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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant To Section 13 or 15(d) Of The Securities
Exchange Act Of 1934 For the fiscal year ended July 31, 1999
OR
[ ] Transition Report Pursuant To Section 13 or 15(d) Of The Securities
Exchange Act Of 1934 For the transition period from _________ to _________
Commission file number 1-7636
DATAPOINT CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1605174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7 rue d'Anjou 75008, Paris, France
8410 Datapoint Drive, San Antonio, Texas 78229-8500
(Address of principal executive offices and zip code)
(33-1) 40 07 37 37
(210) 593-7000
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of each exchange on which registered
Common Stock, $.25 par value National Association of Securities Dealers'
Over-the-Counter Bulletin Board
$1.00 Exchangeable Preferred Stock,
$1.00 par value National Association of Securities Dealers'
Over-the-Counter Bulletin Board
8-7/8% Convertible Subordinated
Debentures Due 2006 Over-the-Counter
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. Yes X No .
As of November 1, 1999, 18,348,229 shares of Datapoint Corporation Common
Stock were outstanding (excluding 2,642,988 shares held in Treasury), and the
aggregate market value (based upon the last reported sale price of the Common
Stock on the National Association of Securities Dealers' Over-the-Counter
Bulletin Board -- Composite Tape on November 1, 1999) of the shares of Common
Stock held by non-affiliates was approximately $7.1 million. (For purposes of
calculating the preceding amount only, all directors and executive officers of
the registrant are assumed to be affiliates.)
PART I
ITEM 1. Business.
General
Datapoint Corporation, including its subsidiaries (hereinafter "Datapoint"
or "the Company"), is principally engaged in the development, acquisition,
marketing, servicing, and system integration of computer and communication
products -- both hardware and software. These products and services are for
integrated computer, telecommunication and video conferencing network systems.
The Company through its 80% owned subsidiary Corebyte Inc., is also actively
engaged in the development and marketing of the Corebyte Networks(TM) product
line consisting of internet communication and networking software.
Datapoint was reincorporated in Delaware in 1976 as the successor
corporation to a Texas corporation. It was originally incorporated in 1968 as
Computer Terminal Corporation and changed its name to Datapoint Corporation in
1972. Its principal executive offices are located at 7 rue d'Anjou 75008, Paris,
France (telephone number - (33-1) 40 07 37 37) and at 8410 Datapoint Drive, San
Antonio, Texas 78229-8500 (telephone number - (210)-593-7000).
Throughout the 1980's and the early 1990's, the Company's business was
characterized by a significant decline in total revenue, recurring significant
losses, and a reduction of the domestic workforce. This was primarily due to (1)
a mass entry of competitors in the networking marketplace compounded by (2) a
marketplace demand for "Open Systems" products and standard interfaces, both of
which had a negative impact on the traditional networking and data processing
components of the Datapoint business. The marketplace was forced into a sameness
of design that lead to highly competitive pricing being the only significant
product differentiator. These adverse effects were, in turn, worsened by the
increasing availability of low-cost, off-the-shelf software applications
packages written in a number of industry-standard programming languages. Between
1994 and 1996, the Company was able to maintain a consistent and slightly
increasing revenue level while, at the same time, restructuring its operations
mostly through significant workforce reductions worldwide. The aim was to reduce
its cost base to support such revenue levels. At the end of 1996, the Company
sold its European based Automotive Dealer Management Systems business ("EADS")
to Kalamazoo Computer Group, plc, a public limited company organized under the
laws of England ("Kalamazoo"). The decline in revenue levels in 1997 and
subsequently, reflects the result of this sale.
Since fiscal year 1996, the Company pursued, and is continuing to pursue,
actions to provide cash infusions, including the sale of selected assets of the
Company in order to improve its financial condition. In this regard, on May 28,
1996, the Company entered into an agreement with Kalamazoo, providing for the
sale by Datapoint to Kalamazoo of Datapoint's EADS for a purchase price of $33.0
million.
In addition, on October 27, 1997, the Company sold the three buildings it
owned in San Antonio, Texas to a private unaffiliated group for approximately
$3.2 million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years. During the first
quarter of 1999, the Company sold the building it owned in Gouda, Netherlands to
a private unaffiliated group for approximately $2.1 million (net of mortgage
obligations and closing costs). The sales contract provided for the leaseback by
the Company of approximately 18,000 square feet for an initial lease term of
five years and approximately 12,000 square feet for an initial lease term of one
year. The Company recorded in non-operating income a gain of approximately $.3
million during the first quarter of 1999. The remainder of the gain ($.9
million) was deferred and is being amortized over the lease terms.
During the second quarter of 1997, the Company accepted 1,145,945 shares of
its $1.00 Exchangeable Preferred Stock, having a liquidation preference $20 per
share ("the $1.00 Preferred Stock"), which was tendered in its exchange offer
(the "Exchange Offer") described in the proxy statement/prospectus delivered to
the holders of the Company's common stock, par value $.25 per share (the "Common
Stock"), and to the holders of $1.00 Preferred Stock. Under the terms of the
exchange offer, each share of $1.00 Preferred Stock tendered was exchanged for
3.25 shares of Common Stock. The exchange offer expired December 10, 1996. The
tendered shares approximated 61.34% of the total outstanding shares of $1.00
Preferred Stock immediately prior to the expiration of the exchange offer. For
purposes of calculating net income applicable to common shareholders in 1997,
and related per share amounts, a gain of $3.8 million on exchange and retirement
of preferred stock was added to net income. This gain includes the excess of the
carrying value of preferred stock accepted in the exchange over the fair value
of the common stock issued. In addition, the gain includes accumulated dividends
on the retired preferred stock.
Currently, the Company, principally through its European subsidiaries, has
been engaged in the development, acquisition, marketing, servicing and system
integration of computer and communications products. These products and services
are for integrated computer, telecommunication and video conferencing network
systems. While substantially all of the Company's revenue for the last three
years has come from the European Operations, as defined below, the profitability
of that business has decreased. The Board of Directors of the Company has
determined that such decline in profitability is likely to continue into the
foreseeable future unless the Company was to invest significant capital in the
European Operations. Subsequent to year end, in October 1999 the Company
discontinued its domestic video conferencing (MINX) operations. As a result,
severance pay of approximately $624 thousand will be paid to 28 employees in
regular bi-weekly installments. The severance obligations have not been
reflected in fiscal year 1999 results. In connection with the discontinuance of
this domestic operation, the Company recognized a charge to cost of revenue
during the fourth quarter of 1999 of $613 thousand to reflect an adjustment to
the net realizable value of inventories at July 31, 1999 relating to the
domestic video conferencing operation (MINX). Net revenues from this domestic
operation were approximately $2.1 million during 1999. Due to the Company's
limited financial resources, it was not able to continue making the investment
required, both in marketing and product development, to sustain consistent
profitability for this portion of the business. The Company does intend to honor
its existing warranty obligations as well as its existing maintenance support
contracts and other contracts related to this business.
Given the Company's limited resources, the Board of Directors has
determined that the Company should shift its focus to developing and/or
marketing internet products and e-commerce applications. In this regard, the
Company recently took steps to enter into a transaction to sell its European
Operations and acquired the Corebyte Networks(TM) product family ("Corebyte")
which consists of internet communication and networking software products
through a newly formed subsidiary named Corebyte Inc., of which the Company owns
an eighty-percent (80%) interest as more fully described below.
In connection with such refocus, on May 17, 1999, the Company and its
wholly-owned subsidiary, Datapoint International, Inc., entered into a letter of
intent for a proposed sale of its European subsidiaries which comprise
substantially all of the Company's operations (the "European Operations"). The
European Operations represented 96% of the Company's total revenue during 1999.
Excluding the European Operations, the Company's consolidated revenue and
operating loss were $5 million and $6.1 million, respectively, in 1999. Under
the terms of the proposed sale, the European Operations will be purchased for
$49.5 million plus the assumption of certain liabilities, less fees and
expenses, by Reboot Systems, Inc., an investor group headed by Blake Thomas, the
Company's president, and which includes key management employees of the European
Operations (collectively, the "Buyer"). Subsequently, a Stock Purchase Agreement
for the proposed sale was signed on July 31, 1999, and subsequently amended on
November 1, 1999 ("Stock Purchase Agreement"). The proposed sale is contingent
upon certain conditions, including the Buyer's ability to secure acquisition
financing, necessary third party consents, the consent of at least two thirds of
the debentureholders, and common shareholder majority approval ("shareholder
approval"). On November 1, 1999, the Company and the Buyer entered into the
First Amendment to the Stock Purchase Agreement (the "First Amendment"). The
First Amendment provided for a refundable deposit of $750 thousand (the
"Deposit") which was paid by the Buyer to the Company on November 8, 1999. The
Deposit will be used primarily to fund transaction costs, including the
engagement of BNY Capital Markets, Inc. to issue a fairness opinion in
connection with the transaction.
The First Amendment also obligates the Buyer to loan to the Company, on or
prior to December 1, 1999, approximately $2.5 million (the "December 1 Funding")
which represent the funds necessary for the Company to make the December 1999
interest payment on its 8 7/8 % convertible subordinated debentures (the
"Debentures"). The Deposit, the December 1 Funding, a fixed amount of $375
thousand, and repayment of commitment fees (the "Commitment Fees") as may be
incurred by the Buyer in connection with the transaction in the event that the
Company does not receive the requisite approval to the transaction by its
shareholders and holders of the Debentures will be secured by accounts
receivable of certain of the European subsidiaries.
Although the termination date pursuant to the First Amendment was extended
to March 31, 2000, if the December 1 Funding is not completed by the Buyer, the
Stock Purchase Agreement, as amended, will terminate on December 1, 1999. If
the transaction is consummated, the Deposit and the December 1 Funding shall be
applied toward the purchase price. If the transaction is not consummated, the
Company would be required to repay to the Buyer (i) the December 1 Funding and
(ii) the Deposit, and the payment of the Commitment Fees and the fixed amount of
$375 thousand if the transaction did not close as a result of the inability of
the Company to obtain the requisite consents of its shareholders and holders of
the Debentures. In the event that the Buyer does not obtain the financing
commitment by February 1, 2000, the Company is required to reimburse the Buyer
for the December 1 Funding, but retains the Deposit.
The closing under the Stock Purchase Agreement, as amended, requires
majority shareholder approval and the consent of at least two thirds of the
debentureholders of the Company. In connection with obtaining such approvals,
the Company expects to file shortly with the U.S. Securities and Exchange
Commission proxy materials soliciting such approvals and tender offer documents
to repurchase some portion of the Debentures. In this regard, the Company has
engaged BNY Capital Markets, Inc. to deliver a fairness opinion as to the
fairness of the transaction to the shareholders of the Company from a financial
point of view.
On November 11, 1998, the Company engaged Dain Rauscher Wessels, a division
of Dain Rauscher Incorporated ("Dain Rauscher"), as its investment banker to
assist the Company in marketing and negotiating the sale of the European
Operations. Dain Rauscher solicited indications of interest from a broad array
of strategic and financial prospective purchasers. In addition to the Buyer, the
Company entered into preliminary negotiations with two groups. One such group
made an inferior offer to purchase the European Operations, which the Company
rejected. The other such group initially indicated a willingness to pay a higher
purchase price than the Buyer and the Company engaged in active negotiations
with this group. However, when such group failed to make an adequate offer, the
Company then resumed negotiations with the Buyer. Based upon the Buyer's
proposed purchase price, the Company's familiarity with certain of the entities
and individuals comprising the Buyer, and the Buyer's familiarity with the
European Operations, among other factors, the Company believed the transaction
with the Buyer represented the most favorable available opportunity to
consummate the sale of the European Operations on the most favorable terms,
including price.
Based on current trends in its business and its financial forecasts, the
Company believes if the December 1 Funding is not made and if the proposed sale
of the European Operations is not consummated, that it will not be able to make
the scheduled December 1999 interest payment of $2.4 million on its 8 7/8%
convertible subordinated debentures and a $5.0 million sinking fund payment due
in March 2000, respectively, from internal cash flow resources. In the event the
interest payment is not made within the 30-day period following December 1,
1999, the resulting default would entitle the holders of the Debentures to elect
to declare the entire indebtedness of $55.0 million as immediately due and
payable.
On July 27, 1999, the Company, through its newly formed subsidiary, Corebyte
Inc., acquired the Corebyte communication and networking software product
family. The acquisition was accomplished pursuant to an Asset Purchase
Agreement, by and among the Company, SF Digital, LLC and John Engstrom, dated
July 27, 1999. Consideration provided for the Corebyte assets comprised the
following: (1) options to purchase up to one million shares of common stock of
the Company at an exercise price of $1.00 per share, (ii) options to purchase an
additional one million shares of common stock of the Company at an exercise
price equal to 80% of the closing price per share of common stock of the Company
on July 27, 2000, the first anniversary of the acquisition, provided that Mr.
Engstrom is still employed by the Company on such date; (iii) up to twenty-five
percent of the common stock in Corebyte, Inc.; and (iv) $75,000 in cash as
reimbursement for certain research and development expenses. All such
consideration is to be held in escrow pending final resolution of Engstrom v.
Futureshare.com, LLC, a litigation which is pending in the United States
District Court for the Southern District of New York concerning the ownership
status of the intellectual property which is the subject of the acquisition. The
discovery process has begun in connection with such litigation and depositions
are scheduled to be held in November 1999.
Corebyte Inc. is led by John Engstrom, a pioneer of online and accomplished
enterprise groupware and e-mail service provider. Corebyte is an intelligent
browser-based enterprise-to-enterprise networking system. With a single
interface, and based upon beta testing of the system performed to date, the
end-user directly accesses every application necessary to manage their
enterprise from basic e-mail to advanced e-commerce. Users of Corebyte
seamlessly share and exchange valuable information, selectively and securely,
within their network community and across enterprises.
Patents and Trademarks
Datapoint owns certain patents, copyrights, trademarks and trade secrets in
network technologies, which it considers valuable proprietary assets.
Video Conferencing Patents
Datapoint, along with John Frassanito and David A. Monroe, owns United
States Patent Nos. 4,710,917 and 4,847,829 related to video teleconferencing
technology. Datapoint has filed infringement actions against several companies.
The status of the patent infringement litigation is as follows:
(1) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D
(N.D. Texas). This case was tried in March and April of 1998 with an adverse
result. Notice of Appeal had been filed and the case since has been dismissed.
(2) Datapoint Corporation v. Compression Labs, Inc. No. 3:93-CV-2522-D
(N.D. Texas); Datapoint Corporation v. Teleos Communications, Inc. No.
95-4455-AET (D.N.J.); Datapoint Corporation v. Videolan Technologies, Inc.;
Videolan Technologies, Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D.
Kentucky) et al; Datapoint Corporation v. Intel Corp. No. 97-CV-2581 (N.D.
Texas). These cases have been dismissed and were subject to being reopened if
the Company was successful in its appeal of certain of the issues adversely
determined in the PictureTel litigation described above. Datapoint's appeal was
unsuccessful.
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and
5,077,732 related to network technology. The Company believes these patents
cover most products introduced by various suppliers to the networking industry
and dominates certain types of dual-speed technology on networking recently
introduced by various industry leaders. Datapoint has asserted one or both of
these patents in the United States District Court for the Eastern District of
New York against a number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel
Corporation, No. C.V.-96-1685;
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks, Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun Microsystems,
Inc., Adaptec, Inc. International Business Machines Corp., Lantronix, SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and
(4) Datapoint Corporation v. Standard Microsystems Corp. and Intel Corp.,
individually, and as representatives of the class of all manufacturers, vendors
and users of Fast Ethernet-compliant, dual protocol local-area network products,
No. CV-96-03819.
These actions have been consolidated for discovery, and for purposes of
claim construction. On January 20, 1998, a hearing commenced in the United
States District Court that concluded on January 23, 1998 during which claim
construction was submitted to a Special Master. The Special Master's report was
issued April of 1998 adverse to Datapoint. The Company had filed two sets of
objections to certain portions of this report. The objections were overruled.
These objections will now have to be resolved at the Appellate Court level. The
briefing is completed. The Company is awaiting a date to be scheduled for oral
arguments.
The above actions represent the Company's continuing efforts to license and
enforce its multi-speed networking patents through negotiations and/or
litigation. The Company believes that these patents provide broad coverage
multi-speed networking technology and present the opportunity for further
royalty bearing licenses. While such royalty bearing licenses and enforcement of
its patents may be important to the Company's business to create long-term value
for its shareholders, the ultimate outcome of the above litigation, appeals with
respect to the litigation, and /or negotiations cannot be determined at this
time.
Products
The Company provides communication solutions to the world through data,
voice, and video integration. A complete line of products for data processing,
video communications, and telecommunications is available.
In 1994, consistent with the Company's patent licensing business, the
Company began patent infringement suits against several defendants related to
the Company's video conferencing patents and dual protocol local area network
patents. The Company's patent enforcement policy included the identification of
video conferencing products and dual protocol local area network products and
applications which infringe the related patents and the execution of licensing
agreements through a) normal commercial negotiations or b) pursuant to
settlements of litigation brought against the patent infringers. The Company has
not been successful in asserting its U.S. video conferencing patents resulting
in payments for licenses. The Company is taking steps through an industry-wide
program to license and enforce its multi-speed networking patents through
negotiations and/or litigation. Currently, four patent infringement suits are
pending with respect to Datapoint's patents on its dual protocol local area
networking technology. These patents cover certain ARCNET and Fast Ethernet
products recently introduced by various suppliers to the local area network
industry and dominates certain types of dual-speed LAN Adaptor Products recently
introduced by various industry leaders. Such royalty bearing licenses and
enforcement of its patents may create long-term value for its shareholders,
pending resolution of the above-referenced litigations which so far have not had
favorable results to the Company.
The Company's Networking products are industry-standard. The file servers
are based upon a scalable architecture using the Intel microprocessor. The
multi-processor functionality is provided for the Company's highly sophisticated
RMS network operating system. The same systems can be used for Windows NT, UNIX
and other operating systems. The Company offers high-performance, Pentium PRO
and Pentium III file servers. All systems support RAID disks and popular network
protocols such as TCP/IP and NetBios.
The Company's networking products focus on linking file servers,
workstations, terminals, printers, and other peripherals (such as modems) to the
network. High-performance networking software and hardware components comprise
the product offering and provide the ability to implement high-capacity, highly
efficient networks composed of client/server and data communications devices.
The networking solutions provide the capability of running MS-DOS, WINDOWS,
WINDOWS NT, UNIX, and RMS simultaneously along with flexible choices of adapters
such as ARCNET, ARCNETPLUS, Ethernet and FastEthernet. These capabilities
provide customers the flexibility to design network architectures to meet their
specific requirements.
Realizing that personal computers are the desktop workstation of choice,
the Company offers PC-based hardware and software. A Microsoft Windows compliant
terminal emulation package for the RMS environment which can be run on existing
PCs is also provided.
Through various non-exclusive value added reseller agreements, the Company,
through its European subsidiaries, sells a complete set of telecommunications
products and systems integration services to meet the requirements of call
centers, customer service centers, and telemarketing firms. These products
include automatic call distributor (ACD), power dialer, interactive voice
response (IVR), and software, which are used to handle high volumes of inbound
and outbound telephone calls, faxes, and e-mails. The Company's services
include, consulting, systems integration, application development, and post
sales support. The Company provides solutions with expertise in networking, data
processing, and voice technologies.
The supplier and value-added reseller relationships that the Company
continues to develop, allow its customers worldwide to enhance their
productivity with sensible, cost-effective computer-based networking, telephony
and video communication solutions.
Corebyte is an intelligent browser-based enterprise-to-enterprise
networking system. With a single interface, and based upon beta testing of the
system performed to date, the end-user directly accesses every application
necessary to manage their enterprise from basic e-mail to advanced e-commerce.
Users of Corebyte seamlessly share and exchange valuable information,
selectively and securely, within their network community and across enterprises.
Based on the above, the following features are currently available with
Corebyte:
o Instant Virtual Private Network with simple and remote administration;
o E-mail;
o Calendar;
o Address book;
o Notepad;
o Enterprise-wide website editor;
o Slideshow;
o Intelligent instant messaging;
o Website bookmarks and links manager;
o Folder management and sharing;
o Unlimited color and style combinations (totally customizable);
o Advanced searching and sorting; and
o Automatic content update broadcast.
Subsequent to year end, in October 1999 the Company discontinued its
domestic video conferencing (MINX) operations. As a result, severance pay of
approximately $624 thousand will be paid to 28 employees in regular bi-weekly
installments. The severance obligations have not been reflected in fiscal year
1999 results. In connection with the discontinuance of this domestic operation,
the Company recognized a charge to cost of revenue during the fourth quarter of
1999 of $613 thousand to reflect an adjustment to the net realizable value of
inventories at July 31, 1999 relating to the domestic video conferencing (MINX)
operation. Net revenues from this domestic operation were approximately $2.1
million during 1999. Due to the Company's limited financial resources, it was
not able to continue making the investment required, both in marketing and
product development, to sustain consistent profitability for this portion of the
business. The Company does intend to honor its existing warranty obligations as
well as its existing maintenance support contracts and other contracts related
to this business.
Markets
Customers
Datapoint sells generally to business and government customers, including
the U.S. government, financial institutions, insurance companies, educational
institutions, and manufacturers. During fiscal years 1997 through 1999, no one
customer accounted for 10 percent or more of consolidated revenues.
Domestic
Datapoint markets its products in the United States through independent
sales representatives who, on a commission basis, solicit orders for Datapoint's
products; through value-added resellers, who purchase Datapoint's products for
resale; original equipment manufacturers, who integrate Datapoint's products
into their overall offerings; and through Datapoint's own end-user sales force.
Independent sales representatives, value-added resellers, and original equipment
manufacturers generally market Datapoint's products in conjunction with
application software and other products developed and marketed by such firms.
International
Datapoint's products are marketed to end-users in over forty countries
through a network of wholly-owned subsidiaries and independent distributors.
Datapoint distributes its products internationally through wholly-owned sales
and service operations in Belgium, France, Germany, Holland, Italy, Norway,
Spain, Sweden, Switzerland and the United Kingdom and through authorized
distributors worldwide. During each of the fiscal years 1999, 1998 and 1997,
approximately 99 percent of Datapoint's international revenue was derived from
customers in Western Europe.
Customer Service
In the United States, Datapoint has entered into an agreement with Decision
Servcom, Inc. ("DSI"), whereby DSI would serve as the non-exclusive authorized
service agent for Datapoint's proprietary data processing products. Maintenance
of equipment outside the United States is provided by Datapoint's international
subsidiaries and distributors. The service operations of the Company's
international subsidiaries, which are included in the proposed sale of the
European Operations, produced 42 percent of total company revenues and 48
percent of total company gross profit for the fiscal year ended July 31, 1999.
In fiscal year 1996, Datapoint entered into a subcontract with Kalamazoo to
provide hardware maintenance service to Kalamazoo's European Automotive Dealer
System network.
Manufacturing, Raw Materials, and Supplies
The majority of Datapoint's products are purchased from third parties. The
products are then resold badged/unbadged within Datapoint configurations upon
the completion of testing and packaging.
Datapoint seeks, and maintains where practical, multiple sources of supply
for the products, components, and raw materials which it uses. However, certain
products and components are purchased only from single sources, and Datapoint
could experience product shipment delays if such suppliers should fail to meet
Datapoint's requirements. The delay of any components, whether for supply or
quality reasons, can become critical to product flows. The Company's general
experience has been good in terms of minimizing exposure; however, guarantees
regarding possible future situations and rectifying actions that could arise
cannot be made.
Research and Product Development
Datapoint incurred expense of $2.0 million, $2.5 million, and $2.1 million
in the fiscal years ended July 31, 1999, August 1, 1998, and August 2, 1997,
respectively, on research and development activities. Datapoint maintains its
principal research and development facility in San Antonio, Texas.
Competition
Datapoint operates in the intensely competitive computer data processing,
video conferencing (MINX) and telephony industries. These industries are
characterized by the frequent introduction of new products based upon
technological advances. Datapoint competes, domestically and abroad, with a
substantial number of companies, many of which are larger and have greater
resources than Datapoint. Such companies, considered in the aggregate, compete
in the entire line of products manufactured and marketed by Datapoint. These
competitors differ somewhat depending on the market segment, customer and
geographic area involved.
Competition in this market is based primarily on the relationship between
price and performance; the ability to offer a variety of products and unique
functional capabilities; the strength of sales, service and support
organizations; upgradability, flexibility, and ease of use of products. The
Company could be adversely affected if its competitors introduced
technologically superior products or substantial price reductions.
Backlog
The backlog of firm orders for the sale or lease of the Company's products
as of July 31, 1999 and August 1, 1998 was $7.6 million and $8.5 million,
respectively. Calculations were based on then existing end-user purchase prices
for products and gave effect to appropriate discounts for products to be sold.
The backlog amounts are not necessarily indicative of the Company's future
results, since an increasing amount of the Company's revenues are derived from
orders obtained in the period of shipment. Furthermore, a portion of the
Company's backlog may be cancelable at the customer's option, under certain
conditions, without financial penalty. All orders included in the backlog at
July 31, 1999, are currently scheduled for delivery during the subsequent 12
months. All orders are subject to the Company's ability to meet delivery
commitments. The Company records only firm orders as backlog, and generally such
orders are cancelable only by the Company. In the event that a new product is
released, a customer is allowed to upgrade (i.e., cancel) an existing order and
place a new order for the new product. This is done at the Company's discretion
with no financial penalty to the customer.
Backlog is also not a reliable indicator of future results, as changes in
product mix and costs may significantly impact reported results. Therefore, the
Company believes that the backlog data is not meaningful to an understanding of
the Company's business or future reported results.
Patents and Trademarks
Datapoint owns certain patents, copyrights, trademarks and trade secrets in
network technologies, which it considers valuable proprietary assets.
Video Conferencing Patents
Datapoint, along with John Frassanito and David A. Monroe, owns United
States Patent Nos. 4,710,917 and 4,847,829 related to video teleconferencing
technology. Datapoint has filed infringement actions against several companies.
The status of the patent infringement litigation is as follows:
(1) Datapoint Corporation v. PictureTel Corporation, No. 3:93-CV-2381-D
(N.D. Texas). This case was tried in March and April of 1998 with an adverse
result. Notice of Appeal had been filed and the case has since been dismissed.
(2) Datapoint Corporation v. Compression Labs, Inc. No. 3:93-CV-2522-D
(N.D. Texas); Datapoint Corporation v. Teleos Communications, Inc. No.
95-4455-AET (D.N.J.); Datapoint Corporation v. Videolan Technologies, Inc.;
Videolan Technologies, Inc. v. Datapoint Corporation, No. 96 CV-604-H (W.D.
Kentucky) et al; Datapoint Corporation v. Intel Corp. No. 97-CV-2581 (N.D.
Texas). These cases have been dismissed and were subject to being reopened if
the Company was successful in its appeal of certain of the issues adversely
determined in the PictureTel litigation described above. Datapoint's appeal was
unsuccessful.
Multi-speed Networking Patents
Datapoint is also the owner of United States Patent Nos. 5,008,879 and
5,077,732 related to network technology. The Company believes these patents
cover most products introduced by various suppliers to the networking industry
and dominates certain types of dual-speed technology on networking recently
introduced by various industry leaders. Datapoint has asserted one or both of
these patents in the United States District Court for the Eastern District of
New York against a number of parties:
(1) Datapoint Corporation v. Standard Micro-Systems, Inc. and Intel
Corporation, No. C.V.-96-1685;
(2) Datapoint Corporation v. Cisco Systems, Plaintree Systems Corp., Accton
Technologies Corp., Cabletron Systems, Inc., Bay Networks, Inc., Crosscom Corp.
and Assante Technologies, Inc. No. CV 96 4534;
(3) Datapoint Corporation v. Dayna Communications, Inc., Sun Microsystems,
Inc., Adaptec, Inc. International Business Machines Corp., Lantronix, SVEC
America Computer Corporation, and Nbase Communications, No. CV 96 6334; and
(4) Datapoint Corporation v. Standard Microsystems Corp. and Intel Corp.,
individually, and as representatives of the class of all manufacturers, vendors
and users of Fast Ethernet-compliant, dual protocol local-area network products,
No. CV-96-03819.
These actions have been consolidated for discovery, and for purposes of
claim construction. On January 20, 1998, a hearing commenced in the United
States District Court that concluded on January 23, 1998 during which claim
construction was submitted to a Special Master. The Special Master's report was
issued April of 1998 adverse to Datapoint. The Company had filed two sets
objections to certain portions of this report. The objections were overruled.
These objections will now have to be resolved at the Appellate Court level. The
briefing is completed. The Company is awaiting a date to be scheduled for oral
arguments.
The above actions represent the Company's continuing efforts to license and
enforce its multi-speed networking patents through negotiations and/or
litigation. The Company believes that these patents provide broad coverage in
multi-speed networking technology and present the opportunity for further
royalty bearing licenses. While such royalty bearing licenses and enforcement of
its patents may create long-term value for its shareholders, the ultimate
outcome of the above litigation, appeals with respect to the litigation, and /or
negotiations cannot be determined at this time.
The Company utilizes a number of trademarks, most importantly "DATAPOINT",
"ARCNET" and "MINX". The Company registers or otherwise protects those
trademarks it deems valuable to its business and anticipates no significant
impairment of its ability to continue to use and protect its important
trademarks. Datapoint, the "D" logo, ARC, ARCNET, RMS, MINX, and Resource
Management System are trademarks of Datapoint Corporation registered in the U.S.
Patent and Trademark office. Attached Resource Computer, ARCNETPLUS, and DATALAN
are trademarks of the Company. (AT&T is a registered trademark of American
Telephone and Telegraph. Ethernet is a registered trademark of Xerox
Corporation. Intel is a registered trademark of Intel Corporation. Microsoft and
MS-DOS are registered trademarks of Microsoft Corporation. UNIX is a registered
trademark of UNIX System Laboratories, Inc.)
Employees
At July 31, 1999, the Company had 639 employees. The Company considers its
relations with its employees to be satisfactory. In the event the sale of the
European Operations is consummated, the Company will have approximately 10
Datapoint and 5 Corebyte Inc.
employees.
Environmental Matters
Compliance with current federal, state, and local regulations relating to
the protection of the environment has not had, and is not expected to have, a
material effect upon the capital expenditures, earnings, or competitive position
of Datapoint.
ITEM 2. Properties.
Datapoint's principal executive offices are located in Paris, France and in
San Antonio, Texas. Datapoint believes that its facilities are generally well
maintained, in good operating condition and are adequately equipped for their
present use. Information regarding the principal plants and properties,
excluding leases assigned or subleased, as of July 31, 1999, is as follows:
Approximate
Facility
Location Use Sq. Footage Owned or Leased Land Area
San Antonio, Texas Office 38,000 Leased; expires October 1, 2002
Gouda, Netherlands Office 38,709 Leased; expires October 25, 1999
and 2003
Paris, France Office 2,900 Leased; expires June 16, 2008
Additionally, at July 31, 1999, excluding leases assigned or subleased, the
Company leased sales and service offices having an aggregate of 232,004 square
feet in metropolitan areas worldwide, pursuant to lease agreements that expire
between 1999 and 2012. The aggregate annual rental of all of these sales and
service offices is approximately $2.9 million and most of these leases are
subject to rental increases under certain escalation provisions and renewals on
similar terms.
During the first quarter of 1999, the Company sold the building it owned in
Gouda, Netherlands to a private unaffiliated group for approximately $2.1
million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of approximately 18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating income
a gain of approximately $.3 million during the first quarter of 1999. The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.
ITEM 3. Legal Proceedings.
In John Frassanito and David A. Monroe v. Datapoint Corp., No. H-95-812
(S.D. Tex) plaintiffs alleged that the Company usurped various patentable
inventions and trade secrets in connection with the development of its MINX
systems. They also asserted a cause of action for patent infringement, and a
cause of action requiring Datapoint to assign certain MINX-related patents and
other intellectual property. On August 16, 1996, the Court dismissed with
prejudice plaintiffs' claims of patent infringement against Datapoint and
dismissed without prejudice plaintiff's pendent State law claims and Datapoint's
State law counter-claims for lack of subject matter jurisdiction. Plaintiffs in
this action moved to intervene in the Picturetel and CLI actions. In September
1997, the Company announced that it had received a court order approving a
confidential agreement between the parties resolving this matter without further
proceedings.
From time to time, the Company is a defendant in lawsuits generally
incidental to its business. The Company is not currently aware of any such suit,
which if decided adversely to the Company, would result in a material liability.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters.
Datapoint Corporation announced in August 1998 that its securities would no
longer be listed on the New York Stock Exchange under the symbol "DPT",
effective at the end of business Friday, August 21, 1998. The New York Stock
Exchange's decision was an administrative event for Datapoint and did not
reflect any material change in the Company's financial health. Beginning August
24, 1998, the common stock has been quoted on the National Association of
Securities Dealers' Over-the Counter Bulletin Board under the symbol "DTPT". As
of November 1, 1999, there were approximately 2,824 holders of record and
18,348,229 outstanding shares of Common Stock. The prices below represent the
high and low prices for composite transactions for stock traded during the
applicable period. The Company has not paid cash dividends to date on its common
stock and has no present intention to pay cash dividends on its common stock in
the near future. As of November 1, 1999, the closing price of the stock was
$0.53.
Fiscal
year High Low
---- ---- ---
1999 Q4 1.69 .59
Q3 2.06 .56
Q2 .84 .50
Q1 1.25 .50
High Low
1998 Q4 2.25 1.13
Q3 3.13 1.50
Q2 3.44 2.50
Q1 4.13 2.06
ITEM 6. Selected Financial Data.
Selected Financial Data
Five-Year Comparison
(Dollars in thousands, except per share data)
1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Operating Results for the Fiscal Year
Total revenue $138,285 $151,445 $142,121 $179,541 $174,901
Operating income (loss) (2,886) 5,074 2,033 1,017 (18,232)
Income (loss) before extraordinary credit
and effect of change in accounting principle (9,256) (1,224) 1,173 19,015 (28,343)
Net income (loss) (7,549) (669) 2,383 19,342 (28,343)
Basic earnings (loss) per common share:
Income (loss) before extraordinary credit (.55) (.11) .01 1.28 (2.29)
Gain on the exchange and retirement of preferred stock .02 -- .24 -- --
Extraordinary credit .09 .03 .07 .02 --
Net income (loss) per share (.44) (.08) .32 1.30 (2.29)
Diluted earnings (loss) per common share:
Income (loss) before extraordinary credit (.55) (.11) .01 1.11 (2.29)
Gain on the exchange and retirement of preferred stock .02 -- .24 -- --
Extraordinary credit .09 .03 .07 .02 --
Net income (loss) per share (.44) (.08) .32 1.13 (2.29)
Financial Position at End of Fiscal Year
Current assets $40,930 $50,807 $45,340 $69,995 $67,506
Fixed assets, net 5,928 9,468 11,764 14,625 18,877
Total assets 49,333 66,816 62,388 93,818 101,751
Current liabilities 60,463 64,491 53,679 76,965 100,256
Long-term debt 50,000 55,000 60,875 63,945 64,923
Stockholders' equity (deficit) (72,128) (64,437) (64,084) (55,202) (74,116)
Other Information
Average common shares outstanding 18,225,790 17,967,924 16,109,774 13,455,878 13,194,667
Number of common stockholders of record 2,860 2,966 3,070 3,142 3,274
Preferred shares outstanding 661,967 721,976 721,976 1,868,071 1,846,456
Dividends paid or accumulated on preferred stock $684 $722 $1,009 $1,885 $1,815
Number of employees 639 652 641 705 991
No cash dividends on common stock have been declared during the five-year
period.
Net income for 1996 includes a gain of $32.2 million resulting from a
divestiture.
See notes to Consolidated Financial Statements and Management Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Overview
During 1999, the Company had a net loss of $7.5 million compared with a net loss
of $669 thousand for the previous year. During 1999, the Company had total
revenue of $138.3 million, a decrease of $13.2 million from the previous year.
Operating expenses (research and development plus selling, general &
administrative) for 1999 were $37.7 million, an increase of $1.9 million from
the $35.8 million recorded in 1998. The Company recorded restructuring charges
of $813 thousand in 1999, compared with $96 thousand recorded in the prior year.
During 1999, 1998 and 1997, the Company repurchased approximately $3.2 million,
$2.7 million and $2.9 million, respectively, in face value, of its 8 7/8%
convertible subordinated debentures. This resulted in an extraordinary gain of
$1.7 million, $555 thousand and $1.2 million, respectively.
Prior to fiscal year 1998, included in non-operating income and expense were
certain transaction gains or losses resulting from the strengthening or
weakening of the U.S. dollar against foreign currencies. These exchange gains or
losses related to short term intercompany notes and international subsidiary
U.S. dollar denominated cash were offset by translation adjustment to Other
Comprehensive Income and therefore, had no impact on the Company's financial
position. During fiscal year 1998, management reassessed the characteristics of
its intercompany notes with international subsidiaries (payable by the U.S.
parent) and determined that a substantial portion were long-term in nature and
not payable in the foreseeable future. As a result, during fiscal 1999 and 1998,
transaction gains of $1.6 million and $57 thousand, respectively, relating to
these loans are included as a foreign currency adjustment to Other Comprehensive
Income, which in prior years, would have been included in non-operating income
and expense, as described above. During fiscal year 1997, a transaction gain of
approximately $6.2 million was included in non-operating income but was offset
by translation adjustment to Other Comprehensive Income.
In addition, on October 27, 1997, the Company sold the three buildings it owned
in San Antonio, Texas to a private unaffiliated group for approximately $3.2
million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of one of the buildings (approximately
38,000 square feet) for an initial lease term of five years. An initial gain of
$1.2 million was recognized on the sale. The remaining gain of $1.1 million was
deferred to be amortized over the lease term.
During 1997, the Company accepted 1,145,945 shares of its $1.00 Exchangeable
Preferred Stock, having a liquidation preference $20 per share ("the $1.00
Preferred Stock"), which was tendered in its exchange offer (the "exchange
offer") described in the proxy statement/prospectus delivered to the holders of
the Company's common stock, par value $.25 per share (the "Common Stock"), and
to the holders of $1.00 Preferred Stock. Under the terms of the exchange offer,
each share of $1.00 Preferred Stock tendered was exchanged for 3.25 shares of
Common Stock. The exchange offer expired December 10, 1996. The tendered shares
approximated 61.34% of the total outstanding shares of $1.00 Preferred Stock
immediately prior to the expiration of the exchange offer. For purposes of
calculating net income applicable to common shareholders in 1997, and related
per share amounts, a gain of $3.8 million on exchange and retirement of
preferred stock was added to net income. This gain includes the excess of the
carrying value of preferred stock accepted in the exchange over the fair value
of the common stock issued. In addition, the gain includes accumulated dividends
on the retired preferred stock.
During the first quarter of 1999, the Company sold the building it owned in
Gouda, Netherlands to a private unaffiliated group for approximately $2.1
million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of approximately 18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating income
a gain of approximately $.3 million during the first quarter of 1999. The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.
Financial Condition and Liquidity
On May 17, 1999, the Company and its wholly-owned subsidiary, Datapoint
International, Inc., entered into a letter of intent for a proposed sale of its
European subsidiaries which comprise substantially all of the Company's
operations (the "European Operations"). The European Operations represented 96%
of the Company's total revenue during 1999. Excluding the European Operations,
the Company's consolidated revenue and operating loss were $5 million and $6.1
million, respectively, in 1999. Under the terms of the proposed sale, the
European Operations will be purchased for $49.5 million plus the assumption of
certain liabilities, less fees and expenses, by Reboot Systems, Inc., an
investor group headed by Blake Thomas, the Company's president, and which
includes key management employees of the European Operations (collectively, the
"Buyer"). Subsequently, a Stock Purchase Agreement for the proposed sale was
signed on July 31, 1999 and subsequently amended on November 1, 1999 ("Stock
Purchase Agreement"). The proposed sale is contingent upon certain conditions,
including the Buyer's ability to secure acquisition financing, necessary third
party consents, the consent of at least two thirds of the debentureholders, and
common shareholder majority approval. On November 1, 1999, the Company and the
Buyer entered into the First Amendment to the Stock Purchase Agreement (the
"First Amendment"). The First Amendment provided for a refundable deposit of
$750 thousand (the "Deposit") which was paid by the Buyer to the Company on
November 8, 1999. The Deposit will be used primarily to fund transaction costs
including the engagement of BNY Capital Markets, Inc. to issue a fairness
opinion in connection with the transaction.
The First Amendment also obligates the Buyer to loan to the Company, on or
prior to December 1, 1999, approximately $2.5 million (the "December 1 Funding")
which represent the funds necessary for the Company to make the December 1999
interest payment on its 8 7/8 % convertible subordinated debentures (the
"Debentures"). The Deposit, the December 1 Funding, a fixed amount of $375
thousand, and repayment of commitment fees (the "Commitment Fees") as may be
incurred by the Buyer in connection with the transaction in the event that the
Company does not receive the requisite approval to the transaction by its
shareholders and holders of the Debentures will be secured by accounts
receivable of certain of the European subsidiaries.
Although the termination date pursuant to the First Amendment was extended
to March 31, 2000, if the December 1 Funding is not completed by the Buyer, the
Stock Purchase Agreement, as amended, will terminate on December 1, 1999. If
the transaction is consummated, the Deposit and the December 1 Funding shall be
applied toward the purchase price. If the transaction is not consummated, the
Company would be required to repay to the Buyer (i) the December 1 Funding and
(ii) the Deposit, and the payment of the Commitment Fees and the fixed amount of
$375 thousand if the transaction did not close as a result of the inability of
the Company to obtain the requisite consents of its shareholders and holders of
the Debentures. In the event that the Buyer does not obtain the financing
commitment by February 1, 2000, the Company is required to reimburse the Buyer
for the December 1 Funding, but retains the Deposit.
