EXHIBIT 99.2
Asset Purchase Agreement
dated as of December 1, 1999
among
Eagle Point Software Corporation,
Surveyors Module International, LLC,
R. Stanley Trent,
R. Stanley Trent, as sole Trustee of James, a Trust and
Charles A. Peterson, as sole Trustee of Farrow,a Trust
Asset Purchase Agreement
Asset Purchase Agreement, dated as of December 1, 1999 ("Agreement"), among
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Eagle Point Software Corporation, a Delaware corporation ("Buyer"), Surveyors
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Module International, LLC, a Tennessee limited liability company ("Seller"), R.
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Stanley Trent ("Trent"), R. Stanley Trent, as sole Trustee of James, a Trust,
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created by a Contract and Indenture of Trust dated July 6, 1995, (the "James
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Trust") and Charles A. Peterson, as sole Trustee of Farrow, a Trust, created by
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a Contract and Indenture of Trust dated July 6, 1995, (the "Farrow Trust", the
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Trustees of the James Trust and the Farrow Trust from time to time acting are
hereafter referred to, collectively, as the "Members").
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Whereas, Seller is, engaged in the business of developing, marketing and
selling software for the handheld data collection surveying market and
developing, marketing and selling related instruments and hardware for the
surveying market (the "Business");
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Whereas, Trent is the Chief Executive Officer of Seller and the Trustee of
the James Trust;
Whereas, Seller desires to sell to Buyer, and Buyer desires to purchase
from Seller, on a going concern basis, the Business, all on the terms and
subject to the conditions set forth herein.
Now, therefore, in consideration of the mutual covenants and agreements
hereinafter set forth, it is hereby agreed between Seller and Buyer as follows:
Article I
Definitions
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1.1. Definitions. In this Agreement, the following terms
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have the meanings specified or referred to in this Section 1.1 and shall be
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equally applicable to both the singular and plural forms.
"Affiliate" means, with respect to any Person, any other Person which
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directly or indirectly controls, is controlled by or is under common control
with such Person.
"Business" has the meaning set forth in the first "Whereas" clause of this
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Agreement;
"Buyer Group Member" means Buyer and its Affiliates and their respective
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successors and assigns.
"Closing" means the closing of the transfer of the Purchased Assets from
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Seller to Buyer.
"Closing Date" means the date on which the Closing shall occur.
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"Code" means the Internal Revenue Code of 1986, as amended.
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"Copyrights" means United States and foreign copyrights, copyrightable
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works and maskworks, whether registered or unregistered, and pending
applications to register the same.
"Court Order" means any judgment, order, award or decree of any foreign,
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federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Earn-Out Amounts" means the First Annual Earn-Out Amount and the Second
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Annual Earn-Out Amount.
"Encumbrance" means any lien, claim, charge, security interest, mortgage,
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pledge, easement, conditional sale or other title retention agreement, defect in
title, covenant or other restrictions of any kind.
"Environmental Law" means all Requirements of Laws derived from or relating
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to all federal, state and local laws or regulations relating to or addressing
the environment, health or safety, including but not limited to CERCLA, OSHA and
RCRA and any state equivalent thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended.
"ERISA Affiliate" means any entity required to be aggregated with Seller
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pursuant to Section 414(b), (c), (m) or (o) of the Code.
"Expenses" means any and all expenses incurred in connection with
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investigating, defending or asserting any claim, action, suit or proceeding
incident to any matter indemnified against hereunder (including, without
limitation, court filing fees, court costs, arbitration fees or costs, witness
fees, and reasonable fees and disbursements of legal counsel, investigators,
expert witnesses, consultants, accountants and other professionals).
"First Annual Earn-Out Amount" means 70% of any Modified Gross Profit in
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excess of $1,650,000, up to $2,500,000, plus 85% of any Modified Gross Profit in
excess of $2,500,000, recognized during the one-year period commencing on
December 1, 1999, it being understood that the First Annual Earn-Out Amount
shall be zero if the Modified Gross Profit during such period does not exceed
$1,650,000.
"GAAP" means United States generally accepted accounting principles.
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"Governmental Body" means any foreign, federal, state, local or other
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governmental authority or regulatory body, including any educational or school
district authority.
"Intellectual Property" means Copyrights, Patent Rights, Trademarks and
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Trade Secrets.
"Intellectual Property Rights" means all agreements, contracts, licenses,
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sublicenses, assignments and indemnities that relate or pertain to any
Intellectual Property.
"Inventory" shall include all inventories of Seller, held for resale, sale
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or manufacture, wherever located (other than Excluded Assets) including, without
limitation, all raw materials, work in process, finished goods and inventories
of any nature in transit, on consignment or in possession of any vendor, and all
documentation necessary to show ownership in the same.
"Losses" means any and all losses, costs, obligations, liabilities,
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settlement payments, awards, judgments, fines, penalties, damages, expenses,
deficiencies or other charges.
"Modified Gross Profit" means, with respect to any period, the Net Revenues
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of the SMI Business Unit that are recognized by Buyer during such period minus
the cost of goods sold during such period represented by payment to vendors for
materials or items that are resold. For purposes of calculating Modified Gross
Profit, cost of goods sold shall include, without limitation, cables,
calculators, cards, media, third party royalties (except as set forth below),
total stations, GPS units, hard cases, out of pocket expenses associated with
training and similar items, but shall not include, royalties paid to employees,
sales commissions, capitalized software amortization and labor to assemble
incurred by the Business.
"Net Inventory Value" shall have the meaning set forth in Section 3.3(a).
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"Net Revenues of the SMI Business Unit" means, with respect to any period,
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gross revenues recognized in accordance with GAAP during such period minus
adjustments for sales returns, bad debts and currency adjustments for (i) sales
of all software products that are under the SMI brand as of December 1, 1999 and
sales of all software products developed by the SMI Division of Buyer after
December 1, 1999, in each case, regardless of which Division of the Buyer sells
such software products and (ii) any other revenues generated directly by the SMI
Division of Buyer after December 1, 1999, which would include, without
limitation, training, support, hardware, instruments, and authorized sales of
Buyer's software products developed by other Divisions of Buyer if sold by
personnel in the SMI Division.
"Patent Rights" means United States and foreign patents, patent
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applications, continuations, continuations-in-part, divisions, reissues, patent
disclosures, inventions (whether or not patentable) or improvements thereto.
"Person" means any individual, corporation, partnership, joint venture,
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limited liability company, association, joint-stock company, trust,
unincorporated organization or Governmental Body.
"Purchased Software" means the Software sold by Seller and acquired by
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Buyer pursuant to this Agreement, as listed in Schedule 5.13(B), including but
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not limited to executable code (executable applications), object code (machine
readable), source code (human readable) and any associated procedural code.
"Requirements of Laws" means any foreign, federal, state and local laws,
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statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any
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Governmental Body (including, without limitation, those pertaining to
electrical, building, zoning, environmental and occupational safety and health
requirements) or common law.
"Second Annual Earn-Out Amount" means 70% of any Modified Gross Profit in
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excess of $1,650,000, up to $2,500,000, plus 85% of any Modified Gross Profit in
excess of $2,500,000, recognized during the one-year period commencing on
December 1, 2000, it being understood that the Second Annual Earn-Out Amount
shall be zero if the Modified Gross Profit during such period does not exceed
$1,650,000.
"Seller Group Member" means Seller and its Affiliates and their respective
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successors and assigns.
"Software" means computer software programs and software systems,
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including, without limitation, all databases, compilations, tool sets,
compilers, decompilers, higher level or "proprietary" languages, related
documentation and materials, whether in source code, object code or human
readable form.
"Tax" means any federal, state, local or foreign net income, alternative or
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add-on minimum, gross income, gross receipts, property, sales, use, transfer,
gains, license, excise, employment, payroll, withholding or minimum tax, or any
other tax custom, duty, governmental fee or other like assessment or charge of
any kind whatsoever, together with any interest or any penalty, addition to tax
or additional amount imposed by any Governmental Body.
"Tax Return" means any return, report or similar statement required to be
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filed with respect to any Taxes (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
"Trademarks" means United States, state and foreign trademarks, service
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marks, logos, trade dress and trade names, whether registered or unregistered,
domain names, and pending applications to register the foregoing.
"Trade Secrets" means confidential ideas, trade secrets, know-how,
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concepts, methods, processes, formulae, reports, data, customer lists, mailing
lists, business plans, and other proprietary information.
"Valuation Date" means October 31, 1999.
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"Valuation Date Balance Sheet" means the unaudited balance sheet of the
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Business as of the Valuation Date included in Schedule 5.4.
