Exhibit 2.1
PLAN AND AGREEMENT OF MERGER
Plan and Agreement of Merger ("this Agreement") made January 30, 1998
by and among IFS INTERNATIONAL, INC. ("IFS"), a Delaware Corporation; NCI
HOLDINGS, INC. ("Holdings"), a North Carolina Corporation, NCI ACQUISITION CORP.
("Acquisition Sub"), a New York Corporation and PER OLOF EZELIUS ("Ezelius").
Recitals
A. IFS is a Delaware Corporation, which has a class of common shares
and a class of preferred stock which is publicly quoted on The NASDAQ Small Cap
Stock Market.
B. Acquisition Sub is a wholly owned subsidiary of IFS, which has been
newly formed for the purposes of the transactions set forth herein.
C. Holdings owns 4,400,000 of the Class A voting common shares of
Network Controls International, Inc. ("NCI"), a North Carolina Corporation which
is engaged in the business of developing and selling software and other
computer-related products and services for the banking and financial services
industry. Holdings controls NCI through ownership of 99.666% of the issued and
outstanding Class A voting common shares of NCI, and 94.022% of the combined
issued and outstanding Class A voting and Class B non-voting shares of NCI.
D. Holdings has issued 4,400,000 shares of its common capital stock,
having issued 1,257,143 to Ezelius and 3,142,857 shares to Xxxx Xxxxxxx.
Pursuant to agreements dated October 24, 1995, Holdings has agreed to purchase
or redeem all of Xxxxxxx' 3,142,857 shares, which shares are currently held in
escrow to secure a note given by Holdings to Xxxxxxx for the purchase price.
Except for those shares pledged to secure the Xxxxxxx' note (which pledge is to
be satisfied as provided herein), Ezelius owns 100% of the issued and
outstanding shares of Holdings, and through his ownership of Holdings, controls
NCI. Ezelius executes this Agreement for the purposes, among others, of becoming
obligated upon certain warranties, representations and covenants relating to
NCI.
E. The parties hereto desire to effect a business combination by means
of a statutory merger of Acquisition Sub with and into Holdings, all upon the
terms and conditions set forth herein.
NOW THEREFORE, in consideration of the mutual promises, covenants,
warranties and representations set forth herein, the parties agree as follows:
SECTION 1. Definitions & Index of Definitions.
Definitions. For purposes of this Agreement:
"Affiliate" means all persons and entities controlling, controlled by
or under common control with any person or entity, and with respect to any
entity, includes all partners, directors and officers of such entity.
"Agreement" refers to this entire Agreement, including all exhibits,
schedules and certificates referred to herein.
"Closing Balance Sheet" means the consolidated balance sheet of
Holdings and its subsidiaries (including NCI and its subsidiaries) dated as of
the Closing Date, audited in accordance with generally accepted accounting
standards by Price Waterhouse as provided in Section 4(e) hereof.
"Closing Financial Statements" means the Closing Balance Sheet and the
income statement, statement of cash flows, notes and other components of the
statements for the fiscal period beginning the previous June first and ending on
the Closing Date, all prepared in accordance with generally accepted accounting
principles as provided in Section 4(e) hereof.
"Closing Stockholder Equity" means the consolidated net worth or
stockholder equity of Holdings and its subsidiaries as shown on the Closing
Balance Sheet.
"including" means including, without limitation
"Inventory" means all inventories of NCI, including without limitation,
finished goods, merchandise, machinery and equipment held for sale or licensing
to customers, spare parts, containers and office operating and other supplies.
"knowledge of Ezelius" means the knowledge after due inquiry of
Ezelius.
"knowledge of IFS" means the knowledge after due inquiry of any
executive officer or director of IFS.
"Material Adverse Change or Material Adverse Effect" means, when used
in connection with Holdings, NCI or IFS, any change or effect (or any
development that, insofar as can reasonably be foreseen, is likely to result in
any change or effect) that is materially adverse to the business, properties,
assets, condition (financial or otherwise), results of operations or prospects
of such party and its subsidiaries taken as a whole.
"person" means any individual, firm, corporation, partnership, limited
liability company, trust, joint venture, Governmental Entity or other entity.
Index of Definitions. Other definitions are set forth in the various
sections or subsections to which they apply. Set forth below is a list or index
of those definitions which are used generally throughout this Agreement, with a
reference to the section or subsection in which such terms are defined:
Claims - ss.17.01(a)
Closing - ss.3(a)
Closing Date - ss.3(a)
Code - ss.10.08(b)
Contracts - ss.10.12
Escrow Agent - ss.17.03(b)
Financial Statements - ss.10.07
GAAP - ss.4(e)(iv)
Governmental Entity - ss.9.01(d)
Intellectual Property - ss.10.11(a)
Lien - ss.9.01(f)
Most Recent Balance Sheet - ss.10.07(a)
Most Recent Financial Statements - ss.10.07(a)
Permitted Liens - ss.10.09
Preferred Stock - ss.4(b)
"Tax" and "Taxes" - ss.10.08(a)(i)
SECTION 2. MERGER. The parties hereby agree to and do hereby effect the
merger of Acquisition Sub with and into Holdings on the terms and conditions set
forth herein. The corporation which is to survive the merger is Holdings, which
shall continue as a corporation organized and existing under the laws of the
State of North Carolina. The effective date of the merger shall be January 30,
1998, except that to the extent that the provisions of either North Carolina law
or the New York Business Corporation Law (the "BCL") require the filing of a
Certificate of Merger prior to granting effectiveness, the merger shall become
effective on the date(s) that such certificates are filed. Certificates of
Merger shall be delivered for filing immediately upon completion of the Closing.
Following the merger, the separate corporate existence of Acquisition Sub shall
cease and Holdings shall continue as the surviving corporation and shall succeed
to and assume all the rights and obligations of Acquisition Sub in accordance
with the BCL.
SECTION 3. CLOSING; CERTIFICATES OF MERGER.
a. The closing of the merger (the "Closing") will take place at 10:00
a.m. on January 30, 1998 (the "Closing Date") (subject to satisfaction or waiver
of the conditions set forth in subsections 9.01 and 9.02), at the offices of
Xxxxxx Beach & Xxxxxx, LLP, 00 Xxxxxxxxx Xxxxx Xxxxxxxxx, Xxxxxx, Xxx Xxxx
00000, unless another date or place is agreed to in writing by the parties
hereto.
b. Upon the closing of the transactions called for in this Agreement,
Acquisition Sub and Holdings shall make and execute Certificates of Merger as
required by BCL, and the corporate laws of the State of North Carolina. The New
York Certificate of Merger shall be in the form of Schedule 3-A attached hereto.
The North Carolina Articles of Merger shall be in the form of Schedule 3-B
attached hereto. Acquisition Sub shall file the form of Certificate of Merger
required by the BCL with the Department of State of the State of New York on
January 30, 1998 or as soon thereafter as practical. Holdings shall file the
Certificate of Merger required by North Carolina corporate statutes with the
North Carolina Department of State or such other department, board, bureau or
office of the State of North Carolina as performs similar functions as the
Department of State of New York with respect to corporations.
SECTION 4. TREATMENT OF SHARES OF CONSTITUENT CORPORATIONS;
DISTRIBUTIONS OF NEW SHARES.
The terms and conditions of the merger, the manner of carrying the same
into effect, and the manner of converting the shares of the constituent
corporations are as follows:
a. Acquisition Sub's Shares. Upon the effective date of the merger, by
virtue of the merger and without any action on the part of the holder of any
shares, Acquisition Sub shares shall be converted on a one (1) for one thousand
(1,000) ratio into the shares of Holdings, the surviving corporation. Each of
the four thousand four hundred (4,400) shares of common stock of Acquisition
Sub, issued and outstanding (and held by IFS) on the effective date of the
merger shall be converted into one thousand (1,000) fully paid and
non-assessable shares of the common stock of Holdings, with the voting powers,
rights, privileges and qualifications set forth in Holdings certificate of
incorporation and bylaws. On or after the effective date of the merger, IFS
shall surrender its outstanding shares in Acquisition Sub and shall receive, in
exchange therefore, four million four hundred thousand (4,400,000) shares of the
common capital stock of Holdings.
b. Holdings. The common capital shares of Holdings shall remain
unaffected by the merger. Each of the authorized shares of common stock on the
effective date of the merger shall continue to be one share of common stock of
Holdings, as the surviving corporation with the voting powers, rights,
privileges and qualifications set forth in Holdings Certificate of Incorporation
and bylaws.
On the effective date of the merger, Ezelius shall surrender all
4,400,000 of the shares he owns and controls in Holdings, and in exchange
therefore shall receive as merger consideration shares of IFS' Series A
Convertible Preferred Stock (the "Preferred Stock"). The Certificate of
Designation for the Preferred Stock, which sets forth the relative rights,
preferences and other features attributable to such shares is attached hereto as
Schedule 4(b) and made a part hereof. The number of shares of Preferred Stock to
be received by Ezelius shall be computed as provided in subparagraph 4c below.
c. Computation Methodology; adjustment for net worth changes; earn-out
shares.
(i) Computation of initial shares. The initial number of shares of IFS
Preferred Stock to be received by Ezelius (subject to redelivery of a portion of
such shares to the Escrow Agent pursuant to section 17.03 hereof) shall be
determined in accordance with the following formula.
The agreed upon price per share of seven and one-eighth dollars $7.125
has been divided into the merger consideration of $620,545, with the result that
Eighty-Seven Thousand Ninety-Four (87,094) shares are to be contributed to
Acquisition Sub. Fifty-Nine Thousand Twenty-Four (59,024) shares of IFS
Preferred Stock shall be delivered to Ezelius at Closing, duly registered in his
name on the books of IFS' transfer agent. The remaining Twenty-Eight Thousand
Seventy (28,070) shares being transferred to Ezelius at Closing shall be placed
in escrow as provided in Section 17.03 hereof, to secure certain warranties,
representations, covenants and indemnifications made by Ezelius as set forth
herein, and the net worth adjustment provided in subsection 4c(ii) below.
(ii) Net Worth Adjustment. The determination of the initial number
of shares of Preferred Stock to be received by Ezelius has been based
upon Ezelius' representation (set forth in subsection 10.07(d) hereof) that the
Closing Stockholders Equity will not be less than $1,250,000. If the Closing
Stockholder Equity is less than $1,250,000 as disclosed on the Closing Balance
Sheet, then IFS shall be entitled to reduce the number of shares of IFS
Preferred Stock distributable to Ezelius in an amount equal to the amount of
such difference, divided by $7.125. Thus, for example, if the Closing
Stockholders Equity were to be $1,150,000, then the number of shares due to
Ezelius would be reduced by 14,035 shares ($1,250,000 - $1,150,000 = $100,000.
100,000 / 7.125 = 14,035 shares) Subsection 4(e) below sets forth certain
procedures for computing the Closing Stockholder Equity, and for resolving any
disputes relating to such computation.
(iii) Earn-out shares. In addition to the base number of shares to
be issued at closing, Ezelius may receive additional shares of IFS Preferred
Stock, based upon the performance of NCI during certain time periods after the
closing. The criteria upon which grant of additional shares is based, and the
method of computing issue price for the shares is set forth on Schedule 4(c)
(iii) attached hereto and made a part hereof. IFS agrees that it will not
burden NCI's accounting records with any management fees, nor with any
allocation of common charges, except to the extent that NCI actually benefits
from any such common charges, mutually agreeable to IFS and Ezelius. IFS further
agrees that IFS will at all times keep separate and distinct accounting records
relating to the lines of business being conducted by NCI as of the Closing Date,
in order to preserve Ezelius' right to a fair determination of the earn-out
shares based upon the continuing operations of the business owned by NCI as
of the Closing Date. Except as provided in the next sentence, IFS will
not merge NCI with any corporation or other entity which is not already an
affiliate of IFS, without Ezelius' written consent. It is acknowledged by
all parties that after the Closing, IFS intends on merging NCI and Holdings
into a single company, such merger being intended to take place within 45
days after the Closing, and if such merger may not take place within
such 45 days due to legal or tax considerations, such merger will take place
as soon as practical thereafter. Such Affiliate follow-up merger shall not
require Ezelius' written consent.
d. No Further Consideration. Except as set forth in subsection 4(c)
hereof regarding post-closing adjustments to shares, no other consideration is
to be paid, transferred or issued by IFS or by Acquisition Sub for shares of
Holdings.
e. Closing Balance Sheet; Dispute Procedures.