The closing under the Stock Purchase Agreement, as amended, requires majority
shareholder approval and the consent of at least two thirds of the
debentureholders of the Company. In connection with obtaining such approvals,
the Company expects to file shortly with the U.S. Securities and Exchange
Commission proxy materials soliciting such approvals and tender offer documents
to repurchase some portion of the Debentures. In this regard, the Company has
engaged BNY Capital Markets, Inc. to deliver a fairness opinion as to the
fairness of the transaction to the shareholders of the Company from a financial
point of view.
On November 11, 1998, the Company engaged Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated ("Dain Rauscher"), as its investment banker to assist
the Company in marketing and negotiating the sale of the European Operations.
Dain Rauscher solicited indications of interest from a broad array of strategic
and financial prospective purchasers. In addition to the Buyer, the Company
entered into preliminary negotiations with two groups. One such group made an
inferior offer to purchase the European Operations which the Company rejected.
The other such group initially indicated a willingness to pay a higher purchase
price than the Buyer and the Company engaged in active negotiations with this
group. However, when such group failed to make an adequate offer, the Company
then resumed negotiations with the Buyer. Based upon the Buyer's proposed
purchase price, the Company's familiarity with certain of the entities and
individuals comprising the Buyer, and the Buyer's familiarity with the European
Operations, among other factors, the Company believed the transaction with the
Buyer represented the most favorable available opportunity to consummate the
sale of the European Operations on the most favorable terms, including price.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. At July 31, 1999 and for the year then
ended, the Company experienced a net loss of $7.5 million and it has a working
capital deficiency of $19.5 million and a net capital deficiency of $72.1
million which raise substantial doubt about its ability to continue as a going
concern. The Company's ability to continue operations will depend on the
consummation of the announced sale of European Operations, and positive cash
flow from future operations.
Based on current trends in its business and its financial forecasts, the
Company believes if the December 1 Funding is not made and if the proposed sale
of the European Operations is not consummated, that it will not be able to make
the scheduled December 1999 interest payment of $2.4 million on its 8 7/8%
convertible subordinated debentures and a $5.0 million sinking fund payment due
in March 2000, respectively, from internal cash flow resources. In the event the
interest payment is not made within the 30-day period following December 1,
1999, the resulting default would entitle the holders of the Debentures to elect
to declare the entire indebtedness of $55.0 million as immediately due and
payable.
If the proposed sale of the Company's European Operations is not consummated as
intended, management plans to continue restructuring efforts as necessary in the
future which may include the reduction of personnel, closure of facilities,
disposal of subsidiaries, or the discontinuance of product lines. The financial
statements do not include any adjustments that might result from the outcome of
the going concern uncertainty.
During 1999, the Company's cash and cash equivalents decreased $8.5 million due
primarily to the usage of cash in operations.
During 1999, the Company's net cash used in investing activities was
approximately $790 thousand. Included in this amount is $2.1 million from the
sale of the Gouda, Holland office buildings offset by approximately $3.3 million
of fixed asset purchases (primarily test equipment, spares, and internally-used
equipment).
Net cash used in financing activities was $629 thousand in 1999, primarily
related to the net paydown of the Company's borrowings. As of July 31, 1999, the
Company had restricted cash of $328 thousand as compared to $352 thousand in the
prior year. The 1999 and 1998 balances were restricted primarily to cover
various lines of credits, reflected as payables to banks.
As of July 31, 1999, the Company had included in payables to banks an
amount of $1,623, payable by the U.K. subsidiary, to International Factors "De
Factorij" B.V., a subsidiary of ABN-AMRO Bank of the Netherlands. The U.K. loan
is secured by certain receivables of the U.K. subsidiary.
The Company has available lines of credit from foreign banks to its foreign
subsidiaries. The availability of the unused lines of credit is subject to
certain collateral restrictions. The unused lines of credit at July 31, 1999,
totaled $8.0 million after borrowings of $6.7 million.
As a result of the Company's capital deficiency which existed at the end of 1994
and throughout 1995, 1996, 1997, 1998, and 1999, the Company determined not to
pay the quarterly preferred dividend payments due to shareholders during the
period of October 15, 1994 through October 15, 1999. On January 16, 1996, the
Company announced that it was in arrears on its $1.00 preferred stock in an
aggregate amount equal to six full quarterly dividends. As a result, each holder
of $1.00 preferred stock has the right to exchange each such share (inclusive of
all accrued and unpaid dividends) into two shares of the Company's common stock.
As a result of the dividend arrearages, the number of directors constituting the
Board of Directors of the Company was increased by two with the vote of the
holders of the $1.00 preferred stock (not including those who have exchanged
$1.00 preferred stock for the Company's common stock). These rights continue
until such time as the arrearages have been paid in full.
At July 31, 1999, the Company had available federal tax net operating losses
aggregating approximately $192 million, expiring in various amounts beginning in
2001. In the event that the Company's ability to utilize its net operating
losses to reduce its federal tax liability with respect to current and future
income becomes subject to limitation, the Company may be required to pay, sooner
than it otherwise might have to, any amounts owing with respect to such federal
tax liability, which would reduce the amount of cash otherwise available to the
Company (see note 5 to Consolidated Financial Statements).
Reorganization/Restructuring Costs
(In thousands)
During 1999, 1998, and 1997, the Company incurred restructuring costs as follows
in connection with employee termination programs implemented in these years:
1999 1998 1997
- ---------------------------------------------------------------
Employee termination costs $813 $96 $2,425
===============================================================
The Company's 1999, 1998, and 1997 restructuring charges primarily have been
driven by management's efforts to implement cost cutting measures in light of
its overall plan to return to profitability. At July 31, 1999, accrued but
unpaid restructuring costs were $133. Restructuring costs incurred during 1999
included $650 for the termination of 25 employees at the Company's San Antonio
headquarters and $163 for the termination of 5 employees at the Company's French
subsidiary.
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. Employee termination payments are generally paid out over a
period of time rather than as one lump sum.
A rollforward of the restructuring accrual from July 27, 1996 through July 31,
1999 is as follows:
TOTAL
Restructuring accrual as of July 27, 1996 $ 655
Fiscal 1997 additions 2,425
Fiscal 1997 payments (2,572)
- ----------------------------------------------------------------------
Restructuring accrual as of August 2, 1997 $508
Fiscal 1998 additions 96
Fiscal 1998 payments (422)
- ----------------------------------------------------------------------
Restructuring accrual as of August 1, 1998 $182
Fiscal 1999 additions 813
Fiscal 1999 payments (862)
- ----------------------------------------------------------------------
Restructuring accrual as of July 31, 1999 $133
====
Subsequent to year end, in October 1999 the Company discontinued its domestic
video conferencing (MINX) operations. As a result, severance pay of
approximately $624 will be paid to 28 employees in regular bi-weekly
installments. The severance obligations have not been reflected in fiscal year
1999 results. In connection with the discontinuance of this domestic operation,
the Company recognized a charge to cost of revenue during the fourth quarter of
1999 of $613 to reflect an adjustment to the net realizable value of inventories
at July 31, 1999 relating to the domestic video conferencing (MINX) operation.
Net revenues from this operation were approximately $2,100 during 1999.
Results of Operations
The following is a summary of the Company's sources of revenue for each of
fiscal 1999, 1998 and 1997:
(In thousands)
1999 1998 1997
---- ---- ----
Sales:
U.S. $3,057 $3,182 $4,241
Foreign 75,630 85,742 74,127
------ ------ ------
78,687 88,924 78,368
Service and other:
U.S. 1,074 1,123 1,185
Foreign 58,524 61,398 62,568
------ ------ ------
59,598 62,521 63,753
------ ------ ------
Total revenue $138,285 $151,445 $142,121
======== ======== ========
1999 Compared to 1998
During 1999, the Company had total revenue of $138.3 million, a decrease of
$13.2 million from the previous year. The decrease was primarily the result of
weak 1999 sales in the Company's Spanish and Italian subsidiaries and a large
volume of personal computer sales to the Swedish government in fiscal year 1998
which did not repeat in fiscal year 1999. This revenue decrease reflects the
impact of approximately $1.2 million, resulting from a stronger U.S. dollar, on
average, during fiscal 1999, as compared to the same period of 1998.
Gross profit margins during 1999 were 25.7% compared with 27.0% for 1998. The
decrease was evidenced in the service business as margins decreased from 35.3%
in 1998 to 29.6% in 1999. This decrease was primarily the result of an erosion
of the maintenance base in Western Europe as customers upgrade their hardware
with non-Datapoint equipment.
During the first quarter of 1999, the Company sold the building it owned in
Gouda, Netherlands to a private unaffiliated group for approximately $2.1
million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of approximately 18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating income
a gain of approximately $.3 million during the first quarter of 1999. The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.
During fiscal year 1998, management reassessed the characteristics of its
intercompany notes with international subsidiaries (payable by the U.S. parent)
and determined that a substantial portion was long-term in nature and not
payable in the foreseeable future. As a result, during fiscal year 1999 and
1998, transaction gains of $1.6 million and $57 thousand, respectively, relating
to these loans are included as a foreign currency adjustment to accumulated
other comprehensive income included in Stockholders' Deficit, which in prior
years, would have been included in non-operating income and expense.
Operating expenses (research and development plus selling, general &
administrative) for 1999 were $37.7 million, an increase of $1.9 million from
the $35.8 million recorded in 1998. Principally this is due to the increased
year over year expense associated with the amortization of the unrecognized
actuarial losses with regard to the Company's United Kingdom pension plan. The
Company recorded restructuring charges of $813 thousand during 1999, compared
with $96 thousand recorded in the prior year. Research and development expenses
decreased from $2.5 million in 1998 to $2.0 million in 1999.
1998 Compared to 1997
During 1998, the Company had total revenue of $151.4 million, an increase of
$9.3 million from the previous year. The increase in revenue was primarily due
to the receipt of several new contracts awarded to the Company's Spanish,
Italian and British subsidiaries and continued strong hardware sales in the
Swedish subsidiary. This revenue increase reflects the offset of approximately
$8.7 million, resulting from a stronger U.S. dollar, on average, during fiscal
1998, as compared to the same period of 1997.
Gross profit margins during 1998 were 27.0% compared with 29.5% for 1997. The
decrease was primarily the result of a large volume of sales by a Northern
European subsidiary of lower margin product and competitive pricing pressures
worldwide partially offset by higher service margins due to continued cost
cutting actions.
On October 27, 1997, the Company sold the three buildings it owned in San
Antonio, Texas to a private unaffiliated group for approximately $3.2 million
(net of mortgage obligations and closing costs). The sales contract provided for
the leaseback by the Company of one of the buildings (approximately 38,000
square feet) for an initial lease term of five years.
In previous fiscal years, included in non-operating income and expense were
transaction gains or losses resulting from the strengthening or weakening of the
U.S. dollar against foreign currencies. These exchange gains or losses related
to short term intercompany notes and international subsidiary U.S. dollar
denominated cash were offset by translation adjustment to accumulated other
comprehensive income included in Stockholders' Deficit and therefore, had no
impact on the Company's financial position.
During fiscal year 1998, management reassessed the characteristics of its
intercompany notes with international subsidiaries (payable by the U.S. parent)
and determined that a substantial portion was long-term in nature and not
payable in the foreseeable future. As a result, during fiscal year 1998,
transaction gains of $57 thousand relating to these loans are included as a
foreign currency adjustment to Stockholders' Deficit, which in prior years would
have been included in non-operating income and expense, as described above.
During fiscal year 1997, a transaction gain of approximately $6.2 million was
included in non-operating income but was offset by translation adjustment to
accumulated other comprehensive income included in Stockholders' Deficit.
Operating expenses (research and development plus selling, general &
administrative) for 1998 were $35.8 million, a decrease of $1.7 million from the
$37.5 million recorded in 1997. Approximately $1.5 million of the decrease is
related to the effect of the strengthening U.S. dollar when compared with the
same period a year ago. The Company recorded restructuring charges of $96
thousand during 1998, compared with $2.4 million recorded in the prior year.
Research and development expenses increased from $2.1 million in 1997 to $2.5
million in 1998.
YEAR 2000 COMPLIANCE
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Company's
computer programs or hardware that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, generate invoices, or engage in similar normal business
activities.
Based on the Company's assessments, it determined that it was required to modify
or replace significant portions of hardware and software so that those systems
will properly utilize dates beyond December 31, 1999. The Company presently
believes that with modifications and replacement of existing hardware and
software, the Year 2000 Issue can be mitigated. However, if such modifications
and replacements are not made, or are not completed on a timely basis, the Year
2000 Issue could have a material impact on the operations of the Company. The
Company's plan to resolve the Year 2000 Issue involves the following four
phases: assessment, remediation, testing, and implementation. To date, the
Company has substantially completed its assessment of all Information Technology
("IT") systems that could be significantly affected by the Year 2000. The
completed assessment indicated that most of the company's significant
information technology systems could be affected, particularly general ledger
and the remaining financial systems (Billing, Inventory, etc.).
The Company has also assessed its non "IT" operating systems to insure
compliance with Year 2000. Affected systems included those primarily related to
the office and facilities' environment (telephone systems, security systems,
etc.). While the Company has determined that some of these systems are not Year
2000 compliant, the Company intends to replace/modify these prior to December
31, 1999, and does not expect to have a material exposure with these systems.
The majority of the Company's products are purchased from third parties, who
furnish products meeting the Company's specifications. The Company has obtained
information about the Year 2000 compliance status of its significant suppliers
and subcontractors and continues to monitor their compliance. To date, the
Company is not aware of any supplier/subcontractor Year 2000 issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that their suppliers
will be Year 2000 ready. The inability of suppliers/sub-contractors to complete
their Year 2000 resolution process in a timely fashion could materially impact
the Company. The effect of non-compliance by suppliers is not determinable at
this time.
The Company also sells a variety of proprietary software products, which the
Company developed. The Company is substantially completed with the assessment of
Year 2000 compatibility of these software products and has made the results
available on the Company's Internet "web" page and have communicated these
results to customers on a demand basis.
For its information technology exposures, to date, the Company is substantially
complete on the remediation phase and expects to complete most software
reprogramming and replacement no later than November 30, 1999. Once software is
reprogrammed and replaced for a system, the Company begins testing and
implementation. These phases run concurrently for different systems. Completion
of the testing and implementation phases for most significant systems is also
expected by November 30, 1999.
For operating equipment, the Company is beginning the remediation phases and
expects to complete its remediation efforts by December 31, 1999.
The Company will continue to utilize both internal and external resources to
reprogram, or replace, test, and implement the software and operating equipment
for Year 2000 modifications. The total cost of the Year 2000 project is
estimated at $1.2 million and is being funded through operating cash flows. To
date, the Company has incurred approximately $.8 million ( $.7 million
capitalized and $.1 million expensed) related to all phases of the Year 2000
project. Of the total remaining project costs, approximately $.4 million is
attributable to the purchase of new software and operating equipment, which will
be capitalized.
The Company believes that it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, the Company has not yet
fully completed all necessary phases of the Year 2000 program. In the event that
the Company does not complete all phases, there could be circumstances in which
the Company would be unable to automatically accept customer orders, ship
products, invoice customers or collect payments. In these events, the Company
would resort to a previously identified list of problem solving priorities,
revert to some previous or manual operation and/or rely on previously identified
outsourcing or incremental staffing opportunities.
In addition, disruptions in the economy generally resulting from Year 2000
issues could also materially adversely affect the Company. The Company could be
subject to litigation for computer system product failure, such as, equipment
shutdown, or failure to properly date business records. The amount of potential
liability or lost revenue cannot be reasonable estimated at this time.
The Company plans to complete the Year 2000 modifications are based on
management's best estimates, which were derived utilizing numerous assumptions
of future events including the continued availability of certain resources, and
other factors. Estimates on the status of completion and the expected completion
dates are based on costs incurred to date compared to total expected costs.
However, there can be no guarantee that these estimates will be achieved and
actual results could differ materially from those plans. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes, and similar uncertainties.
NEW EUROPEAN CURRENCY
In January 1999, certain European countries introduced a new currency unit
called the `euro'. In conjunction with the preparation for the year 2000, the
Company is also modifying and/or adapting systems designed to properly handle
the euro. The costs required to be able to accommodate the euro are combined
with costs of becoming year 2000 compliant, and therefore not easily
identifiable. However, they are not considered to be so significant so as to
have a material effect on the Company's business. The projected costs and
completion dates for the euro project are based upon management's best
estimates. Actual results could differ materially from these estimates.
Market Risk Sensitive Instruments
Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies, which represent the functional currencies of the
subsidiaries. All assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using the exchange rate prevailing at the balance sheet date,
while income and expense accounts are translated at average exchange rates
during the year. As such, the Company's operating results are affected by
fluctuations in the value of the U.S. dollar as compared to currencies in
European countries, as a result of the sales of its products and services in
these foreign markets. A hypothetical, uniform 10% strengthening of the dollar
relative to the currencies in which the Company's sales were denominated would
have resulted in a decrease to gross profit of approximately $3.0 million for
the year ending July 31, 1999. This calculation assumes that each exchange rate
would have changed in the same direction relative to the U.S. dollar. In
addition to the direct effects of changes in exchange rates, which are a changed
dollar value of the resulting sales, changes in exchange rates also affect the
volume of sales or the foreign currency sales price as competitors' products
become more or less attractive. The Company's sensitivity analysis of the
effects in foreign currency exchange rates does not factor in a potential change
in sales levels or local currency prices.
In addition, the Company has cash and intercompany receivables and payables,
which are denominated in various functional currencies of the subsidiaries and
parent. At July 31, 1999, the result of a uniform 10% strengthening of the
dollar relative to the currencies in which the Company's intercompany balances
are denominated would result in $4.1 million of foreign currency transaction
gains that would be reported as a translation adjustment to stockholders'
deficit.
The Company's long term debt consists entirely of 8 7/8% convertible
subordinated debentures. As of July 31, 1999 the carrying amount of these
debentures was $54,960, with a fair value of $22,259, after consideration of
repurchases through July 31, 1999.
The following table presents the aggregate maturities and carrying amount of the
debt principal.
Principal Amount by Expected Maturity
Fixed Interest Rate (8 7/8%)
2000 2001 2002 2003 2004 Thereafter Total
Long Term Debt
Fixed Rate $5.0 $5.0 $5.0 $5.0 $5.0 $30.0 $55.0
Cautionary Statement Regarding Risks and Uncertainties That May Affect
Future Results
This Annual Report on Form 10-K contains forward-looking statements about the
business, financial condition and prospects of the Company. The actual results
of the Company could differ materially from those indicated by the
forward-looking statements because of various risks and uncertainties including
without limitation changes in product demand, the availability of products,
changes in competition, economic conditions, new product development, various
inventory risks due to changes in market conditions, changes in tax and other
governmental rules and regulations applicable to the Company, and other risks
indicated in the Company's filings with the Securities and Exchange Commission.
These risks and uncertainties are beyond the ability of the Company to control,
and in many cases, the Company cannot predict the risks and uncertainties that
could cause its actual results to differ materially from those indicated by the
forward-looking statements. When used in this Annual Report on Form 10-K, the
words "believes," "estimates," "plans," "expects," and "anticipates" and similar
expressions as they relate to the Company or its management are intended to
identify forward- looking statements.
ITEM 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Ernst & Young LLP
Independent Auditors 20
Consolidated Financial Statements
Consolidated Statements of Operations
for the fiscal years 1999, 1998 and 1997 21
Consolidated Balance Sheets as of
July 31, 1999 and August 1, 1998 22
Consolidated Statements of Cash Flows for
the fiscal years 1999, 1998 and 1997 23
Consolidated Statements of Stockholders'
Deficit for the fiscal years 1999, 1998 and 1997 24
Notes to Consolidated Financial Statements 25
REPORT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
The Board of Directors
Datapoint Corporation
We have audited the accompanying consolidated balance sheets of Datapoint
Corporation and subsidiaries (the Company) as of July 31, 1999, and August 1,
1998 and the related consolidated statements of operations, stockholders'
deficit and cash flows for each of the three fiscal years in the period ended
July 31, 1999. Our audits also included the financial statement schedule listed
in the index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at July 31, 1999, and August 1, 1998 and the consolidated results of its
operations and its cash flows for each of the three fiscal years in the period
ended July 31, 1999 in conformity with generally accepted accounting principles.
Also, in our opinion the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
The accompanying consolidated financial statements and schedule have been
prepared assuming that the Company will continue as a going concern. As more
fully described in Note 1, the Company has incurred recurring net losses and has
a working capital and net capital deficiency at July 31, 1999. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Ernst & Young LLP
Dallas, Texas
November 1, 1999
CONSOLIDATED STATEMENTS OF OPERATIONS
Datapoint Corporation and Subsidiaries Fiscal Years 1999, 1998 and 1997 (In
thousands, except share and per share data)
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Revenue:
Sales $78,687 $88,924 $78,368
Service and other 59,598 62,521 63,753
- -------------------------------------------------------------------------------------------------------------------
Total revenue 138,285 151,445 142,121
Operating costs and expenses:
Cost of sales 60,740 70,029 58,060
Cost of service and other 41,958 40,480 42,120
Research and development 1,965 2,466 2,146
Selling, general and administrative 35,695 33,300 35,337
Reorganization/restructuring costs 813 96 2,425
- -------------------------------------------------------------------------------------------------------------------
Total operating costs and expenses 141,171 146,371 140,088
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) (2,886) 5,074 2,033
Non-operating income (expense):
Interest expense (5,731) (6,148) (6,776)
Other, net 196 1,195 5,924
- --------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and
extraordinary credit (8,421) 121 1,181
Income taxes 835 1,345 8
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary credit (9,256) (1,224) 1,173
Extraordinary credit-debt extinguishment 1,707 555 1,210
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $(7,549) $(669) $2,383
===================================================================================================================
Net income (loss), adjusted for preferred stock dividends
paid or accumulated plus gain on exchange and retirement
of preferred stock - Net Income (loss) applicable to common $(7,927) $(1,391) $5,184
===================================================================================================================
Basic and diluted income (loss) per common share:
Income (loss) before extraordinary credit $ (.55) $(.11) $.01
Gain on the exchange and retirement of preferred stock .02 -- .24
Extraordinary credit-debt extinguishment .09 .03 .07
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share $(.44) $(.08) $.32
===================================================================================================================
Average common shares outstanding:
Basic 18,225,790 17,967,924 16,109,774
Diluted 18,225,790 17,967,924 16,337,163
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEETS
Datapoint Corporation and Subsidiaries July 31, 1999 and August 1, 1998 (In
thousands, except share data)
1999 1998
- ---------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $3,568 $12,101
Restricted cash and cash equivalents 328 352
Accounts receivable, net of allowance for doubtful
accounts of $880 and $1,305, respectively 32,130 32,138
Inventories 2,632 2,957
Prepaid expenses and other current assets 2,272 3,259
- ---------------------------------------------------------------------------------------------------
Total current assets 40,930 50,807
Fixed assets, net 5,928 9,468
Other assets, net 2,475 6,541
- ---------------------------------------------------------------------------------------------------
$49,333 $66,816
===================================================================================================
Liabilities and Stockholders' Deficit
Current liabilities:
Payables to banks $6,676 $7,902
Current maturities of long-term debt 4,960 3,115
Accounts payable 14,451 17,341
Accrued expenses 22,890 22,592
Deferred revenue 9,311 11,643
Income taxes payable 2,175 1,898
- ---------------------------------------------------------------------------------------------------
Total current liabilities 60,463 64,491
Long-term debt, exclusive of current maturities 50,000 55,000
Other liabilities 10,998 11,762
Commitments and contingencies
Stockholders' deficit:
Preferred stock of $1.00 par value. Shares authorized
10,000,000; shares issued and outstanding 661,967 in
1999 and 721,976 in 1998 (aggregate liquidation
preference, including dividends in arrears,
$16,549 in 1999 and $17,327 in 1998). 662 722
Common stock of $0.25 par value. Shares authorized
40,000,000; shares issued 20,991,217, including
treasury shares of 2,655,985 in 1999
and 2,951,909 in 1998. 5,248 5,248
Paid in capital 212,733 212,655
Accumulated other comprehensive income (354) 158
Retained deficit (288,292) (278,655)
Treasury stock, at cost (2,125) (4,565)
- ----------------------------------------------------------------------------------------------------
Total stockholders' deficit (72,128) (64,437)
- ----------------------------------------------------------- -----------------------------------------
$49,333 $66,816
===================================================================================================
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Datapoint Corporation and Subsidiaries Fiscal Years 1999, 1998 and 1997
(In thousands)
1999 1998 1997
- --------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss) $(7,549) $(669) $2,383
Adjustments to reconcile net income (loss) to net cash
provided from (used in) operating activities:
Depreciation and amortization 3,179 3,785 5,861
Provision for losses (recoveries) on accounts receivable (299) 33 (164)
Realized gain on sale of property (273) (1,205) --
Gain on debt extinguishment (1,707) (555) (1,210)
Non-cash pension expense 2,761 2,047 1,059
Deferred income taxes (616) 836 (546)
Changes in assets and liabilities:
(Increase) Decrease in receivables (406) (7,515) 5,792
(Increase) decrease in inventory 354 1,139 (969)
Increase (Decrease) in accounts payable and accrued expenses (1,960) 2,359 (14,472)
Increase (Decrease) in other liabilities and deferred credits (1,948) (470) 5,496
Other, net 1,302 (2,058) (610)
------------------------------------------------------------------------------------------------------
Net cash provided from (used in) operating activities (7,162) (2,273) 2,620
Cash flows from investing activities:
Payments for fixed assets (3,312) (2,354) (3,580)
Proceeds from disposition of fixed assets 2,111 3,200 --
Other, net 411 108 (612)
- ---------------------------------------------------------------------------------------------------------------
Net cash provided from (used in) investing activities (790) 954 (4,192)
Cash flows from financing activities:
Payments on borrowings (90,289) (84,939) (18,272)
Proceeds from borrowings 89,636 82,637 13,799
Restricted cash for letters of credit 24 (198) 710
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (629) (2,500) (3,763)
Effect of foreign currency translation on cash 48 430 (2,359)
- ---------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (8,533) (3,389) (7,694)
Cash and cash equivalents at beginning of year 12,101 15,490 23,184
- --------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $3,568 $12,101 $15,490
==============================================================================================================
Cash payments for:
Interest $5,778 $6,188 $6,823
Income taxes 778 807 891
See accompanying Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
Datapoint Corporation and Subsidiaries Fiscal Years 1999, 1998, and 1997
(In thousands)
Accumulated
$1.00 Other
Common Preferred Paid In Retained Treasury Comprehensive
Stock Stock Capital Deficit Stock Income (Loss) Total
-----------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 27, 1996 $ 5,248 $ 1,868 $ 212,655 $ (248,226) $ (38,314) $ 11,567 $(55,202)
- ------------------------------------------------------------------------------------------------------------------------------------
Net income - - - 2,383 - - 2,383
Foreign currency translation adjustment - - - - - (6,954) (6,954)
Pension liability adjustment - - - - - (4,488) (4,488)
----------
Comprehensive loss (9,059)
Preferred Stock conversion - (1,146) - (29,582) 30,728 - -
Common issued to 401(k) plan - - - (213) 241 - 28
Other - - - (564) 713 - 149
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at August 2, 1997 $ 5,248 $ 722 $ 212,655 $ (276,202) $ (6,632) $ 125 $(64,084)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss - - - (669) - - (669)
Foreign currency translation adjustment - - - - - 1,629 1,629
Pension liability adjustment - - - - - (1,596) (1,596)
----------
Comprehensive loss (636)
Stock options exercised - - - (1,078) 1,312 - 234
Common issued to 401(k) plan - - - (59) 84 - 25
Executive retirement contribution - - - (658) 658 - -
Other - - - 11 13 - 24
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at August 1, 1998 $ 5,248 $ 722 $ 212,655 $ (278,655) $ (4,565) $ 158 $(64,437)
- ----------------------------------------------------------------------------------------------------------------------------------
Net loss - - - (7,549) - - (7,549)
Foreign currency translation adjustment - - - - - 60 60
Pension liability adjustment - - - - - (572) (572)
----------
Comprehensive loss (8,061)
Preferred Stock conversion - (60) - (929) 989 - -
Stock options exercised - - - (162) 184 - 22
Common issued to 401(k) plan - - - (1,167) 1,267 - 100
Other - - 78 170 - - 248
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1999 $ 5,248 $ 662 $ 212,733 $ (288,292) $ (2,125) $ (354) $(72,128)
- ----------------------------------------------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Datapoint Corporation and Subsidiaries July 31, 1999, August 1, 1998, and August
2, 1997 (Dollars in thousands, except share data)
1. Basis of Presentation and Sale of European Operations
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. At July 31, 1999 and for the year then
ended, the Company experienced a net loss of $7,549 and it has a working capital
deficiency of $19,533 and a net capital deficiency of $72,128 which raise
substantial doubt about its ability to continue as a going concern. The
Company's ability to continue operations will depend on the availability of
sufficient cash resources to meet the Company's obligations in the near term.
Without the successful consummation of the announced sale of the European
Operations, described below, and positive cash flow, if any, from future
operations, there can be no assurances that the Company's operations will
continue.
On May 17, 1999, the Company and its wholly-owned subsidiary, Datapoint
International, Inc., entered into a letter of intent for a proposed sale of its
European subsidiaries which comprise substantially all of the Company's
operations (the "European Operations"), The European Operations represented 96%
of the Company's total revenue during 1999. Excluding the European Operations,
the Company's consolidated revenue and operating loss were $5,000 and $6,100,
respectively, in 1999. Under the terms of the proposed sale, the European
Operations will be purchased for $49,500 plus the assumption of certain
liabilities, less fees and expenses, by Reboot Systems, Inc., an investor group
headed by Blake Thomas, the Company's president, and which includes key
management employees of the European Operations (collectively, the "Buyer").
Subsequently, a Stock Purchase Agreement for the proposed sale was signed on
July 31, 1999, and subsequently amended on November 1, 1999 ("Stock Purchase
Agreement"). The proposed sale is contingent upon certain conditions, including
the Buyer's ability to secure acquisition financing, necessary third party
consents, the consent of at least two thirds of the debentureholders and
shareholder majority approval. On November 1, 1999, the Company and the Buyer
entered into the First Amendment to the Stock Purchase Agreement (the "First
Amendment"). The First Amendment provided for a refundable deposit of $750 (the
"Deposit") which was paid by the Buyer to the Company. The Deposit will be used
primarily to fund transaction costs including the engagement of BNY Capital
Markets, Inc. to issue a fairness opinion in connection with the transaction.
The First Amendment also obligates the Buyer to loan to the Company, on or
prior to December 1, 1999, approximately $2,500 (the "December 1 Funding") which
represent the funds necessary for the Company to make the December 1999 interest
payment on its 8 7/8 % convertible subordinated debentures (the "Debentures").
The Deposit, the December 1 Funding, a fixed amount of $375, and repayment of
commitment fees (the "Commitment Fees") as may be incurred by the Buyer in
connection with the transaction in the event that the Company does not receive
the requisite approval to the transaction by its shareholders and consent of the
holders of the Debentures will be secured by accounts receivable of certain of
the European subsidiaries.
Although the termination date pursuant to the First Amendment was extended
to March 31, 2000, if the December 1 Funding is not completed by the Buyer, the
Stock Purchase Agreement, as amended, will terminate on December 1, 1999. If
the transaction is consummated, the Deposit and the December 1 Funding shall be
applied toward the purchase price. If the transaction is not consummated, the
Company would be required to repay to the Buyer (i) the December 1 Funding and
(ii) the Deposit, and payment of the Commitment Fees and the fixed amount of
$375 thousand if the transaction did not close as a result of the inability of
the Company to obtain the requisite consents of its shareholders and holders of
the Debentures. In the event that the Buyer does not obtain the financing
commitment by February 1, 2000, the Company is required to reimburse the Buyer
for the December 1 Funding, but retains the Deposit.
The closing under the Stock Purchase Agreement, as amended, requires shareholder
majority approval and the consent of at least two thirds of the debentureholders
of the Company. In connection with obtaining such approvals, the Company expects
to file shortly with the U.S. Securities and Exchange Commission proxy materials
soliciting such approvals and tender offer documents to repurchase some portion
of the Debentures. In this regard, the Company has engaged BNY Capital Markets,
Inc. to deliver a fairness opinion as to the fairness of the transaction to the
shareholders of the Company from a financial point of view.
Based on current trends in its business and its financial forecasts, the Company
believes if the December 1 Funding is not made and if the proposed sale of the
European Operations is not consummated, that it will not be able to make the
scheduled December 1999 interest payment of $2,400 on its 8 7/8% convertible
subordinated debentures and a $5,000 sinking fund payment due in March 2000,
respectively, from internal cash flow resources. In the event the interest
payment is not made within the 30-day period following December 1, 1999, the
resulting default would entitle the holders of the Debentures to elect to
declare the entire indebtedness of $55,000 as immediately due and payable.
If the proposed sale of the Company's European Operations is not consummated as
intended, management plans to continue restructuring efforts as necessary which
may include the reduction of personnel, closure of facilities, disposal of
subsidiaries, or the discontinuance of product lines. The financial statements
do not include any adjustments that might result from the outcome of the going
concern uncertainty.
2. Summary of Significant Accounting Policies
Fiscal Year
The Company utilizes a 52-53 week fiscal year. References to 1999, 1998 and
1997 are for the fiscal years ended July 31, 1999, August 1, 1998, and August 2,
1997, respectively.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Intercompany accounts and transactions have been
eliminated upon consolidation.
Cash and Cash Equivalents
Cash equivalents include short-term, highly-liquid investments with maturities
of three months or less from date of acquisition and, as a result, the carrying
value approximates fair value because of the short maturity of those
instruments.
Inventories
Inventories are stated at the lower of standard cost (approximates first-in,
first-out) or market (replacement cost as to raw materials and net realizable
value as to work in process and finished products).
Fixed Assets
Fixed assets are carried at cost and depreciated for financial purposes using
straight-line and accelerated methods at rates based on the economic lives of
the assets or the related lease terms for leasehold improvements:
Leasehold improvements 3-5 years
Machinery, equipment, furniture and fixtures 3-10 years
Equipment leased to customers 4 years
Field support spares 3 years
Major improvements that add to the productive capacity or extend the life of an
asset are capitalized while repairs and maintenance are charged to expense as
incurred.
Risk Concentration
Financial instruments which potentially subject the Company to concentrations of
credit risk are accounts receivable. Concentrations of credit risk with respect
to the receivables are limited due to the large number of customers in the
Company's customer base and their dispersion across industries. The Company
primarily sells to customers in Europe within, but not limited to, the banking,
automotive, government, libraries, and telecommunications industries. The
Company maintains an allowance for losses based upon the expected collectibility
of accounts receivable.
Debt
The carrying amount and the fair value of the Company's debt at July 31, 1999
are:
Estimated
Carrying Amount Fair Value
8-7/8% convertible subordinated debentures $54,960 $22,259
The fair value of the Company's 8-7/8% convertible subordinated debentures is
based on a quoted market price at July 31, 1999.
Translation of Foreign Currencies
Management has determined that all of the Company's foreign subsidiaries operate
primarily in local currencies which represent the functional currencies of the
subsidiaries. All assets and liabilities of foreign subsidiaries are translated
into U.S. dollars using the exchange rate prevailing at the balance sheet date,
while income and expense accounts are translated at average exchange rates
during the year.
Reclassifications
Certain reclassifications to the financial statements for prior years have been
made to conform to the 1999 presentation.
Revenue Recognition
The Company derives revenue from hardware and software products and services.
Services provided by the Company include hardware and software maintenance,
installation, and basic consulting services. Revenue is recognized in accordance
with following criteria:
Hardware Products. Sales revenue is generally recognized at the time of
shipment, provided no future vendor obligations exist and collection is
probable. If such obligations are present in the contract, revenue is not
recognized until such time as the contractual obligations are met.
Software Products. The Company generates software license revenue as an
authorized reseller of third-party software products. Revenue from software
license fees are generally recognized upon delivery, provided payment is due
within one year and is probable of collection. If acceptance is required,
software license revenue is recognized upon customer acceptance.
In fiscal 1999 the Company adopted, American Institute of Certified Public
Accountants Statement of Position 97-2, Software Revenue Recognition, which set
forth new guidelines for recognizing revenue on software sales. The statement
did not have a material effect on the Company's 1999 financial statements as
compared to prior years presented. In December 1998, Statement of Position 98-9,
Modification of SOP 97-2, Software Revenue Recognition, with Respect to Certain
Transactions" ("SOP 98-9") was released. SOP 98-9 amends certain provisions of
SOP 97-2 relating to revenue recognition for multiple element arrangements. SOP
98-9 will be effective for transactions that are entered into in fiscal years
beginning after March 15, 1999. The requirements of SOP 98-9 are not expected to
materially change the Company's financial reporting.
Services. Revenue from installation and consulting services are recognized as
services are performed or ratably over the contract period. Hardware and
software maintenance revenue is deferred at the time of product shipment and is
recognized ratably over the term of the support period.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with FASB Statement No. 109. No tax provision has been made for the
undistributed earnings of foreign subsidiaries as management expects these
earnings to be reinvested indefinitely or received substantially free of
additional tax.
Net Income (Loss) per Common Share
Basic and diluted net income (loss) per common share is computed as follows:
1999 1998 1997
---- ---- ----
Income Per Income Per Income Per
(Loss) Shares Share (Loss) Shares Share (Loss) Shares Share
Income (loss) before
extraordinary credit $(9,256) $(1,224) $1,173
Preferred stock dividends
accumulated (684) (722) (1,009)
Gain on the exchange and
retirement of preferred stock 306 -- 3,810
Extraordinary credit 1,707 555 1,210 __
- -------------------------------------------------------------------------------------------------------------
Basic $(7,927) 18,226 $(.44) $(1,391) 17,968 $(.08) $5,184 16,110 $.32
- -----------------------------------------------------------------------------------------------------------
Dilutives:
Stock Options -- -- -- -- -- 227
- ----------------------------------------------------------------------------------------------------------
Diluted $(7,927) 18,226 $(.44) $(1,391) 17,968 $(.08) $5,184 16,337 $.32
- ----------------------------------------------------------------------------------------------------------
The per share computations for fiscal years 1999, 1998 and 1997 exclude the
following shares for stock options and convertible debentures because their
effect would have been antidilutive:
1999 1998 1997
---- ---- ----
Stock options 3,537 3,711 1,183
Convertible preferred stock 1,323 1,444 1,444
Convertible debentures 3,035 3,210 3,357
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 130, Reporting Comprehensive Income. Statement No. 130 established
new rules for the reporting and display of comprehensive income and its
components. Comprehensive income is net income, plus certain other items that
are recorded directly to stockholders' equity. The only such items currently
applicable to the Company are foreign currency translation adjustment and
minimum pension liability adjustments. The Company adopted this Statement in the
first quarter of fiscal 1999.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. Reorganization/Restructuring Costs
During 1999, 1998, and 1997, the Company incurred restructuring costs as follows
in connection with employee termination programs implemented in these years:
1999 1998 1997
- -----------------------------------------------------------------
Employee termination costs $813 $96 $2,425
=================================================================
The Company's 1999, 1998, and 1997 restructuring charges primarily have been
driven by management's efforts to implement cost cutting measures. At July 31,
1999, accrued but unpaid restructuring costs were $133. Restructuring costs
incurred during 1999 included $650 for the termination of 25 employees at the
Company's San Antonio headquarters and $163 for the termination of 5 employees
at the Company's French subsidiary.
Restructuring charges are not recorded until specific employees are determined
(and notified of termination) by management in accordance with its overall
restructuring plan. Employee termination payments are generally paid out over a
period of time rather than as one lump sum.
Subsequent to year end, in October 1999 the Company discontinued its domestic
video conferencing (MINX) operations. As a result, severance pay of
approximately $624 will be paid to 28 employees in regular bi-weekly
installments. The severance obligations have not been reflected in fiscal year
1999 results. In connection with the discontinuance of this domestic operation,
the Company recognized a charge to cost of revenue during the fourth quarter of
1999 of $613 to reflect an adjustment to the net realizable value of inventories
at July 31, 1999 relating to the domestic video conferencing (MINX) operation.
Net revenues from this domestic operation were approximately $2,100 during 1999.
4. Non-operating Income (Expense)
1999 1998 1997
- --------------------------------------------------------------------
Interest earned $313 $518 $526
Foreign currency gains (losses) (89) (104) 6,195
Gain on the sale of buildings 273 1,205 --
Other (301) (424) (797)
- ---------------------------------------------------------------------
$196 $1,195 $5,924
====================================================================
During fiscal year 1998, management reassessed the characteristics of its
intercompany notes with international subsidiaries (payable by the U.S. parent)
and determined that a substantial portion was long-term in nature and not
payable in the foreseeable future. As a result, during fiscal year 1999 and
1998, transaction gains of $1.6 million and of $57 thousand, respectively,
relating to these loans are included as a foreign currency adjustment to
accumulated other comprehensive income included in Stockholders' Deficit, which
in prior years, would have been included in non-operating income and expense.
During fiscal year 1997, a transaction gain of approximately $6.2 million was
included in non-operating income but was offset by a translation adjustment in
accumulated other comprehensive income included in Stockholders' deficit.