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Article II
Purchase and Sale
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2.1. Purchased Assets. Upon the terms and subject to the conditions of
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this Agreement, on the Closing Date Seller shall sell, transfer, assign, convey
and deliver to Buyer, and Buyer shall purchase from Seller, on a going concern
basis, free and clear of all Encumbrances, the Business and all of the assets
and properties of Seller (other than the Excluded Assets) of every kind and
description, wherever located, tangible or intangible, used in connection with
the Business as the same shall exist on the Closing Date (herein collectively
called the "Purchased Assets"), including, without limitation, all right, title
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and interest of Seller in, to and under:
(a) all of the assets reflected on the Valuation Date Balance Sheet,
except those disposed of or converted into cash after the Valuation Date in the
ordinary course of business;
(b) any Software owned by Seller, without regard to whether such Software
is presently being utilized in the Business, including, without limitation, the
Software listed in Schedule 5.13(B);
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(c) all raw materials, supplies, works-in-process and other materials
included in the Inventory;
(d) electronic and master copies of any product documentation, tutorials,
training videos and similar items;
(e) all Copyrights, Patent Rights and Trademarks (and all goodwill
associated therewith), including, without limitation, (i) the "Surveyors Module
International" and "SMI" names, (ii) the smi.com domain name, (iii) the contents
of the www.smi.com web site, (iv) exclusive rights to Seller's hard case design
and to its cable schematics, technology and production process and (iv) the
agreements, contracts, licenses, sublicenses, assignments and indemnities,
listed in Schedule 5.13(A);
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(f) Trade Secrets and other proprietary or confidential information,
including, without limitation, Seller's client, prospect, support, registration
and accounting database and all associated notes and records and all electronic
and hard copy files related to Seller's clients;
(g) all marketing and sales materials, including, without limitation,
brochures and design files;
(h) all machinery, equipment, furniture and other personal property,
including, without limitation, computer equipment, servers, printers, plotters,
scanners and other peripherals, facsimile machines, telephones, telephone
systems, filing cabinets, audio and video multimedia equipment and the items
listed or referred to in Schedule 5.11;
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(i) prepaid Terramodel\Plus 3 royalties and the Terramodel\Plus 3
contract;
(j) email addresses, telephone numbers and facsimile numbers, to the
extent permitted by the telephone company;
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(k) the Governmental Permits listed in Schedule 5.9;
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(l) the personal property leases listed in Schedule 5.12;
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(m) all Seller Agreements (as hereinafter defined);
(n) all of Seller's rights, claims or causes of action against third
parties relating to the assets, properties or operations of the Business arising
out of transactions occurring prior to the Closing Date;
(o) all results of research and all products and materials in development,
whether published or unpublished; and
(p) all books and records (including all data and other information stored
on discs, tapes or other media) of Seller.
2.2. Excluded Assets. Notwithstanding the provisions of Section 2.1, the
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Purchased Assets shall not include any assets or properties of Seller not
related to the Business, including, but not limited to, the following (herein
referred to as the "Excluded Assets"):
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(a) all cash, bank deposits, cash equivalents, trust receivables, note
receivables and accounts receivable;
(b) all contracts of insurance;
(c) all corporate minute books and stock transfer books and the corporate
seal, if any, of Seller;
(d) Seller's employee benefit agreements, plans or arrangements maintained
by Seller on behalf of persons employed by Seller;
(e) all refunds of any Tax for which Seller is liable pursuant to Section
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7.2;
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(f) all interests of Seller in real property and agreements of Seller
relating to indebtedness for money borrowed;
(g) the investment interests identified by the following general ledger
account numbers of Seller: 18200, 18300, 18700 and 19500; and
(h) any rights of Seller created under this Agreement.
2.3. Liabilities. Except for liabilities relating to the Seller Agreements
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arising after the Closing Date (which Buyer hereby undertakes to assume and
discharge), Buyer shall not assume or be obligated to pay, perform or otherwise
discharge any liability or obligation of Seller whatsoever, whether direct or
indirect, known or unknown, absolute or contingent (all such
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liabilities and obligations being called the "Excluded Liabilities") including,
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without limitation (i) any liabilities related to Excluded Assets, and (ii)
liabilities relating to employees of Seller, including, without limitation, any
obligations to employees of Seller for commissions, bonuses, vacation or sick
leave relating to the operation of the Business prior to the Closing. Seller
hereby covenants to Buyer to pay, satisfy or otherwise discharge any and all
Excluded Liabilities.
Article III
Purchase Price
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3.1. Purchase Price; Calculation of Estimated Purchase Price. The purchase
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price for the Purchased Assets shall be equal to Two Million Dollars, subject to
adjustment as set forth in Section 3.3(a), plus the Earn-out Amounts, if any,
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computed and paid in accordance with Section 3.2 (the "Purchase Price"). The
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Purchase Price shall be allocated among the Purchased Assets, the liabilities
assumed by Buyer, and the covenants contained in Section 7.1, in the manner as
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Buyer shall determine. Buyer shall notify Seller, in writing, of its allocation
of the Purchase Price not later than the close of business on January 14, 2000.
3.2. Earn-Out Amounts. (a) Buyer shall prepare and deliver to Seller, on
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or before the close of business on March 30, 2000, (i) a certificate executed by
Buyer setting forth Buyer's calculation of the Modified Gross Profit for the
period from December 1, 1999 through February 29, 2000 and (ii) a copy of the
worksheet attached as Exhibit A hereto (the "Exhibit A Worksheet"), with lines 1
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through 9 completed. Buyer shall pay Seller the amount set forth on line 9 of
the Exhibit A Worksheet, if any, on or before the close of business on March 30,
2000.
(b) Buyer shall prepare and deliver to Seller, on or before the close of
business on June 30, 2000, (i) a certificate executed by Buyer setting forth
Buyer's calculation of the Modified Gross Profit for the period from December 1,
1999 through May 31, 2000 and (ii) a copy of the Exhibit A Worksheet, with lines
1 through 20 completed. Buyer shall pay Seller the amount set forth on line 20
of the Exhibit A Worksheet, if any, on or before the close of business on June
30, 2000.
(c) Buyer shall prepare and deliver to Seller, on or before the close of
business on October 2, 2000, (i) a certificate executed by Buyer setting forth
Buyer's calculation of the Modified Gross Profit for the period from December 1,
1999 through August 31, 2000 and (ii) a copy of the Exhibit A Worksheet, with
lines 1 through 31 completed. Buyer shall pay Seller the amount set forth on
line 31 of the Exhibit A Worksheet, if any, on or before the close of business
on October 2, 2000.
(d) Buyer shall prepare and deliver to Seller, on or before the close of
business on December 29, 2000, (i) a certificate executed by Buyer setting forth
Buyer's calculation of the Modified Gross Profit for the period from December 1,
1999 through November 30, 2000 and (ii) a copy of the Exhibit A Worksheet,
completed in its entirety. If the amount set forth on Line 40 of the Exhibit A
Worksheet shall be positive, Buyer shall pay Seller such amount, on or before
the close of business on December 29, 2000. If the amount set forth on Line 40
of the
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Exhibit A Worksheet shall be negative, Seller shall pay Buyer an amount
calculated by multiplying -1 and the amount set forth on Line 40 of the Exhibit
A Worksheet, on or before the close of business on December 29, 2000.
(e) Buyer shall prepare and deliver to Seller, on or before the close of
business on March 30, 2001, (i) a certificate executed by Buyer setting forth
Buyer's calculation of the Modified Gross Profit for the period from December 1,
2000 through February 29, 2001 and (ii) a copy of the worksheet attached as
Exhibit B hereto (the "Exhibit B Worksheet"), with lines 1 through 9 completed.
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Buyer shall pay Seller the amount set forth on line 9 of the Exhibit B
Worksheet, if any, on or before the close of business on March 30, 2001.
(f) Buyer shall prepare and deliver to Seller, on or before the close of
business on July 2, 2001, (i) a certificate executed by Buyer setting forth
Buyer's calculation of the Modified Gross Profit for the period from December 1,
2000 through May 31, 2001 and (ii) a copy of the Exhibit B Worksheet, with lines
1 through 20 completed. Buyer shall pay Seller the amount set forth on line 20
of the Exhibit B Worksheet, if any, on or before the close of business on July
2, 2001.
(g) Buyer shall prepare and deliver to Seller, on or before the close of
business on October 1, 2001, (i) a certificate executed by Buyer setting forth
Buyer's calculation of the Modified Gross Profit for the period from December 1,
2000 through August 31, 2001 and (ii) a copy of the Exhibit B Worksheet, with
lines 1 through 31 completed. Buyer shall pay Seller the amount set forth on
line 31 of the Exhibit B Worksheet, if any, on or before the close of business
on October 1, 2001.
(h) Buyer shall prepare and deliver to Seller, on or before the close of
business on December 28, 2001, (i) a certificate executed by Buyer setting forth
Buyer's calculation of the Modified Gross Profit for the period from December 1,
2000 through November 30, 2001 and (ii) a copy of the Exhibit B Worksheet,
completed in its entirety. If the amount set forth on Line 40 of the Exhibit B
Worksheet shall be positive, Buyer shall pay Seller such amount, on or before
the close of business on December 28, 2001. If the amount set forth on Line 40
of the Exhibit B Worksheet shall be negative, Seller shall pay Buyer an amount
calculated by multiplying -1 and the amount set forth on Line 40 of the Exhibit
B Worksheet, on or before the close of business on December 29, 2000.
(i) Buyer and Seller hereby agree that this Section 3.2 and the provisions
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of this Agreement in respect of the Earn-Out Amounts shall not limit in any
respect the manner in which Buyer chooses to conduct (or not conduct) the
Business.
(j) If Buyer enters into a license as contemplated by Section 7.7 then
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except as set forth in this Section 3.2(j), Buyer and Seller shall not be
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obligated to make further payments under any subparagraph of Section 3.2. If
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the effective date of such license shall be prior to December 1, 2000 then the
parties shall, not later than the effective date of such license, make the
payments that would have been paid pursuant to Section 3.2(d), if the Modified
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Gross Profit for the period from December 1, 1999 through November 30, 2000 had
been equal to the Modified Gross Profit for the period from December 1, 1999
through the effective date of such license. If the effective
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date of such license shall be on or after December 1, 2000 and prior to December
1, 2001, then, without limiting the parties' obligations under Section 3.2(d),
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the parties shall, not later than the effective date of such license, make the
payments that would have been paid pursuant to Section 3.2(h), if the Modified
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Gross Profit for the period from December 1, 2000 through November 30, 2001 had
been equal to the Modified Gross Profit for the period from December 1, 2000
through the effective date of such license.