(i) Within seventy-five (75) days after the Closing Date,
Ezelius shall cause NCI to deliver to IFS a copy of the Closing Balance Sheet,
together with a report (the "Report") thereon of Price Waterhouse, LLP, setting
forth the Closing Stockholders' Equity and stating that the Closing Balance
Sheet has been audited by Price Waterhouse LLPin accordance with generally
accepted auditing standards, and has otherwise been prepared in compliance with
the requirements of this subsection 4(e). IFS and Ezelius shall cause NCI and
its employees to assist, in good faith, in the preparation of the Closing
Balance Sheet and shall provide access at all reasonable times to the personnel,
properties, books and records of Holdings, NCI and their subsidiaries for such
purpose. IFS' independent auditors may also be engaged to audit the Closing
Balance Sheet; provided, however, that all parties acknowledge that Price
Waterhouse LLP shall have the primary responsibility and authority for the audit
of the Closing Balance Sheet.
(ii) During the 30-day period following IFS' receipt of the
Closing Balance Sheet, IFS and its independent auditors shall be permitted to
review the working papers of Price Waterhouse, LLP (subject to compliance with
Price Waterhouse LLP's customary procedures for release) relating to the Closing
Balance Sheet. The Closing Balance Sheet shall become final and binding upon the
parties on the thirtieth (30th) day following delivery thereof, unless IFS gives
written notice of its disagreement with the Closing Balance Sheet (a "Notice of
Disagreement") to Ezelius prior to such date. If a Notice of Disagreement is
received in a timely manner, then the Closing Balance Sheet shall become final
and binding upon the parties on the earlier of (A) the date Ezelius and IFS
resolve in writing any differences they have with respect to the matters
specified in the Notice of Disagreement or (B) the date any disputed matters are
finally resolved by reference to the independent Accounting Firm (as defined
below).
(iii) During the 30-day period following the delivery of the
Notice of Disagreement, Ezelius and IFS shall seek in good faith to resolve in
writing any differences that they may have with respect to the matters specified
in such Notice of Disagreement. At the end of such 30-day period, Ezelius and
IFS shall submit to an independent accounting firm mutually agreeable to the
parties (the "Accounting Firm") for review and resolution any and all matters
that remain in dispute and that were properly included in such Notice of
Disagreement, in the form of a written brief. Ezelius and IFS shall use
reasonable efforts to cause the Accounting Firm to render a decision resolving
the matters submitted to the Accounting Firm within 30 days of the receipt of
such submission. Judgment may be entered upon the determination of the
Accounting Firm in any court having jurisdiction. The cost of any proceedings
(including the fees and expenses of the Accounting Firm and reasonable
attorneys' fees and expenses of the parties) pursuant to this subsection 4(e)
shall be borne by IFS and Ezelius in inverse proportion as they may prevail on
matters resolved by the Accounting Firm, which proportionate allocations shall
also be determined by the Accounting Firm at the time the determination of the
Accounting Firm is rendered on the merits of the matters submitted. The fees and
disbursements of Ezelius' accountants incurred in connection with representation
of Ezelius in any dispute relating to the Closing Balance Sheet and any Notice
of Disagreement shall be borne by Ezelius, and the fees and disbursements of
IFS' independent auditors incurred in connection with their representation of
IFS in any dispute relating to the Closing Balance Sheet and any Notice of
Disagreement shall be borne by IFS.
(iv) The Closing Stockholders' Equity shall be calculated in
accordance with the United States generally accepted accounting principles
("GAAP"). GAAP is to be applied on a basis consistent with those reflected by
Holdings and NCI in the preparation of the Financial Statements. The Closing
Financial Statements shall also be prepared to be in confirmity with SEC
Regulation S-X.
(f) Conversion of Preferred Stock. If the Preferred Stock as a class
converts into shares of IFS common stock under certain circumstances set forth
in the Certificate of Designation attached hereto as Exhibit 4(c)(iii), then
subsequent to such conversion date, the term "Common Stock" shall replace the
term "Preferred Stock" with respect to any transaction or event described
herein, which transaction or event occurs after such conversion date. In such
event, IFS shall issue replacement shares of common stock for any and all shares
of Preferred Stock previously issued to and surrendered by Ezelius, and shall
further issue common stock for any earn-out shares which become issuable
subsequent to the conversion date.
SECTION 5. DIRECTORS. The names of the persons who are to be
directors of Holdings after the Closing, and who shall hold office until
the successors are chosen and qualified according to the by-laws of Holdings
are as follows:
1. Xxxxx Xxxxxxxx
2. Xxxx Xxxxxxxxx
3. Xxxxx Xxxxx
4. Per Olof Ezelius
SECTION 6. EFFECT OF MERGER. On the effective date of the merger,
all of the property, assets, rights, privileges and franchises of whatsoever
in nature and description of Acquisition Sub shall, by operation of law, be
transferred to and invested in and shall devolve upon Holdings, without further
act or deed.The merger shall have the effects set forth in Article 9 of the BCL.
SECTION 7. PRINCIPAL OFFICE. The principal office of the surviving
corporation shall remain at Nine Xxxxxxxx Xxxxx, Xxxxx 000, Xxxxxxxxx, Xxxxx
Xxxxxxxx 00000.
SECTION 8. AUTHORIZATIONS. This Agreement has been duly authorized and
approved by the Boards of Directors of IFS, Acquisition Sub and Holdings, and
has been further approved by Ezelius, acting as sole and controlling shareholder
of Holdings, and if IFS, as the sole and controlling shareholder of Acquisition
Sub, all in accordance with the BCL, and the applicable laws of the State North
Carolina. To the best knowledge of IFS and Ezelius, no state takeover statute or
similar statute or regulation applies or purports to apply to the merger, this
Agreement or any of the transactions contemplated by this Agreement.
SECTION 9. CONDITIONS TO CLOSING.
9.01 IFS' Obligation. The obligation of IFS to complete the
transactions called for herein is subject to the satisfaction (or waiver by IFS)
as of the Closing of the following conditions:
(a) Warranties Still True. The representations and warranties
of Holdings and Ezelius made in this Agreement shall be true and correct in all
material respects, as of the date hereof and as of the time of the Closing as
though made as of such time, except to the extent such representations and
warranties expressly relate to an earlier date (in which case such
representations and warranties shall be true and correct in all material
respects, on and as of such earlier date).
(b) Performance of Obligations. Holdings and Ezelius shall
have performed or complied in all material respects with all obligations and
covenants required by this Agreement to be performed or complied with by them at
or prior to the Closing.
(c) Closing Certificates. Holdings and Ezelius shall have
delivered to IFS, certificates dated the Closing Date and signed by an officer
of Holdings and by Ezelius confirming the foregoing.
(d) No Restraints. No statute, rule, regulation or executive
order ("Law") or decree, temporary restraining order, preliminary or permanent
injunction or other order ("Order") enacted, entered, promulgated, enforced or
issued by any Federal, state or local government or any court of competent
jurisdiction, administrative agency or commission or other governmental
authority or instrumentality (a "Governmental Entity"), or other legal restraint
or prohibition is in effect and prevents or purports to prevent the completion
of the merger.
(e) Good Standing Certificates. Ezelius shall have delivered
to IFS certificates of good standing with respect to Holdings and NCI, issued by
the North Carolina Department of State, such certificates to be dated within
thirty (30) days prior to the Closing.
(f) Legal Opinions. Ezelius shall have delivered to IFS an
opinion of Holdings's legal counsel, Blair, Conaway, Xxxxxx & Xxxxxx, P.A.,
opining (A) that Holdings' and NCI's corporate existence and good standing are
as stated in Section 10.04 of this Agreement, (B) that they do not know or have
any reasonable grounds to know of any litigation, proceeding or governmental
investigation pending or threatened against, or relating to, Holdings or NCI, or
their respective properties or its businesses which affects title to the shares
of Holdings or NCI or the ability of (i) Ezelius to transfer his shares in
Holdings free of any lien, claim, encumbrance, security interest, pledge,
option, charge or restriction of any kind (a "Lien"), or (ii) Holdings' title to
or its ability to transfer its shares in NCI free of all Liens, or which relates
to the validity and enforceability of this Agreement, or seeks to restrain the
closing of the transactions envisioned by this Agreement, (C) that this
Agreement, and any closing certificates, other documents or instruments
delivered by the Holdings and Ezelius pursuant hereto, constitute the binding,
legal obligations of Holdings and Ezelius, enforceable against them except as
such enforceability may be limited by bankruptcy laws or general principles of
equity, (D) that they do not know or have any reasonable grounds to know of any
litigation, proceeding or governmental investigations pending or threatened
against, or relating to, Holdings or NCI, or their respective properties or
businesses which could result in a Material Adverse Affect, except as disclosed
in the schedules to this Agreement, (E) the authorized and outstanding capital
stock of Holdings are as set forth in Section 10.05 hereof, and all of such
outstanding shares are validly issued, fully paid and nonassessable, (F) counsel
is not aware, after due inquiry, of any existing options, causes or commitments
of any character whatsoever, or agreements to grant the same, relating to
authorized or issued shares of Holdings's or NCI's capital stock, or any
outstanding securities convertible into or exercisable for such shares, except
as disclosed in Schedule 10.05 hereof, and (G) Ezelius is the record owner, and
to the best knowledge of counsel based on diligent inquiry (including a review
of the stock books and minute books of Holdings), the beneficial owner of the
stock to be surrendered hereunder has duly endorsed certificates or stock powers
relating to such shares of stock, and is delivering good and marketable title to
such shares of stock free and clear of all Liens. Notwithstanding the foregoing,
Xxxxx Xxxxxx Xxxxxx & Xxxxxx P.A. shall not opine as to any matters relating to
NCI's subsidiaries or foreign operations. Such legal opinion will contain
certain qualifications regarding the pre-closing existence of certain pledge
agreements involving Mssrs. Hassan, Schein, Xxxxxxx and Xxxxxxx, and will
further opine that "dissenters rights" under North Carolina law may apply to
this transaction.
(g) Share Certificates. Ezelius has delivered certificates for
all 4,400,000 of his shares in Holdings and a certificate or certificates for
all 4,400,000 of Holdings' shares in NCI, together with assignments (stock
powers) for such shares, duly endorsed as specified by IFS. All of such shares
shall be transferrable free and clear of all Liens.
(h) Landlord's Consent to Assumptions. Ezelius shall have
delivered to IFS the landlord's consent to the transactions contemplated by this
Agreement, if the lease for NCI's Charlotte office facility requires such
consent.
(i) Holdings to be Debt Free. Upon completion of the
transactions pursuant to which Holdings has redeemed certain shares of stock of
the former shareholders and transferred such shares to Holdings, and in
connection herewith will cancel those security interests (pledges) therein held
by Mssrs. Xxxxx Xxxxxx, Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx and Xxxx Xxxxxxx, neither
NCI nor Holdings shall have any liabilities or indebtedness to such former
shareholders of any kind, including without limitation any obligations under any
contract or covenant with any of the aforementioned individuals.
(j) Employment Agreement and Covenant. Ezelius shall have
executed an employment agreement, and a covenant against competition, such
agreements to be in the form of Schedule 9.01(k) attached hereto and made a part
hereof.
9.02 Ezelius' and Holdings' Obligations. The obligation of Ezelius and
Holdings to complete the transactions contemplated by this Agreement is subject
to the satisfaction (or waiver by Ezelius and Holdings) as of the Closing of the
following conditions:
(a) Warranties Still True. The representations and warranties of IFS
made in this Agreement shall be true and correct in all material respects, as of
the date hereof and as of the time of the Closing as though made as of such
time, except to the extent such representations and warranties expressly relate
to an earlier date (in which case such representations and warranties shall be
true and correct in all material respects, on and as of such earlier date), in
each case except for breaches as to matters that, individually or in the
aggregate, are not reasonably likely to have a Material Adverse Effect upon IFS.
(b) Performance of Obligations. IFS shall have performed or complied in
all material respects with all obligations and covenants required by this
Agreement to be performed or complied with by IFS by the time of the Closing.
(c) Closing Certificate. IFS shall have delivered to Ezelius a
certificate dated the Closing Date and signed by an authorized officer of IFS
confirming the foregoing.
(d) No Restraints. No applicable Law or Order enacted, entered,
promulgated, enforced or issued by any Governmental Entity or other legal
restraint or prohibition is in effect which prevents or purports to prevent the
completion of the merger.
(e) Legal Opinion. IFS shall have delivered to Ezelius the written
opinion of IFS's counsel, Xxxxxx Beach & Xxxxxx, LLP, opining to the effect that
IFS's corporate existence and good standing are as set forth in Section 13.01 of
this Agreement, that they do not know or have any reasonable grounds to know of
any litigation, proceeding or governmental investigation pending or threatened
against the IFS, which seeks to enjoin the closing of the transactions
envisioned by this Agreement, and that the shares of Preferred Stock in IFS
being provided to Ezelius hereunder are validly issued and fully paid and
non-assessable, and are not the subject of any Liens except as specifically set
forth in this Agreement.
9.03 Frustration of Closing Conditions. Neither IFS nor Ezelius may
rely on the failure of any condition set forth in Sections 9.01 or 9.02,
respectively, to be satisfied if such failure was caused by such party's failure
to act in good faith or to use reasonable efforts to cause the Closing to occur
in a timely manner.
