism will dedicate a team of outbound telemarketers
sufficient to reach the program goal within the specified time
frame
Technical Support
I. Prism Direct will accept inbound "800" or toll technical support calls and
qualify basic information.
Determine purpose for the call and properly respond.
A. Prism Direct will answer Level 1, 2 and 3 technical support questions,
including installation and setup support per CLIENT's specifications.
B. Prism will provide the necessary implementation support activity to ensure
that calls are handled to the expectations of the CLIENT.
C. Prism's technical support team will possess the unique telephone skills to
quickly visualize and interpret customer problems over the phone.
D. Prism dedicated technical team will take part in a software/hardware training
provided the CLIENT. Prism Direct will provide any refresher or update training
as needed.
1. If applicable, on-line help will contain the following
technical information:
o Problem descriptions
o Solutions to common problems
o Bug fixes
o Historicals
Client Data Management
A. Reports
Several standard reports are available from Prism Direct. If applicable Prism
Direct will provide the following reports to CLIENT as outlined. Additional
standard reports or custom reports will be available at an additional charge.
Refer to section V., Price Schedule.
- ------------------------- ---------------------------------------------------------------- ------------------------------
Report Title Information Contained Frequeny
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Inventory Status Report FGI - Inventory on hand, allocated,
available, ordered, TBD backordered and received
during the reporting period.
Including obsolete inventory-optional.
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Inventory Adjustment Adjustment on inventory TBD
Report
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
System Activity Report Reports number of ACD calls received,
abandoned and average TBD wait before abandon. Also
reports all new activities (orders by SKU, customer
support and product registrations by SKU)and all
orders shipped by SKU for the reporting period.
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Money Handling Report Details of all cash and credit card transactions as well as a Weekly (1st-7th, 8th-14th,
summary of all activities by month. To act as back-up for 15th-21st and 22nd- last day
weekly invoices for services rendered. of month). 4th week -
includes a monthly Summary
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Open Order (back log) Report of all non-shipped orders by SKU. Line detail of order TBD
Report date, order number, quantity, extended unit price, tax,
shipping and handling, total value and current order status.
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Revenue Roll Forward Reconciliation of shipped revenue to revenue collected. TBD
Report
customized
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Check Deposit/Batch Details all checks deposited on batch sheet. Includes date,
TBD Report customer name, order number, check number and value of check.
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
RMA Report Excel format. Detail by SKU, by price point all RMA's TBD
processed and/or refunds requested / processed.
Includes order number, quantity, unit value, extended
unit value, tax, shipping and handling, total and
state.
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Shipped Orders Report Includes order number, quantity, unit
value, extended unit TBD value, tax, shipping and
handling and total.
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Marketing Activity Details of all marketing questions and responses. Campaign TBD
Report activity
- ------------------------- ---------------------------------------------------------------- ------------------------------
- ------------------------- ---------------------------------------------------------------- ------------------------------
Customer Activity by Activity by source classification TBD
Source
- ------------------------- ---------------------------------------------------------------- ------------------------------
B. Information Services
If applicable:
1. Prism Direct will provide an MIS contact for the purpose of completing
an e-mail connection.
2. Provide export file for previous days activities as per Spectra Export
Specifications.
1
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned thereunto duly
authorized.
PRISM GROUP, INC.
August 14, 1996 By:/s/ K.C. Aly
Date K.C. Al
Chief Executive Officer
August 14, 1996 By:/s/ N. M. Morris
Date N. M. Morris
President