(k) Buyer agrees that if, prior to December 1, 2001, it shall sell all of
its rights to, or license, on an exclusive basis, software representing 70% or
more of the revenues derived by Buyer from the software identified on Schedule
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3.2(k) for the period from the Closing Date through the date of such sale or
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license (such sale or license, a "Qualified Disposition"), then, subject to the
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following sentences in this Section 3.2(k), Buyer shall be obligated to satisfy
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its obligations to Seller in respect of the Earn-Out Amounts as if such
Qualified Disposition had not occurred and the Modified Gross Profit with
respect to that portion of the Business conducted by the purchaser or licensee
of such software had been recognized by Buyer. If there shall be a Qualified
Disposition prior to December 1, 2000, then Buyer may elect to satisfy its
obligations to Seller in respect of the Earn-Out Amounts by making a lump-sum
cash payment to Seller (i) of the First Annual Earn-Out Amount by assuming that
Modified Gross Profit for the period between the date of such Qualified
Disposition and November 30, 2000 would be recognized at the same rate that it
had been for the period from December 1, 1999 through the date of such Qualified
Disposition and (ii) of the Second Annual Earn-Out Amount by assuming that the
Second Annual Earn-Out Amount would equal the First Annual Earn-Out Amount as so
calculated. If there shall be a Qualified Disposition after November 30, 2000
and prior to December 1, 2001, then, without limiting the parties' obligations
under Section 3.2(d), Buyer may elect to satisfy its obligations to Seller in
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respect of the Second Annual Earn-Out Amount by making a lump-sum cash payment
to Seller of the Second Annual Earn-Out Amount by assuming that Modified Gross
Profit for the period between the date of such Qualified Disposition and
November 30, 2001 would be recognized at the same rate that it had been for the
period from December 1, 2000 through the date of such Qualified Disposition. If
Buyer elects to comply with either of the two immediately preceding sentences,
it shall be given full credit for the "future value" of payments previously made
as set forth on Lines 8, 19 and 30 of the Exhibit A Worksheet and the Exhibit B
Worksheet, as the case may be and, if such credit results in Buyer having over-
paid the First Annual Earn-Out Amount or the Second Annual Earn-Out Amount, then
Buyer shall be entitled to a refund from Seller.
(l) Payments made pursuant to this Section 3.2 shall be made by check made
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payable to the party to receive payment.
3.3. Inventory. (a) Buyer has performed a physical inventory of the
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Inventories as of the close of business on November 30, 1999. The value of each
inventory unit included in this physical count shall be determined in accordance
with GAAP based upon a weighted average FIFO cost flow assumption. Such
valuation, plus paid in-transit Inventories, in each case, net of value
attributable to excess and obsolete inventory, shall constitute the "Net
Inventory Value."
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(b) The Purchase Price shall be (i) decreased by the amount that the Net
Inventory Value is less than $268,000 or (ii) increased by the amount that the
Net Inventory Value is greater than $268,000, as the case may be. No later than
five business days after the date that the Net Inventory Value is determined,
(i) Seller shall pay Buyer the amount by which the Net Inventory Value is less
than $268,000 or (ii) Buyer shall pay Seller the amount by which the Net
Inventory Value exceeds $268,000, as the case may be. Payments made pursuant to
this Section 3.3(b) shall be made by wire transfer of immediately available
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funds, without interest, to a United Sates account designated by the party to
receive payment.
ARTICLE IV
Closing
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4.1. Closing Date. The Closing is being consummated simultaneously with
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the execution of this Agreement, at the offices of Sidley & Austin, Bank One
Plaza, 10 South Dearborn Street, Chicago, Illinois. The time and date on which
the Closing is being held are sometimes referred to herein as the "Closing
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Date."
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4.2. Closing Date Payments. At Closing Buyer shall pay Seller $2,000,000
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by wire transfer of immediately available funds to a United States account that
Seller shall have designated in writing prior to the Closing.
4.3. Buyer's Additional Deliveries. At Closing Buyer shall also deliver
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to Seller all of the following:
(a) A certificate of the secretary or an assistant secretary of Buyer,
dated the Closing Date, in form and substance reasonably satisfactory to Seller,
as to (i) no amendments to the Certificate of Incorporation of Buyer since a
specified date; (ii) the by-laws of Buyer; (iii) the resolutions of the Board of
Directors of Buyer authorizing the execution and performance of this Agreement
and the transactions contemplated hereby; and (iv) incumbency and signatures of
the officers of Buyer executing this Agreement; and
(b) A certificate of good standing of Buyer, issued as of a recent date by
the Secretary of State of the State of Delaware.
4.4. Seller's Deliveries. At Closing Seller shall deliver to Buyer all
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the following:
(a) A certificate of the secretary or an assistant secretary of Seller,
dated the Closing Date, in form and substance reasonably satisfactory to Buyer,
as to (i) no amendments to the Certificate of Incorporation of Seller since a
specified date; (ii) the by-laws of Seller; (iii) the resolutions of the Board
of Directors of Seller authorizing the execution and performance of this
Agreement, and the transactions contemplated hereby; and (iv) incumbency and
signatures of the officers of Seller executing this Agreement;
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(b) A certificate of good standing of Seller, issued as of a recent date
by the Secretary of State of the State of Tennessee;
(c) An instrument of assignment, copyright assignment and trademark
assignment, each duly executed by Seller in a form acceptable to Buyer;
(d) All consents, waivers or approvals obtained by Seller with respect to
the Purchased Assets which are required in connection with the consummation of
the transactions contemplated by this Agreement; and
(e) Such other bills of sale, assignments and other instruments of
transfer or conveyance as Buyer may reasonably request or as may be otherwise
necessary to evidence and effect the sale, assignment, transfer, conveyance and
delivery of the Purchased Assets to Buyer.
Article V
Representations and Warranties of Seller
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As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby, Seller represents and warrants to Buyer
and agrees as follows:
5.1. Organization of Seller. Seller is a limited liability company duly
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organized, validly existing and in good standing under the laws of the State of
Tennessee. Seller is duly qualified to transact business as a foreign
corporation and is in good standing in each of the jurisdictions in which the
ownership or leasing of the Purchased Assets or the conduct of the Business
requires such qualification. Seller has full power and authority to own or lease
and to operate and use the Purchased Assets and to carry on the Business as now
conducted.
5.2. Subsidiaries and Investments. Seller does not, directly or indirectly,
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(i) own, of record or beneficially, any outstanding voting securities or other
equity interests in any corporation, partnership, joint venture, limited
liability company or other entity which is involved in or relates to the
Business or (ii) control any corporation, partnership, joint venture, limited
liability company or other entity.
5.3. Authority of Seller Trent and the Members. Seller has full power and
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authority to execute, deliver and perform this Agreement. Trent has full right,
power, authority and capacity to execute, deliver and perform this Agreement.
Each Member has full right, power and authority to execute, deliver and perform
this Agreement. The execution, delivery and performance of this Agreement by
Seller have been duly authorized and approved by Seller's members and do not
require any further authorization or consent of Seller or its members. This
Agreement has been duly authorized, executed and delivered by Seller and is the
legal, valid and binding obligation of Seller enforceable in accordance with its
terms. This Agreement has been duly executed and delivered by Trent and is the
legal, valid and binding obligation of Trent enforceable in
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accordance with its terms. This Agreement has been duly executed and delivered
by each Member and is the legal, valid and binding obligation of each Member
enforceable in accordance with its terms. Neither the execution and delivery of
this Agreement or the consummation of any of the transactions contemplated
hereby nor compliance with or fulfillment of the terms, conditions and
provisions hereof will:
(a) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event creating
rights of acceleration, termination or cancellation or a loss of rights under,
or result in the creation or imposition of any Encumbrance upon any of the
Purchased Assets, under (1) Seller's operating agreement, (2) the Contract and
Indenture of Trust dated July 6, 1995 that created the James Trust, and any
Minutes of the James Trust, (3) the Contract and Indenture of Trust dated July
6, 1995 that created the Farrow Trust, and any Minutes of the Farrow Trust, (4)
any agreement of Seller, Trent or either Member, (5) any other material note,
instrument, agreement, mortgage, lease, license, franchise, permit or other
authorization, right, restriction or obligation to which Seller, Trent or either
Member is a party or any of the Purchased Assets is subject or by which Seller,
Trent or either Member is bound, (6) any Court Order to which Seller, Trent or
either Member is a party or any of the Purchased Assets is subject or by which
Seller, Trent or either Member is bound, or (7) any Requirements of Laws
affecting Seller, Trent, either Member or the Purchased Assets; or
(b) require the approval, consent, authorization or act of, or the making
by Seller, Trent or either Member of any declaration, filing or registration
with, any Person.
5.4. Financial Statements. Schedule 5.4 contains the Valuation Date Balance
-------------------- ------------
Sheet of the Business. Except as set forth therein, the Valuation Date Balance
Sheet has been prepared in conformity with GAAP consistently applied and
presents fairly the financial position of the Business as of its date.
5.5. Operations Since Valuation Date. Except as set forth in Schedule
------------------------------- --------
5.5(A), since the Valuation Date (a) there has been no material adverse change
- ------
in the Purchased Assets, Seller, the Business or the operations, liabilities,
profits, prospects or condition (financial or otherwise) of Seller or the
Business, and no fact or condition exists or is contemplated or threatened which
might reasonably be expected to cause such a change in the future, and (b)
Seller has conducted the Business only in the ordinary course and in conformity
with past practice.
5.6. No Undisclosed Liabilities. Except as set forth in Schedule 5.6,
-------------------------- ------------
Seller is not subject, to any liability (including, without limitation,
unasserted claims, whether known or unknown), whether absolute, contingent,
accrued or otherwise, which is not shown or which is in excess of amounts shown
or reserved for in the Valuation Date Balance Sheet, other than liabilities of
the same nature as those set forth in the Valuation Date Balance Sheet and the
notes thereto and reasonably incurred in the ordinary course of the Business
after the Valuation Date.
5.7. Taxes. Seller has filed all Tax Returns which are required to be filed
-----
and has paid all Taxes which have become due pursuant to such Tax Returns or
pursuant to any assessment which has become payable. There is no action, suit,
investigation, audit, claim or assessment pending or proposed or threatened with
respect to Taxes, the Purchased Assets, and, to Seller's knowledge, after due
inquiry, no basis exists therefor. All monies required to be withheld by
-12-
Seller from employees for income Taxes and social security and other payroll
Taxes have been collected or withheld, and either paid to the respective taxing
authorities, set aside in accounts for such purpose, or accrued, reserved
against and entered upon the books of Seller.