5. Income Taxes
The provision for taxes consisted of the following:
1999 1998 1997
- ---------------------------------------------------------------------------
Income (loss) before income taxes
and extraordinary credit:
U.S. $(8,275) $(5,655) $(3,262)
Outside the U.S. (146) 5,776 4,443
- ---------------------------------------------------------------------------
$(8,421) $121 $1,181
===========================================================================
Provision for income taxes: 1999 1998 1997
- ---------------------------------------------------------------------------
U.S. federal:
Current $-- $-- $--
Outside the U.S.:
Current 1,451 509 554
Deferred (616) 836 (546)
- ----------------------------------------------------------------------------
835 1,345 8
- ---------------------------------------------------------------------------
Total provision $835 $1,345 $8
===========================================================================
The differences between the tax provision in the financial statements and
the tax benefit computed at the U.S. federal statutory rates are:
1999 1998 1997
- ----------------------------------------------------------------------------------------
Income taxes at statutory rate $(2,947) $42 $413
Increase in taxes resulting from:
Benefit of U.S. tax loss not recognized 2,895 2,057 1,137
Foreign losses and other transactions on which
a tax benefit could not be recognized 753 33 14
Effect of federal tax rate less than (greater than)
foreign tax rates 325 190 152
Benefit of operating loss carryforwards (192) (979) (1,713)
Other, net 1 2 5
- ----------------------------------------------------------------------------------------
Provision for income taxes $835 $1,345 $8
========================================================================================
The undistributed earnings, indefinitely reinvested in international business,
of the Company's foreign subsidiaries aggregated approximately $34,400 at July
31, 1999. Determination of the amount of unrecognized deferred tax liability on
these unremitted earnings is not practicable.
The primary components of deferred income tax assets and liabilities are as
follows:
1999 1998
Deferred income tax assets:
Property, plant and equipment $1,711 $1,769
Loss and credit carryforwards 76,206 74,641
Minimum pension liability adjustments -- 3,000
Other 1,592 1,135
- ---------------------------------------------------------------------------
79,509 80,545
Less: valuation allowance 78,035 76,854
- ---------------------------------------------------------------------------
1,474 3,691
Deferred income tax liabilities:
Accrued retirement costs (679) (461)
Foreign exchange gains (943) (837)
Other (539) (716)
- ---------------------------------------------------------------------------
(2,161) (2,014)
Net deferred income tax asset (liability) $(687) $1,677
===========================================================================
At July 31, 1999, the net deferred income tax liability of $687 was presented in
the balance sheet, based on tax jurisdiction, as other assets of $549 and other
liabilities of $1,236. Realization of the Company's deferred tax assets is
dependent on generating sufficient taxable income in certain taxing
jurisdictions prior to the expiration of loss and credit carryforwards. In this
regard, the Company intends to utilize qualified tax planning strategies, if
necessary, to utilize deferred tax assets where valuation allowances have not
been provided. Management believes that more likely than not, certain deferred
tax assets will not be fully realized in the near future and has therefore
provided a valuation allowance to reserve for those deferred tax assets not
considered realizable.
At July 31, 1999, the Company had tax operating loss carryforwards approximating
$192,000 and $13,000 for U.S. federal and foreign tax purposes, respectively,
expiring in various amounts beginning in 2001 and 2000, respectively. U.S.
federal long-term capital loss carryforwards of $1,703 expire in various amounts
beginning in 2000. Utilization of the ordinary and capital tax loss
carryforwards is subject to limitation in the event of a more than 50% change in
ownership of the Company.
The Company had unused investment, research, and alternative minimum tax credits
for income tax purposes at July 31, 1999 of approximately $2,900 expiring at
various dates through 2001 which may be used to offset future tax liabilities of
the Company. Utilization of these credits is subject to limitation in the event
of a more than 50% change in ownership of the Company.
6. Inventories
1999 1998
Finished and purchased products $2,305 $1,911
Work in process 234 972
Raw materials 93 74
- ------------------------------------------------------------------
$2,632 $2,957
7. Fixed Assets
Accumulated
Cost Depreciation Net
July 31, 1999 Property, plant and equipment:
Leasehold improvements $5,650 $4,477 $1,173
Machinery, equipment, furniture and fixtures 16,621 13,288 3,333
------------------------------------------------------------------------------------
22,271 17,765 4,506
Field support spares 10,872 9,605 1,267
Equipment leased to customers 304 149 155
- ----------------------------------------------------------------------------------------
$33,447 $27,519 $5,928
========================================================================================
August 1, 1998 Property, plant and equipment:
Building and leasehold improvements $11,723 $7,433 $4,290
Machinery, equipment, furniture and fixtures 21,821 18,558 3,263
------------------------------------------------------------------------------------
33,544 25,991 7,553
Field support spares 12,360 10,463 1,897
Equipment leased to customers 383 365 18
- ----------------------------------------------------------------------------------------
$46,287 $36,819 $9,468
========================================================================================
During the first quarter of 1999, the Company sold the building it owned in
Gouda, Netherlands to a private unaffiliated group for approximately $2.1
million (net of mortgage obligations and closing costs). The sales contract
provided for the leaseback by the Company of approximately 18,000 square feet
for an initial lease term of five years and approximately 12,000 square feet for
an initial lease term of one year. The Company recorded in non-operating income
a gain of approximately $.3 million during the first quarter of 1999. The
remainder of the gain ($.9 million) was deferred and is being amortized over the
lease terms.
On October 27, 1997, the Company sold the three buildings it owned in San
Antonio, Texas to a private unaffiliated group for approximately $3.2 million
(net of mortgage obligations and closing costs). The sales contract provided for
the leaseback by the Company of one of the buildings (approximately 38,000
square feet) for an initial lease term of five years.
8. Lease Commitments
The Company leases certain facilities and equipment under various leases.
Substantially all of the leases are classified as operating leases. Rental
expense for operating leases for 1999, 1998 and 1997 was $4,908, $4,419, and
$5,933, respectively. Most of the leases contain renewal options for various
periods and require the Company to maintain the property. Certain leases contain
provisions for periodic rate adjustments to reflect Consumer Price Index
changes.
At July 31, 1999, future minimum lease payments for all noncancelable
leases totaled $15,529 and are payable as follows: 2000-$4,194; 2001-$3,776;
2002-$2,512; 2003-$1,837; 2004-$1,645 and $1,565 thereafter.
9. Payables to Bank
The Company's foreign subsidiaries have available lines of credit from foreign
banks, which are generally secured by accounts receivable. The unused lines of
credit to the foreign subsidiaries at July 31, 1999, totaled $8.0 million after
borrowings of $6.7 million. The availability of the unused lines of credit is
subject to certain collateral restrictions. The weighted average interest rate
for these short term borrowings as of the fiscal year end was 5.7% , 7.2%, 7.7%
for 1999, 1998, and 1997, respectively.
10. Accrued Expenses
1999 1998
- ------------------------------------------------------------------------------
Salaries, commissions, bonuses and other benefits $12,204 $11,955
Taxes other than income taxes 3,769 4,147
Other 6,917 6,490
- ------------------------------------------------------------------------------
$22,890 $22,592
11. Long-Term Debt
1999 1998
- ------------------------------------------------------------------------------
8-7/8% convertible subordinated debentures $54,960 $58,115
Less: current maturities of long-term debt 4,960 3,115
- ------------------------------------------------------------------------------
$50,000 $55,000
Interest on the 8-7/8% convertible subordinated debentures is payable
semiannually on June 1 and December 1. The debentures are subordinated in right
of payments to all senior indebtedness, as defined, and are convertible into
common stock of the Company at any time prior to the close of business on June
1, 2006, unless previously redeemed. Each one thousand dollar principal amount
debenture is convertible into 55.231 shares of common stock and, as of July 31,
1999, there were 3,035,496 shares reserved for possible issuance. The debentures
are entitled to a mandatory sinking fund, which commenced June 1, 1991, of
$5,000 annually. The Company, at its option, may increase the sinking fund
payment to $10,000 and may also receive credit against mandatory sinking fund
payments for debentures acquired through means other than the sinking fund. The
Company has applied $45,000 in previous debenture retirements against the
sinking fund requirements for 1991 through 1999. The Company also intends to
apply previous debenture retirements of $40 through July 31, 1999, against the
sinking fund requirements for 2000. The debentures are also redeemable at the
option of the Company, in whole or in part, at any time at 100% of the principal
amount together with accrued interest to the date of redemption. During fiscal
1999, the Company repurchased debentures with a total face value of $3,155,
resulting in an extraordinary gain of $1,707.
Aggregate scheduled maturities, after consideration of repurchases through July
31, 1999, of long-term debt are as follows: 2000--$4,960; 2001--$5,000;
2002--$5,000; 2003--$5,000; 2004--$5,000, and $30,000 thereafter.
12. Stockholders' Deficit
Throughout 1999, employees of the Company exercised 22,266 options for shares of
common stock. Additionally, the Company issued 153,640 shares from common stock
held in treasury to participants in the U.S. 401(k) retirement and savings plan
and 120,018 shares were issued for preferred stock conversions.
The $1.00 preferred stock has a liquidation preference of $20.00 per share and
cumulative dividends of $1.00 annually. On January 16, 1996, the Company
announced that it was in arrears on its $1.00 preferred stock in an aggregate
amount equal to six full quarterly dividends. As a result, each holder of $1.00
preferred stock has the right to exchange each such share (inclusive of all
accrued and unpaid dividends) into two shares of the Company's common stock. In
addition, as a result of the dividend arrearages the number of directors
constituting the Board of Directors of the Company was increased by two with the
vote of the holders of the $1.00 preferred stock (not including those who have
exchanged $1.00 preferred stock for the Company's common stock). These rights
continue until such time as the arrearages have been paid in full. Dividends of
$3,310 and $2,888 were accumulated and unpaid at July 31, 1999, and August 1,
1998, respectively.
During 1997, the Company accepted 1,145,945 shares of its $1.00 Exchangeable
Preferred Stock, having a liquidation preference $20 per share ("the $1.00
Preferred Stock"), which was tendered in its exchange offer (the "exchange
offer") described in the proxy statement/prospectus delivered to the holders of
the Company's common stock, par value $.25 per share (the "Common Stock"), and
to the holders of $1.00 Preferred Stock. Under the terms of the exchange offer,
each share of $1.00 Preferred Stock tendered was exchanged for 3.25 shares of
Common Stock. The tendered shares approximated 61.34% of the total outstanding
shares of $1.00 Preferred Stock immediately prior to the expiration of the
exchange offer. For purposes of calculating net income applicable to common
shareholders in 1997 and related per share amounts, a gain of $3.8 million on
exchange and retirement of preferred stock was added to net income. This gain
includes the excess of the carrying value of preferred stock accepted in the
exchange over the fair value of the common stock issued. In addition, the gain
includes accumulated dividends on the retired preferred stock.
Changes in other comprehensive income are as follows:
Pension Foreign Currency
Liability Translation
Adjustment Adjustment Total
Balance at July 27, 1996 $ - $11,567 $11,567
Annual adjustments (6,698) (6,954) (13,652)
Tax effect 2,210 - 2,210
- ----------------------------------------------------------------------------
Balance at August 2, 1997 $(4,488) $4,613 $125
Annual adjustments (2,386) 1,629 (757)
Tax effect 790 - 790
- ----------------------------------------------------------------------------
Balance at August 1, 1998 $(6,084) $6,242 $158
Annual adjustments 2,428 60 2,488
Tax effect (3,000) - (3,000)
- -----------------------------------------------------------------------------
Balance at July 31, 1999 $(6,656) $6,302 $(354)
===========================================
13. Stock Option Plans
At July 31, 1999, 5,572,207 shares were reserved for issuance in connection with
the Company's employee stock option plans. Total options outstanding for these
plans total 3,261,903.
On January 28, 1998, the stockholders approved a 1997 Employee Stock Option
Plan. The plan is similar to the Company's previous employee stock option plans.
Under the Company's employee stock option plans, officers and other key
employees may be granted options to purchase common stock and related stock
appreciation rights. Under the terms of these plans, options may be granted at
no less than 75% of fair market value and expire no later than ten years from
the date of grant. The Board may grant options exercisable in full or in
installments, and has generally granted options at fair market value exercisable
in two to four installments beginning one year from the date of grant. In the
event of a change of control in the Company, all stock options would fully vest.
As of July 31, 1999, and August 1, 1998, options for 1,896,780 and 1,083,067
shares, respectively, under the employee plans were exercisable and no stock
appreciation rights had been granted. Options outstanding as of July 31, 1999,
have an average exercise price of $2.88 and expire during the period September
2001 through March 2008.
Employee Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
Outstanding at July 27, 1996 $1.06-8.00 1,188,171 570,233
- ------------------------------------------------------------------------------
Authorized -- -- 2,000,000
Granted $.94-1.44 1,022,800 (1,022,800)
Exercised 1.38 (5,000) --
- ------------------------------------------------------------------------------
Outstanding at August 2, 1997 $.94-8.00 2,205,971 1,547,433
- -------------------------------------------------------------------------------
Authorized -- -- 2,000,000
Granted $2.56-4.00 1,718,300 (1,718,300)
Exercised .94-2.69 (158,931) --
Canceled .94-8.00 (354,171) 354,171
- ------------------------------------------------------------------------------
Outstanding at August 1, 1998 $.94-7.25 3,411,169 2,183,304
- -------------------------------------------------------------------------------
Exercised $.94-.97 (22,266) --
Canceled 1.44-5.25 (127,000) 127,000
- -------------------------------------------------------------------------------
Outstanding at July 31, 1999 $.94-$7.25 3,261,903 2,310,304
===============================================================================
On December 10, 1996, the stockholders approved a 1996 Director Stock Option
Plan. The plan is similar to the Company's previous director stock option plans.
The 1996 Director Plan provides for a one-time grant of an option to purchase,
at fair market value as of the date of the grant, 25,000 shares of common stock
to each director, and an additional 50,000 shares to the present and any newly
elected Chairman of the Board. A maximum of 500,000 shares of common stock are
reserved for the issuance of grants under the 1996 Director Plan, and the
options, which vest immediately upon grant, expire five years from the date of
grant. Total director options outstanding as of July 31, 1999, total 275,000
with a weighted average exercise price of $1.23 and expire during the period
December 1998 through June 2002. Stock option grants were not made to directors
in 1999 nor in 1998.
Director Stock Option Plans
Price Range Number of Shares
of Shares Under Available
Under Option Option for Option
Outstanding at July 27, 1996 $2.50-6.31 190,000 300,000
- -----------------------------------------------------------------------------
Authorized -- -- 500,000
Granted $1.19-1.63 275,000 (275,000)
Expired $1.88-2.50 (165,000) --
- -----------------------------------------------------------------------------
Outstanding at August 2, 1997 $1.19-6.31 300,000 525,000
- -----------------------------------------------------------------------------
Authorized -- -- --
Granted -- -- --
Expired -- -- --
- -----------------------------------------------------------------------------
Outstanding at August 1, 1998 $1.19-6.31 300,000 525,000
- ------------------------------------------------------------------------------
Authorized -- -- --
Granted -- -- --
Expired $6.31 (25,000) --
- ------------------------------------------------------------------------------
Outstanding July 31, 1999 $1.19-1.63 275,000 525,000
- ------------------------------------------------------------------------------
The FASB has issued Statement No. 123, "Accounting for Stock-Based
Compensation", ("SFAS No. 123") which requires either recognition or disclosure
of a charge for the value of stock options granted. The Company adopted this
statement in 1997 and has elected to continue to apply the provisions of
Accounting Principles Board Opinion No. 25 and make the footnote disclosures
required by SFAS No. 123.
Accordingly, no compensation cost has been recognized for the stock option
plans. Had compensation cost been determined based on the fair value of the
options at the grant date for awards in 1998 and 1997 consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been the pro forma amounts indicated below. Because options vest over
several years and additional grants are expected, the effects of the
calculations below are not likely to be representative of similar future
calculations:
(In thousands, except per share amounts)
1999 1998 1997
--------------------------
Net income (loss)--As reported $(7,549) $(669) $2,383
--Pro forma (8,444) (1,395) 2,046
Basic earnings (loss) per share--As reported $(.44) $(.08) $.32
--Pro forma (.48) (.12) .30
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions. No options were granted during 1999.
1998 1997
Risk-free interest rate
Employee stock option 5.85% 6.20%
Board of director stock option --% 6.23%
Expected dividend yield
Employee stock option 0 0
Board of director stock option -- 0
Expected volatility
Employee stock option .653 .668
Board of director stock option -- .668
Expected lives
Employee stock option 6 6
Board of director stock option -- 3
Weighted average remaining contractual life
Employee stock option 10 10
Board of director stock option -- 5
The weighted average fair value of options granted for the employee stock
option plans in 1998 and 1997 was $1.84 and $.99, and for the board of director
options in 1997 was $1.23.
Summarized information about stock options outstanding as of July 31, 1999, is
as follows:
Range of Exercise Prices $0.94-$1.94 $2.56-$4.94 $5.25-$7.25
- --------------------------------------------------------------------------------
Number of shares outstanding 1,268,103 2,062,300 206,500
Weighted average exercise price
of shares outstanding $1.10 $3.47 $5.70
Weighted average remaining
contractual life 5.9 years 7.9 years 4.0 years
Number of shares exercisable 1,019,847 945,433 206,500
Weighted average exercise
price of shares exercisable $1.13 $3.28 $5.70
14. Operating Segments and Geographic Operations
Operating Segment Information
In fiscal 1999, the Company has adopted Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures about Segments of an Enterprise and
Related Information," which requires the reporting of certain financial
information by operating segment and geographical area. Datapoint is principally
engaged in the development, acquisition, marketing, servicing, and system
integration of computer and communication products - both hardware and software.
These products and services are for integrated computer, telecommunication and
video conferencing network systems. The Company's Chief Operating Decision Maker
(CODM) assesses performance and allocates resources based on a geographic
reporting structure. Substantially all of the Company's operations consist of
ten European subsidiaries and to a lesser extent domestic operations. Reportable
operating segments under SFAS No. 131 include the Company's subsidiaries
residing in Sweden, the United Kingdom, France, and Belgium. Each of these
subsidiaries function as value-added resellers of products and services, which
principally consist of networking products such as monitors, servers, etc.,
provided by Computer 2000, Actebis, Hewlett Packard, Taxan and Acer. For
telephony applications, the Company's chief product suppliers include
International Management Associates, Ltd., ("IMA"), which provides the
Electronic Data Gathering Expertise ("EDGE") telebusiness software, and Lucent
Technology, Vocalcom and Davox, which provide automatic call distributors and
other hardware.
Included in "Corporate and Other" are general corporate activities and related
expenses and activities from other foreign subsidiaries, including non-cash
pension expense of $2.3, $1.7 and $.9 for 1999, 1998 and 1997, respectively,
related to the reported segments' defined benefit plans. The CODM uses operating
income (loss) before non-cash pension expense to measure results of operations
from segments. Assets are those that are used or generated exclusively by each
operating segment. The eliminations required to determine the consolidated
amounts shown below consist principally of the elimination of intercompany
receivables for loans provided by the operating segments to the parent entity.
The following table presents certain information regarding the Company's
reportable operating segments for fiscal years 1997-1999:
Revenue 1999 1998 1997
- ----------------------------------------------------------------
Sweden $41,868 $49,538 $42,844
United Kingdom 35,814 37,602 32,814
France 17,419 15,750 14,889
Belgium 15,749 11,323 10,959
Corporate and Other 28,184 38,507 43,146
Eliminations (749) (1,275) (2,531)
- -----------------------------------------------------------------------------
Total $138,285 $151,445 $142,121
==================================
Segment Profit (Loss) 1999 1998 1997
- ----------------------------------------------------------------------------
Sweden $2,834 $4,044 $2,933
United Kingdom 4,547 4,930 4,831
France 1,102 1,981 2,238
Belgium 1,339 1,709 1,954
Corporate and Other (12,708) (7,590) (9,923)
- -----------------------------------------------------------------------------
Operating Income (Loss) (2,886) 5,074 2,033
Interest Expense (5,731) (6,148) (6,776)
Other Non-Operating Income, net 196 1,195 5,924
- ----------------------------------------------------------------------------
Income Before Income Taxes
and Extraordinary Credit $(8,421) $121 $1,181
====================================
Capital Expenditures: 1999 1998 1997
- --------------------------------------------------------------------------------
Sweden $238 $93 $1,178
United Kingdom 1,732 1,619 1,519
France 231 87 147
Belgium 346 200 315
Corporate and Other 765 355 421
- -------------------------------------------------------------------------------
Total $3,312 $2,354 $3,580
====================================
Depreciation: 1999 1998 1997
- --------------------------------------------------------------------------------
Sweden $292 $419 $496
United Kingdom 1,655 1,679 2,096
France 123 103 246
Belgium 291 253 641
Corporate and Other 818 1,331 2,382
- --------------------------------------------------------------------------------
Total $3,179 $3,785 $5,861
===================================
Assets: 1999 1998 1997
- --------------------------------------------------------------------------------
Sweden $12,786 $12,213 $10,151
United Kingdom 18,838 26,622 24,736
France 13,870 15,913 12,946
Belgium 15,677 13,996 14,052
Corporate and Other 44,614 51,862 48,272
Eliminations (56,452) (53,790) (47,769)
- --------------------------------------------------------------------------------
Total $49,333 $66,816 $62,388
====================================
Geographic Operations
The following geographic area data includes trade revenues and fixed assets:
1999 1998 1997
-------------------------------
Revenue - unaffiliated customers:
United States - domestic $4,131 $4,305 $5,426
-- export sales 977 3,157 2,088
Europe 133,143 143,471 133,845
Other International 34 512 762
- ------------------------------------------------------------------------------
Total revenue from unaffiliated
customers 138,285 151,445 142,121
Revenue - Intercompany:
United States 719 1,219 2,450
Europe 30 56 81
Eliminations (749) (1,275) (2,531)
- -------------------------------------------------------------------------------
Total consolidated revenue $138,285 $151,445 $142,121
===================================
Fixed Assets: 1999 1998 1997
- ------------------------------------------------------------------------------
United States $133 $402 $2,132
Europe 5,795 9,066 9,632
- ------------------------------------------------------------------------------
Total fixed assets $5,928 $9,468 $11,764
=================================
15. Retirement Income Plans
Retirement expenses incurred by the Company were as follows:
1999 1998 1997
- ----------------------------------------------------------------------
U.S.:
Matching contributions $81 $51 $47
Outside the U.S.:
Defined benefit plans 2,761 2,047 1,059
Other plans 543 712 730
- ----------------------------------------------------------------------
3,304 2,759 1,789
- ----------------------------------------------------------------------
$3,385 $2,810 $1,836
======================================================================
U.S. Plans
The Company has adopted a 401(k) retirement and savings plan which covers all
full-time employees who have been employed for at least 12 months. The Company's
retirement and savings plan contribution has been a 25% matching contribution
for employee contributions up to 5% of each employee's compensation. At the
Board's discretion, the Company may also contribute a profit sharing amount to
the plan that is contingent upon the performance level of the Company.
The Company maintains a Supplemental Executive Retirement Plan for certain
executive employees selected by the Board of Directors. The plan provides for
employee contributions of up to 10% of applicable compensation. In addition, at
the Board's discretion, the Company may also make contributions on an annual,
individual basis, allocated on a pro-rata basis according to participant's
applicable compensation up to a maximum contribution of 15% of applicable
compensation per employee. For the fiscal years ended July 31, 1999, and August
1, 1998, the Company did not make a contribution, however for the fiscal year
ended August 2, 1997, the Company approved the contribution of 92,500 shares of
its common stock to the plan for credit to the accounts of various executive
officers. Under the terms of the plan, benefits accrue to the various executive
officers upon satisfaction of the plan's vesting criteria, which is based upon
length of employment with the Company.
Plans Outside the U.S.
Most of the Company's foreign subsidiaries provide retirement income plans which
conform to the practice of the country in which they do business, some of which
are government sponsored plans. The types of company-sponsored plans in use are
defined benefit and defined contribution.
Five of the Company's subsidiaries, including the United Kingdom, utilize
defined benefit plans with employee benefits generally being based on years of
service and wages near retirement. The plans cover all full-time employees who
have been employed for at least 12 months. Obligations under the Company's plans
are funded primarily through (a) fixed rate of return investments, mostly
insurance policies, (b) equity funds for the portion of the United Kingdom's
plan assets which are invested in the Edelman Value Fund, Ltd., and (c) for
Germany, where reserves are established for the obligations. The Trustees of the
Company's United Kingdom subsidiary's defined benefit pension plan have
implemented an investment strategy which includes an investment of approximately
$7.2 million and $6.7 million, respectively, in the Edelman Value Fund, Ltd., a
related party, as of July 31, 1999 and August 1, 1998. The United Kingdom's
defined benefit plan was capped and was converted to a defined contribution plan
in fiscal year 1993. During 1997, the Belgian defined benefit pension plan was
closed to new employees and a defined contribution plan initiated. During 1999,
the Swiss defined benefit plan was terminated.
The Company's United Kingdom subsidiary has a defined contribution plan. The
plan covers all full-time salaried employees who have been employed for at least
12 months and contributions are based upon a percentage of compensation.
Obligations under this plan are funded primarily through deposits in pooled
investments.
Expenses of the defined benefit plans were as follows:
1999 1998 1997
- --------------------------------------------------------------------------
Service Cost $217 $275 $417
Interest Cost 2,291 2,325 2,255
Expected return on plan assets (1,690) (1,964) (2,411)
Amortization of transition obligation 33 36 35
Amortization of net actuarial loss 1,910 1,375 763
- ---------------------------------------------------------------------------
Total $2,761 $2,047 $1,059
==============================
Obligation and asset data for the defined benefit plans at July 31, 1999 and
August 1, 1998 were as follows:
1999 1998
- ------------------------------------------------------------------------------
Change in benefit obligations
Benefit obligation at beginning of year $35,671 $31,207
Service cost 217 275
Interest cost 2,291 2,325
Benefits paid (1,112) (2,529)
Actuarial (gain) loss 2,001 4,393
- ---------------------------------------------------------------------------
Benefit obligation at end of year $39,068 $35,671
- ---------------------------------------------------------------------------
Change in plan assets
Fair value of plan assets at beginning of year $25,154 $24,786
Actual return on plan assets 4,318 2,388
Benefits paid from plan assets (662) (2,020)
- ----------------------------------------------------------------------------
Fair value of plan assets at end of year $28,810 $25,154
- ---------------------------------------------------------------------------
Funded Status $(10,258) $(10,517)
Unrecognized net actuarial (gain) loss 6,611 8,986
Unrecognized prior service cost 300 334
Unrecognized transition obligation 491 599
- ---------------------------------------------------------------------------
Net amount recognized $(2,856) $(598)
========================
Amounts recognized in the balance sheet consist of:
Accrued retirement, non-current $(10,035) $(10,394)
Prepaid benefit cost 523 712
Deferred tax asset -- 3,000
Accumulated other comprehensive loss 6,656 6,084
- -----------------------------------------------------------------------
Total $(2,856) $(598)
========================
The range of assumptions used for the non-U.S. defined benefit plans reflect the
different economic environments within the various countries. The defined
benefit obligations were determined as of the end of fiscal year 1999 and 1998
using a range of assumed discount rates of 5.75% to 6.25% in 1999 and 4.5% to
7.6% in 1998, an assumed average long-term pay progression rate of 3%, and an
assumed weighted average expected rate of return on plan assets of 6 1/2% in
both 1999 and 1998. Benefit obligations exceed plan assets for each of the
Company's plans at the end of 1999 and 1998. Accrued pension costs at the end of
1999 and 1998 include accumulated benefit obligations of $34,807 and $31,532,
respectively, versus plan assets of $28,810 and $25,154, for the plans whose
accumulated benefit obligations exceeded their assets.
16. Certain Relationships and Related Transactions
Director Agranoff is the Company's Vice President, General Counsel and Corporate
Secretary, and a member of the law firm Pryor, Cashman, Sherman, & Flynn. During
the fiscal years 1999, 1998, and 1997, Datapoint paid legal fees of $265, $0,
and $374, respectively, to the law firm of Pryor, Cashman, Sherman, & Flynn, for
legal services provided by attorneys other than Mr. Agranoff.
During fiscal year 1999, 1998, and 1997, the Company paid office rent and
secretarial expenses of $64, $69, and $73, respectively, to Canal Capital
Corporation. Chief Executive Officer Edelman and Director Agranoff are Canal
Capital Corporation board members, with Chief Executive Officer Edelman serving
as Chairman of the Board.
The Trustees of the Company's United Kingdom subsidiary's defined benefit
pension plan have implemented an investment strategy which includes an
investment of approximately $7.2 million and $6.7 million, respectively, in the
Edelman Value Fund, Ltd., a related party, as of July 31, 1999 and August 1,
1998.
On June 29, 1998, the Company had signed a letter of intent, which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the president of DMA and a board member of Datapoint. In
addition to the letter, Datapoint advanced DMA $200. This advance was secured by
a promissory note, payment of which had been guaranteed by a principal of DMA.
The principal payment of $200 was repaid on July 20, 1999.
17. Contingencies
From time to time, the Company is a defendant in lawsuits generally incidental
to its business. The Company is not currently aware of any such suit, which if
decided adversely to the Company, would result in a material liability in
relation to the financial position and results of operations.
18. Acquisition
On July 27, 1999, the Company, through a newly formed subsidiary, Corebyte Inc.,
of which the Company owns 80%, acquired the Corebyte communication and
networking software product family. The acquisition was accomplished pursuant to
an Asset Purchase Agreement, by and among the Company, SF Digital, LLC and John
Engstrom, dated July 27, 1999. The purchase price for the Corebyte assets
comprised the following: (1) options to purchase up to one million shares of
common stock of the Company at an exercise price of $1.00 per share, (ii)
options to purchase an additional one million shares of common stock of the
Company at an exercise price equal to 80% of the closing price per share of
common stock of the Company on July 27, 2000, the first anniversary of the
acquisition, provided that Mr. Engstrom is still employed by the Company on such
date; (iii) up to twenty-five percent of the common stock in Corebyte, Inc.; and
(iv) $75,000 in cash as reimbursement for certain research and development
expenses. All such consideration is to be held in escrow pending final
resolution of Engstrom v. Futureshare.com, LLC, a litigation which is pending in
the United States District Court for the Southern District of New York
concerning the ownership status of the intellectual property which is the
subject of the acquisition. The discovery process has begun in connection with
such litigation and depositions are scheduled to be held in November 1999.
Corebyte is an intelligent browser-based enterprise-to-enterprise networking
system. With a single interface, and based upon beta testing of the system
performed to date, the end-user directly accesses every application necessary to
manage their enterprise from basic e-mail to advanced e-commerce. Users of
Corebyte seamlessly share and exchange valuable information, selectively and
securely, within their network community and across enterprises. Corebyte is led
by John Engstrom, a pioneer of online and accomplished enterprise groupware and
e-mail service provider.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
Not Applicable.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages, positions and offices with the Company of the current
directors and executive officers of the Company are set forth below.
Director/
Age as of Officer
Name July 31, 1999 Position Since
A. B. Edelman 59 Director-Chairman of the Board
and Chief Executive Officer 1985
B. D. Thomas 48 President , Chief Operating Officer
and Director 1992
P. P. Krumb 57 Vice President, Special Assistant to
the Chairman, Director, and
Acting Chief Financial Officer 1994
G. N. Agranoff 52 Vice President, General Counsel,
Corporate Secretary and Director 1994
I. J. Garfinkel 62 Director 1991
D. R. Kail 64 Director 1985
C. F. Robinson 53 Director 1996
D. M. M. Ruffat 63 Director 1993
R. D. Summer 66 Director 1996
R. Edmonds 54 Vice President, Technical Services 1996
W. Gevers 62 Vice President, OSN 1996
J. R. Perkins 51 Vice President, Development 1996
The principal occupations and business experience of each of the current
directors and executive officers of the Company are described below.
ASHER B. EDELMAN, age 59, joined Datapoint's Board of Directors as its
Chairman in March 1985, and has served in that capacity and as Chairman of its
Executive Committee to the present date, and as Chief Executive Officer since
February 1993. Mr. Edelman has served as General Partner of Asco Partners, a
general partner of Edelman Securities Company L.P. since June 1984. Mr. Edelman
is a director, Chairman of the Board and Chairman of the Executive Committee of
Canal Capital Corporation, and is a General Partner and Manager of various
investment partnerships and funds. The principal business address of Mr. Edelman
is Ch. Pecholettaz 9, 1066 EPALINGES, Switzerland.
BLAKE D. THOMAS, age 48, is currently the President and Chief Operating
Officer of the Company. He is President of Blake D. Thomas, Inc., a corporation
that, until 1991, published The Thomas Report, an investment newspaper that
specialized in evaluating stocks traded on the New York Stock Exchange, was
General Partner of Mainsail Limited Partnership from 1990 until its dissolution
in December 1992; has been since 1990, General Partner of Foresail Limited
Partnership, which is engaged in the business of investing in listed securities;
and has been since November 1991 President of Symba, Inc., which until April
1996 was the General Partner of Windward Limited Partnership. Windward was
engaged in the business of investing in listed securities and was dissolved in
April 1996. He has served as a director of Datapoint since 1992. He also served
from August 1994 through December 1995 as a special consultant for the Board on
Datapoint general management and business affairs. In December 1995 he assumed
the position of Chief Operating Officer and in 1997 was appointed President, as
well. The principal business address of Mr. Thomas is 7 rue d'Anjou 75008,
Paris, France.
PHILLIP P. KRUMB, age 57, is currently Vice President and Special Assistant
to the Chairman. Mr. Krumb joined the Company in September 1994 and was Vice
President and Chief Financial Officer from September 1994 to June 1997. Prior to
joining the Company he was employed by IOMEGA Corporation for 7 years as Senior
Vice President Finance and Chief Financial Officer. The principal business
address of Mr. Krumb is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.
GERALD N. AGRANOFF, age 52, is currently Vice President, General Counsel
and Corporate Secretary of Datapoint. Mr. Agranoff is a General Partner of Asco
Partners, the General Partner of Edelman Securities Company L.P. (formerly
Arbitrage Securities Company) and a General Partner of Plaza Securities Company.
He has been affiliated with these companies for more than five years. Mr.
Agranoff is a director of Bull Run Corporation, Atlantic Gulf Communities, The
American Energy Group, Ltd., and Canal Capital Corporation, and AgriFoods
International, Inc. Mr. Agranoff has also been the General Counsel to Edelman
Securities Company L.P. and Plaza Securities Company for more than five years.
The principal business address of Mr. Agranoff is 8410 Datapoint Drive, San
Antonio, Texas 78229-8500.
IRVING J. GARFINKEL, age 62, has been a General Partner of Asco Partners, a
general partner of Edelman Securities Company L.P. (formerly Arbitrage
Securities Company) for more than five years. Mr. Garfinkel also has been a
General Partner and controller of Plaza Securities Company for more than the
past five years. He has served as a director of Datapoint since 1991, and is
Chairman of the Audit Committee and serves on the Compensation Committee. The
principal business address of Mr. Garfinkel is 717 Fifth Avenue, 4th Floor,
Suite 407, New York, New York 10022.
DANIEL R. KAIL, age 64, has been Managing Trustee of Management Assistance
Inc. Liquidating Trust from January 1986 to December 31, 1996, and prior thereto
had been a director, Executive Vice President and Chief Operating Officer since
October 1984 of Management Assistance Inc., a computer manufacturing and
servicing company. He also was a director and Executive Vice President of Canal
Capital Corporation from 1987 until 1991. He has served as a director of
Datapoint since 1985 and is Chairman of the Compensation Committee and a member
of the Audit Committee. The principal business address of Mr. Kail is 105 North
Avenue, Westport, Connecticut 06880.
CHARLES F. ROBINSON, age 53, has been General Partner of Anglo-American
Financial since its inception in 1979. He is a Director and Senior
Vice-President of Anglo-American Investor Services Corp. Anglo-American
Financial was one of the first market makers in stripped bonds. Through its
subsidiaries, Anglo-American Financial has also acted as an options broker on
the London Stock Exchange, an SEC registered Investment Advisor, and an NASD and
SIPC broker-dealer selling fixed-income securities to financial institutions and
individuals. He was a Chartered Accountant with Arthur Young in London where he
was responsible for developing the firm's computer auditing procedures in the
United Kingdom. Mr. Robinson obtained a Senior Optima in mathematics at
Cambridge University and is a Fellow of the Institute of Chartered Accountants
in England and Wales. The principal business address of Mr. Robinson is
FSI/Anglo-American Financial, 675 Berkmar Court, Charlottesville, Virginia
22901.
DIDIER M. M. RUFFAT, age 63, was most recently the Vice President of Digital
Equipment Europe and the Managing Director of Digital Equipment France. He has
served for 25 years in various capacities with France's BULL computer group,
most recently as President and Chief Executive Officer of BULL Europe, and
previously in senior executive positions in sales, marketing and finance. He has
served as a director of Datapoint since December 1993 and is a member of the
Compensation Committee. The principal business address of Mr.
Ruffat is 37, rue de Chezy, 92200 Neuilly, S/Seine, France.
ROBERT D. SUMMER, age 66, is currently President and Chief Executive Officer
of Dimensional Media Associates, Inc. ("DMA"). Mr. Summer joined DMA after
holding a series of high level positions in the music industry. As President and
Chief Executive Officer, he guides DMA's transition from invention and product
development to full operations, including the rollout of consumer, commercial
and medical products. The company markets proprietary 3D optical technologies.
Before joining DMA in 1995, Mr. Summer served as Executive Vice President, Sony
Music Entertainment; and concurrently as President, Sony Entertainment European
Community Affairs, representing the corporation's software interests to
international government groups. He joined CBS Records International in 1986 as
President and continued in that position through the company's acquisition by
Sony in 1988. Mr. Summer joined CBS Records after nearly three decades with RCA
Records, where he served in key executive posts including President, RCA/Ariola
(now BMG); President, RCA Records; Vice President, RCA Records USA; Vice
President, RCA Records International; and President, RCA Red Seal, the company's
classical music division. Mr. Summer has served as Chairman of the Recording
Industry Association of American (RIAA) and Vice President and member of The
Board of Directors of the International Federation of the Phonographic Industry
(IFPI) where he served as a key negotiator for the industry. He received his
bachelor's degree in engineering from Carnegie Mellon University in 1955. The
principal business address of Mr. Summer is Dimensional Media Associates, Inc.,
22 West 19th Street, New York, New York 10011.
ROGER EDMONDS, age 54, was promoted to Vice President, Technical Services
in February 1996. Mr. Edmonds joined the Company's United Kingdom subsidiary in
1972 as Project Leader, and has held various management positions within the
Company. Mr. Edmonds is also currently Technical Director of the U.K.
subsidiary. The principal business address of Mr. Edmonds is Datapoint House,
400 North Circular Road, London NW10 0JG.
WALTER GEVERS, age 62, was promoted to Vice President, OSN in March 1996.
Mr. Gevers joined the Company as Managing Director, Datapoint Belgium in January
1983. Prior to joining the Company, Mr. Gevers was employed by SAIT Electronics,
Datapoint's distributor in Belgium, for nineteen years as Sales Manager. The
principal business address of Mr. Gevers is rue de la Fusee 100, 1130 Bruxelles,
Belgium.
JOHN R. PERKINS, age 51, was promoted to Vice President, Development &
Production in May 1996. Mr. Perkins joined the Company as Director, Engineering
in 1981. Prior to joining the Company, Mr. Perkins was employed by General
Electric Information Services Company as Market Planner. The principal business
address of Mr. Perkins is 8410 Datapoint Drive, San Antonio, Texas 78229-8500.
There are no family relationships between any of the executive officers of
the Company.
Audit, Compensation and Executive Committees
The Company has Audit, Compensation and Executive Committees of the Board
of Directors. The Company does not have a Nominating Committee. The current
members of the Audit Committee are Irving J. Garfinkel (Chairman), Daniel R.
Kail and Charles F. Robinson. The current members of the Compensation Committee
are Daniel R. Kail (Chairman), Didier M. M. Ruffat, Irving J. Garfinkel and
Robert D. Summer. The members of the Executive Committee are Asher B. Edelman
(Chairman) and Blake D. Thomas.
The Audit Committee annually recommends to the Board of Directors the
independent auditors for the Company and its subsidiaries. They meet with the
independent auditors concerning the audit; evaluate non-audit services and the
financial statements and accounting developments that may affect the Company;
meet with management concerning matters similar to those discussed with the
outside auditors; and make reports and recommendations to the Board of Directors
and the Company's management and independent auditors from time to time as it
deems appropriate. The Committee met 6 times during the fiscal year ended July
31, 1999.
The Compensation Committee makes salary recommendations regarding senior
management to the Board of Directors and administers the Company's Bonus and
Stock Option Plan as described below. The Committee did not meet during the
fiscal year ended July 31, 1999.
Meetings of the Board of Directors and Committees
The Board of Directors met 10 times during the fiscal year ended July 31, 1999.
Each director attended at least 75% of the aggregate of (a) the total number of
meetings of the Board of Directors (held during the period of his service) and
(b) the total number of meetings held by all committees of the Board on which he
served (during the period that he served).
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Datapoint believes that, during the fiscal year ended July 31, 1999, its
officers and directors complied with all filing requirements under Section 16(a)
of the Securities Exchange Act of 1934
ITEM 11 EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors who are employees of Datapoint receive no additional compensation for
serving on the Board of Directors or its committees. Each director who is not an
employee of Datapoint receives fees as follows: Each non-employee director
receives an annual fee of $15,000, payable in quarterly installments. Executive
Committee members receive an additional $5,000 annual fee. Committee Chairmen
receive an additional $2,000 annual fee. Board members receive an additional
$1,000 annual fee for each committee they serve on plus an additional $1,000
annual fee for serving on more than one committee. Each non-employee director
also receives a fee of $750 for each Board meeting attended, $500 for each
committee meeting attended and $500 for attendance at each meeting on
Datapoint's business other than a Board of Directors or committee meeting. Each
non-employee director has the option to purchase, at his own expense, coverage
for himself and his dependents under Datapoint's group medical and dental
insurance plan.
Datapoint maintains a retirement plan and a retirement medical care plan to
cover non-employee Board members. Both plans presently are purely contractual
rather than funded, and are self-insured except that retirees are required to
participate in Medicare parts A and B. The retirement plan provides for a
maximum annual benefit equal to a director's annual retainer in effect on the
date of retirement. A partial benefit will be paid to directors with less than
five years' service, and a full benefit will be paid to directors with five or
more years of service. The benefit will be payable for the greater of ten years
or life, and in the event a retiree should die within ten years of retirement,
the remaining benefit will be paid to his estate. The retirement medical care
plan affords non-employee directors, upon retirement, benefits and premiums
equivalent to COBRA coverage available to certain former employees and/or
dependents under Datapoint's group medical plan. Only directors elected to the
Board prior to March 25, 1996 are eligible to participate in the retirement
plan.