SECTION 10. REPRESENTATIONS AND WARRANTIES OF HOLDINGS AND EZELIUS.
Holdings and Ezelius hereby jointly and severally represent and warrant to IFS
as set forth below in this Section 10. The warranties and representations relate
to certain financial, tax, legal and accounting matters applicable to Holdings,
Ezelius and also to NCI which, although not a party to this Agreement, will
become a subsidiary of IFS, as a result of the transactions set forth herein.
Unless the context otherwise requires, all warranties and representations (both
affirmative and negative) made as to NCI in this Section 10 shall also be deemed
to be made as to NCI's subsidiaries but, as to such subsidiaries, are made to
the best of Ezelius' knowledge.
10.01 Authority. Holdings has all requisite corporate power and
authority to enter into this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. All acts and other
proceedings required to be taken by Holdings to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly authorized, executed and delivered by Holdings and,
assuming due authorization, execution and delivery by the other parties hereto,
constitutes a legal, valid and binding obligation of Holdings, enforceable
against Holdings in accordance with its terms.
10.02 No Conflicts. To the best of Ezelius' knowledge, and except as
set forth in Schedule 10.02, the execution and delivery of this Agreement by
Holdings and by Ezelius does not, and the consummation of the transactions
contemplated hereby and compliance with terms hereof by Holdings and by Ezelius
will not, conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets of Holdings or NCI under any provision of (i) the
certificate of incorporation or by-laws of Holdings (as amended), (ii) the
certificate of incorporation or by-laws of NCI, as amended; (iii) any material
note, bond, mortgage, indenture, deed of trust, license, lease, contract,
commitment, agreement or arrangement to which Holdings, Ezelius or NCI is a
party or by which any of their respective properties or assets are bound or
(iii) any Order or Law applicable to Holdings, Ezelius, NCI or their respective
properties or assets, other than, in the case of clauses (ii) and (iii) above,
any such items that, individually or in the aggregate, would not have a Material
Adverse Effect on the business, assets, financial condition or results of
operations of NCI taken as a whole, or on the ability of Holdings or Ezelius to
consummate the transactions contemplated hereby, subject to the cancellation of
the stock pledges to the former shareholders.
10.03 Consents. No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained or made by or with respect to Holdings or NCI
in connection with the execution, delivery and performance of this Agreement or
the consummation of the transactions contemplated hereby, other than (i)
compliance with and filings under the HSR Act, if applicable, (ii) those that
may be required solely by reason of IFS' participation in the transactions
contemplated hereby and (iii) such consents, approvals, licenses, permits,
orders, authorizations, registrations, declarations and filings the absence of
which, or the failure to make which, individually or in the aggregate, would not
have a Material Adverse Effect, and (iv) the filing of the certificate of merger
with the appropriate agency of the State of North Carolina.
10.04 Organization and Standing: Books and Records.
(a) Holdings is a corporation validly existing and in good standing
under the laws of the State of North Carolina.
(b) NCI is a corporation validly existing and in good standing under
the laws of the State of North Carolina. NCI has full corporate power and
authority and possesses all governmental franchises, licenses, permits,
authorizations and approvals necessary to enable it to own, lease or otherwise
hold its properties and assets and to carry on its business as presently
conducted, other than such franchises, licenses, permits, authorizations and
approvals the lack of which, individually or in the aggregate, would not have a
Material Adverse Effect. To the best of Ezelius' knowledge, NCI is duly
qualified and in good standing to do business as a foreign corporation in each
jurisdiction in which the conduct or nature of its business or the ownership,
leasing or holding of its properties makes such qualification necessary, except
such jurisdictions where the failure to be so qualified or in good standing,
individually or in the aggregate, would not have a Material Adverse Effect.
(c) NCI has two subsidiaries, being Network Controls, GmbH and Network
Controls International Limited. Each of such subsidiaries is a corporation duly
organized, validly existing and in good standing with the laws of the
jurisdiction in which it is incorporated and has the requisite corporate power
and authority to carry on its business as now being conducted, and has all
necessary licenses and/or permits to conduct operations in each of the foreign
countries where such subsidiaries conduct operations, except where such failure
to be so organized or in good standing, or to have such licenses or authority
would not, individually or in the aggregate, have a Material Adverse Effect upon
such subsidiary.
(d) Ezelius has delivered to IFS complete and correct copies of NCI's
certificate of incorporation and by-laws and the certificates of incorporation
and by-laws of its subsidiaries, in each case as amended to the date of this
Agreement.
10.05 Capital Stock of NCI and Holdings.
(a) The authorized capital stock of NCI consists of ten million
(10,000,000) shares of no par value Class A voting common stock, and ten million
(10,000,000) shares of no par value Class B non-voting common stock. Holdings
owns 4,400,000 shares of the Class A common stock and no shares of the Class B
common stock. A table showing the stockholdings of all shareholders (as to both
classes of common stock) and all options granted to purchase any shares of any
class of NCI's common stock is attached hereto as Schedule 10.05 and made a part
hereof. Schedule 10.05 sets forth all of the issued and outstanding capital
stock and equity securities of NCI, and there are no other shares of capital
stock or other equity securities of NCI outstanding. All of such issued shares
are duly authorized and validly issued and outstanding, fully paid and
nonassessable. Except as set forth in Schedule 10.05, none of NCI's shares (of
either class) have been issued in violation of, and none of such shares are
subject to, any purchase option, call, right of first refusal, preemptive,
subscription or similar rights under any applicable Law, NCI's certificate of
incorporation or by-laws, any contract, agreement or instrument to which NCI is
subject, bound or a party or otherwise. Except as otherwise set forth in
Schedule 10.05, there are not any outstanding warrants, options, rights,
"phantom" stock rights, agreements, convertible or exchangeable securities or
other commitments (other than this Agreement) pursuant to which NCI is or may
become obligated to issue, sell, purchase, return or redeem any shares of its
capital stock or other securities. Except as set forth in Schedule 10.05, there
are no equity securities of NCI reserved for issuance for any purpose. Except as
set forth in Schedule 10.05, there are no outstanding bonds, debentures, notes
or other indebtedness having the right to vote on any matters on which
stockholders of NCI may vote.
(b) The authorized capital stock of Holdings consists of ten million
(10,000,000) shares of no par value voting common stock. Ezelius owns 1,257,143
shares of Holdings' common stock, and Holdings has purchased or redeemed
3,142,857 shares from Xxxxxxx, with such shares presently being held in escrow
subject to certain agreements dated October 24, 1995. Subject to such pledged
shares, the stock owned by Ezelius represents 100% of the issued and outstanding
shares in Holdings. All of Ezelius' stock is duly authorized, validly issued and
outstanding, fully paid and nonassessible. None of such shares are subject to
any purchase option, call, right of first refusal, preemptive, subscription or
other similar rights under any applicable law, under Holdings certificate of
incorporation of bylaws, or under any contract, agreement or instruments to
which Holdings or Ezelius is subject, bound or a party to or otherwise, except
for the Stock Pledge Agreements with Messrs. Xxxxx Xxxxxx, Xxxxxxx Xxxxxx,
Xxxxxx Xxxxxxx and Xxxx Xxxxxxx, all of which will be satisfied and cancelled at
the Closing. There are no outstanding warrants, options, rights, "phantom" stock
rights, agreements, convertible or exchangeable securities or other commitments
(other than this Agreement) pursuant to which Holdings is or may become
obligated to issue, sell, purchase or redeem any shares of its capital stock or
other securities. There are no other class of equity securities of Holdings
authorized or reserved for issuance for any purpose. There are no outstanding
bonds, indentures, notes or other indebtedness of Holdings having a right to
vote on any matters on which stock holders of Holdings may vote.
(c) NCI owns 100% of the issued and outstanding shares of capital stock
of each of its subsidiaries listed on Schedule 10.06, and such shares have been
validly issued and are fully paid and non-assessable. The shares of such
subsidiaries are owned by NCI free and clear of all Liens. After the Closing,
Ezelius will deliver to IFS legal opinions and/or such other written
documentation as IFS may reasonably require, establishing that NCI's foreign
subsidiaries are in good standing under the laws of the jurisdictions in which
they are incorporated, and that NCI owns 100% of the issued and outstanding
stock of all such foreign subsidiaries.
10.06 Equity Interests. Except as set forth in Schedule 10.06 or in the
Most Recent Financial Statements, NCI does not directly or indirectly own any
capital stock of or other equity interests in any corporation, partnership or
other person and neither NCI nor any of the Subsidiaries is a member of or
participant in any partnership, joint venture or similar association.
10.07 Financial Statements and Related Matters.
(a) Financial Statements. Holdings has furnished IFS with copies of (i)
the consolidated balance sheets for NCI and its Affiliates, prepared by NCI and
audited by Price-Waterhouse for the fiscal years ended May 31, 1997 (the "Most
Recent Balance Sheet") and May 31, 1996, (ii) the consolidated statements of
income, stockholders' equity and cash flows of NCI and its Affiliates, for the
fiscal years ended May 31, 1997 and 1996, together with the notes to such
financial statements. The financial statements described in this Section 10.07
are collectively called the "Financial Statements". The consolidated balance
sheet, income statements, statements of cash flow, notes and all other
components of the statements as of and for the fiscal year ended May 31, 1997
are herein referred to as the "Most Recent Financial Statements". The Financial
Statements have been prepared in conformity with generally accepted accounting
principles consistently applied. The Financial Statements present fairly in all
material respects the financial position and results of operations of NCI as of
the respective dates thereof and for the respective periods indicated.
(b) Accounts Receivable. The accounts receivable reflected on the
Financial Statements (including the Most Recent Financial Statements) and the
Closing Financial Statements represent and will represent bona fide transactions
with customers in the ordinary course of business. The reserves for receivables
on the Closing Financial Statements will be made in a manner consistent with
computation of reserves for the Financial Statements.
(c) Inventories. The Inventories shown on the Most Recent Financial
Statements and the Closing Financial Statements consist and will consist of
items of a quantity and quality useable or saleable in the ordinary course of
business of NCI and the value of all items of Inventory, including obsolete
materials or materials of below-standard quality, have been written down to the
lower of cost or realizable market value, or adequate provisions have been made
therefor, and such valuations reflect the normal inventory valuation policies of
NCI.
(d) Closing Stockholders' Equity. The Closing Stockholders' Equity, as
determined by the Closing Balance Sheet to be audited by Price Waterhouse LLP
will be not less than $1,250,000.
10.08 Taxes.
(a) For purposes of this Agreement, the following definitions
shall apply:
(i) The terms "Tax" or "Taxes" shall mean all taxes, however
denominated, including any interest, penalties or other additions to tax that
may become payable in respect thereof, (A) imposed by any federal, territorial,
state, local or foreign government or any agency or political subdivision of any
such government, which taxes shall include, without limiting the generality of
the foregoing, all income or profit taxes (including but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, franchise taxes, gross receipts taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer
taxes, workers' compensation and other governmental charges, and other
obligations of the same or of a similar nature to any of the foregoing, which
are required to be paid, withheld or collected, (B) any liability for the
payment of amounts referred to in clause (A) as a result of being a member of
any affiliated, consolidated, combined or unitary group, or (C) any liability
for amounts referred to in (A) or (B) as a result of any obligations to
indemnify another person.
(ii) The terms "Return" or "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
(b) Except as set forth in Schedule 10.08, and except as could
not, either individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect, (i) all Returns required to be filed by or on behalf of
NCI and each of its subsidiaries have been duly filed on a timely basis (giving
account to any extensions obtained) and such Returns are true, complete and
correct, (ii) all Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of NCI and each of its subsidiaries under the
Internal Revenue Code of 1986, as amended (the "Code") or comparable provisions
of state, local or foreign law, have been paid in full on a timely basis or have
been accrued on the Financial Statements, and no other Taxes are payable by NCI
or any of its subsidiaries with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns) or with respect
to any completed tax fiscal year prior to the date of this Agreement, (iii) NCI
and each of its subsidiaries has withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party, (iv) there are no liens
on any of the assets of NCI or any of its subsidiaries with respect to Taxes,
other than liens for Taxes not yet due and payable or for Taxes that NCI or such
subsidiary is contesting in good faith through appropriate proceedings and for
which appropriate reserves have been established, (v) the amount of NCI's and
its subsidiaries' liability for unpaid Taxes (whether actual or contingent) for
all periods through the date of the Most Recent Financial Statements does not,
in the aggregate, exceed the amount of the liability accruals for Taxes
reflected on the Most Recent Financial Statements, (vi) each of the Financial
Statements properly accrues in accordance with generally accepted accounting
principles all liabilities for Taxes payable after the date of such Financial
Statement attributable to transactions and events occurring prior to such date,
and (vii) no liability for Taxes of NCI or any of its subsidiaries has been
incurred (or prior to Closing will be incurred) since such date other than in
the ordinary course of business.