5.8. Availability, Title and Condition of Assets. Except as set forth in
-------------------------------------------
Schedule 5.8 and except for the Excluded Assets, the Purchased Assets constitute
- ------------
all the assets used by Seller and are in good and serviceable condition (subject
to normal wear and tear) and are suitable for the uses for which intended.
Seller has good and marketable title to all of the Purchased Assets, free and
clear of any Encumbrances. Schedule 5.8 sets forth a description of all material
------------
services provided by Seller or any Affiliate of Seller utilizing either assets
not included in the Purchased Assets or persons not listed on Schedule 5.18(a).
----------------
5.9. Governmental Permits. Seller owns, holds or possesses all material
--------------------
licenses, franchises, permits, privileges, immunities, approvals and other
authorizations from a Governmental Body which are necessary to entitle it to own
or lease, operate and use the Purchased Assets and to carry on and conduct the
Business substantially as currently conducted (herein collectively called
"Governmental Permits"). Schedule 5.9 sets forth a list and brief description of
-------------------- ------------
each Governmental Permit. Except as set forth in Schedule 5.9, each of the
------------
Governmental Permits is valid, subsisting and in full force and effect and may
be assigned and transferred to Buyer in accordance with this Agreement and will
continue in full force and effect thereafter, in each case without (x) the
occurrence of any breach, default or forfeiture of rights thereunder, or (y) the
consent, approval, or act of, or the making of any filing with, any Governmental
Body.
5.10. Real Property. Schedule 5.10 contains a brief description of (i) each
------------- -------------
parcel of real property owned by Seller and used in or relating to the Business
(showing the record title holder, legal description, permanent index number,
location, improvements, the uses being made thereof and any indebtedness secured
by a mortgage or other Encumbrance thereon and (ii) each option held by Seller
to acquire any real property. Schedule 5.10 sets forth a list and brief
-------------
description of each lease or similar agreement (showing the parties thereto,
annual rental, expiration date, renewal and purchase options, if any, the
improvements thereon, the uses being made thereof, and the location and the
legal description of the real property covered by such lease or other agreement)
under which Seller is lessee of, or holds or operates, any real property owned
by any third Person. Except as set forth in such Schedule, Seller has the right
to quiet enjoyment of all the leased real property described in such Schedule
for the full term of each such lease or similar agreement (and any renewal
option related thereto) relating thereto, and the leasehold or other interest of
Seller in such real property is not subject or subordinate to any Encumbrance
except for Permitted Encumbrances. Complete and correct copies of any title
opinions, surveys and appraisals in Seller's possession or any policies of title
insurance currently in force and in the possession of Seller with respect to
each such parcel of owned or leased property have heretofore been delivered by
Seller to Buyer.
5.11. Personal Property. Schedule 5.11 contains a detailed list of all
----------------- -------------
machinery, equipment, vehicles, furniture and other personal property owned by
Seller having an original cost of $1,000.00 or more.
-13-
5.12. Personal Property Leases. Schedule 5.12 contains a brief description
------------------------ -------------
of each lease or other agreement or right, whether written or oral (including in
each case the annual rental, the expiration date thereof and a brief description
of the property covered), under which Seller is lessee of, or holds or operates,
any machinery, equipment, vehicle or other tangible personal property owned by a
third Person.
5.13. Intellectual Property; Software. (a) Schedule 5.13(A) contains a list
------------------------------- ----------------
and description (showing in each case any product, device, process, service,
business or publication covered thereby, the registered or other owner,
expiration date and number, if any) of all Copyrights, Patent Rights and
Trademarks (including all assumed or fictitious names under which Seller is
conducting the Business or has within the previous five years conducted the
Business) owned by, licensed to or otherwise material to Seller.
(b) Schedule 5.13(B) contains a list and description (showing in each case
----------------
any owner, licensor or licensee) of all Software owned by, licensed to or used
by Seller, provided that Schedule 5.13(B) does not list Software licensed to
-------- ----------------
Seller that is available in consumer retail stores and subject to "shrink-wrap"
license agreements.
(c) Schedule 5.13(C) contains a list and description (showing in each case
----------------
the parties thereto and the material terms thereof) of all agreements,
contracts, licenses, sublicenses, assignments and indemnities which relate to
(i) any Copyrights, Patent Rights or Trademarks listed in Schedule 5.13(A), (ii)
----------------
any Trade Secrets owned by, licensed to or used by Seller or (iii) any Software
listed in Schedule 5.13(B).
----------------
(d) Except as disclosed in Schedule 5.13(D), Seller either: (i) owns the
----------------
entire right, title and interest in and to the Intellectual Property and
Software included in the Purchased Assets, free and clear of any Encumbrance; or
(ii) has the perpetual, royalty-free right to use the same.
(e) Except as disclosed in Schedule 5.13(E): (i) all registrations for
----------------
Copyrights, Patent Rights and Trademarks identified in Schedule 5.13(A) as being
----------------
owned by Seller are valid and in force, and all applications to register any
unregistered Copyrights, Patent Rights and Trademarks so identified are pending
and in good standing, all without challenge of any kind; (ii) the Intellectual
Property owned by Seller is valid and enforceable; and (iii) Seller has the sole
and exclusive right to bring actions for infringement, misappropriation or
unauthorized use of the Intellectual Property and Software owned by Seller and
included in the Purchased Assets, and to the best knowledge of Seller, there is
no basis for any such action. Correct and complete copies of: (x) registrations
for all registered Copyrights, Patent Rights and Trademarks identified in
Schedule 5.13(A) as being owned by Seller; and (y) all pending applications to
- ----------------
register unregistered Copyrights, Patent Rights and Trademarks identified in
Schedule 5.13(A) as being owned by Seller (together with any subsequent
- ----------------
correspondence or filings relating to the foregoing) have heretofore been
delivered by Seller to Buyer.
(f) Except as set forth in Schedule 5.13(F), no infringement,
----------------
misappropriation or other violation of any Intellectual Property Right of any
other Person has occurred or results in any way
-14-
from the conduct of business by seller, no claim of any infringement,
misappropriation or other violation of any Intellectual Property Right of any
other Person has been made or asserted against Seller relating to the Purchased
Assets and Seller has not had notice of, or knowledge of any basis for, a claim
against Seller that its operations, activities, products, software, equipment,
machinery or processes infringe any Intellectual Property Right of any other
Person.
(g) Except as disclosed in Schedule 5.13(G): (i) the Software included in
----------------
the Purchased Assets is not subject to any transfer, assignment, site,
equipment, or other operational limitations; (ii) Seller has maintained and
protected the Software included in the Purchased Assets that it owns (the "Owned
-----
Software") (including, without limitation, all source code and system
- --------
specifications) with appropriate proprietary notices (including, without
limitation, the notice of copyright in accordance with the requirements of 17
U.S.C. (S) 401), confidentiality and non-disclosure agreements and such other
measures as are necessary to protect the proprietary, trade secret or
confidential information contained therein; (iii) the Owned Software has been
registered or is eligible for protection and registration under applicable
copyright law and has not been forfeited to the public domain; (iv) Seller has
copies of all releases or separate versions of the Owned Software so that the
same may be subject to registration in the United States Copyright Office; (v)
Seller has complete and exclusive right, title and interest in and to the Owned
Software subject only to licenses issued by Seller to users in the ordinary
course of business; (vi) Seller has developed the Owned Software through its own
efforts and for its own account without the aid or use of any consultants,
agents, independent contractors or Persons (other than Persons that are
employees of Seller); (vii) the Owned Software does not infringe, misappropriate
or violate any Intellectual Property Right of any other Person; (viii) any Owned
Software includes the source code, system documentation, statements of
principles of operation and schematics, as well as any pertinent commentary,
explanation, program (including compilers), workbenches, tools, and higher level
(or "proprietary") language used for the development, maintenance,
implementation and use thereof, so that a trained computer programmer could
develop, maintain, support, compile and use all releases or separate versions of
the same that are currently subject to maintenance obligations by Seller; (ix)
there are no agreements or arrangements in effect with respect to the marketing,
distribution, licensing or promotion of the Owned Software by any other Person;
(x) the Owned Software complies with all applicable Requirements of Laws
relating to the export or reexport of the same; (xi) to Seller's knowledge, the
Owned Software may be exported or reexported to all countries without the
necessity of any license, other than to those countries specified as prohibited
destinations pursuant to applicable regulations of the U.S. Department of
Commerce and/or the United States State Department and (xii) the Owned Software
is Year 2000 Compliant (as defined in Section 5.19).
------------
(h) Except as disclosed in Schedule 5.13(H), all employees, agents,
----------------
consultants or contractors who have contributed to or participated in the
creation or development of any copyrightable, patentable or trade secret
material on behalf of Seller or any predecessor in interest thereto either: (i)
is a party to a "work-for-hire" agreement under which Seller is deemed to be the
original owner/author of all property rights therein; or (ii) has executed an
assignment or an agreement to assign in favor of Seller (or such predecessor in
interest, as applicable) of all right, title and interest in such material.
-15-
5.14. Accounts Receivable; Inventories. (a) All accounts receivable of the
--------------------------------
Business have arisen from bona fide transactions by Seller in the ordinary
course of the Business.
(b) The inventories of the Business (i) are in good, merchantable and
useable condition, (ii) are reflected in the Valuation Date Balance Sheet at the
lower of cost or market in accordance with GAAP and (iii) are, in the case of
finished goods, of a quality and quantity saleable in the ordinary course of
business and, in the case of all other inventories are of a quality and quantity
useable in the ordinary course of business. The inventory obsolescence policies
of Seller are appropriate for the nature of the products sold and the marketing
methods used by Seller and the reserve for inventory obsolescence contained in
the Valuation Date Balance Sheet fairly reflects the amount of obsolete
Inventory as of the Valuation Date.