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
Datapoint's executive compensation program is based on three fundamental
principles.
Datapoint must offer compensation opportunities sufficient to attract, retain
and reward talented executives who are sufficiently capable of addressing the
challenges of a worldwide business in a difficult industry.
Compensation should include a substantial component of pay-for-performance
sufficiently related to the financial results of the Company and/or the
executive's performance to financially motivate the executive's efforts to
increase stockholder value. This may cause individual compensation amounts to
change significantly from year to year.
Compensation should provide a direct link between the long-term interests of
executives and stockholders. Through the use of stock-based incentives, the
Compensation Committee focuses the attention of executives on managing the
Company from the perspective of an owner with an equity stake.
For executive officers, compensation now consists primarily of base salary, a
short-term performance incentive opportunity in the form of a variable cash
bonus based on either the financial performance of the Company or of their area
of responsibility, and a long-term incentive opportunity provided by stock
options. The committee also obtains ratification by the non-employee members of
the Board on most aspects of compensation and long-term incentives for executive
officers.
The remainder of this Report reviews the annual and long-term components of
Datapoint's executive compensation program, along with the decisions made by the
committee regarding fiscal year 1999 compensation for both the CEO and the other
named executive officers.
Total Annual Compensation
Annual cash compensation consists of two components; a fixed base salary and a
variable annual bonus opportunity. As an executive's level of responsibility
increases, a larger portion of total annual pay is based on bonus and less on
salary. None of the named executives received a salary change during the past
year, and Mr. Edelman's salary was last increased in December 1990. The
Committee sets the base salary of executive officers based upon a subjective
analysis of competitive salaries of equally qualified executives, occasionally
confirmed by reference to general salary surveys; prior compensation of the
individual or of previous holders of the position is also considered.
Contractual minimum base salaries are customarily negotiated with the
executives.
The short-term performance incentive bonus opportunity is established either as
a percentage, unique for each individual, of a numerical corporate performance
indicia, or as a target percentage of pay which is the amount that can be earned
based upon assigned objectives being met. Performance is measured as a percent
of attainment against these objectives. When performance exceeds objectives, an
executive's incentive pay can exceed the target rate, and when it falls below,
as was the case in fiscal years 1995 and 1994, individual incentive pay is
reduced accordingly.
Messrs. Edelman's, Thomas's, Agranoff's, and Krumb's bonuses are based on a
contractually specified percentage of Datapoint's pre-tax profits, which are
defined as net pre-tax earnings, excluding the excess over $10 million of the
net of any extraordinary gains, due to debt repurchase or exchange, against all
extraordinary losses. During fiscal years 1999 and 1998, the Company incurred
net losses and therefore no bonuses were paid in either 1999 nor 1998 under
these contractual arrangements. For fiscal years 1997, an aggregate of
approximately $0.4 million, was paid under these contractual arrangements.
The remainder of the named executives have been assigned bonus targets of a
percentage of their base salary upon 100% achievement of individualized goals
and objectives; a substantial portion of which are related to the financial
performance of corporate functions relevant to their respective
responsibilities.
Long Term Incentives
The committee believes that stock options appropriately link executive interests
to the enhancement of stockholder value and utilizes them as its long-term
incentive program; no additional long-term incentive programs are utilized.
Stock options generally are granted at fair market value as of the date of
grant, become exercisable over three years, and have a term of ten years. The
stock options provide value to the recipients only when the price of Datapoint
stock increases above the option grant price. In 1999, the committee did not
grant stock options to executive officers, nor to other executives and selected
key employees. In prior years, determining the size of the grant for Mr. Edelman
and other named executive officers, the committee assessed the following
factors: their potential by position and ability (i) to contribute to the
creation of long-term stockholder value; (ii) to contribute to the successful
execution of Datapoint's product line broadening strategy; and (iii) to
implement Datapoint's cost reduction objectives; (iv) their relative levels of
responsibility; and (v) the number of options they already held.
This report has been provided by the Compensation Committee.
Daniel R. Kail, Chairman
Irving J. Garfinkel
Didier M.M. Ruffat
Robert D. Summer
Supplemental Executive Retirement Plan
The Company maintains a Supplemental Executive Retirement Plan for certain
executive employees selected by the Board of Directors. The plan provides for
employee contributions of up to 10% of applicable compensation. In addition, at
the Board's discretion, the Company may also make contributions on an annual,
individual basis, allocated on a pro-rata basis according to participant's
applicable compensation up to a maximum contribution of 15% of applicable
compensation per employee. During the fiscal year ended July 31, 1999 and August
1, 1998, the Company did not make a contribution, however, for the fiscal year
ended August 2, 1997, the Company approved the contribution of 92,500 shares of
its common stock to the plan for credit to the accounts of various executive
officers. Under the terms of the plan, benefits accrue to the various executive
officers upon satisfaction of the plan's vesting criteria which is based upon
length of employment with the Company.
Summary Compensation Table
The following table sets forth certain information regarding all cash
compensation paid or accrued for services rendered by the Company's five most
highly compensated executive officers for the last three fiscal years
- --------------------------------------------------------------------------------------------------------------------------------
Annual Compensation
----------------------------------- Long-Term
Compensation
Name and Other -------------------- All
Principal Fiscal Annual Stock Options Other
Position Year Salary Bonus Compensation Granted (#)(11) Compensation
- -------------------------------------------------------------------------------------------------------------------------
Asher B. Edelman (1) 1999 $300,534 - $101,628 (3) - -
Chairman of the Board and 1998 300,534 - 110,987 (3) 225,000 -
Chief Executive Officer 1997 300,534 $196,126 (2) 134,613 (3) 60,000 $30,000 (10)
Blake D. Thomas (4) 1999 $250,000 - $57,545 (3) - -
President and 1998 250,000 - 51,354 (3) 180,000 -
Chief Operating Officer 1997 250,000 $117,676 (2) 56,178 (3) 50,000 -
Ronald G. Conn (5) (12) 1999 $87,500 - $103,931(12) - -
Chief Financial Officer 1998 175,000 - 30,602 (3) 25,000 -
1997 20,254 (6) - - 50,000 -
Gerald N. Agranoff (7) 1999 $200,000 - $7,200 (9) - -
Vice President, General 1998 200,000 - 7,200 (9) 180,000 -
Counsel
and Corp. Secretary 1997 200,000 $ 78,450 (2) 7,200 (9) 50,000 $4,000 (10)
Roger Edmonds 1999 $159,025 $40,892 (8) - - -
Vice President, Technical 1998 138,020 41,406 (8) - 37,500 -
Services 1997 136,735 41,021 (8) - 25,000 -
Table Footnotes
(1) Asher B. Edelman was named Chief Executive Officer in February 1993.
(2) Represents contractual bonus based on the Company's net pre-tax earnings.
(3) Represents payments incident to foreign assignment.
(4) Blake D. Thomas commenced employment with the Company in December of fiscal
1996 as Executive Vice President and Chief Operating Officer. On June 12, 1997,
he was promoted to President in addition to Chief Operating Officer.
(5) Ronald G. Conn commenced employment with the Company in June of fiscal
1997 as Chief Financial Officer.
(6) Amount reflects partial year of employment.
(7) Gerald N. Agranoff commenced employment with the Company in October of fiscal 1995 as Vice
President, General Counsel and Corporate Secretary.
(8) Represents a performance bonus.
(9) Represents auto allowance.
(10) Represents vested portion of the Company's common stock contributions to
the Supplemental Executive Retirement Plan on behalf of named employee.
(11) Excludes options granted as a member of
the Company's Board of Directors.
(12) Mr. Conn resigned his position with the
Company effective January 15, 1999. This amount includes $87,500 of severance
and $16,431 of payments incident to foreign assignment.
Stock Option Grants in Last Fiscal Year (1)
The following table sets forth certain information regarding all stock option
grants made to five of the Company's most highly compensated executive officers
for the last fiscal year.
--------------------------------------------------------
Options Granted in Fiscal 1999
--------------------------------------------------------
% of
Options Potential Gain at Assumed
Number of Granted to Exercise Annual Rates of Stock Price
Options Employees in Price Expiration Appreciation for Option Term
Name Granted (1) Fiscal Year Per Share Date 5% 10%
- --------------------------------------------------------------------------------------------------------
Asher B. Edelman 0 0.00% 0 - $0 $0
Blake D. Thomas 0 0.00% 0 - $0 $0
Ronald G. Conn 0 0.00% 0 - $0 $0
Gerald N. Agranoff 0 0.00% 0 - $0 $0
Roger Edmonds 0 0.00% 0 - $0 $0
- --------------------------------------------------------------------------------------------------------
(1) No Stock Appreciation Rights (SARs) have ever been granted by
Datapoint. Also, no stock options were granted fiscal year 1999.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
The following table sets forth certain information regarding stock options
exercised by the Company's five most highly compensated executive officers for
the last fiscal year.
Number of Value of Unexercised
Shares Number of Unexercised In-the-Money Options
Acquired on Value Options at July 31, 1999 at July 31, 1999
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------
Asher B. Edelman 0 0 400,000 100,000 $0 $0
Blake D. Thomas 0 0 275,000 80,000 $0 $0
Ronald G. Conn 0 0 0 0 $0 $0
Gerald N. Agranoff 0 0 225,000 80,000 $0 $0
Roger Edmonds 0 0 60,834 16,666 $0 $0
- --------------------------------------------------------------------------------------------------------------
Performance Table
Set forth below is a table comparing the five-year cumulative total return
for Datapoint common stock with the Dow Jones 65-Composite Average, a broad
equity market index, and the Dow Jones computer systems index, excluding IBM.
DATAPOINT CORPORATION
STOCK PRICE ANALYSIS
Dow Jones Computer
Datapoint systems index Dow Jones 65-Computer
Common Stock (w/o IBM) Composite average
Actual Base Actual Base Actual Base
YE YE YE YE YE YE
1999 0.75 20.00 1,916.16 1,053.41 3,187.75 194.96
1998 1.25 17.86 1,201.56 810.39 2,786.06 173.10
1997 2.25 32.14 971.17 655.00 2,538.86 157.74
1996 1.13 16.07 477.75 322.22 1,746.32 108.50
1995 1.50 21.43 460.48 310.57 1,577.65 98.02
1994 3.75 100.00 181.90 100.00 1,635.12 100.00
The graph assumes $100 invested on August 1, 1994, in Datapoint common stock and
each of the Dow Jones indexes, and that all dividends were reinvested. During
the five-year period Datapoint did not pay any dividends on its common stock.
EMPLOYMENT AGREEMENTS
Effective April 25, 1990, Datapoint entered into a written employment agreement
memorializing an existing understanding concerning the employment of Mr. Edelman
as Chairman of the Board of Directors and the Executive Committee of Datapoint.
The agreement, as amended, now provides for a base salary of $300,000, an annual
bonus opportunity of 5% of the Company's net pre-tax earnings (excluding the
excess over $10 million of the net of any extraordinary gains due to debt
repurchase or exchange against all extraordinary losses) and payment of certain
of his expenses, subject to limitations, including expenses relating to his
presence at Datapoint's European offices. The amended agreement further provides
for a lump-sum payment of two years salary and benefits plus one year of bonus
at plan should Mr. Edelman's employment involuntarily terminate other than by
death or disability, or for "cause" as strictly defined therein.
Effective October 1, 1994, Datapoint entered into an agreement with Mr. Agranoff
providing for his employment as Vice President, General Counsel and Corporate
Secretary. This agreement, as amended, now provides for a minimum annual base
salary of $200,000, an annual bonus opportunity of 2% of the Company's net
pre-tax earnings (excluding the excess over $10 million of the net of any
extraordinary gains due to debt repurchase or exchange against all extraordinary
losses), certain executive benefits, and continuation of base salary payments of
up to $100,000, plus any performance bonus he may be entitled to, as well as a
continuation of benefits for six months should Datapoint terminate his
employment other than for cause.
Effective December 5, 1995, Datapoint entered into an agreement with Mr. Thomas
providing for his employment as Executive Vice President and Chief Operating
Officer at a minimum annual base salary of $250,000. The agreement provides for
an annual bonus opportunity of 3% of the Company's net pre-tax earnings
(excluding the excess over $10 million of the net of any extraordinary gains due
to debt repurchase or exchange against all extraordinary losses), certain
executive benefits, and continuation of base salary payments of up to $100,000,
plus any performance bonus he may be entitled to, as well as a continuation of
benefits for six months should Datapoint terminate his employment other than for
cause. The agreement also provides for expatriate accommodations incident to
foreign assignment. Mr. Thomas was promoted to President on June 12, 1997, in
addition to his position as Chief Operating Officer.
Effective June 12, 1997, Datapoint entered into an agreement with Mr. Conn
providing for his employment as Vice President and Chief Financial Officer at a
minimum annual base salary of $175,000. The agreement provided for an annual
bonus opportunity of 1% of the Company's net pre-tax earnings (excluding the
excess over $10 million of the net of any extraordinary gains due to debt
repurchase or exchange against all extraordinary losses), certain executive
benefits, and continuation of base salary payments of up to $100,000, plus any
performance bonus he may have been entitled to, as well as a continuation of
benefits for six months should Datapoint terminate his employment other than for
cause. The agreement also provided for certain relocation accommodations and
provided for expatriate accommodations incident to foreign assignment. Mr. Conn
resigned his position with the Company effective January 15, 1999.
Effective September 19, 1994, Datapoint entered into an agreement with Mr. Krumb
providing for his employment as Vice President and Chief Financial Officer at a
minimum annual base salary of $175,000. The agreement provided for an annual
bonus opportunity of 1% of the Company's net pre-tax earnings (excluding the
excess over $10 million of the net of any extraordinary gains due to debt
repurchase or exchange against all extraordinary losses), certain executive
benefits, and continuation of base salary payments of up to $100,000, plus any
performance bonus he may be entitled to, as well as a continuation of benefits
for six months should Datapoint terminate his employment other than for cause.
The agreement also provided for certain relocation accommodations which were
terminated at the end of 1995. Effective June 12, 1997, Mr. Krumb resigned as
Chief Financial Officer, but remained as a Vice President of the Company and
Special Assistant to the Chairman. Effective November 8, 1997, Mr. Krumb's
annual base salary was $60,000. For the period September 1, 1998 through
December 31, 1998, Mr. Krumb's salary was adjusted to an annual base salary of
$120,000 due to the extra time and effort that Mr. Krumb is devoting to the
Company's special projects and business. The agreement provides for an annual
bonus opportunity equal to 1/4 of 1% of the Company's net pre-tax earnings
(excluding the excess over $10 million of the net of any extraordinary gains due
to debt repurchase or exchange against all extraordinary losses), and certain
executive benefits.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners. The following persons are
known to the Company to be beneficial owners of more than five percent (5%) of
the Company's securities as defined under Exchange Act Rule 13(d)(3).
Common Stock Preferred Stock
Beneficially Beneficially Percent
Name and Address Owned Owned of Class
Asher B. Edelman (1) (See Table under
c/o Datapoint Corporation Security Ownership
717 Fifth Avenue of Management) (1)
New York, NY 10222
Lloyd I. Miller (2) 69,900 (2) 10.6%(2)
(1) Mr. Edelman is part of a "group" as that term is used in Exchange Act
Section 13(d)(3). See subsection (b) below for detailed description as to the
amount and nature of beneficial ownership by the members of the group.
(2) Mr. Miller filed an amended Schedule 13D/A on August 4, 1997, reporting
69,900 Preferred shares, 37,500 of which are owned by LIM, Inc., a Florida
corporation of which he is sole shareholder, and 32,400 of which are owned by
Trust C under a September 20, 1983 Amended and Restated Trust Agreement for
which Trust Mr. Miller serves as Investment Advisor. Mr. Miller reported a
percentage ownership of 9.7%, but that percentage, based upon currently
outstanding Preferred shares of 661,967 as of November 1, 1999 is now 10.6%.
(b) Security Ownership of Management
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock, Preferred Stock and Convertible Debentures by
each director, by each of the executive officers named in the table, and by the
directors and executive officers as a group as of November 1, 1999.
Convertible
Common Stock Preferred Stock Debentures
Beneficially Percent Beneficially Beneficially
Name of Officer/Director Owned (1) of Class(13) Owned(2) Owned(3)
- ------------------------- ----------------- ------------ ---------- ---------------
Gerald N. Agranoff (O&D) 225,000(4)(5)(7) * - 0 - - 0 -
Asher B. Edelman (O&D) 3,836,238(4)(5)(6)(13) 20.9% 14,200** $141,000*
Roger Edmonds (O) 60,834(4) * - 0 - - 0 -
Irving J. Garfinkel (D) 25,000(4)(5)(7) * - 0 - - 0 -
Walter Gevers (O) 98,334(4) * - 0 - - 0 -
Daniel R. Kail (D) 25,000(4) * - 0 - - 0 -
Phillip P. Krumb (O&D) 138,000(4)(8) * - 0 - - 0 -
John Perkins (O) 51,128(4)(9) * - 0 - - 0 -
Charles F. Robinson (D) 25,000(4)(10)(13) * 3,000*(10) $47,000*(10)
Didier Ruffat (D) 50,000(4) * - 0 - - 0 -
Robert D. Summer (D) 32,300(4)(11) * - 0 - - 0 -
Blake D. Thomas (O&D) 428,847(4)(12)(13) 2.3% - 0 - - 0 -
Executive Officers and
Directors of Datapoint as
a group (13 persons) 4,995,681 27.2%
* Indicates less than 1% ownership as a percent of the outstanding class (13)
**The percent of the outstanding class is 2.2% (13)
(1) Information relating to beneficial ownership is based upon ownership
information furnished by each person using "beneficial ownership"
definitions set forth in Section 13 of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Under those rules, a person is
deemed to be a "beneficial owner" of a security if that person has or
shares "voting power", which includes the power to vote or to direct
the voting of such security, or "investment power", which includes the
power to dispose or to direct the disposition of such security. The
person is also deemed to be a beneficial owner of any security of which
that person has a right to acquire beneficial ownership (such as by
exercise of options) within 60 days. Under such rules, more than one
person may be deemed to be a beneficial owner of the same securities,
and a person may be deemed to be a beneficial owner of securities as to
which he or she may disclaim any beneficial interest. Except as
otherwise indicated in other table footnotes, the indicated directors
and executive officers possessed sole voting and investment power with
respect to all shares of Common Stock and Preferred Stock attributed.
(2) The Company's $1.00 Preferred Stock ("Preferred Stock") is a non-voting
class of security. Each share may be exchanged, at the option of the
holder, for two (2) shares of Common Stock so long as six (6) quarters
of accrued dividends remain outstanding and unpaid.
(3) The Company's 8-7/8 Convertible Subordinated Debentures Due June 1,
2006 ("Convertible Debentures") is a non-voting class of security. Each
one thousand dollar ($1,000.00) principal amount may be exchanged, at
the option of the holder, into 55.231 shares of Common Stock.
(4) The tabulation includes shares of Common Stock which may be deemed to
be beneficially owned by such persons by reason of stock options currently
exercisable or which may become exercisable within sixty (60) days after that
date. The number of shares deemed to be beneficially owned by reason of such
options is: Mr. Edelman, 400,000; Mr. Agranoff, 225,000; Mr. Thomas, 275,000;
Mr. Krumb, 125,000; Mr. Ruffat, 50,000; Mr. Summer, 25,000; Mr. Garfinkel,
25,000; Mr. Kail, 25,000; Mr. Robinson, 25,000; Mr. Edmonds, 60,834; Mr. Gevers,
98,334; Mr. Perkins 50,834; and all officers and directors as a group,
1,385,002.
(5) Gerald N. Agranoff, Asher B. Edelman and Irving Garfinkel are Trustees
of the Datapoint Corporation Supplemental Executive Retirement Plan
(the "Datapoint Plan") which owns 316,435 Common shares. In the above
tabulation, such shares have been excluded within each party's Common
shares listing and the listing for the directors and executive officers
as a group. Messrs. Agranoff, Edelman and Garfinkel each disclaim
beneficial ownership of these shares except to the extent of pecuniary
interests in such shares with which each party may currently be vested
under the Plan. Mr. Edelman has a current vested interest in 145,288
shares under the Datapoint Plan which have been excluded. Mr. Agranoff
is currently vested with 21,402 Common shares under the Datapoint Plan.
Mr. Garfinkel has no current vested interest under the Datapoint Plan.
Mr. Thomas is vested with 13,376 Common shares, Mr. Krumb is vested
with 18,567 Common shares and Mr. Perkins with 4,344 Common shares
under the Datapoint Plan which have not been included in their listed
beneficial ownership.
(6) Mr. Edelman's listed beneficial ownership of 3,836,238 shares of Common
Stock is explained in detail in this paragraph, and is based upon his beneficial
ownership reported on Schedule 13D. Mr. Edelman reports beneficial ownership
jointly, as a group, with the following named persons or entities. Those whose
shares have been included within Mr. Edelman's listed total are reported as
beneficially owned pursuant to Rule 13d-3 by Mr. Edelman. As the controlling
general partner of each of Plaza Securities Company, A.B. Edelman Limited
Partnership and Citas Partners (which is the sole general partner of Felicitas
Partners, L.P.), Mr. Edelman may be deemed to own beneficially the 441,348,
994,383 and 6,290 shares held, respectively, by each of such entities for
purposes of Rule 13d-3 under the Exchange Act, and these shares are included in
the listed ownership. Also included are the 361,267 shares owned by Canal
Capital Corporation ("Canal"), in which company Mr. Edelman and various persons
and entities with which he is affiliated own interests. By virtue of investment
management agreements between A. B. Edelman Management Company Inc. and Canal,
A. B. Edelman Management Company Inc. has the authority to purchase, sell and
trade in securities on behalf of Canal. A. B. Edelman Management Company Inc.
therefore may be deemed to be the beneficial owner of the 361,267 shares owned
by Canal. Mr. Edelman is the sole stockholder of A. B. Edelman Management
Company Inc. and these shares are included. A. B. Edelman Management Company,
Inc. is also the sole general partner of Edelman Value Partners, L.P. which
currently owns 494,175 shares of Common Stock which are included. Also included
are the 201,460 shares owned by Mr. Edelman's spouse Maria Regina M. Edelman,
5,000 shares held by Mr. Edelman in a Keough account, 31,000 shares beneficially
owned by Mr. Edelman's children in accounts for which he is the custodian, and
859,900 shares owned by Edelman Value Fund, Ltd., for which Mr. Edelman serves
as the sole investment manager. Also included are Mr. Edelman's presently
exercisable options to purchase 400,000 shares. Also included are the 41,415
shares owned by Edelman Family Partners, L.P. for which Mr. Edelman serves as a
general partner. As a Trustee of the Canal Capital Corporation Retirement Plan
("Canal Plan") which owns 121,181 shares and the Datapoint Plan described above
which owns 316,435 shares, Mr. Edelman may be deemed to own beneficially, and
share voting and investment power over the shares owned by each such Plan, which
are excluded. Also excluded from the listed ownership are 57,507 shares
beneficially owned by Mr. Edelman's daughters in accounts for which their
mother, Penelope C. Edelman, is the custodian and the 17,204 shares owned
directly by Penelope C. Edelman. Mr. Edelman disclaims beneficial ownership of
these excluded shares. Although disclaimed and excluded for purposes of Rule
13d-3, certain of the disclaimed and excluded shares are nevertheless reported
by Mr. Edelman as beneficially owned on his Form 4's pursuant to the rules
promulgated under Section 16 of the Exchange Act. Mr. Edelman's beneficial
ownership total does not include the additional Common Stock which would be
acquired upon the conversion of the Preferred Stock and the Convertible
Debentures as described below. Upon such exchange, Mr. Edelman's listed
beneficial ownership would increase to 3,872,426 and his percentage of the
outstanding class would be 21.1%. This percentage upon exchange is the listed
percentage above pursuant to Rule 13d-3(d)(1).
Mr. Edelman's listed beneficial ownership of 14,200 shares of Preferred
Stock is based upon the 5,100 Preferred shares owned by Edelman Value Partners,
L.P., and the 9,100 Preferred shares owned by Edelman Value Fund, Ltd. Mr.
Edelman disclaims beneficial ownership of the Edelman Value Fund, Ltd. shares.
If exchanged for Common Stock, Mr. Edelman's Common Stock beneficial ownership
total listed above would increase by 28,400 shares.
Mr. Edelman's listed beneficial ownership of $141,000.00 of Convertible
Debentures is based upon the $44,000.00 of Convertible Debentures owned by
Edelman Value Partners, L.P. and the $97,000.00 of Convertible Debentures owned
by Edelman Value Fund, Ltd. Mr. Edelman disclaims beneficial ownership of the
Edelman Value Fund, Ltd. Convertible Debentures. If exchanged for Common Stock,
Mr. Edelman's Common Stock beneficial ownership total listed above would
increase by 7,788 shares.
(7) Messrs. Agranoff and Garfinkel are general partners of Plaza Securities
Company, which owns 441,348 shares of Common Stock. Each disclaims
beneficial ownership of these shares which are excluded in each party's
listing in the beneficial ownership table above due to the sole voting
and dispositive powers attributed to Mr. Edelman in his Schedule 13D.
Mr. Agranoff is also a director of Canal which owns 361,267 shares. Mr.
Agranoff disclaims beneficial ownership of these shares and they are
excluded from his beneficial ownership listing due to the sole voting
and dispositive powers attributed to Mr. Edelman.
(8) Mr. Krumb owns 13,000 Common shares directly in addition to the 125,000
shares represented by exercisable options.
(9) Mr. Perkins owns 294 Common shares directly in addition to the 50,834
shares represented by exercisable options.
(10) Mr. Robinson owns 3,000 Preferred shares and $47,000.00 in Convertible
Debentures directly in addition to the 25,000 shares represented by
exercisable options. These Preferred shares and Convertible Debentures,
if converted to Common Stock, represent 8,596 Common shares and would
increase Mr. Robinson's total listed above to 33,596 shares.
(11) Mr. Summer owns 7,300 Common shares directly in addition to the 25,000
shares represented by exercisable options.
(12) Mr. Thomas owns 135,447 Common shares directly in addition to the
275,000 shares represented by exercisable options. Mr. Thomas is also
attributed beneficial ownership of 16,500 Common shares owned by
Foresail Limited Partnership as its sole general partner and 1,900
Common shares held in Mr. Thomas' self-employed pension plan.
(13) The percentage of the outstanding class calculations are based upon
18,348,229 Common shares, 661,967 Preferred shares and $54,960,000
Convertible Debentures outstanding as of November 1, 1999. For purposes
of calculating Mr. Edelman's, Mr. Thomas', and Mr. Robinson's
percentages of Common shares under Rule 13d-3(d)(1), as well as the
percentage of officers and directors as a group, the common shares
underlying their respective Preferred Stock and their respective
Convertible Debentures upon exchange are added to the outstanding share
total as if the exchange has occurred.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Director Agranoff had provided various tax, legal and real estate consulting
services prior to serving as Vice President, General Counsel and Corporate
Secretary for the Company. During the fiscal years 1999, 1998, and 1997,
Datapoint paid legal fees of $265, $0, and $374, respectively, to the law firm
of Pryor, Cashman, Sherman, & Flynn, for legal services provided by attorneys
other than Mr. Agranoff.
During fiscal year 1999, 1998, and 1997, the Company paid office rent and
secretarial expenses of $64, $69, and $73, respectively, to Canal Capital
Corporation. Chief Executive Officer Edelman and Director Agranoff are Canal
Capital Corporation board members, with Chief Executive Officer Edelman serving
as Chairman of the Board.
The Trustees of the Company's United Kingdom subsidiary's defined benefit
pension plan have implemented an investment strategy which includes an
investment of approximately $7.2 million in the Edelman Value Fund, Ltd., a
related party, as of July 31, 1999.
On June 29, 1998, the Company had signed a letter of intent, which subsequently
expired on August 20, 1998, to acquire Dimensional Media Associates ("DMA"). Mr.
Robert D. Summer is the president of DMA and a board member of Datapoint. In
addition to the letter, Datapoint advanced DMA $200. This advance was secured by
a promissory note, payment of which has been guaranteed by a principal of DMA.
The principal payment of $200 was repaid on July 20, 1999.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a)1 Financial Statements
The consolidated financial statements listed in the accompanying index
to the financial statements are filed as part of this report.
(a)2 Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted since they are either not applicable or
the required information is shown in the Company's financial statements
or notes thereto. Individual financial statements of the Company are
omitted because the Company is primarily an operating company and all
subsidiaries included in the Consolidated Financial Statements being
filed, in the aggregate, do not have minority equity interest and/or
indebtedness to any person other than the Company or its consolidated
subsidiaries in amounts which together exceed 5% of the total
consolidated assets as shown by the most recent year-end Consolidated
Balance Sheet.
(a)3 Exhibits
The exhibits listed on the accompanying index to exhibits are filed as
part of this report.
(b) Reports on Form 8-K: In a report filed on Form 8-K dated May 19, 1999,
the Company reported that it had entered into a letter of intent to
sell its European operations.
Subsequent to year end, in a report filed on Form 8-K dated August 3,
1999, the Company reported that its newly formed subsidiary, Corebyte
Inc., had acquired the Corebyte (TM) communication and networking
software product family.
See Exhibit Index included herein on page 54.
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(3)(a) Certificate of Incorporation of Datapoint Corporation,
as amended (filed as Exhibit (3)(a) to the Company's
Annual Report on Form 10K for the year ended
July 31, 1993, and incorporated herein by reference).
(3)(b) Bylaws of Datapoint Corporation, as amended (filed as
Exhibit (3)(b) to the Company's Annual Report on
Form 10-K for the year ended
August 1, 1992, and incorporated herein by reference).
(4)(a) Debenture holder Notice of Adjustment to Conversion Rate,
dated July 11, 1985, under Indenture dated as of June 1, 1981,
between Datapoint Corporation and Continental Illinois
National Bank and Trust Company of Chicago, as Trustee,
providing for 8-7/8% Convertible Subordinated Debentures Due
2006 (filed as Exhibit (4)(a) to the Company's Annual Report
on Form 10-K for the year ended July 27, 1985 and said
Indenture filed as Exhibit 4 to the Company's Registration
Statement on Form S-16 (No. 2-72395), each incorporated herein
by reference).
(4)(b) Certificate of Designation, Preferences, Rights and
Limitations of Series of $1.00 Preferred Stock (filed as
Exhibit (4)(e) to the Company's Registration Statement on
Form S-4 dated April 30, 1992 and
incorporated herein by reference).
(10)(a) 1983 Employee Stock Option Plan (filed as Exhibit (4)(a)(4) to
the Company's Registration Statement on Form S-8 dated
November 9, 1983 and incorporated herein by reference).
(10)(b) 1985 Director Stock Option Plan (filed as Exhibit (10)(i) to
the Company's Annual Report on Form 10-K for the year ended
August 1, 1987 and incorporated herein by reference).
(10)(c) 1986 Employee Stock Option Plan (filed as Exhibit (10)(h) to
the Company's Annual Report on Form 10-K for the year ended
August 1, 1987 and incorporated herein by reference).
(10)(d) 1991 Director Stock Option Plan (filed as Exhibit (10)(b)(2)
to Amendment No. 1 dated February 6, 1992 to the Company's
Registration Statement on Form S-4 (Registration No.
33-44097) and incorporated herein by reference).
(10)(e) 1992 Employee Stock Option Plan (filed as Exhibit (4)(a)(4) to
the Company's Registration Statement on Form S-8 dated January
19, 1993 and incorporated herein by reference).
(10)(f) Agreement for Transfer of Assets and Liabilities in Exchange
for Stock, dated as of June 28, 1985, between the Company and
Intelogic Trace, Inc. (filed as Exhibit (10)(a) to the
Company's Current Report on Form 8-K dated July 28, 1985 and
incorporated herein by reference).
(10)(g) Master Maintenance Agreement, dated as of June 28, 1985, between
the Company and Intelogic Trace, Inc. (filed as Exhibit (10)(b) to
the Company's Current Report on Form 8-K dated July 28, 1985
and incorporated herein by reference).
(10)(h) Maintenance Agreement regarding open systems products between the
Company and Intelogic Trace, Inc., (filed as Exhibit (10)(g) to the
Company's Annual Report on Form 10-K for the year ended
August 1, 1992, and incorporated herein by reference).
INDEX TO EXHIBITS
Exhibit Sequentially
Number Description of Exhibits Numbered
Pages
(10)(i) Agreement between the Company and Arbitrage Securities Company,
as amended (filed as Exhibit (10)(f) to the Company's Annual
Report on Form 10-K for the year ended July 29, 1989 and
incorporated herein by reference).
(10)(j) Indemnity Agreements with Officers and Directors (filed as Exhibit
(10)(f) to the Company's Annual Report on Form 10-K for the year
ended August 1, 1987 and incorporated herein by reference).
(10)(k) First Amendment to Indemnification Agreement with certain
Officers and Directors. (filed as Exhibit (10)(h) to the
Company's Annual Report on Form 10-K for the year ended July
28, 1990 and incorporated herein by reference).
(10)(l) Second Amendment to Employment Agreement with A. B. Edelman (said
amendment filed as Exhibit (10)(h)(3) to the Company's Registration
Statement on Form S-4 dated April 30, 1992), amending Employment
Agreement dated January 9, 1991 (said agreement filed as
Exhibit (10)(j) to the Company's Annual Report on Form 10-K for the
year ended July 28, 1990), as amended by Amendment No. 1 dated
December 1, 1990 (said amendment filed as Exhibit (10)(i) to the
Company's Annual Report on Form 10-K for the year ended July 27, 1991),
each of which are incorporated herein by reference.
(10)(m) Employment Agreement with D. Berger (filed as Exhibit (10)(m) to
the Company's Annual report on Form 10-K for the Year ended
July 31, 1993 and incorporated herein by reference).
(10)(n) Employment Agreement with J. Berger (filed as Exhibit (10)(l) to
the company's Annual Report on Form 10-K for the year ended
August 1, 1992 and incorporated herein by reference).
(10)(o) Employment Agreement with K. L. Thrower (filed as Exhibit (10)(o)
to the company's Annual Report on Form 10-K for the year ended
August 1, 1992 and incorporated herein by reference).
(10)(p) First Amendment to the Grantor Trust Agreement dated June 18, 1991.
(filed as exhibit (10)(n) to the Company's Annual Report on
Form 10-K for the year ended July 27, 1991 and incorporated herein
by reference).
(10)(q) Manufacturing facilities Agreement of Lease between the Company and
Willis and Cox Associates dated June 21, 1991 (filed as Exhibit (10)(q)
to the Company's Annual Report on Form 10-K for the year ended
August 1, 1992 and incorporated herein by reference).
(10)(r) Employment Agreement with D. Bencsik (filed as exhibit (10)(r) to
the Company's Annual Report on the Form 10-K for the year
ended July 30, 1994 and incorporated herein by reference).
(10)(s) Employment Agreement with G. Agranoff and Amendment No. 1 to
Employment Agreement (filed as Exhibit (10) (s) to Amendment No. 2
to the Company's Registration Statement on Form S-4 filed on
September 27, 1996 and incorporated herein by reference).
(10)(t) Employment Agreement with B. Thomas (filed as Exhibit (10) (t) to
Amendment No. 2 to the Company's Registration Statement on Form S-4
filed on September 27, 1996 and incorporated herein by reference).
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description of Exhibits Pages
(10)(u) Employment Agreement with P. Krumb (filed as Exhibit (10) (u)
to Amendment No. 2 to the Company's Registration Statement
on Form S-4 filed on September 27, 1996 and incorporated herein
by reference).
(10)(v) Settlement Agreement with NTI (filed as Exhibit (10)(v) to
Amendment No. 2 to the Company's Registration Statement on
Form S-4 filed on September 27, 1996 and incorporated herein
by reference).
(10)(w) Umbrella Acquisition Agreement between Kalamazoo and Datapoint
(filed as Exhibit 2 to the Company's Current Report on Form 8-K
dated June 25, 1996 and incorporated herein by reference).
(10)(x) Form of Agreement for sale of assets of Datapoint Group Vendor
and Kalamazoo (filed as Exhibit 3 to the Company's Current
Report on Form 8-K dated June 25, 1996 and incorporated
herein by reference).
(10)(y) Agreement for sale of DARTS Software (filed as Exhibit 4 to
the Company's Current Report on Form 8-K dated June 25, 1996
and incorporated herein by reference).
(10)(z) 1996 Director Stock Option Plan (filed as Annex D to Amendment No.
3 dated October 31, 1996 to the Company's Registration Statement
on Form S-4 (Registration No. 333-9627) and incorporated herein
by reference).
(10)(aa) 1996 Employee Stock Option Plan (filed as Annex E to Amendment No.
3 dated October 31, 1996 to the Company's Registration
Statement on Form S-4 (Registration No. 333-9627) and incorporated
herein by reference).
(10)(bb) Employment Agreement with R. Conn.
(10)(cc) Employment Agreement with R. Edmonds.
(10)(dd) Employment Agreement with J. Perkins.
(10)(ee) Amendment No. 2 to Employment Agreement with G. Agranoff.
(10)(ff) Amendment No. 1 to Summary of Modified Employment Agreement - with
P. Krumb.
(10)(gg) 1997 Employee Stock Option Plan (filed as Annex A to the Company's
Definitive Proxy Statement on Schedule 14(a) dated
December 23, 1997, and incorporated herein by reference).
(10)(hh) Announcement of the Letter of Intent to Sell the Company's
European Operations (filed as Exhibit 99 to the Company's
Current Report Form 8-K dated May 19, 1999 and incorporated
by reference).
(10)(ii) Announcement of the Acquisition of Corebyte(TM) (filed as
Exhibit 99 to the Company's Current Report Form 8-K dated
August 3, 1999 and incorporated by reference).
(10)(jj) Stock Purchase Agreement between Reboot Systems, Inc. and
Datapoint Corporation dated July 31, 1999 and as amended on
November 1, 1999.
(10)(kk) Asset Purchase Agreement between Datapoint Corporation, SF
Digital, LLC and John Engstrom, and John Engstrom d/b/a
SF Digital and Corebyte(TM) dated July 27, 1999.
(23) Consent of Independent Auditors.
(27) Article 5, Financial Data Schedule.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
DATAPOINT CORPORATION
(Registrant)
BY:/s/Phillip K. Krumb
Asher B. Edelman
Chief Executive Officer and
Chairman of The Board
By Phillip P. Krumb, Attorney In Fact
DATED: November 11, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Phillip P. Krumb Acting Chief Financial Officer November 11,1999
Phillip P. Krumb (Acting Principal Accounting Officer)
Phillip P. Krumb, pursuant to powers of attorney which are being filed with this
report, has signed below as attorney-in-fact for the following directors of the
Registrant:
Gerald N. Agranoff Charles F. Robinson
Irving Garfinkel Daniel Kail
Robert D. Summer Didier M.M. Ruffat
Blake D. Thomas
/s/ Phillip P. Krumb November 11, 1999
- ---------------------
Phillip P. Krumb
Schedule II
DATAPOINT CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
(In thousands)
(a) (b)
Balance Charged Charged
at to (to) from Other Balance
Beginning Costs and Other Additions at End
Classification of Year Expenses Accounts (Deductions) of Year
Allowance for doubtful accounts:
Year ended July 31, 1999 $1,305 $(299) $(69) $(57) $880
Year ended August 1, 1998 $1,654 $33 $179 $(561) $1,305
Year ended August 2, 1997 $2,791 $(164) $(18) $(955) $1,654
(a) Transfers to and from other balance sheet reserve accounts.
(b) Accounts written-off net of recoveries, other expense accounts and
translation adjustments.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following registration
statements of our report dated November 1, 1999, with respect to the
consolidated financial statements and schedule of Datapoint Corporation included
in this Annual Report on Form 10-K for the year ended July 31, 1999:
Registration Statement No. 2-60374 on Form S-8, Registration Statement No.
2-87765 on Form S-8, Registration Statement No. 33-19328 on Form S-8,
Registration Statement No. 33-19427 on Form S-8, and Registration Statement No.
33-57102 on Form S-8, Registration Statement No. 333-53265 on Form S-8, and
Registration Statement No. 333-53267 on Form S-8.
Ernst & Young LLP
Dallas, Texas
November 1, 1999
EXHIBIT (10)(jj)
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT is dated as of the 31st day of July,
1999, by and among (i) REBOOT SYSTEMS, INC., a Delaware corporation (the
"Buyer"), (ii) the entities listed on Schedule A hereto (collectively, the
"Sellers" and individually, a "Seller," which terms shall be qualified as
provided in Section 13(c) hereof), and (iii) DATAPOINT CORPORATION, a Delaware
corporation and the direct or indirect corporate parent of all of the Sellers
(the "Parent").
WHEREAS, the Sellers are collectively the owners of all of the issued
and outstanding shares of the capital stock (collectively, the "Shares") of each
of the entities listed on Schedule B hereto (collectively, the "Companies" and
individually, a "Company"), with each Seller owning such percentage of the
Companies as more particularly set forth on Schedule C hereto; and
WHEREAS, the Buyer desires to purchase all of the Shares from the
Sellers, and the Sellers desire to sell all of the Shares to the Buyer, and the
Buyer and the Parent have agreed to certain other matters ancillary thereto, all
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the Buyer, the Sellers and the Parent agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1. Purchase and Sale. Subject to the terms and conditions set forth
in this Agreement, at the Closing (as defined in Section 3 hereof), each Seller
agrees to sell to the Buyer, and the Buyer agrees to purchase from each Seller,
such Shares as are set forth opposite the name of each Seller on Schedule C
hereto, in exchange for the purchase price therefor as provided in Section 1.2
hereof.