(c) Except as set forth in Schedule 10.08, NCI has made or
will make available to Buyer true, correct and complete copies of (i) relevant
portions of income tax audit reports, statements of deficiencies, closing or
other agreements received by or on behalf of NCI or any of its subsidiaries
relating to Taxes which have not been fully paid and satisfied by NCI, and (ii)
all federal and state income or franchise tax Returns and state and local sales
and use Tax Returns for or including NCI or any of its subsidiaries for the
periods ended on and after May 31, 1995, 1996 and 1997, excluding from the
foregoing such Returns with respect to Taxes the nonpayment of which,
individually or in the aggregate, could not reasonably be expected to cause a
Material Adverse Effect. Neither NCI nor any of its subsidiaries derives income
from any state which is taxable by such state, other than states for which
Returns have been duly filed and made available to IFS.
(d) Except as disclosed in Schedule 10.08, (i) the Returns of
Holdings, NCI and their subsidiaries for the years ending on or after May 31,
1994, 1995, 1996 and 1997 have not been audited by a government or taxing
authority, nor is any such tax audit in process, pending or, to Ezelius'
knowledge, threatened, (ii) no deficiencies exist or have been asserted (either
in writing or verbally) or are expected to be asserted, with respect to Taxes of
Holdings, NCI or any of their subsidiaries, and neither Holdings, NCI nor any
such subsidiary has received written notice nor expects to receive notice that
it has not filed a Return or paid Taxes required to be filed or paid, (iii)
neither Holdings, NCI nor any of their subsidiaries is a party to any action or
proceeding for assessment or collection of Taxes, nor has such event been
asserted or threatened (either in writing or verbally) against Holdings, NCI,
any of their subsidiaries, or any of their assets, and (iv) no waiver or
extension of any statute of limitations is in effect with respect to Taxes or
Returns of Holdings, NCI or their subsidiaries.
(e) Neither Holdings, NCI nor any of their subsidiaries has
entered into any compensatory agreements with respect to the performance of
services which payment thereunder would result in a nondeductible expense to
Holdings, NCI or such subsidiary pursuant to Section 280G of the Code or an
excise tax to the recipient of such payment pursuant to Section 4999 of the
Code.
10.09 Assets Other than Real Property Interests. Schedule 10.09
contains a listing as of the date of the Most Recent Financial Statements, of
all major items of (i) computer equipment, (ii) motor vehicles owned or leased
by NCI, (iii) other fixed assets, and (iv) all Liens on the assets of NCI. Such
list includes (to the extent available) the year, make, model number, equipment
number, serial number and any other information reasonably required to identify
each item of equipment. An updated Schedule 10.09 will be delivered with the
Closing Financial Statements, such updated schedule to list the items set forth
above, determined as of the close of business on the day immediately preceding
the Closing Date. The changes reflected in the Closing Financial Statements when
compared to the Most Recent Financial Statement will have only those changes
which have occurred in the ordinary course of business, except as may otherwise
be permitted under this Agreement. Holdings and NCI have and shall have good and
valid title to all assets reflected on the Most Recent Financial Statements and
Closing Financial Statements and Schedule 10.09, except those assets sold or
otherwise disposed of since the date of the Most Recent Financial Statements in
the ordinary course of business and not reflected on the Closing Balance Sheet.
Such assets will, at Closing, be free and clear of all Liens except (i)
mechanics', carriers', workmen's, repairmen's or other like liens arising or
incurred in the ordinary course of business which are not yet due and payable,
(ii) Liens for taxes that are not due and payable, and (iii) Liens that secure
debt owed to BB&T Bank or its Affiliates, and (iv) other Liens set forth on
Schedule 10.09. The Liens described in clauses (i), (ii), (iii) and (iv) above
are hereinafter referred to collectively as "Permitted Liens". This Section
10.09 does not relate to real property or interests in real property, such items
being the subject of Section 10.10, or to interests in intellectual property,
such items being the subject of Section 10.11; however, the defined term
"Permitted Liens" shall be applicable to Sections 10.10 and 10.11.
10.10 Leased Property.
(a) NCI does not hold fee ownership or a ground lease in any
real property. Schedule 10.10 sets forth a complete list of all real property
and interests in real property leased by NCI or any of its subsidiaries
(individually, a "Leased Property" and collectively, the "Leased Properties").
NCI has good and valid title to the leasehold estates in the Leased Properties
in each case free and clear of all Liens' except (i) Permitted Liens, and (ii)
easements, covenants, rights-of-way and other similar encumbrances or
restrictions of record which neither prevent or impair NCI's conduct of its
business, nor render title unmarketable. NCI shall use its best efforts to
obtain estoppel certificates from the landlords of all parcels of Leased
Property.
(b) NCI subleases a portion of its Charlotte facility and
certain furniture to Visual Access Corporation under a sublease which terminates
April 30, 1998, and which provides for annual sublease rentals in the amount of
$25,884. NCI is not in default with respect to the terms of such sublease, and
Ezelius has no reason to believe that all of the basic rentals and additional
rentals accrued pursuant to the terms of such sublease will not be paid in full
by the subtenant when due.
10.11 Intellectual Property and Software Rights.
(a) Schedule 10.11(a) sets forth a true and complete list of
all material patents, trademarks (registered or unregistered), copyrights and
applications therefor, owned, used, filed by or licensed to NCI, and all
proprietary software programs owned by NCI, including programs under development
(collectively, "Intellectual Property").
(b) Schedule 10.11(b) lists all software licensed by third
parties to NCI, except for agreements relating to off-the-shelf computer
software licensed to NCI for use on its own computers (such as, for example,
"Windows" or other operating system software and various non-custom application
programs).
(c) Schedule 10.11(c) lists all software licenses issued by
NCI to third parties, and all distribution rights relating to software granted
to third parties, excepting only routine licenses or sublicenses granted to end
user customers in the ordinary course of business.
(d) NCI owns or NCI has the legal right to use, execute,
reproduce, display, perform, modify, enhance, distribute, prepare derivative
works of and sublicense, without payment to any other person, all Intellectual
Property listed in any portion of Schedule 10.11 and the consummation of the
transactions contemplated hereby will not conflict with, alter or impair any
such rights.
(e) Except as set forth in Section 10.11 and except for
non-exclusive, non-transferrable software licenses granted by NCI to its
end-user customers in the ordinary course of business, NCI has not granted any
material options, licenses or agreements of any kind relating to its
Intellectual Property or the marketing or distribution thereof. Subject to the
rights of third parties set forth in Schedule 10.11 and except for Permitted
Liens, all Intellectual Property is free and clear of all Liens. NCI is not
bound by or a party to any material options, licenses or agreements of any kind
relating to the intellectual property of any other person, except for: (i) such
agreements or other instruments as may be set forth in Schedule 10.11; (ii)
agreements relating to computer software licensed to NCI for its use; and (iii)
dealer and distributorship agreements made in the ordinary course of business,
pursuant to which NCI, as dealer or distributor, has the right or license, in
connection with its activities as a dealer or distributor, to use the trade
marks, trade names and other intellectual property of others. Except as set
forth in Schedule 10.11, the conduct of the business of NCI as presently
conducted does not violate, conflict with or infringe the intellectual property
of any other person.
(f) Except as set forth in Schedule 10.11, (i) no claims are pending as
of the date of this Agreement against NCI or any of its subsidiaries by any
person with respect to the ownership, validity, enforceability, effectiveness or
use of any Intellectual Property and (ii) neither NCI nor any of its
subsidiaries has received any communications alleging that NCI has violated any
rights relating to intellectual property of any person.
10.12 Contracts. Except as set forth in Schedule 10.12 or the Most
Recent Financial Statements, NCI is not a party to or bound by any:
(a) Employment Agreements. Employment agreement other than (i)
agreements terminable at will by NCI, or (ii) agreements which terminate by
their own terms at or prior to the Closing.
(b) Covenants. Covenant of NCI not to compete that materially
impairs the operation of the business of NCI as presently conducted.
(c) Related Party Contracts. Agreement, contract or other
arrangement with (i) Ezelius or (ii) any Affiliate of Ezelius.
(d) Leases.
(i) Lease, sublease or similar agreement with any person under which
NCI is a lessor or sublessor of, or makes available for use to such person, (i)
any portion of any Leased Property occupied by NCI; (ii) any other property of
NCI, except for agreements providing for the sale or licensing of software to
customers in the ordinary course of business.
(ii) lease or similar agreement with any person under which NCI is
lessee of, or holds or uses, any machinery, equipment, vehicle or other tangible
personal property owned by any person, with a remaining unpaid obligation in
excess of $10,000 for the balance of the term to which NCI is firmly bound.
(e) Loan Documents. Agreement, contract or other instrument
under which NCI has borrowed any money from, or issued any note, bond, debenture
or other evidence of indebtedness to, any person or any other note, bond,
debenture or other evidence of indebtedness issued to any person in any such
case which, individually, is in excess of $10,000.
(f) Guaranties. Agreement, contract or other instrument under
which NCI has directly or indirectly guaranteed indebtedness, liabilities or
obligations of any person (other than endorsements for the purpose of collection
in the ordinary course of business), in any such case which, individually, is in
excess of $10,000.
(g) Security Agreements. Agreement, contract or other
instrument granting a security interest, Lien or other Encumbrance upon any
asset of NCI other than Permitted Liens.
(h) Indemnities. Agreement, contract or other instrument
providing for indemnification of any person with respect to material liabilities
other than provisions in NCI's certificate of incorporation, by-laws or
corporate resolutions relating to indemnification by NCI of its officers and
directors to the extent permitted by North Carolina's corporation laws.
(i) Other agreements. Other agreement, contract or other
instrument to which NCI is a party or by or to which it or any of its assets
or business is bound or subject to that has a future liability to any person
in excess of $25,000 (computed individually as to each Contract.)
Except as set forth in Schedule 10.12, to the best knowledge of Ezelius,
all agreements, contracts, leases, licenses, commitments or instruments of NCI
required to be set forth in the Schedules (collectively, the "Contracts") are
valid, binding and in full force and effect and are enforceable by NCI in
accordance with its terms. Except as set forth in the Schedules, NCI has
performed all material obligations required to be performed by it to date
under the Contracts and NCI is not (with or without the lapse of time or the
giving of notice, or both) in breach or default in any material respect
thereunder.
Schedule 10.12 does not include and is not intended to include software
license agreements, purchase orders or other agreements made with customers
in the ordinary course of business.
10.13 Litigation. Schedule 10.13 sets forth a list as of the date this
Agreement is signed of all pending or threatened lawsuits or claims against
NCI. Schedule 10.13 includes, as to each lawsuit, the following information: (i)
the names and designations of all parties to the claim or action (ii) the court
in which such action is pending and index number or other court file number
(iii) a brief description of the nature of the case and nature of the alleged
injury (iv) the amount claimed by the plaintiff in the pleadings and (v) the
current status of any settlement negotiations, including the latest offer
made by each party. Except as set forth in Schedule 10.13, NCI is not a party
or subject to or in default under any material Order. Except as set forth in
Schedule 10.13, to the knowledge of Ezelius, there are no pending or threatened
investigations of NCI by any Governmental Entity which, if resulting in entry
of any Order, would have a Material Adverse Effect. Ezelius agrees to
indemnify IFS and NCI from any Claims made by Xxxx Xxxxx, whose prior suit
(disclosed in Schedule 10.18) was dismissed without prejudice.
10.14 Insurance. To the best of Ezelius' knowledge, the insurance
policies owned and maintained by NCI, that are material to NCI are in full force
and effect, all premiums due and payable thereon have been paid (other than
retroactive or retrospective premium adjustments or other payments that may be
required under worker's compensation, disability or general liability policies
that are not yet, but may be, required to be paid) and no notice of cancellation
or termination has been received with respect to any such policy that has not
been replaced on substantially similar terms prior to the date of such
cancellation. Workers compensation and general liability premiums are audited
after completion of each policy year. NCI has not been notified in writing or
otherwise by any insurance carrier that such carrier denies coverage for any
claim which has been made by NCI with respect to such carrier.
10.15 Benefit Plans.
(a) Schedule 10.15 identifies each material employee
pension, retirement, profit sharing, stock bonus, stock option, stock purchase,
bonus, incentive, deferred compensation, hospitalization, medical, dental,
vision, vacation, insurance, sick pay, disability, severance, or other plan,
fund, program, policy, contract or arrangement providing employee pensions or
benefits maintained or contributed to by NCI in which any employees or former
employees of NCI participates or under which any of them has accrued and remains
entitled to any benefits (all such plans, funds, programs, policies, contracts
and arrangements being referred to as the "Plans"). NCI has made available to
Buyer copies of all written Plans, and all summary plan descriptions for such
plans.
(b) NCI has not been involved in any transaction that is
likely to cause NCI to be subject to liability with respect to a plan
subject to Title IV of ERISA (a "Title IV Plan") to which NCI contributed or was
obligated to contribute during the six year period ending on the Closing Date
under Section 4062 or 4069 of ERISA. NCI has filed all required returns and
reports with the Department of Labor and with the Internal Revenue Service,
as required by all laws and regulations applicable to the Plans. NCI has not
incurred any material liability under Title IV of ERISA that is likely to become
or remain a liability of NCI or Buyer after the Closing Date.
(c) Except as set forth in Schedule 10.15, (A) all
contributions and deposits of employee' elective deferrals to the Plans that
may have been required to be made in accordance with ERISA or the Code have
been timely made, (B) there has been no application for or waiver of the minimum
funding standards imposed by Section 412 of the Code with respect to any Plan
and (C) no Plan maintained by NCI has an "accumulated funding deficiency"
within the meaning of Section 412 (a) of the Code as of the most recent plan
year.
(d) To the best knowledge of Ezelius, each of NCI's
retirement plans has been the subject of a determination letter from the
Internal Revenue Service to the effect that such retirement plan is qualified
and exempt from Federal income taxes under Sections 401 and 501, respectively,
of the Code, and such determination letters have not been revoked nor, to the
knowledge of Ezelius, has revocation been threatened.
(e) To the best knowledge of Ezelius, neither NCI, nor
any of the Plans, any trust created thereunder or any trustee or administrator
thereof, has knowingly engaged in a transaction in connection with which NCI is
likely to be subject to either a material liability or a material civil penalty
assessed pursuant to Sections 409 or 502(i) or (1) of ERISA, or a material
tax imposed pursuant to Section 4975 of the Code. Each of the Plans has been
operated and administered in all material respects in accordance with applicable
laws, including but not limited to ERISA and the Code. Except as disclosed on
Schedule 10.15, there are no material pending or, to the knowledge of Ezelius,
threatened claims against any of the Plans, by any employee or beneficiary
covered under any such Plan, or otherwise involving any such Plan (other than
routine claims for benefits). NCI is in compliance with all reporting and
disclosure obligations imposed by ERISA and the Code with respect to all of its
Plans. Ezelius is not aware of any fact or circumstance that would afford a
basis for the Internal Revenue Service to disqualify any Plan which is a pension
benefit plan, as defined in ERISA.
10.16 Absence of Changes or Events. Since the date of the Most
Recent Financial Statements, there has not been any Material Adverse Change in
the business, assets, financial condition or results of operations of NCI, taken
as a whole, other than changes relating to United States or foreign economies in
general or the banking/financial institution software industry in general, and
not specifically relating to NCI.
10.17 Compliance with Applicable Laws.
(a) General Laws. Except as set forth in Schedule 10.17(a),
NCI is in compliance with all applicable Laws, including those relating to
occupational health and safety, except for instances of noncompliance that,
individually or in the aggregate, would not have a Material Adverse Effect.
NCI has not received any written communication since January 1, 1992 from a
Governmental Entity that alleges that NCI was or is not in compliance in any
material respect with any Law except where such noncompliance would not have
a Material Adverse Effect.This Section 10.17(a) does not relate to environmental
matters, which are the subject of Section 10.17(b), Benefit Plans, which are
the subject of Section 10.15, employee and labor matters, which are the subject
of Section 10.18, or taxes, which are the subject of Section 10.08.
(b) Environmental Laws. Except as set forth in Schedule
10.17(b):
(i) NCI has not received any written communication from a Governmental
Entity that alleges that NCI is not in compliance, in any material respect, with
Environmental Laws (as defined below), except where such noncompliance would not
have a Material Adverse Effect.
(ii) NCI has obtained all permits, licenses and governmental
authorizations that are required for NCI to conduct its businesses under
Environmental Laws ("Environmental Permits"). NCI has been, and presently is in
compliance with Environmental Laws and the terms of any Environmental Permits,
except for any noncompliance with Environmental Laws and/or Environmental
Permits that would not have a Material Adverse Effect.
(iii) Hazardous Substances (as defined below) have not been
transported, generated, stored or disposed of by NCI from, at, on or under any
Leased Property during the period of time such Leased Property was occupied by
NCI, in a manner or in quantities or concentrations that would violate any
Environmental Law or Environmental Permit, except to the extent that such
violations would not have a Material Adverse Effect. For purposes of this
Agreement, "Hazardous Substance" means and includes those substances deemed
hazardous, toxic or a pollutant under any Environmental Law (defined below),
including without limitation, asbestos or any substance containing asbestos in
friable condition, the group of organic compounds known as polychlorinated
biphenyls, gasolene, kerosene, diesel fuel, lubricating oils, any
petroleum-based product, gasolene-based product, any product containing
constituents of gasolene or petroleum, flammable explosives, radioactive
materials, chemicals known or believed to cause cancer or reproductive toxicity,
pollutants, effluents, contaminants, emissions or related substances and any
items included in the definition of hazardous or toxic waste, materials or
substances under any Environmental Law. "Environmental Laws" collectively means
and includes any present local, state and federal law relating to the
environment and environmental conditions including without limitation, the
Resource Conservation and Recovery Act of 1986 ("RCRA"), 42 U.S.C. 6901 et seq.,
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"), 42 U.S.C. 9601-9657, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("XXXX"), the Hazardous Materials Transportation
Act, 49 U.S.C. 5101, et seq., the Federal Water Pollution Control Act, 33 U.S.C.
1251 et seq., the Clean Air Act, 42 U.S.C. 741 et seq., the Clean Water Act, 33
U.S.C. 401 et seq., the Clean Water Act, 33 U.S.C. 1251 et seq., and any
regulations promulgated under any of the foregoing statutes.
(iv) NCI has received no notice of any currently pending or
currently threatened environmental claims against any Leased Property or NCI
that would have a Material Adverse Effect or which alleges that NCI is
responsible or potentially responsible to clean up or pay the costs of cleanup
of any Hazardous Substances.
(v) NCI has not entered into any agreement obligating NCI to pay
any cleanup costs, nor has NCI entered into any agreement in connection with its
business that may now, or in the future, require it to pay, reimburse, guaranty,
indemnify or hold harmless any person for or against environmental liabilities
and costs, except to the extent that any of the foregoing may be contained in
existing lease agreements relating to the Leased Properties.
(vi) Ezelius has given Buyer access to all of NCI's records and
files concerning environmental compliance, including, without limitation, all
environmental audits and/or environmental assessment reports pertaining to any
parcel of the Leased Property and NCI's operations at or on any parcel of the
Leased Property.
10.18 Employee and Labor Matters. Except as set forth in Schedule
10.18: (i) there is not now pending, nor since January 1, 1996, has there been,
any labor strike, work stoppage or lockout pending against NCI; (ii) there is no
unfair labor practice charge or complaint against NCI pending, or, to the
knowledge of Ezelius, threatened, before the National Labor Relations Board; and
(iii) there are no pending, or, to the knowledge of Ezelius, threatened,
grievances against NCI as to which there is a reasonable probability of adverse
determination and that, if so determined, individually or in the aggregate,
would have a Material Adverse Effect.
10.19 No Undisclosed Liabilities. Except for (i) liabilities set
forth in the various schedules to this Agreement, (ii) liabilities disclosed in
the Most Recent Financial Statements, and (iii) trade payables and accrued
expenses in the ordinary course of business after the date of the Most Recent
Financial Statements, NCI does not now, and as of the Closing Date will not
have, any liabilities or obligations, fixed, accrued, contingent, assumed or
otherwise, and whether due or to become due.
10.20 Information Supplied. None of the information supplied to
IFS in connection with its due diligence contains any untrue statements of a
material fact or omits 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 are made, not misleading.
10.21 Holdings to be Debt Free. Upon completion of the
transactions pursuant to which Holdings is redeeming certain shares of stock
from security interests (pledges) held by Mssrs. Xxxxx Xxxxxx, Xxxxxxx Xxxxxx,
Xxxxxx Xxxxxxx and Xxxx Xxxxxxx, Holdings shall have no liabilities or
indebtedness of any kind, and NCI shall have no liabilities of any kind to such
former shareholders, including without limitation any obligations under any
contract or covenant with any of the aforementioned individuals.
SECTION 11. FURTHER REPRESENTATIONS AND WARRANTIES OF EZELIUS.
Ezelius further represents and warrants to IFS as follows:
11.01 Execution. This Agreement has been duly authorized executed
and delivered by Ezelius and, assuming due authorization, execution and delivery
by the other parties hereto, constitutes a legal, valid and binding obligation
of Ezelius, enforceable against him in accordance with its terms.
11.02 No Conflicts. The execution and delivery of this Agreement
by Ezelius does not, and the consummation of the transactions contemplated
hereby and compliance with the terms hereof by Ezelius will not, conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, or result
in the creation of any Lien upon any of the properties or assets of Holdings or
NCI under any provision of any note, bond, mortgage, indenture, deed of trust,
license, lease, contract, commitment, agreement or arrangement to which Holdings
or NCI is a party.
11.03 The Shares. Ezelius has good and valid title to the shares
in Holdings to be delivered to IFS hereunder, free and clear of any Liens except
the lien of a certain pledge (security interest) held by Xxxx Xxxxxxx pursuant
to various agreements dated on or about October 24, 1995 which will be removed
at or prior to the Closing. Holdings has good and valid title to all 4,400,000
shares of class A voting common stock in NCI owned of record by Holdings, free
and clear of any Liens, except the liens of certain pledges (security interests)
held by Xxxxx Xxxxxx, Xxxxxxx Xxxxxx and Xxxxxx Xxxxxxx pursuant to various
agreements dated on or about April 23, 1993, all of which will be removed at or
prior to the Closing.
SECTION 12. COVENANTS OF EZELIUS.
12.01 Access. Prior to the Closing, Ezelius shall cause NCI to
give Buyer and its representatives, employees, counsel and accountants
reasonable access, during normal business hours and upon reasonable notice, to
the personnel, properties, books and records of NCI; provided, however, that
such access does not unreasonably disrupt the normal operations of NCI. Nothing
set forth herein shall require any employee of NCI to provide any information
regarding NCI in any other format or otherwise to manipulate or reconfigure any
data regarding NCI's business, business prospects, assets, financial performance
or condition or operations.
12.02 Ordinary Course of Business. With such exceptions as are (i)
expressly permitted by the terms of this Agreement, or (ii) consented to in
writing by IFS, from the date hereof to the Closing, the business of NCI shall
be conducted in the ordinary course in substantially the same manner as
presently conducted. NCI shall make all reasonable efforts consistent with past
practices to preserve existing relationships with customers, suppliers and
others with whom NCI deals. Except (i) as permitted by this Agreement, or (ii)
approved in writing by IFS, Ezelius shall not cause or allow NCI to do any of
the following:
(a) amend its certificate of incorporation or by-laws, or comparable
governing instruments;
(b) redeem or otherwise acquire any shares of its capital stock or
issue any capital stock or any option, warrant or right relating thereto or any
securities convertible into or exchangeable for any shares of capital stock,
except for shares issued to employees who have exercised stock options
previously disclosed in Schedule 10.05 hereof.
(c) adopt or amend in any material respect any Plan, except as required
by law;
(d) grant to any executive officer or employee any increase in
compensation or benefits, except for individual raises granted to non-executive
staff in the ordinary course to meet competitive conditions relating to employee
retention;
(e) incur or assume any liabilities, obligations or indebtedness for
borrowed money or guarantee any such liabilities, obligations or indebtedness;
(f) permit, allow or suffer any of its assets to become subjected to
any Lien of any nature whatsoever which would have been required to be set forth
in Schedule 6.09 if existing on the date of this Agreement;
(g) loan or advance any amount to, or sell, transfer or lease any of
its assets to any shareholder or any of their Affiliates.
(h) make any change in any method of accounting or accounting practice
or policy other than those required by GAAP;
(i) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire any assets that are material, individually
or in the aggregate, to NCI;
(j) make or incur capital expenditures that exceed $10,000 for any one
item, or in the aggregate (net of proceeds from sales of assets) exceed Twenty
Five Thousand Dollars ($25,000);
(k) sell, lease or otherwise dispose of any of its assets that are
material, individually or in the aggregate, to NCI, other than Inventory sold or
licensed to customers in the ordinary course of business;
(l) enter into or renew, extend or modify any lease of real property;
(m) enter into any written employment agreement with any employee,
except with IFS' written consent; or
(n) agree, whether in writing or otherwise, to do any of the foregoing.
12.03 Final Tax Returns; Audit of Prior Year Returns.
(a) If any audit of any tax returns filed by Holdings and/or NCI with
respect to tax years ending prior to the Closing Date results in the assessment
of any taxes against Holdings and/or NCI, then Ezelius shall pay such taxes and
shall indemnify and hold Holdings, NCI and/or IFS harmless therefrom, unless
such liability results from actions taken by or at the direction of IFS after
the Closing.
(b) The income tax returns for NCI and Holdings for the period
including the Closing Date shall be prepared by Price Waterhouse LLP who shall
sign the acknowledgement of such return(s) as tax preparer, and shall be
transmitted (together with all tax working papers relied upon and used to
prepare such tax returns) to Xxxxxx Xxxx & Xxxxxx, P.C. for inclusion in the
consolidated returns of IFS.
12.04 Satisfaction of Certain Indebtedness. At or prior to the Closing,
Holdings shall pay such sums to Mssrs. Hassan, Schein, Xxxxxxx and Xxxxxxx as
may be necessary to cause them to release any and all pledged shares of NCI and
Holdings, and to fully satisfy any obligation owed by NCI and/or Holdings to
such aforementioned individuals, such that, upon completion of the closing of
the merger set forth herein, both NCI and Holdings shall have absolutely no debt
or obligation whatsoever to any of the aforementioned individuals, including
without limitation any obligation under any purchase agreement or covenant not
to compete.
SECTION 13. REPRESENTATIONS AND WARRANTIES OF IFS. IFS hereby represents
and warrants to Holdings and Ezelius as follows:
13.01 Authority. IFS is a corporation validly existing and in good
standing under the laws of the State of Delaware. IFS has all requisite
corporate power and authority to enter into this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
All acts and other proceedings required to be taken by IFS to authorize the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and properly taken. This
Agreement has been duly authorized, executed and delivered by IFS and, assuming
due authorization, execution and delivery by the other parties hereto,
constitutes a legal, valid and binding obligation of IFS, enforceable against
IFS in accordance with its terms.
13.02 No Conflicts; Consents. The execution and delivery of this
Agreement by the IFS does not, and the consummation of the transactions
contemplated hereby and compliance with the terms hereof by the IFS will not
conflict with, or result in any violation of or default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material benefit
under, any provision of (i) the certificate of incorporation or by-laws of IFS
or the comparable governing instruments of any subsidiary of IFS, (ii) any
material note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment, agreement or arrangement to which IFS or any subsidiary of
IFS is a party or by which any of their respective properties or assets are
bound, or (iii) any Order applicable to IFS or any subsidiary of IFS other than,
in the case of clauses (ii) and (iii) above, any such items that, individually
or in the aggregate, would not have a material adverse effect on the ability of
IFS to consummate the transactions contemplated hereby and perform all its
obligations hereunder. No consent, approval, license, permit, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained or made by or with respect to IFS or any of
its subsidiaries or Affiliates in connection with the execution, delivery and
performance of this Agreement or the performance by IFS of its obligations
hereunder.
13.03 Actions and Proceedings, etc. There are no (i) outstanding
Orders against IFS or any of its Affiliates, (ii) lawsuits, actions or
proceedings pending or, to the knowledge of IFS, threatened against IFS or any
of its Affiliates or (iii) investigations by any Governmental Entity that are,
to the knowledge of IFS, pending or threatened against IFS or any of its
Affiliates, which have or could have a material adverse effect on the ability of
IFS to consummate the transactions contemplated hereby and perform all its
obligations hereunder.
SECTION 14. MUTUAL COVENANTS. Each of the parties covenants and agrees
as follows:
14.01 Consents. The parties hereto mutually agree to cooperate
with each other in obtaining all consents that may be required in connection
with this transaction, including consents from private third parties and from
Government Entities.
14.02 Cooperation. After the Closing, upon reasonable written
notice, IFS on the one hand, and Ezelius, on the other hand, shall furnish or
cause to be furnished to each other and their employees, counsel, auditors and
representatives access, during normal business hours, to such information and
assistance relating to NCI as is reasonably necessary for financial reporting
and accounting matters, the preparation and filing of any tax returns, reports
or forms or the defense of any tax claim or assessment. No party shall be
required by this Section 14.02 to take any action that would unreasonably
interfere with the conduct of its business or unreasonably disrupt the normal
operations of NCI or IFS.
14.03 Publicity. Holdings and Ezelius agree that, from the date
hereof through the Closing Date, no public release or announcement concerning
the transactions contemplated hereby shall be issued by either of them without
the prior consent of IFS (which consent shall not be unreasonably withheld).
Likewise, IFS agrees to use all diligent efforts to provide Ezelius with advance
knowledge of any public announcements and an opportunity to make comments
thereon, but Ezelius acknowledges that IFS is subject to certain securities laws
and regulations which require timely release of certain information to the
public in connection with transactions of the type envisioned by this Agreement.
14.04 Further Assurances. From time to time, as and when requested
by either party hereto, the other party shall use all reasonable efforts to
execute and deliver, or cause to be executed and delivered, all such documents
and instruments and shall take, or cause to be taken, all such further or other
actions, as may be reasonably necessary to consummate the transactions
contemplated by this Agreement.
SECTION 15. TERMINATION.
15.01 Right to Terminate. Anything contained herein to the
contrary notwithstanding, this Agreement may be terminated and the transactions
contemplated hereby abandoned at any time prior to the Closing Date:
(a) mutual consent - by mutual written consent of
Holdings, Ezelius, Acquisition Sub and IFS; or
(b) by Ezelius - by Ezelius or Holdings if any of the
conditions set forth in Section 9.02 shall have become incapable of fulfillment,
and shall not have been waived by Ezelius; or
(c) by IFS - by IFS if any of the conditions set forth in
Section 9.01 shall have become incapable of fulfillment, and shall not have been
waived by IFS; or
(d) by either party - by any party if the Closing does
not occur within sixty (60) days after this Agreement has been executed.
(e) The right of any party to terminate pursuant to
subsections (b) or (c) is dependent upon such party not being in breach in
any material respect of any of its material representations, warranties,
covenants or agreements contained in this Agreement, and with respect to
subsection (d) not having been a material cause of the delay of the Closing.
15.02 Notice of Termination; Return of Documents; Confidentiality.
In the event of termination by a party pursuant to this Section 16, written
notice thereof shall forthwith be given to the other(s) and the transactions
contemplated by this Agreement shall be terminated, without further action by
any party. If the transactions contemplated by this Agreement are terminated as
provided herein:
(a) Each party shall return to the other, all documents
and other material (including all copies thereof, whether maintained in hard
copy, on computer disk or on computer hard drive) received from such other
party relating to the transactions contemplated hereby, whether so obtained
before or after the execution hereof; and
(b) all confidential information received by the parties
with respect to the business of the other parties shall be treated in accordance
with the existing written Confidentiality Agreement, which shall remain in full
force and effect if this Agreement is terminated prior to Closing.
15.03 Provisions Which Survive Termination. If this Agreement is
terminated and the transactions contemplated hereby are abandoned as described
in this Section 15, this Agreement shall become void and of no further force or
effect, except for all provisions hereof relating to the obligation of the
parties to return and/or to keep confidential information and data obtained by
such party, (ii) Section 18 relating to certain expenses, (iii) Section 14.03
relating to publicity, and (iv) Section 22.04 relating to finder's fees and
broker's fees. Nothing in this Section shall be deemed to release any party from
any liability for any breach by such party of the terms and provisions of this
Agreement or to impair the right of any party to compel specific performance by
the other party of its obligations under this Agreement.
SECTION 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
(a) The representations, warranties, covenants and
indemnifications made by Holdings and Ezelius under this Agreement shall survive
the Closing for a period of three (3) years after the Closing Date, except: (i)
that the representations, warranties, covenants and indemnifications made by
Holdings and Ezelius which relate to Taxes shall survive the closing for a
period of six (6) years after the due date for filing NCI's federal income tax
return for the current fiscal year; and (ii) the indemnification relating to the
JetForm litigation shall continue until such matter is finally settled or
proceeds to final judgment as provided in subsection 17.01(b).
(b) The representations, warranties, covenants and
indemnifications made by IFS under this Agreement shall survive the Closing for
a period of three (3) years.
(c) The confidentiality covenant in subsection 15.02
shall, if the Closing shall fail to occur, survive for a period of three
(3) years after execution of this Agreement.
SECTION 17. INDEMNIFICATION AND PROCEDURES RELATING TO THE ESCROWED
SHARES.
17.01 Indemnification by Ezelius:
(a) In General. Subject to the dollar limit or "cap"
set forth in subsection 17.01(c), and pursuant to the conditions set forth
herein, Ezelius agrees to indemnify, defend and hold harmless IFS from and
against all demands, claims, actions or causes of action, assessments, losses,
damages, liabilities, costs, and reasonable expenses and including, without
limitation, interest, penalties and reasonable attorneys fees and disbursements
(collectively "Claims"), asserted against or imposed upon or incurred by IFS
after the Closing, and (i) resulting from or by reason of any facts
constituting a material breach of any representation, warranty, or covenant
of Holdings and Ezelius contained in this Agreement,and (ii) any Claim for Taxes
relating to NCI's and Holdings' Returns for years ending prior to the Closing
Date, but only to the extent that such Claim for Taxes exceeds any reserves
for Taxes set forth on the Most Recent Financial Statements.
(b) JetForm Litigation. Subject to (i) the dollar limit
or "cap" set forth in subsection 17.01(c), and (ii) further subject to IFS'
obligation to assume or absorb the first $100,000 of such amount, Ezelius agrees
to indemnify, defend and hold harmless IFS and NCI from and against all Claims
asserted against or imposed upon or incurred by NCI or IFS as a result of the
existing legal action pending against NCI and generally known as the JetForm
litigation. Such indemnification shall continue until such time as the JetForm
litigation is finally settled in writing, or until such time as a judgment or
verdict has been rendered in the JetForm litigation, and the time within which
any party may appeal such judgment or verdict shall have expired, or, if an
initial appeal is taken, the time within which to further appeal shall have
expired. The JetForm indemnification is not subject to the three (3) year time
limitation otherwise applicable to litigation-related Claims. The parties agree
that costs and expenses incurred in the defense of such litigation may be paid
by NCI after the Closing (including attorneys' fees and disbursements), but all
of such costs and expenses shall be applied against the first $100,000 of
expense and risk being borne by IFS. Thus, for example, if the defense costs
paid by NCI after the Closing amounted to $40,000, only the first $60,000 of
any adverse judgment or settlement would be borne by IFS, and amounts thereafter
would be indemnified by Ezelius.
(c) Dollar Limit or Cap. Except as set forth below,
in no event shall the aggregate of all amounts paid by Ezelius to IFS and/or
NCI by reason of any one or more material breaches of any warranties or
representations made by Holdings and/or Ezelius in this Agreement exceed the
aggregate dollar limit or "cap" of Five Hundred Thousand Dollars ($500,000).
The only exceptions to this $500,000 absolute limit are (i) claims arising
by reason of Ezelius' failure to deliver clear title free of all Liens on his
1,257,143 shares in Holdings, or Xxxxxxx' 3,142,857 shares in Holdings, or any
of Holdings' 4,400,000 shares in NCI, and (ii) any purchase price adjustment
made under subparagraph 4(c)(ii) by reason of the fact that the Closing
Stockholders' Equity is less than $1,250,000. The value of any shares taken
from escrow to satisfy any breach of warranty or representation (computed
based upon the closing price for the 15 days prior to the date such shares were
delivered from escrow) shall be applied to reduce the $500,000 limit.
17.02 Indemnification by IFS. IFS shall indemnify and hold
harmless Ezelius against any Claims sustained or suffered by Ezelius arising
from a material breach of any representation, warranty or covenant of IFS
contained in this Agreement.
17.03 Registration of Shares; Escrowed Shares.
(a) (i) Registration of All Shares. Subject to the
provisions of clause (ii) below, IFS agrees to register all 87,094 of the shares
of Preferred Stock being issued as merger consideration at the Closing. IFS
agrees to contact its SEC attorneys within three (3) business days after
the Closing to initiate the SEC registration process, and to prosecute such SEC
registration diligently to conclusion. IFS agrees to pay all legal fees, filing
fees and other costs and expenses associated with the registration of such
87,094 shares. Both IFS and Ezelius agree to cooperate in the registration
process, and to supply all information and copies of all documents that may
be required by counsel and/or by the SEC in connection with such registration
process.
(ii) Duke's Consent. Pursuant to the terms and
conditions of the underwriting agreement with Duke and Company ("Duke") by which
IFS registered its initial issuance of Preferred Stock, IFS is not allowed
to grant any further registration rights with respect to the Preferred Stock
until February 28, 1999, without the consent of Duke. IFS has obtained such
consent, a copy of which shall be provided to Ezelius at Closing.
(iii) Limitations on Sale ("Selling Schedule").
Ezelius hereby covenants and agrees that, after the SEC registration process
set forth above is complete, Ezelius will not sell more than Fifteen Thousand
(15,000) shares in the 60-day calendar period beginning on February 2, 1998,
and no more than ten thousand (10,000) shares in any 60-day period thereafter.
The above selling schedule is intended to be cumulative, such that if Ezelius
sells less than 10,000 shares in any 60-day calendar period, he may roll the
unused portion forward into the next 60-day calendar period. Thus, for example,
if Ezelius sold 8,000 shares in any 60-day calendar period, he would be entitled
to sell 12,000 shares in the following 60-day calendar period. Notwithstanding
the foregoing cumulative feature, in no event shall Ezelius sell more than
15,000 shares in any single 60-day period, without the permission of Duke.
Ezelius also acknowledges that there are certain time periods when securities
laws restrict the sale of shares by directors and/or other insiders, and Ezelius
covenants and agrees not to sell or attempt to sell shares during any such
"quiet period" when the sale of shares is restricted by any federal or state
securities law, rule, regulation or order. IFS agrees to use reasonable to cause
its SEC attorneys to provide Ezelius with a copy of the laws and regulations
which so restrict the sale of shares within 15 days after the date of the
closing. Ezelius further agrees to open an account with Duke, and to deposit all
IFS Preferred Stock which is not pledged with the Escrow Agent, into such Duke
account for a minimum period of one (1) year from the Closing Date and to only
sell such stock during such one-year period from such Duke account.
(b) Fifty-Nine Thousand Twenty-Four (59,024) shares of
the IFS Preferred Stock being distributed to Ezelius at Closing shall be
registered in his name on the books of IFS' transfer agent. The remaining
Twenty - Eight Thousand Seventy (28,070) shares of IFS Preferred Stock being
distributed to Ezelius at the Closing and certain of the earn-out shares issued
to Ezelius under subsection 4(c)(iii) shall be pledged to IFS to secure the
various warranties, representations and covenants made by Ezelius herein, and to
further secure any purchase price adjustment made under subsection 4(c)(ii) by
reason of the Closing Stockholders' Equity amounting to less than $1,250,000.
All pledged shares of Preferred Stock shall be delivered to an escrow agent
mutually agreeable to the parties (the "Escrow Agent") such shares to be
accompanied by duly endorsed assignments of stock (stock powers) endorsed in
blank by Ezelius. The escrowed shares shall be subject to the following terms
and conditions:
(i) Escrow for JetForm litigation. Fourteen Thousand
Thirty-Five (14,035) shares of Preferred Stock having an approximate value of
$100,000 shall be pledged to secure Ezelius' indemnification obligations with
respect to the so called "JetForm litigation" as set forth in subsection
17.01(b) hereof. Such $100,000 worth of stock shall continue to be held in
escrow until such time as the JetForm litigation is settled or until a final
judgment is rendered and the time within which any party may appeal such
judgment has expired. If the settlement or final judgment results in an
obligation to pay JetForm a sum in excess of $100,000, then an amount of shares
of Preferred Stock having a value equal to the amount of such excess shall be
delivered by the Escrow Agent to IFS, with any remaining shares being delivered
to Ezelius. If the settlement or final judgment results in an obligation to pay
JetForm a sum which, when added to the expenses incurred after the Closing Date
in defending the JetForm litigation, amounts to less than $100,000, then all
shares escrowed pursuant to this subsection 17.03(b)(i) shall be promptly
returned to Ezelius.
(ii) General Indemnification. An additional Fourteen
Thousand Thirty-Five (14,035) shares of Preferred Stock having an approximate
value of $100,000 shall be pledged and delivered to the Escrow Agent to secure
IFS as to Ezelius' indemnification obligations for any material breach of
warranties,representations and covenants and also for Tax Claims as set forth in
subsection 17.01(a) hereof. If no Claim for indemnification arises within three
(3) years after the Closing Date, then such shares shall be returned to Ezelius.
If one or more Claims (excluding the JetForm matter) arises during such three
(3) year period, then an amount of shares equal to the full amount of the Claim
(including in the case of litigated claims, any interest accrued and to be
accrued, and any other costs sought by the claimant or plaintiff) shall continue
to be held in escrow until such time as such Claim(s) are either settled or a
final judgment or award is rendered, and the time within which any party may
appeal such award or judgment has expired. If any such settlement or judgment
results in a sum payable to the claimant or plaintiff, then shares having a
value equal to the amount of such settlement or judgment shall be released from
escrow and paid over to IFS, and any remaining shares shall be either: (A)
continued to be held by the Escrow Agent, if the three year escrow period has
not yet expired; or (B) delivered to Ezelius if such three year period has
expired and there are no further pending Claims. It is understood and agreed
that any such Claims against Ezelius shall first be applied against Ezelius'
escrowed shares pursuant to this subsection 17.03(b)(ii).
(iii) Earn-out shares. Any earn-out shares which
become due under the provisions of subsection 4(c)(iii) hereof shall be
delivered (together with executed stock powers) to the Escrow Agent, to be held
to secure Ezelius' indemnification obligations under subsection 17.01(a) hereof,
until such time as the total value of all shares of IFS Preferred Stock
delivered to the Escrow Agent under this subsection 17.03(b)(iii) shall have
reached $200,000. If no Claim for indemnification arises within six (6) years
after the due date for filing NCI's tax returns for the year which includes the
Closing Date, then such shares shall be returned to Ezelius. If one or more
Claims arises during such six year period, then an amount of shares equal
to the full amount of the Claim (including any interest and/or penalties
assessed by the taxing authority) shall continue to be held in escrow until such
time as such Claim(s) are either settled or a final assessment or judgment is
rendered, and the time within which any party may appeal such assessment or
judgment has expired. If any such settlement, assessment or judgment results
in a sum payable to the taxing authority, then shares having a value equal to
the amount of such settlement, assessment or judgment shall be released from
escrow and paid to the taxing authority, and any remaining shares shall be
either: (A) continue to be held by the Escrow Agent, if the six year escrow
period has not yet expired; or (B) delivered to Ezelius if such six year period
has expired and there are no further pending Tax Claims.
(c) Notwithstanding that shares are being held in escrow,
Ezelius may, at any time that such shares are saleable under the federal and New
York State securities laws, request that shares held in escrow be sold. If IFS
determines that the escrowed shares are within the selling schedule limits set
forth in subsection 17.03(a)(iii) above and that sale of such shares is not
restricted by statute or any SEC rule, then IFS shall direct the escrow agent to
deliver such shares to a broker named by Ezelius for sale in an open market
transaction, provided however that the net proceeds of such sale (less any
personal income taxes owed by Ezelius as a result of such sale) shall be
redelivered by the broker to the Escrow Agent, with the proceeds to serve as
continuing security for the same obligations for which the shares sold
originally stood.
(d) If IFS seeks indemnification from Ezelius for any
Claims subject to indemnification under this Agreement, IFS shall notify Ezelius
and the Escrow Agent in writing, the notice to comply with the provisions of
Section 20 hereof. If Ezelius agrees that the Claim is justly due, an amount of
shares having a value equal to the value of the Claim (based upon the average
closing price of the shares for the preceeding 15 trading days)shall be released
from escrow and returned to IFS. If Ezelius disputes the Claim, the procedures
of Section 17.04 shall apply with respect to the defense and settlement of such
Claim. In such event, however, the escrowed shares shall remain in escrow and
shall not be released to IFS or Ezelius until disposition of the Claim.
(e) At such time as all indemnified Claims are finally
resolved, the shares so held shall be distributed between IFS and Ezelius (i)
in the case of a settlement, in accordance with any mutual written direction
given to the Escrow Agent by the parties (ii) in the case of a judgment on
a direct Claim rendered in favor of IFS or, in the case of a third party Claim,
a judgment in favor of the third party claimant against IFS or NCI, when such
judgment becomes final and non-appealable, the Escrow Agent shall pay the amount
of the judgment and all other indemnified costs to IFS,or (iii) if the parties
are successful in the defense of such claim, the expenses of the defense shall
be paid from the escrowed IFS shares and any remainder shall be returned to
Ezelius.
(f) All fees and out-of-pocket costs and expenses
incurred by the Escrow Agent in administering the escrow shall be borne by IFS.
(g) The escrowed shares are intended to partially secure
Ezelius' indemnification obligations hereunder, but Ezelius' indemnity
obligations shall not be limited to the value of such pledged securities, and
IFS may pursue all such other rights and remedies it may have against Ezelius
with respect to indemnified Claims, subject to the dollar cap set forth in
subsection 17.01(c).
17.04 Procedures for Defense and Settlement.
(a) Whenever any Claim shall arise for indemnification
under this Agreement, the party seeking indemnification (the "Indemnified
Party") shall promptly notify the party from whom indemnification is sought
(the "Indemnifying Party") and the Escrow Agent of the Claim. The notices shall
be sent to the addresses specified in Section 20. The notice shall (i) contain
a brief description of the facts constituting the Claim, (ii) set forth the
amount of the Claim (or an estimate thereof if the amount is not known or
ascertainable with reasonable certainty), and (iii) have attached thereto a copy
of any summons, complaint or other process that was served upon the Indemnified
Party. The Indemnified Party shall give the Indemnifying Party written notice of
the commencement of any legal action within fifteen (15) days after receipt of
the summons or other legal process commencing such action, but failure to notify
the Indemnifying Party within the above time limit shall discharge the
Indemnifying Party from its liabilities and obligations hereunder only if and to
the extent that the Indemnifying Party is prejudiced thereby.
(b) (i) IFS Indemnifying Ezelius. Where IFS is the
Indemnifying Party, IFS shall assume the defense of the Claim, at its own
expense and with counsel of its own choosing. Where such indemnified Claim
involves a third party, IFS may settle such Claim without the necessity of
obtaining the consent of Ezelius provided that IFS obtains written releases
from all holders of such Claim in connection with such settlement, which
releases are distributable to Ezelius upon the execution of the settlement
documents, and are not to be held in escrow pending installment payment or other
future performance by IFS. All other settlements made with respect to any
indemnified Claims in which Ezelius is a defendant shall require his consent.
(ii) Indemnifying IFS. Where Ezelius is the
Indemnifying Party, then Ezelius may select counsel and shall pay for and assume
control of the defense of the Claim, but Ezelius may not settle any such Claim
without obtaining IFS' consent.
SECTION 18. PAYMENT OF CERTAIN EXPENSES.
(a) If the transactions called for in this Agreement do not close,
then all professional fees and expenses of IFS related to this Agreement and all
transactions contemplated hereunder shall be borne and paid by IFS, and all
professional fees and expenses of Ezelius, Holdings and NCI related to this
Agreement and the transactions contemplated hereunder shall be borne and paid by
NCI or Ezelius.
(b) If the transactions envisioned by this Agreement do close,
then:
(i) IFS shall be responsible for its legal, accounting and other
professional fees and expenses which relate to the negotiation, preparation and
execution of this Agreement, and the Closing of the transactions contemplated
hereunder, and
(ii) NCI will pay the expenses incurred in auditing the Closing Balance
Sheet, up to a maximum of $ 32,000, with the remainder of such expenses to be
borne by IFS.
(iii) NCI shall pay the expenses of the attorneys, accountants and
other professionals for services rendered in representing Holdings and Ezelius,
as well as all expenses incurred in preparing NCI's and Holdings' final tax
returns.
(c) IFS shall be responsible to order and pay for such searches of
the public records for UCC-1 financing statements, judgments, tax liens and
other Liens as IFS may deem appropriate. In the event that any search discloses
liens beyond (i) Liens expressly stated herein to be satisfied at Closing and
(ii) Permitted Liens, then the expenses of filing or recording documents
necessary to satisfy such liens shall be borne by Ezelius.
(d) In the event of any litigation involving this Agreement, if
any party succeeds in establishing that any other party committed a material
breach of this Agreement, the prevailing party shall be entitled to an award of
attorneys' fees and disbursements, in such amount as may be set by the court or
other tribunal determining the outcome of such claim proceeding.
SECTION 19. AMENDMENTS AND WAIVERS. No amendment, modification or
supplement to this Agreement shall be effective unless it shall be in writing
and signed by all parties hereto. Any waiver of this Agreement shall not be
effective unless made in a writing signed by the party against whom the
enforcement of such waiver is sought. A waiver given in any case shall only
apply to that particular act or omission, and shall not be effective as to
further acts or omissions, regardless of whether they be of the same or similar
nature.
SECTION 20. NOTICES. All notices or other communications required or
permitted to be given hereunder shall be in writing and shall be (i) delivered
by hand; (ii) sent by prepaid telex, cable or facsimile confirmed by first class
mail; or (iii) sent, postage prepaid, by registered, certified or express mail
or reputable overnight courier service and shall be deemed given when so
delivered by hand, telexed, cabled or facsimiled, or if mailed, three days after
mailing (one business day in the case of express mail or overnight courier
service), as follows:
If to Ezelius or Holding: If to IFS:
Per Olof Ezelius IFS International, Inc.
c/o Network Controls Rensselaer Technology Park
International 000 Xxxxxx Xxxx
Xxxx Xxxxxxxx Xxxxx, Xxxxx 000 Troy, New York 12180
Xxxxxxxxx, XX 00000-0000
with a copy to: with a copy to:
Xxxxxx X'Xxxxx, Esq. Xxxxxx X. Xxxxxxxx, Esq.
Xxxxx Xxxxxxx Xxxxxx Xxxxxx Beach & Xxxxxx, LLP
& Xxxxxx, P.A. 00 Xxxxxxxxx Xxxxx Xxxxxxxxx
221 X. Xxxxx Street Albany, New York 12211-2391
Xxxxxxxxx, Xxxxx Xxxxxxxx 00000
Any party may change address for receipt of notice by written notice to
the other party.
SECTION 21. Bank Credit Line. The parties acknowledge that Ezelius and
Xxxx Xxxxxxx have personally guaranteed a credit line from BB&T Bank in the
principal amount of $600,000 for the benefit of NCI on which interest is payable
monthly, with a final maturity date of October 15, 1998. IFS agrees to use its
best efforts to secure the release of the personal guaranties of Ezelius and
Xxxx Xxxxxxx from such credit line promptly after Closing. If IFS is not able to
secure such releases, then IFS will indemnify Ezelius and Xxxx Xxxxxxx from any
obligation they may incur to BB&T Bank and its successors and assigns as
guarantors of the NCI credit facility.
SECTION 22. Construction and miscellaneous.
22.01 Interpretation; Exhibits and Schedules.
(a) The headings contained in this Agreement, in any Exhibit or
Schedule hereto and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Any capitalized terms used in any Schedule or Exhibit but not
otherwise defined therein, shall have the meaning as defined in this Agreement.
(b) Various disclosures made by Holdings, NCI or Ezelius are set
forth on the schedules to this Agreement. Schedules may either be annexed to
this Agreement or separately bound in a booklet of Schedules. In either case,
all information set forth on any schedule, whether such schedule is attached
hereto or separately bound, shall be deemed incorporated in and made a part of
this Agreement, as if set forth fully in the body of this Agreement. Unless
otherwise specifically stated in the text of the section to which such schedule
relates, and until updated Schedules are delivered at Closing, the various
Schedules are intended to speak as of the date this Agreement is signed. In
addition, all such schedules shall be amended as of the Closing, so that they
shall include all intervening information and shall continue to be true and
correct as of the closing date. The amended schedules may likewise be attached
hereto or set forth in a separately bound disclosure booklet, but shall for all
purposes be deemed to be a part of this Agreement. If any agreement, document or
other item of disclosure would be properly set forth on more than one schedule,
the inclusion of such information on any one schedule shall be deemed to be
sufficient disclosure, and it shall not be necessary to repeat such disclosure
on any other schedules which also pertain to the same subject matter.
22.02. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more such counterparts have been signed by
each of the parties and delivered to IFS and Ezelius. Any counterpart which has
been signed by all parties may be introduced into evidence in any action or
proceeding without having to produce or account for the others. Likewise, the
existence of this Agreement may be proved by the introduction into evidence of
separately signed counterparts, so long as substantially identical copies have
been signed by all parties.
22.03. Entire Agreement. This Agreement (including the schedules
hereto) and the Confidentiality Agreement contain the entire agreement and
understanding between the parties with respect to the subject matter hereof.
This Agreement supersedes all prior agreements and understandings relating to
such subject matter, except that if the Closing fails to occur, the
Confidentiality Agreement continues in full force and effect. IFS shall not be
liable or bound to Ezelius, nor shall Ezelius be bound to IFS in any manner by
any representations, warranties or covenants relating to such subject matter
except as specifically set forth herein or in the Confidentiality Agreement.
22.04. Brokers. Ezelius and IFS shall each respectively be solely
responsible for all fees, expenses and other costs payable to, or incurred by,
brokers or finders that have acted for such party in connection with this
Agreement or the transactions contemplated hereby, including any brokerage fee,
finder's fee or commission in respect thereof.
22.05. Severability. If any provision of this Agreement (or any portion
thereof) or the application of any such provision (or any portion thereof) to
any person or circumstance shall be held invalid, illegal or unenforceable in
any respect by a court of competent jurisdiction, such invalidity, illegality or
unenforceability shall not affect any other provision hereof (or the remaining
portion thereof) or the application of such provision to any other persons or
circumstances.
22.06. Assignment. This Agreement and the rights and obligations
hereunder shall not be assignable or transferable by any party hereto without
the prior written consent of the other parties hereto. Any attempted assignment
in violation of this Section shall be void.
22.07. No Third Party Beneficiaries. The parties mutually acknowledge
and agree that this Agreement is intended for their exclusive benefit, and that
neither party intends that there be any third party beneficiaries to any of the
provisions of this Agreement.
22.08. Governing Law. Except to the extent that compliance is required
with the merger statutes of the State of North Carolina, this Agreement shall be
governed by and construed in accordance with the internal laws of the State of
New York applicable to agreements made and to be performed entirely within such
State, without regard to the conflicts of law principles of such State.
22.09. Binding Effect and Legal Construction. This Agreement shall bind
and inure to the benefit of the parties, their respective heirs, executors,
administrators, other personal representatives, and successors and assigns. If
any parts of this Agreement are found to be void or unenforceable, the remaining
provisions shall nevertheless be binding with the same effect as though the void
parts were deleted. In construing this Agreement, feminine pronouns shall be
substituted for those masculine in form (and vice versa), and plural terms shall
be substituted for singular and singular for plural, in any place where the
context so requires.
[The balance of this page left intentionally blank.]
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed.
IFS INTERNATIONAL, INC.
Dated: January 30, 1998 By: /s/ Xxxxx Xxxxxxxx
___________ __________________________
Xxxxx Xxxxxxxx
NCI ACQUISITION CORP.
Dated: January 30, 1998 By: /s/ Xxxxx Xxxxxxxx
___________ ______________________________
Xxxxx Xxxxxxxx
NCI HOLDINGS, INC.
Dated: January 30, 1998 By: /s/ Per Olof Ezelius
___________ _________________________________
Per Olof Ezelius, Chairman & CEO
Dated: January 30, 1998 By: /s/ Per Olof Ezelius
___________ ________________________________
Per Olof Ezelius, Individually
SCHEDULE 4(c)(iii)
FORMULA FOR DETERMINING "EARN-OUT" SHARES
A. The following is the formula for determining whether any additional
shares of IFS' Preferred Stock is to be issued after the Closing, based upon the
post-closing performance of NCI and its subsidiaries.
(1) FY Ended April 30, 1999.
If the consolidated Pre-Tax Profit of NCI and its subsidiaries
("PTP") is less than $100,000, no additional IFS Preferred Stock will be issued
to Ezelius.
If consolidated PTP exceeds $100,000 but is less than $200,000,
IFS will issue Ezelius $2 worth of IFS Preferred Stock for each PTP dollar
generated above the minimum. For example, if PTP is $175,000, that will generate
$150,000 worth of IFS Preferred Stock ($175,000 - $100,000 = $75,000 x 2 =
$150,000).
If consolidated PTP exceeds $200,000, then $200,000 in IFS
Preferred Stock will be issued plus $3 worth of IFS Preferred Stock for each PTP
dollar generated above $200,000. For example, if PTP is $300,000 then Ezelius
would receive $500,000 worth of IFS Preferred Stock.
These PTP-based Preferred Stock grants will be enhanced or reduced
depending on Consolidated Revenue achievement by NCI and its subsidiaries
relative to a minimum target of $5.0 Million. If Consolidated Revenues of NCI
and its subsidiaries ("Consolidated Revenues") fall below $5.0 Million, then the
above Preferred Stock grants will be reduced accordingly by the percentage
reduction in Consolidated Revenues. If Consolidated Revenues are greater than
the $5.0 Million, then the PTP-based Preferred Stock grants will be increased by
an amount equal to the percentage that Consolidated Revenues over $5.0 Million
bear to $5.0 Million. For example, if Consolidated Revenues were $6.0 Million,
the amount of Preferred Stock issued by reason of the PTP performance clause
would increase by 20% ($1,000,000 / $5,000,000 = 20%).
Any consolidated pre-tax losses of NCI (or the division operating NCI's
business) ("PTL") from FY 4/30/99 will be rolled over to FY 4/30/00 for the
purpose of calculating the consolidated PTP performance in the FYE 4/30/00.
(2) FY Ending April 30, 2000.
If consolidated PTP is less than $100,000, then no additional IFS
Preferred Stock will be issued to Ezelius.
If consolidated PTP exceeds $100,000 but is less than $300,000,
then IFS shall issue Ezelius $2 worth of IFS Preferred Stock for each PTP dollar
generated within that range. For example, if PTP is $225,000 IFS will issue
$250,000 worth of IFS Preferred Stock.
If consolidated PTP exceeds of $300,000, then IFS shall issue
Ezelius $400,000 in IFS Preferred Stock plus $3 worth of IFS Preferred Stock for
each PTP dollar generated above $300,000. For example, if PTP is $400,000 IFS
will issue $700,000 worth of IFS Preferred Stock ($400,000 + [3 x $100,000] =
$700,000).
These PTP-based Preferred Stock grants will be enhanced or reduced
depending on Consolidated Revenue achievement relative a minimum target of $6.5
Million. If Consolidated Revenues fall below $6.5 Million, then the above
Preferred Stock grants will be reduced accordingly by the same percentage as the
reduction in revenues. If Consolidated Revenues are greater than the $6.5
Million, then the above Preferred Stock grants will be increased by the
percentage equal to the percentage increase in Consolidated Revenues. For
example, if Consolidated Revenues equal $5.0 Million, the amount of IFS
Preferred Stock issued by reason of the PTP performance clause would be reduced
by 23.08% ($6.5 Million - $5.0 Million = $1.5 Million / $6.5 Million = 23.08%).
Any PTL from FY 4/30/00 will be rolled over to FY 4/30/01 for the purpose
of calculating the consolidated PTP performance in FY 4/30/01.
(3) FY Ended April 30, 2001.
If consolidated PTP is less than $100,000, no additional IFS
Preferred Stock will be issued to Ezelius.
If consolidated PTP exceeds $100,000 but is less than $400,000, $2
worth of IFS Preferred Stock will be issued to Ezelius for each PTP dollar
generated within that range. For example, if PTP is $350,000, IFS will issue
$500,000 worth of IFS Preferred Stock.
If consolidated PTP exceeds $400,000, IFS will issue $600,000 in
IFS Preferred Stock plus $3 worth of IFS Preferred Stock for each PTP dollar
generated above $400,000. For example, if PTP is $500,000 IFS will issue
$900,000 worth of IFS Preferred Stock.
These PTP-based Preferred Stock grants will be enhanced or reduced
depending on Consolidated Revenue achievement relative to a minimum target of
$8.0 Million. If Consolidated Revenues fall below $8.0 Million, then the above
Preferred Stock grants will be reduced by a percentage equal to the percentage
reduction in Consolidated Revenues. If Consolidated Revenues are greater than
the $8.0 Million, then the above Preferred Stock grants will be increased by a
percentage equal to the percentage increase in Consolidated Revenues.
(4) Three Year Cumulative Payment.
If the three year cumulative PTP exceeds $1,750,000, then IFS will
issue to Ezelius $1.0 Million in IFS Preferred Stock plus $2 in IFS Preferred
Stock for each PTP dollar generated above $1,750,000 subject to a cap or maximum
to be agreed upon after final negotiations.
This Preferred Stock grant will be enhanced or reduced depending on the
three year Consolidated Revenue achievement relative to a minimum target of
$20.0 Million. If the three year Consolidated Revenues fall below $20.0 Million,
then the Preferred Stock grants based upon the 3-year cumulative PTP will be
reduced by a percentage equal to the percentage reduction in Consolidated
Revenues. If the three year Consolidated Revenues are greater than the $20.0
Million, then the above Preferred Stock grants will be increased by a percentage
equal to the percentage increase in Consolidated Revenues.
B. For purposes of all Preferred Stock grants under clauses A(1) -
(4), the IFS Preferred Stock shall be valued at the average closing price for
the fifteen (15) trading days prior to the end of the fiscal year upon which
performance is being calculated, subject however to a minimum price of Four
Dollars ($4.00) per share and a maximum price of Sixteen Dollars ($16.00) per
share. For example, the Preferred Stock grants based upon Consolidated Revenues
and PTP for FYE 4/30/99 shall be computed based upon the closing prices for the
15 trading days immediately preceding 4/30/99, subject to the above-stated
minimum and maximum.
C. The above provisions shall be equitably adjusted to take into
account any stock splits, reverse splits, stock dividends or other adjustments
occurring with respect to IFS' Preferred Stock after the Closing.
D. In computing PTP for purposes of computing any entitlement to
earn-out shares, no deduction shall be taken for interest paid or accrued on any
indebtedness owed to IFS and incurred by Holdings in connection with the
redemption of founders shares.
E. All capitalized terms used herein shall have the meanings
ascribed to such terms in the Plan and Agreement of Merger to which this
Schedule is attached.