5.15. Contracts. Schedule 5.15 sets forth a list of all contracts,
--------- -------------
agreements, commitments, understandings or instruments material to the Business
(and, together with all of the contracts, agreements, commitments,
understandings and instruments set forth in Schedules 5.12 and 5.13(C), are
-------------- -------
referred to herein as the "Seller Agreements"). Each Seller Agreement
-----------------
constitutes a valid and binding obligation of the parties thereto and is in full
force and effect and may be transferred to Buyer pursuant to this Agreement and
will continue in full force and effect thereafter, in each case without
breaching the terms thereof or resulting in the forfeiture or impairment of any
rights thereunder and without the consent, approval or act of, or the making of
any filing with, any other party. Seller has fulfilled and performed its
obligations under each of the Seller Agreements, and Seller is not in, or
alleged to be in, breach or default under, nor is there or is there alleged to
be any basis for termination of, any of the Seller Agreements and no other party
to any of the Seller Agreements has breached or defaulted thereunder.
5.16. No Violation, Litigation or Regulatory Action. Except as set forth in
---------------------------------------------
Schedule 5.16, (a) Seller has complied in all material respects with all
- -------------
Requirements of Laws and Court Orders which are applicable to it, the Purchased
Assets or the Business; (b) there are no lawsuits, claims, suits, proceedings or
investigations pending or, to the knowledge of Seller, threatened against or
affecting Seller, the Business or the Purchased Assets; and (c) there is no
action, suit or proceeding pending or, to the knowledge of Seller, threatened
which questions the legality or propriety of the transactions contemplated by
this Agreement.
5.17. Environmental Matters. Except as set forth in Schedule 5.17, the
--------------------- -------------
business operations of comply, and at all times in the past have complied, in
all material respects with all applicable Environmental Laws.
5.18. Employee and Employee Benefit Matters. (a) Employees. Schedule
------------------------------------- --------- --------
5.18(a) contains (i) a list of all individuals employed by Seller as of the
- -------
Closing Date (the "Affected Employees"); (ii) the current rate of compensation
------------------
of and the amount of accrued vacation pay, bonuses, sick pay or other
compensation with respect to each of the Affected Employees.
(b) Seller Plans. Except as disclosed on Schedule 5.18(b): (A) Seller
------------ ----------------
and each of its ERISA Affiliates does not maintain, and has not maintained
within the immediately preceding six years, an "employee pension benefit plan"
(as such term is defined in Section 3(2) of ERISA),
-16-
and (B) Seller and each of its ERISA Affiliates is not required, and has not
been required within the immediately preceding six years, to contribute to any
"multiemployer plan" (as such term is defined in Section 3(37) of ERISA).
(c) Compliance With Law; Controlled Group Liabilities. Each employee
-------------------------------------------------
benefit plan maintained by Seller which is intended to qualify under Section
401(a) of the Code has received a favorable determination letter from the IRS
that such plan is so qualified under the Code as amended to the date hereof; and
to the knowledge of Seller no circumstance exists which might cause such plan to
cease being so qualified. Each "employee benefit plan" (as such term is defined
in Section 3(3) of ERISA) covering any Affected Employee ("Plan") complies, and
----
has been administered to comply, in all material respects with all requirements
of law and regulations applicable thereto, and there has been no notice issued
by any governmental authority questioning or challenging such compliance. There
are no actions, suits or claims (other than routine claims for benefits) pending
or, to Seller's knowledge, threatened involving such Plans or the assets of such
Plans. Neither Seller or its ERISA Affiliates has any liability that could
become a liability of Buyer, whether direct, indirect, contingent or otherwise,
(i) on account of any violation of the health care requirements of Part 6 of
Title I of ERISA or Section 4980B of the Code, (ii) under Section 502(i) or
Section 502(l) of ERISA or Section 4975 of the Code, (iii) under Section 302 of
ERISA or Section 412 of the Code or (iv) under Title IV of ERISA.
(d) Labor Practices; Collective Bargaining. Seller has complied in
--------------------------------------
respect of the Business with all Requirements of Law which relate to prices,
wages, hours, discrimination in employment and collective bargaining and to the
operation of the Business and is not liable for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing. Seller
believes that its relations with the employees of the Business are satisfactory.
Seller is not a party to, and the Business is not affected by or threatened
with, any dispute or controversy with a union or with respect to unionization or
collective bargaining involving the employees of the Division. Neither Seller
nor the Business is materially affected by any dispute or controversy with a
union or with respect to unionization or collective bargaining involving any
supplier or customer of the Business. Schedule 5.18(d) sets forth a description
----------------
of any union organizing or election activities involving any non-union employees
of the Business which have occurred since January 1, 1996 or, to the knowledge
of Seller, are threatened as of the date hereof. Schedule 5.18(d) sets forth a
----------------
list of each employee grievance pending or, to the knowledge of Seller,
threatened, against Seller in respect of the Business.
5.19. Year 2000 Compliance. (a) All of (i) Seller's internal systems,
--------------------
including, without limitation, computer hardware systems, software applications
and embedded systems, and (ii) the software, hardware, firmware and other
technology which constitute part of the products and services manufactured,
marketed or sold by Seller or licensed by Seller to third parties are Year 2000
Compliant. Seller is not aware of any failure to be Year 2000 Compliant of any
third-party system that is material to the business or operations of Seller,
including without limitation any system belonging to any of Seller's suppliers,
service providers or customers.
(b) For purposes of this Agreement, "Year 2000 Compliant" means that the
applicable system or item:
-17-
(i) will accurately receive, record, store, provide, recognize and
process all date and time data from, during, into and between the twentieth
and twenty-first centuries, the years 1999 and 2000 and all leap years;
(ii) will accurately perform all date-dependent calculations and operations
(including, without limitation, mathematical operations, sorting, comparing and
reporting) from, during, into and between the twentieth and twenty-first
centuries, the years 1999 and 2000 and all leap years; and
(iii) will not malfunction, cease to function or provide invalid or incorrect
results as a result of (x) the change of years from 1999 to 2000, (y) date data,
including date data which represents or references different centuries,
different dates during 1999 and 2000, or more than one century or (z) the
occurrence of any particular date;
in each case without human intervention, other than original data entry;
provided, in each case, that all applications, hardware and other systems used
in conjunction with such system or item which are not owned or licensed by
Seller correctly exchange date data with or provide data to such system or item.
5.20. No Finder. Neither Seller nor any Person acting on its behalf has
---------
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement, other than to Anderson Weiss Group, whose fees and expenses, to the
extent payable, shall be paid by Seller.
5.21. Disclosure. None of the representations or warranties of Seller
----------
contained herein, none of the information contained in the Schedules referred to
in Article V, and none of the other information or documents furnished to Buyer
---------
by Seller pursuant to the terms of this Agreement or otherwise, is false or
misleading in any material respect or omits to state a fact herein or therein
necessary to make the statements herein or therein not misleading in any
material respect. There is no fact which adversely affects or in the future is
likely to adversely affect the Purchased Assets or the Business in any material
respect which has not been set forth or referred to in this Agreement or the
Schedules hereto.
Article VI
Representations and Warranties of Buyer
---------------------------------------
As an inducement to Seller to enter into this Agreement and to consummate
the transactions contemplated hereby, Buyer hereby represents and warrants to
Seller and agrees as follows:
6.1. Organization of Buyer. Buyer is a corporation duly organized, validly
---------------------
existing and in good standing under the laws of the State of Delaware.
6.2. Authority of Buyer. Buyer has full power and authority to execute,
------------------
deliver and perform this Agreement. The execution, delivery and performance of
this Agreement by Buyer
-18-
have been duly authorized and approved by Buyer's board of directors and do not
require any further authorization or consent of Buyer or its stockholders. This
Agreement has been duly authorized, executed and delivered by Buyer and each is
the legal, valid and binding agreement of Buyer enforceable in accordance with
its terms.
Neither the execution and delivery of this Agreement or the consummation of
any of the transactions contemplated hereby nor compliance with or fulfillment
of the terms, conditions and provisions hereof will:
(a) conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event creating
rights of acceleration, termination or cancellation or a loss of rights under
(1) the Certificate of Incorporation or By-laws of Buyer, (2) any material note,
instrument, agreement, mortgage, lease, license, franchise, permit or other
authorization, right, restriction or obligation to which Buyer is a party or any
of its properties is subject or by which Buyer is bound, (3) any Court Order to
which Buyer is a party or by which it is bound or (4) any Requirements of Laws
affecting Buyer; or
(b) require the approval, consent, authorization or act of, or the making
by Buyer of any declaration, filing or registration with, any Person.
6.3. No Finder. Neither Buyer nor any Person acting on its behalf has paid
---------
or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
Article VII
Additional Agreements
---------------------
7.1. Covenant Not to Compete. In furtherance of the sale of the Purchased
-----------------------
Assets and the Business to Buyer hereunder and to more effectively protect the
value and goodwill of the Purchased Assets and the Business so sold, Seller,
Trent and each Member covenants and agrees that, for a period ending on the
fifth anniversary of the Closing Date, none of Seller, Trent or either Member
will directly or indirectly (whether as principal, agent, independent
contractor, partner or otherwise) own, manage, operate, control, participate in,
perform services for, or otherwise carry on, a business similar to or
competitive with the Business anywhere in the United States (it being understood
by the parties hereto that the Business is not limited to any particular region
of the United States and that such business may be engaged in effectively from
any location in the United States). In addition, Seller, Trent and each Member
covenants and agrees that it will not divulge or make use of any trade secrets
or other confidential information of the Business other than to disclose such
secrets and information to Buyer or its Affiliates. If Buyer enters into a
license as contemplated by Section 7.7, then nothing in this Section 7.1 shall
----------- -----------
prohibit the licensee from engaging in any activity that is within the scope of
such license. In the event Seller, Trent or either Member violate any of their
obligations under this Section 7.1, Buyer may proceed against Seller, Trent or
-----------
either Member, as the case may be, in law or in equity. Seller, Trent and each
Member acknowledges that a violation of this Section 7.1 may cause
-----------
-19-
Buyer irreparable harm which may not be adequately compensated for by money
damages. Seller, Trent and the Members therefore agree that in the event of any
actual or threatened violation of this Section 7.1, Buyer shall be entitled, in
-----------
addition to other remedies that it may have, to a temporary restraining order
and to preliminary and final injunctive relief against Seller, Trent or either
Member, as the case may be, to prevent any violations of this Section 7.1,
-----------
without the necessity of posting a bond. Trent acknowledges that the provisions
of this Section 7.1 are not intended to limit, in any respect, the provisions
-----------
contained in Section 6 of the Employment Agreement that he and Buyer are
---------
entering into of even date herewith. The prevailing party in any action
commenced under this Section 7.1 shall also be entitled to receive
-----------
reasonable attorneys' fees and court costs. It is the intent and understanding
of each party hereto that if, in any action before any court or agency legally
empowered to enforce this Section 7.1, any term, restriction, covenant or
-----------
promise in this Section 7.1 is found to be unreasonable and for that reason
-----------
unenforceable, then such term, restriction, covenant or promise shall be deemed
modified to the extent necessary to make it enforceable by such court or agency.