1.2. Purchase Price.
(a) The Buyer shall pay to the Sellers and the Parent by wire
transfer of immediately available funds, as the aggregate purchase price for the
Shares and the other assets being acquired or utilized by the Buyer pursuant to
Section 2 hereof, as the case may be, $49,500,000 (the "Base Purchase Price").
The Base Purchase Price shall be adjusted pursuant to the provisions set forth
on Exhibit A hereto (the "Purchase Price Adjustment Provisions"), which Purchase
Price Adjustment Provisions shall be agreed upon by the parties as contemplated
under Section 2.2 hereof.
(b) At the Closing, a portion of the Closing Purchase Price
(as defined and determined in accordance with Exhibit A hereto) (the "Escrowed
Purchase Price"), shall be withheld from the Closing Purchase Price otherwise
payable to the Sellers and the Parent and placed in escrow with a bank or trust
company (the "Escrow Agent") mutually acceptable to the Buyer and the Parent
pursuant to an escrow agreement in a form to be agreed to by the parties as
contemplated under Section 2.2 hereof, with such changes as may be reasonably
requested by the Escrow Agent (the "Indemnity Escrow Agreement"). The Escrowed
Purchase Price shall be held in escrow, in accordance with the terms of the
Indemnity Escrow Agreement, to satisfy the obligations more particularly
described in Exhibit B hereto (the "Escrow Items"). The amount of the Escrowed
Purchase Price and the terms and conditions relating to the Escrow Items shall
also be agreed upon by the parties as contemplated under Section 2.2 hereof.
1.3. Allocations.
(a) The Final Purchase Price (as defined and determined in
accordance with Exhibit A hereto) shall be allocated among the Shares relating
to each Company and the other assets being acquired or utilized by the Buyer as
provided in Section 2 hereof in the manner to be agreed upon by the parties on
or prior to the Closing Date.
(b) The Final Purchase Price shall be allocated among, and
distributed to, the Sellers and the Parent pro rata in accordance with the
percentages set forth opposite the name of each Seller and the Parent on
Schedule C hereto (as to each such party, such party's "Pro Rata Share").
2. LICENSING AND OTHER MATTERS.
2.1. Datapoint Name.
(a) On the Closing Date (as defined in Section 3 hereof), each
of the Parent and any other entity which is a direct or indirect Subsidiary of
the Parent and which has included in its corporate name the name "Datapoint" or
any derivative or variation thereof, shall (i) have delivered to the Buyer an
executed Certificate of Amendment or other amending document to its respective
Certificate of Incorporation or other charter or constitutional documents in
form and substance satisfactory to the parties (collectively, the "Name Change
Certificates"), suitable for filing with the Office of the Secretary of State of
the State of Delaware or the particular governmental office located in the
country or jurisdiction of organization of any such other entity, as the case
may be, effecting a change of its respective corporate name to a new name not
including the name "Datapoint" or any derivative or variation thereof, and (ii)
have executed and delivered to the Buyer an Assignment in form and substance
satisfactory to the parties (the "Name Assignment") pursuant to which the Parent
and each such other entity shall transfer and assign all of their respective
right, title and interest in and to the name "Datapoint" to the Buyer.
(b) On the Closing Date, the Buyer shall grant to the Parent
and any other entity which is a direct or indirect Subsidiary of the Parent and
which has included in its corporate name the name "Datapoint" or any derivative
or variation thereof, a limited license in form and substance satisfactory to
the parties (the "Datapoint License") for the "Datapoint" name to permit the
Parent and each such other entity to utilize the "Datapoint" name on existing
stationery, inventory and marketing and promotional materials for the limited
purpose of enabling the Parent and each such other entity to dispose of existing
stationery, inventory and marketing and promotional materials which utilize such
trademark, as more particularly provided in the Datapoint License.
2.2. Outstanding Ancillary Issues. The parties shall negotiate in good
faith so that on or prior to the Closing Date they shall have agreed upon the
following matters:
(a) the Purchase Price Adjustment Provisions;
(b) the terms and conditions of the Indemnity Escrow
Agreement, the Escrowed Purchase Price and
the Escrow Items;
(c) the terms and conditions of a license agreement relating
to the so-called "RMS Operating System" and certain other
intellectual property utilized by the Parent and its
Affiliates (the "IP License Agreement");
(d) the matters described on Exhibits C and D hereto; and
(e) the arrangement regarding the entities listed on Exhibit E
hereto, the outstanding capital stock of which is not
being purchased by the Buyer hereunder.
2.3. European Distribution Business. On the Closing Date, included as part
of the transactions contemplated hereby, the Buyer is acquiring all of the
assets relating to the so-called "European Distribution Business."
3. CLOSING.
3.1. Time and Place. The closing of the purchase and sale of the Shares
and the delivery of the other assets being acquired or utilized by the Buyer as
provided in Sections 2.1 and 2.2 hereof (the "Closing") shall be held at the
offices of Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts, at 10:00
a.m. on a mutually acceptable date not later than December 31, 1999, or at such
other place as the Buyer and the Parent may agree. The date on which the Closing
is actually held hereunder is sometimes referred to herein as the "Closing
Date."
3.2. Transactions at Closing. At the Closing, in addition to any other
instruments or documents referred to herein:
(a) Each Seller shall deliver to the Buyer, free and clear of
any lien, claim or encumbrance, the Shares for each Company owned by such Seller
in accordance with the procedures set forth on Schedule 3.2 hereto.
(b) The Parent and its appropriate Affiliates shall execute
and deliver to the Buyer such bills of sale or other instruments of transfer and
assignment as the Buyer may reasonably request in order to transfer to the Buyer
any of the other assets being acquired by the Buyer pursuant to Section 2
hereof.
(c) The Buyer shall deliver the Escrowed Purchase Price to the
Escrow Agent by wire transfer.
(d) The Buyer shall deliver to each Seller and the Parent such
party's Pro Rata Share of the remainder of the Closing Purchase Price by wire
transfer.
(e) The Buyer shall pay to the Parent the $650,000 amount
contemplated under Section 12.2(b) hereof.
(f) Each of the parties hereto shall execute and deliver each
of the agreements and documents required to be signed by such party pursuant to
Sections 7 and 8 hereof.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE PARENT. The
parties hereto agree as follows with respect to this Section 4:
(a) In connection with the representations and warranties set
forth in this Section 4, attached to this Agreement is a Disclosure Schedule
setting forth certain information and exceptions to the representations and
warranties relating to each Company. For ease of reference, the Disclosure
Schedule is organized in a manner to provide all disclosure information and
materials relating to each Company in a separate Part, and each Section of each
Part corresponds to the identical subsection of this Section 4.
(b) Notwithstanding anything to the contrary set forth in this
Agreement, all of the representations and warranties set forth in Sections
4.6(b), 4.7(b), 4.9, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19,
4.20, 4.21, 4.22, 4.23, 4.24, 4.25, 4.27, 4.28, 4.29, 4.30, 4.31 and 4.34
(herein collectively, the "Operational Reps and Warranties"), are being made by
the Parent and the Sellers only to, and are qualified in their entirety by, the
Knowledge of the Parent (as defined in Section 13 hereof). None of the other
representations and warranties set forth in this Section 4 is being made by the
Parent and the Sellers to, or is qualified in any respect by, the Knowledge of
the Parent.
(c) Subject to the qualifications set forth in clause (b) above:
(i) As they relate to each Company, all of the representations and
warranties set forth in this Section 4 are being made jointly and severally by
the Parent and each Seller which is the holder of any Shares of such Company and
not by any other Seller;
(ii) As they relate to each Seller, all of the representations and
warranties set forth in this Section 4 are being made jointly and severally by
the Parent and such Seller and not by any other Seller; and
(iii) As they relate to the Parent, all of the representations and
warranties set forth in this Section 4 are being made solely by the Parent.
Accordingly, subject to the terms and conditions set forth in the
preamble to this Section 4, the Sellers and the Parent represent and warrant to
the Buyer as follows:
4.1. Organization of Companies; Authority. The Parent, each Seller and
each Company is a corporation duly organized, validly existing and in corporate
good standing (if applicable) under the laws of its respective country of
organization as set forth in Section 4.1 of each Part of the Disclosure
Schedule. Each Company is duly qualified and in good standing as a foreign
corporation in all jurisdictions in which the character of the properties owned
or leased or the nature of the activities conducted by it makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect (as defined in Section 13 hereof). The Sellers
have delivered to the Buyer complete and correct copies of the respective
charter or other constitutional documents and By-Laws, to the extent applicable,
and all amendments thereto, of each Company. Each Company has all requisite
power and authority to own or lease and operate its properties and to carry on
its business as such business is now conducted.
4.2. Corporate Approval; Binding Effect. The Parent and each Seller has
obtained all necessary authorizations and approvals from its respective Board of
Directors or other governing body required for the execution and delivery of the
Transaction Documents (as defined in Section 13 hereof) to which it is a party
and the consummation of the transactions contemplated hereby and thereby.
Subject to obtaining the requisite approval of the Parent's stockholders and
bondholders as contemplated under Section 6 hereof or other governmental
approvals set forth in Section 4.2 of each part of the Disclosure Schedule
("Governmental Approvals"), each of the Transaction Documents to which each
Seller and the Parent is a party has been or will be duly executed and delivered
by each Seller and the Parent and constitutes or will constitute when executed
and delivered the legal, valid and binding obligation of such Seller and the
Parent, enforceable against them in accordance with its terms, except as the
enforceability thereof may be limited by any applicable bankruptcy,
reorganization, insolvency or other laws affecting creditors' rights generally
or by general principles of equity.
4.3. Subsidiaries. Except as set forth in Section 4.3 of each Part of
the Disclosure Schedule, no Company has any Subsidiaries (as defined in Section
13 hereof), owns or holds legally and/or beneficially any shares or other
securities of any class in the capital of any corporations, or owns any legal
and/or beneficial interests in any partnerships, limited liability companies,
business trusts or joint ventures or in any other unincorporated trade or
business enterprises.
4.4. Capitalization. The authorized and/or registered share capital, as
applicable, of each Company, and the issued and outstanding shares of which, are
set forth in Section 4.4 of each Part of the Disclosure Schedule. All of the
Shares are owned legally and beneficially by the Sellers as set forth opposite
the names of such Sellers on Schedule C hereto, and all such Shares are validly
issued and outstanding, fully paid and non-assessable. There are no commitments
for the purchase or sale of, and no options, warrants or other rights to
subscribe for or purchase any, shares of capital stock or other securities of
any Company.
4.5. Title to Stock, Liens, etc. Each Seller has, and as of the
consummation of the Closing the Buyer will have, full and sole legal and
beneficial ownership of all of the Shares set forth opposite the name of such
Seller on Schedule C hereto, free and clear of any mortgage, lien, pledge,
charge, security interest, encumbrance, title retention agreement, option,
equity or other adverse claim thereto, except as set forth in the Parent's
Indenture (as defined in Section 6.15(a) hereof) or Section 4.5 of each Part of
the Disclosure Schedule.
4.6. Non-Contravention.
(a) Subject to obtaining the requisite approval of the Parent's
stockholders and bondholders as contemplated under Section 6 hereof or any
Governmental Approvals, the execution and delivery by each of the Parent and
each Seller of the Transaction Documents to which each is a party and the
consummation by each of the Parent and each Seller of the transactions
contemplated thereby will not (i) violate or conflict with any provision of the
Certificate of Incorporation, other charter or constitutional documents or
By-Laws of the Parent or any Seller, each as amended to date; or (ii) constitute
a violation of, or be in conflict with, or constitute or create a default under,
or result in the creation or imposition of any encumbrance upon any property of
any of the Parent or any Seller pursuant to (A) any agreement or instrument to
which any such party is a party or by which any such party or any of its
properties is bound or subject, or (B) any statute, judgment, decree, order,
regulation or rule of any court or governmental or regulatory authority
applicable to the Parent or any Seller.
(b) Subject to obtaining the requisite approval of the Parent's
stockholders and bondholders as contemplated under Section 6 hereof or any
Governmental Approvals, except as set forth on Section 4.6(b) of each Part of
the Disclosure Schedule, the execution and delivery by each of the Parent and
each Seller of the Transaction Documents to which each is a party and the
consummation by each of the Parent and each Seller of the transactions
contemplated thereby will not (i) violate or conflict with any provision of the
charter or constitutional documents or By-Laws or any Company, each as amended
to date; or (ii) constitute a violation of, or be in conflict with, or
constitute or create a default under, or result in the creation or imposition of
any encumbrance upon any property of any Company pursuant to (A) any agreement
or instrument to which any Company is a party or by which any Company or any of
its properties is bound or subject, or (B) any statute, judgment, decree, order,
regulation or rule of any court or governmental or regulatory authority
applicable to any Company.
4.7. Governmental Consents; Transferability of Licenses, Etc.
(a) Except as set forth on Section 4.2 of each Part of the Disclosure
Schedule, and assuming the accuracy of the Buyer's representations and
warranties set forth in Section 5.6 hereof, no consent, approval or
authorization of, or registration, qualification or filing with, any
governmental agency or authority, is required for the execution and delivery by
each Seller and the Parent of the Transaction Documents to which each is a party
or for the consummation by each Seller and the Parent of the transactions
contemplated thereby.
(b) Each Company has and maintains, and Section 4.7 of each Part of the
Disclosure Schedule lists as to each Company, all material licenses, permits and
other authorizations from all governmental authorities as are necessary for the
conduct by each Company of it respective business. Except as expressly
designated in Section 4.7 of each Part of the Disclosure Schedule, all such
licenses, permits and authorizations will remain in full force and effect
immediately following the consummation of the transactions contemplated hereby.
4.8. Financial Statements. The Parent has delivered the following
financial statements (the "Financial Statements") to the Buyer, and there are
included in Section 4.8 of each Part of the Disclosure Schedule: (a) the
separately unaudited balance sheet of each Company as of January 31, 1999, and
the related statements of income and retained earnings of each Company for the
six-month period then ended, and (b) the separately unaudited balance sheet of
each Company as of May 1, 1999, and the related consolidated statements of
income and retained earnings of each Company for the nine-month period then
ended; provided, that (i) with respect to the Financial Statements relating to
Datapoint Nederland B.V., such statements are consolidated with its corporate
parent, Datapoint Beheer B.V., and (ii) with respect to the Financial Statements
relating to Datapoint U.K. Ltd., such statements are consolidated with its
corporate parent Datapoint Holdings, Ltd. Each of the Financial Statements has
been prepared in accordance with United States generally accepted accounting
principles applied on a basis consistent with historical practice (subject to
the absence of footnotes and to normal recurring year-end audit adjustments);
each of such balance sheets fairly presents the financial condition of each
Company as of its respective date; and such statements of income and retained
earnings fairly present the results of operations for the periods covered
thereby.
4.9. Absence of Certain Changes. Except as set forth in Section 4.9 of
each Part of the Disclosure Schedule or in any other Section of the Disclosure
Schedule, since January 31, 1999 each Company has carried on its business only
in the ordinary course, and there has not been (a) any change in the assets,
liabilities, sales, income or business of any Company or in its relationships
with suppliers, customers or lessors, other than changes which were both in the
ordinary course of business and have not had a Material Adverse Effect; (b) any
acquisition or disposition by any Company of any asset or property other than in
the ordinary course of business that is material to the business of such
Company; (c) any damage, destruction or loss, whether or not covered by
insurance, having a Material Adverse Effect; (d) any declaration, setting aside
or payment of any dividend or any other distributions in respect of any
Company's capital stock; (e) any increase in the compensation, pension or other
benefits payable or to become payable by any Company to any of its officers or
employees, or any bonus payments or arrangements made to or with any of them
(other than pursuant to the terms of any existing written agreement or plan of
which the Buyer has been supplied complete and correct copies or in the ordinary
course of such Company's business); (f) any forgiveness or cancellation of any
debt or claim by any Company or any waiver of any right of material value other
than compromises of accounts receivable in the ordinary course of business; (g)
any entry by any Company into any transaction other than in the ordinary course
of business; (h) any incurrence by any Company of any obligations or
liabilities, whether absolute, accrued, contingent or otherwise (including,
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others), other than obligations and liabilities incurred in the
ordinary course of business; (i) any mortgage, pledge, lien, lease, security
interest or other charge or encumbrance on any of the assets, tangible or
intangible, of any Company (other than liens for Taxes (as defined in Section 13
hereof) which are not yet due and payable); or (j) any discharge or satisfaction
by any Company of any lien or encumbrance or payment by such Company of any
obligation or liability (fixed or contingent) other than (A) current liabilities
included in the Financial Statements, and (B) current liabilities incurred since
the date of the Financial Statements in the ordinary course of business.
4.10. Litigation, Etc. Except as set forth in Section 4.10 of each Part
of the Disclosure Schedule, no action, suit, proceeding or investigation is
pending or overtly threatened, relating to or affecting the business, assets or
financial condition of any Company, or which questions the validity of the
Transaction Documents or challenges any of the transactions contemplated hereby
or thereby, nor is there any basis for any such action, suit, proceeding or
investigation.
4.11. Conformity to Law. Except as set forth in Section 4.11 of each
Part of the Disclosure Schedule, each Company has substantially complied in all
material respects with, and is in compliance in all material respects with, all
foreign, federal, state and local laws, statutes, governmental regulations and
all judicial or administrative tribunal orders, judgments, writs, injunctions,
decrees or similar commands applicable to its business (including, without
limitation, any labor, occupational health, zoning or other law, regulation or
ordinance but excluding environmental laws which are covered in Section 4.13
hereof). Except as set forth in Section 4.11 of each Part of the Disclosure
Schedule, no Company has committed, been charged with, or been under
investigation with respect to, nor does there exist, any violation of any
provision of any foreign, federal, state or local law or administrative
regulation in respect of such Company or its respective business, assets or
operations.
4.12. Title to Assets. Except as set forth in Section 4.12 of each Part
of the Disclosure Schedule and except for liens for Taxes that are not yet due
and payable or delinquent or are being contested in good faith and for which
adequate reserves have been established on a Company's financial books, each
Company is the lawful owner of and has good and valid record and marketable
title to all of its respective properties and assets, including, without
limitation, all those reflected on the balance sheets contained in the Financial
Statements of such Company (other than any such properties or assets sold in the
ordinary course of such Company's business after the dates of such balance
sheets), free and clear of any security interests, liens, claims, charges,
options, mortgages, debts, leases (or subleases), conditional sales agreements,
title retention agreements, encumbrances of any kind, material defects as to
title or restrictions against the transfer or assignment thereof. All such
properties and assets are in good condition and repair (reasonable wear and tear
excepted) and are adequate and sufficient to carry on the business of each
Company as presently conducted.
4.13. Real Property and Environmental Matters.
(a) Section 4.13 of each Part of the Disclosure Schedule sets
forth complete and accurate legal descriptions of all real property leased by
each Company (the "Real Property"). No Company owns any Real Property. The
Sellers have delivered to the Buyer a true, correct and complete copy of each
lease of Real Property, and except as set forth in Section 4.13 of each Part of
the Disclosure Schedule, no material defaults by any Company exist under such
leases. None of the Parent, the Seller or any Company has received any notice
that either the whole or any portion of the Real Property is to be condemned,
requisitioned or otherwise taken by any applicable governmental, local or public
authority. There are no public improvements which may result in special
assessments against or otherwise affect the Real Property.
(b) Except as set forth in Section 4.13 of each Part of the Disclosure
Schedule:
(i) No Company nor any operator of any real property
presently leased or operated by any Company is in violation or alleged
violation of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, or any foreign,
federal, state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment (hereinafter
"Environmental Laws");
(ii) None of the Parent, any Seller or any Company
has received notice from any third party, including, without
limitation, any foreign, federal, state or local governmental
authority, (A) that any hazardous waste, any hazardous substance, any
pollutant or contaminant or any toxic substance, oil or hazardous
material or other chemical or substance (including, without limitation,
asbestos in any form, urea formaldehyde or polychlorinated biphenyls)
regulated by any Environmental Laws ("Hazardous Substances"), which any
Company or any predecessor in interest has generated, transported or
disposed of has been found at any site at which a foreign, federal,
state or local agency or other third party has conducted or has ordered
that the Seller or any predecessor in interest conduct a remedial
investigation, removal or other response action pursuant to any
Environmental Law; or (B) that any Company or any predecessor in
interest is or shall be a named party to any claim, action, cause of
action, complaint, (contingent or otherwise) legal or administrative
proceeding arising out of any third party's incurrence of costs,
expenses, losses or damages of any kind whatsoever in connection with
the release of Hazardous Substances;
(iii) (A) No portion of any real property presently
or formerly owned, leased or operated by any Company has been used for
the handling, manufacturing, processing, storage or disposal of
Hazardous Substances except in accordance with applicable Environmental
Laws; and no underground storage tank for Hazardous Substances is
located on such properties; (B) in the course of any activities
conducted by each Company or operators of any real property presently
or formerly owned, leased or operated by each Company, no Hazardous
Substances have been generated or are being used on such properties
except in accordance with applicable Environmental Laws; (C) all real
properties presently or formerly owned, leased or operated by each
Company are free from contamination by Hazardous Substances of every
kind, including, without limitation, groundwater, surface water, soil,
sediment and air contamination, and such properties do not contain any
Hazardous Substances, except in each case to the extent that the
presence of Hazardous Substances on such properties does not violate
any applicable Environmental Laws; (D) there have been no releases
(i.e., any past or present releasing, spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping,
disposing or dumping) or threatened releases of Hazardous Substances
on, upon, into or from any real property presently or formerly owned,
leased or operated by any Company except in accordance with applicable
Environmental Laws; (E) there have been no releases of Hazardous
Substances on, upon, from or into any real property in the vicinity of
any real property presently leased or operated by any Company which,
through soil or groundwater contamination, may have come to be located
on such real property except for Hazardous Substances whose presence on
such real property does not violate any applicable Environmental Laws;
and (F) in addition, any Hazardous Substances that have been generated
on any real property presently leased or operated by each Company have
been transported offsite only by carriers having identification numbers
issued by the applicable governmental authorities and have been treated
or disposed of only by treatment or disposal facilities maintaining
valid permits as required under applicable Environmental Laws, which
transporters and facilities have been and are operating in compliance
with such permits and applicable Environmental Laws; and
(iv) No Real Property presently or formerly owned or
leased by any Company is or shall be subject to any applicable
environmental cleanup responsibility law or environmental restrictive
transfer law or regulation, by virtue of the transactions set forth
herein and contemplated hereby.
(c) Attached as part of Section 4.13 of each Part of the
Disclosure Schedule is a list of all documents, reports, site assessments, data,
communications or other materials, in the possession of the Parent, any Seller
or any Company or to which it has access, which contain any material information
with respect to potential environmental liabilities associated with any real
property presently or formerly owned, leased or operated by any Company and
relating to compliance with Environmental Laws or the environmental condition of
such properties and adjacent properties. The Sellers have furnished to the Buyer
complete and accurate copies of all of the documents, reports, site assessments,
data, communications and other materials listed in Section 4.13 of each Part of
the Disclosure Schedule.
4.14. Equipment. Section 4.14 of each Part of the Disclosure Schedule
sets forth a complete and accurate list of all of the fixed assets of each
Company other than items having a book or market value individually of less than
$1,000. All such fixed assets are utilized by each Company in the ordinary
course of business.
4.15. Insurance. Section 4.15 of each Part of the Disclosure Schedule
lists all policies of fire, liability, workmen's compensation, life, property
and casualty and other insurance owned or held by each Company. All such
policies of insurance (a) are maintained with financially sound and reputable
insurance companies, funds or underwriters and are of the kinds and cover such
risks and are in such amounts and with such deductibles and exclusions as are
consistent with prudent business practice, (b) are in full force and effect, (c)
are sufficient for material compliance by each Company with all requirements of
law and all agreements to which each Company is a party, (d) provide that they
will remain in full force and effect through the respective dates set forth in
Section 4.15 of each Part of the Disclosure Schedule, and (e) will not in any
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. No Company is in default with respect to its
obligations under any of such insurance policies and has not received any
notification of cancellation of any such insurance policies. No insurance
carrier has denied coverage for any claim asserted by any Company since January
1, 1997.
4.16. Contracts. Section 4.16 of each Part of the Disclosure Schedule
sets forth a complete and accurate list of all contracts to which each Company
is a party or by which each Company is bound or to which each Company is
subject, except (a) contracts entered into in the ordinary course of business
after the date hereof and prior to the Closing, which will be identified to the
Buyer in writing prior to the Closing, (b) contracts terminable by any Company
upon thirty (30) days' notice or less without the payment of any termination fee
or penalty, and (c) contracts listed in other Sections of the Disclosure
Schedule. As used in this Section 4.16, the word "contract" means and includes
every agreement or understanding of any kind, written or oral, which is legally
enforceable by or against any Company, and specifically includes (a) contracts
and other agreements with any current or former officer, director, employee,
consultant or shareholder or any partnership, corporation, joint venture or any
other entity in which any such person has an interest; (b) agreements with any
labor union or association representing any employee; (c) contracts and other
agreements for the provision of services by each Company; (d) bonds or other
security agreements provided by any party in connection with the business of
each Company; (e) contracts and other agreements for the sale of any of any
Company's material assets or properties other than in the ordinary course of
business or for the grant to any person of any preferential rights to purchase
any of the assets or properties of any Company; (f) joint venture agreements
relating to the assets, properties or business of each Company or by or to which
each Company or any of its assets or properties are bound or subject; (g)
contracts or other agreements under which each Company agrees to indemnify any
party, to share Tax liability of any party, or to refrain from competing with
any party; (h) any contracts or other agreements with regard to Indebtedness (as
defined in Section 13 hereof); or (i) any other contract or other agreement
whether or not made in the ordinary course of business. The Sellers have
delivered to the Buyer true, correct and complete copies of all such contracts,
together with all modifications and supplements thereto. Each of the contracts
listed in Section 4.16 of each Part of the Disclosure Schedule or any of the
other Sections in the Disclosure Schedule is in full force and effect, no
Company is in breach of any of the material provisions of any such contract, nor
is any other party to any such contract in default thereunder, nor does any
event or condition exist which with notice or the passage of time or both would
constitute a default thereunder. Each Company has in all material respects
performed all obligations required to be performed by it to date under each such
contract. Subject to obtaining any necessary consents by the other party or
parties to any such contract (the requirement of any such consent being
reflected in Section 4.16 of each Part of the Disclosure Schedule), no contract
includes any provision the effect of which may be to enlarge or accelerate any
obligations of the Buyer after the consumption of the transactions contemplated
hereby or give additional rights to any other party thereto or will in any other
way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement.
4.17. Compensation of and Contracts with Employees. Section 4.17 of
each Part of the Disclosure Schedule sets forth a complete and accurate list in
all material respects of each full-time employee of each Company and the rate,
character and amount of the compensation being provided to such employee as of
July 31, 1999. Except as listed in Section 4.17 of each Part of the Disclosure
Schedule, no Company has any employment agreement, written or oral, with any
currently active employee, including any agreement to provide any bonus or
benefit to any such employee. Except as set forth in Section 4.17 of each Part
of the Disclosure Schedule, since January 31, 1999, no Company has made any
pension, bonus or other payment, other than base salary or pursuant to the terms
of any existing written agreement or plan to which such Company is a party, or
become obligated to make any such payment, to any employee of any Company.
Except as set forth in Section 4.17 of each Part of the Disclosure Schedule, no
Company has outstanding loans or advances to employees.
4.18. Employee Benefit Plans.
(a) Except for the arrangements set forth in Section 4.18 of
each Part of the Disclosure Schedule, no Company now maintains or contributes
to, and has not in the current or preceding six (6) calendar years maintained or
contributed to, any pension, profit-sharing, deferred compensation, bonus, stock
option, share appreciation right, severance, group or individual health, dental,
medical, life insurance, survivor benefit, or similar plan, policy or
arrangement, whether formal or informal, for the benefit of any director,
officer, consultant or employee, whether active or terminated, of any Seller.
Each of the arrangements set forth in Section 4.18 of each Part of the
Disclosure Schedule is hereinafter referred to as an "Employee Benefit Plan."
(b) The Sellers have heretofore delivered to the Buyer true,
correct and complete copies of each Employee Benefit Plan of each Company, and
with respect to each such Plan (i) any associated trust, custodial, insurance or
service agreements, and (ii) any annual report, actuarial report, or disclosure
materials (including specifically any summary plan descriptions) submitted to
any governmental agency or distributed to participants or beneficiaries
thereunder in the current or the preceding calendar year.
(c) Each Employee Benefit Plan is and has heretofore been
maintained and operated in compliance with the terms of such Plan and with the
requirements prescribed (whether as a matter of substantive law or as necessary
to secure favorable tax treatment) by any and all statutes, governmental or
court orders, or governmental rules or regulations in effect from time to time
and applicable to such Plan.
(d) Except as set forth in Section 4.18 of each Part of the Disclosure
Schedule:
(i) there is no pending or threatened legal action,
proceeding or investigation, other than routine claims for benefits,
concerning any Employee Benefit Plan or any fiduciary or service
provider thereof, and there is no basis for any such legal action or
proceeding;
(ii) no communication, report or disclosure has been
made which, at the time made, did not accurately reflect the terms and
operations of any Employee Benefit Plan;
(iii) no Employee Benefit Plan provides welfare
benefits subsequent to termination of employment to employees or their
beneficiaries; and
(iv) no Company has undertaken to maintain any
Employee Benefit Plan for any period of time and each such Plan is
terminable at the sole discretion of the sponsor thereof, subject only
to such constraints as may be imposed by applicable law.
(e) With respect to each Employee Benefit Plan for which a
separate fund of assets is or is required to be maintained, full payment has
been made of all amounts that each Company is required, under the terms of each
such Plan, to have paid as contributions to that Plan as of the end of the most
recently ended plan year of that Plan, and no accumulated funding deficiency,
whether or not waived, exists with respect to any such Plan. The current value
of the assets of each such Employee Benefit Plan, as of the end of the most
recently ended plan year of that Plan, exceeded the current value of all accrued
benefits under that Plan.
(f) The execution of this Agreement and the consummation of
the transactions contemplated hereby will not result in any payment (whether of
severance pay or otherwise) becoming due from any Employee Benefit Plan to any
current or former director, officer, consultant or employee of any Company or
result in the vesting, acceleration of payment or increases in the amount of any
benefit payable to or in respect of any such current or former director,
officer, consultant or employee.
(g) No Employee Benefit Plan is a multi-employer plan.
4.19. Labor Relations. Except as set forth in Section 4.19 of each Part
of the Disclosure Schedule, each Company is in compliance in all material
respects with all foreign, federal, state and local laws respecting employment
and employment practices, terms and conditions of employment, wages and hours
and nondiscrimination in employment, and is not engaged in any unfair labor
practice. Except as set forth in Section 4.19 of each Part of the Disclosure
Schedule, there is no charge pending or threatened against any Company alleging
unlawful discrimination in employment practices before any court or agency, and
there is no charge of or proceeding with regard to any unfair labor practice
against any Company pending before any court, regulatory agency or other
authority. There is no labor strike, dispute, slow-down or work stoppage
actually pending or, threatened against or involving any Company. Except as set
forth in Section 4.19 of each Part of the Disclosure Schedule, no person has
petitioned within the last three (3) years, and no person is now petitioning,
for union representation of any employees of any Company. Except as set forth in
Section 4.19 of each Part of the Disclosure Schedule, no grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending against any Company and no claim therefor has been
asserted. Except as described in Section 4.19 of each Part of the Disclosure
Schedule, none of the employees of any Company is covered by any collective
bargaining agreement, and no collective bargaining agreement is currently being
negotiated by any Company. Except as fully described in Section 4.19 of each
Part of the Disclosure Schedule, no Company has experienced any work stoppage
during the last five (5) years.
4.20. Trademarks, Patents, Etc. Section 4.20 of each Part of the
Disclosure Schedule sets forth a complete and accurate list of (a) all patents,
trademarks, trade names, service marks and copyrights registered in the name of
each Company or used or proposed to be used by each Company, all applications
therefor, and all licenses (as licensee or licensor) and other agreements
relating thereto, and (b) all written agreements relating to other technology,
know-how and processes which each Company is licensed or authorized by others to
use or which each Company has licensed or authorized for use by others. Except
to the extent set forth in Section 4.20 of each Part of the Disclosure Schedule
and except as otherwise contemplated under Section 2 hereof, each Company owns
or has the sole and exclusive right to use all patents, trademarks, trade names
and copyrights, and has the right without restrictions to use all technology,
know-how and processes, used or necessary for the ordinary course of business as
presently conducted or proposed to be conducted, and such rights will not be
adversely affected by the consummation of the transactions contemplated hereby.
No claims have been asserted, and no claims are pending, by any Person regarding
the use of any such patents, trademarks, trade names, copyrights, technology,
know-how or processes, or challenging or questioning the validity or
effectiveness of any license or agreement, and, there is no basis for such
claim. The use by each Company of such patents, trademarks, trade names,
copyrights, technology, know-how or processes in the ordinary course of business
does not infringe on the rights of any Person.
4.21. Suppliers and Customers. Section 4.21 of each Part of the
Disclosure Schedule sets forth the ten (10) largest suppliers and ten (10)
largest customers of each Company as of the date hereof, based on the dollar
amount of sales for each Company's 1998 fiscal year. The relationships of each
Company with such suppliers and customers are good commercial working
relationships. Except as set forth in Section 4.21 of each Part of the
Disclosure Schedule, no supplier or customer of material importance to any
Company's business has cancelled or otherwise terminated, or threatened to
cancel or otherwise to terminate, its relationship with such Company, or has
during the last twelve (12) months decreased materially, or overtly threatened
to decrease or limit materially, its services, supplies or materials for use in
such Company's business, or its usage or purchase of the services or products of
such Company except for normal cyclical changes related to customers'
businesses. No such supplier or customer intends to cancel or otherwise
substantially modify its relationship with any Company or to decrease materially
or limit its services, supplies or materials to any Company, or its usage or
purchase of any Company's services or products, and the communication of the
transactions contemplated hereby will not adversely affect the relationship of
any Company with any such supplier or customer.
4.22. Accounts Receivable. Except as set forth in Section 4.22 of each
Part of the Disclosure Schedule and with respect to the Intercompany Accounts
(as defined in Section 13 hereof), all accounts and notes receivable reflected
in the Financial Statements, and all accounts and notes receivable arising
subsequent to the respective dates thereof, have arisen in the ordinary course
of business, represent valid obligations owing to each Company, and have been
collected or are collectible in the aggregate recorded amounts thereof (less
amounts for doubtful accounts reflected in the Financial Statements, or in the
case of any accounts and notes receivable arising subsequent to the respective
dates thereof, less amounts for doubtful accounts consistent with each Company's
past practice) in accordance with their terms.
4.23. No Undisclosed Liabilities. Except to the extent (a) reflected or
reserved against in the Financial Statements, (b) incurred in the ordinary
course of business after the dates of the Financial Statements, (c) described in
the Disclosure Schedule, including Section 4.23 of each Part of the Disclosure
Schedule, or (d) with respect to the Intercompany Accounts, no Company has any
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise (including without limitation as guarantor or otherwise with
respect to obligations of others), other than performance obligations with
respect to each Company's contracts that would not be required to be reflected
or reserved against on a balance sheet prepared in accordance with United States
generally accepted accounting principles, or in the footnotes thereto.
4.24. Taxes. Each Company has duly filed with the appropriate
government agencies all of the income, sales, use, employment and other Tax
returns and reports required to be filed by it. No waiver of any statute of
limitations relating to Taxes has been executed or given by any Company. All
Taxes, assessments, fees and other governmental charges upon any Company or upon
any of their properties, assets, revenues, income and franchises which are owed
by each Company with respect to any period ending on or before the Closing Date
have been paid, other than those Taxes not due and payable as of the Closing
Date. Each Company has withheld and paid all Taxes required to be withheld or
paid in connection with amounts paid or owing to any employee, creditor,
independent contractor or third party. Except as disclosed in Section 4.24 of
each Part of the Disclosure Schedule, no Tax return of any Company is currently
under audit by any taxing authority. No taxing authority is now asserting or
threatening to assert against any Company, any deficiency or claim for
additional Taxes or interest thereon or penalties in connection therewith or any
adjustment that would have an adverse effect on any Company.
4.25. Inventory. The inventory and supplies of each Company are within
normal inventory "turn" levels consistent with past practice, are adequate for
such Company's present needs, and are in usable and applicable condition in the
ordinary course of business.
4.26. Broker. Except for Dain Rauscher Wessels, neither the Seller nor
the Parent has retained, utilized or been represented by any broker, agent,
finder or intermediary in connection with the negotiation or consummation of the
transactions contemplated by this Agreement.
4.27. Potential Conflicts of Interest. Except as set forth in Section
4.27 of each Part of the Disclosure Schedule, no officer, director or
stockholder (or Affiliate thereof) of any Company (a) owns, directly or
indirectly, any interest in (excepting not more than 5% stock holdings for
investment purposes in securities of publicly held and traded companies) or is
an officer, director, employee or consultant of any Person which is a
competitor, lessor, lessee, customer or supplier of such Company; (b) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
which such Company is using or the use of which is necessary for the business of
such Company; or (c) has any cause of action or other claim whatsoever against,
or owes any amount to, such Company, except for claims in the ordinary course of
business, such as for accrued vacation pay, accrued benefits under Employee
Benefit Plans and similar matters and agreements.
4.28. Indebtedness. Except for Indebtedness described in Section 4.28
of each Part of the Disclosure Schedule, no Company has any Indebtedness
outstanding as of the date hereof. Except as disclosed in Section 4.28 of each
Part of the Disclosure Schedule, no Company is in default with respect to any
outstanding Indebtedness or any instrument relating thereto. Complete and
correct copies of all instruments (including all amendments, supplements,
waivers and consents) relating to any Indebtedness of each Company have been
furnished to the Buyer.
4.29. Bank Accounts, Signing Authority, Powers of Attorney. Except as
set forth in Section 4.29 of each Part of the Disclosure Schedule, no Company
has an account or safe deposit box in any bank, and no Person has any power,
whether singly or jointly, to sign any checks on behalf of any Company, to
withdraw any money or other property from any bank, brokerage or other account
of any Company, or to act under any power of attorney granted by any Company at
any time for any purpose. Section 4.29 of each Part of the Disclosure Schedule
hereto also sets forth, the names of all persons authorized to borrow money or
sign notes on behalf of each Company.
4.30. Year 2000 Warranty. Except as described on Section 4.30 of each
Part of the Disclosure Schedule, Year 2000 Processing by any software or
computer-controlled device that is owned, operated or used for purposes of the
internal management information systems of each Company's business will not have
a Material Adverse Effect; provided, however, that this representation and
warranty shall not apply to any hardware or software which has been sold,
serviced or maintained by any Company to or for any customer of such Company.
For purposes of this Section 4.30, the term "Year 2000 Processing" shall mean
the processing (including calculating, comparing, sequencing, displaying or
storing), transmitting or receiving of date data, from, into and between the
20th and 21st countries, and during years 1999 and 2000 leap year calculations.
4.31. Minute Books. The minute books of each Company made available to
the Buyer for inspection, to the extent each such Company maintains a minute
book, accurately record therein all material actions taken by the Boards of
Directors and shareholders of each Company.
4.32. Ancillary Assets and Business. Except for the respective business
conducted by the Companies and the Shares, and except with respect to the
businesses conducted by the entities listed on Exhibit E hereto, none of the
Parent, any Seller or any of their respective Affiliates (other than the
Companies) has any material assets used in or relating to the business conducted
by the Companies, nor do they conduct any material business in Europe.
4.33. Sophistication of the Sellers and the Parent. The Sellers and the
Parent are represented by legal counsel in connection with this Agreement and
the transactions contemplated hereby, and the Sellers and the Parent are not in
a disparate bargaining position relative to the Buyer.
4.34. Disclosure. No representation or warranty by the Parent or any
Seller in this Agreement or in any exhibit, schedule, written statement,
certificate or other document delivered or to be delivered to the Buyer pursuant
hereto or in connection with the consummation of the transactions contemplated
hereby contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact required to be stated therein or necessary
to make the statements contained therein not misleading or necessary in order to
provide the Buyer with proper and complete information as to the business,
condition, operations and prospects of each Company. Notwithstanding anything to
the contrary set forth herein, the Sellers and the Parent make no representation
or warranty with respect to any projections, forecasts or business plan
information with respect to the Companies relating to periods before or after
the date of this Agreement, except as otherwise made in the representations and
warranties set forth in Section 4 hereof or in the Disclosure Schedule relating
thereto.
5. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to the Sellers as follows:
5.1. Organization of Buyer; Authority. The Buyer is a corporation duly
organized, validly existing and in corporate good standing under the laws of the
State of Delaware. The Buyer has all requisite power and authority to execute
and deliver the Transaction Documents to which it is a party and to carry out
all of the actions required of it pursuant to the terms of such Transaction
Documents.
5.2. Corporate Approval; Binding Effect. The Buyer has obtained all
necessary authorizations and approvals from its Board of Directors and
stockholders required for the execution and delivery of the Transaction
Documents to which it is a party and the consummation of the transactions
contemplated hereby and thereby. Each of the Transaction Documents to which the
Buyer is a party has been or will be duly executed and delivered by the Buyer
and constitutes or will constitute when executed and delivered the legal, valid
and binding obligation of the Buyer, enforceable against the Buyer in accordance
with its terms, except as enforceability thereof may be limited by any
applicable bankruptcy, reorganization, insolvency or other laws affecting
creditors' rights generally or by general principles of equity.
5.3. Non-Contravention. The execution and delivery by the Buyer of the
Transaction Documents to which it is a party and the consummation by the Buyer
of the transactions contemplated thereby will not (a) violate or conflict with
any provisions of the Certificate of Incorporation or By-Laws of the Buyer, each
as amended to date; or (b) constitute a violation of, or be in conflict with,
constitute or create a default under, or result in the creation or imposition of
any lien upon any property of the Buyer pursuant to (i) any agreement or
instrument to which the Buyer is a party or by which the Buyer or any of its
properties is bound or to which the Buyer or any of its properties is subject,
or (ii) any statute, judgment, decree, order, regulation or rule of any court or
governmental or regulatory authority applicable to the Buyer.