7.2. Taxes. (a) Seller shall be liable for and shall pay all
-----
Taxes (whether assessed or unassessed) applicable to Seller, the Business or the
Purchased Assets, in each case attributable to periods (or portions thereof)
ending on or prior to the Closing Date. Buyer shall be liable for and shall pay
all Taxes (whether assessed or unassessed) applicable to the Business and the
Purchased Assets, in each case attributable to periods (or portions thereof)
beginning after the Closing Date. For purposes of this paragraph (a), any
period beginning before and ending after the Closing Date shall be treated as
two partial periods, one ending on the Closing Date and the other beginning
after the Closing Date except that Taxes (such as property Taxes) imposed on a
periodic basis shall be allocated on a daily basis.
(b) Notwithstanding Section 7.2(a), any sales Tax, use Tax, real property
--------------
transfer or gains Tax, documentary stamp Tax or similar Tax attributable to the
sale or transfer of the Purchased Assets shall be paid by Seller.
7.3. Employees (a) Offers of Employment. Effective as of the Closing Date,
--------- --------------------
Seller shall terminate the employment of, and Buyer shall offer employment to,
all individuals who immediately prior to the Closing Date are (i) employed by
Seller, and (ii) listed on Schedule 5.18(a) (including all such employees
-------------
actually working for Seller and all such employees who would be working for
Seller but are absent from employment due to a short-term illness or injury,
military service or other authorized absence but not including any person listed
on Schedule 5.18(a) who is on a long term disability leave of absence as of the
-------------
Closing Date). Those employees of Seller who accept Buyer's offer of employment
are referred to herein as "Transferred Employees"' provided, however, that the
---------------------
term Transferred Employees shall not include any of such employees who are
absent from employment and do not report to Buyer for full-time active work
within twelve weeks after the Closing Date. Each such Transferred Employee shall
be employed by Buyer for the same compensation and wage levels received by such
Transferred Employee immediately prior to the Closing Date. Notwithstanding
anything set forth below or herein to the contrary, (1) nothing in this
Agreement shall create any obligation on the part of Buyer to continue the
employment of any employee for any definite period following the Closing Date,
(2) nothing in this Agreement shall preclude Buyer from altering, amending, or
-20-
terminating any of its employee benefit plans, or the participation of any of
its employees in such plans, at any time; and (3) Seller shall retain all
obligation and liability for all benefits (including, but not limited to,
severance benefits and continuation coverage under Part 6 of Title I of ERISA)
under its Plans, with respect to the Transferred Employees and their
beneficiaries.
(b) Buyer's Plans. Effective as of the Closing Date, each Transferred
-------------
Employee shall be eligible to participate in the pension, welfare and other
benefit plans maintained by Buyer for its employees on the same basis and on the
same conditions as other employees of Buyer, provided that such Transferred
Employee satisfies the eligibility criteria for participation in such plans.
(c) Third-Party Rights. No provision of this Section 7.3 shall create
------------------ -----------
any third-party beneficiary rights in any employee or former employee (including
any beneficiary or dependent thereof) of Seller, any of its Affiliates, Buyer or
any of its Affiliates in respect of continued employment (or resumed employment)
for any specified period of any nature or kind whatsoever, and no provision of
this Section 7.3 shall create such third-party beneficiary rights in any such
-----------
persons in respect of any benefits that may be provided, directly or indirectly,
under any employee benefit plan or arrangement maintained by Buyer or Seller.
7.4. Collection of Receivables. For a period of ninety days from and
-------------------------
after the Closing Date (the "Collection Period"), Buyer shall use its
-----------------
commercially reasonable efforts to collect on behalf of Seller the accounts and
notes receivable of the Business as the same may exist at the close of business
on the Closing Date (the "Receivables") generally in accordance with the billing
-----------
and collection practices then applied by Buyer in the collection of its accounts
and notes receivable, except that with respect to any particular Receivable,
Buyer shall be under no obligation to commence or not to commence litigation to
effect collection and may make any adjustment, concession or settlement which in
the good faith judgment of Buyer is commercially reasonable. Buyer shall not be
obligated to collect any Receivables after the expiration of the Collection
Period. In connection with the collections by Buyer, if a payment is received
from an account debtor who has not designated the invoice being paid thereby,
such payment shall be applied to the earliest invoice outstanding with respect
to indebtedness of such account debtor, except for those invoices which are
subject to a dispute to the extent of such dispute.
(b) Buyer shall, on or before the fifteenth business day following each
calendar month during the Collection Period, (i) deliver to Seller a written
report of the aggregate amount of cash collections of Receivables collected by
it during such calendar month and a listing, by account, of the Receivables so
collected and (ii) pay Seller, by check, an amount equal to 95% of such
aggregate amount.
(c) Seller shall, on or before the fifteenth business day following each
calendar month during the Collection Period, (i) deliver to Buyer a written
report of the aggregate amount of cash collections of Receivables collected by
it during such calendar month and (ii) pay Buyer, by check, an amount equal to
5% of such aggregate amount.
-21-
(d) If, after the expiration of the Collection Period, Buyer shall
receive any remittance from any account debtors with respect to the Receivables,
Buyer shall endorse such remittance to the order of Seller and forward it to
Seller promptly upon receipt thereof.
(e) Following the expiration of the Collection Period, none of Buyer's
resources (including those as may be included among the Purchased Assets and
former employees of Seller then employed by Buyer) may be utilized in connection
with the collection of any Receivables without the consent of Buyer.
7.5. Change in Corporate Name. Seller agrees promptly after the Closing
------------------------
Date to change its corporate name to a name that does not include "SMI" or the
phrase "Surveyors Module International" or any variation of either.
7.6. Right to Offset. Buyer may offset against any amount payable by it
---------------
to after the Closing, including without limitation, the Earn-Out Amounts and
amounts payable pursuant to Section 7.4, any amount that Seller is then
-----------
obligated to pay Buyer hereunder.
7.7. Abandonment of Business. Buyer agrees that if the Modified Gross
-----------------------
Profit with respect to any of the three-month periods ending at the end of
February, May, August or November, in 2000 or 2001, shall be less than $10,000,
then it shall, if so requested in writing by Trent, license to Trent (or an
affiliate of Trent) on a non-exclusive, personal, worldwide, perpetual and
royalty-free basis, the Intellectual Property included in the Purchased Assets
on the Closing Date, including the "SMI" and "Surveyors Module International"
names and variations thereof for use solely in connection with the business of
developing, marketing and selling software for the handheld data collection
surveying market and developing, marketing and selling related instruments for
the surveying market. Such license shall provide that (i) it may not be
transferred or assigned without the consent of Buyer, (ii) the licensee shall
not be permitted to sub-license its rights thereunder without the consent of
Buyer and (iii) the license shall terminate upon any change of control of the
licensee or a sale or transfer by the licensee of all or substantially all of
its business or assets. In consideration of such license, the Buyer shall be
entitled to receive from the licensee a one-time cash payment, to be made not
later than the effective date of such license, equal to the Modified Gross
Profit for the nine month period ending on the effective date of such license,
or, if shorter, the period commencing with the Closing Date and ending on the
effective date of such license. Such license shall be granted on an "AS IS"
basis without warranty of any kind, with all warranties, express or implied,
including, but not limited to, any implied warranties of merchantability, title
or fitness for a particular purpose disclaimed. Buyer shall not be obligated to
provide any representations, warranties or indemnification of any kind with
respect to the licensed property and shall be entitled to full indemnification
from the licensee in respect of its use of the licensed property. Subject to the
foregoing, such license shall be in such form and contain such other terms and
conditions as the parties thereto shall agree.
7.8 Access to Records after Closing. For a period of three years after
-------------------------------
the Closing Date, Seller and its representatives shall have reasonable access to
all of the books and records of the Business transferred to Buyer hereunder to
the extent that such access may reasonably be
-22-
required by Seller in connection with matters relating to or affected by the
operations of the Business prior to the Closing Date and to verify the
calculations of Modified Gross Profit in conjunction with the calculation of the
Earn-Out Amounts. Such access shall be afforded by Buyer upon receipt of
reasonable advance notice and during normal business hours. Seller shall be
solely responsible for any costs or expenses incurred by it pursuant to this
Section 7.8.
- -----------
Article VIII
Indemnification
---------------
8.1. Indemnification by Seller, Trent and the Members. (a) Seller, Trent
------------------------------------------------
and each Member agrees, jointly and severally, to indemnify and hold harmless
each Buyer Group Member from and against any and all Losses and Expense incurred
by such Buyer Group Member in connection with or arising from: (i) any breach by
Seller, Trent or either Member of any of their respective covenants in this
Agreement; (ii) any failure of Seller, Trent or either Member to perform any of
their respective obligations in this Agreement; (iii) any breach of any warranty
or the inaccuracy of any representation of Seller contained or referred to in
this Agreement or any certificate delivered by Seller hereunder; or (iv) the
failure of Seller to discharge any Excluded Liability.