5.4. Governmental Consents. No consent, approval or authorization of,
or registration, qualification or filing with, any governmental agency or
authority is required for the execution and delivery by the Buyer of the
Transaction Documents to which it is a party or for the consummation by the
Buyer of the transactions contemplated hereby or thereby.
5.5. Broker. The Buyer has not retained, utilized or been represented
by any broker, agent, finder or other intermediary in connection with the
negotiation or consummation of the transactions contemplated by this Agreement.
5.6. Securities Law Matters. The Buyer (a) has assets of $5,000,000 or more; (b)
has knowledge of and experience in financial and business matters that enable
the Buyer to evaluate the merits and risks of the transactions contemplated by
this Agreement; (c) has had access to all financial, corporate and other
information related to the Companies and their businesses and operations and has
had the opportunity to interview and question the management of the Companies
concerning the Companies and their businesses and operations; (d) is represented
by legal counsel in connection with this Agreement and such transactions; and
(e) is not in a disparate bargaining position relative to the Sellers and the
Parent.
5.7. Information Relating to Companies. Notwithstanding anything to the contrary
set forth in this Agreement, in connection with the Buyer's investigation of the
Companies, the Buyer has received from the Parent, the Sellers and the Companies
certain projections, forecasts and business plan information relating to periods
before or after the date of this Agreement. The Buyer agrees and acknowledges
that there are uncertainties inherent in attempting to make such projections and
other forecasts and plans, that the Buyer is familiar with such uncertainties,
that the Buyer is taking full responsibility for making its own evaluation of
the adequacy and accuracy of all projections and other forecasts and plans so
furnished to it, and that the Buyer shall have no claim against any Seller or
the Parent or any other Person with respect thereto in the absence of fraud by
such Seller or the Parent, except in the case of any of the foregoing contained
in the representations and warranties set forth in Section 4 hereof or in the
Disclosure Schedule relating thereto.
6. CONDUCT OF BUSINESS BY THE COMPANIES PENDING CLOSING. The Sellers
and the Parent covenant and agree that, from and after the date of this
Agreement and until the Closing, except as otherwise specifically consented to
or approved by the Buyer in writing:
6.1. Full Access. The Sellers and the Parent shall use their reasonable
best efforts to cause each Company to afford to the Buyer and its authorized
representatives full access during normal business hours to all properties,
books, records, contracts and documents of each Company and a full opportunity
to make such reasonable investigations as they shall desire to make of each
Company, and the Sellers and the Parent shall furnish or cause to be furnished
to the Buyer and its authorized representatives all such information with
respect to the affairs and businesses of each Company as the Buyer may
reasonably request; provided, that such access shall not be disruptive to the
conduct of business by the Companies; and, provided further, that any access to
any employee of any Company who is not a member of the senior management of such
Company is conducted in the presence of an individual who is part of the senior
management of such Company.
6.2. Carry on in Regular Course. The Sellers and the Parent shall use
their reasonable best efforts to cause each Company to maintain its owned and
leased properties in good operating condition and repair, and to make all
necessary renewals, additions and replacements thereto, and to carry on its
business diligently and substantially in the same manner as heretofore and not
make or institute any unusual or novel methods of manufacture, purchase, sale,
lease, management, accounting or operation.
6.3. No General Increases. The Sellers and the Parent shall use their
reasonable best efforts to not permit, other than as described on the Disclosure
Schedule or in the ordinary course of business pursuant to the terms of any
existing written agreement or plan to which any Company is a party, any Company
to grant any general or uniform increase in the rates of pay of employees of
such Company, nor grant any general or uniform increase in the benefits under
any bonus or pension plan or other contract or commitment to, for or with any
employees; and the Sellers and the Parent shall use their reasonable best
efforts to not permit any Company to increase the compensation payable or to
become payable to officers, key salaried employees or agents, or increase any
bonus, insurance, pension or other benefit plan, payment or arrangement made to,
for or with any such officers, key salaried employees or agents.
6.4. No Dividends, Issuances, Repurchases, etc. The Sellers and the
Parent shall use their reasonable best efforts to not permit any Company to
declare or pay any dividends (whether in cash, shares of stock or otherwise) on,
or make any other distribution in respect of, any shares of its capital stock,
or issue, purchase, redeem or acquire for value any shares of its capital stock.
6.5. Contracts and Commitments. The Sellers and the Parent shall use
their reasonable best efforts to not permit any Company to enter into any
contract or commitment or engage in any transaction not in the usual and
ordinary course of business or not consistent with the customary business
practices of such Company.
6.6. Purchase and Sale of Capital Assets. Other than in the ordinary
course of business, the Sellers and the Parent shall use their reasonable best
efforts to not permit any Company to purchase or sell or otherwise dispose of
any capital asset with a market value in excess of $1,000, or of capital assets
of market value aggregating in excess of $5,000.
6.7. Insurance. The Sellers and the Parent shall use their reasonable
best efforts to cause each Company to maintain the insurance described in
Section 4.15 of each Part of the Disclosure Schedule.
6.8. Preservation of Organization. The Sellers and the Parent shall use
their reasonable best efforts to cause each Company to use its reasonable best
efforts (which shall not include (a) any obligation to pay any additional money
unless such obligation is triggered, pursuant to the express terms of any then
binding agreement (which agreement provides for a liquidated amount of such
obligation, or the exact amount of such obligation is determinable pursuant to
an express formula contained therein or the application of the express terms
thereof), by the transactions contemplated hereunder, or (b) any obligation to
restructure the terms of any then existing customer or supplier relationship) to
preserve its business organization intact consistent with past practice, to keep
available to the Buyer the present key officers and employees of such Company
consistent with past practice, and to preserve for the Buyer the present
relationships of such Company's key suppliers and customers and others having
key business relations with such Company consistent with past practice.
6.9. No Default. The Sellers and the Parent shall use their reasonable
best efforts to not permit any Company to do any act or omit to do any act, or
permit any act or omission to act, which will cause a material breach of any
contract, commitment or obligation of such Company.
6.10. Compliance with Laws. The Sellers and the Parent shall use their
reasonable best efforts to cause each Company to comply in all material respects
with all laws, regulations and orders applicable with respect to its respective
business.
6.11. Advice of Change. The Sellers and the Parent will use their
reasonable best efforts to promptly advise the Buyer in writing of any event
which has a Material Adverse Effect.
6.12. No Shopping. The Sellers and the Parent shall not, and shall use
their reasonable best efforts to not permit any Company to, negotiate for,
solicit or enter into any agreement with respect to the sale or transfer of the
Shares, or any substantial portion of the assets of any Company, or any merger
or other business combination of any Company to or with any Person other than
the Buyer.
6.13. Consents of Third Parties. The Sellers and the Parent will employ
their reasonable best efforts (which shall not include (a) any obligation to pay
any additional money unless such obligation is triggered, pursuant to the
express terms of any then binding agreement (which agreement provides for a
liquidated amount of such obligation, or the exact amount of such obligation is
determinable pursuant to an express formula contained therein or the application
of the express terms thereof), by the transactions contemplated hereunder, or
(b) any obligation to restructure the terms of any then binding agreement) to
secure, before the Closing Date, the consent, in form and substance satisfactory
to the Buyer and its counsel, to the consummation of the transactions
contemplated by this Agreement by each party to any material contract,
commitment or obligation of each Company, under which such transactions would
constitute a default, would accelerate obligations of such Company or would
permit cancellation of any such contract.
6.14. Satisfaction of Conditions Precedent. The Sellers and the Parent
will use their reasonable best efforts (which shall not include (a) any
obligation to pay any additional money unless such obligation is triggered,
pursuant to the express terms of any then binding agreement (which agreement
provides for a liquidated amount of such obligation, or the exact amount of such
obligation is determinable pursuant to an express formula contained therein or
the application of the express terms thereof), by the transactions contemplated
hereunder, or (b) any obligation to restructure the terms of any then binding
agreement) to cause the satisfaction of the conditions precedent contained
herein.
6.15. Stockholder and Bondholder Meeting and Proxy Statement of Parent.
(a) As promptly as practicable after the date hereof, the
Parent shall schedule a meeting of the Parent's stockholders and bondholders
(the "Parent Meeting") to seek approval from (i) the Parent's stockholders to
approve (A) the Parent's Name Change Certificate, and (B) the transactions
contemplated by the Transaction Documents, and (ii) the Parent's bondholders to
approve the amendments to that certain Indenture (the "Indenture") in connection
with those certain debentures of the Parent dated as of June 1, 1981
(collectively, the "Meeting Purpose").
(b) As promptly as practicable after the date hereof, the
Parent shall prepare and file with the Securities Exchange Commission (the
"SEC") under the Securities Exchange Act of 1934 (the "Exchange Act"),
preliminary proxy materials for the purpose of soliciting proxies for
stockholder and bondholder approval of the Meeting Purpose at the Parent
Meeting. Such proxy materials, together with any accompanying letter to
stockholders and bondholders, notice of meeting and form of proxy, shall be
referred to herein as the "Proxy Statement." The Parent shall respond to any SEC
comments on the Proxy Statement and shall otherwise use its reasonable best
efforts (which shall not include (i) any obligation to pay any additional money
unless such obligation is triggered, pursuant to the express terms of any then
binding agreement (which agreement provides for a liquidated amount of such
obligation, or the exact amount of such obligation is determinable pursuant to
an express formula contained therein or the application of the express terms
thereof), by the transactions contemplated hereunder, or (ii) any obligation to
restructure the terms of any then binding agreement) to resolve as promptly as
practicable all SEC comments on the Proxy Statement to the satisfaction of the
SEC and the reasonable satisfaction of the Parent. If the SEC comments on the
Proxy Statement cannot be resolved to the reasonable satisfaction of the Parent,
the Parent shall be entitled to withdraw the Proxy Statement. The Proxy
Statement shall be reasonably acceptable in form and substance to the Buyer.
(c) The Buyer shall supply all information regarding the Buyer
required to be included with respect to the Buyer in the Proxy Statement under
the Exchange Act and applicable rules and regulations thereunder and applicable
provisions of the Delaware General Corporation Law (the "Proxy Rules").
(d) Promptly following the resolution to the satisfaction of
the SEC and the reasonable satisfaction of the Parent of all SEC comments on the
Proxy Statement (or the expiration of the ten-day period under Rule 14a-6(a)
under the Exchange Act, if no SEC comments are received by such date), the
Parent shall distribute the Proxy Statement to its stockholders and bondholders
and, pursuant thereto, call the Parent Meeting in accordance with the Proxy
Rules and solicit proxies from the Parent's stockholders and bondholders to
obtain approval of the Meeting Purpose. The Proxy Statement shall include the
recommendation of the Board of Directors of the Parent in favor of the Meeting
Purpose; provided, however, that the Board of Directors of the Parent may
withdraw or modify such recommendation if it believes in good faith, after
consultation with its outside legal counsel, that the withdrawal of such
recommendation is necessary for it to comply with its fiduciary duties under
applicable law.
(e) The Parent shall comply in all material respects with all
Proxy Rules in the preparation, filing and distribution of the Proxy Statement,
the solicitation of proxies thereunder and the calling and holding of the Parent
Meeting. Without limiting the foregoing, the Parent shall ensure that the Proxy
Statement does not, as of the date on which it is distributed to the Parent's
stockholders and bondholders and as of the date of the Parent Meeting, contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading (provided that the Parent shall not
be responsible for the accuracy or completeness of any information furnished in
writing by or on behalf of the Buyer for inclusion in the Proxy Statement). The
Buyer shall supply the information reasonably requested by the Parent for
inclusion in the Proxy Statement. The information supplied by the Buyer for
inclusion in the Proxy Statement shall not, on the date filed with the SEC and
on the date first published, sent or given to the Parent's stockholders and
bondholders, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. Each of the Buyer, on the one hand, and the Parent and the
Sellers, on the other hand, agrees promptly to correct any information provided
by it for use in the Proxy Statement if and to the extent that it shall have
become false and misleading in any material respect, and the Parent further
agrees to take all steps necessary to cause the Proxy Statement as so corrected
to be filed with the SEC and to be disseminated to the stockholders of the
Parent, in each case as and to the extent required by applicable federal
securities laws.
7. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The obligation of the
Buyer to consummate the Closing shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions (to the extent noncompliance
is not waived in writing by the Buyer):
7.1. Representations and Warranties True at Closing. The
representations and warranties made by the Sellers and the Parent in or pursuant
to this Agreement shall be true and correct in all material respects at and as
of the Closing Date with the same effect as though such representations and
warranties had been made or given at and as of the Closing Date; it being agreed
that for purposes of this Section 7.1 only (and for no other purpose of this
Agreement, including, without limitation, the provisions of Section 10 hereof),
such representations and warranties shall be deemed to be true and correct in
all material respects at and as of the Closing Date, notwithstanding that one or
more of such representations and warranties may be untrue or incorrect in any
material respect at and as of such time, unless any one or more of such
representations and warranties being so untrue or incorrect shall result in a
Material Adverse Effect.
7.2. Compliance with Agreement. The Sellers and the Parent shall have
performed and complied in all material respects with all of their respective
obligations under this Agreement to be performed or complied with by it on or
prior to the Closing Date.
7.3. No Material Adverse Change. The business, assets or properties of
all of the Companies, taken as a whole, shall not have been, and shall not be
threatened to be, adversely affected in any material way as a result of fire,
explosion, earthquake, disaster, labor trouble or dispute, change in business
organization, any action by the United States or any other foreign governmental
authority, change in technology, flood, drought, embargo, riot, civil
disturbance, uprising, activity of armed forces or act of God or public enemy.
Since January 31, 1999, there shall not have occurred any material adverse
change in the condition (financial or otherwise), operations, business or assets
of all of the Companies, taken as a whole, or the imposition of any laws, rules
or regulations which would materially adversely affect the condition (financial
or otherwise), operations, business or assets of all of the Companies taken as a
whole.
7.4. Closing Certificate. The Parent and each Seller shall have
delivered to the Buyer in writing, at and as of the Closing, a certificate duly
executed by each such party, in form and substance satisfactory to the Buyer and
the Buyer's counsel, certifying that the conditions in each of Sections 7.1, 7.2
and 7.3 hereof have been satisfied.
7.5. Opinion of Counsel. Pryor Cashman Sherman & Flynn LLP, special
counsel to the Sellers, the Parent and the Companies, and certain other special
European counsel to the Companies, shall have delivered to the Buyer written
opinions, addressed to the Buyer and dated the Closing Date, in form and
substance satisfactory to the parties.
7.6. Approvals; Consents. All corporate and other approvals in
connection with the transactions contemplated by this Agreement and the form and
substance of all certificates and other documents delivered hereunder shall be
reasonably satisfactory in form and substance to the Buyer and its counsel.
7.7. No Litigation. No restraining order or injunction shall prevent
the transactions contemplated by this Agreement and no action, suit or
proceeding shall be pending or threatened before any court or administrative
body (a) in which it will be or is sought to restrain or prohibit or obtain
damages or other relief in connection with this Agreement or the consummation of
the transactions contemplated hereby, or (b) in connection with any claim for
damages in excess of $100,000 (after the application of available insurance
proceeds) against any Company (except for the matters disclosed in Section 4.10
of each Part of the Disclosure Schedule).
7.8. Financing. The Buyer shall have obtained debt and equity financing
on terms satisfactory to it and customary for transactions of the nature
contemplated by this Agreement, providing the Buyer with sufficient funds to pay
the Purchase Price and all fees and expenses of the Buyer arising in connection
with transactions contemplated by this Agreement, and all conditions precedent
to funding under such financing arrangements (other than the purchase and sale
contemplated hereby) shall have been satisfied or waived.
7.9. Indemnity Escrow Agreement. The Sellers and the Escrow Agent shall
have executed and delivered to the Buyer the Indemnity Escrow Agreement, which
Indemnity Escrow Agreement shall be in full force and effect.
7.10. Datapoint Name. The Parent and such of its Subsidiaries as is
contemplated under Section 2.1(a) hereof shall have executed and delivered the
Name Change Certificates and the Name Assignment to the Buyer, which Name Change
Certificates and Name Assignment shall be in full force and effect.
7.11. Intentionally Deleted.
7.12. Consents of Third Parties. The Sellers and the Parent will have
obtained the consent, in form and substance reasonably satisfactory to the Buyer
and the Buyer's counsel, to the consummation of the transactions contemplated by
this Agreement by (a) each party to any material contracts or agreement to which
any Company is a party under which such transactions would constitute a default,
would accelerate obligations of any such Company or would permit cancellation of
any such contract or agreement, and (b) the stockholders and bondholders of the
Parent as contemplated under Section 6.15 hereof.
7.13. Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to the Buyer in connection with the
transactions contemplated by this Agreement shall be satisfactory in all
reasonable respects to the Buyer and the Buyer's counsel, and the Buyer shall
have received the originals or certified or other copies of all such records and
documents as the Buyer may reasonably request.
7.14. Termination of Intercompany Accounts. Any and all Intercompany
Accounts shall be eliminated in such a manner that results in no cost or
liability of any nature to the Buyer, the Companies, the Parent and the Sellers.
7.15. Termination of Agreements. Except as contemplated by Section 2
hereof, any and all agreements and contracts between any Seller and the Parent
on the one hand, and any Company on the other hand, including, without
limitation, all management fee agreements, shall be terminated.
7.16. Support Agreement. Each of Asher B. Edelman ("Edelman"), Gerald
N. Agranoff ("Agranoff") and Irving Garfinkel shall have executed delivered to
the Buyer as of the execution and delivery of this Agreement a support agreement
in the form of Exhibit F hereto pursuant to which they shall have agreed (a)
that at the Parent Meeting they shall vote, and cause to be voted, all shares of
the Parent's voting capital stock of which he is the record and beneficial
owner, and all shares of he Parent's voting capital stock owned by his
Affiliates, to approve the Meeting Purpose, and (b) to be bound by the same
covenants and agreements set forth in Sections 9.1 and 9.2 hereof as are
applicable to the Sellers and the Parent.
7.17. Resolution of Outstanding Issues. The Parent and the Buyer shall
have reached agreement as to the matters set forth in Section 2.2 hereof. Upon
such agreement, Exhibits A, B, C, D and E hereto shall be completed and shall be
attached as exhibits to this Agreement, and shall thereupon be binding upon the
parties for all purposes hereof.
8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS. The obligation of the
Sellers to consummate the Closing shall be subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (to the extent
noncompliance is not waived in writing by the Parent):
8.1. Representations and Warranties True at Closing. The
representations and warranties made by the Buyer in this Agreement shall be true
and correct in all material respects at and as of the Closing Date with the same
effect as though such representations and warranties had been made or given at
and as of the Closing Date.
8.2. Compliance with Agreement. The Buyer shall have performed and
complied in all material respects with all of its obligations under this
Agreement that are to be performed or complied with by it at or prior to the
Closing.
8.3. Closing Certificate. The Buyer shall have delivered to the Sellers
in writing, at and as of the Closing, a certificate duly executed by the
President of the Buyer, in form and substance satisfactory to the Parent and the
Parent's counsel, to the effect that the conditions in each of Sections 8.1 and
8.2 hereof have been satisfied.
8.4. Opinion of Counsel. Bingham Dana LLP, counsel to the Buyer, shall
have delivered to the Sellers a written opinion, dated the Closing Date and
addressed to the Sellers, in form and substance satisfactory to the parties.
8.5. No Litigation. No restraining order or injunction shall prevent
the transactions contemplated by this Agreement and no action, suit or
proceeding shall be pending or threatened before any court or administrative
body in which it will be or is sought to restrain or prohibit or obtain damages
or other relief in connection with this Agreement or the consummation of the
transactions contemplated hereby.
8.6. Indemnity Escrow Agreement. The Buyer shall have executed and
delivered the Escrow Agreement, which Indemnity Escrow Agreement shall be in
full force and effect.
8.7. Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to the Sellers in connection with the
transactions contemplated by this Agreement shall be satisfactory in all
reasonable respects to the Parent and its counsel, and the Sellers shall have
received the originals or certified or other copies of all such records and
documents as the Seller may reasonably request.
8.8. Management Representation Letters. The Buyer shall have caused to
be delivered to the Parent (a) on the date hereof, (i) a Representation Letter
in the form of Exhibit G-1 hereto from each member of Management (as defined in
Section 13 hereof), and (ii) a Representation Letter and Indemnification
Agreement in the form of Exhibit H-1 hereto from Mr. Blake Thomas, the President
of the Parent ("Thomas"), and (b) on the Closing Date, (i) a bring-down letter
in the form of Exhibit G-2 hereto from each member of Management, and (ii) a
bring-down letter in the form of Exhibit H-2 hereto from Thomas; it being
agreed, however, by the Parent and the Sellers that they shall have no recourse
against any member of Management or any Company solely on account of any breach
of the Representation Letters and bring-down letters delivered to the Parent by
the members of Management as described above.
8.9. Datapoint License. The Buyer shall have delivered to the Parent
and such of its Subsidiaries as is contemplated under Section 2.1(b) hereof the
Datapoint License, which Datapoint License shall be in full force and effect.
8.10. Termination of Intercompany Accounts. Any and all Intercompany
Accounts shall be eliminated in such a manner that results in no cost or
liability of any nature to the Buyer, the Companies, the Parent and the Sellers.
8.11. Stockholder and Bondholder Approval. The stockholders and
bondholders of the Parent shall have approved the transactions set forth in this
Agreement as contemplated under Section 6.15 hereof.
8.12. Resolution of Outstanding Issues. The Parent and the Buyer shall
have reached agreement as to the matters set forth in Section 2.2 hereof. Upon
such agreement, Exhibits A, B, C, D and E hereto shall be completed and shall be
attached as exhibits to this Agreement, and shall thereupon be binding upon the
parties for all purposes hereof.
9. CERTAIN COVENANTS.
9.1. Confidentiality. Each of the Sellers and the Parent recognizes
that by reason of the Sellers' ownership of the Companies, the Sellers and the
Parent have acquired and possess confidential information and trade secrets
concerning the operations and business of the Companies, the use or disclosure
of which could cause the Companies substantial loss and damages that could not
be readily calculated and for which no remedy at law would be adequate.
Accordingly, each of the Sellers and the Parent shall not, and shall not permit
any of their Subsidiaries or Affiliates to, at any time after the Closing Date,
except with the prior written consent of the Buyer, directly or indirectly,
disclose any trade secret or confidential information relating to the Companies,
or use any such information in a manner detrimental to the interests of any
Company or the Buyer, unless (a) such information becomes known to the public
generally through no fault of any Seller or the Parent, or any of their
Subsidiaries or Affiliates, (b) disclosure is required by law or the order of
any governmental authority, or (c) the disclosing party reasonably believes that
such disclosure is required in connection with the preparation of the Proxy
Statement or the defense of a lawsuit against the disclosing party; provided,
that prior to disclosing any information pursuant to clause (a), (b) or (c)
above, except with respect to information included in the Proxy Statement or
disclosed to the SEC in connection therewith, the Sellers and the Parent shall
give prior written notice thereof to the Buyer and provide the Buyer with the
opportunity to contest such disclosure and shall cooperate with efforts to
prevent such disclosure. As used herein, the term "confidential information"
includes, without limitation, information with respect to any Company's
products, services and facilities, methods, trade secrets and other intellectual
property, software, source code, systems, procedures, manuals, confidential
reports, product and service price lists, customer lists, financial information
(including the revenues, costs or profits associated with any of the Company's
products or services), business plans, prospects or opportunities, but shall
specifically exclude any information already in the public domain.
9.2. Non-Competition. Each of the Sellers and the Parent acknowledges
that the covenants and agreements in this Section 9.2 are a condition precedent
to the Buyer's obligations to acquire the Shares from the Sellers under this
Agreement, and that the Buyer would not acquire the Shares but for the
agreements of the Sellers and the Parent with the Buyer in this Section 9.2.
Each of the Sellers, the Parent and the Buyer acknowledges that from and after
the Closing Date the Buyer will sell products and services to customers located
in markets throughout Europe, North America and South America (the "Prohibited
Area"), and that any engagement by any Seller, the Parent or any of their
Subsidiaries or Affiliates in the Designated Industry (as hereinafter defined)
could cause the Buyer and the Companies irreparable damage. Accordingly, for a
period from the Closing Date until the fifth anniversary of the Closing Date,
each of the Sellers and the Parent shall not, and shall not permit any of their
Subsidiaries or Affiliates to, without the prior written consent of the Buyer,
(i) engage anywhere in the Prohibited Area, directly or indirectly, alone or as
a shareholder (other than as a holder of less than 5% of the capital stock of
any publicly-traded corporation), partner, officer, director, employee or
consultant, in any business organization that is engaged or becomes engaged in
the business of selling or providing (x) telephony, call-center, dataprocessing
or networking products or services, including, without limitation, telephone
switches and dialers, personal computers, servers, printers and other peripheral
hardware and software used in connection therewith, or (y) business consulting
services with respect to the foregoing (the "Designated Industry"); provided,
that the Designated Industry shall not include the business of providing
internet or cybernet networking solutions, including, without limitation,
hardware, software and consulting services related thereto, (ii) divert to any
competitor of any Company, the Buyer or any of their Affiliates or Subsidiaries
any customer of any Company, the Buyer or such Affiliates or Subsidiaries, or
(iii) solicit or encourage any officer, employee or consultant of any Company,
the Buyer or any of their Affiliates or Subsidiaries to leave their employ for
employment by or with any Seller, the Parent or their Subsidiaries or
Affiliates, or any competitor of any Company or any of the Buyer's or any
Company's Affiliates or Subsidiaries. If at any time the provisions of this
Section 9.2 shall be determined to be invalid or unenforceable, by reason of
being vague or unreasonable as to area, duration or scope of activity, this
Section 9.2 shall be considered divisible and shall become and be immediately
amended to only such area, duration and scope of activity as shall be determined
to be reasonable and enforceable by the court or other body having jurisdiction
over the matter; and the Sellers and the Parent agree that this Section 9.2 as
so amended shall be valid and binding as though any invalid or unenforceable
provision had not been included herein. Notwithstanding anything to the contrary
set forth in this Section 9.2, Edelman and his Affiliates shall not be bound or
restricted by the provisions of this Section 9.2 so long as Edelman is not
involved in any manner, directly or indirectly, in any operational capacity with
any Person which is engaged in the Designated Industry in the Prohibited Area;
it being agreed that for purposes hereof, if Edelman serves as a non-executive
director or a non-executive chairman of any Person, he shall not be deemed to be
involved in any operational capacity with such Person.
9.3. San Antonio Employees. At the Closing, the Buyer shall offer
employment to those persons listed on Schedule E hereto upon the same terms and
conditions as are in effect and applicable to such persons as of the date of
this Agreement.
10. INDEMNIFICATION.
10.1. Indemnity by the Sellers and the Parent. Subject to the overall
limitations, minimum amounts and time limitations set forth in Section 10.5
hereof, each Seller and the Parent agree to indemnify and hold the Buyer and the
Companies harmless from and with respect to any and all claims, liabilities,
losses, damages, costs and expenses, including, without limitation, the
reasonable fees and disbursements of counsel (collectively, the "Losses"),
related to or arising directly or indirectly out of any of the following:
(a) any failure or any breach by any Seller or the Parent of
any representation or warranty, covenant, obligation or undertaking
made by any Seller or the Parent in or pursuant to this Agreement
(including the Disclosure Schedules, or other Schedules and Exhibits
hereto) or any other statement, certificate or other instrument
delivered pursuant hereto; and
(b) any acts or omissions by any Seller, the Parent or any
directors, officers, employees or agents of any Seller or the Parent
(but not of the Companies) within the Knowledge of the Parent occurring
on or prior to the Closing Date which causes a Material Adverse Effect.
With respect to the nature of the liability of the Parent and the Sellers
under this Section 10.1 , the parties agree as follows:
(i) to the extent that there are Losses suffered or
incurred by the Buyer or any Company which arise out of a breach of a
representation and warranty relating to such Company, and a particular
Seller is the sole holder, directly or indirectly, of the Shares of
such Company, such Seller shall be jointly and severally liable with
the Parent for all such Losses;
(ii) to the extent that there are Losses suffered or
incurred by the Buyer or any Company which arise out of a breach of a
representation and warranty relating to such Company, and multiple
Sellers are the holders, directly or indirectly, of the Shares of such
Company, such Sellers shall be jointly and severally liable with the
Parent for all such Losses;
(iii) to the extent that there are Losses suffered or
incurred by the Buyer which do not arise out of a breach of a
representation and warranty relating to a Company, but instead arise
out of a breach of any representation and warranty set forth in
Sections 4.26, 4.32 or 4.33 hereof), the Parent shall be solely liable
for all such Losses;
(iv) to the extent that there are Losses suffered or
incurred by the Buyer or any Company which arise out of a breach by a
particular Seller of a covenant, obligation or undertaking under this
Agreement, such Seller shall be jointly and severally liable with the
Parent for all such Losses;
(v) to the extent that there are Losses suffered or
incurred by the Buyer or any Company which arise out of a breach by a
particular Seller of a representation and warranty relating to such
Seller, such Seller shall be jointly and severally liable with the
Parent for all such Losses;
(vi) to the extent that there are Losses suffered or
incurred by the Buyer or any Company which arise out of a breach by
multiple Sellers of a covenant, obligation or undertaking under this
Agreement, such Sellers shall be jointly and severally liable with the
Parent for all such Losses;
(vii) to the extent that there are Losses suffered or
incurred by the Buyer or any Company which arise out of a breach by the
Parent alone of a covenant, obligation or undertaking under this
Agreement, the Parent shall be solely liable for all such Losses; and
(viii) notwithstanding anything to the contrary set
forth in the Section 10, the Parent shall in all cases be liable
(irrespective of whether one or more Sellers shall also be liable) for
all Losses suffered or incurred by the Buyer and the Companies under
this Section 10.
10.2. Indemnity by the Buyer. Subject to the overall limitations,
minimum amounts and time limitations set forth in Section 10.5 hereof, the Buyer
agrees to indemnify and hold the Sellers harmless from and with respect to any
and all Losses, related to or arising directly or indirectly out of any failure
or breach by the Buyer of any representation or warranty, covenant, obligation
or undertaking made by the Buyer in this Agreement (including the Schedules and
Exhibits hereto) or any other statement, certificate or other instrument
delivered pursuant hereto.
10.3. Claims.
(a) Notice. Any party seeking indemnification hereunder (the
"Indemnified Party") shall promptly notify the other party or parties hereto
from which such Indemnified Party is entitled to indemnification hereunder (the
"Indemnifying Party") of any action, suit, proceeding, demand or breach (a
"Claim") with respect to which the Indemnified Party claims indemnification
hereunder, provided that failure of the Indemnified Party to give such notice
shall not relieve the Indemnifying Party of its obligations under this Section
10 except to the extent, if at all, that such Indemnifying Party shall have been
prejudiced thereby.
(b) Third Party Claims.
(i) If any Claim relates to any action, suit, proceeding or demand instituted
against the Indemnified Party by a third party (a "Third Party Claim"), the
Indemnifying Party shall be entitled to participate in the defense of such Third
Party Claim after receipt of notice of such claim from the Indemnified Party.
Subject to clause (iv) hereof, within thirty (30) days after receipt of notice
of a particular matter from the Indemnified Party, the Indemnifying Party may
assume the defense of such Third Party Claim.
(ii) The Indemnified Party shall retain the right to employ its own counsel
and to participate in the defense of any Third Party Claim, the defense of which
has been assumed by the Indemnifying Party pursuant hereto, but the Indemnified
Party shall bear and shall be solely responsible for its own costs and expenses
in connection with such participation.
(iii) In the event that the Indemnifying Party, within the thirty (30) day
period provided for in Section 10.3(b)(i) hereof, does not so elect to defend a
Third Party Claim, the Indemnified Party will have the right (upon further
notice to the Indemnifying Party) to undertake the defense, compromise or
settlement of such Third Party Claim for the account of the Indemnifying Party;
provided, that the Indemnifying Party shall only be responsible for the amount
paid in respect of the defense, compromise or settlement of such Third Party
Claim if the Indemnifying Party is ultimately responsible therefor pursuant to
the provisions of Section 10.1 hereof.
(iv) The Indemnifying Party may not settle or compromise any Third Party
Claim over the objection of the Indemnified Party unless such settlement or
compromise fully and unconditionally releases the Indemnified Party from any
restriction, liability or obligation related to such Third Party Claim. If the
Indemnifying Party chooses to defend any such Third Party Claim, the Indemnified
Party shall make available to the Indemnifying Party any books, records or other
documents or personnel within its control that are necessary or appropriate for
such defense.
(v) The Indemnifying Party, the Indemnified Party and their respective
counsel shall cooperate in the defense, compromise or settlement of any Third
Party Claim.
10.4. Method and Manner of Paying Claims. In the event of any claims
under this Section 10, the claimant shall advise the party or parties who are
required to provide indemnification therefor in writing of the amount and
circumstances surrounding such claim. With respect to liquidated claims, if
within thirty (30) days the other party has not contested such claim in writing,
the other party will pay the full amount thereof within ten (10) days after the
expiration of such period. Any amount owed by an Indemnifying Party hereunder
with respect to any Claim may be set-off by the Indemnified Party against any
amounts owed by the Indemnified Party to any Indemnifying Party. The unpaid
balance of a Claim shall bear interest at a rate per annum equal to the rate
announced by BankBoston, N.A. (or its successor) as its "Base Rate" plus two
percent (2%) from the date notice thereof is given by the Indemnified Party to
the Indemnifying Party.
10.5. Limitations on Indemnification.
(a) The Sellers and the Parent on the one hand, and the Buyer
on the other hand, shall not be required to indemnify an Indemnified Party
hereunder except to the extent that the aggregate amount of Losses for which
such Indemnified Party is otherwise entitled to indemnification pursuant to this
Section 10 exceeds $500,000, whereupon the Indemnified Party shall be entitled
to be paid the excess of (i) the aggregate amount of all such Losses over (ii)
$500,000, subject to the limitations on maximum amount of recovery set forth in
Section 10.5(b) hereof; provided, that Losses (x) related to or arising directly
or indirectly out of any inaccuracies in any representation or warranty made by
the Sellers and the Parent in Sections 4.4, 4.5, 4.10, 4.13, 4.18, 4.24 or 4.26
hereof, (y) payable with respect to claims for indemnification made with respect
to Section 10.1(b) hereof or (z) payable with respect to claims for
indemnification under Section 10.1(a) with respect to any breach of any covenant
in this Agreement or in any other Transaction Document delivered pursuant hereto
(collectively, "Purchase Price Limitation Claims"), shall be indemnified in
their entirety by the Seller and the Parent and shall not be subject to the
limitations set forth in this Section 10.5(a).
(b) The aggregate Losses payable by the Sellers and the Parent
on the one hand, and the Buyer on the other hand, pursuant to this Section 10
with respect to all claims for indemnification other than Purchase Price
Limitation Claims shall not exceed $15,000,000. The aggregate Losses payable by
the Sellers and the Parent on the one hand, and the Buyer on the other hand,
pursuant to this Section 10 with respect to all claims for indemnification shall
not exceed the Purchase Price.
(c) No Indemnifying Party shall be liable for any Losses
pursuant to this Section 10 unless a written claim for indemnification in
accordance with Section 10.4 hereof is given by the Indemnified Party to the
Indemnifying Party with respect thereto on or before the date which is eighteen
(18) months after the Closing Date, except that this time limitation shall not
apply to any Losses related to or arising directly or indirectly out of any
Purchase Price Limitation Claims (other than any such claims arising out of any
inaccuracies in the representation and warranty set forth in Section 4.10
hereof, as to which the aforesaid eighteen (18) month period shall apply), as to
which in each case the applicable statute of limitations shall apply.
(d) After the consummation of the Closing, neither the Parent
or the Sellers on the one hand, nor the Buyer on the other hand, shall have any
liability to the other(s) or any of their respective Affiliates, arising out of
or in connection with this Agreement and the transactions contemplated hereby,
except pursuant to and in accordance with the terms and conditions of this
Section 10, or in the case of the fraud of any such party.
11. TERMINATION.
11.1. Termination. This Agreement may be terminated as follows:
(a) By mutual consent of the Buyer and the Parent at any time.
(b) By the Buyer giving written notice to the Seller if,
without fault on the Buyer's part, the Closing does not occur prior to December
31, 1999 (the "Termination Date").
(c) By the Buyer, if any of the conditions to the Buyer's
obligations contained in Section 7 hereof required to have been fulfilled (i)
are not fulfilled as of the Closing, or (ii) at any time prior to the Closing
become incapable of being fulfilled, and such failure has not been waived by the
Buyer or cured by the Parent; provided, however, that the right of the Buyer to
terminate this Agreement under this Section 11.1(c) shall not be available to
the Buyer if its failure to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the conditions to the Buyer's
obligations contained in Section 7 hereof to be fulfilled.
(d) By the Parent giving written notice to the Buyer if,
without fault on the Parent's or any Seller's part, the Closing does not occur
prior to the Termination Date.
(e) By the Parent, if any of the conditions to the Sellers'
obligations contained in Section 8 hereof required to have been fulfilled (i)
are not met as of the Closing, or (ii) at any time prior to the Closing become
incapable of being fulfilled, and such breach or failure has not been waived by
the Parent or cured by the Buyer; provided, however, that the right of the
Parent to terminate this Agreement under this Section 11.1(e) shall not be
available to the Parent if its or any Seller's failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the failure of the
conditions to the Sellers' obligations contained in Section 8 hereof to be
fulfilled.
11.2. Effect of Termination. Upon the termination of this Agreement,
the parties shall have such remedies available to them at law or in equity,
except as otherwise set forth in this Section 11.2; provided, however, that
neither the Sellers and the Parent on the one hand, nor the Buyer on the other
hand, shall be liable to the other(s) for any indirect, special, incidental,
consequential or punitive damages claimed by the other(s) resulting from any
such party's breach of its obligations, agreements, representations or
warranties hereunder, except in the case of the fraud of any such party(ies). In
the event of termination of this Agreement under any of the circumstances that
constitute a Break-Up Event (as defined in Section 11.3 hereof), the sole and
exclusive remedy of the Buyer for the breach or failure by the Seller or the
Parent giving rise to such Break-Up Event shall be as provided in Section 11.3
hereof.
11.3. Break-Up Fee. Promptly after the occurrence of a Break-Up Event
(as hereinafter defined), the Sellers and the Parent, jointly and severally,
shall pay immediately to an account designated by the Buyer, in immediately
available funds, the sum of $2,000,000 (the "Break-Up Fee"). As used herein, the
term "Break-Up Event" shall mean any sale, directly or indirectly, by any Seller
or the Parent of any of the Shares or any assets or business of any Seller, the
Parent or the Companies related in any way to the European Business (as defined
in Section 13 hereof), whether through a sale of assets, sale of stock, merger,
consolidation, business combination or otherwise, or the entering into by any
Seller, the Parent or any Company of any binding agreement to effectuate any of
the foregoing, to or with any Third Party Acquiror (as hereinafter defined),
during the period commencing as of the date of this Agreement and ending on the
date which is six (6) months after the date on which this Agreement is
terminated prior to the Closing as provided in Section 11.1 hereof (such period
being referred to herein as the "Break-Up Fee Period"); provided, however, that
notwithstanding the foregoing, if the Closing is not consummated solely because
the Buyer is unable to obtain the financing contemplated under Section 7.8
hereof prior to the Termination Date, or if this Agreement is terminated
pursuant to Section 11.1(e) hereof, then the Break-Up Fee Period shall terminate
as of the Termination Date. As used herein, the term "Third Party Acquiror"
shall mean any party who has, directly or indirectly, during the period
commencing as of May 17, 1999 and ending on the date on which this Agreement is
terminated prior to the Closing as provided in Section 11.1 hereof, (i) offered
to the Seller, the Parent or any Company, (ii) indicated to the Seller, the
Parent or any Company that it considered or is considering making an offer,
(iii) received an offer or other solicitation from the Seller, the Parent or any
Company to purchase, or (iv) requested any information relating to the potential
acquisition of, the Shares or any other assets or business of the Seller, the
Parent or the Companies related in any way to the European Business.
Notwithstanding the foregoing, the Buyer shall not be entitled to the Break-up
Fee if this Agreement has been terminated by the Seller or the Closing has not
been consummated on account of a breach of this Agreement by the Buyer.
12. GENERAL.
12.1. Survival of Representations and Warranties. The representations
and warranties of the parties hereto contained in this Agreement or otherwise
made in writing in connection with the transactions contemplated hereby (in each
case except as affected by the transactions contemplated by this Agreement)
shall be deemed material and, notwithstanding any investigation by the Buyer
(subject to the limitation set forth in Section 10.5(d) hereof), shall be deemed
to have been relied on by the Buyer and shall survive the Closing, and the
consummation of the transactions contemplated hereby. Each representation and
warranty made by the Sellers, the Parent or the Buyer in this Agreement shall
expire on the last day, if any, that Claims for breaches of such representation
or warranty may be made pursuant to Section 10.5 hereof, except that any such
representation or warranty that has been made the subject of a Claim prior to
such expiration date shall survive with respect to such Claim until the final
resolution of such Claim pursuant to Section 10 hereof.
12.2. Expenses.
(a) All transfer and sales taxes payable with respect to the
sale and conveyance of the Shares shall be paid by the particular Seller or
Sellers transferring such Shares, as the case may be.
(b) All expenses of the preparation, execution and
consummation of this Agreement and of the transactions contemplated hereby,
including, without limitation, attorneys', accountants' and outside advisors'
fees and disbursements, shall be borne by the party incurring such expenses;
provided, that upon consummation of the transactions contemplated hereby, the
Buyer shall pay to the Parent an amount, not to exceed $650,000, as
reimbursement to the Parent for the actual amount of fees paid to Dain Rauscher
Wessels, a division of Dain Rauscher Incorporated.