(b) The indemnification provided for in this Section 8.1 shall terminate
-----------
three years after the Closing Date, except that the indemnification by Seller,
Trent and the Members shall continue as to:
(i) the obligations and representations of Seller under any
instrument of assignment, copyright assignment or trademark assignment, as
to which no time limitation shall apply;
(ii) the representations and warranties set forth in Sections 5.1,
------------
5.2, 5.3, 5.17 and 5.20, and the covenants of Seller set forth in Sections
--- --- ---- ---- --------
2.3, 7.2, 9.7 and 9.10 as to all of which no time limitation shall apply;
--- --- --- ----
(iii) the covenant set forth in Section 7.1, as to which the
-----------
indemnification provided for in this Section 8.1 shall terminate one year
-----------
after the expiration of the noncompetition period provided for therein; and
(iv) any Loss or Expense of which any Buyer Group Member has
notified Seller in accordance with the requirements of Section 8.3 on or
-----------
prior to the date such indemnification would otherwise terminate in
accordance with this Section 8.1, as to which the obligations of Seller,
-----------
Trent and the Members shall continue until the liability of Seller, Trent
or the Members shall have been determined pursuant to this Article VIII,
------------
and Seller, Trent or the Members shall have reimbursed all Buyer Group
Members for the full amount of such Loss and Expense in accordance with the
terms hereof.
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(c) Limitation on Seller's, Trent's and the Members' Indemnification.
----------------------------------------------------------------
Notwithstanding any provision herein to the contrary, the indemnification
obligation of Seller, Trent and the Members under Section 8.1 (i) with respect
-----------
to Seller's representations and warranties, other than those set forth in
Sections 5.1, 5.2, 5.3, 5.17 and 5.20, shall not exceed an amount equal to the
- ------------ --- --- ---- ----
Purchase Price, and (ii) shall not accrue until and unless the aggregate
liability of the Seller, Trent and the Members taken together pursuant to this
Section 8.1 exceeds the sum of $15,000 (the "Threshold Amount"), provided that
- ----------- ----------------
in the event the Threshold Amount is met, Buyer shall be entitled to
indemnification for all indemnifiable liabilities hereunder, including the first
$15,000 thereof taken into account for purposes of meeting the Threshold Amount.
8.2. Indemnification by Buyer. (a) Buyer agrees to indemnify and hold
------------------------
harmless each Seller Group Member from and against any and all Loss and Expense
incurred by such Seller Group Member in connection with or arising from: (i) any
breach by Buyer of any of its covenants or agreements in this Agreement; (ii)
any failure by Buyer to perform any of its obligations in this Agreement; or
(iii) any breach of any warranty or the inaccuracy of any representation of
Buyer contained or referred to in this Agreement or in any certificate delivered
by or on behalf of Buyer pursuant hereto.
(b) The indemnification provided for in this Section 8.2 shall terminate
-----------
three years after the Closing Date, except that the indemnification by Seller
shall continue as to:
(i) the obligations and representations of Seller under any
instrument of assumption, as to which no time limitation shall apply;
(ii) the representations and warranties set forth in Article VI and
----------
the covenants of Buyer set forth in Sections 2.3, 7.2, 7.4, 9.7 and 9.10,
------------ --- --- --- ----
as to all of which no time limitation shall apply; and
(iii) any Loss or Expense of which any Seller Group Member has
notified Buyer in accordance with the requirements of Section 8.3 on or
-----------
prior to the date such indemnification would otherwise terminate in
accordance with this Section 8.2, as to which the obligation of Buyer shall
-----------
continue until the liability of Buyer shall have been determined pursuant
to this Article VIII, and Buyer shall have reimbursed all Seller Group
------------
Members for the full amount of such Loss and Expense in accordance with the
terms hereof.
(c) Limitation on Buyer's Indemnification. Notwithstanding any provision
-------------------------------------
herein to the contrary, the indemnification obligation of Buyer under this
Section 8.2 shall not accrue until and unless the aggregate liability of the
- -----------
Seller taken together pursuant to this Section 8.2 exceeds the Threshold Amount,
-----------
provided that in the event the Threshold Amount is met, Seller shall be entitled
to indemnification for all indemnifiable liabilities hereunder, including the
first $15,000 thereof taken into account for purposes of meeting the Threshold
Amount.
8.3. Notice of Claims. (a) Any Buyer Group Member or Seller Group Member
----------------
(the "Indemnified Party") seeking indemnification hereunder shall give to the
-----------------
party obligated to
-24-
provide indemnification to such Indemnified Party (the "Indemnitor") a notice
----------
(a "Claim Notice") describing in reasonable detail the facts giving rise to any
------------
claim for indemnification hereunder, and the amount (if then known) or method of
computation of the amount of such claim, and a reference to the provision of
this Agreement or any other agreement, document or instrument executed hereunder
or in connection herewith upon which such claim is based; provided, that a Claim
--------
Notice in respect of any action at law or suit in equity by or against a third
Person as to which indemnification will be sought shall be given promptly after
the action or suit is commenced; provided further that failure to give such
-------- -------
notice shall not relieve the Indemnitor of its obligations hereunder except to
the extent it shall have been prejudiced by such failure.
(b) After the giving of any Claim Notice pursuant hereto, the amount of
indemnification to which an Indemnified Party shall be entitled under this
Article VIII shall be determined: (i) by the written agreement between the
- ------------
Indemnified Party and the Indemnitor; (ii) by a final judgment or decree of any
court of competent jurisdiction; or (iii) by any other means to which the
Indemnified Party and the Indemnitor shall agree.
8.4. Third Person Claims. The Indemnified Party shall have the right to
-------------------
conduct and control, through counsel of its choosing, the defense, compromise or
settlement of any third Person claim, action or suit against such Indemnified
Party as to which indemnification will be sought by any Indemnified Party from
any Indemnitor hereunder. In any such case the Indemnitor shall cooperate in
connection therewith and shall furnish such records, information and testimony
and attend such conferences, discovery proceedings, hearings, trials and appeals
as may be reasonably requested by the Indemnified Party in connection therewith.
The Indemnitor may participate, through counsel chosen by it and at its own
expense, in the defense of any such claim, action or suit.
Article IX
General Provisions
------------------
9.1. Survival of Obligations. All representations, warranties, covenants
-----------------------
and obligations contained in this Agreement shall survive the consummation of
the transactions contemplated by this Agreement and shall terminate on the third
anniversary of the Closing Date; provided, however, that, except as otherwise
-------- -------
provided in Article VIII, (i) the representations and warranties contained in
------------
Sections 5.1, 5.2, 5.3, 5.17, 5.20 and Article VI, shall survive without time
- ------------ --- --- ---- ---- ----------
limitation and (ii) the covenants and obligations of the parties contained in
Article VIII and in Sections 2.3, 7.1, 7.2, 7.3, 7.4, 9.7 and 9.10 shall survive
- ------------ ------------ --- --- --- --- --- ----
without time limitation other than time limits therein expressed. Except as
otherwise provided herein, no claim shall be made for the breach of any
representation or warranty contained herein or under any certificate delivered
with respect thereto under this Agreement after the date on which such
representations and warranties terminate as set forth in this Section 9.1.
------------
9.2. No Public Announcement. Seller, Trent and the Members shall not,
----------------------
without the approval of Buyer, make any press release or other public
announcement concerning the transactions contemplated by this Agreement, except
as and to the extent that Seller, Trent or the
-25-
Members shall be so obligated by law, in which case Buyer shall be advised and
the parties shall use their best efforts to cause a mutually agreeable release
or announcement to be issued.
9.3. Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be deemed given when (i) delivered
personally or by overnight courier to the following address of the party hereto
(or such other address for such party as shall be specified by notice given
pursuant to this Section) or (ii) sent by facsimile to the following facsimile
number of the party hereto (or such other facsimile number for such party as
shall be specified by notice given pursuant to this Section), with the
confirmatory copy delivered by overnight courier to the address of such party
pursuant to this Section 9.3, as follows:
-----------
If to Buyer, to:
Eagle Point Software Corporation
4131 Westmark Drive
Dubuque, Iowa 52002
Attention: Dennis J. George
Facsimile: (319) 556-8424
with a copy to:
Sidley & Austin
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
Attention: Richard E. Robbins
Facsimile: (312) 853-7036
If to Seller, Trent or either Member, to:
R. Stanley Trent
410 Payne Ridge Road
Church Hill, Tennessee 37642
Facsimile: (423) 357-3299
with a copy to:
The Anderson Firm
111 North Main Street
Greenville, Tennessee 37743
Attention: Sam Troy
Facsimile: (423) 636-3131
or to such other address as such party may indicate by a notice delivered to the
other parties hereto.
-26-
9.4. Successors and Assigns. This Agreement may be assigned by any party,
----------------------
but no such assignment shall relieve such assigning party of any of its
obligations hereunder. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and each of their successors and assigns. Nothing
in this Agreement, expressed or implied, is intended or shall be construed to
confer upon any Person other than the parties and successors and assigns
permitted by this Section 9.4 any right, remedy or claim under or by reason of
-----------
this Agreement.
9.5. Entire Agreement; Amendments. This Agreement and the Schedules
----------------------------
referred to herein and the documents delivered pursuant hereto contain the
entire understanding of the parties hereto with regard to the subject matter
contained herein, and supersede all prior agreements, understandings or letters
of intent between or among the parties hereto. This Agreement shall not be
amended, modified or supplemented except by a written instrument signed by each
of the parties hereto.
9.6. Execution in Counterparts. This Agreement may be executed in one or
-------------------------
more counterparts, each of which shall be considered an original instrument, but
all of which shall be considered one and the same agreement.