(c) On the date of the execution and delivery of this
Agreement, the Buyer has deposited the sum of $750,000 (the "Purchase Price
Deposit") in escrow with the Escrow Agent pursuant to the terms of an escrow
agreement, of even date herewith, among the Buyer, the Parent, the Sellers and
the Escrow Agent (the "Deposit Escrow Agreement"). Pursuant to the terms of the
Deposit Escrow Agreement, in the event that the Buyer is unable to obtain the
financing contemplated under Section 7.8 hereof and solely as a result thereof
is unable to consummate the Closing, and all other conditions to the Buyer's
obligation to consummate the Closing were otherwise satisfied (or could have
been satisfied in the usual and customary course) and the Parent and the Sellers
were ready, willing and able to so close, then promptly after the termination of
this Agreement, the Buyer shall forfeit to the Parent the Purchase Price
Deposit. If, however, the Closing is consummated, the Purchase Price Deposit
shall be applied to the Closing Purchase Price otherwise payable to the Sellers
hereunder.
(d) In the event that the Parent is unable to obtain the
approval of the Meeting Purpose from the Parent's stockholders and/or
bondholders and solely as a result thereof is unable to consummate the Closing,
and all other conditions to the Sellers' obligations to consummate the Closing
were otherwise satisfied (or could have been satisfied in the usual and
customary course) and the Buyer was ready, willing and able to so close, then
promptly after the termination of this Agreement, the Parent shall pay the Buyer
the fixed amount of $375,000 (which amount shall be independent of, and in
addition to, any amount owing to the Buyer under Section 11.3 hereof).
12.3. Notices. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by overnight courier, or sent by
written telecommunication, as follows:
If to any Seller or the Parent, to
Datapoint Corporation
717 Fifth Avenue, 15th Floor
New York, New York 10022
Attention: Gerald N. Agranoff, Esq.
Fax: (212) 750-9329
with a copy sent contemporaneously to:
Selig D. Sacks, Esq.
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue, 10th Floor
New York, New York 10022
Fax: (212) 326-0806
If to the Buyer, to:
Reboot Systems, Inc.
c/o Aim High Enterprises
600 Longwater Drive, Suite 204
Norwell, MA 02061
Attention: John White, President
Fax: (781) 635-1110
with a copy sent contemporaneously to:
Victor J. Paci, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Fax: (617) 951-8736
Any such notice shall be effective (a) if delivered personally, when
received, (b) if sent by overnight courier, when receipted for, (c) if mailed,
three (3) days after being mailed as described above, and (d) if sent by written
telecommunication, when dispatched.
12.4. Entire Agreement. This Agreement, together with the Exhibits,
Schedules and Disclosure Schedule, contains the entire understanding of the
parties, supersedes all prior agreements and understandings relating to the
subject matter hereof and shall not be amended except by a written instrument
hereafter signed by all of the parties hereto.
12.5. Governing Law. The validity and construction of this Agreement
shall be governed by the internal laws (and not the choice-of-law rules) of the
State of Delaware.
12.6. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
12.7. Assigns. This Agreement, together with the Exhibits, Schedules
and Disclosure Schedule, shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, successors and permitted assigns.
Neither this Agreement nor the obligations hereunder of the Buyer on the one
hand, or the Parent or any Seller on the other hand, shall be assignable or
transferable by any such party without the prior written consent of the Buyer,
in the case of any such assignment or transfer by the Parent or any Seller, or
the Parent, in the case of any such assignment or transfer by the Buyer;
provided, however, that nothing contained in this Section 12.7 shall prevent the
Buyer, without the consent of the Parent, (a) from transferring or assigning
this Agreement or its rights or obligations hereunder to another entity
controlling, under the control of, or under common control with, the Buyer or in
accordance with the sale of substantially all of the assets of the Buyer or (b)
from assigning all or part of its rights or obligations hereunder by way of
collateral assignment to any bank or financing institution providing financing
for the acquisition contemplated hereby, but no such transfer or assignment made
pursuant to clauses (a) or (b) shall relieve the Buyer of its obligation under
this Agreement.
12.8. Severability. In the event that any covenant, condition, or other
provision herein contained is held to be invalid, void, or illegal by any court
of competent jurisdiction, the same shall be deemed to be severable from the
remainder of this Agreement and shall in no way affect, impair, or invalidate
any other covenant, condition, or other provision contained herein.
12.9. Further Assurances. The parties agree to take such reasonable
steps and execute such other and further documents as may be necessary or
appropriate to cause the terms and conditions contained herein to be carried
into effect.
12.10. No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any Person other than the Parent, the
Sellers and the Buyer and their respective shareholders, any rights or remedies
under or by reason of this Agreement.
12.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
12.12. Satisfaction of Conditions Precedent. Each of the Parent, the
Sellers and the Buyer will use its respective best efforts to cause the
satisfaction of the conditions precedent contained in this Agreement; provided,
however, that nothing contained in this Section 12.12 shall obligate either
party hereto to waive any right or condition under this Agreement.
12.13. Public Statements or Releases. Each of the parties hereto agrees
that prior to the consummation of the Closing no party to this Agreement will
make, issue or release any public announcement, statement or acknowledgment of
the existence of, or reveal the status of, this Agreement or the transactions
provided for herein, without first obtaining the consent of the other party
hereto. Nothing contained in this Section 12.13 shall prevent either party from
making such disclosures as such party may consider necessary in order to obtain
financing for the transactions contemplated hereby or to satisfy such party's
legal or contractual obligations.
12.14. Business Records. After the Closing Date, (a) the Buyer, the
Sellers and the Parent shall cooperate with each other in the conduct of any
audit or other proceedings with respect to any Tax matters involving the
Companies, and (b) the Buyer shall retain or cause to be retained all books and
records relating to the Companies for any period ending on or before the Closing
Date until the expiration of the applicable Tax statute of limitations (giving
effect to any and all extensions and waivers). In addition, the Buyer
acknowledges that the Sellers may from time to time require access to or copies
of the business records of the Companies in connection with Tax or other
matters, and the Buyer agrees that upon reasonable prior notice from any Seller,
it will, during normal business hours, provide such Seller with either access to
or, at the Buyer's option, copies of such records for such purposes. The Sellers
agree to hold any confidential information so provided in confidence and to use
such information only for the purposes described above.
13. CERTAIN DEFINITIONS.
(a) As used herein the following terms not otherwise defined have the
following respective meanings:
"Affiliate": As to any Person, any other Person directly or indirectly
controlling, controlled by or under direct or indirect common control with, such
Person, and shall include (a) any other Person who is a director or beneficial
holder of at least 10% of any class of the then outstanding capital stock (or
other shares of beneficial interest) and Family Members of such Person, (b) any
other Person of which such Person or an Affiliate of the kind listed in clause
(a) above shall, directly or indirectly, either beneficially own at least 10% of
any class of the then outstanding capital stock (or other shares of beneficial
interest) or constitute at least a 10% equity participant, and (c) in the case
of a specified Person who is an individual, Family Members of such Person.
"European Business": The business in the Designated Industry carried on in
Europe by any of the Parent, the Sellers and the Companies.
"Family Member": As applied to any individual, any parent, spouse,
child, spouse of a child, brother or sister of the individual, and each trust
created for the benefit of one or more of such Persons, and each custodian of
property of one or more such Persons.
"Indebtedness": As applied to any Person, (a) all indebtedness of such
Person for borrowed money, whether current or funded, or secured or unsecured,
(b) all indebtedness of such Person for the deferred purchase price of property
or services represented by a note, (c) all indebtedness of such Person created
or arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (d) all indebtedness of such Person
secured by a purchase money mortgage or other lien to secure all or part of the
purchase price of property subject to such mortgage or lien, (e) all obligations
under leases which shall have been or must be, in accordance with generally
accepted accounting principles, recorded as capital leases in respect of which
such Person is liable as lessee, (f) any liability of such Person in respect of
banker's acceptances or letters of credit, (g) all interest, fees and other
expenses owed with respect to indebtedness described in the foregoing clause
(a), (b), (c), (d), (e) or (f) above, and (h) all indebtedness referred to in
clause (a), (b), (c), (d), (e), (f) or (g) above which is directly or indirectly
guaranteed by such Person or which such Person has agreed (contingently or
otherwise) to purchase or otherwise acquire or in respect of which it has
otherwise assured a creditor against loss.
"Intercompany Accounts": All intercompany accounts between any Seller
and/or the Parent, on the one hand, and any of the Companies, on the other hand.
"Knowledge of the Parent": The actual knowledge of Edelman, Thomas and
Agranoff, the executive officers of the Parent and/or any Seller, as the case
may be, and Messrs. Phillip P. Krumb and Patrick Dossey, or such knowledge as
would have been obtained had Thomas conducted a reasonable due diligence
investigation, but not including the knowledge of Management or any other
officers of any Company; provided, that for purposes hereof, Thomas shall be
deemed to have conducted a reasonable due diligence investigation if he engaged
in discussions with each member of Management regarding the Operational Reps and
Warranties, and reviewed the Disclosure Schedule relating to the Companies and
discussed same with the members of Management.
"Management": The individuals (other than Thomas) listed on Schedule D
hereto.
"Material Adverse Effect": A material adverse effect on the business,
results of operations or financial condition of all of the Companies taken as a
whole.
"Person": A corporation, an association, a partnership, an
organization, a business, an individual, a limited liability company, a
government or political subdivision thereof or a governmental agency.
"Subsidiary": With respect to any Person, any corporation a majority
(by number of votes) of the outstanding shares of any class or classes of which
shall at the time be owned by such Person or by a Subsidiary of such Person, if
the holders of the shares of such class or classes (a) are ordinarily, in the
absence of contingencies, entitled to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof, even
though the right so to vote has been suspended by the happening of such a
contingency, or (b) are at the time entitled, as such holders, to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, whether or not the right so to vote exists by
reason of the happening of a contingency.
"Tax": Any federal, state, local, foreign and other income, profits,
franchise, capital, withholding, unemployment insurance, social security,
occupational, production, severance, gross receipts, value added, sales, use,
excise, real and personal property, ad valorem, occupancy, transfer, employment,
disability, workers' compensation or other similar tax, duty or other
governmental charge (including all interest and penalties thereon and additions
thereto).
"Transaction Documents": This Agreement, the Indemnity Escrow Agreement,
the Deposit Escrow Agreement, the Name Change Certificates, the Datapoint
License and the IP License Agreement.
(b) All references in this Agreement to any legal term or concept
(including, without limitation, those with respect to any action, remedy, method
of judicial proceeding, document, statute, court official, governmental
authority or agency) shall in respect of any jurisdiction other than the United
State of America be construed as references to the term or concept which most
nearly corresponds to it in that jurisdiction.
(c) For purposes of Sections 4 and 10 hereof, as to any Company, each
entity set forth opposite the name of such Company under the heading "Seller" on
Schedule F hereto shall constitute and be deemed a "Seller" of such Company.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, and intending to be legally bound hereby, the
parties hereto have caused this Agreement to be duly executed and delivered as a
sealed instrument as of the date and year first above written.
BUYER:
REBOOT SYSTEMS, INC.
By: /s/John F White
Name: John F White
Title: President
SELLERS:
DATAPOINT INTERNATIONAL, INC.
By: /s/Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT INTERNATIONAL INVESTMENTS, INC.
By: /s/Asher B Edelman
Name: Asher B Edelman
Title: Director
INFOREX INTERNATIONAL, INC.
By: /s/Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT BEHEER B.V.
By:/s/ Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT HOLDINGS, LTD.
By: /s/Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT INTERNATIONAL HOLDINGS, INC.
By: /s/Asher B Edelman
Name: Asher B Edelman
Title: Director
PARENT:
DATAPOINT CORPORATION
By: /s/Asher B Edelman
Name: Asher B Edelman
Title: Chairman of the Board and
Chief Executive Officer
Schedule A
Sellers
Datapoint International, Inc.
Datapoint International Investments, Inc.
Inforex International, Inc.
Datapoint Beheer B.V.
Datapoint Holdings, Ltd.
Datapoint International Holdings, Inc.
Schedule B
Companies
Datapoint Belgium S.A.
Datapoint S.A. (France)
Datapoint Nederland B.V.
Datapoint Italia S.P.A.
Datapoint Iberica S.A. (Spain)
Datapoint Svenska AB (Sweden) (including Datapoint Norway)
Datapoint U.K. Ltd.
Schedule C
Ownership of Shares
Company Seller No. of Shares % Ownership
1. Datapoint Belgium S.A. Datapoint International
Investments, Inc.
Inforex International, Inc.
2. Datapoint Iberica S.A. Datapoint International
Investments, Inc.
Inforex International, Inc.
3. Datapoint Italia S.P.A. Datapoint International
Investments, Inc.
Inforex International, Inc.
4. Datapoint Nederland B.V. Datapoint Beheer B.V.
5. Datapoint S.A. (France) Datapoint International
Investments, Inc.
Inforex International, Inc.
6. Datapoint Svenska AB Datapoint International, Inc.
7. Datapoint UK Ltd. Datapoint Holdings, Ltd.
Pro Rata Shares
Party Pro Rata Share
1. Datapoint International, Inc. %
2. Datapoint International Investments, Inc. %
3. Inforex International, Inc. %
4. Datapoint Beheer B.V. %
5. Datapoint Holdings, Ltd. %
6. Datapoint Corporation %
TOTAL: 100%
Schedule D
Management
Schedule E
San Antonio Employees
Schedule F
Direct/Indirect Ownership of Companies
Company Seller
1. Datapoint Belgium S.A. Datapoint International
Investments, Inc.
Inforex International, Inc.
Datapoint International
Holdings, Inc.
2. Datapoint Iberica S.A. Datapoint International
Investments, Inc.
Inforex International, Inc.
Datapoint International
Holdings, Inc.
3. Datapoint Italia S.P.A. Datapoint International
Investments, Inc.
Inforex International, Inc.
Datapoint International
Holdings, Inc.
4. Datapoint Nederland B.V. Datapoint Beheer B.V.
Datapoint International
Investments, Inc.
Inforex International, Inc.
Datapoint International
Holdings, Inc.
5. Datapoint S.A. (France) Datapoint International
Investments, Inc.
Inforex International, Inc.
Datapoint International
Holdings, Inc.
6. Datapoint Svenska AB Datapoint International, Inc.
7. Datapoint UK Ltd. Datapoint Holdings, Ltd.
Datapoint International
Investments, Inc.
Inforex International, Inc.
Datapoint International
Holdings, Inc.
AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT, dated as of November 1,
1999 (the "Amendment"), by and among (i) REBOOT SYSTEMS, INC., a Delaware
corporation (the "Buyer"), (ii) the entities listed on Schedule A hereto
(collectively, the "Sellers" and individually, a "Seller"), and (iii) DATAPOINT
CORPORATION, a Delaware corporation and the direct or indirect corporate parent
of all of the Sellers (the "Parent").
WHEREAS, the Buyer, Sellers and Parent have previously entered into
that certain Stock Purchase Agreement, dated as of July 31, 1999 (the "Purchase
Agreement"); and
WHEREAS, as reflected in that certain letter, dated August 18, 1999,
from the Parent to the Buyer, [a copy of which is attached hereto as Appendix
2], several open issues remained unresolved at the time of the entering into the
Purchase Agreement and the parties hereto desire to resolve all such open issues
among the parties.
NOW, THEREFORE, in consideration of the mutual promises hereinafter set
forth and of other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto, intending to be legally
bound hereby, do hereby agree as follows:
1. Capitalized terms used and not defined herein shall have the
meanings ascribed to them in the Purchase Agreement.
2. The Purchase Agreement is hereby amended by inserting the following
paragraph immediately after Section 4(c) and prior to the paragraph which begins
"Accordingly, subject to the terms":
"(d) The information set forth on the Disclosure Schedules
relating to the Companies has been compiled by Management and
the process of compiling such information was supervised by
Thomas pursuant to the requests of the Buyer. The Buyer
acknowledges that neither the Parent nor Sellers have
performed an independent investigation with respect to the
information set forth on the Disclosure Schedules relating to
any of the Companies."
3. The Purchase Agreement is hereby amended by deleting Section 9.2 in its
entirety and replacing it with the
following:
"9.2 Non-Competition. Each of the Sellers and the
Parent acknowledges that the covenants and agreements in this
Section 9.2 are a condition precedent to the Buyer's
obligation to acquire the Shares from the Sellers under this
Agreement, and that the Buyer would not acquire the Shares but
for the agreements of the Sellers and the Parent with the
Buyer in this Section 9.2. Each of the Sellers, the Parent and
the Buyer acknowledges that from and after the Closing Date
the Buyer will sell products and services to customers located
in markets throughout Europe, North America and South America
(the "Prohibited Area"), and that any engagement by any
Seller, the Parent or any of their Subsidiaries or Affiliates
in the Designated Industry (as hereinafter defined) could
cause the Buyer and the Companies irreparable damage.
Accordingly, for a period from the Closing Date until the
fifth anniversary of the Closing Date, each of the Sellers and
the Parent shall not, and shall not permit any of their
Subsidiaries or Affiliates to, without the prior written
consent of the Buyer, (i) engage anywhere in the Prohibited
Area, directly or indirectly, alone or as a shareholder (other
than as a holder of less than 5% of the capital stock of any
publicly-traded corporation), partner, officer, director,
employee or consultant, in any business organization that is
engaged or becomes engaged in the business of selling or
providing (x) telephony, call-center or data processing
products or services, including, without limitation, telephone
switches and dialers, personal computers, servers, printers
and other peripheral hardware and software used in connection
therewith, or (y) business consulting services with respect to
the foregoing (the "Designated Industry"); provided, that the
Designated Industry shall not include the business of
providing internet or cybernet networking solutions,
including, without limitation, internal, external and hybrid
networking solutions, hardware, software and consulting
services related thereto, (ii) divert to any competitor of any
Company, the Buyer or any of their Affiliates or Subsidiaries
any customer of any Company, the Buyer or such Affiliates or
Subsidiaries, or (iii) solicit or encourage any officer,
employee or consultant of any Company, the Buyer or any of
their Affiliates or Subsidiaries to leave their employ for
employment by or with any Seller, the Parent or their
Subsidiaries or Affiliates, or any competitor of any Company
or any of the Buyer's or any Company's Affiliates or
Subsidiaries. If at any time the provisions of this Section
9.2 shall be determined to be invalid or unenforceable, by
reason of being vague or unreasonable as to area, duration or
scope of activity, this Section 9.2 shall be considered
divisible and shall become and be immediately amended to only
such area, duration and scope of activity as shall be
determined to be reasonable and enforceable by the court or
other body having jurisdiction over the matter; and the
Sellers and the Parent agree that this Section 9.2 as so
amended shall be valid and binding as though any invalid or
unenforceable provision had not been included herein.
Notwithstanding anything to the contrary set forth in this
Section 9.2, Edelman and his Affiliates shall not be bound or
restricted by the provisions of this Section 9.2 so long as
Edelman is not involved in any manner, directly or indirectly,
in any operational capacity with any Person which is engaged
in the Designated Industry in the Prohibited Area; it being
agreed that for purposes hereof, if Edelman serves as a
non-executive director, non-executive member of a committee of
the board of directors or non-executive chairman of any
Person, he shall not be deemed to be involved in any
operational capacity with such Person."
4. The Purchase Agreement is hereby amended by deleting Section 10.1(b) in
its entirety and replacing it with the following:
"(b) any acts or omissions by any Seller, the Parent or any
directors, officers, employees or agents of any Seller or the
Parent (but not of the Companies) within the Knowledge of the
Parent and not known by the Buyer or disclosed to the Buyer in
writing on or prior to the Closing Date, occurring on or prior
to the Closing Date which causes a Material Adverse Effect.
For purposes of this Section 10.1(b) disclosure to Thomas
shall be deemed to be disclosure to the Buyer and the
knowledge of Thomas is attributed to the Buyer."
5. The Purchase Agreement is hereby amended by adding the following Section
10.6 at the end of Section 10:
"10.6 Tax Indemnification. Notwithstanding anything
herein to the contrary, including, without limitation, the
representation and warranty set forth in Section 4.24 hereof,
provided that there was no knowledge of the Parent, the
parties hereto acknowledge and agree that after the Closing
neither the Parent nor the Sellers shall have any liability
with respect to any tax of any of the Companies prior to the
Closing."
6. The Purchase Agreement is hereby amended by deleting Section 12.2(c) in
its entirety and replacing it with the following:
"(c) On the date of the execution of the Amendment, the Buyer
has deposited the sum of $750,000 (the "Purchase Price
Deposit") in escrow with the Escrow Agent pursuant to the
terms of an escrow agreement, dated as of the date of the
Amendment, among the Buyer, the Parent, the Sellers and the
Escrow Agent (the "Deposit Escrow Agreement"). Pursuant to the
terms of the Deposit Escrow Agreement, in the event that the
Buyer is unable to obtain a Financing Commitment prior to the
Termination Date or if the Financing Commitment is obtained
prior to the Termination Date but the Buyer is unable to
consummate the Closing and the Parent terminates this
Agreement pursuant to Section 11.1 hereof then the Escrow
Agent shall promptly release the Purchase Price Deposit to the
Parent. In the event that (i) the Financing Commitment is
obtained prior to the Termination Date, (ii) the Buyer is
ready, willing and able to consummate the Closing, (iii) the
Parent or Sellers are unable or unwilling to consummate the
Closing, and (iv) the Buyer terminates this Agreement pursuant
to Section 11.1 hereof, then the Escrow Agent shall promptly
release the Purchase Price Deposit to the Buyer. If, however,
the Closing is consummated, the Purchase Price Deposit shall
be applied to the Closing Purchase Price otherwise payable to
the Sellers hereunder."
7. The Purchase Agreement is hereby amended as follows:
(a) the following definitions to Section 13(a) in alphabetical order:
"Agreement": This Stock Purchase Agreement, dated as
of July 31, 1999, by and among the Buyer, Sellers and
Parent as amended by Amendment No. 1 to Stock
Purchase Agreement, dated as of the date hereof, by
and among the Buyer, Sellers and Parent.
"Financing Commitment": A firm commitment letter,
from a financial institution reasonably acceptable to
the Parent and Sellers, in accordance with Section
7.8 hereof, subject only to normal and customary
closing conditions."; and
(b) deleting the definition of "Knowledge of the Parent" in Section 13(a)
and replacing it with the ------------------------- following:
"Knowledge of the Parent": The actual knowledge of Edelman, Agranoff,
Phillip P. Krumb and Patrick Dossey."
8. This Amendment may not be amended, modified or supplemented except
by a subsequent written agreement signed by the parties hereto.
9. This Amendment may be executed simultaneously in any number of
counterparts. Each counterpart shall be deemed to be an original, and all such
counterparts shall constitute one in the same instrument
10. This Amendment shall be governed by the internal laws (and not the
choice-of-law rules) of the State of Delaware.
11. Except for the terms, conditions and provisions modified by this
Amendment, the Purchase Agreement shall remain in full force and affect pursuant
to the terms thereof.
[Signature page follows, remainder of page is intentionally blank]
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto
have caused this Amendment to be duly executed and delivered as a sealed
instrument as of the date and year first above written.
BUYER:
REBOOT SYSTEMS, INC.
By:/s/John F White
Name: John F White
Title: President
SELLERS:
DATAPOINT INTERNATIONAL, INC.
By:/s/ Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT INTERNATIONAL
INVESTMENTS, INC.
By: /s/ Asher B Edelman
Name: Asher B Edelman
Title: Director
INFOREX INTERNATIONAL, INC.
By: /s/ Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT BEHEER B.V.
By: /s/ Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT HOLDINGS, LTD.
By: /s/ Asher B Edelman
Name: Asher B Edelman
Title: Director
DATAPOINT INTERNATIONAL
HOLDINGS, INC.
By: /s/ Asher B Edelman
Name: Asher B Edelman
Title: Director
PARENT:
DATAPOINT CORPORATION
By:/s/ Asher B Edelman
Name: Asher B Edelman
Title: Chairman of the Board and Chief Executive Officer
EXHIBIT H
BOND INTEREST PAYMENT
1. The Buyer agrees to provide to the Parent approximately $3.25 million
(the "total funding"), of which $750,000 is to be delivered by November 8, 1999.
The balance of $2.5 million is to be used for the sole purpose of funding the
Parent's obligation to pay its bondholders the interest payment due December 1,
1999.
2. The Parent agrees to delete Section 12.2(c) of the Stock Purchase
Agreement in its entirety.
3. The Parent and Buyer agree to use their reasonable best efforts to
complete the actions as follows:
Nov. 8, 1999 Datapoint to provide Reboot with draft Proxy. (reasonably
satisfactory to Buyer)
Nov. 8, 1999 Initial advance of $750,000 due to Parent from Buyer.
Nov. 15, 1999 Datapoint to file a preliminary Proxy with SEC. (must
include Fairness Opinion)
Dec. 1, 1999 $2.5 million from Buyer for Interest Payment.
Dec. 14, 1999 SEC questions/response due back to Datapoint.
Dec. 23, 1999 Datapoint response back to SEC.
Dec. 30, 1999 Datapoint to pay interest owed to Bondholders.
Jan. 14, 2000 Datapoint to mail Proxy/Consent solicitations to
Shareholders/Bondholders.
Feb. 1, 2000 Buyer to provide Parent with Buyers' Financing Commitment.
Feb. 15, 2000 Shareholder/Bondholder approval completed.
Mar. 15, 2000 Deal Closes.
4. If the Buyer provides the total funding to the Parent, the Parent agrees
not to file a voluntary bankruptcy petition before March 31, 2000.
5. If the Buyer provides the total funding to the Parent, the Parent agrees
to increase the breakup fee to $5.0 million.
6. Both Buyer and Seller acknowledge that it is the Buyer's Plan to secure
the total funding and other funds due to Buyer against one or more of the
following: a. Trade Accounts Receivables of Datapoint UK, Ltd., and/or b. Trade
Accounts Receivables of Datapoint Svenska AB, and/or c. Trade Accounts
Receivable of the other Companies, if needed.
7. If Buyer is unable to complete the transaction, due to the inability to
obtain financing, Buyer will pay Seller $750,000.
8. It is further agreed, by the Parent and the Buyer that, the termination
date of December 31, 1999 contained in the Agreement will be extended to March
31, 2000. If the December 1, 1999 funding is not completed by the Buyer, the
Agreement will terminate on December 1, 1999.
9. Attachment 1 outlines potential outcomes and how Buyer and Seller agree
to operate in each instance.
This Exhibit H will be added to the Stock Purchase Agreement dated July 31,
1999.
Attachment 1
to EXHIBIT H
Outcome A. If the transaction, as contemplated in the Stock Purchase
Agreement dated July 31, 1999, is completed as outlined in Paragraph 3 above,
The Parent agrees that the total funding provided by the Buyer,
approximately $3.25 million, will reduce the $49.5 million Base Purchase Price,
as defined in the Stock Purchase Agreement.
Outcome B. If the Parent is not able to secure the required approval of the
bondholders and shareholders by the date outlined in Paragraph 3 above,
The Buyer, to recover any funding provided to the Parent, at its option, will:
Exercise its security interest in, up to $3.625 million (plus Commitment
Fees) of one or more of the following:
a. Trade Accounts Receivables of Datapoint UK, Ltd., and/or
b. Trade Accounts Receivables of Datapoint Svenska AB, and/or
c. Trade Accounts Receivable of the other Companies, if needed.
Outcome C.
If the Buyer is unable to obtain a Financing Commitment by February 1, 2000,
1. The Buyer acknowledges that, of the total funding provided, $750,000
will be deducted as compensation to the Parent.
2. The Buyer, to recover any remaining funding provided, at its option,
will:
Exercise its security interest in, up to $2.5 million, of one or more of
the following:
a. Trade Accounts Receivables of Datapoint UK, Ltd., and/or
b. Trade Accounts Receivables of Datapoint Svenska AB, and/or
c. Trade Accounts Receivable of the other Companies, if needed.
EXHIBIT (10)(kk)
ASSET PURCHASE AGREEMENT
By and Among
DATAPOINT CORPORATION,
SF DIGITAL, LLC
and
JOHN ENGSTROM
and
JOHN ENGSTROM d/b/a SF DIGITAL
and COREBYTE(TM)
July 27, 1999
TABLE OF CONTENTS
[To come]
SCHEDULES
To Come
EXHIBITS
Exhibit A List of Acquired Assets
Exhibit B Corebyte Business Plan and Financial Projections
Exhibit C John Engstrom Employment Agreement
Exhibit D Form of Stock Option
Exhibit E1 Assignment of Copyright
Exhibit E2 Assignment of Corebyte Trademark
Exhibit E3 Executed Document Transferring Domain Name www.corebyte.com
Exhibit E4 Executed Document Transferring Domain Name www.sfd.com
Exhibit E5 Executed Document Transferring Domain Name www.nyemail.com
ASSET PURCHASE AGREEMENT
AGREEMENT dated as of July 27, 1999 between Datapoint Corporation,
a Delaware corporation (the "Purchaser") and SF Digital, LLC, ("SFDLLC") John
Engstom and John Engstrom d/b/a SF Digital and Corebyte(TM) ("Engstrom")
(collectively referred to as, "Sellers").
WHEREAS, this Agreement contemplates a transaction in which the
Purchaser will purchase substantially all of the Intellectual Property and
attendant assets of the Sellers in connection with the Corebyte(TM) software
communications property and business, in return for stock options, a guaranteed
employment contract and a commitment to the Business Plan as submitted by
Sellers.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth
herein, Purchaser and the Sellers agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The Following terms as used herein, have the following
meanings:
"Acquired Assets" means all right, title, and interest in and to all of the
Corebyte(TM) communications and networking software product family and computer
related consulting business of the Sellers, including all of their (a) tangible
personal property (such as inventories of supplies, packaging goods, and
finished goods, equipment, manufactured and purchased parts, machinery, goods in
process, office furniture and tools) ("Personal Property") (b) agreements,
contracts, indentures, mortgages, instruments, Security Interests, guaranties,
other similar arrangements, and rights thereunder, (c) franchises, approvals,
permits, licenses, orders, registrations, certificates, variances, exemptions,
and similar rights obtained from governments and governmental agencies (the
"Permits") (d) Intellectual Property, goodwill associated therewith, licenses
and sublicenses granted and obtained with respect thereto, and rights
thereunder, remedies against infringements thereof, and rights to protection of
interests therein under the laws of all jurisdictions, (e) leases and subleases,
held for business purposes and rights thereunder, excluding any leaseholds held
for personal reasons (f) prepayments, prepaid expenses, and deferred items,
claims, deposits, refunds, causes of action, chooses in action, rights of
recovery, rights of set off, and rights of recoupment (including any such item
relating to the payment of Taxes), (g) accounts, notes, and other receivables,
(h) books, records, ledgers, files, documents, correspondence, lists, drawings,
and specifications, creative materials, advertising and promotional materials,
studies, reports, and other printed or written materials, and (k) Cash;
provided, however, that any item not listed as an Acquired Asset in Exhibit A
shall remain the sole property of Sellers. "Affiliate" has the meaning set forth
in Rule 12b-2 of the regulations promulgated under the Securities Exchange Act.
"Assumed Liabilities" means (a) Research and Development Expenses as set forth
in Article 2, herein. (b) all obligations of the Sellers under the agreements,
contracts, leases, licenses, and other arrangements referred to in the
definition of Acquired Assets, and are set forth in Schedule 1.2 of this
Agreement to furnish goods, services, and other non-Cash benefits to another
party after the Closing and (c) all other Liabilities and obligations of the
Sellers set forth in Schedule 1.3 of this Agreement; provided, however, that the
Assumed Liabilities shall not include (i) any Liability of the Sellers for
unpaid Taxes or for income, transfer, sales, use, and other Taxes arising in
connection with the consummation of the transactions contemplated hereby, (ii)
any obligation of the Sellers to indemnify any Person by reason of the fact that
such Person was a Manager, officer, employee, or agent of the Sellers or was
serving at the request of any such entity as a partner, trustee, director,
officer, manager, employee, or agent of another entity (whether such
indemnification is for judgments, damages, penalties, fines, costs, amounts paid
in settlement, losses, expenses, or otherwise and whether such indemnification
is pursuant to any statute, charter document, bylaw, agreement, or otherwise),
(iii) all Liabilities and obligations of the Sellers to any former or present
Employees or independent contractors, whether or not for salary, profit share or
benefits unless such Liabilities are expressly set forth in Schedules 1.1 ,1.2
or 1.3 (iv) all Liabilities and obligations relating to the Excluded Assets
(including accounts payable and accrued expenses), (v) all liabilities and
obligations relating to personal indebtedness or personal agreements, contracts,
leases, licenses, and other personal arrangements of Engstrom, (vi) any
Liability of the Sellers for costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, (vii) any Liability of the
Sellers in connection with the Futureshare Litigation as set forth on Schedule
4.8 or (viii) any obligation of the Sellers under this Agreement.
"Business Plan" means the document appended to this Agreement as Exhibit B,
describing the Corebyte(TM) software and marketing plans, inclusive of the
financial projections. (the "Financial Projections").
"Cash" means cash and cash equivalents (including marketable securities and
short term investments) calculated in accordance with GAAP applied on a basis
consistent with the preparation of the Financial Projections.
"Closing" means the consummation of transaction contemplated by this Agreement.
"Closing Date" means the date of the Closing.
"Corebyte(TM)" means the communications and networking software product family
described in the Business Plan.
"Corebyte, Inc." means the new Subsidiary of Purchaser, in which the Acquired
Assets and Assumed Liabilities shall be transferred.
"Disclosure Schedule" means the Schedule attached to this Agreement.
"Employment Agreement" means the employment agreement entered into between
Engstrom and Purchaser concurrently with this Agreement and attached as Exhibit
C.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan) , (d) Employee Welfare Benefit Plan, or (e) any bonus,
incentive, severance, stock option, stock purchase, short-term disability plan
or other material fringe benefit plan, program or arrangement, including
policies concerning holidays, vacations and salary continuation during short
absences for illness or otherwise.
"Environmental Laws" means all applicable federal, state and local statutes,
rules, regulations, ordinances, orders, decrees and common law relating in any
manner to contamination, pollution or protection of the environment, including
without limitation the Comprehensive Environmental Response, Compensation and
Liability Act, the Solid Waste Disposal Act, the Clean Air Act, the Clean Water
Act, the Toxic Substances Control Act, the Occupational Safety and Health Act,
the Emergency Planning and Community-Right-to-Know Act, the Safe Drinking Water
Act, all as amended, and similar state laws.
"Excluded Assets" are all of Sellers' assets that are not specifically
listed as Acquired Assets.
"Financial Projections" mean the Financial Projections as of the Closing Date,
included in the Business Plan, inclusive of Revenues and Expenses and the budget
for the final research and development and launch of the Corebyte(TM) product
family (the "Budget").
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Hazardous Materials" means all hazardous or toxic substances, wastes, materials
or chemicals, petroleum (including crude oil or any fraction thereof) and
petroleum products, solid waste, special waste, friable asbestos and
asbestos-containing materials, pollutants, contaminants and all other materials,
and substances regulated pursuant to, or that could reasonably be expected to
provide the basis of liability under, any Environmental Law.
"Indemnified Party" has the meaning set forth in ss.9.4 herein.
"Indemnifying Party" has the meaning set forth in ss.9.4 herein.
"Intellectual Property" means (a) all trade secrets and confidential business
information (including customer and supplier lists, ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
pricing and cost information, and business and marketing plans and proposals),
(b) all trademarks, service marks, trade dress, logos, trade names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill associated therewith, and all applications,
registrations, and renewals in connection therewith, (c) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (d)
all copyrightable works, all copyrights, and all applications, registrations,
and renewals in connection therewith, (e) all mask works and all applications,
registrations, and renewals in connection therewith, all computer software
(including data and related documentation), (f) all computer software in object
or source code, (g) all other proprietary rights, (h) all proprietary material
and protectable material owned by third parties that is used by the Sellers
pursuant to license, sublicense, agreement, or permission and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Liability" means any liability (whether known or unknown, whether assessed or
unassessed, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Material Adverse Effect" means any adverse change, circumstance or effect that,
individually or in the aggregate with all other adverse changes, circumstances
and effects, has had or will have a material adverse effect on the business,
financial condition, prospects, properties or results of operations of the
Sellers taken as a whole.
"Permits" has the meaning set forth in the definition of Acquired Assets.
"Person" means an individual, a partnership, a corporation, an association, a
joint stock company, a limited liability company or partnership, a trust, a
joint venture, an unincorporated organization, or a governmental entity ( or any
department, agency, or political subdivision thereof).
"Personal Property" has the meaning set forth in the definition of Acquired
Assets.
"Proprietary Information" means every trade secret, know-how, process,
discovery, development, design, technique, customer and supplier list,
promotional idea, marketing and purchasing strategy, invention, process,
confidential data and or other information regarding the business of the Sellers
as set forth in the Business Plan.
"Purchase Price" has the meaning set forth in ss.2.4 below.
"Research and Development Expenses" has the meaning set forth in Article 2.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Subsidiary" means any corporation with respect to which a specified Person (or
a Subsidiary thereof) owns a majority of the common stock or has the power to
vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Seller" has the meaning set forth in the preface above.
"Security Interest", means any lien, pledge, charge, or other security interest.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profit, environmental (including taxes under Code Sec. 59A), customs,
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including and interest, penalty,
or addition thereof whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss.9.4, herein.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale of Assets. On and subject to the terms and conditions of
this Agreement, the Purchaser agrees to purchase from the Sellers, and the
Sellers agree to sell, transfer, convey, and deliver to the Purchaser, all of
the Acquired Assets at the Closing free and clear of any Security Interests for
the consideration with respect to the Acquired Assets specified below in this
Article 2.
2.2 Assumption of Liabilities. On and subject to the terms and conditions of
this Agreement, the Purchaser agrees to assume and become responsible for all of
the Assumed Liabilities at the closing. The Purchaser will not assume or have
any responsibility, however, with respect to any other obligation or Liability
of the Sellers not included within the definition of Assumed Liabilities.
2.3 New Subsidiary. Purchaser shall form a Subsidiary named Corebyte, Inc.
and shall transfer all of the Acquired Assets and Assumed Liabilities into the
Subsidiary.
2.4 Purchase Price. The Purchaser agrees to pay to the Sellers at the
Closing as follows:
(a) Purchaser will grant to Engstrom or Person(s) designated by
him in writing, one million stock options to purchase common
stock of Purchaser at the price of $1.00 per share. The stock
option shall be in the form set forth in Exhibit D. All stock
options delivered in connection with the Closing shall be
subject to the applicable legal restrictions, including but
not limited to Section 144 of the Securities Act.
(b) On the year anniversary of the Closing, provided that Engstrom
remains in the full time employment of Purchaser or a
Subsidiary of Purchaser, Purchaser will grant to John Engstrom
or Person(s) designated by him in writing, an additional one
million additional stock options to purchase common stock of
Purchaser at twenty percent (20%) less than closing market
price on the date of issue (the anniversary date of the
Closing).
All stock options to be granted to Engstrom or Person(s)
designated by him in writing, pursuant to subsection (a) and
subsection (b) of Article 2.4 shall be held in escrow, with
Purchaser's counsel until the pending litigation entitled
Engstrom v. Futureshare.com, LLC in the United States District
Court for the Southern District of New York (hereinafter
"Engstrom v. Futureshare")has been fully and finally decided,
whether by judgement and an exhaustion of all appeals, or by
settlement. In the event that any final judgement in Engstrom
v. Futureshare awards any ownership of the Intellectual
Property or Corebyte products to any entity or individual
other than the Sellers, all stock options granted pursuant to
this Article shall immediately expire and shall revert to sole
ownership by the Purchaser.
(c) The above referenced stock option grants shall immediately vest upon
issue and shall be valid for a term of five (5) years from the date of issue. In
the event that Engstrom's full time employment terminates with Purchaser or a
subsidiary of Purchaser, the options shall expire one year following the
termination of the full time employment, unless Engstrom terminates his
employment without good reason, in which event the options shall expire six
months following the termination of his employment. Any stock options issued to
Person(s) other than Engstrom, in connection with the Closing, shall terminate
six months following the termination of Engstrom's full time employment. All
stock options issued to employees of the new subsidiary, Corebyte, Inc. as
incentive compensation shall be subject to the employee stock option plan.
(d) On the Closing Date, Purchaser shall deliver to Engstrom,
certificates representing an equity interest in the Corebyte
Inc. Subsidiary equal to twenty percent (20%) of the then
authorized shares. An additional five percent (5%) shall be
transferred to Engstrom upon the occurrence of a corporate
event (sale of Purchaser or Corebyte, Inc. IPO of Corebyte,
Inc. or any other event materially impacting the equity
structure of Corebyte, Inc.). All stock delivered in
connection with the Closing shall be subject to the applicable
legal restrictions, including but not limited to Section 144
of the Securities Act.
All stock certificates to be delivered to Engstrom or
Person(s) designated by him in writing, pursuant to this
subsection (d) of this Article 2.4 shall be held in escrow,
with Purchaser's counsel until the litigation entitled
Engstrom v. Futureshare, has been fully and finally decided,
whether by judgement and an exhaustion of all appeals, or by
settlement. In the event that any final judgement Engstrom v.
Futureshare awards any percentage of the Intellectual Property
or Corebyte products to any entity or person other than the
Sellers, all stock certificates delivered pursuant to this
Article shall immediately revert to the sole ownership by the
Purchaser.
(e) Six months following the Closing, provided that Engstrom
remains in the full time employment of Purchaser or a
Subsidiary of Purchaser, Purchaser shall pay to Seller $75,000
representing certain expenses incurred by Seller in the
development of the Intellectual Property ("Research and
Development Expenses"). In no event shall Purchaser be liable
to any creditor of Seller for payment of any past debts or
obligations incurred in connection with the development of the
Intellectual Property prior to the date of the Closing.