9.7. Further Assurances. From and after the Closing Date Seller shall (a)
------------------
deliver to Buyer such other bills of sale, deeds, endorsements, assignments and
other good and sufficient instruments of conveyance and transfer, in form
reasonably satisfactory to Buyer, as Buyer may reasonably request or as may be
otherwise reasonably necessary to vest in Buyer all the right, title and
interest of Seller in, to or under any or all of the Purchased Assets, and (b)
take all steps as may be reasonably necessary to put Buyer in actual possession
and control of all of the Purchased Assets.
9.8. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the internal laws (as opposed to the conflicts of law provisions
that might result in the application of the substantive law of another
jurisdiction) of the State of Illinois.
9.9. Submission to Jurisdiction. Seller and Buyer hereby irrevocably
--------------------------
submit in any suit, action or proceeding arising out of or related to this
Agreement or any of the transactions contemplated hereby or thereby to the
jurisdiction of the United States District Court for the Northern District of
Illinois and the jurisdiction of any court of the State of Illinois located in
Cook County and waive any and all objections to jurisdiction that they may have
under the laws of the State of Illinois or the United States.
9.10. Expenses. Each party hereto will pay all of its own costs and
--------
expenses incident to its negotiation and preparation of this Agreement and to
its performance and compliance with all agreements and conditions contained
herein on its part to be performed or complied with, including the fees,
expenses and disbursements of its counsel and accountants.
9.11. Partial Invalidity. Wherever possible, each provision hereof shall
------------------
be interpreted in such manner as to be effective and valid under applicable law,
but in case any one or more of the provisions contained herein shall, for any
reason, be held to be invalid, illegal or
-27-
unenforceable in any respect, such provision shall be ineffective only to the
extent of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
In Witness Whereof, the parties hereto have caused this Agreement to be
executed the day and year first above written.
EAGLE POINT SOFTWARE CORPORATION
By /s/ DENNIS J. GEORGE
------------------------------------
Name: Dennis J. George
Title: Secretary
SURVEYORS MODULE INTERNATIONAL, LLC
By /s/ R. STANLEY TRENT
----------------------------------
Name: R. Stanley Trent
Title: C.E.O.
/s/ R. STANLEY TRENT
----------------------------------------
R. Stanley Trent
/s/ R. STANLEY TRENT
-----------------------------------------
R. Stanley Trent, as sole Trustee of
JAMES, A TRUST
/s/ R. STANLEY TRENT
-----------------------------------------
R. Stanley Trent, as agent for
Charles A. Peterson, as sole Trustee of
FARROW, A TRUST
-28-
Exhibit A
First Quarter Earn-Out Calculations
Line 1 Modified Gross Profit for the period from December 1, __________
1999 through February 29, 2000
Line 2 Line 1 or $625,000, whichever is smaller __________
Line 3 Estimate of Modified Gross Profit yielding 70% Earn-Out __________
Line 2 - $412,500 (enter 0 if negative)
Line 4 Estimate of Modified Gross Profit yielding 85% Earn-Out __________
Line 1 - $625,000 (enter 0 if negative)
Line 5 Estimated 70% Earn-Out Line 3 x .70 __________
Line 6 Estimated 85% Earn-Out Line 4 x .85 __________
Line 7 Estimated Earn-Out Line 5 + Line 6 __________
Line 8 Future value to be paid currently Line 7 x .75 __________
Line 9 Current payment (Present value of Line 8) __________
Line 8 x .9625
Second Quarter Earn-Out Calculations
Line 10 Modified Gross Profit for the period from December 1, __________
1999 through May 31, 2000
Line 11 Line 10 or $1,250,000, whichever is smaller __________
Line 12 Estimate of Modified Gross Profit yielding 70% Earn-Out __________
Line 11 - $825,000 (enter 0 if negative)
Line 13 Estimate of Modified Gross Profit yielding 85% Earn-Out __________
Line 10 - $1,250,000 (enter 0 if negative)
Line 14 Estimated 70% Earn-Out Line 12 x .70 __________
Line 15 Estimated 85% Earn-Out Line 13 x .85 __________
Line 16 Estimated Earn-Out Line 14 + Line 15 __________
Line 17 Future value to be paid (total) Line 16 x .75 __________
Line 18 Future value previously paid Line 8 __________
Line 19 Future value to be paid currently __________
Line 17 - Line 18 (enter 0 if negative)
Line 20 Current payment (Present value of Line 19) __________
Line 19 x .975
-29-
Third Quarter Earn-Out Calculations
Line 21 Modified Gross Profit for the period from December 1, __________
1999 through August 31, 2000
Line 22 Line 21 or $1,875,000, whichever is smaller __________
Line 23 Estimate of Modified Gross Profit yielding 70% Earn-Out __________
Line 22 - $1,237,500 (enter 0 if negative)
Line 24 Estimate of Modified Gross Profit yielding 85% Earn-Out __________
Line 21 - $1,875,000 (enter 0 if negative)
Line 25 Estimated 70% Earn-Out Line 23 x .70 __________
Line 26 Estimated 85% Earn-Out Line 24 x .85 __________
Line 27 Estimated Earn-Out Line 25 + Line 26 __________
Line 28 Future value to be paid (total) Line 27 x .75 __________
Line 29 Future value previously paid Line 8 + Line 19 __________
Line 30 Future value to be paid currently __________
Line 28 - Line 29 (enter 0 if negative)
Line 31 Current payment (Present value of Line 30) __________
Line 30 x .9875
Year-End Earn-Out Calculations
Line 32 Modified Gross Profit for the period from December 1, __________
1999 through November 30, 2000
Line 33 Line 32 or $2,500,000, whichever is smaller __________
Line 34 Modified Gross Profit yielding 70% Earn-Out __________
Line 33 - $1,650,000 (enter 0 if negative)
Line 35 Modified Gross Profit yielding 85% Earn-Out __________
Line 32 - $2,500,000 (enter 0 if negative)
Line 36 70% Earn-Out Line 34 x .70 __________
Line 37 85% Earn-Out Line 35 x .85 __________
Line 38 Earn-Out Line 36 + Line 37 __________
Line 39 Previous Payments Line 8 + Line 19 + Line 30 __________
Line 40 Amount Due to Seller (Owed to Buyer) __________
Line 38 - Line 39
-30-
Exhibit B
First Quarter Earn-Out Calculations
Line 1 Modified Gross Profit for the period from December 1, __________
2000 through February 29, 2001
Line 2 Line 1 or $625,000, whichever is smaller __________
Line 3 Estimate of Modified Gross Profit yielding 70% Earn-Out __________
Line 2 - $412,500 (enter 0 if negative)
Line 4 Estimate of Modified Gross Profit yielding 85% Earn-Out __________
Line 1 - $625,000 (enter 0 if negative)
Line 5 Estimated 70% Earn-Out Line 3 x .70 __________
Line 6 Estimated 85% Earn-Out Line 4 x .85 __________
Line 7 Estimated Earn-Out Line 5 + Line 6 __________
Line 8 Future value to be paid currently Line 7 x .75 __________
Line 9 Current payment (Present value of Line 8) __________
Line 8 x .9625
Second Quarter Earn-Out Calculations
Line 10 Modified Gross Profit for the period from December 1, __________
2000 through May 31, 2001
Line 11 Line 10 or $1,250,000, whichever is smaller __________
Line 12 Estimate of Modified Gross Profit yielding 70% Earn-Out __________
Line 11 - $825,000 (enter 0 if negative)
Line 13 Estimate of Modified Gross Profit yielding 85% Earn-Out __________
Line 10 - $1,250,000 (enter 0 if negative)
Line 14 Estimated 70% Earn-Out Line 12 x .70 __________
Line 15 Estimated 85% Earn-Out Line 13 x .85 __________
Line 16 Estimated Earn-Out Line 14 + Line 15 __________
Line 17 Future value to be paid (total) Line 16 x .75 __________
Line 18 Future value previously paid Line 8 __________
Line 19 Future value to be paid currently __________
Line 17 - Line 18 (enter 0 if negative)
Line 20 Current payment (Present value of Line 19) __________
Line 19 x .975
Third Quarter Earn-Out Calculations
B-1
Line 21 Modified Gross Profit for the period from December 1, __________
2000 through August 31, 2001
Line 22 Line 21 or $1,875,000, whichever is smaller __________
Line 23 Estimate of Modified Gross Profit yielding 70% Earn-Out __________
Line 22 - $1,237,500 (enter 0 if negative)
Line 24 Estimate of Modified Gross Profit yielding 85% Earn-Out __________
Line 21 - $1,875,000 (enter 0 if negative)
Line 25 Estimated 70% Earn-Out Line 23 x .70 __________
Line 26 Estimated 85% Earn-Out Line 24 x .85 __________
Line 27 Estimated Earn-Out Line 25 + Line 26 __________
Line 28 Future value to be paid (total) Line 27 x .75 __________
Line 29 Future value previously paid Line 8 + Line 19 __________
Line 30 Future value to be paid currently __________
Line 28 - Line 29 (enter 0 if negative)
Line 31 Current payment (Present value of Line 30) __________
Line 30 x .9875
Year-End Earn-Out Calculations
Line 32 Modified Gross Profit for the period from December 1, __________
2000 through November 30, 2001
Line 33 Line 32 or $2,500,000, whichever is smaller __________
Line 34 Modified Gross Profit yielding 70% Earn-Out __________
Line 33 - $1,650,000 (enter 0 if negative)
Line 35 Modified Gross Profit yielding 85% Earn-Out __________
Line 32 - $2,500,000 (enter 0 if negative)
Line 36 70% Earn-Out Line 34 x .70 __________
Line 37 85% Earn-Out Line 35 x .85 __________
Line 38 Earn-Out Line 36 + Line 37 __________
Line 39 Previous Payments Line 8 + Line 19 + Line 30 __________
Line 40 Amount Due to Seller (Owed to Buyer) __________
Line 38 - Line 39
B-1