In the event that, six months following closing, the
litigation entitled Engstrom v. Futureshare, has not been
fully and finally decided, whether by judgement and an
exhaustion of all appeals, or by settlement, any monies to be
paid to Seller pursuant to this subsection (e) shall be held
in escrow, with Purchaser's counsel until a final
determination of the litigation. In the event that the
decision Engstrom v. Futureshare awards any percentage of the
Intellectual Property or Corebyte products to any entity or
person other than the Sellers, Purchaser shall by fully and
finally released from any obligation to pay any monies
representing Research and Development Expenses to Seller.
2.5 Closing. The Closing shall be held at the New York offices of Purchaser, 717
Fifth Avenue, 15th floor, New York, New York 10022, or such other place as the
parties hereto shall agree at 12:00 on July 27, 1999, or at such other time and
place as the Purchaser and Sellers may agree. At the Closing,
(a) Purchaser shall pay the Purchase Price due pursuant to ss.2.4.
(b) Sellers shall deliver to the Purchaser the Intellectual
Property and asset transfer documents in the Forms attached
hereto as Exhibit E1-E5 and.
(c) Sellers shall deliver the appropriate waivers.
(d) Without prejudice to Purchaser's rights set forth herein,
Sellers shall deliver to Purchaser, revised Disclosure
Schedules updating the information shown thereon.
(e) Engstrom shall execute the Employment Agreement.
(f) Sellers shall deliver to Purchaser one reproducible version of
the source code for the entire Corebyte(TM) software product
family.
(g) Purchaser and Sellers shall also execute and deliver all such
instruments, documents and certificates as may be reasonably
requested by the other party that are necessary, appropriate
and desirable for the consummation of the transactions
contemplated by this Agreement.
2.6 Allocation. The purchase price shall be allocated by Seller as follows: 1/2
to the purchase of the business name and goodwill, and 1/2 to the purchase of
the intangible intellectual property.
ARTICLE III
COREBYTE, INC.
3.1 Certificate of Incorporation. Purchaser shall incorporate Corebyte, Inc. and
shall own eighty percent (80%) of the authorized and outstanding shares at
inception.
3.2 Directors. Engstrom shall be one of the initial directors of Corebyte,
Inc.
3.3 By-Laws. The Board of Directors shall adopt the By-laws of Corebyte,
Inc.
3.4 Officers. Engstrom shall be the initial President of Corebyte. Additional
officers shall be subject to the approval of the Chairman of the Board.
3.5
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Sellers, jointly and severally, hereby represent and warrant to Purchaser
that the statements contained in this Article IV are correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Article IV), except as set forth in
the Disclosure Schedule accompanying this Agreement. The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Article IV.
4.1 Organization and Qualification:
(a) SFDLLC is a limited liability company, duly organized, validly
existing, under the laws of the jurisdiction of its organization.
ss.4.1(a) of the Disclosure Schedule accurately sets forth the
authorized and outstanding Members and Managers of SFDLLC and their
respective membership interests. There are no other outstanding equity
interests in SFDLLC. There are no outstanding or authorized options,
warrants, purchase rights, subscription rights, exchange rights, or
other contracts or commitments that require the SFDLLC to issue, sell,
or otherwise cause to become outstanding any of its capital membership
interests. SFDLLC has heretofore made available to Purchaser a complete
and correct copy of the certificate of organization and the By-laws or
comparable organizational documents, each as amended as of the date
hereof, of SFDLLC.
(b) John Engstrom individually and d/b/a/ SF Digital is authorized to do
business in New York State and any other state in which it does
business. ss.4.1(b) of the Disclosure Schedule lists any other Person
claiming an ownership interest or right to an ownership interest in the
business of John Engstrom individually and d/b/a/ SF Digital.
(c) There are no Subsidiaries of any of the Sellers and none of the
Sellers controls directly or indirectly or has any direct or indirect
equity participation in any corporation, partnership, trust or other
business association which is not a Subsidiary of the Sellers, except
as set forth in ss.4.1(c) of the Disclosure Schedule
4.2 Authorization of Transaction. Collectively, the Sellers have full power and
authority (including full corporate power and authority) to execute and deliver
this Agreement and to perform its obligations hereunder. Without limiting the
generality of the foregoing, any and all managers, executives or members of
SFDLLC, and any other executive of Engstrom agree to the performance of this
Agreement by the Sellers. This Agreement constitutes the valid and legally
binding obligation of the Sellers, enforceable in accordance with its terms and
conditions.
4.3 Noncontravention. Neither the execution and the delivery of this Agreement,
nor the consummation of the transactions contemplated hereby (including the
assignments and assumptions referred to in Article II above and the sale of the
Excluded Assets) will, (a) violate any Constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction of
any government, governmental agency, or court to which the Sellers are subject
or any provision of the organizational agreements of any of the Sellers or (b)
conflict with, result in a breach of, constitute a violation of, constitute a
default under, result in the acceleration of, or result in any loss of any
material benefit, or the creation of any Lien on any of the property or assets
of the Sellers, create in any party the right to accelerate, terminate, amend,
modify, or cancel, or require any notice under any agreement, contract, lease,
license, instrument, or other arrangement to which any of the Sellers are a
party or by which it is bound or to which any of its assets is subject (or
result in the imposition of any Security Interest upon any of its assets).
Except as set forth on ss. 4.3 of the Disclosure Schedule, the delivery or
performance of this Agreement by the Sellers, the consummation by the Sellers
of the transactions contemplated hereby or the compliance by the Sellers with
any of the provisions hereof will not require any consent, waiver, approval,
authorization or permit of, or registration or filing with or notification to
any government or subdivision thereof, domestic, foreign or supranational or
any administrative, governmental or regulatory authority, agency, commission,
tribunal or body, domestic, foreign or supranational, (including the
assignments and assumptions referred to in Article II above).
4.4 Brokers' Fees. Except for any legal fees payable by the Sellers, and the fee
payable by Sellers after the Closing to Chris Bren in connection with the
transactions contemplated by this Agreement, the Sellers have no Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transaction contemplated by this Agreement.
4.5 Title to Assets. Except as claimed by Futureshare.com LLC, the Sellers have
good and marketable title to, or a valid leasehold interest in, or valid and
current licenses to use and distribute the properties, assets and Intellectual
Property used by them, located on their premises, or shown in the Business Plan
and Financial Projections, or acquired after the date thereof, free and clear of
all Security Interests. Without limiting the generality of the foregoing, the
Sellers has good and marketable title to all of the Acquired Assets, free and
clear of any Security Interest or restriction on transfer.
4.6 Financial Projections and Budget. The Business Plan the Financial
Projections and Budget stating the good faith estimated of launching the
Corebyte(TM) software and communications product and revenues expected to be
earned during the time period covered by the Financial Projections. The
estimations contained therein are accurate as of the Closing Date.
4.7 Taxes. The Sellers have (a) filed all Tax Returns which they are required to
file under applicable laws and regulations (including statements of estimated
Taxes owed), and (b) paid all Taxes which have become due and payable, including
all withholding taxes. All such Tax returns were correct and complete in all
respects. None of the Sellers are currently a beneficiary of any extension of
time within which to file a tax return. No deficiencies for any Tax are
currently assessed against the Sellers and no Tax Returns of any of the Sellers
have ever been audited, and, to the knowledge of the Sellers, there is no such
audit pending or contemplated. The Sellers have not granted any waiver of any
statute of limitation with respect to, or any extension for a period of
assessment of, any Tax, nor has any such waiver or request been made to the
Sellers by any Federal, state, local or foreign taxing authority, outstanding
against the assets, properties or business of the Sellers. There are no Security
Interests on any of the assets of any of the Sellers that arose in connection
with any failure (or alleged failure) to pay any tax. There is no pending
dispute with any authority concerning any past, present or future Taxes. Sellers
have delivered to Purchaser correct and complete copies of all federal and state
Income Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by any of the Sellers since December 31, 1989.
4.8 Undisclosed Liabilities and Litigation. (a) None of the Sellers has any
Liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for certain Liabilities
arising in the course of the development of the software, and listed on
Disclosure Schedule ss.4.8 (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law). (b) Except as set forth in
Disclosure Schedule ss.4.8 there are no suits, claims, actions, proceedings,
including, without limitation, arbitration proceedings or alternative dispute
resolution proceedings, or investigations pending or, to the knowledge of the
Sellers, threatened against the Sellers or which questions or challenges the
validity of this Agreement or the transactions contemplated hereby.
4.9 Legal-Compliance. Each of the Sellers, and their respective predecessors and
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof) , and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
4.10 Changes. Since January 1, 1999, except as otherwise disclosed in Disclosure
Schedule ss.4.10:
(a) there has been no event, effect or change (including the incurrence
of any liabilities or obligations of any nature whether or not accrued,
contingent or otherwise) having a Material Adverse Effect on the Sellers.
(b) none of the Sellers has adopted any amendment to its Certificate of
Incorporation or By-laws;
(c) none the Sellers has, reissued, pledged or sold, or authorized the
issuance, reissuance, pledge or sale of (i) additional equity of any class, or
securities convertible into, exchangeable for or evidencing the right to
substitute for, equity of any class, or any rights, warrants, options, calls,
commitments or any other agreements of any character, to purchase or acquire any
capital stock or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for, equity.
(d) none the Sellers has entered into any employment, severance or
similar agreement with any employee of the Sellers which does not by its terms
terminate, or cannot be terminated or satisfied by Purchaser without premium or
penalty, prior to or at the Closing;
(e) none the Sellers has made any loans to any of the Sellers, managers,
officers or directors;
4.11 Real Property. Disclosure Schedule ss.4.11 contains descriptions of all of
the Sellers ownership interests, leasehold interests, easements, licenses,
rights of access, and rights-of-way in all real property which are owned or
leased by the Sellers, and are which included in the definition of Acquired
Assets, which are used in the operation of the Acquired Assets. (the "Real
Property") (including name of lessor, expiration date and monthly rent). Each of
the leases in connection with the Real Property is in full force and effect.
Except as set forth on Disclosure Schedule ss.4.11, there are no parties in
possession of all or any portion of the Real Property other than the Sellers,
whether as lessees, tenants at will, trespassers or otherwise. No zoning,
building or other federal, state or municipal law, ordinance, regulation or
restriction is violated by the continued maintenance, operation or use of the
Real Property or any tract or portion thereof or interest therein in its present
manner. The current use of the Real Property and all parts thereof as aforesaid
does not violate any restrictive covenants of record affecting the Real
Property. All necessary licenses, permits and authorizations required by any
governmental authority with respect to the Real Property have been obtained,
have been validly issued and are in full force and effect. Except as otherwise
disclosed on Disclosure Schedule ss.4.11, none of the Company, any Subsidiary or
any other party is in default under any lease or other instrument of conveyance.
All leasehold interests (including the improvements thereon) are available for
immediate use in the conduct and operation of the business of the Sellers.
4.12 Title to and Condition of Personal Property. Disclosure Schedule ss.4.12
hereto contains a description of the items of Personal Property which comprise
all Personal Property used in connection with the business of the Sellers or
which permits the operation of the business of the Sellers as now being
conducted. Sellers have good title to all Personal Property and none of the
Personal Property is subject to any security interest, mortgage, pledge,
conditional sales agreement or other lien or encumbrance, except for liens which
shall be discharged or removed by the Sellers prior to or at Closing. None of
the Sellers, and to the Sellers' knowledge no other party is, in material
default under any of the leases, licenses and other agreements relating to the
Personal Property. Except as otherwise disclosed in Disclosure Schedule ss.4.12
hereto, the Personal Property is in good operating condition and repair
(ordinary wear and tear excepted), permits the operation of the business of the
Sellers as currently conducted without any immediate need for replacement and is
available for immediate use in the business of the Sellers. The term "Personal
Property" means all of the machinery, equipment, computer programs, computer
software, tools, motor vehicles, furniture, leasehold improvements, office
equipment, supplies, plant, spare parts and other tangible or intangible
personal property which are owned or leased by the Sellers.
4.13. Intellectual Property.
(a) Disclosure Scheduless.4.13(a) contains a true and complete list of all
Intellectual Property owned or licensed by the Sellers including but not limited
to: letters patent, patent applications, trade names, trademark and service mark
registrations and applications, copyrights, copyright registrations and
applications, licenses in and/or rights to the foregoing, both domestic and
foreign, claimed by the Sellers in its business, whether registered or not.
Disclosure Schedule ss.4.13(a), lists each geographic location in which the
Intellectual Property has been filed and each geographic location where such
Intellectual Property is used is intended to be used. In each case to the extent
such Intellectual Property is used or intended to be used in such geographic
locations, the Intellectual Property has been adequately protected by the
Sellers to the greatest extent provided by law in each geographic location. The
Sellers have taken all reasonable security measures to protect the secrecy,
confidentiality and value of all Intellectual Property and Proprietary
Information.
(b) Except as described in Disclosure Schedule ss.4.13(b), the
Sellers own or have the right to use pursuant to license,
sublicense, agreement, or permission to use all Intellectual
Property necessary, required or desirable for or incident to
the design, development, manufacture, operation, distribution
sale and use of all products and services sold or rendered or
proposed to be sold or rendered by the Sellers in the Business
Plan, free and clear of any right, equity or claim of others.
(c) Disclosure Schedule ss.4.13(c) identifies each item of
Intellectual Property that any third party owns and that any
of the Sellers use pursuant to license, sublicense, agreement,
or permission in the course of its business as described in
the Business Plan and in connection with the Corebyte(TM)
product family. The Sellers has delivered to the Purchaser
correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date) . With
respect to each such item of used Intellectual Property
required to be identified in Disclosure Schedule ss.4.13(c):
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable, and in full force and effect on
identical terms following the consummation of the
transactions contemplated hereby (including the
assignments and assumptions referred to in Article II
above);
(iii) no party to the license, sublicense, agreement,
or permission is in breach or default, and no event
has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or permission has
repudiated any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in
subsections 4.13(c)(i) through 4.13(c)(iv) above are
true and correct with respect to the underlying
license;
(vi) the underlying item of Intellectual Property is
not subject to any outstanding injunction, judgment,
order, decree, ruling, or charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is
pending or threatened which challenges the legality,
validity, or enforceability of the underlying item of
Intellectual Property; and
(viii) none of the Sellers has granted any sublicense
or similar right with respect to the license,
sublicense, agreement, or permission.
(d) Each item of Intellectual Property owned or used by any of the
immediately prior to the Closing hereunder will be owned by
the Purchaser or its Subsidiary on identical terms and
conditions immediately subsequent to the Closing hereunder.
(e) Except as described in Disclosure Schedule ss.4.13(e), (i)
none of the Sellers has sold, transferred, assigned, licensed
or subjected to any Lien, any Intellectual Property or
Proprietary Information or any interest therein, and (ii) none
of the Sellers are obligated or under any liability whatever
to make any payments by way of royalties, fees or otherwise to
any owner or licensor of, or other claimant to, any
Intellectual Property or Proprietary Information.
(f) Except for the claims made by Futureshare, LLC, to the best knowledge
of the Sellers, there is no unauthorized or infringing use of or
misappropriation with respect to, any of the Intellectual Property or
Proprietary Information. To the best knowledge of the Sellers, neither the
Intellectual Property nor the Proprietary Information infringes upon or
misappropriates the rights of any third party. None of the Sellers has received
from any person or entity, any notice, charge, claim or assertion that the any
of the Sellers' use of any of the Intellectual Property or Proprietary
Information constitutes infringement, misappropriation or act of unfair
competition; and has not, within any time period as to which liability of
another person or entity is not barred by statute, sent or otherwise
communicated to such other person or entity any notice, charge claim or other
assertion of, or has knowledge of any present or threatened infringement of the
Intellectual Property or Proprietary Information by such other person or entity,
or misappropriation of any Intellectual Property or Proprietary Information by
such other person or entity or any acts of unfair competition by such other
person or entity. The Sellers have the absolute right to bring actions for the
infringement of the Intellectual Property or Proprietary Information. There is
no claim or demand of any person or entity pertaining to, or any action that is
pending or, to the Sellers' knowledge, threatened, which challenges the rights
of the Sellers in respect of any Intellectual Property or any Proprietary
Information.
(h) A list of the beta-testers for the Corebyte products is attached to
Disclosure Schedule 4.13 (g).
(i) Seller warrants and represents that the Corebyte software is
an original creation which was initially affixed to a
permanent medium as of July, 1996.
4.14 Contracts.
(a) Disclosure Scheduless.4.14(a) hereto contains a list and description of
all agreements, written or oral (including any amendments or modifications
thereto) to which any of the Sellers are or have been a party (the "Contracts")
since January 1, 1997, relating to the business of the Sellers, including but
not limited to agreements for the lease of personal property, purchase or sale
of materials, furnishing of services, partnerships, joint ventures, alliances,
indebtedness or security, confidentiality or noncompetition, profit sharing,
stock options, employment, severance, collective bargaining agreement and any
agreement under which the consequences of a default or termination could have
any adverse effect in the financial condition, operations, results or future
prospects of the business as Described in the Business Plan and Financial
Projections and Budget. On or prior to the date hereof, the Sellers have
provided Purchaser with true and complete copies of the Contracts, Contract
Affirmations or Intellectual Property Releases for all Clients set forth in
Disclosure Scheduless.4.14(a). All of the Contracts listed on Disclosure
Scheduless.4.14(a) are in full force and effect, and are valid, binding and
enforceable in accordance with their terms. Except as otherwise disclosed on
Disclosure Scheduless.4.14(a), there is no default or breach by any of the
Sellers, or to the Sellers' knowledge, any other party to any Contract set forth
on Disclosure Scheduless.4.14(a) and there are no negotiations pending or in
progress to revise, modify, terminate or extend any such Contracts. Purchaser is
only assuming the Seller's obligations underracts specifically included in
Exhibit A and listed in Disclosure Scheduless.4.14(a).
(b) Except as expressly contemplated by this Agreement or as set
forth on Disclosure Schedule ss.4.14(a) hereto, none of the
Sellers are a party to or bound by any written or oral:
(i) pension, profit sharing, stock option,
employee stock purchase or other plan or
arrangement providing for deferred or other
compensation to employees or any other
employee benefit plan or arrangement, or any
collective bargaining agreement or any other
contract with any labor union, or severance
agreements, programs, policies or
arrangements;
(ii) contract for the employment of any officer,
individual employee or other Person on a
full-time, part-time, consulting or other
basis or contract relating to loans to
officers, directors or Affiliates;
(iii) contract under which the Sellers have
advanced or loaned any other Person amounts
in the aggregate exceeding $1,000;
(iv) agreement or indenture relating to borrowed
money or other indebtedness or the
mortgaging, pledging or otherwise placing a
Lien on any asset or group of assets of the
Sellers;
(v) guarantee of any obligation;
(vi) lease or agreement under which any of the
Sellers are lessee of or holds or operates
any personal property owned by any other
party;
(vii) lease or agreement under which any of the
Sellers are lessor of or permits any third
party to hold or operate any property, real
or personal, owned or controlled by the
Sellers;
(viii) assignment, license, indemnification or
agreement with respect to any intangible
property (including, without limitation, any
Intellectual Property listed in Disclosure
Schedule ss.4.13)
(ix) express warranties with respect to its
services rendered or its products sold
or leased;
(x) contract or agreement prohibiting it from
freely engaging in any business or
competing anywhere in the world; or
(xi) any other agreement which is material to its
operations and involves a consideration in
excess of $2,000 annually.
(c) No party may claim ownership rights in any of the Corebyte software
by virtue of their status as former employer or independent contractor
with the Sellers. Sellers have provided Purchaser with limited releases
documenting this representation. Copies of these releases are set forth
in Disclosure Schedule 4.14 (c). A breach of this representation will
entitle Purchase to seek a return of the Purchase Price and damages
flowing form such breach.
4.15 Notes and Accounts Receivable. All notes and accounts receivable of the
Sellers are reflected properly on the Financial Projections and are listed in
Disclosure Schedule ss.4.15 and , are valid receivables subject to no setoff or
counterclaims, are current and collectible, and will be collected in accordance
with their terms at their recorded amounts in accordance with the past custom
and practice of the Sellers.
4.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf any of the Sellers.
4.17 Insurance. Disclosure Schedule ss.4.17 sets forth an accurate description
of each insurance policy (including policies providing property, casualty,
liability, and workers, compensation coverage and bond and surety arrangements)
to which any of the Sellers has been a party, a named insured, or otherwise the
beneficiary of coverage at any time within the past five years. With respect to
each such insurance policy: (a) the policy is legal, valid, binding,
enforceable, and in full force and effect; (b) the policy will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby
(including the assignments and assumptions referred to in S2 above); (c) none of
the Sellers nor any other party to the policy is in breach or default (including
with respect to the payment of premiums or the giving of notices) , and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination, modification, or acceleration, under
the policy; and (d) no party to the policy has repudiated any provision thereof.
Each of the Sellers has been covered during the past five years by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. ss.4.17 of the Disclosure Schedule
describes any self-insurance arrangements affecting any of the Sellers.
4.18 Employees. None of the Sellers have implemented or provided any Employee
Benefit Plan to any employee. None of the employees of the Sellers are
represented by a union or subject to a collective bargaining agreement.
Disclosure Schedule 4.18 lists (i) all employment agreements, whether oral or
written, between the Sellers and any of their respective directors or officers
and between the Sellers its or their employees and (ii) all consultants,
independent contractors, employees, officers, directors or Persons who have ever
been engaged in any capacity at any time since January 1, 1997 to perform
services of any nature or connection with the Corebyte(TM) product family as
described in the Business Plan.
4.19 Environmental Laws and Regulations: Environment, Health, and Safety.
(a) Each of the Sellers and their respective predecessors and
Affiliates has complied with all Environmental, Health, and
Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has
been served, filed, or commenced against any of them alleging
any failure so to comply. The Sellers have complied with all
other limitations, restrictions, conditions, standards,
prohibitions, requirements, obligations, schedules, and
timetables which are contained in, all Environmental, Health,
and Safety Laws.
(b) None of the Sellers has any Liability (and none of the Sellers, and
their respective predecessors and Affiliates has handled or disposed of any
substance, arranged for the disposal of any substance, exposed any employee or
other individual to any substance or condition, or owned or operated any
property or facility in any manner that could form the basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of the Sellers giving rise to any Liability) for
damage to any site, location, or body of water (surface or subsurface), for any
illness of or personal injury to any employee or other individual, or for any
reason under any Environmental, Health, and Safety Law.
(c) All properties and equipment used in the business of the
Sellers and their respective predecessors and Affiliates have
been and are free of Hazardous Substances.
(d) No underground storage tanks, as defined in the Resource
Conservation and Recovery Act of 1970, as amended; or under
any applicable state law, are present on any of the properties
used by the Sellers, and no such tanks were previously
abandoned or removed.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF PURCHASER
Purchaser represent and warrants to the Sellers that:
5.1 Organization and Qualification. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
Purchaser has the requisite corporate power and authority to own, operate or
lease its properties and to carry on its business as it is now being conducted,
and is duly qualified or licensed to do business, and is in good standing, in
each jurisdiction in which the nature of its business or the properties owned,
operated or leased by it makes such qualification, licensing or good standing
necessary.
5.2 Authority Relative to this Agreement. Purchaser has all necessary corporate
power and authority to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by Purchaser and the consummation by Purchaser of the transactions contemplated
hereby have been duly and validly authorized and approved by the Boards of
Directors of Purchaser and no other corporate proceedings on the part of
Purchaser are necessary to authorize or approve this Agreement, or to consummate
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Purchaser and, assuming the due and valid authorization, execution
and delivery by the Sellers, constitutes a valid and binding obligation
Purchaser enforceable against it in accordance with its terms, except that such
enforceability (a) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and (b) is subject to general principles of equity.
5.3 No Conflict: Required Filings and Consents.
(a) Neither the execution, delivery or performance of this Agreement by
Purchaser, the consummation by Purchaser of the transactions contemplated hereby
or compliance by Purchaser with any of the provisions hereof will (i) conflict
with or violate the organizational documents of Purchaser, (ii) conflict with or
violate any statute, ordinance, rule, regulation, order, judgment or decree
applicable to Purchaser, or any of their Subsidiaries, or by which any of them
or any of their respective properties or assets may be bound or affected, or
(iii) result in a violation pursuant to any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Purchaser, or any of their Subsidiaries, is a party or by
which any of their respective properties or assets may be bound or affected.
(b) None of the execution and delivery of this Agreement by
Purchaser, the consummation by Purchaser of the transactions
contemplated hereby or compliance by Purchaser with any of the
provisions hereof will require any Consent of any Governmental
Entity.
5.4 Brokers. Neither Purchaser, nor any of their Subsidiaries, nor any of their
respective officers, directors or employees has employed any broker or finder or
incurred any liability for any brokerage fees, commissions or finder's fees in
connection with the transactions contemplated by this Agreement.
ARTICLE VI
PRE-CLOSING COVENANTS
The Parties agree as follows with respect to the period between the execution of
this Agreement and the Closing.
6.1 General. Each of the Parties will use its best efforts to take all
action and to do all things necessary, proper or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including, satisfaction, but not waiver, of the closing conditions set forth,
in Article VII, below).
6.2 Notices and Consents. The Sellers will give any notices to third parties,
and, Sellers will obtain any third party consents and waivers, that the
Purchaser may request in connection with the matters referred to in the relevant
Disclosure Schedules. =Each of the Parties will) give any notices to, make any
filings with, and use its best efforts to obtain any authorizations, consents,
and approvals of governments and governmental agencies in connection with the
matters referred to in the relevant Disclosure Schedules above. Without limiting
the generality of the foregoing, each of the Parties will file any Notification
and Report Forms and related material that it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act.
6.3 Operation of Business. Except for the sale of the Excluded Assets, the
Sellers will not engage in any practice, take any action, or enter into any
transaction outside the ordinary course of business. Without limiting the
generality of the foregoing and except for the sale of the Excluded Assets, the
Sellers will not (a) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock (whether in cash or in kind) or
redeem, purchase, or otherwise acquire any of its capital stock; (b) sell,
lease, transfer, or assign any of its assets, tangible or intangible, to any
third party (including any intercompany transfer) other than for a fair
consideration in the ordinary course of business; (c) enter into any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses); (d) accelerate, terminate, modify, or cancel any agreement,
contract, lease, or license (or series of related agreements, contracts, leases,
and licenses) to which any of the Sellers are a party or by which any of them is
bound; (e) incur, assume or pre-pay any debt, (f) assume guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other Person or (g) make any advances
loans or capital contributions to, or investments in, any other Person (h)
settle or compromise any suit or claim or threatened suit or claim; or (i) agree
in writing or otherwise to take any of the foregoing actions prohibited under
Section 6.1 or any action which would cause any representation or warranty in
this Agreement to be or become untrue or incorrect in any material respect (j)
make or pledge to make any charitable or other capital contribution outside the
ordinary course of business. Except for the sale of the Excluded Assets, the
Sellers will keep its business and properties substantially intact, including
its present operations, physical facilities, working conditions, and
relationships with lessors, licensers, suppliers, customers, and employees.
6.4 Full Access. The Sellers will permit representatives of the Purchaser to
have full access to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to the
Sellers. This access includes access for the Purchaser to conduct environmental
assessment investigations of the premises and properties. The Sellers will fully
cooperate with such environmental assessment investigation.
6.5 Notice of Developments. Each Party will give prompt written notice to the
other party of any breach of any of its own representations and warranties in
Articles IV and V above. No disclosure by any Party pursuant to this Section
6.5, however, shall be deemed to amend or supplement the Disclosure Schedule or
to prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
6.6 Exclusivity. Except with respect to the Excluded Assets herein, the Sellers
will not (and will not cause or permit any of its, directors, officers,
employees, or agents to) (a) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of any equity
or other voting securities, or any substantial portion of the assets, of any of
the Sellers (including any acquisition structured as a merger, consolidation, or
share exchange), or (b) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Sellers will notify the Purchaser immediately if any
Person makes any proposal, offer, inquiry, or contact with respect to any of the
foregoing.
6.5 Public Announcements. The mutual press release with respect to the execution
of this Agreement shall be a press release acceptable to the Sellers and the
Purchaser. Thereafter, so long as this Agreement is in effect, the Purchaser
shall have sole discretion to issue any press release or otherwise make any
public statement with respect to the transactions contemplated by this
Agreement.
ARTICLE VII
CONDITIONS TO OBLIGATION TO CLOSE
7.1 Conditions to Obligations of Purchaser. The obligations of Purchaser to
consummate the transactions to be performed by it in connection with the Closing
is subject to the satisfaction of the following conditions:
(a) Representations and Warranties. All representations and
warranties of the Sellers shall be true and complete in all
material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such
time.
(b) Purchaser and Sellers shall have executed a Bill of Sale for the Acquired
Assets.
(c) Covenants and Conditions. The Sellers shall have in all
material respects performed and complied with all covenants,
agreements and conditions required by this Agreement to be
performed or complied with by them prior to or on the Closing
Date.
(d) Adverse Change. Since April 1, 1999, there shall have been no
material adverse change in the business, assets, condition
(financial or otherwise), prospects, or results of operations
of the Sellers.
(e) Consents. All necessary third party Consents and waivers shall
have been duly obtained and delivered to Purchaser.
(f) Employment Agreement. Engstrom shall have entered into an
Employment Agreement with Purchaser form and substance as set
forth in Exhibit C, hereto.
(g) Legalities. Except for the Futureshare Litigation, no action, suit, or
proceeding shall be pending before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would (i)
prevent consummation of any of the transactions contemplated by this Agreement,
(ii) cause any of the transactions contemplated by this Agreement to be
rescinded following consummation, (iii) affect adversely the right of the
Purchaser to own any of the Acquired Assets, to operate the former businesses of
the Sellers, or (iv) affect adversely the right of the Sellers to own its assets
and to operate its businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect).
7.2 Conditions to Obligations of the Company and Shareholders. The respective
obligations of the Sellers to consummate the transactions to be performed by it
in connection with the closing is subject to satisfaction of the following
conditions:
(a) Representations and Warranties. All representations and
warranties of Purchaser shall be true and complete in all
material respects at and as of the Closing Date as though such
representations and warranties were made at and as of such
time.
(b) Covenants and Conditions. Purchaser shall have in all material
respects performed and complied with all covenants, agreements
and conditions required by this Agreement to be performed or
complied with by them prior to or on the Closing Date.
(c) Board Approval. The Board of Directors of Purchaser shall
have duly approved the transactions contemplated by this
Agreement.
(d) Consents. All necessary Purchaser Consents shall have been
duly obtained and delivered to the Company.
(e) Legality. No action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction
wherein an unfavorable injunction, judgment, order,
decree, ruling, or charge would (i) prevent
consummation of any of the transactions contemplated by
this Agreement, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation, (iii) affect adversely the right of the
Purchaser to own any of the Acquired Assets, to operate the
former businesses of the Sellers, or (iv) affect adversely
the right of the Sellers to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree,
ruling, or charge shall be in effect).
ARTICLE VIII
TERMINATION; AMENDMENTS; WAIVER
8.1 Termination. This Agreement may be terminated and the transaction
contemplated hereby may be abandoned at any time prior to the Closing,
notwithstanding approval thereof by the Purchaser's Board of Directors:
(a) by mutual consent of the Parties;
(b) by the Sellers if Purchaser shall have made a material
misrepresentation or have breached in any material respect any
of their respective representations, covenants or other
agreements contained in this Agreement, which breach cannot be
or has not been cured within 30 days after the giving of
written notice to Purchaser, as applicable; or
(c) by Purchaser if the Sellers shall have breached any
representation, warranty, covenant or other agreement
contained in this Agreement which breach cannot be or has not
been cured within 30 days after the giving of written notice
to the Sellers; or
(d) by Purchaser if the Purchaser's Board of Directors shall not
have approved the transactions contemplated by this
Agreement;
or
(e) by the Sellers if Closing shall not have occurred by
September 1, 1999.
8.2 Effect of Termination. In the event of the termination of this Agreement
pursuant to Section 8.1, this Agreement shall forthwith become void and have no
effect, without any liability on the part of any Party or its directors,
officers, employees or stockholders. Nothing contained in this Section 8.2 shall
relieve any party from liability for any breach of this Agreement.
8.3 Specific Performance. Notwithstanding anything in this Agreement to the
contrary, if, on the Closing Date, the Purchaser (a) has complied with all of
the conditions to Closing contained in Article has notified the Sellers of its
intention to consummate the transactions contemplated under this Agreement, and
(iii) is ready and able to pay the Purchase Price and furnishes evidence to that
effect to the Sellers, and if the Closing does not then occur due to the refusal
of the Sellers to so consummate the transactions contemplated under this
Agreement, the Purchaser will be entitled to specifically enforce the terms of
this Agreement in a court of competent jurisdiction, it being acknowledged that
monetary damages due the Purchaser in such case cannot be adequately determined
at law.
8.4 Extension; Waiver. At any time prior to the Closing, any party hereto may
(i) extend the time for the performance of any of the obligations or other acts
of any other party hereto, (ii) waive any inaccuracies in the representations
and warranties contained herein by any other party or in any document,
certificate or writing delivered pursuant hereto by any other party or (iii)
waive compliance with any of the agreements of any other party or with any
conditions to its own obligations. Any agreement on the part of any party to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES AND INDEMNIFICATION
9.1 Survival of Representations and Warranties. All of the representations,
warranties, covenants, and agreements contained in this Agreement and in any
certificate, schedule, document, or other writing delivered pursuant hereto have
been relied upon and shall survive the Closing; provided, that any
representation and warranty contained in Articles IV and V shall be fully
effective and enforceable only for a period from the Closing Date through and
until the second anniversary of the Closing Date and shall thereafter be of no
further force or effect, except as to claims for indemnification timely made
pursuant to this Article IX which shall survive until resolved or judicially
determined.
9.2 Indemnification Provisions for the Benefit of the Purchaser
(a) Subject to the provisions of Article 9.6 (notice) and 9.1 (survival
period), the Sellers agrees to indemnify the Purchaser from and against any all
claims, demands, assessments, judgments, costs and expenses, including
reasonable legal fees and expenses, imposed upon Purchaser as a result of a
final adjudicated determination of a claim, action or suit, inclusive of
reasonable appeals, (collectively "Adverse Consequences") the Purchaser may
suffer through and after the date of the claim for indemnification (including
any Adverse Consequences the Purchaser may suffer after the end of any
applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by The Sellers' misrepresentation or breach any of the
Sellers' representations, warranties, and covenants contained in this Agreement.
(b) The Sellers agree to indemnify the Purchaser from and against
any Adverse Consequences the Purchaser may suffer resulting
from, arising out of, relating to, in the nature of, or caused
by:
(i) any Liability of the Sellers which is not an
Assumed Liability (including any Liability
of the Sellers that becomes a Liability of
the Purchaser under any bulk transfer law of
any jurisdiction, under any common law
doctrine of de facto merger or successor
liability, or otherwise by operation of
law); or
(ii) any Liability of any of the Sellers' for the unpaid Taxes of any
Person (other than any of the Sellers) under Treas. Reg. ss.1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(iii) any Liability of the Sellers (including
costs and attorneys fees) imposed as an
outcome of any litigation involving
Futureshare.com LLC or any of the principals
of Futureshare.com, LLC, unless such
Liability is expressly agreed to be assumed
by Purchaser, in writing, at a later date.
9.3 Indemnification Provisions for the Benefit the Sellers.
(a) Subject to the provisions of Article 9.6 (notice) and 9.1 (survival
period), the Purchaser agrees to indemnify the Sellers from and against any all
claims, demands, assessments, judgments, costs and expenses, including
reasonable legal fees and expenses, imposed upon Sellers as a result of a final
adjudicated determination of a claim, action or suit, inclusive of reasonable
appeals, (collectively "Adverse Consequences") the Sellers may suffer through
and after the date of the claim for indemnification (including any Adverse
Consequences the Seller may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or caused
by the Purchasers' misrepresentation or breach any of the Sellers'
representations, warranties, and covenants contained in this Agreement.
(b) The Purchaser agrees to indemnify the Sellers from and against
any Adverse Consequences the Sellers may suffer resulting
from, arising out of, relating to, in the nature of, or caused
by any Assumed Liability.
9.4 Matters Involving Third Parties.
(a) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against the
other Party (the "Indemnifying Party") under this Article 9,
then the Indemnified Party shall promptly notify the
Indemnifying Party thereof in writing; provided, however, that
no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the
extent) the Indemnifying Party thereby is prejudiced.
(b) The Indemnifying Party will have the option to defend the Indemnified
Party against the Third Party Claim with counsel of its choice satisfactory to
the Indemnified Party so long as (i) the Indemnifying Party notifies the
Indemnified Party in writing within 10 business days after the Indemnified Party
has given notice of the Third Party Claim that the Indemnifying Party will
indemnify the Indemnified Party from and against any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating to, in the
nature of, or caused by the Third Party Claim, (ii) the Third Party Claim
involves only money damages and does not seek an injunction or other equitable
relief, (iii) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom of practice adverse to the continuing
business interests of the Indemnified Party, and (iv) the Indemnifying Party
conducts the defense of the Third Party Claim actively and diligently.
(c) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 9.4(b) above,
(i) the Indemnified Party may retain separate co-counsel at
its sole cost and expense and participate in the
defense of the Third Party Claim, (ii) the Indemnified
Party will not consent to the entry of any judgement or enter
into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party
(not to be withheld unreasonably) , and (iii) the Indemnifying
Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party
Claim without the prior written consent of the Indemnified
Party (not to be withheld unreasonably).
(e) In the event any of the conditions in Section 9.4(b) above is or
becomes unsatisfied, however, (i) the Indemnified Party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, the Third Party Claim in any manner it reasonably may deem appropriate (and
the Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (ii) the Indemnifying Party will
reimburse the Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (iii) the Indemnifying Party will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to the
fullest extent provided in this Article IX.
9.5 Other Indemnification Provisions. The foregoing indemnification provisions
under this S8 are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant.
9.6 Procedure for Indemnification. Following receipt of written notice from the
either the Indemnified Party or a Third Party, of a claim, the Indemnifying
Party shall have twenty (20) days (or such shorter period of time as is required
to respond to the subject litigation or proceeding) to make such investigation
of the claim as the Indemnifying Party deems necessary or desirable. For the
purposes of such investigation, the Indemnified Party agrees to make available
to the Indemnifying Party or its authorized representative(s) the information
relied upon by the Indemnified Party to substantiate the claim. If the
Indemnified Party and the Indemnifying Party agree at or prior to the expiration
of said 20 day period (or any mutually agreed upon extension thereof) to the
validity and amount of such claim, the Indemnifying Party shall immediately pay
to the Indemnified Party the full amount of the claim. If the Indemnified Party
and the Indemnifying Party do not agree within said period (or any mutually
agreed upon extension thereof), the Indemnified Party may seek appropriate legal
remedy. If a claim, whether between the parties or by a third party, requires
immediate action, the parties will make every effort to reach a decision with
respect thereto as expeditiously as possible.
ARTICLE X
MISCELLANEOUS
10.1 Legal Representation
Sellers represent that Purchaser has informed of their right
to be represented by counsel and have advised them to retain counsel. Sellers
voluntarily and have elected to proceed without formal representation but have
consulted with counsel and are satisfied with all of the agreements constituting
the transaction. Sellers waive any claims that they may have against Purchaser
involving their lack of legal representation.
10.2 Entire Agreement; Assignment.
(a) This Agreement (including the documents and the
instruments referred to herein) constitutes the entire agreement and supersedes
all prior agreements and understandings, both written and oral among the parties
with respect to the subject matter hereof and thereof.
(b) Neither this Agreement nor any of the rights, interests or
obligations hereunder will be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party (except that Parent may assign its rights and Purchaser may assign its
rights, interest and obligations to any affiliate or direct or indirect
subsidiary of Parent without the consent of the Company). Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors and assigns.
10.3 Severability. Any term or provision of this Agreement that is invalid or
unenforceable in any situation in any jurisdiction shall not affect the validity
or enforceability of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any other situation or
in any other jurisdiction.
10.4 Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person, by overnight courier or facsimile to the respective parties
as follows:
If to Purchaser:
Datapoint Corporation
8410 Datapoint Drive
San Antonio, Texas 78229
Attention:
Fax #: (210) 593-7921
with a copy to:
Povich Kelly/ Associates
417 Canal Street, 6th Floor
New York, New York 10022
Attention: Susan A. Povich, Esq.
Fax #: (212) 271-0363
If to the Sellers:
SF Digital
John Engstrom
Corebyte
60 Barry Street, #2F
Brooklyn, New York 11211
Fax #:
with copies to:
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
provided that notice of any change of address shall be effective only upon
receipt thereof).
10.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
10.6 Consent to Jurisdiction: Waiver of Immunities. The Purchaser and Sellers
irrevocably submit to the jurisdiction of any New York state or federal court
thereof in any action or proceeding arising out of or relating to this
Agreement, and the Purchaser and Sellers hereby irrevocably agree that all
claims in respect of such action or proceeding may be heard and determined in
such New York state court or in such federal court. Each of the parties hereto
irrevocably and unconditionally consents to the service of any and all process
in any such action or proceeding by the mailing of copies of such process by
certified mail to such party and its counsel at their respective addresses
specified in Section 10.3 above.
10.7 Descriptive Headings. The descriptive headings and captions herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
10.8 Counterparts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
10.9 Parties in Interest. This Agreement shall be binding upon and inure solely
to the benefit of each party hereto and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
10.10 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
(including the Disclosure Schedule) identified in this Agreement are
incorporated herein by reference and made a part hereof.
IN WITNESS WHEREOF, each of the parties has caused this Asset Purchase Agreement
to be executed on its behalf by its respective officer thereunto duly
authorized, all as of the day and year first above written.
DATAPOINT CORPORATION
Name: /s/Asher B. Edelman
Title: Chairman
SF Digital, LLC
Name: /s/John Engstrom
Title: Manager
John Engstrom, Individually
and d/b/a SF Digital
Name: /s/John Engstrom
Title: