AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SOUTHERN SOFTWARE GROUP, INC.,
SSGI ACQUISITION CORP.
AND
SECURED SERVICES, INC.
TABLE OF CONTENTS
Page
ARTICLE I
MERGER OF NEWCO WITH AND INTO SSI 2
1.1 Merger and Surviving Corporation 2
1.2 Effectiveness of the Merger 2
1.3 Conversion of Newco Stock and SSI Stock 2
1.4 Effect of Merger 4
1.5 Directors and Officers of the Surviving Corporation 4
ARTICLE II
CONDITIONS PRECEDENT TO THE MERGER 5
2.1 Conditions Precedent to the Merger 5
2.2 Further Assurances 5
2.3 Authority to Change Name; Designation of Series A
Convertible Preferred Stock 5
2.4 Rule 701 Shares 5
2.5 SSI Employee Stock Option Plan 6
2.6 "Piggy Back" Registration Rights 6
2.7 Resignations of Present Directors and Executive
Officers and Designation Of New Directors and Executive
Officer 6
2.8 Assets and Liabilities of SSGI at Closing 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES 7
3.1 Representations and Warranties of SSGI 7
3.2 Representations and Warranties of SSI 13
3.3 Omitted
ARTICLE IV
COVENANTS 17
4.1 17
4.2 18
ARTICLE V
CERTAIN COVENANTS 19
5.1 Directors' Meeting 19
5.2 Conduct of Business Pending the Reorganization 19
5.3 Disclosure 19
5.4 Omitted
5.5 Access 19
5.6 No Solicitation 20
ARTICLE VI
CONDITIONS 20
6.1 Conditions to the Obligations of SSI 20
6.2 Conditions to the Obligations of SSGI 21
ARTICLE VII
OMITTED
ARTICLE VIII
CLOSING DATE 22
8.1 22
ARTICLE IX
OMITTED
ARTICLE X
MISCELLANEOUS 23
10.1 Termination 23
10.2 Expenses 23
10.2A Non Survival 23
10.3 Brokers 23
10.4 Arbitration 23
10.5 Other Actions 24
10.6 Entire Agreement; Waiver and Amendment 24
10.7 Applicable Law 24
10.8 Descriptive Headings 24
10.9 Notices 24
10.10 Counterparts 25
10.11 Publicity 25
10.12 Gender; Number 25
10.13 Schedules 25
10.14 Binding Effect 25
EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of July 7,
2003 (the "Execution Date") but effective as of July 1, 2003 (the "Effective
Date"), among SOUTHERN SOFTWARE GROUP, INC., a Delaware corporation ("SSGI"),
SSGI ACQUISITION CORP., a Delaware corporation ("Newco"), and SECURED
SERVICES, INC., a Delaware corporation ("SSI").
W I T N E S S E T H:
WHEREAS, contemporaneous with the execution of this Agreement, SSI is
entering into an agreement, which, upon the Merger described below, will be
effective as of the Effective Date, to acquire certain assets of Xxxxxx.xxx,
Inc. ("Dolfin") through the issuance of its stock, a copy of which agreement
is annexed hereto as Exhibit A (the "Dolfin Acquisition"); and
WHEREAS, contemporaneous with the execution of this Agreement, SSI is
entering into an agreement, which, upon the Merger described below, will be
effective as of the Effective Date, to acquire the operating assets related to
the VACMAN Enterprise product line of Vasco Data Security International, Inc.
("VASCO") through the issuance of its stock and a senior secured note in favor
of VASCO, a copy of which agreement is annexed hereto as Exhibit B (the
"VACMAN Acquisition"); and
WHEREAS, SSI is contemplating issuing shares of its common stock pursuant
to a private offering described in Exhibit C (the "Financing"); and
WHEREAS, the closing of the Dolfin Acquisition, the VACMAN Acquisition
and the Financing are all being effected as of the Effective Date and are
closing contemporaneously with the closing of the Merger described below; and
WHEREAS, the respective Boards of Directors of each of SSGI, Newco and
SSI deem it desirable and in the best interests of their respective
corporations and stockholders that Newco merge with and into SSI (the
"Merger") in accordance with this Agreement and the applicable laws of the
State of Delaware;
WHEREAS, Newco is a wholly owned subsidiary of SSGI; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under Section 368(a)(1)(A) and 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I
MERGER OF NEWCO WITH AND INTO SSI
1.1 Merger and Surviving Corporation.
(a) Pursuant to the applicable law of the State of Delaware, Newco
shall merge with and into SSI, and SSI shall be the surviving corporation
after the Merger (the "Surviving Corporation") and shall continue to exist
under the provisions of the General Corporation Law of the State of Delaware
("GCL"). The name of the Surviving Corporation shall be SecureD Services, Inc.
The separate existence of Newco shall cease upon the Merger Effective Date (as
defined below).
(b) The Certificate of Incorporation of SSI shall from and after the
Merger Effective Date, be the Certificate of Incorporation of the Surviving
Corporation, whose name shall be changed to SSI Operating Corp., until amended
in accordance with the GCL.
(c) The By-Laws of SSI shall, from and after the Merger Effective
Date, be the By-Laws of the Surviving Corporation, until altered or amended in
accordance with the GCL.
1.2 Effectiveness of the Merger. In the event that all of the
conditions precedent to the obligations of each of the parties hereto as
hereinafter set forth shall either have been satisfied or waived, a
Certificate of Merger under the applicable provisions of the GCL (the "Merger
Certificate"), shall be delivered for filing on the Closing Date (as defined
below) to the Secretary of State of Delaware and shall become effective upon
the acceptance of the filing of such Merger Certificate by said Secretary of
State, which date shall be the "Merger Effective Date" for purposes of this
Agreement and which date shall be as soon as practicable after the Closing.
1.3 Conversion of Newco Stock and SSI Stock. The manner and basis of
converting the shares of capital stock of Newco and SSI shall be as follows:
(a) Each of the issued and outstanding shares of common stock of Newco
(the "Newco Stock"), issued and outstanding at the Merger Effective Date and
all rights with respect thereto shall, by reason of and simultaneous with the
Merger and without any action on the part of Newco, be converted into and
shall become one share of the Surviving Corporation's common stock, $0.001 par
value. For the avoidance of doubt, any share of Newco Stock converted
pursuant to this Section 1.3(a) shall not be subsequently converted into an
SSGI Common Share.
(b)(i) Each share of common stock of SSI, par value $0.001 per
share (the "SSI Common Shares") issued and outstanding at
the Merger Effective Date shall by reason of and
simultaneous with the Merger and without any action on the
part of the holder thereof except with respect to any
Dissenting Shares (as defined in Section 1.3(b)(iii) below)
be cancelled and converted into the right to receive one
share of SSGI common stock, par value $0.0001 per share (the
"SSGI Common Shares").
(ii) Each share of Series A Convertible Preferred Stock of SSI,
par value $0.001 per share (the "SSI Convertible Preferred
Shares" and, collectively with the SSI Common Shares, the
"SSI Shares"), issued and outstanding at the Merger
Effective Date shall by reason of and simultaneous with the
Merger and without any action on the part of the holder
thereof be converted into the right to receive one share of
SSGI Series A Convertible Preferred Stock, par value $0.0001
per share (the "SSGI Convertible Preferred Shares").
(iii) Any SSI Shares constituting Dissenting Shares as of the
Closing Date shall not be converted into or represent the
right to receive SSGI Common Shares or SSGI Convertible
Preferred Shares, as the case may be, but shall be entitled
only to receive payment for such Dissenting Shares in
accordance with the provisions of Section 262 of the GCL,
provided that the holder of such Dissenting Shares shall
comply with each of the requirements and procedures set
forth therein. If any holder of Dissenting Shares shall
effectively withdraw or lose his rights as a dissenting
shareholder under such provisions, then such Dissenting
Shares shall be converted into the right to receive SSI
Shares in accordance with the provisions of this Section
1.3. For purposes hereof, "Dissenting Shares" shall mean
any SSI Shares issued pursuant to the Dolfin Acquisition,
the VACMAN Acquisition, the Financing or otherwise
subsequent to the Effective Date and outstanding as of the
Closing Date as to which the holder thereof has complied
with each of the requirements and procedures for dissenting
shareholders set forth in Section 262 of the GCL in order to
be entitled to receive payment for such shares.
(iv) Immediately following the Merger Effective Date, each holder
of certificates evidencing SSI Shares (other than any
Dissenting Shares), upon the surrender of such certificates
to SSGI, properly endorsed, shall be entitled to receive a
certificate registered in the name of such holder for a like
number of SSGI Common Shares or SSGI Convertible Preferred
Shares, as the case may be, pursuant to the conversion
formula set forth in Section 1.3(b)(i).
(v) All rights with respect to SSI Shares shall cease and
terminate at the Merger Effective Date, notwithstanding that
any certificates evidencing said shares shall not have been
surrendered to SSGI, and the holders of said shares shall
have no interest in or claims against the Surviving
Corporation, except for the right to receive SSGI Common
Shares or SSGI Convertible Preferred Shares (collectively,
the "SSGI Shares") in accordance with the terms hereof.
(c) Immediately following the Merger Effective Date, any and all
options, warrants or other rights to acquire, redeem, convert or register any
SSI Shares, all of which are set forth on Schedule 3.2(e)(ii), shall be
converted into an option, warrant or other right, as the case may be, to
purchase, redeem, convert or register a like number of shares of SSGI Common
Shares or SSGI Convertible Preferred Shares, as the case may be, at the same
price and on the same terms.
1.4 Effect of Merger.
(a) Except as otherwise specifically set forth herein, the identity,
existence, purposes, powers, franchises, rights and immunities of SSI shall
continue unaffected and unimpaired by the Merger, and the corporate identity,
existence, purposes, powers, franchises and immunities of Newco shall be
merged into SSI, and SSI, as the Surviving Corporation, shall be fully vested
therewith. The separate existence and corporate organization of Newco (except
insofar as may be continued by applicable law) shall cease as of the Merger
Effective Date.
(b) At the Merger Effective Date:
(i) the rights, privileges, goodwill and franchises and all
property, real, personal and mixed and all debts,
liabilities, obligations and penalties due on whatever
account and all other things in action belonging or accruing
to Newco shall be bargained, conveyed, granted, confirmed,
transferred, assigned and set over to and vested in the
Surviving Corporation, by operation of law and without
further act or deed, and all property and rights and
liabilities, and all and every other interest of Newco shall
be as effectively the property, rights and interests and
liabilities of the Surviving Corporation, as they were of
Newco; and
(ii) no action or proceeding, whether civil or criminal, pending
at the Merger Effective Date by or against either SSI or
Newco, or any stockholder, officer or director thereof,
shall xxxxx or be discontinued by the Merger, but may be
enforced, prosecuted, settled or compromised as if the
Merger had not occurred, or the Surviving Corporation may be
substituted in such action or proceeding in place of SSI, or
Newco, as the case may be; and
(iii) all rights of employees and creditors and all liens upon the
property of SSI and Newco shall be preserved unimpaired,
limited in lien to the property affected by such liens at
the Merger Effective Date, and all of the debts,
liabilities, obligations and duties of SSI and Newco shall
attach to the Surviving Corporation, and shall be
enforceable against the Surviving Corporation to the same
extent as if all such debts, liabilities, obligations and
duties had been incurred or contracted by the Surviving
Corporation. Without limiting the foregoing, all debts,
liabilities, obligations and duties incurred or contracted
by SSI pursuant to either the Dolfin Acquisition or the
VACMAN Acquisition shall be enforceable against the
Surviving Corporation in accordance with this Section
1.4(b)(iii).
1.5 Directors and Officers of the Surviving Corporation. The officers
and members of the Board of Directors of the Surviving Corporation shall
consist of those persons who were officers and directors of SSI as of the
Closing Date who shall hold office from and after the Merger Effective Date,
in accordance with the By-Laws of the Surviving Corporation until the next
annual meeting of officers or stockholders as the case may be and until their
respective successors shall have been duly elected and qualified.
ARTICLE II
CONDITIONS PRECEDENT TO THE MERGER
2.1 Conditions Precedent to the Merger.
(a) SSI shall have completed the Dolfin Acquisition, effective as of
the Effective Date;
(b) SSI shall have completed the VACMAN Acquisition, effective as of
the Effective Date;
(c) The Financing shall have been completed, effective as of the
Effective Date;
(d) On or before the Execution Date, those holders of SSI Shares
listed on Schedule 2.1(d) shall have unanimously approved the Merger and the
transactions contemplated by this Agreement. The parties hereto acknowledge
and agree that the approval required by this Section 2.1(d) was obtained by
SSI as of June 23, 2003; and
(e) On or before the Execution Date, all SSI Stockholders and certain
SSGI stockholders who are listed in Schedule 2.1(e)(i) shall have executed and
delivered the Lock-Up/Leak-Out Agreement attached hereto as Schedule
2.1(e)(ii).
2.2 Further Assurances. On the Execution Date and from time to time
thereafter, the parties shall execute such additional instruments and take
such other action as may be necessary to accomplish the intent of this
Agreement.
2.3 Authority to Change Name; Designation of Series A Convertible
Preferred Stock; Amendment and Restatement of By-Laws. On the Execution Date,
SSGI shall: amend its Certificate of Incorporation to change its name to
"SecureD Services, Inc." and to include a Designation for the required class
of SSGI Convertible Preferred Shares, having the rights, privileges,
preferences and restrictions concerning the issuance of additional SSGI
Convertible Preferred Shares outlined in Schedule 2.3 hereof; and amend and
restate its By-Laws in the form attached hereto as Schedule 2.3(a).
2.4 Rule 701 Shares. On or before the Closing Date, to the extent
applicable, SSGI shall adopt, ratify and approve any rights, privileges and
preferences of any stockholders of SSI relative to SSI Shares lawfully issued
under Rule 701 of the Commission, to the extent reasonably required or
necessary to ensure that any such securities may be resold by the holders
thereof in accordance with Rule 701.
2.5 SSI Employee Stock Option Plan. On or before the Closing Date,
SSGI shall adopt, ratify and assume the "SSI Employee Stock Option Plan"
attached hereto as Schedule 2.5 and incorporated herein by reference as the
SSGI Employee Stock Option Plan, abandoning all other SSGI stock option or
similar compensation plans of SSGI existing at the Closing, provided that all
SSGI options outstanding as of the Closing Date shall be converted to and
become a part of the new SSGI Stock Option Plan, on like terms and conditions.
2.6 "Piggy Back" Registration Rights. If SSGI at any time proposes to
register any of its securities under the Securities Act of 1933, as amended
(the "Securities Act"), for sale to the public, whether for its own account or
for the account of other security holders or both, except with respect to
registration statements on Forms X-0, X-0 or another form not available for
registering the common stock of SSI or SSGI that is subject to the Lock-
Up/Leak-Out Agreement referenced in Schedule 2.1(e)(ii) (the "Registrable
Securities") for sale to the public, each such time, provided the Registrable
Securities are not otherwise freely publicly tradeable or have not been
otherwise registered for resale by SSGI pursuant to an effective registration
statement, SSGI will give at least 25 days' prior written notice to the record
holder of the Registrable Securities of its intention so to do. Upon the
written request of the holder, received by SSGI within 10 days after the
giving of any such notice by SSGI, to register any of the Registrable
Securities, SSGI will cause such Registrable Securities as to which
registration shall have been so requested to be included with the securities
to be covered by the registration statement proposed to be filed by SSGI, at
no cost to the holder, all to the extent required to permit the sale or other
disposition of the Registrable Securities so registered by the holder of such
Registrable Securities (the "Seller"). In the event that any registration
pursuant to this Section 2.6 shall be, in whole or in part, an underwritten
public offering of common stock of SSGI, the number of shares of Registrable
Securities to be included in such an underwriting may be reduced by the
managing underwriter if and to the extent that SSGI and the underwriter shall
reasonably be of the opinion that such inclusion would adversely affect the
marketing of the securities to be sold by SSGI therein; provided, however,
that SSGI shall notify the Seller in writing of any such reduction. SSGI
shall ensure that once any such registration statement is declared effective
by the Commission, that it shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statement therein, not misleading.
Notwithstanding this Section 2.6, SSGI shall not be required to register
any Registrable Securities which can be immediately sold pursuant to Rule 144
promulgated under the Securities Act; provided, however, that, with respect to
those Registrable Securities held by VASCO, its successors or assigns, SSGI
shall not be required to register such Registrable Securities to the extent
they can be immediately sold pursuant to Rule 144(k) promulgated under the
Securities Act.
2.7 Resignations of Present Directors and Executive Officers and
Designation of New Directors and Executive Officers. On or before the Closing
Date, the present directors and executive officers of SSGI shall submit their
resignations, which resignations shall be accepted in conjunction with the
election of the new officers and directors as set forth below. The present
directors and executive officers of SSGI shall designate (i) the directors
nominated by SSI to serve as directors of SSGI for terms and in place of the
current directors of SSGI all as set forth on Schedule 2.7 and (ii) the
officers nominated by SSI as noted on Schedule 2.7 to serve in the place and
stead of the current officers of SSGI until the next respective annual
meetings of the stockholders and the Board of Directors of SSGI, and until
their respective successors shall be elected and qualified or until their
respective prior resignations or terminations.
2.8 Assets and Liabilities of SSGI at Closing. Except as set forth in
Schedule 2.8 attached hereto and incorporated herein by reference, SSGI shall
have no material assets and no material liabilities as of the Closing Date,
and except as otherwise provided in Section 10.2, all costs incurred by SSGI
incident to this Agreement shall have been paid or satisfied.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of SSGI. SSGI represents and
warrants to SSI, as follows:
(a) Power and Authority. SSGI has the corporate power and authority,
to enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of SSGI and no other corporate proceedings on the part of SSGI are
necessary to authorize this Agreement and the transactions contemplated
hereby. No stockholder approval of the Agreement is required by
the GCL. True and correct copies of its Certificate of Incorporation and By
Laws have been delivered to SSI.
(b) SSGI Financial Statements. SSGI has heretofore delivered to SSI
its audited financial statements for the years ended December 31, 2002 and
2001 (the "2002 Statements"), and its unaudited financial statements for the
quarter ended March 31, 2003 (the "2003 Statements" and, collectively with the
2002 Statements, the "Financial Statements"). As of the respective date of
the 2002 Statements and the 2003 Statements, the Financial Statements did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) No Material Adverse Effect. Except as set forth in Schedule
3.1(c), since March 31, 2003, there has not been any material adverse change
in the business, operations, properties, assets, condition, financial or
otherwise, or prospects of SSGI.
(d) Due Organization; Power; Qualification; Subsidiaries and
Affiliates, Etc.
(i) SSGI is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and
has the corporate power to own its property and to carry on
its business as now conducted. The nature of the business
now conducted by SSGI, the character of the property owned
by it, or any other state of facts does not require SSGI to
be qualified to do business as a foreign corporation in any
jurisdiction. SSGI does not conduct and never has
conducted, any active trade or business.
(ii) Except as set forth in Schedule 3.1(d), SSGI has no
subsidiaries or affiliates (as that term is used in the
regulations promulgated under the Securities Act).
(e) Capitalization.
(i) The total authorized capital stock of SSGI consists of
50,000,000 SSGI Common Shares and 5,000,000 shares of
preferred stock of which 2,000,000 shares shall have been
designated SSGI Convertible Preferred Shares on or before
the Execution Date. No additional SSGI Convertible
Preferred Shares shall be designated or issued in
contravention of the designation therefor. As of the
Execution Date, there are no shares of preferred stock
issued and outstanding and 508,934 SSGI Common Shares
represent all of the issued and outstanding stock of SSGI.
As of the Closing Date, 508,934 SSGI Shares shall represent
all of the issued and outstanding capital stock of SSGI.
All of the outstanding SSGI Shares have been, and all of the
outstanding SSGI Shares as of the Closing Date will be, duly
authorized and validly issued and are fully paid and non-
assessable.
(ii) Except as set forth on Schedule 3.1(e)(ii), as of the
Effective Date there were no, and on the Closing Date there
will be no, outstanding subscriptions, options, warrants,
contracts, calls, puts, agreements, demands or other
commitments or rights of any type to purchase or acquire any
securities of SSGI, nor were there (as of the Effective
Date) or are there outstanding securities of SSGI which are
convertible into or exchangeable for any shares of capital
stock of SSGI, and SSGI has no obligation of any kind to
issue any additional securities.
(f) Financial Information: No Material Adverse Change.
(i) SSGI has furnished to SSI the Financial Statements. The
Financial Statements have been prepared in accordance with
generally accepted accounting principles, consistently
applied, and fairly present in all material respects, the
financial condition of SSGI as at the respective dates
thereof, and the results of operation of SSGI for the
periods then ended.
(ii) Since March 31, 2003, there has been no material adverse
change in the business or financial condition or the
operations of SSGI except as set forth on Schedule 3.1(f).
(iii) At March 31, 2003, there were no liabilities, unknown,
accrued, absolute, contingent or otherwise of SSGI that were
not shown or reserved against on the balance sheets included
in the Financial Statements, except obligations under the
contracts shown on or as otherwise disclosed in Schedule
3.1(f). As of the Closing Date, SSGI has no assets or
liabilities of any kind, whether known or unknown, accrued,
absolute, contingent or otherwise.
(iv) Xxxxx Xxxxx 00, 0000, XXXX has not sold or otherwise
disposed of or encumbered any of the properties or assets
reflected on the Financial Statements, or other assets owned
or leased by it, except in the ordinary course of business,
or otherwise disclosed on Schedule 3.1(f).
(g) Tax Matters.
(i) Except as set forth in Schedule 3.1(g)(i), SSGI has filed or
caused to be filed with the appropriate Federal, state,
county, local and foreign governmental agencies or
instrumentalities, all tax returns and tax reports required
to be filed, and all taxes, assessments, fees and other
government charges have been fully paid when due (subject to
any extensions filed on a timely basis).
(ii) There is not pending nor, to the best knowledge of SSGI, is
there any threatened Federal, state or local tax audit of
SSGI. There is no agreement with any Federal, state or
local taxing authority by SSGI that may affect the
subsequent tax liabilities of SSGI.
(iii) Without limiting the foregoing: (a) the Financial Statements
include adequate provisions for all taxes, assessments,
fees, penalties and governmental charges which have been or
in the future may be assessed against SSGI with respect to
the period then ended and all periods prior thereto; and (b)
on the date hereof, SSGI is not liable for any taxes,
assessments, fees or governmental charges.
(h) No Conflict or Default; Enforceability; Corporate Records;
Compliance with Law. Neither the execution and delivery of this Agreement,
nor compliance with the terms and provisions hereof, including without
limitation the consummation of the transactions contemplated hereby, will
violate any statute, regulation or ordinance of any governmental authority, or
conflict with or result in the material breach of any term, condition or
provision of the Articles of Incorporation, Certificate of Incorporation, By-
laws or other charter documents of SSGI, nor of any agreement, deed, contract,
mortgage, indenture, writ, order, decree, legal obligation or instrument to
which SSGI is a party or by which any of them or any of their assets or
properties are or may be bound; or constitute a material default (or an event
which, with the lapse of time or the giving of notice, or both, would
constitute a material default) thereunder, nor result in the creation or
imposition or any lien, charge or encumbrance, or restriction of any nature
whatsoever with respect to any properties or assets of SSGI, nor give to
others any interest or rights, including rights of termination, acceleration
or cancellation in or with respect to any of the properties, assets, contracts
or business of SSGI. This Agreement and all other agreements and documents
delivered by SSGI in connection herewith have been duly executed and delivered
by SSGI and constitute the binding obligations of SSGI enforceable in
accordance with their respective terms. SSGI has permitted SSI to examine
SSGI's corporate minute and stock records books. The corporate minute books
contain the Articles of Incorporation, Certificate of Incorporation, By-laws
and other charter documents of SSGI as in effect on the Execution Date,
contain a true and complete record of all actions by and meetings of the
directors (and committees thereof) and stockholders of SSGI since the date of
its incorporation and accurately reflect all transactions referred to therein.
SSGI is not in violation of any outstanding arbitration award, judgment, order
or decree; or in violation of any statute, regulation or ordinance ("Law"),
including, but not limited to, any anti-discrimination, hazardous and toxic
substances, wage, hour, working condition, payroll withholding, pension,
building, zoning and tax Law. There have been no allegations of or inquiries
concerning any violations of Law by SSGI within the past ten years.
(i) Party to Agreements. Except as set forth on Schedule 3.1(i), SSGI
is not a party to any contract or other arrangement other than this Agreement.
(j) Litigation. There are no actions, suits, investigations, or
proceedings pending, nor, to the knowledge of SSGI, threatened against SSGI,
the performance of the terms and conditions hereof, or the consummation of the
transactions contemplated hereby, in any court or by or before any
governmental body or agency, including without limitation any claim,
proceeding or litigation for the purpose of challenging, enjoining or
preventing the execution, delivery or consummation of this Agreement. SSGI is
not subject to any order, judgment, decree, stipulation or consent or any
agreement issued by any governmental body or agency.
(k) Securities Filings. The common stock of SSGI is listed on the
NASD's OTC Electronic Bulletin Board. SSGI has heretofore provided to SSI
true and correct copies of its annual report on Form 10-KSB for the year ended
December 31, 2002, and its quarterly reports on Form 10-QSB dated March 31,
2002, June 30, 2002, September 30, 2002 and March 31, 2003. All such reports
are true, correct and accurate as of the dates of filing and do not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein in order to make the statements therein, in
light of the circumstances under which they were made, not misleading. Except
as disclosed on Schedule 3.1(k), no material adverse change in the business,
financial condition or operations of SSGI has occurred since the date of such
reports. SSGI will have on the Closing Date, and thereafter, made all filings
required to be made by SSGI with the Commission and any state securities
authorities.
(l) Governmental and Other Approval. SSGI has all permits, licenses,
orders and approvals of all federal, state, local or foreign governmental or
regulatory bodies required for SSGI to conduct its business as presently
conducted. All such permits, licenses, orders and approvals are in full force
and effect and no suspension or cancellation of any of them is threatened, and
none of such permits, licenses, orders or approvals will be affected by the
consummation of the transactions contemplated by this Agreement. No approval
or authorization of or filing with any governmental authority, including the
Commission, or any other person or entity on the part of SSGI is required as a
condition to the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby other than the filing of any documents
contemplated by this Agreement. SSGI knows of no reason why the NASD will not
permit SSGI to register its shares for trading on any other market or exchange
operated by the NASD.
(m) Salaries. There is set forth on Schedule 3.1(m) annexed hereto
and made a part hereof, a true and complete list, as of the Execution Date, of
all of the persons who are employed by SSGI, together with their compensation
(including bonuses) for the calendar year ended December 31, 2002, and the
rate of compensation (including bonus arrangements) currently being paid to
each such employee.
(n) Accrued Compensation; Benefits. SSGI does not have any
outstanding liability for payment of wages, vacation pay (whether accrued or
otherwise), salaries, bonuses, pensions or contributions and does not have any
responsibility for providing medical insurance or medical benefits under any
labor or employment contract, whether oral or written, or pursuant to any law,
rule or regulation or by reason of any past practices with respect to its
current or former officers, directors or employees based upon or accruing with
respect to services of its present or former officers, directors or employees.
(o) Employee Benefit Plans. Except as set forth on Schedule 3.1(o),
SSGI does not have, maintain or contribute to and never has had, maintained or
contributed to, any pension plan, profit sharing plan or employee's savings
plan, and is not otherwise subject to any applicable provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA").
(p) Material Contracts, Etc. Schedule 3.1(p) contains an accurate
list of all contracts, commitments, leases, instruments, agreements, licenses
or permits, written or oral, to which SSGI is a party or by which it or its
properties are bound (including without limitation contracts with customers,
joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements).
(q) Title and Authority. The shareholders as listed in Schedule
3.1(q) are together the holders of record and, to the knowledge of SSGI, the
sole beneficial owners, of all of the outstanding SSGI Shares. Schedule
3.1(q) shall not be deemed to be a publicly available Schedule to this
Agreement.
(r) Financial Information: Contingent Liabilities.
(i) At March 31, 2003, there were no liabilities, unknown,
accrued, absolute, contingent or otherwise of SSGI that were
not shown or reserved against on the balance sheets included
in the Financial Statements, except obligations under the
contracts shown on Schedule 3.1(r).
(ii) Xxxxx Xxxxx 00, 0000, XXXX has not sold or otherwise
disposed of or encumbered any of the properties or assets
reflected on the Financial Statements, or otherwise owned or
leased by it, except in the ordinary course of business, or
as otherwise disclosed on Schedule 3.1(r).
(s) Insider Transactions. All transactions between SSGI and its
employees, officers, directors and shareholders, including the issuance of
SSGI Shares and the reverse stock splits completed by SSGI, have been made on
an arm's length basis on terms and conditions comparable to what SSGI would
have given to unrelated third parties. No director, officer or employee of
SSGI has any claim of any nature against SSGI.
(t) Environmental. There are no environmental liens, actions or
proceedings, nor is there any cause for any such lien, action or proceeding
related to the business operations of SSGI. There are no substances or
conditions which may support a claim or cause of action against SSGI or any of
SSGI's current or former officers, directors, agents or employees, whether by
a governmental agency or body, private party or individual, under any Law or
Hazardous Materials Regulations. "Hazardous Materials" means any oil or
petrochemical products, PCB's, asbestos, urea formaldehyde, flammable
explosives, radioactive materials, solid or hazardous wastes, chemicals, toxic
substances or related materials, including, without limitation, any substances
defined as or included in the definition of "hazardous substances," "hazardous
wastes," "hazardous materials" or "toxic substances" under any applicable
federal or state laws or regulations. "Hazardous Materials Regulations" means
any regulations governing the use, generation, handling, storage, treatment,
disposal or release of hazardous materials, including without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act, the
Resource Conversation and Recovery Act and the Federal Water Pollution Control
Act.
(u) No Liquidation of the Surviving Corporation. SSGI has no plan or
intention to (i) liquidate the Surviving Corporation, (ii) merge
the Surviving Corporation into any other corporation, (iii) cause
the Surviving Corporation to sell or otherwise dispose any of its assets,
except for dispositions made in the ordinary course of business, or (iv) sell
or otherwise dispose of any of the shares in the Surviving Corporation
acquired pursuant to this Agreement.
(v) No Reacquisition of SSGI Shares. SSGI has no plan or intention to
reacquire any of the SSGI Shares issued pursuant to this Agreement.
(w) No Prior Ownership of SSI Shares. SSGI does not own, directly or
indirectly, nor has it owned during the past five years, directly or
indirectly, any SSI Shares.
(x) No Investment Company Parties. SSGI is not an "investment
company" as defined in IRC Sections 368(a)(2)(F)(iii) and (iv).
(y) The representations and warranties contained herein do not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein in light of the
circumstances under which they were made, not misleading.
(z) All representations and warranties by SSGI made herein and in the
Schedules attached hereto and all information provided by SSGI for use in
Registration Statement shall be true and correct in all material respects when
made.
3.2 Representations and Warranties of SSI. SSI represents and
warrants to SSGI as follows:
(a) Power and Authority. SSI has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of SSI and ratified and approved by its stockholders, and, no other
corporate proceedings on the part of SSI are necessary to authorize this
Agreement and the transactions contemplated hereby.
(b) SSI Financial Statements. SSI has heretofore delivered to SSGI
its unaudited financial statements for the year ended December 31, 2002,
consisting of an unaudited balance sheet for the period ended December 31,
2002 (the "SSI Financial Statements"). The SSI Financial Statements did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) No Material Adverse Effect. Except as set forth on Schedule
3.2(c), and the transactions described in Sections 2.1(a), (b) and (c) hereof,
there has not been any material adverse change in the business, operations,
properties, assets, condition, financial or otherwise of SSI.
(d) Due Organization; Power; Qualification; Subsidiaries and
Affiliates, Etc.
(i) SSI is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware and
has the corporate power to own its property and to carry on
its business as now conducted. SSI is qualified to do
business as a foreign corporation in each jurisdiction where
the failure to qualify would have a material adverse effect
on SSI.
SSI has no subsidiaries (as that term is used in the
regulations promulgated under the Securities Act), other
than Secured Services Canada Inc.
(e) Capitalization.
(i) The total authorized capital stock of SSI consists of
55,000,000 shares of capital stock, of which 50,000,000 are
SSI Common Shares, 3,900,000 of which are issued and
outstanding as of the date hereof, and 5,000,000 shares are
preferred stock, $0.001 par value, 2,000,000 of which are
designated as SSI Convertible Preferred Shares. Other than
those shares to be issued pursuant to the Dolfin
Acquisition, the VACMAN Acquisition and the Financing all
simultaneous with the Closing and effective as of the
Effective Date, no shares of preferred stock are issued or
outstanding as of the date hereof. Except as set forth on
Schedule 3.2(e)(i), all the outstanding SSI Shares have been
duly authorized and validly issued, and are fully paid and
non-assessable.
(ii) As of the Effective Date there were no, and on and after the
Closing Date there will be no outstanding options, warrants,
convertible securities or rights which may require SSI to
issue additional shares of its capital stock other than as
listed on Schedule 3.2(e)(ii).
(f) Financial Information: No Material Adverse Change.
(i) At the Closing Date, there will be no material liabilities,
absolute or contingent of SSI that were not shown or
reserved against on the balance sheet included in the SSI
Financial Statements, except obligations under the contracts
shown on or as otherwise disclosed on Schedule 3.2(f)(i).
(ii) Since December 31, 2002, SSI has not sold or otherwise
disposed of or encumbered any of the properties or assets
reflected on the SSI Financial Statements, or other assets
owned or leased by it, except in the ordinary course of
business or as otherwise disclosed on Schedule 3.2(f)(ii).
(g) Tax Matters.
(i) SSI has filed or caused to be filed with the appropriate
federal, state, county, local and foreign governmental
agencies or instrumentalities all tax returns and tax
reports required to be filed, and all taxes, assessments,
fees and other governmental charges have been fully paid
when due (subject to any extensions filed on a timely
basis).
(ii) There is not pending nor, to the best knowledge of SSI, is
there any threatened federal, state or local tax audit of
SSI. There is no agreement with any federal, state or local
taxing authority that may affect the subsequent tax
liabilities of SSI.
(iii) Without limiting the foregoing: (a) the SSI Financial
Statements include adequate provisions for all taxes,
assessments, fees, penalties and governmental charges which
have been or in the future may be assessed against SSI with
respect to the period then ended and all periods prior
thereto; and (b) SSI is not, on the date hereof, liable for
any taxes, assessments, fees or governmental charges.
(h) No Conflict or Default; Enforceability; Corporate Records;
Compliance with Law. Neither the execution and delivery of this Agreement,
nor compliance with the terms and provisions hereof, including without
limitation the consummation of the transactions contemplated hereby, will
violate any statute, regulation or ordinance of any governmental authority, or
conflict with or result in the material breach of any term, condition or
provision of the Certificate of Incorporation or By-laws of SSI, nor of any
agreement, deed, contract, mortgage, indenture, writ, order, decree, legal
obligation or instrument to which SSI is a party or by which it or any of its
respective assets or properties are or may be bound; or constitute a material
default (or an event which, with the lapse of time or the giving of notice, or
both, would constitute a material default) thereunder, nor result in the
creation of imposition of any lien, charge or encumbrance, or restriction of
any nature whatsoever with respect to any properties or assets of SSI, nor
give to others any interest of rights, including rights of termination,
acceleration or cancellation in or with respect to any of the properties,
assets, contracts or business of SSI. This Agreement and each other agreement
and document delivered by SSI in connection herewith have been duly executed
and delivered by SSI and constitute the binding obligations of SSI enforceable
in accordance with their respective terms. SSI has permitted SSGI to examine
SSI's corporate minute and stock records books. The corporate minute books
contain the Articles of Incorporation, Certificate of Incorporation, By-laws
and other charter documents of SSI as in effect on the Execution Date and a
true and complete record of all actions by and meetings of the directors (and
committees thereof) and stockholders of SSI and accurately reflect all
transactions referred to therein. Except as set forth on Schedule 3.2(h), SSI
is not in violation of any outstanding arbitration award, judgment, order or
decree; or in violation of any Law, including, but not limited to, any anti-
discrimination, hazardous and toxic substances, wage, hour, working condition,
payroll withholding, pension, building, zoning and tax Law. There have been
no allegations of or inquiries concerning any violations of Law by SSI within
the past three years.
(i) Party to Agreements. Except as set forth on Schedule 3.2(i), SSI
is not a party to any contract or other arrangement except those made in the
ordinary course of business or which are terminable on the giving of sixty
(60) days' (or less) notice of SSI's intent to terminate such contract.
Except as set forth on Schedule 3.2(i), SSI is not in default in any material
respect under any contract or agreement to which it is a party or by which it
or any of its assets is or may be bound.
(j) Litigation. Except as set forth on Schedule 3.2(j), there are no
actions, suits, investigations, or proceedings pending, nor, to the knowledge
of SSI, threatened, against SSI, the performance of the terms and conditions
hereof, or the consummation of the transactions contemplated hereby, in any
court or by or before any governmental body or agency, including without
limitation any claim, proceeding or litigation for the purpose of challenging,
enjoining or preventing the execution, delivery or consummation of this
Agreement. SSI is not subject to any order, judgment, decree, stipulation or
consent or any agreement with any governmental body or agency which affects
its business or operations.
(k) Governmental and Other Approval. To the best of its knowledge,
SSI has all permits, licenses, orders and approvals of all federal, state,
local or foreign governmental or regulatory bodies required for SSI to conduct
its business as presently conducted. Except as set forth on Schedule 3.2(k),
all such permits, licenses, orders and approvals are in full force and effect
and no suspension or cancellation of any of them is threatened, and none of
such permits, licenses, orders of approvals will be affected by the
consummation of the transactions contemplated by this Agreement. Except as
set forth on Schedule 3.2(k), no approval or authorization of or filing with
any governmental authority or any other person or entity on the part of SSI is
required as a condition to the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby other than the filing of
documents contemplated by this Agreement.
(l) Accrued Compensation. SSI does not have any outstanding liability
for payment of wages, vacation pay (whether accrued or otherwise), salaries,
bonuses, pensions or contributions under any labor or employment contract,
whether oral or written or by reason of any past practices with respect to
such employees based upon or accruing with respect to services of present or
former employees of SSI, except as disclosed in the transaction described in
Sections 2.1(a) and (b).
(m) Employee Benefit Plans. SSI does not have, maintain or contribute
to, and never has had, maintained or contributed to, any pension plan, profit
sharing plan or employees' savings plan, and SSI is not otherwise subject to
any applicable provisions of ERISA except as set forth on Schedule 3.2(m).
(n) Material Contracts, Etc. Schedule 3.2(n) contains an accurate
list of all contracts, commitments, leases, instruments, agreements, licenses
or permits, written or oral, to which SSI is a party or by which it or its
properties are bound (including without limitation contracts with customers,
joint venture or partnership agreements, contracts with any labor
organizations, employment agreements, consulting agreements, loan agreements,
indemnity or guaranty agreements, bonds, mortgages, options to purchase land,
liens, pledges or other security agreements) that (i) may give rise to
obligations or liabilities exceeding $10,000, (ii) generate revenues or income
exceeding $10,000, or (iii) to which SSI and any affiliate of SSI is a party
or any officer, director or shareholder of SSI is a party (collectively, the
"Material Contracts").
(o) Title and Authority. The shareholders listed in Schedule 3.2(o)
are, to the knowledge of SSI, the sole record beneficial owners of all of the
outstanding shares of SSI capital stock being exchanged pursuant to this
Agreement.
(p) The representations and warranties contained herein do not contain
an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein in light of the
circumstances under which they were made, not misleading.
(q) All of the representations and warranties of SSI made herein and
in the Schedules attached hereto and all information provided by SSI for use
in the Registration Statement shall be true and correct in all material
respects when made.
(r) No Investment Company Parties. SSI is not an "investment company"
as defined in IRC Sections 368(a)(2)(F)(iii) and (iv).
(s) No Compensation for SSI Shares. None of the compensation received
by any stockholder-employee of SSI will be separate consideration for, or
allocable to, any of the SSI Shares owned by any of them, none of the SSGI
Shares received by any stockholder-employee of SSI will be separate
consideration for, or allocable to, any employment agreement, and the
compensation paid to any stockholder of SSI will be for services actually
rendered and will be commensurate with amounts paid to third parties
bargaining at arms' length for similar services.
[No Section 3.3]
ARTICLE IV
COVENANTS
4.1 SSI agrees that prior to the Closing Date:
(a) Except as set forth on Schedule 4.1(a), no dividend shall be
declared or paid by other distribution (whether in cash, stock, property or
any combination thereof) or payment declared or made in respect to SSI Shares,
nor shall SSI purchase, acquire or redeem or split, combine or reclassify any
shares of its capital stock.
(b) Except as otherwise contemplated hereunder and except for such
option grants to existing or prospective employees and consultants as may be
contemplated by the SSI Financial Statements, no change shall be made in the
number of shares of authorized or issued SSI Shares; nor shall any option,
warrant, call, right, commitment or agreement of any character be granted or
made by SSI relating to its authorized or issued SSI Shares; nor shall SSI
issue, grant or sell any securities or obligations convertible into or
exchangeable for shares of SSI Shares.
(c) SSI will not take, agree to take, or knowingly permit to be taken
any action or do or knowingly permit to be done anything in the conduct of the
business of SSI or otherwise, which would be contrary to or in breach of any
of the terms or provisions of this Agreement, or which would cause any of
SSI's representations contained herein to be or become untrue in any material
respect at the Closing Date.
(d) Except as set forth on Schedule 4.1(d) or otherwise as
contemplated by the transaction described in Sections 2.1(a), (b) and (c)
hereof, SSI will not (i) incur any indebtedness for borrowed money; (ii)
assume, guarantee, endorse, or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
individual, firm or corporation, or (iii) make any loans, advances or capital
contributions to or investments in, any other individual, firm or corporation
in excess of $10,000, except with the consent of SSGI which consent shall not
be unreasonably withheld.
(e) Except as set forth on Schedule 4.1(e) or as contemplated in the
SSI Financial Statements, SSI will not make, alter or change any employment or
other contract with any of its personnel or make, adapt, alter, revise, or
amend any pension, bonus, profit-sharing or other employee benefit plan, or
grant any salary increase or bonus to any person without the prior written
consent of SSGI, except for normal year-end or anniversary salary adjustments
for employees, excluding officers, except with the consent of SSGI which
consent shall not be unreasonably withheld.
(f) SSI will notify each shareholder receiving SSI Shares subsequent
to the date hereof pursuant to the Dolfin Acquisition, the
VACMAN Acquisition, the Financing, or otherwise, of the Merger and their
rights to dissent therefrom. Such notice shall be in such form as shall be
reasonably satisfactory to counsel for SSGI.
4.2 SSGI agrees that prior to the Closing Date:
(a) No dividend shall be declared or paid or other distribution
(whether in cash, stock, property or any combination thereof) or payment
declared or made in respect of SSGI Shares, nor shall SSGI purchase, acquire
or redeem or split, combine or reclassify any shares of its capital stock.
(b) No change shall be made in the number of authorized or issued SSGI
Shares (other than pursuant to this Agreement); nor shall any option, warrant,
call, right, commitment or agreement (other than this Agreement) of any
character be granted or made by SSGI relating to its authorized or issued SSGI
Shares; nor shall SSGI issue, grant or sell any securities or obligations
convertible into or exchangeable for SSGI Shares.
(c) SSGI will not take, agree to take, or knowingly permit to be taken
any action, nor do or knowingly permit to be done anything in the conduct of
the business of SSGI or otherwise, which would be contrary to or in breach of
any of the terms or provisions of this Agreement, or which would cause any of
SSGI's representations and warranties contained herein to be or become untrue
in any material respect at the Closing Date including without limitation
amending SSGI's charter documents and By-laws, except as otherwise provided
hereby.
(d) SSGI will not (i) incur any indebtedness for borrowed money; (ii)
assume, guarantee, endorse, or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other
individual, firm or corporation; or (iii) make any loans, advances or capital
contributions to or investments in, any other individual, firm or corporation.
(e) SSGI will not make, alter or change any employment or other
contract with any of its management personnel or make, adopt, alter, revise,
or amend any pension, bonus, profit-sharing or other employee benefit plan, or
grant any salary increase or bonus to any person without the prior written
consent of SSI, except for normal year end or anniversary salary adjustments
for employees, excluding officers.
4.3 Each party to this Agreement agrees that the fair market value of
the SSGI Shares received by each SSI Stockholder, and the SSGI warrants and
options received by the holders of SSI warrants and options pursuant to this
Agreement will be approximately equal to the fair market value of the like
securities surrendered by the holders of such SSI securities.
ARTICLE V
CERTAIN COVENANTS
5.1 Directors' Meeting. Each of SSI and SSGI will take all actions
necessary in accordance with applicable law and its Certificate of
Incorporation and By-laws to convene a meeting or obtain the written consent
of its directors as promptly as practicable to consider and vote upon the
approval of the transactions contemplated by this Agreement.
5.2 Conduct of Business Pending the Reorganization. Prior to the
Merger Effective Date, unless SSGI and SSI shall otherwise agree in writing,
each company shall not (i) operate its business otherwise than in the ordinary
course, or (ii) authorize, recommend or propose any merger, consolidation,
acquisition of assets, disposition of assets, material change in its
capitalization or any comparable event, not in the ordinary course of business
(in each case, other than the transactions contemplated hereby and
transactions as to which written notice has been given to the other companies
prior to the date hereof), provided, however, that SSI shall be able to
undertake any of the foregoing with the consent of SSGI which consent shall
not be unreasonably withheld.
5.3 Disclosure. Each party acknowledges that it has, and will have,
possession of important confidential information ("Confidential Information")
regarding the other parties. Each party hereto agrees that it shall not use
any confidential information except in furtherance of the transactions
contemplated hereby and shall not divulge, communicate, furnish or make
accessible any Confidential Information to any person, firm, partnership,
corporation or other entity. No party hereto shall make any public statement
from the date of this Agreement forward, including without limitation any
press release, with respect to this Agreement and the transactions
contemplated hereby, without the prior written consent of the other parties
(which consent may not be unreasonably withheld), except as may be required by
law, in which case the parties shall consult with each other as to the nature
and scope of the required disclosure and any protective measures which should
be taken to preserve the confidentiality of the disclosed information. If any
party becomes legally compelled to disclose information relating to this
Agreement, such party shall provide the other parties with notice of such
requirement to allow such party to seek a protective order or other remedy.
If such protective order or other remedy is not obtained, or if compliance
hereof is waived, each party agrees to disclose only that portion of
information which is legally required to be disclosed and to permit the other
parties at their expense to take all reasonable steps to preserve the
confidentiality of the transactions hereunder. The parties shall jointly
prepare a Press Release publicly announcing this Agreement.
[No Section 5.4]
5.5 Access. Prior to the Closing Date, SSI shall afford to the
officers, attorneys, accountants, and other authorized representatives of SSGI
free and full access to the premises, books and records of SSI in order that
SSGI may make such investigation as it may desire of the affairs of SSI,
provided such access is not unreasonably disruptive to SSI's business. Prior
to the Closing Date, SSGI shall afford to the officers, attorneys,
accountants, and other authorized representatives of SSI free and full access
to the premises, books and records of SSGI so that it may make such
investigations as it may desire of the affairs of SSGI, provided such access
is not unreasonably disruptive to SSGI.
5.6 No Solicitation. Neither SSI nor SSGI will (nor will either of
them permit any agent or affiliate to) solicit, initiate or encourage any
Acquisition Proposal (as hereinafter defined) or furnish any information to,
or cooperate with, any person, corporation, firm or other entity with respect
to an Acquisition Proposal. As used herein "Acquisition Proposal" means a
proposal for a merger or other business combination involving such entity or
for the acquisition of a substantial equity interest in, or a substantial
portion of the assets of such entity other than the Merger.
ARTICLE VI
CONDITIONS
6.1 Conditions to the Obligations of SSI. The obligations of SSI to
consummate the transactions contemplated by this Agreement are subject to the
satisfaction, at or before the consummation of the transactions contemplated
hereby, of each of the following conditions:
(a) No action shall have been taken, and no statute, rule, regulation
or order shall have been promulgated, enacted, entered, enforced or deemed
applicable to the transactions contemplated hereby by any federal, state or
foreign government or governmental authority or by any court, domestic or
foreign, including entry of a preliminary or permanent injunction, which
would, in the reasonable opinion of SSI, (i) make the transactions
contemplated hereby illegal, (ii) require the divestiture by SSI or any
subsidiary of SSI of the shares of any company or of a material portion of the
business of SSI and its subsidiaries taken as a whole, (iii) impose material
limits on the ability of SSI to effectively control the business of SSI and
its subsidiaries, (iv) otherwise materially adversely affect SSI and its
subsidiaries taken as a whole, or (v) if the transactions contemplated hereby
are consummated, subject any officer, director, or employee of SSI to criminal
penalties or to civil liabilities not adequately covered by insurance or
enforceable indemnification maintained by SSI;
(b) No action or proceeding before any court or governmental
authority, domestic or foreign, by any government or governmental authority or
by any other person, domestic or foreign, shall be threatened, instituted or
pending which would reasonably be expected to result in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) SSGI shall have complied in all material respects with its
agreements and covenants herein, and all representations and warranties of
SSGI herein shall be true and correct in all material respects at the time of
Closing as if made at that time, except to the extent they expressly relate to
an earlier date, and SSI shall have received a certificate to that effect to
the best of the knowledge of SSGI, signed by the President of SSGI;
(d) A Good Standing Certificate of SSGI, dated no more than 10 days
prior to the Closing Date, from the Secretary of State of Delaware;
(e) The delivery of an opinion on or before the Execution Date from
Xxxxxxx X. Xxxxxxxxxx, Esq. in the form set forth on Schedule 6.1(e);
(f) Executed copies of SSI Stockholder Acknowledgements in the form
set forth on Schedule 6.1(f) from each non Dissenting SSI Stockholder;
(g) All of the conditions precedent outlined in Section 2 hereof shall
have been completed to the satisfaction of SSI prior to the Closing Date;
(h) The Lock-Up/Leak-Out Agreements referenced in Schedule 2.1(e)(ii)
shall have been executed on or before the Closing Date by each non Dissenting
SSI Stockholder and certain SSGI stockholders listed in Schedule 2.1(e)(i);
and
(i) SSGI shall have made the necessary arrangements on or before the
Closing Date for the exchange of its stock certificates in exchange for
certificates of SSI Shares contemplated by the Merger.
6.2 Conditions to the Obligations of SSGI. The obligations of SSGI to
consummate the transactions contemplated hereby are subject to the
satisfaction, at or before the consummation of the transactions contemplated
hereby, of each of the following conditions:
(a) No action shall have been taken, and no statute, rule, regulation
or order shall have been promulgated, enacted, entered, enforced or deemed
applicable to the transactions contemplated hereby by any federal, state or
foreign government or governmental authority or by any court, domestic or
foreign, including the entry of a preliminary or permanent injunction, which
would (i) make the transactions contemplated hereby illegal, (ii) require the
divestiture by SSGI or any subsidiary of SSGI of the shares of any company or
of a material portion of the business of SSGI and its subsidiaries taken as a
whole, (iii) impose material limits on the ability of SSI to effectively
control the business of SSGI and its subsidiaries, (iv) otherwise materially
adversely affect SSGI and its subsidiaries taken as a whole or any SSGI
Stockholder, or (v) if the transactions contemplated hereby are consummated,
subject any officer, director or employee of SSGI to criminal penalties or to
civil liabilities not adequately covered by insurance or enforceable
indemnification maintained by SSI;
(b) No action or proceeding before any court or governmental
authority, domestic or foreign, by any government or governmental authority or
by any other person, domestic or foreign, shall be threatened, instituted or
pending which would reasonably be expected to result in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) SSI shall have complied in all material respects with its
agreements and covenants herein, and all representations and warranties of SSI
herein shall be true and correct in all material respects at the time of
Closing as if made at that time, except to the extent they expressly relate to
an earlier date, and SSGI shall have received a certificate to that effect,
signed by the President of SSI;
(d) A Good Standing Certificate of SSI, dated no more than 10 days
prior to the Closing Date, from the Secretary of State of Delaware;
(e) All necessary third party and governmental consents and approvals
required for transactions contemplated hereby shall have been obtained;
(f) The conditions precedent to the Closing set forth in Section 2
hereof shall have been complied with by the appropriate parties prior to the
Closing Date; and
(g) The delivery of an opinion on or before the Execution Date from
Morse, Zelnick, Rose & Lander, LLP in the form set forth on Schedule 6.2(g).
(h) Executed copies of SSI Stockholder Acknowledgements in the form
set forth on Schedule 6.1(f) from each non Dissenting SSI Stockholder; and
(i) The Lock-Up/Leak-Out Agreements referenced in Schedule 2.1(e)(ii)
shall have been executed on or before the Closing Date by each non Dissenting
SSI Stockholder and certain SSGI stockholders listed in Schedule 2.1(e)(i).
[No ARTICLE VII]
ARTICLE VIII
CLOSING DATE
8.1 The closing for the consummation of the Merger contemplated by
this Agreement (the "Closing") shall, unless another date or place is agreed
to in writing by the parties hereto, take place at a location mutually agreed
upon by the parties on the date which is no later than the fifth business day
after the last to occur of the following dates (the actual date of the Closing
shall be referred to as the "Closing Date"):
(a) The date on which all the other conditions set forth in Article VI
hereof shall have been satisfied, except to the extent any such conditions
shall have been waived by SSGI or SSI; or
(b) , unless extended by the parties.
[No ARTICLE IX]
ARTICLE X
MISCELLANEOUS
10.1 Termination. With respect to each company, this Agreement may be
terminated and the transactions contemplated hereby may be abandoned (i) by
the mutual consent of SSGI and SSI at any time, or (ii) by either SSI or SSGI
if the transactions contemplated hereby have not been consummated prior to
July 15, 2003, for any reason, or (iii) by either SSI or SSGI if either
discovers a material breach of a representation, warranty, covenant or
agreement by the other and such breach is not cured within ten days of the
breaching party's receipt of a notice from the non-breaching party. In the
event of such termination and abandonment, neither SSGI nor SSI (or any of
their respective directors or officers) shall have any liability or further
obligation to any other party to this Agreement, except that nothing herein
will relieve any party from liability for any willful breach of this
Agreement.
10.2 Expenses. Whether or not the transactions contemplated are
consummated, all out-of-pocket costs and expenses incurred in connection with
this Agreement and the transactions contemplated will be paid by the party
incurring such expenses, except that SSI shall bear all auditing costs
relating to the books and records of SSI, including the requisite financial
statements of Dolfin and VASCO resulting from the Asset Purchase Agreements
attached hereto as Exhibits A and B.
10.2A Non Survival. All representations, warranties and covenants
contained in this Agreement shall not survive the Merger.
10.3 Brokers. No broker or finder is entitled to any brokerage or
finder's fee or other commission or fee from any company or based upon
arrangements made by or on behalf of any party with respect to the
transactions contemplated by this Agreement, except as disclosed on Schedule
10.3 annexed hereto, and the party so indicated on Schedule 10.3 shall be
liable for the payment thereof.
10.4 Arbitration. Any controversy arising out of, connected to, or
relating to any transactions herein contemplated, or this Agreement, including
the indemnification provisions contained herein, or the breach thereof,
including, but not limited to any claims of violations of Federal and/or state
securities acts, banking statues, consumer protection statutes, federal and/or
state anti-racketeering (e.g. RICO) claims as well as any common law claims
and any state law claims of fraud, negligence, negligent misrepresentations,
and/or conversion and any disputes as to the arbitrability of any such claim
shall be settled by arbitration in the county in which SSI principal
operations are situated and in accordance with the commercial rules of the
American Arbitration Association by three (3) arbitrators appointed in
accordance with such rules. Any judgment on the arbitrator's award may be
entered in any court having jurisdiction thereof. The arbitrators shall hear
and determine the matter and shall execute and acknowledge its award, in
writing, and if requested by either party, shall make findings of fact and
conclusions of law. Any award determined by the arbitrators shall be final
and binding on the parties, however, in the event of any misconduct,
partiality, corruption or the like of any arbitrator, the parties shall retain
any rights of appeal to which they may be entitled pursuant to applicable law.
The cost and expense of arbitration, including the fees of the arbitrator, and
the reasonable legal and accounting fees and expenses of the parties, shall be
divided between the parties in such proportion as the arbitrators may
determine, and may be assessed against one party if the arbitrators so
determine.
10.5 Other Actions. Each of the parties hereto agrees to execute and
deliver such other documents, certificates, agreements and other writings and
to take such other actions as may be necessary or desirable to consummate the
transactions contemplated by this Agreement.
10.6 Entire Agreement; Waiver and Amendment. This Agreement, the
exhibits and schedules hereto contain the entire agreement by and among SSGI
and SSI with respect to the transactions contemplated hereby. Any and all
prior discussions, negotiations, commitments and understandings relating to
the subject matter of this Agreement are superseded by this Agreement. This
Agreement may not be modified, amended or terminated except by a written
agreement specifically referring to this Agreement signed by all of the
parties hereto. No waiver of any breach or default hereunder shall be
considered valid unless in writing signed by the party giving such waiver, and
no such waiver shall be deemed a waiver of any subsequent breach or default of
the same or similar nature.
10.7 Applicable Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York without regard to its
principles of conflicts of laws.
10.8 Descriptive Headings. The descriptive headings are for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10.9 Notices. All notices or other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or sent by registered or certified mail postage prepaid, addressed as follows:
If to SSGI: Southern Software Group, Inc.
0000 Xxxxxxxxx Xxxx, Xxxxx X
Xxxxxxxxx, Xxxxxxxx 00000
with a copy to: Xxxxxxx X. Xxxxxxxxxx, Esq.
Hermes Building, Suite 205
455 East Xxxxx Xxxxx
Xxxx Xxxx Xxxx, XX 00000-0000
If to SSI: SecureD Services, Inc.
c/o Morse, Zelnick, Rose & Lander
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000-0000
10.10 Counterparts. This Agreement may be executed
by facsimile and in any number of counterparts, each of which shall be deemed
to be an original, but all of which together shall constitute but one
agreement.
10.11 Publicity. All public announcements relating to this Agreement
or the transactions contemplated hereby will be made only as may be agreed
upon by SSGI and SSI or as required by law. If public disclosure or notice is
required by law, the disclosing party will use its best efforts to give the
other prior written notice of the disclosure to be made.
10.12 Gender; Number. The use of a particular pronoun herein shall
not be restrictive as to gender, and the use of the singular or plural shall
not be restrictive as to number, but shall be interpreted in all cases as the
context may require.
10.13 Schedules. The Schedules attached hereto and/or delivered
herewith are an integral part of this Agreement as if fully re-written herein.
10.14 Binding Effect. This Agreement will be binding upon and will
inure to the benefit of the parties and their respective heirs, personal
representatives, successors and permitted assigns. Except as herein provided,
no party will have the right to assign this Agreement, or any of such party's
rights hereunder, without the prior written consent of the other parties.
[remainder of page intentionally blank; signatures follow]
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered
by the duly authorized officers of the parties hereto as of the date first
herein above written.
SOUTHERN SOFTWARE GROUP, INC.
BY: /s/ Xxxxx Xxxxxx
Xxxxx Xxxxxx, President
SSGI ACQUISITION CORP.
BY: /s/ Xxxxx Wagner________________
Xxxxx Xxxxxx, President
SECURED SERVICES, INC.
BY: /s/ King T. Moore_______________
King X. Xxxxx, President
EXHIBIT A
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made this ___
day of June, 2003, among SECURED SERVICES, INC., a Delaware corporation
("SSI"); and XXXXXX.XXX INC., a Delaware corporation ("Dolfin").
RECITALS
WHEREAS Dolfin owns the Purchased Assets;
WHEREAS, Dolfin desires to sell to SSI and SSI desires to purchase
from Dolfin the Purchased Assets in accordance with the provisions set forth
in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, promises and agreements contained herein, the parties, intending to
be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. Accounts Receivable shall mean, with respect to the
Purchased Assets, all trade accounts receivable, and all notes receivable or
evidences of Indebtedness payable to the operator of the Purchased Assets.
1.2. Assumed Liabilities shall have the meaning assigned to it
in Section 2.3
1.3. Xxxx of Sale shall have the meaning assigned to it in
Section 3.1.1.(b).
1.4. Books and Records shall mean all records, documents, lists
and files, relating to the Purchased Assets and the Personnel, including,
without limitation, executed originals (or copies of executed originals when
executed originals are not available) of all tax returns, Contracts, purchase
orders, sales orders, price lists, lists of accounts, customers, suppliers,
employees, contractors, consultants and other personnel, shipping records, all
product, business and marketing plans, sales and product brochures and
catalogs and other sales literature and materials, historical sales and
commissions data and all books, ledgers, files and business records relating
to the Purchased Assets and the Personnel, whether in hard copy, electronic
form or otherwise.
1.5. Closing Date shall mean the date of this Agreement.
1.6. Common Shares shall have the meaning assigned to it in
Section 2.2
1.7. Common Stock shall have the meaning assigned to it in
Section 2.2
1.8. Confidential Information shall have the meaning assigned
to it in Section 6.2.
1.9. Contracts shall mean, with respect to any Person, all
contracts, Leases, agreements, loan documents, instruments, Licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties, operations, business or assets are,
bound.
1.10. Default shall mean, with respect to a Contract,
Permit, License, Law, Organizational Document or other instrument or
agreement, (a) a violation, breach or default, (b) the occurrence of an event
which with the passage of time or the giving of notice or both would
constitute a violation, breach or default, or (c) the occurrence of an event
that (with or without the passage of time or the giving of notice or both)
would give rise to a right of damages, specific performance, termination,
renegotiation or acceleration (including the acceleration of payment).
1.11. Excluded Assets shall have the meaning assigned to it
in Section 2.1
1.12. Financial Statements shall have the meaning assigned
to it in Section 5.6.
1.13. Galaxy shall mean Galaxy Computer Services Inc., a
Delaware Corporation.
1.14. Intellectual Property shall mean, collectively, (a)
all inventions (whether patentable or unpatentable and whether or not reduced
to practice), all improvements thereto, and all patents, (b) all trademarks,
trade dress, logos, trade names, fictitious names, brand names, brand marks,
domain names and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all trade secrets and
confidential business information (including ideas, research and development,
know-how, formulas, compositions, manufacturing and production processes and
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals), (e) all Software.
1.15. Lease shall mean any lease, agreement (whether verbal
or written) or tenancy for property or assets, together with all subleases,
amendments, extensions, addenda, assignments, waivers and all other rights of
use and/or occupancy, and Contracts and documents relating to any of the
foregoing.
1.16. Liabilities and words of similar import include,
without limitation, any direct or indirect indebtedness, guaranty,
endorsement, claim, loss, damage, deficiency, cost, expense, obligation or
responsibility, fixed or unfixed, known or unknown, asserted or unasserted,
xxxxxx or inchoate, liquidated or unliquidated, secured or unsecured.
1.17. Licenses shall mean, with respect to any Person, all
licenses, permits, authorizations, approvals, registrations, franchises,
rights, variances (including zoning variances), easements, rights of way, and
similar consents or certificates granted or issued by any other Person, other
than a governmental entity, relating to the business of the subject Person.
1.18. Material Contract shall have the meaning assigned to
it in Section 5.3.
1.19. Person shall mean any natural person, corporation,
general partnership, limited partnership, limited liability company,
proprietorship, joint venture, trust, association, union, entity, or other
form of business organization or any governmental entity whatsoever.
1.20. Personnel shall have the meaning assigned to it in
Section 7.1.
1.21. Proposed Reorganization shall have the meaning
assigned to it in Section 3.2(c).
1.22. Purchased Assets shall have the meaning assigned to it
in Section 2.1.
1.23. Securities Act shall mean the Securities Act of 1933,
as amended.
1.24. SSGI shall mean Southern Software Group, Inc., a
publicly held Delaware corporation.
1.25. SSI Financial Statements shall have the meaning
assigned to it in Section 4.3.
1.26. VASCO shall mean VASCO Data Security International,
Inc., a publicly held Delaware corporation.
ARTICLE 2
SALE AND PURCHASE OF ASSETS;
CONSIDERATION; ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets Subject to the
terms and conditions set forth in this Agreement, SSI hereby agrees to
purchase and/or assume and Dolfin hereby agrees to sell and/or assign, as
applicable, as of the Closing Date, all of Dolfin's right, title and interest
in and to all of its assets except for its 100% ownership of Galaxy and except
for any other excluded assets attached as Schedule 2.1.1 (the "Excluded
Assets"), (collectively, the "Purchased Assets"). For greater certainty,
Purchased Assets include, but are not limited to Intellectual Property
attached as Schedule 2.1.2, Material Contracts attached as Schedule 2.1.3,
Accounts Receivable, a list of which is attached as Schedule 2.1.4 and
physical property, a list of which is attached as Schedule 2.1.5.
2.2. Consideration for the Assets. The consideration to be
paid by SSI to Dolfin for the Purchased Assets shall be 500,000 shares of
SSI's $0.001 par value common stock (the "Common Stock"), representing
approximately one (1) share of SSI for each sixty-nine cents (0.69) of
Dolfin's fiscal 2002 revenue (excluding any revenues generated by Galaxy),
currently estimated at $347,000, (the "Common Shares").
2.3. Assumed Liabilities. The Purchased Assets shall be free
and clear of any and all liabilities of any type or nature whatsoever, except
as set forth in Schedule 2.3.1 attached hereto and incorporated herein by
reference. SSI hereby assumes those liabilities of Dolfin listed in Scheduled
2.3.1. All other liabilities of Dolfin including those liabilities listed on
Schedule 2.3.2 are specifically excluded from this transaction, shall not be
assumed by SSI and remain the responsibility of Dolfin.
2.4. Allocation of Purchase Price. The Purchase Price of the
Purchased Assets shall be allocated as set forth in Schedule 2.4 attached
hereto and incorporated herein by reference.
2.5. Piggyback Registration Rights of Dolfin.
(a) If the Common Stock is publicly traded and the
Corporation is eligible to register the resale of the Common Shares on Form S-
3, the Corporation shall use its best efforts to register the sale by Dolfin
of the Common Shares in accordance with all applicable securities laws; or
(b) If SSI at any time proposes to file a registration
statement to register any of its securities under the Securities Act (except
for a registration filed on Forms S-4 or S-8), whether or not for sale for its
own account, it will at each such time give prompt written notice to Dolfin of
its intention to do so. Upon the written request of Dolfin, which request
shall specify the amount of Common Shares Dolfin wants included in any such
registration statement, made as promptly as practicable and in any event
within ten (10) days after the receipt of notice from SSI, SSI will use its
best efforts to effect the registration under the Securities Act of all the
Common Shares which Dolfin has been so requested to register (a "Piggy-Back
Registration"). However, if the managing underwriter of any underwritten
offering in its sole discretion determines that the total amount of Common
Shares requested to be included in such registration would jeopardize the
success of the offering by SSI, then SSI shall include in such registration,
only the number which SSI is so advised can be sold in (or during the time of)
such offering; provided, that if Common Stock are being offered for the
account of other selling shareholders as well as SSI, any reduction in the
amount of Common Shares included in such offering shall be in equal proportion
to reductions imposed on such other selling shareholders; and
(c) Notwithstanding (a) and (b) above, the Corporation
shall not be required to register any Common Shares which can be immediately
sold pursuant to Rule 144 promulgated under the Securities Act.
2.6. Lock-Up/Leak-Out Agreement. SSI is contemplating a
reorganization with SSGI, and Dolfin agrees to execute and deliver the Lock-
Up/Leak-Out Agreement in the form of Schedule 2.6 attached hereto and
incorporated herein by reference as a condition subsequent to the issuance of
the Common Stock, in the event of the Closing of this reorganization.
ARTICLE 3
CLOSING
The Closing contemplated hereby shall be held at the offices of SSI's legal
counsel, Morse, Zelnick, Rose & Lander, at 000 Xxxx Xxxxxx, Xxxxx 0000 Xxx
Xxxx, Xxx Xxxx 00000 4405, within five days of the date hereof.
3.1. Deliveries at Closing. At the Closing and as a condition
to Closing:
3.1.1. Dolfin will deliver to SSI:
(a) a certificate or certificates dated as of the
Closing Date and signed on Dolfin's behalf by its Secretary, to the effect
that: (i) the resolutions of the Board of Directors of Dolfin authorizing the
actions taken in connection with these transactions were duly adopted at a
duly convened meeting thereof, at which a quorum was present and acting
throughout, or by unanimous written consent, remain in full force and effect,
and have not been amended, rescinded or modified; (ii) the officers or other
individuals executing this Agreement are incumbent officers or otherwise duly
authorized to execute such agreements and documents on behalf of Dolfin and
the specimen signatures on such certificate are their genuine signatures;
(iii) each of the representations and warranties of Dolfin contained in
Article 5 hereof is true and correct as of the Closing Date; and
(b) A Xxxx of Sale, duly executed by Dolfin, in the
form of Schedule 3.1.1 attached hereto (the "Xxxx of Sale"); and
(c) A Lockup/Leak Out Agreement, duly executed by
Dolfin in the form of Schedule 2.6 attached hereto
3.1.2. SSI shall deliver to Dolfin:
(a) A stock certificate for the Common Shares; and
(b) A certificate or certificates dated as of the
Closing Date and signed on behalf of SSI by its Secretary to the effect that:
(i) the resolutions of the Board of Directors of SSI authorizing the actions
taken in connection with these transactions were duly adopted at a duly
convened meeting thereof, at which a quorum was present and acting throughout,
or by unanimous written consent, remain in full force and effect, and have not
been amended, rescinded or modified; (ii) the officers or other individuals
executing this Agreement are incumbent officers or otherwise duly authorized
to execute such agreements and documents on behalf of such party and the
specimen signatures on such certificate are their genuine signatures;
(iii) each of the representations and warranties of SSI contained in Article 4
hereof is true and correct as of the Closing Date;
(c) An Opinion from Xxxxx Xxxxxxx Xxxx and Xxxxxx,
SSI's Counsel, substantially in the form of Schedule 3.1.2.
3.2. Additional Conditions Precedent. In addition to the
deliveries required by Section 3.1, the Closing of this Agreement is subject
to the satisfaction of the following conditions precedent:
(a) SSI shall have raised not less than the sum of
$750,000 from the sale of shares of its Common Stock to "accredited investors"
only as that term is defined in Regulation D of the United States Securities
and Exchange Commission at a price of $0.75 per share or an aggregate of
1,000,000 shares, which offering may include one warrant to acquire an
additional share of Common Stock of SSI at an exercise price of $1.50 per
share for every two shares of Common Stock purchased at $0.75 per share;
(b) SSI shall have completed the Asset Purchase Agreement
with VASCO, in the form of Schedule 3.2.1 attached hereto and incorporated
herein by reference, without attached Schedules.
(c) SSI and SSGI shall have consummated, or shall
simultaneous with Closing, consummate, the proposed reorganization
contemplated by such parties, pursuant to which SSI would be acquired by or
merged into SSGI (the "Proposed Reorganization"), which shall be documented by
an agreement between SSI and SSGI, attached in Schedule 3.2.2
(d) SSI shall ensure that (i) the terms and conditions of
the Proposed Reorganization do not and, with the passage of time will not,
adversely effect any right or privilege possessed by Dolfin pursuant to this
Agreement and (ii) either (A) SSI's rights and obligations under this
Agreement are assigned in full to SSGI, or (B) SSGI shall enter into a new set
of documents with Dolfin, for the express purpose of SSGI assuming without
variation SSI's obligations under this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES of SSI
As a material inducement for Dolfin to enter into and perform
its obligations under this Agreement, SSI hereby represents and warrants to
Dolfin as follows:
4.1. Corporate Status. SSI is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Delaware and is licensed or qualified as a foreign corporation in all
states in which the nature of its business or the character or ownership of
its properties makes such licensing or qualification necessary.
4.2. Capitalization. The current pre-Agreement authorized
capital stock of SSI consists of 50,000,000 shares of $0.001 par value common
voting stock, of which 3,900,000 shares are issued and outstanding, all fully
paid and non-assessable; and 5,000,000 shares of $0.001 par value preferred
stock, of which no shares are issued and outstanding. Except as otherwise
provided herein in Schedule 4.2.1 attached hereto and incorporated herein by
reference, there are no outstanding options, warrants or calls pursuant to
which any person has the right to purchase any authorized and unissued Common
Stock or other securities of SSI. SSI has no subsidiaries. Upon the
completion of the transaction with VASCO as required in Section 3.2(b) there
will be 2,000,000 Series A Preferred Shares issued. The certificate of
amendment of the certificate of incorporation for SSI authorizing this capital
structure and detailing the rights and privileges of these Series A Preferred
Shares is attached in Schedule 4.2.2.
4.3. Financial Statements. SSI has heretofore delivered to
Dolfin its unaudited financial statements for the year ended December 31,
2002, consisting of an unaudited balance sheet and an income statement for the
period ended December 31, 2002 (the "SSI Financial Statements"). Such SSI
Financial Statements (including the notes thereto) have been prepared in
accordance with US GAAP and Canadian GAAP respectively and fairly present the
financial condition and result of operations of SSI.
4.4. Undisclosed Liabilities. SSI has no material liabilities
of any nature whatsoever, whether accrued, absolute, contingent or otherwise,
including, without limitation, tax liabilities and interest due or to become
due, except as set forth in Schedule 4.4 attached hereto and incorporated
herein by reference.
4.5. Litigation. There is no litigation or proceeding pending,
or to the knowledge of SSI, threatened, against or relating to SSI, its
properties or business.
4.6. Books and Records. From the date of this Agreement to the
Closing, SSI will (i) give to Dolfin or its representatives full access during
normal business hours to all of SSI's offices, books, records, contracts and
other corporate documents and properties so that it or its may inspect and
audit them; and (ii) furnish such information concerning the property,
business and affairs of SSI as it or its representatives may reasonably
request.
4.7. Tax Returns. SSI has filed all federal and state income
or franchise tax returns that have been required to be filed by it or has
received currently effective extensions of the required filing dates.
4.8. Corporate Authority. SSI has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and will deliver to Dolfin or its representatives at the Closing a
signed copy of resolutions of its Board of Directors authorizing execution of
this Agreement by SSI's officers and performance thereunder, and that the
directors adopting and delivering such resolutions are the duly elected and
incumbent directors of SSI, in the form of Schedule 4.8 attached hereto and
incorporated herein by reference.
4.9. Due Authorization. Execution of this Agreement and
performance by SSI hereunder have been duly authorized by all requisite
corporate action on the part of SSI, and this Agreement constitutes a valid
and binding obligation of SSI and performance hereunder will not violate any
provision of the Articles of Incorporation, Bylaws, agreements, mortgages or
other commitments of SSI, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
of general application now or hereafter in effect relating to or affecting the
enforcement of creditors' right generally and the application of general
equitable principles in any action, legal or equitable.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF DOLFIN
As a material inducement to SSI to enter into and perform its
obligations under this Agreement, Dolfin hereby represents and warrants to SSI
as follows:
5.1. Ownership. Dolfin has good and valid title to the
Purchased Assets and owns the Purchased Assets free and clear of any liens or
encumbrances of any type or nature whatsoever.
5.2. Condition of the Assets. At the time of Closing, all
components of the Purchased Assets, as applicable, shall be in good and
marketable condition, suitable for the uses for which each was intended and,
reasonable wear and tear excepted, shall be free of any material defect.
5.3. Contracts and Commitments. Schedule 2.1.3 contains a
correct and complete list of all Contracts to which Dolfin is a party that
fall into one or more of the following categories (each a "Material
Contract"):
(a) All bonds, debentures, notes, mortgages,
indentures or guarantees by which any of the Purchased Assets are bound, and
any oral or written direct or indirect guarantee of any such obligation;
(b) All leases by which any of the Purchased
Assets (real, personal or mixed, tangible or intangible) are bound.
5.4. No Breach; Consents. The negotiation, execution,
delivery and performance of this Agreement by Dolfin, and the consummation of
the transactions contemplated hereby, (a) do not and will not conflict with or
result in any material breach of any of the provisions of, constitute a
material default under, result in a material violation of, result in the
creation of any lien, security interest, charge, encumbrance or other
restriction upon any component of the Purchased Assets, or require any
authorization, consent, approval, exemption or other action by or notice to
any third party, under the provisions of the charter or by-laws of Dolfin and
Dolfin Canada or any Material Contract to which Dolfin or Dolfin Canada is a
party or under which its properties or assets are bound, and (b) do not
require, any authorization, consent, approval, exemption or other action by or
notice to any court or governmental body under any law, statute, rule,
regulation or decree to which Dolfin is subject.
5.5. No Material Adverse Change. From April 30, 2003 onward
there has been no material adverse change in the financial condition,
properties, operating results, employee relations, customer relations or
business prospects of the Purchased Assets which would have an adverse
material effect on the Purchased Assets not disclosed in the Schedules hereto.
5.6. Financial Statements. Dolfin and Dolfin Canada have
previously delivered to SSI true and complete copies of (a) the balance sheets
and income statements for Dolfin and Dolfin Canada as of December 31, 2002 and
(b) an interim balance sheet and income statement for Dolfin Canada for the
period ending March 31, 2003 (the "Financial Statements"). All of such
Financial Statements are attached hereto as Schedule 5.6. Such Financial
Statements (including the notes thereto) for Dolfin and Dolfin Canada have
been prepared in accordance with US GAAP and Canadian GAAP respectively and
fairly present the financial condition and result of operations of Dolfin and
Dolfin Canada.
5.7. Accounts Receivable and Promissory Notes. Dolfin's and
Dolfin Canada's accounts receivable, which are included in the Purchased
Assets, arose out of transactions in the ordinary course of business and
represent valid rights to receive payments for bona fide services rendered or
goods sold, and are not subject to discounts, rebates or off-sets of any kind.
To the best of its knowledge, there is nothing that Dolfin or Dolfin Canada is
aware of that would render any of the accounts receivable uncollectible.
5.8. Absence of Undisclosed Liabilities. Except as set forth
on Schedules 2.3.1 and 2.3.2 and in the Financial Statements, Dolfin and
Dolfin Canada have no material obligation or liability, whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due
and whether or not insured greater than one thousand dollars ($1,000.00).
5.9. Absence of Certain Developments. Except for transactions
contemplated by this Agreement, the Material Contracts listed in Schedule
2.1.3 and to the extent that it would not have a materially adverse effect on
the Purchased Assets, Dolfin and Dolfin Canada, except as provided for herein,
have not since April 30, 2003:
(a) Mortgaged, pledged or subjected to any lien, charge or
any other encumbrance, any of is properties or assets;
(b) Sold, assigned, transferred or otherwise disposed of
or committed to sell, assign, transfer or otherwise dispose of any of its
tangible assets, except in the ordinary course of business, or canceled any
material debts or claims;
(c) Suffered any unusual or extraordinary items resulting
in losses or waived any rights of material value, whether or not in the
ordinary course of business or consistent with past practice;
(d) Paid or committed to pay any bonuses or similar
payments, except in the ordinary course of business consistent with past
practice;
(e) Suffered any material damage, destruction or casualty
loss, whether or not covered by insurance;
(f) Increased the compensation payable or to become
payable by Dolfin and Dolfin Canada to any of its directors, officers,
management, employees, consultants or agents, or increased benefits under any
employee benefit plan or other employee compensation arrangement, except such
increases made in the ordinary course of business and consistent with past
practices of Dolfin and Dolfin Canada;
(g) Had any payment default or event of default under any
debt, lease or other Material Contract except for overdue payables arising in
the ordinary course of business;
(h) Taken any other action outside of the ordinary course
of business; or
(i) Taken or agreed to take any action contemplated hereby
or that would otherwise cause any representation or warranty made by Dolfin in
this Agreement to be untrue or inaccurate as of the Closing or result in the
breach of any covenant or agreement in this Agreement required to be performed
by Dolfin or Dolfin Canada on or prior to the Closing.
5.10. Litigation, Etc. Except as set forth on Schedule 5.10
there are no actions, suits, proceedings, orders, investigations or claims
pending or threatened against Dolfin or Dolfin Canada, or to which Dolfin or
Dolfin Canada is a party, at law or in equity, or before or by any court,
tribunal, governmental department, commission, board, bureau, agency or
instrumentality, or any arbitration proceedings pending that would have a
materially adverse effect on the Purchased Assets.
5.11. Insurance. Dolfin has delivered to SSI a copy of each
insurance policy maintained with respect to Dolfin or Dolfin Canada's
properties, assets and business, and those policies are listed on Schedule
5.11 hereto. Dolfin and Dolfin Canada have been and are insured with respect
to its properties and the conduct of its business in such amounts and against
such risks as it believes reasonable in relation to its business and shall
maintain such insurance at least through the Closing Date. All of such
policies are in full force and effect on a claims made basis with no premium
arrearage. Dolfin and Dolfin Canada have given in a timely manner to their
insurers all notices required to be given under its insurance policies with
respect to all of the claims and actions covered by insurance, and no insurer
has denied coverage of any such claims or actions or reserved its rights in
respect of or rejected any of such claims. Dolfin and Dolfin Canada have not
received any notice or other communication from any such insurance company
canceling or materially amending any of such insurance policies, and no such
cancellation or amendment is threatened.
5.12. Compliance with Laws. Dolfin and Dolfin Canada have
all material authorizations, approvals, licenses and orders of and from all
governmental and regulatory officers and bodies necessary to conduct and
operate its business as it is currently being conducted, to own, hold or
occupy under lease the properties and assets it owns or holds under lease and
to perform all of its obligations under the agreements to which it is a party
to the extent that a failure to obtain such authorizations, approvals,
licenses and orders would have a materially adverse effect on the Purchased
Assets. To the best of their knowledge and belief, Dolfin has been and are in
material compliance with all applicable laws, regulations and administrative
orders of any country, state or municipality or of any subdivision of any
thereof to which its business and its employment of labor or its use or
occupancy of properties or any part thereof are subject, the failure to obtain
or the violation of which would have a material adverse effect upon the
assets, liabilities, results of operations, financial condition, business or
prospects of Dolfin and Dolfin Canada.
5.13. Material Misstatements or Omissions. Dolfin and
Dolfin Canada have not made any material misstatements of fact or omitted to
state any material fact necessary or desirable to make complete, accurate, and
not misleading every representation, warranty, schedule, and agreement set
forth, described or referred to herein. Dolfin and Dolfin Canada have
disclosed to SSI all material adverse facts relating to the condition or
operation, whether past, present or future, financial or otherwise, of the
Purchased Assets.
5.14. Effective Date of Warranties, Representations and
Covenants. Each warranty, representation and covenant set forth in this
Section 5 shall be deemed to be made on and as of the date hereof and as of
the Closing.
5.15. Books and Records. From the date of this Agreement
to the Closing Date, Dolfin and Dolfin Canada will (i) give to SSI and its
representatives full access during normal business hours to all of Dolfin's
and Dolfin Canada's offices, books, records, contracts and other corporate
documents and properties and assets that comprise the Purchased Assets so that
SSI may inspect and audit them; and (ii) furnish such information concerning
the related properties and affairs of Dolfin as SSI may reasonably request;
however, no access to any and all information regarding Galaxy which has been
separately maintained shall be provided.
5.16. Tax Returns. Dolfin and Dolfin Canada have filed all
federal and state income or franchise tax returns that have been required to
be filed by it or has received currently effective extensions of the required
filing dates.
5.17. Corporate Power. Dolfin has full corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder and will deliver to SSI or its representatives at the Closing a
signed copy of resolutions of its Board of Directors authorizing execution of
this Agreement by Dolfin's officers and performance thereunder, and that the
directors adopting and delivering such resolutions are the duly elected and
incumbent directors of Dolfin, in the form of Schedule 5.18 attached hereto
and incorporated herein by reference.
5.18. Due Authorization. Execution of this Agreement and
performance by Dolfin hereunder has been duly authorized by all requisite
corporate action on the part of Dolfin and Dolfin Canada, and this Agreement
constitutes a valid and binding obligation of Dolfin and Dolfin Canada and
performance hereunder will not violate any provision of the Articles of
Incorporation, Bylaws, agreements, mortgages or other commitments of Dolfin or
Dolfin Canada, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application now or hereafter in effect relating to or affecting the
enforcement of creditors' right generally and the application of general
equitable principles in any action, legal or equitable.
5.19. Access to Information Regarding SSI "Restricted
Securities" and Acquired with Investment Intent. Dolfin and Dolfin Canada
represent and agree as follows:
(a) Dolfin and Dolfin Canada acknowledge that SSI has
delivered it copies of what has been represented to be documentation
containing all material information respecting SSI and its present and
contemplated business operations, potential acquisitions, management and other
factors, by personal delivery to it; that it has had a reasonable opportunity
to review such documentation and to discuss it, to the extent desired, with
its legal counsel, directors and executive officers; that it has had, to the
extent desired, the opportunity to ask questions of and receive responses from
the directors and executive officers of SSI, and with the legal and accounting
firms of SSI, with respect to such documentation; and that to the extent
requested, all questions raised have been answered to its complete
satisfaction.
(b) That the Common Shares being acquired in consideration
of the Purchase Price of the Purchased Assets are "restricted securities" that
are being acquired by Dolfin for investment purposes and not with a view
toward further distribution, and Dolfin has no present intention of
distributing the SSI Common Stock to its stockholders within the next twelve
(12) months in violation of Rule 144 of the Securities and Exchange
Commission;
(c) That Dolfin has full and complete understanding of the
phrase "for investment purposes and not with a view toward further
distribution;"
(d) That Dolfin understands the meaning of "unregistered
shares" and knows that they are not freely tradeable;
(e) That any stock certificate issued by SSI in connection
with the Common Stock being acquired shall be imprinted with a legend
restricting the sale, assignment, hypothecation or other disposition of the
Common Stock unless such disposition can be made in accordance with applicable
securities laws, rules and regulations;
(f) That the stock transfer records of SSI shall reflect
that Dolfin has requested SSI not to effect any transfer of any stock
certificate representing any of the Common Stock unless Dolfin shall first
have obtained an opinion of legal counsel to the effect that the Common Stock
may be sold in accordance with applicable securities laws, rules and
regulations, and Dolfin understands that any opinion must be from legal
counsel reasonably satisfactory to SSI and, regardless of any opinion, Dolfin
understands that the exemption covered by any opinion must in fact be
applicable to the Common Stock;
(g) That Dolfin shall not sell, offer to sell, transfer,
assign, hypothecate or make any other disposition of any interest in the
Common Stock being acquired except as may be pursuant to any applicable
securities laws, rules and regulations.
5.20. Further Assurances of Dolfin. Dolfin will and will
cause Dolfin Canada to execute such assignment or assignments and will perform
such other acts as will enable SSI to take free and clear title to the
Purchased Assets and each component thereof.
ARTICLE 6
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
6.1. Confidentiality. Until the Closing Date (and
continuously if there is no Closing), Dolfin and Dolfin Canada will keep
confidential any information which it obtains from SSI concerning its
properties, assets and business. SSI will keep confidential any information
which it obtains from Dolfin or Dolfin Canada concerning their properties,
assets and business. If the transactions contemplated by this Agreement are
not consummated by June 15, 2003, Dolfin and Dolfin Canada will return to SSI,
and SSI will return to Dolfin and Dolfin Canada all written matter obtained in
connection with the negotiation or consummation of this Agreement.
6.2. Covenants of Confidentiality and Covenant Not to Compete.
Dolfin acknowledges that as a result of its previous business operations
directly with customers as Dolfin and indirectly through Dolfin Canada, it has
had and may continue to have access to information (including without
limitation, trade secrets, customer lists, supplier lists, distributor lists,
marketing plans, pricing information, financial information, and any
information not generally known to the public or otherwise peculiar to Dolfin
and Dolfin Canada) that would be reasonably considered confidential
("Confidential Information"). Dolfin acknowledges and agrees that such
Confidential Information is valuable to SSI, that its protection and
maintenance constitutes a legitimate interest to be protected by SSI, and the
use of any such information or disclosure of any of such Confidential
Information to competitors of SSI, or the general public would be detrimental
to SSI. Therefore, Dolfin covenants and agrees with SSI that it will not
disclose and will instruct its employees, directors, officers, consultants,
contractors and agents not to disclose any such Confidential Information at
any time unless required to do so by legislative or regulatory requirements.
In that case, Dolfin will provide the minimum Confidential Information
required and will use reasonable efforts to ensure that the Confidential
Information receives confidential treatment by those to whom it is disclosed.
Dolfin also agrees that for sixty (60) months it will not use or exploit and
will instruct its employees, directors, officers, consultants, contractors or
agents not to use or exploit any such Confidential Information directly or
indirectly, for any purpose other than that required in the course of this
Agreement with SSI. This Section 6.2 does not apply to information that is
(a) in the public domain, (b) is otherwise disclosed to Dolfin other than
through the breach of a similar confidentiality agreement or (c) was already
in the possession of Dolfin. Notwithstanding anything to the contrary, this
Section 6.2 will not apply to any employees or consultants of Dolfin or Dolfin
Canada who are offered employment according to Section 7.1 of this Agreement
and who accept such offer, as long as they remain employees or consultants of
SSI.
ARTICLE 7
EMPLOYEES AND CONSULTANTS OF DOLFIN
7.1. Employees and Consultants of Dolfin. SSI, in its
sole discretion, may offer employment to any of the existing employees or
consultants of Dolfin or Dolfin Canada (the "Personnel") at any terms which
SSI determines. Dolfin grants SSI the immediate right to negotiate directly
with any Dolfin employee or consultant. Dolfin does not represent or warrant
that any particular Dolfin employee or consultant will or will not accept
employment with SSI on any particular terms. Dolfin does not provide any
representation as to the competency of the Personnel.
ARTICLE 8
POST-CLOSING COVENANTS
8.1. Further Cooperation. From and after the Closing Date,
Dolfin shall (i) assist and cooperate with SSI in effecting the orderly
transfer of the Purchased Assets to SSI and/or its Affiliate and (ii) execute
and deliver such documents and take such other actions as SSI reasonably
requests to fully consummate the contemplated transactions.
8.2. Financial Statements of the Purchased Assets. If SSI
becomes a publicly held company by completing the Proposed Reorganization or
otherwise becomes a publicly held company, it will be required to have audited
financial statements for a period of at least two (2) years. That would
include audited financial statements of the Purchased Assets. Accordingly,
Dolfin agrees to provide to SSI within seventy-five (75) days of the Closing,
audited financial statements of the Purchased Assets for the years ended
December 31, 2002 and 2001, and reviewed financial statements for the quarter
ended March 31, 2003, all by the Independent Auditors of Dolfin, at no cost to
SSI.
8.3. Audited SSI Financial Statements. If audited SSI
Financial Statements are required for filings with the Securities and Exchange
Commission by SSI or any successor, then SSI agrees to cause the SSI Financial
Statements to be audited by its independent auditors.
8.4. Consents. Dolfin and SSI to the best of their knowledge
believe that there are no third party consents required to complete this
transaction. If either party becomes aware that a third party consent is
required to transfer any part of the Purchased Assets, that party will notify
the other promptly, and Dolfin agrees to use its best efforts to obtain such
consent as soon as practicable, at no additional cost to SSI and SSI will
cooperate fully with such efforts. If such consent is not obtained then the
portion of the Purchased Assets requiring such consent will be excluded from
the transaction, and if there is an adverse material effect on the Purchased
Assets because of such exclusion, SSI and Dolfin will negotiate a modification
to the Purchase Price in good faith.
ARTICLE 9
PURCHASE OPTION; FIRST RIGHT OF REFUSAL; TRANSFER OF ACCOUNTS
9.1. Purchase and Sale Option. Except as set forth in Section
9.2 below, for thirty-six (36) months after the Closing Date, SSI shall have
the right to purchase Galaxy from Dolfin, after the satisfactory completion of
due diligence by SSI, on the basis of one dollar ($1.00) of SSI Common Stock
for each one dollar ($1.00) of Galaxy revenue transferred to SSI. The SSI
Common Stock value will be determined as the average closing price of SSI's
Common Stock on the principal nationally recognized medium in which such
Common Stock is publicly traded for the ten (10) business days preceding any
such subsequent transaction; provided, however, if the SSI Common Stock is not
publicly trading at the time SSI exercises its right to purchase Galaxy, then
the per share value of SSI Common Stock shall be the fair market value thereof
as determined by SSI's board of directors in good faith..
9.1.1. SSI's Exercise of Right to Purchase. If SSI
wishes to purchase Galaxy, SSI shall notify Dolfin as prescribed by Section
10.1 of this agreement. Upon receipt of such notice, Dolfin agrees to that it
shall negotiate the terms of the transaction in good faith, and will use its
best efforts to close the transaction within ninety (90) days from the receipt
of the notice.
9.2. Right of First Offer. If Dolfin wishes to sell Galaxy,
Dolfin will give SSI written notice of its intention ("Sale Notice") to do so
as prescribed by Section 10.1 this agreement, setting forth in reasonable
detail the price and other terms and conditions under which Dolfin proposes to
sell Galaxy. Upon receipt of such notice, SSI shall have the right, but not
the obligation, within thirty (30) days after receipt of the Sale Notice, to
notify Dolfin of its election to purchase Galaxy at a purchase price equal to
that specified in the Sale Notice and on similar terms and conditions. SSI
and Dolfin will negotiate the terms of the transaction in good faith, and will
use their best efforts to close the transaction as soon as practicable. SSI
and Galaxy will negotiate the terms of the transaction in good faith, and will
use their best efforts to close the transaction as soon as practicable.
9.2.1. If SSI does not give notice to Dolfin that it
intends to purchase Galaxy within thirty (30) days of receiving the Sale
Notice then Dolfin may sell Galaxy to a third party at a price and on terms
and conditions no more favorable than those set forth in the Sale Notice. Any
such sale must be consummated within ninety (90) days after the date of the
Sale Notice is first received by SSI.
9.2.2. If SSI elects not to purchase Galaxy and Galaxy
is not sold to a third-party in accordance with Section 9.2.1 then, Dolfin
shall again be subject to the restrictions contained in this Agreement and
shall not thereafter be able to sell, transfer or otherwise dispose of Galaxy
in any manner, except in compliance with Sections 9.1 or 9.2 of this
Agreement.
9.3. Prior Transfers of Customers and Contracts. Dolfin and SSI
may agree to transfer certain customers and assign certain customer contracts
of Galaxy to SSI prior to, or independent of the acquisition of all of the
assets of Galaxy by SSI from Dolfin. If any customers of Galaxy are
transferred to SSI prior to such acquisition, then the purchase price for
these accounts will be calculated at the end of an eighteen (18) month period
from the Closing of this Agreement at a value of one times the trailing twelve
months ("TTM") revenue from the transferred customer(s) where revenue will be
calculated as gross revenue generated by the customer during the TTM less
SSI's costs in transferring such revenue to SSI. The purchase price will be
paid in SSI Common Stock on the basis that one dollar ($1.00) of SSI Common
Stock will be exchanged for each one dollar ($1.00) of Galaxy revenue
transferred to SSI, where the SSI Common Stock value will be determined as the
average closing price of SSI's Common Stock on the principal nationally
recognized medium in which such Common Stock is publicly traded for the twenty
(20) days preceding any such transaction.
ARTICLE 10
GENERAL PROVISIONS
10.1. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been given if
delivered in person or sent by prepaid first-class registered or certified
mail, return receipt requested, as follows:
If to SSI: 0000 Xxxxx Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx X0X 0X0
Xxxxxx
and
Morse, Zelnick, Rose & Lander
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000 4405
If to Dolfin: 000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxx, Secretary
10.2. Entire Agreement. This Agreement constitutes the
entire agreement between the parties and supersedes and cancels any other
agreement, representation or communication, whether oral or written, between
the parties hereto relating to the transactions contemplated herein or the
subject matter hereof.
10.3. Headings. The section and subsection headings in this
Agreement are inserted for convenience only and shall not affect in any way
the meaning or interpretation of this Agreement.
10.4. Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the laws of the State of
Delaware, except to the extent pre-empted by federal law, in which event (and
to that extent only), federal law shall govern.
10.5. Assignment. No party may assign any rights, duties or
obligations under this Agreement, without the written consent of the other
which shall not be unreasonably withheld.
10.6. Severability. Any provision of this Agreement that is
prohibited or unenforceable shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
of this Agreement.
10.7. Waiver. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder shall operate as a waiver
of any such right, power or privilege. No waiver of any default on any one
occasion shall constitute a waiver of any subsequent or other default. No
single or partial exercise of any such right, power or privilege shall
preclude the further or full exercise of such right, power or privilege.
10.8. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10.9. Default. In the event of default hereunder, the non-
defaulting party shall be entitled to recover reasonable attorney's fees and
costs in enforcing the terms and provisions hereof.
[remainder of page intentionally left blank; signatures follow]
IN WITNESS WHEREOF, the parties have executed this Agreement
effective the day and year first above written.
SECURED SERVICES, INC.
By________________________________
Its______________________________
Attest:
____________________________________
Its__________________________________
XXXXXX.XXX, INC.
By_________________________________
Its__________________________________
Attest:
_____________________________________
Its___________________________________
LIST OF SCHEDULES TO ASSET PURCHASE AGREEMENT
SECURED SERVICES, INC. AND XXXXXX.XXX, INC.
Schedule 2.1.1 - Excluded Assets
Schedule 2.1.2 - Intellectual Property
Schedule 2.1.3 - Dolfin Material Contracts
Schedule 2.1.4 - Dolfin Accounts Receivable
Schedule 2.1.5 - Dolfin Physical Property
Schedule 2.3.1 - Assumed Liabilities
Schedule 2.3.2 - Excluded Liabilities
Schedule 2.4 - Allocation of Purchase Price
Schedule 2.6 - Lock up / Leak out Agreement
Schedule 3.1.1 - Xxxx of Sale
Schedule 3.1.2 - Opinion from Counsel
Schedule 3.2.1 - SSI VASCO Asset Purchase Agreement
Schedule 3.2.2 - SSI SSGI Reorganization Agreement
Schedule 4.2.1 - List of SSI Outstanding Options, Warrants and Calls
Schedule 4.2.2 - Certificate of Amendment to SSI Articles of
Incorporation
Schedule 4.4 - SSI Undisclosed Liabilities
Schedule 4.8 - SSI Board Resolutions
Schedule 5.6 - Dolfin and Dolfin Canada Financial Statements
Schedule 5.10 - Status of Litigation for Dolfin
Schedule 5.11 - List of Dolfin Insurance Policies
Schedule 5.18 - Dolfin Board Resolutions
Schedule 2.1.1 Excluded Assets
Dolfin's 100% ownership of the Common shares of Galaxy Computer Systems, Inc.
Any bank accounts belonging solely to Xxxxxx.xxx and the corresponding account
balances, whether positive or negative. For clarity, any bank accounts
belonging to Dolfin Canada and the corresponding balances do not form part of
the Excluded Assets and are included in the Purchased Assets.
All inter company loans from Dolfin to Galaxy Computer Systems Inc.
Schedule 2.1.2 Intellectual Property of Dolfin
All software, source code, executable code, documentation, manuals and
instructions whether in machine readable form or not, comprising a series of
security applications based on open source software components, including a
firewall, an intrusion detection system, content filtering, proxy server,
virtual private network and bandwidth management known as Secure Gateway.
All software, source code, executable code, documentation, manuals and
instructions whether in machine readable form or not, comprising the
Xxxxxx.xxx website.
All inventions (whether patentable or unpatentable and whether or not reduced
to practice), all improvements thereto, and all Patents of Dolfin.
All Trademarks, trade dress, logos, trade names, brand names, brand marks,
domain names and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith of Dolfin.
All copyrightable works, all Copyrights, and all applications, registrations,
and renewals in connection therewith of Dolfin.
All trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals) from Dolfin's business operations.
Schedule 2.1.3 Dolfin Material Contracts
Xxxxxx.xxx
Services Contract with Harvard Pilgrim Health Care signed on March 28, 2003.
Master Services Agreement with Xxxxxx Wireless Inc., dated Sept. 20, 2001 for
consulting services.
1444338 Ontario Inc. (Dolfin Canada)
Lease with Xxxxxxx Business Systems Inc., dated Nov. 1, 1999 for a digital
copier
Lease with North Oakville Holdings Limited, dated May 10, 2001 for the
premises located at 0000 Xxxxx Xxxxxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxx.
Master Services Agreement with Goldcorp Inc., dated Dec. 12, 2001 for
consulting services.
Master Services Agreement with Laurel Steel, dated Aug. 1, 2002 for consulting
services.
Purchase Order for three years of Intrusion Detection Services, Contract under
negotiation with Xxxxxx Wireless Inc.
Master Services Agreement with Xxxxx Direct Marketing, dated March 12, 2001
for consulting services.
Schedule 2.1.4 Dolfin Accounts Receivable
Xxxxxx.xxx
Xxxxxx Wireless Inc. $21,511.30
Exel $40,009.70
1444338 Ontario Inc. (Dolfin Canada)
None
Schedule 2.1.5 Dolfin Physical Property
Xxxxxx.xxx
none
1444338 Ontario Inc. (Dolfin Canada)
39 Chairs
1 Reception Desk
5 Book Cases
7 Assorted Prints
1 Meridian Telephone System M8X24
6 Computers and Monitors
1 Refrigerator
1 Fire Extinguisher
Desks and Dividers
2 HP Laser Jet 6P Printers
1 HP Laser Jet 4
1 HP Desk Jet 1120C Printer
1 HP Office Jet 300
1 GBC Shredder
1 GBC 2000 Binding Machine
1 Boston Cutter
10 Desks
6 Xception Modular Workstations
5 Office Suites
2 Five Drawer Lateral File Cabinet
1 Board Room Table
2 Entertainment Units
2 Two Drawer Metal Cabinet
1 Fire Box II Watch Guard FireWall
1 DLink 000-X Xxx
0 XXxxx 00-XX Xxx
0 Canon BJ240 Printer
3 Stools
5 Light Duty Shelving Units
1 Voice Gate Computer Voice Mail System
1 Cisco 2600 Router
5 Patch Bays
3 Server Racks
4 Dell P200 Computers
2 P166 Computers
1 Dual PIII 450 Compaq Proliant 3000 Server
1 Cabletron Switching System MMAC M8FNB
1 Back-up Power Supply
Appraised Value - $7,700 (US) by Canam Appraiz Inc. on Oct. 3, 2002.
Schedule 2.3.1 Assumed Liabilities
Limited to the following specific Accounts Payable for Xxxxxx.xxx:
Xxxxxxx & Company $29,276.00
BDO Dunwoody 5,625.00
GE Access 29,962.50
Xxxx Xxx 70,496.80
Xxxx Xxxxxxxx 68,250.00
203,610.30
All are overdue.
The following Accounts Payable for 0000000 Ontario Inc:
1-30 31-60 61-90 >90 Total
ACT Teleconferencing Canada Inc. 604.96 0 0.00 0.00 604.96
AIM 102.72 0.00 0.00 0.00 102.72
AT&T Canada 261.80 0.00 0.00 0.00 261.80
Autofun 0.00 0.00 60.20 0.00 60.20
Xxxx Canada 483.97 0.00 0.00 0.00 483.97
Xxxx Mobility 56.54 0.00 0.00 0.00 56.54
Durabond Janitorial Services 406.60 203.30 203.30 609.90 1,423.10
Federal Express Canada Ltd. 1,910.45 0.00 0.00 0.00 1,910.45
Ford Credit Canada Leasing 0.00 0.00 0.00 496.58 496.58
Frid & Xxxxxxx 196.30 0.00 0.00 0.00 196.30
Xxxxxxx X. Xxxxx 0.00 0.00 0.00 4,984.38 4,984.38
Xxxx Xxxxxxx v 0.00 750.00 0.00 0.00 750.00
Orion Communications Inc. 820.99 0.00 0.00 0.00 820.99
Staples 130.41 0.00 0.00 0.00 130.41
UPS 621.19 0.00 0.00 0.00 621.19
Reserve for ex-employees 0.00 0.00 0.00 127,271.73 127,271.73
-------- ------ ------ ---------- ----------
TOTAL (Can) 5,595.93 953.30 263.50 133,362.59 140,175.32
-------- ------ ------ ---------- ----------
Schedule 2.3.2 Excluded Liabilities
The following list of Accounts Payable for Xxxxxx.xxx.
XXXXXX.XXX Inc. Liabilities
Interest Interest Interest Interest
2000 2001 2002 to 05/31/03
Arbus (Finder's Fee) 212,600.00
Delaware Franchise
taxes etc 12,000.00
Dr. Xxxx Xxx 352,710.97 13,831.49 22,977.41 10,172.29
Xx. Xxxx X. Xxxxx 1,414.06
Xx. Xxxxx 118,695.00 6,242.84 11,869.50 11,869.50 4,945.63
Focus (Note Payable) 600,000.00 5,000.00 60,000.00 25,000.00
X. Xxxxxxxx 101,001.00 5,312.21 10,100.10 10,100.10 4,208.38
Xxxx Xxxxxxx 112,291.75 7,933.34 7,216.52 3,194.81
Keesmaat Xxxxx Xxxxxx
Xxxxx 16,798.66
Xxxxxxx X. Xxx Xxxxxxxxx 151,980.34 10,596.15 10,161.01 4,498.36
Xxxx Xxxxxxxx 233,099.47 7,879.34 14,622.71 6,473.60
Xxx Xxxxxxx 3,894.13
RSM McGladrey, Inc. 26,207.00
Stonesoft Corporation 2,502.00
Xxxxxxx X. Xxxxxxxxx 95,202.17 6,426.14 6,351.76 2,811.98
Xxxxxx Price 22,212.83
Xxxxxxx X. Xxxxxxx 7,876.99
Sub Total 2,070,486.37 11,555.05 73,636.06 143,299.00 61,305.04
Total. $ 2,360,281.52
Any other liabilities of Xxxxxx.xxx, including but not limited to debts,
loans, notes, letters of credit, contracts, leases, or professional fees
except those set forth in Schedule 2.3.1 of this Agreement.
Schedule 2.4-Allocation of Purchase Price
All assets of Xxxxxx.xxx except for Galaxy Computer Systems are being
purchased for 500,000 common shares plus acceptance of certain liabilities.
Total Purchase Price
Number of Value per
Shares Share
Value of Common Shares 500,000 0.75 375,000
Accepted Liabilities
Xxxxxx.xxx 203,610
144438 Ontario Inc.($US) 103,730
Total 682,340
Allocation
Fixed Assets 4,500
Accounts Receivable 61,521
Intellectual Property 302,872 *
Goodwill 313,447
Total 682,340
* Valuation of intellectual property is equal to the valuation calculated by
Canadian Customs and Revenue Agency in $Can converted to $US at the rate of
..74 $US/$Can.
Schedule 2.6-Lock up/Leak out Agreement
LOCK-UP/LEAK-OUT AGREEMENT
THIS LOCK-UP/LEAK-OUT AGREEMENT (the "Agreement") is made and
entered into as of the ___ day of June, 2003, between Southern Software Group,
Inc., a Delaware corporation ("SSGI"), and the individuals and entities that
execute and deliver a Counterpart Signature Page hereof, each a shareholder of
SSGI or an owner of common stock, warrants to purchase common stock or
preferred stock or debt instruments that may be convertible into shares of
common stock of SecureD Services, Inc., a Delaware corporation ("SecureD
Services"), and sometimes collectively referred to herein as the
"Shareholders" and each, a "Shareholder."
WHEREAS, the Shareholders are all present shareholders of common
stock of SSGI that SSGI has agreed to include in a registration statement to
be filed with the Securities and Exchange Commission or owners of shares of
common stock, warrants to purchase common stock or preferred stock or debt
instruments that may be convertible into shares of common stock of SecureD
Services ("SecureD Services Shareholders"); and
WHEREAS, the SecureD Services Shareholders intend to exchange
their respective securities of SecureD Services for like securities of SSGI
pursuant to that certain Plan of Reorganization and Stock Exchange Agreement
(the "Reorganization Agreement") between SSGI, SecureD Services and the
SecureD Services Shareholders, to which the execution and delivery of this
Agreement is a condition precedent to the closing of the Reorganization
Agreement; and
WHEREAS, on the closing of the Reorganization Agreement with
SecureD Services, the SecureD Services Shareholders shall exchange their
respective securities of SecureD Services for like securities of SSGI,
obtaining common stock of SSGI in exchange for their respective shares of
common stock of SecureD Services, like warrants to acquire SSGI common stock
on the exercise of exchanged SecureD Services warrants and like preferred
stock or debt instruments of SSGI with conversion rights to acquire common
stock of SSGI, all as described in the respective Counterpart Signature Pages
of the Shareholders that are attached hereto and incorporated herein by
reference (the "Common Stock"), and which Common Stock SSGI has agreed to
include in a registration statement to be filed with the Securities and
Exchange Commission;
WHEREAS, in order to facilitate the consummation of the
transactions contemplated by the Reorganization Agreement and to provide for
an orderly market for the Common Stock of SSGI subsequent to the closing of
the Reorganization Agreement, the Shareholders have agreed to enter into this
Agreement and to restrict the sale, assignment, transfer, conveyance,
hypothecation or alienation of the Common Stock, all on the terms set forth
below.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Notwithstanding anything contained in this Agreement, a
Shareholder may transfer his/her/its shares of Common Stock to his/her/its
affiliates, partners in a partnership, subsidiaries and trusts, or spouses and
lineal descendants for estate planning purposes provided that the transferee
(or the legal representative of the transferee) executes an agreement to be
bound by all of the terms and conditions of this Agreement.
2. Except as otherwise expressly provided herein, and except as
each Shareholder may be otherwise restricted from selling shares of Common
Stock, each Shareholder may only sell Common Stock subject to the following
conditions for the eighteen (18) month period from the closing of the
Reorganization Agreement (the "Lock-Up/Leak-Out Period"):
2.1 No Shareholder may sell any Common Stock except as covered
by this Agreement, unless approved in a prior writing by the
Board of Directors of SSGI, pro rata as to all Shareholders,
with respect to all Shareholders covered hereby.
2.2 If a Shareholder has an approved brokerage account meaning
an account with a broker/dealer who has executed and
delivered to SSGI a broker/dealer agreement in a form
satisfactory to SSGI, a reasonable facsimile of which is
attached hereto as Exhibit A and incorporated herein by
reference (the "Broker/Dealer Agreement"), to the effect
that any such broker/dealer will comply with and monitor the
terms and conditions of this Agreement for the benefit of
SSGI and the Shareholders (the "Approved Broker/Dealer"),
then the Common Stock of the Shareholder that can be sold or
has qualified to be sold hereunder will be delivered to the
Shareholder's account at the Approved Broker Dealer through
the Depository Trust Corporation ("DTC") or by paper
delivery; and provided, however, that if the Shareholder
does not have an account with an Approved Broker/Dealer, the
Common Stock of the Shareholder that can be sold or has
qualified to be sold hereunder will be delivered to the
Shareholder in the form of an actual stock certificate that
is imprinted with a legend indicating that resale of the
Common Stock is subject to the terms and conditions of this
Agreement, one of which shall be a resale through an
Approved Broker/Dealer.
2.3 Each Shareholder shall be allowed to sell no more than 3,000
shares of Common Stock per month during the Lock-Up/Leak-Out
Period, on a cumulative basis, meaning that if no Common
Stock was sold during one month while Common Stock was
qualified to be sold, up to 6,000 shares of Common Stock
could be sold in the next successive month and so forth;
provided, however, with respect to (i) shares of Common
Stock that are "restricted securities" that SSGI has agreed
to register for resale with the Securities and Exchange
Commission, the commencement of the right of any such
Shareholder to sell shares of Common Stock and to cumulate
unsold Common Stock into sales in the next successive month
hereunder shall begin on the earlier of the month in which
the Securities and Exchange Commission grants SSGI an
effective date (the "Effective Date") on any such
registration statement, or in the month in which any such
Shareholder qualifies in all respects to sell the Common
Stock under Rule 144 of the Securities and Exchange
Commission following the expiration of the required one year
holding period from the closing of the Reorganization
Agreement; and with respect to (ii) shares of Common Stock
that are "restricted securities" that SSGI has not agreed to
register for resale with the Securities and Exchange
Commission, in the month in which any such Shareholder
qualifies in all respects to sell the Common Stock under
Rule 144 of the Securities and Exchange Commission following
the expiration of the required one year holding period from
the closing of the Reorganization Agreement (the "Resale
Qualification Dates"). All Shareholders fully understand
that certain shares of Common Stock covered by this
Agreement have already satisfied the Resale Qualification
Dates (approximately 280,000 shares of Common Stock held by
five (5) persons); that the Resale Qualification Date of
some other shares of Common Stock that may be allowed to be
registered by SSGI for resale on Form S-3 of the Securities
and Exchange Commission (Common Stock that can be acquired
on the exercise of warrants or the conversion of preferred
stock or debt instruments may qualify for use of Form S-3)
may be earlier than Common Stock required to be registered
on some other Form; and that Common Stock required to be
registered on some other Form of the Securities and Exchange
Commission, like Form SB-2, may not have a Resale
Qualification Date for up to six (6) to nine (9) months,
depending upon the time involved in the Securities and
Exchange Commission review and comment process.
2.4 The Common Stock may only be sold at or above the lowest
"offer" or "ask" prices stated by the relevant market maker
for the Common Stock on the OTC Bulletin Board or any
nationally recognized medium on which the Common Stock is
publicly traded. Each Shareholder agrees that no sales will
be made at the "bid" prices for the Common Stock.
2.5 The Common Stock may not be sold at a price below $2.00 per
share (the "Price Floor").
2.6 The Shareholders agree that they will not engage in any
short selling of the Common Stock during the Lock-Up/Leak-
Out Period.
2.7 From the date hereof and for a period of not less than
eighteen (18) months from the expiration of the Lock-
Up/Leak/Out Period, SSGI shall maintain its "reporting"
status with the Securities and Exchange Commission; file all
reports that are required to be filed by it during such
period; and use its "best efforts" to ensure that the Common
Stock is continually quoted for public trading on a
nationally recognized medium of no less significance than
the OTC Electronic Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"), or if
its existence ceases, the BBX, the NASDAQ Small Cap or a
recognized national stock exchange.
3. By executing this Agreement, each Shareholder represents
that the Common Stock set forth in his/her/its Counterpart Signature Page is
all of the shares of SSGI Common Stock that such Shareholder beneficially owns
as of the date hereof. In addition to the Common Stock set forth in the
Counterpart Signature Page, this Agreement shall apply to all SSGI Common
Stock of which each Shareholder become the beneficial owner of during the
Lock-Up/Leak-Out Period.
4. Notwithstanding anything to the contrary set forth herein,
SSGI may, at any time and from time to time, waive any of the conditions or
restrictions contained herein to increase the liquidity of the Common Stock or
if such waiver would otherwise be in the best interests of the development of
the trading market for the Common Stock.
5. In the event of a tender offer to purchase all or
substantially all of SSGI's issued and outstanding securities, or a merger,
consolidation or other reorganization with or into an unaffiliated entity, and
if the requisite number of the record and beneficial owners of SSGI securities
then outstanding are voted in favor of such tender offer, merger,
consolidation or reorganization, and such tender offer, merger, consolidation
or reorganization is completed this Agreement shall terminate as of the
closing of such event and the Common Stock restricted pursuant hereto shall be
released from such restrictions.
6. Except as otherwise provided in this Agreement or any other
agreements between the parties, the Shareholders shall be entitled to their
respective beneficial rights of ownership of the Common Stock, including the
right to vote the Common Stock for any and all purposes.
7. The Common Stock and per share price restrictions covered by
this Agreement shall be appropriately adjusted should SSGI make a dividend or
distribution, undergo a forward split or a reverse split or otherwise
reclassify its shares of Common Stock.
8. No transfer of any of the shares of Common Stock that are
subject to this Agreement shall be made in any transaction other than a
"broker's transaction" unless the transferee executes and delivers a copy of
this Agreement prior to the transfer of any stock certificate representing any
of the Common Stock so transferred.
9. This Agreement may be executed in any number of counterparts
with the same force and effect as if all parties had executed the same
document.
10. All notices, instructions or other communications required
or permitted to be given pursuant to this Agreement shall be given in writing
and delivered by certified mail, return receipt requested, overnight delivery
or hand-delivered to all parties to this Agreement, to SSGI, at 0000 Xxxxx
Xxxxxxx Xxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxx X0X 0X0, and to the
Shareholders, at the addresses in their Counterpart Signature Pages. All
notices shall be deemed to be given on the same day if delivered by hand or on
the following business day if sent by overnight delivery or the second
business day following the date of mailing.
11. The resale restrictions on the Common Stock set forth in
this Agreement shall be in addition to all other restrictions on transfer
imposed by applicable United States and state securities laws, rules and
regulations.
12. SSGI or each Shareholder who fails to fully adhere to the
terms and conditions of this Agreement shall be liable to every other party
for any damages suffered by any party by reason of any such breach of the
terms and conditions hereof. Each Shareholder agrees that in the event of a
breach of any of the terms and conditions of this Agreement by any such
Shareholder, that in addition to all other remedies that may be available in
law or in equity to the non-defaulting parties, a preliminary and permanent
injunction and an order of a court requiring such defaulting Shareholder to
cease and desist from violating the terms and conditions of this Agreement and
specifically requiring such Shareholder to perform his/her/its obligations
hereunder is fair and reasonable by reason of the inability of the parties to
this Agreement to presently determine the type, extent or amount of damages
that SSGI or the non-defaulting Shareholders may suffer as a result of any
breach or continuation thereof.
13. This Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof, and may not be
amended except by a written instrument executed by the parties hereto.
14. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and to be performed wholly within said State; and SSGI and the
Shareholders agree that any action based upon this Agreement may be brought in
the United States and state courts of Delaware only, and each submits
himself/herself/itself to the jurisdiction of such courts for all purposes
hereunder.
15. In the event of default hereunder, the non-defaulting
parties shall be entitled to recover reasonable attorney's fees incurred in
the enforcement of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Agreement as of the day and year first above written.
Date: _______________. SOUTHERN SOFTWARE GROUP, INC.
By_______________________________________
Its_______________________________________
LOCK-UP/LEAK-OUT AGREEMENT
COUNTERPART SIGNATURE PAGE
This Counterpart Signature Page for that certain Lock-Up/Leak-Out
Agreement (the "Agreement") dated as of the day of June 2003, among
Southern Software Group, Inc., a Delaware corporation ("SSGI"); and certain
persons who are "Shareholders" of SSGI, by which the undersigned, through
execution and delivery of this Counterpart Signature Page, intends to be
legally bound by the terms of the Agreement, as a Shareholder, of the number
of shares of SSGI set forth below or hereafter acquired during the Lock-
Up/Leak-Out Period as defined in the Agreement.
_________________________________________
(Printed Name)
-----------------------------------------
(Signature)
_________________________________________
(Street Address)
-----------------------------------------
(City and State)
-----------------------------------------
(Number of Shares Owned or
Underlying Other Securities)
_________________________________________
(Date)
SCHEDULE 3.1.1 XXXX OF SALE
XXXX OF SALE
THIS XXXX OF SALE ("Xxxx of Sale"), dated ___________, 2003, by
XXXXXX.XXX, INC., a Delaware corporation ("Dolfin"), is entered into in
connection with the consummation of the transactions contemplated by that
certain Asset Purchase Agreement (the "Asset Purchase Agreement") dated of
even date herewith, between Dolfin and SECURED SERVICES, INC., a Delaware
corporation ("SSI"). Capitalized terms used but not otherwise defined herein
shall have the meanings assigned to them in the Asset Purchase Agreement.
WHEREAS, pursuant to the Asset Purchase Agreement, Dolfin has
agreed to sell to SSI and SSI has agreed to purchase from Dolfin all right,
title and interest of Dolfin in, to and under the Purchased Assets.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, Dolfin agrees as
follows:
1. Dolfin hereby sells, assigns, transfers, delivers and
conveys to SSI, all of Dolfin's right, title and interest in, to and under the
Purchased Assets, free and clear of all encumbrances, to have and to hold unto
SSI, its successors and assigns, to and for their use forever.
2. This Xxxx of Sale shall inure to the benefit of SSI and its
successors and assigns.
3. This Xxxx of Sale is expressly made pursuant to, and subject
to the limitations contained in, the Asset Purchase Agreement. Nothing herein
is intended to modify, limit or otherwise affect the representations,
warranties, covenants and agreements contained in the Asset Purchase
Agreement, and such representations, warranties, covenants and agreements
shall remain in full force and effect in accordance with the terms of the
Asset Purchase Agreement. In the event of a conflict between the terms of
this Xxxx of Sale and the terms of the Asset Purchase Agreement, the terms of
the Asset Purchase Agreement shall govern and control.
4. This Xxxx of Sale shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflicts of laws. IN WITNESS WHEREOF, Dolfin has executed and
delivered this Xxxx of Sale on the day and year first above written.
XXXXXX.XXX, INC.
By:________________________________
Name:
Title:
SCHEDULE 3.1.2 Opinion from Xxxxx Xxxxxxx Xxxx & Xxxxxx LLP
(000) 000-0000
_______________, 2003
Xxxxxx.xxx, Inc.
000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, XX 00000
Re: Purchase of Assets from Xxxxxx.xxx, Inc.
Ladies and Gentlemen:
This opinion is being furnished pursuant to Section 3.1.2(c) of the
Asset Purchase Agreement, dated as of July 1, 2003 (the "Agreement"), between
SecureD Services, Inc., a Delaware corporation (the "Company") and
Xxxxxx.xxx,Inc., a Delaware corporation (the "Seller"). Capitalized terms
used herein and not otherwise defined herein have the respective meanings
ascribed to them in the Agreement. As used herein, the term "Agreement"
includes all exhibits and schedules annexed thereto.
We have acted as counsel to the Company in connection with the
transactions contemplated under the Agreement. In connection therewith, we
have examined and are familiar with and have relied upon the following
documents:
(1) The Agreement;
(2) The Certificate of Incorporation of the Company, as amended to
date, including the Certificate of Designation filed on June 20,
2003 (the "Charter");
(3) The Bylaws of the Company, as amended to date (the "Bylaws");
(4) Certificates, dated as of a recent date, of the Secretary of State
of the State of Delaware certifying to the good standing of the
Company in Delaware (the "Good Standing Certificates");
(5) Such other documents, instruments and certificates (including, but
not limited to, certificates of public officials and officers of
the Company) as we have considered necessary for purposes of this
opinion.
We have also made such inquiries of officers of the Company and
considered such questions of law as we have deemed necessary to render the
opinions set forth herein.
In our examination of the documents described above, we have assumed the
completeness of the corporate and stock record books of the Company, the
genuineness of all signatures, the legal capacity of each signatory to such
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as
certified, facsimile or photostatic copies and the authenticity of the
originals of such certified, facsimile or photostatic documents. We have
assumed that the Agreement accurately describes and contains the mutual
understanding of the parties thereto as to all matters contained therein, and
that no other agreements or understandings exist between such parties with
respect to the transactions contemplated thereby.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Company, we have relied, without
independent investigation, upon certificates, statements and representations
made to us by one or more officers or employees of the Company and upon the
representations and warranties made by the Company in the Agreement.
Any reference herein to "our knowledge," or to matters "known to us," or
to any matter of which we "are aware" or coming "to our attention" or any
variation of any of the foregoing, shall mean, as used herein, the conscious
awareness of those attorneys of this firm who have rendered substantive
attention to the transaction to which this opinion relates of the existence or
absence of any facts which would contradict our opinions set forth below. We
have not undertaken, for purposes of this opinion, any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from the fact of our representation of the Company. Moreover, we
have not, for purposes of our opinions below, searched computerized or
electronic databases or the docket of any court, governmental agency or
regulatory body or other filing office in any jurisdiction.
For purposes of this opinion, we have assumed that the Agreement has
been duly authorized, executed and delivered by the signatories thereto other
than the Company, that the signatories thereto other than the Company have the
legal capacity and all requisite power and authority to effect the
transactions contemplated by the Agreement and that the Agreement is the valid
and binding obligations of the signatories thereto other than the Company,
enforceable against them in accordance with their respective terms. We are
expressing no opinion herein as to the application of or compliance with any
foreign, federal or state law or regulation to the power, authority or
competence of any party to the documents other than the Company.
Our opinions expressed in paragraph 1 below, insofar as they relate to
the due incorporation, valid existence and good standing of the Company, are
based solely on the Good Standing Certificates, a copy of which has been made
available to you, and our opinions with respect to such matters are rendered
as of the respective dates of such Certificate and limited accordingly.
The opinions hereinafter expressed are qualified to the extent that they
may be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent transfer or other laws relating
to or affecting the rights and remedies of creditors generally; (ii) statutory
or decisional law concerning recourse by creditors to security in the absence
of notice or hearing; and (iii) duties and standards imposed on creditors and
parties to contracts, including without limitation, requirements of good
faith, reasonableness and fair dealing. We express no opinion as to the
availability of the remedy of specific performance, injunctive relief or any
other equitable or specific remedy upon any breach of any documents or
obligations referred to herein, or to the successful assertion of any
equitable defenses, inasmuch as the availability of such remedies or the
success of such defenses may be subject to the discretion of the court before
which any proceeding therefor may be brought. Furthermore, we express no
opinion herein as to any provision of any agreement (i) which may be deemed to
or construed to waive any right of the Company, (ii) to the effect that rights
and remedies are not exclusive, that every right or remedy is cumulative and
may be exercised in addition to or with any other right or remedy and does not
preclude recourse to one or more other rights or remedies, (iii) relating to
the effect of invalidity or enforceability of the provisions of the Agreement
on the validity or enforceability of any other provision thereof, (iv)
requiring the payment of consequential damages or liquidated damages, (v)
relating to non-competition and non-solicitation, (vi) relating to
indemnification and contribution with respect to securities law claims, and
(vii) relating to choice of law, consent to jurisdiction or waiver of trial by
jury.
We express no opinion as to compliance by the Company with any state or
federal antifraud laws or with the fraudulent transfer laws of any
jurisdiction.
We are opining herein only with respect to the Delaware General
Corporation Law and the federal laws of the United States of America.
Accordingly, to the extent that any laws other than those upon which we are
opining govern any of the matters as to which we express an opinion below, we
have assumed for purposes of this opinion, with your permission and without
independent investigation, that the laws of such jurisdiction are identical to
the state laws of the State of New York, and we express no opinion as to
whether such assumption is reasonable or correct.
On the basis of and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation duly organized and validly existing
and in good standing under the laws of the State of Delaware. The Company has
requisite corporate power to own and operate its properties and assets and to
carry on its business as presently conducted.
2. The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock having a par value of $0.001 per share (the "Common
Stock"), and 5,000,000 shares of Preferred Stock having a par value of $0.001
per share, of which 2,000,000 shares have been designated as Series A
Convertible Preferred Stock.
3. The Agreement and the other agreements contemplated by the
Agreement to which the Company is a party are duly authorized, executed and
delivered by the Company and each such agreement is valid and binding upon the
Company and is enforceable against the Company in accordance with its terms
except as such enforcement may be limited by applicable bankruptcy, insolvency
or other laws of general application affecting the rights of creditors and the
availability of equitable remedies such as specific performance and injunction
which are only available in the discretion of the court from which they are
sought.
4. The certificate representing the 500,000 shares of Common Stock
issuable under the Agreement has been duly authorized, executed and delivered
by the Company, such shares of Common Stock have been validly issued and are
outstanding, fully paid and nonassessable.
5. The execution and delivery by the Company of the Agreement and the
other agreements contemplated by the Agreement and the fulfillment of and the
compliance with the respective terms thereof by the Company, do not and will
not (or would not with the giving of notice, the lapse of time or the
happening of any event or condition), to our knowledge, result in the
violation of any terms or provisions of any existing documents of the Company,
any law applicable to the Company or of any agreement, written or oral, to
which the Company is a party or by which it is bound.
6. The issuance of the Common Stock by the Company under the
Agreement does not require registration under the Securities Act of 1933, as
amended (the "Securities Act"), or registration or qualification under any
state securities laws.
7. Following issuance, the shares issued in this transaction will be
restricted securities. Accordingly, they will be resalable only pursuant the
Securities Act or pursuant to an exemption from registration under the
Securities Act. Presently, the Company is a private non-reporting company and
sales under Securities Act Rule 144 are not available to its stockholders.
However, after the shares have been held for two (2) years they may be resold
under Securities Act Rule 144(k). Prior thereto the shares may be resold
privately to investors who acquire such shares for investment and without a
view to distribution.
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions and is rendered as of the date hereof, and
we disclaim any obligation to advise you of any change in any of the foregoing
sources of law or subsequent developments in law or changes in fact or
circumstances which might affect any matters or opinions set forth herein.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters.
This opinion is being furnished to you, at your request and it is solely
for the purpose set forth in the first paragraph hereof and solely for your
benefit and may not be relied upon for any other purpose or by any other
person or entity without our prior written consent.
Very truly yours,
Morse, Zelnick, Rose & Lander, LLP
Schedule 3.2.1 - SSI - VASCO Asset Purchase Agreement
This document is located in its entirety elsewhere in this 8-K.
Schedule 3.2.2 - SSI - SSGI Merger Agreement
This document is located in its entirety elsewhere in this 8-K.
Schedule 4.2.1
Holders of Warrants to Purchase SSI Stock
There are nine holders of a total of 333,333 warrants all at an
exercise price of $1.50.
Schedule 4.2.2 - Certificate of Amendment to SSGI Articles of Incorporation
See Exhibit 2.3 to the Agreement and Plan of Merger by and among Southern
Software Group, Inc., SSGI Acquisition Corp. and Secured Services, Inc.
located elsewhere in this 8-K.
Schedule 4.4 SSI Undisclosed Liabilities
Morse, Zelnick, Rose and Lander $40,000.00 (est.)
Schedule 4.8 SSI Board Resolutions
ACTION BY UNANIMOUS WRITTEN CONSENT
OF
THE BOARD OF DIRECTORS
OF
SECURED SERVICES, INC.
(A Delaware Corporation)
PURSUANT TO SECTION 141(f) OF THE
DELAWARE GENERAL CORPORATION LAW
The undersigned, being all the directors (the "Board") of SecureD
Services, Inc. ("Corporation") hereby take the following action and adopt the
following resolutions:
I. Approval of the Transaction with Vasco Data Security International, Inc.
RESOLVED that, the Corporation's Board hereby authorizes, approves
and ratifies the execution, delivery and performance of (i) the
Asset Purchase Agreement between the Corporation and Vasco Data
Security International, Inc.("VASCO") (the "Vasco Purchase
Agreement") attached hereto as Exhibit A, with such changes
thereto as the officer of this Corporation executing such
agreement, deems appropriate, all as indicated by his execution
thereof, (ii) each of the Collateral Documents (as defined in the
Vasco Purchase Agreement) and (iii) all such other agreements,
certificates, letters, instruments, other documents and
transactions contemplated thereby;
and be it further
RESOLVED that, in connection with the Vasco Purchase Agreement,
the Corporation be, and hereby is, authorized to issue and deliver
to VASCO (i) 2,000,000 shares of the Corporation's series A
convertible Preferred Stock, $.001 par value per share (the
"Preferred Shares") and (ii) a promissory note for the principal
amount of $1,073,093.83, with interest accruing thereon at a rate
of six percent (6%) per annum, substantially in the form attached
hereto as set Exhibit B and on the terms set forth therein, with
such changes thereto as the officer of this Corporation executing
such agreement, deems appropriate, all as indicated by his
execution thereof;
and be it further
RESOLVED, that, upon issuance of the Preferred Shares in
connection with the foregoing transaction, such shares shall be
validly issued, fully paid and non-assessable shares of the
Corporation's Series A Convertible Preferred Stock, $.001 par
value per share;
and be it further
RESOLVED, that, the proper officers of the Corporation be, and
each of them acting singly hereby is, authorized, in the name and
on behalf of the Corporation, to execute and deliver (i) the Vasco
Purchase Agreement, (ii) each of the Collateral Documents and
(iii) all such other agreements, certificates, letters,
instruments, other documents and transactions contemplated
thereby; and to take any such actions required by, contemplated by
or related to the foregoing resolutions, the execution of any such
documents and the taking of any such action by any such officer to
be conclusive evidence of his or their approval and authority
hereunder.
II. Approval of the Charter Amendment and Designation of the Series A
Convertible Preferred Stock
RESOLVED, that, subject to stockholder approval, the Board hereby
adopts the amendment to the Certificate of Incorporation set forth
as Exhibit C hereto (the "Amendment") and that, upon the approval
of the stockholders of this Corporation, the officers of this
Corporation, at the time in office, are, and each of them acting
singly is, hereby authorized and directed, in the name and on
behalf of this Corporation, to take any and all action, pay all
required fees and execute such instruments or other documents
which they may deem necessary or desirable to amend the
Certificate of Incorporation in accordance with the Amendment, the
exact terms of such amendment to be determined by the Board in
their sole and absolute discretion;
and be it further
RESOLVED, that, the Board hereby declares it advisable that
stockholders adopt the Amendment either at a special meeting of
stockholders called to consider the Amendment or by consent.
III. Reservation of Common Stock For Issuance upon Conversion of the
Series A Preferred Stock
RESOLVED, that, upon the issuance of the Preferred Shares in
connection with the Vasco Purchase Agreement, a sufficient number
of shares of the Corporation's common stock, $.001 par value per
share, be and hereby are reserved for issuance upon conversion of
the Preferred Shares.
IV. Approval of the Transaction with Xxxxxxx.xxx, Inc.
RESOLVED that, the Corporation's Board hereby authorizes, approves
and ratifies the execution, delivery and performance of (i) the
Asset Purchase Agreement between the Corporation and Xxxxxxx.xxx,
Inc. ("Dolphin") (the "Dolphin Purchase Agreement") attached
hereto as Exhibit D, with such changes thereto as the officer of
this Corporation executing such agreement, deems appropriate, all
as indicated by his execution thereof and (ii) all such other
agreements, certificates, letters, instruments, other documents
and transactions contemplated thereby;
and be it further
RESOLVED that, in connection with the Dolphin Purchase Agreement,
the Corporation be, and hereby is, authorized to issue and deliver
to Dolphin 500,000 shares of the Corporation's Common Stock,
$.001 par value per share (the "Common Shares");
and be it further
RESOLVED, that upon issuance of the Common Shares in connection
with the foregoing transaction, such shares shall be validly
issued, fully paid and non-assessable shares of the Corporation's
common stock, $.001 par value per share;
and be it further
RESOLVED, that the proper officers of the Corporation be, and each
of them acting singly hereby is, authorized, in the name and on
behalf of the Corporation, to execute and deliver (i) the Dolphin
Purchase Agreement and (ii) all such other agreements,
certificates, letters, instruments, other documents and
transactions contemplated thereby; and to take any such actions
required by, contemplated by or related to the foregoing
resolutions, the execution of any such documents and the taking of
any such action by any such officer to be conclusive evidence of
his or their approval and authority hereunder.
Dated: June 19, 2003
/S/Xxxxxxx X. Xxxxxxxx
/S/T. Xxxxxxx Xxxx
/S/King X. Xxxxx
Schedule 5.6 - Dolfin Financial Statements
Accrual Basis
Balance Sheet Xxxxxx.xxx, Inc.
Dec 31, 02
ASSETS
Current Assets
Chequing/Savings
CASH
Bank
Xxxxxx Bank
$US-Main Account 11,933.68
-----------
Total Xxxxxx Bank 11,933.68
-----------
Total Bank 11,933.68
-----------
Total Cash 11,933.68
-----------
Total Chequing/Savings 11,933.68
Accounts Receivable
Accounts Receivable-Trade
Trade
Accounts Receiveable
$US 29,896.77
-----------
Total Accounts Receivable 29,896.77
-----------
Total Trade 29,896.77
-----------
Total Accounts Receivable-Trade 29,896.77
-----------
Total Accounts Receivable 29,896.77
Other Current Assets
Accounts Receivable other
Other
Loan Receivable 1444338 Ont Inc. 103,465.14
Loan Receivable Galaxy
Interest rec. Loan from Galaxy 23,579.00
Loan Receivable-Galaxy-other 226,500.00
-----------
Total Loan Receivable Galaxy 250,079.00
Loan Rec Xxxxxx.xxx CDA 634,585.10
-----------
Total Other 988,129.24
-----------
Total Accounts Receivable Other 988,129.24
-----------
Total Other Current Assets 988,129.24
-----------
Total Current Assets 1,029,959.69
Fixed Assets
Fixed Assets
cost
Equipment-shop 164.87
-----------
Total cost 164.87
-----------
Total Fixed Assets 164.87
-----------
Other Assets
Xxxxxxxxxxx-Xxxxxx.xxx 68.00
Investments-Galaxy Merger 1,935,073.00
------------
Total Other Assets 1,935,141.00
------------
TOTAL ASSETS 2,965,265.56
============
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable-Trade
Posted
Vendors
$US 1,024,780.81
------------
Total Vendors 1,024,780.81
------------
Total Posted 1,024,780.81
------------
Total Accounts Payable-Trade 1,024,780.81
------------
Total Accounts Payable 1,024,780.81
Other Current Liabilities
Accounts Payable-other
Accrued Liabilities
Vendors
$US 149,150.00
------------
Total Vendors 149,150.00
------------
Total Accrued Liabilities 149,150.00
Expense Accounts
Employee
$US 4,761.12
------------
Total Employee 4,761.12
------------
Total Expense Accounts 4,761.12
Other
Other
$US 3,400.00
------------
Total Other 3,400.00
------------
Total Other 3,400.00
------------
Total Accounts Payable-other 157,311.12
Current Portion-L/T Debt
Shareholder
Galaxy 236,524.55
------------
Total Shareholder 236,524.55
------------
Total Current Portion-L/T Debt 236,524.55
Income & Sales Taxes Payable
Sales Taxes
USA
PA 1,816.23
------------
Total USA 1,816.23
------------
Total Sales Taxes 1,816.23
------------
Total Income & Sales Taxes Payable 1,816.23
Loans
Note payable-Focus Capital 600,000.00
------------
Total Loans 600,000.00
------------
Total Other Current Liabilities 995,651.90
------------
Total Current Liabilities 2,020,432.71
------------
Total Liabilities 2,020,432.71
Equity
Current Period Retained Earnings (2,089,702.51)
Stock
Common shares 185,581.88
Additional paid in capital 2,876,897.42
Preferred Shares-Class A 252,746.95
Preferred Shares-Class B 13.00
------------
Total Stock 3,315,239.25
Net Income (280,703.89)
------------
Total Equity 994,832.85
------------
Total Liabilities & Equity 2,965,265.56
============
Accrual Basis
Income Statement XXXXXX.XXX, INC.
Jan - Dec 02
Ordinary Income/Expense
Income
Sales
Goods
Software
Parts & Upgrades 20,295.40
------------
Total Software 20,295.40
------------
Total Goods 20,295.40
Services
Consult 120,446.12
------------
Total Services 120,446.12
------------
Total Sales 140,741.52
------------
Total Income 140,741.52
Cost of goods sold
Cost of Goods Sold
Goods
Software
Parts & Upgrades 19,905.75
------------
Total Software 19,905.75
------------
Total Goods 19,905.75
Time
Cost of job-travel exp. 1,783.72
cost of job-salaries SE & AC 23,026.36
------------
Total Time 24,810.08
------------
Total Cost of Goods Sold 44,715.83
------------
Total COGS 44,715.83
------------
Gross Profit 96,025.69
Expense
Finance Cost
Bank Charges 385.02
Foreign Exchange
Losses 17.47
------------
Total Foreign Exchange 17.47
Interest
Expense 60,336.61
Income (23,579.00)
------------
Total Interest 36,757.61
Late payment charges (1,227.13)
------------
Total Finance cost 35,932.97
General & Other Expenses
General & Administrative cost
Equipment
Rental 308.44
------------
Total Equipment 308.44
General
Licenses 210.19
Entertainment 957.05
Office Supplies 872.16
Postage & Courier 1,244.55
Subscriptions 142.05
------------
Total General 3,426.00
Professional fees
Accounting 61,439.07
Consulting 363,342.85
Legal 2,229.56
-------------
Total Professional fees 427,011.48
Salary & Wages
Group Health & Benefits 9,805.09
Life Insurance 1,763.43
-------------
Total Salary & Wages 11,568.52
Telephone
Conference calls 516.97
Cellular 3,052.20
Internet Connect 428.43
Long Distance 572.85
Telephone 819.30
-------------
Total Telephone 5,389.75
Travel
Toll Charges 710.00
Accommodations 2,637.48
Air Fare 11,520.93
Entertainment 71.67
Meals 656.53
Promotion 258.06
Taxi 492.80
Other 3,023.56
------------
Total Travel 19,371.03
Vehicle
Mileage 3,070.50
Parking 707.56
Rental 121.52
------------
Total Vehicle 3,899.58
------------
Total General & Administration cost 470,974.80
------------
Total General & Other Expense 470,974.80
Indirect Operating cost
Indirect Purchasing costs
Travel
Meals 21.75
------------
Total Travel 21.75
------------
Total Indirect Purchasing cost 21.75
Indirect selling cost
Advertising (11,126.32)
------------
Total Indirect Selling cost (11,126.32)
------------
Total Indirect Operating Cost (11,104.57)
------------
Total expense 495,803.20
------------
Net Ordinary Income (399,777.51)
Other Income/Expense
Other Income
Forgiveness of debt 119,073.62
------------
Total Other Income 119,073.62
------------
Net Other Income 119,073.62
------------
Net Income (280,703.89)
============
Accrual Basis
Balance Sheet 14444338 Ontario Inc.
Dec 31, 02
ASSETS
Current Assets
Chequing/Savings
Royal Bank
CDN-Main 30,771.52
USD 36.33
USD-Forex adj. 16.95
-----------
Total Royal Bank 30,824.80
-----------
Total Chequing/Savings 30,824.80
Accounts Receivable
Accounts Receivable 17,548.50
-----------
Total Accounts Receivable 17,548.50
Other Current Assets
Prepaid 2,198.69
-----------
Total Other Current Assets 2,198.69
-----------
Total Current Assets 50,571.99
Fixed Assets
Computer Hardware 3,169.80
Accum. Dep'n-Computer Hardware (554.72)
-----------
Total Fixed Assets 2,615.08
-----------
TOTAL ASSETS 53,187.07
===========
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 14,390.52
------------
Total Accounts Payable 14,390.52
------------
Credit Cards
Corporate Visa
Royal Bank 3,423.65
------------
Total Corporate Visa 3,423.65
------------
Total Credit Cards 3,423.65
Other Current Liabilities
GST Payable (1,558.59)
PST Payable 2,377.60
------------
Total Other Current Liabilities 819.01
------------
Total Current Liabilities 18,633.18
------------
Long Term Liabilities
Loan pay to Parent(exchange) 96,675.46
Loan payable to Dolfin Canada (2,923.19)
Loan payable to parent 61,114.01
------------
Total Long Term Liabilities 154,866.28
------------
Total Liabilities 173,499.46
Equity
Net Income (120,312.39)
------------
Total Equity (120,312.39)
------------
Total Liabilities & Equity 53,187.07
============
Accrual Basis
Income Statement 1444338 ONTARIO, INC.
Jan - Dec 02
Income
Consulting Services 75,970.00
Managed Services 15,550.00
Product Sales
Hardware 3,220.50
------------
Total Product Sales 3,220.50
------------
Total Income 94,740.50
Cost of goods sold
Cost of Goods Sold
Direct Materials
Hardware 1,724.00
------------
Total Direct Materials 1,724.00
Direct Wages 37,187.30
------------
Total Cost of Goods Sold 38,911.30
------------
Total COGS 38,911.30
------------
Gross Profit 55,829.20
Expense
Automobile expense (leased) 3,730.80
Bad Debt 1,150.00
Benefits & Payroll Taxes
pST compensation (117.28)
Benefits & Payroll Taxes-other 15,677.64
------------
Total Benefits & payroll Taxes 15,560.36
Communication
Cell 350.31
Long Distance 2,559.73
Telephone (fixed) 8,663.16
-------------
Total Communication 11,573.20
Consultants 78,795.79
Dep'n Expense-Computer hardware 554.72
Equipment/furniture leases 2,855.37
Insurance
E & O Liab. Ins. 1,857.58
General Liab 2,184.77
------------
Total Insurance 4,042.35
Marketing & Promotion 0.00
Office Expenses 1,374.38
Postage & Deliveries 687.22
Rent 50,851.44
Repairs & Maintenance
Janitorial Exp 2,790.00
Security Monitoring 437.00
------------
Total Repairs & Maintenance 3,227.00
Service charges
Bank service fees 448.64
Late Payment charges 216.46
------------
Total Service Charges 665.10
Subscriptions 288.15
Taxes & Licenses
Licenses 74.00
------------
Total Taxes & Licenses 74.00
Travel & Entertainment
car rental 203.93
Meals 122.50
Mileage 307.57
Parking 39.25
Toll charges 39.46
------------
Total Travel & Entertainment 711.71
------------
Total expense 176,141.59
------------
Net Income (120,312.39)
============
Accrual Basis
Balance Sheet 14444338 Ontario Inc.
Mar 31, 03
ASSETS
Current Assets
Chequing/Savings
Royal Bank
CDN-Main 7,706.66
USD 982.33
USD-Forex adj. 478.22
-----------
Total Royal Bank 9,167.21
-----------
Total Chequing/Savings 9,167.21
Accounts Receivable
Accounts Receivable 4,025.00
-----------
Total Accounts Receivable 4,025.00
Other Current Assets
Prepaid 2,198.69
-----------
Total Other Current Assets 2,198.69
-----------
Total Current Assets 15,390.90
Fixed Assets
Computer Hardware 3,169.80
Accum. Dep'n-Computer Hardware (475.00)
-----------
Total Fixed Assets 2,694.80
-----------
TOTAL ASSETS 18,085.70
===========
LIABILITIES & EQUITY
Liabilities
Current Liabilities
Accounts Payable
Accounts Payable 13,098.85
------------
Total Accounts Payable 13,098.85
------------
Credit Cards
Corporate Visa
Royal Bank (7,794.35)
------------
Total Corporate Visa (7,794.35)
------------
Total Credit Cards (7,794.35)
Other Current Liabilities
Accrued liability 58,018.65
GST Payable (3,997.10)
PST Payable 579.94
------------
Total Other Current Liabilities 54,601.49
------------
Total Current Liabilities 59,905.99
------------
Long Term Liabilities
Loan pay to Parent(exchange) 107,563.46
Loan payable to parent 42,695.50
------------
Total Long Term Liabilities 150,258.96
------------
Total Liabilities 210,164.95
Equity
Stock
Common stock 19,468.00
------------
Total stock 19,468.00
Retained Earnings (123,155.86)
------------
Net Income (88,391.39)
------------
Total Equity (192,079.25)
------------
Total Liabilities & Equity 18,085.70
============
Accrual Basis
Income Statement 1444338 ONTARIO, INC.
Jan - Mar 03
Income
Consulting Services 8,877.50
------------
Total Income 8,877.50
Cost of goods sold
Cost of Goods Sold
Direct Wages 1,050.00
other direct costs 450.00
------------
Total Cost of Goods Sold 1,500.00
------------
Total COGS 1,500.00
------------
Gross Profit 7,377.50
Expense
Automobile expense (leased) 1,242.51
Benefits & Payroll Taxes
pST compensation (125.39)
------------
Total Benefits & payroll Taxes (125.39)
Communication
Long Distance 860.48
Telephone (fixed) 2,653.83
-------------
Total Communication 3,514.31
Consultants 65,810.71
Equipment/furniture leases 554.04
Insurance
E & O Liab. Ins. 2,872.74
General Liab 1,195.98
------------
Total Insurance 4,068.72
Office Expenses 841.70
Postage & Deliveries 165.00
Rent 18,327.71
Repairs & Maintenance
Janitorial Exp 760.00
Security Monitoring 146.00
------------
Total Repairs & Maintenance 906.00
Service charges
Bank service fees 171.30
Late Payment charges 217.36
------------
Total Service Charges 388.66
Travel & Entertainment
Toll charges 54.36
Travel & Entertainment-other 20.56
------------
Total Travel & Entertainment 74.92
------------
Total expense 95,768.89
------------
Net Income (88,391.39)
============
Schedule 5.10 Litigation
None.
Schedule 5.11 Dolfin Insurance Policies
From Xxxxxx.xxx
none
From 1444338 Ontario Inc.
Policy # CBC 0613090 with Lombard General Insurance Company of Canada for
Commercial Liability and Property Insurance
Policy # 17001892 with Creechurch International Underwriters Ltd. for Errors &
Omissions Insurance
There are no claims outstanding at this time.
Schedule 5.18 Dolfin Board of Director Resolutions
XXXXXX.XXX, INC.
Secretary's Certificate
I, Xxxxxx Xxxxxxx, hereby certify that I am the Secretary of Xxxxxx.xxx,
Inc., a Delaware corporation (the"Company"), and that, as such, I am
authorized to execute this certificate on behalf of the Company. I hereby
further certify that:
1. Attached hereto as Exhibit A is a true and complete copy of the
resolutions duly adopted by unanimous written consent of the Company's Board
of Directors on June 26, 2003, authorizing the execution, delivery and
performance of the Asset Purchase Agreement dated as of July 1, 2003, by and
between the Company and SecureD Services, Inc. ("SSI") (the "Agreement") and
all transactions, agreements and corporate actions related thereto. Such
resolutions are the only resolutions or consent of the Company's Board of
Directors with respect to the foregoing, and they have not been amended or
rescinded and are in full force and effect on the date hereof.
2. Each of the representations and warranties of the Company,
contained in Article 5 of the Agreement are true and correct on the date
hereof.
3. Each of the following named individuals is and was a duly elected
officer of the Company holding the offices set forth opposite his name at the
time he signed any documents delivered on the date hereof in connection with
the (i) Agreement, and (ii) any related documents or any related certificate
or instrument; and the signature opposite the name and title of each such
officer is his true and correct manual signature:
Name Title Signature
Xxxxxxx X. Xxxxxxxx Chairman and Chief Executive Officer Xxxxxxx X. Xxxxxxxx
Xxxxxx Xxxxxxx Secretary Xxxxxx Xxxxxxx
IN WITNESS WHEREOF, I have executed this certificate on the 1st day of
July 2003.
/s/Xxxxxx Ch. Eleveld, Secretary
I, Xxxxxxx X. Xxxxxxxx, Chairman and Chief Executive Officer of
Xxxxxx.xxx, Inc., a Delaware corporation, hereby certify that Xxxxxx Xxxxxxx
is the duly elected, qualified and acting Secretary of Xxxxxx.xxx, Inc. and
that the signature appearing above is his genuine signature.
IN WITNESS WHEREOF, I have executed this Certificate on this 1st day of
July, 2003.
/s/Xxxxxxx X. Xxxxxxxx
Chairman and Chief Executive Officer
XXXXXX.XXX, INC.
APPROVAL OF BOARD RESOLUTIONS
I, have reviewed the attached hereto Exhibit A and it is a true and correct
copy of the resolutions adopted by the Board of Directors of the Corporation
on June 26, 2003 and should be recorded as such.
WITNESS WHEREOF, I have executed this Certificate this 27th day of June, 2003.
/s/Xxxxxxx Xxxxxxxx
Xxxxxxx Xxxxxxxx
President and Chairman of the Board
/s/Xxxxxxx Xxxxxxx
Xxxxxxx Xxxxxxx
/s/T. Xxxxxxx Xxxx
T. Xxxxxxx Xxxx
XXXXXX.XXX, INC.
CERTIFICATE OF SECRETARY
I, the undersigned, Xxxxxx Ch. Eleveld, being the Secretary of
XXXXXX.XXX, INC., a Delaware corporation (the "Corporation"), do hereby
certify:
Attached hereto as Exhibit A is a true and correct copy of resolutions
adopted by the Board of Directors of the Corporation on June 26, 2003, and as
the date hereof, sais resolutions have not been rescinded, amended, or
modified in any respect.
WITNESS WHEREOF, I have executed this Certificate this 30th day of June,
2003.
/s/Xxxxxx Xxxxxxx
Xxxxxx Ch. Eleveld
Secretary
EXHIBIT A
RESOLUTION OF THE BOARD OF DIRECTORS
OF XXXXXX.XXX, INC.
1. Approval of the Sale of Dolfin assets by SecureD services, Inc.
RESOLVED, that the Board of Directors deems it in the best interests of
the Corporation to negotiate an Asset Purchase Agreement (the "Purchase
Agreement") among the Corporation, and SecureD Services, Inc., which provides
for, among other things (i) the sale fo 1444338 Ontario, Inc., the wholly
owned Canadian subsidiary of XXXXXX.XXX, Inc., and certain XXXXXX.XXX, Inc.,
corporate assets and/or accounts as defined and delineated in the Asset
Purchase Agreement, (the "Asset Purchase"), (ii) consideration for such
Merger, is the issuance of the common stock of SecureD Services, Inc., as is
more fully set forth in the Asset Purchase Agreement, and (iii) the execution
of certain other agreements and instruments relating to the Asset Purchase, as
are referenced in the Purchase Agreement and the Leak-out and Lockup Agreement
(the "Ancillary Agreements");
RESOLVED, that the Corporation enter into and carry out the terms of the
Purchase Agreement substantially in the form submitted to and approved by the
Board of Directors, except that such document may embody such changes in any
of the forms, terms and provisions thereof, and such changes, amendments and
modifications thereto as may be approved by the officer or officers executing
the same, such approval to be conclusively evidenced by the execution and
delivery thereof; and
RESOLVED FURTHER, that the Corporation, as appropriate from time to
time, enter into and carry out the terms of any and all other documents,
certificates and instruments in connection with the Purchase Agreement,
including, without limitation, the Ancillary Agreements, all substantially in
the form submitted to and approved by the Board or as contemplated by the
Purchase Agreement, and Ancillary Agreements, as appropriate, except that such
documents, certificates and instruments may embody such changes in any of the
forms, terms and provisions thereof, and thereafter such changes, amendments
and modifications thereto, as may be approved by the officer and officers
executing the same, such approval to be conclusively evidenced by the
execution and delivery thereof; and
RESOLVED FURTHER, that the Chairman of the Board, the President, the
Chief Financial Officer, the General Counsel, the Secretary, any Executive
Vice President, and any Vice President and any other appropriate officer of
the Corporation be, and each of them acting singly hereby is, authorized,
empowered and directed to execute and deliver, from time to time as
appropriate, the Purchase Agreement, and the Ancillary Agreements, and any
other documents, certificates and instruments contemplated thereby or hereby.
EXHIBIT B
ASSET PURCHASE AGREEMENT
BY AND BETWEEN
VASCO DATA SECURITY INTERNATIONAL, INC.,
AS SELLER
AND
SECURED SERVICES, INC.
AS PURCHASER
Dated July 7, 2003
Effective July 1, 2003
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. 3M Contract. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. 3M Revenue Share . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. Accredited Investor. . . . . . . . . . . . . . . . . . . . . . . . 1
1.5. Affiliate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.6. Assignment and Assumption Agreement. . . . . . . . . . . . . . . . 2
1.7. Assumed Liabilities. . . . . . . . . . . . . . . . . . . . . . . . 2
1.8. Audit Right. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.9. Base Purchase Price. . . . . . . . . . . . . . . . . . . . . . . . 2
1.10. Xxxx of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.11. Binary Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.12. Books and Records. . . . . . . . . . . . . . . . . . . . . . . . 2
1.13. Business Day . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.14. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.15. Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.16. Claim Notice . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.17. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.18. Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.19. Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.20. Collateral Documents . . . . . . . . . . . . . . . . . . . . . . 3
1.21. Computer Program . . . . . . . . . . . . . . . . . . . . . . . . 3
1.22. Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.23. Contemplated Transactions. . . . . . . . . . . . . . . . . . . . 3
1.24. Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.25. Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.26. Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.27. Documentation. . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.28. DOD Integic Consulting Services. . . . . . . . . . . . . . . . . 4
1.29. Dolfin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.30. Dolfin Agreement . . . . . . . . . . . . . . . . . . . . . . . . 4
1.31. Employment Agreement . . . . . . . . . . . . . . . . . . . . . . 4
1.32. Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.33. Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . 4
1.34. Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.35. Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . 4
1.36. Excluded Obligations . . . . . . . . . . . . . . . . . . . . . . 4
1.37. GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.38. Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.39. Governmental Consent . . . . . . . . . . . . . . . . . . . . . . 4
1.40. Governmental Entity. . . . . . . . . . . . . . . . . . . . . . . 4
1.41. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.42. Indemnified Party. . . . . . . . . . . . . . . . . . . . . . . . 5
1.43. Indemnifying Party . . . . . . . . . . . . . . . . . . . . . . . 5
1.44. Indemnity Notice . . . . . . . . . . . . . . . . . . . . . . . . 5
1.45. Intellectual Property. . . . . . . . . . . . . . . . . . . . . . 5
1.46. IRS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.47. Knowledge. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.48. Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.49. Lease. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.50. Legal Proceeding . . . . . . . . . . . . . . . . . . . . . . . . 6
1.51. Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.52. Licenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.53. Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.54. Material Adverse Effect. . . . . . . . . . . . . . . . . . . . . 6
1.55. Material Contract. . . . . . . . . . . . . . . . . . . . . . . . 6
1.56. Net Revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.57. Object Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.58. Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.59. Organizational Documents . . . . . . . . . . . . . . . . . . . . 6
1.60. Patents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.61. Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.62. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.63. Personnel. . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.64. Post-Closing Integic Revenue Share . . . . . . . . . . . . . . . 7
1.65. Pre-Closing Integic Revenue Share. . . . . . . . . . . . . . . . 7
1.66. Prepaid Expenses . . . . . . . . . . . . . . . . . . . . . . . . 7
1.67. Prepaid Expense Adjustment Amount. . . . . . . . . . . . . . . . 7
1.68. Prepaid Receivables Amount . . . . . . . . . . . . . . . . . . . 7
1.69. Promissory Note. . . . . . . . . . . . . . . . . . . . . . . . . 7
1.70. Proposed Reorganization. . . . . . . . . . . . . . . . . . . . . 7
1.71. Proposed Reorganization Agreement. . . . . . . . . . . . . . . . 7
1.72. Proprietary Information. . . . . . . . . . . . . . . . . . . . . 7
1.73. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.74. Purchased Assets . . . . . . . . . . . . . . . . . . . . . . . . 8
1.75. Purchased Contracts. . . . . . . . . . . . . . . . . . . . . . . 8
1.76. Purchased Software . . . . . . . . . . . . . . . . . . . . . . . 8
1.77. Retained Liabilities . . . . . . . . . . . . . . . . . . . . . . 8
1.78. SEC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.79. Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.80. Security Agreement . . . . . . . . . . . . . . . . . . . . . . . 8
1.81. Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.82. Source Code. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.83. SSGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.84. SSI Business Plan. . . . . . . . . . . . . . . . . . . . . . . . 8
1.85. SSI Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 8
1.86. SSI Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . 9
1.87. SSI Preferred Stock Certificates . . . . . . . . . . . . . . . . 9
1.88. Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.89. System Documentation . . . . . . . . . . . . . . . . . . . . . . 9
1.90. Tangible Personal Property . . . . . . . . . . . . . . . . . . . 9
1.91. Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.92. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.93. Third Party. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.94. Threshold Amount . . . . . . . . . . . . . . . . . . . . . . . . 9
1.95. Trademarks . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
1.96. Underpayment Amount. . . . . . . . . . . . . . . . . . . . . . . 9
1.97. User Documentation . . . . . . . . . . . . . . . . . . . . . . . 9
1.98. VACMAN Enterprise Trademark. . . . . . . . . . . . . . . . . . .10
1.99. VACMAN Intellectual Property . . . . . . . . . . . . . . . . . .10
ARTICLE 2 SALE AND PURCHASE OF ASSETS;
CONSIDERATION; ASSUMPTION OF LIABILITIES . . . . . . . . . . . .10
2.1. Agreement to Sell and Purchase Assets. . . . . . . . . . . . . . .10
2.2. Excluded Assets. . . . . . . . . . . . . . . . . . . . . . . . . .10
2.3. Consideration and Payment. . . . . . . . . . . . . . . . . . . . .11
2.4. Base Purchase Price. . . . . . . . . . . . . . . . . . . . . . . .11
2.5. Post-Closing 3M Revenue Share. . . . . . . . . . . . . . . . . . .11
2.6. Post-Closing Integic Revenue Share.. . . . . . . . . . . . . . . .11
2.7. Allocation of Purchase Price.. . . . . . . . . . . . . . . . . . .11
2.8. Assumption of Liabilities. . . . . . . . . . . . . . . . . . . . .12
2.9. Security Agreement.. . . . . . . . . . . . . . . . . . . . . . . .12
2.10. Trademark License. . . . . . . . . . . . . . . . . . . . . . . .12
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF VASCO. . . . . . . . . . . .13
3.1. Organization.. . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.2. Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.3. Conflict with other Instruments; Absence of Restrictions.. . . . .13
3.4. Title to Properties; Adequacy of Properties. . . . . . . . . . . .14
3.5. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . . .14
3.6. Government and Third-Party Approvals.. . . . . . . . . . . . . . .14
3.7. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .14
3.8. Contracts and Commitments. . . . . . . . . . . . . . . . . . . . .14
3.9. Absence of Certain Developments. . . . . . . . . . . . . . . . . .14
3.10. Intellectual Property. . . . . . . . . . . . . . . . . . . . . .15
3.11. Corporate Records. . . . . . . . . . . . . . . . . . . . . . . .15
3.12. Statements and Other Documents Not Misleading. . . . . . . . . .15
3.13. Effective Date of Warranties, Representations and Covenants. . .16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SSI. . . . . . . . . . . . .16
4.1. Organization.. . . . . . . . . . . . . . . . . . . . . . . . . . .16
4.2. Authorization for Agreement. . . . . . . . . . . . . . . . . . . .16
4.3. Conflict with other Instruments; Absence of Restrictions.. . . . .16
4.4. Government and Third-Party Approvals.. . . . . . . . . . . . . . .17
4.5. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . .17
4.6. SSI Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.7. Capitalization.. . . . . . . . . . . . . . . . . . . . . . . . . .17
4.8. Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
4.9. Undisclosed Liabilities. . . . . . . . . . . . . . . . . . . . . .17
4.10. Books and Records. . . . . . . . . . . . . . . . . . . . . . . .17
4.11. Access to Information Regarding VASCO. . . . . . . . . . . . . .17
4.12. Statements and Other Documents Not Misleading. . . . . . . . . .18
4.13. SSI Business Plan. . . . . . . . . . . . . . . . . . . . . . . .18
4.14. Additional Investment. . . . . . . . . . . . . . . . . . . . . .18
4.15. Effective Date of Warranties, Representations and Covenants. . .18
ARTICLE 5 CLOSING. . . . . . . . . . . . . . . . . . . . . . . . . . . .18
5.1. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
5.2. Deliveries at Closing. . . . . . . . . . . . . . . . . . . . . . .19
5.3. Additional Conditions Precedent. . . . . . . . . . . . . . . . . .21
5.4. Financial Statements.. . . . . . . . . . . . . . . . . . . . . . .21
5.5. Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
5.6. Subsequent Documentation.. . . . . . . . . . . . . . . . . . . . .22
5.7. Third Party Consents.. . . . . . . . . . . . . . . . . . . . . . .22
5.8. Employment, Compensation and Employee Benefits From and After
Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
5.9. Severance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
5.10. Unemployment Compensation. . . . . . . . . . . . . . . . . . . .23
5.11. Escrow Agreement.. . . . . . . . . . . . . . . . . . . . . . . .23
5.12. Prepaid Receivables Amount and Prepaid Expense Amount;
Offset Against Promissory Note.. . . . . . . . . . . . . . . . . .23
ARTICLE 6 CONFIDENTIALITY AND COVENANT NOT TO COMPETE. . . . . . . . . .24
6.1. Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . .24
6.2. Return of Proprietary Information. . . . . . . . . . . . . . . . .24
6.3. Covenant Not To Compete. . . . . . . . . . . . . . . . . . . . . .24
ARTICLE 7 INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . .25
7.1. Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
7.2. VASCO's Indemnification. . . . . . . . . . . . . . . . . . . . . .25
7.3. SSI's Indemnification. . . . . . . . . . . . . . . . . . . . . . .26
7.4. Payment; Procedure for Indemnification.. . . . . . . . . . . . . .26
7.5. Limitations of Indemnity.. . . . . . . . . . . . . . . . . . . . .28
7.6. Characterization of Indemnity Payments.. . . . . . . . . . . . . .29
ARTICLE 8 POST-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . .29
8.1. Further Cooperation. . . . . . . . . . . . . . . . . . . . . . . .29
8.2. Post-Closing Receivables.. . . . . . . . . . . . . . . . . . . . .29
8.3. Post-Closing Excluded Assets.. . . . . . . . . . . . . . . . . . .29
8.4. Post-Closing Expenses and Liabilities. . . . . . . . . . . . . . .29
8.5. Public Announcements.. . . . . . . . . . . . . . . . . . . . . . .30
8.6. Audit Right. . . . . . . . . . . . . . . . . . . . . . . . . . . .30
8.7. SSI Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
ARTICLE 9 TAXES RELATED TO PURCHASED ASSETS. . . . . . . . . . . . . . .30
ARTICLE 10 SECURITIES LAWS REPRESENTATIONS . . . . . . . . . . . . . . .31
10.1. Compliance with Law. . . . . . . . . . . . . . . . . . . . . . .31
10.2. Economic Risk; Sophistication. . . . . . . . . . . . . . . . . .31
10.3. Accreditation. . . . . . . . . . . . . . . . . . . . . . . . . .31
10.4. SSI Common Stock; Rule 144(k). . . . . . . . . . . . . . . . . .31
ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . .32
11.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
11.2. No Third Party Beneficiaries . . . . . . . . . . . . . . . . . .33
11.3. Schedules and Exhibits. . . . . . . . . . . . . . . . . . . . . 33
11.4. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
11.5. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . 33
11.6. Entire Agreement; Amendment. . . . . . . . . . . . . . . . . . .33
11.7. Section and Paragraph Titles. . . . . . . . . . . . . . . . . . 33
11.8. Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . 33
11.9. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.10. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.11. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . .34
11.12. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . . . . 34
11.13. No Tax Representations. . . . . . . . . . . . . . . . . . . . . 34
11.14. Waiver. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.15. Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
11.16. Relationship of the Parties. . . . . . . . . . . . . . . . . . .34
11.17. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . 35
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made this ___
day of July, 2003 (the "Closing Date"), and effective as of July 1, 2003 (the
"Effective Date"), among SECURED SERVICES, INC., a Delaware corporation
("SSI"); and VASCO Data Security International, Inc., a Delaware corporation
("VASCO"). Each of SSI and VASCO are sometimes hereinafter referred to
individually, as a "party" or collective as "parties."
RECITALS
WHEREAS, VASCO owns the Purchased Assets and employs the Personnel
(as such terms are defined herein);
WHEREAS, VASCO desires to sell to SSI and SSI desires to purchase
from VASCO the Purchased Assets in accordance with the provisions set forth in
this Agreement;
WHEREAS, VASCO desires that the responsibility of employing the
Personnel be transferred to SSI and SSI desires to assume the employment
responsibilities with respect to such Personnel in accordance with the
provisions set forth in this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, promises and agreements contained herein, the parties, intending to
be legally bound, hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the
meanings herein specified, unless the context otherwise requires:
1.1. 3M Contract shall mean that certain Contract existing as of
the date of this Agreement by and between 3M and VASCO and which is among the
Purchased Contracts.
1.2. 3M Revenue Share shall have the meaning assigned to it in
Section 2.5.
1.3. Accounts Receivable shall mean, with respect to the
Business, all trade accounts receivable, and all notes receivable or evidences
of Indebtedness payable to the operator of the Business.
1.4. Accredited Investor shall have the meaning given to that
term in Regulation D as promulgated by the SEC under the Securities Act.
1.5. Affiliate shall mean: (i) any Person that directly or
indirectly through one or more intermediaries controls, is controlled by or
under common control with the Person specified; (ii) any director, officer or
Subsidiary of the Person specified; and (iii) any spouse, parent, child,
sibling, mother-in-law, father-in law, son-in-law, daughter-in-law, brother-
in-law or sister-in-law of the Person specified. The term "control"
(including, with correlative meaning, the terms "controlled by" and "under
common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to elect a majority of the
board of directors (or other governing body) or to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise. In any event and
without limiting the generality of the foregoing, any Person owning 10% or
more of the voting securities of another Person shall be deemed to control
that Person.
1.6. Assignment and Assumption Agreement shall have the meaning
assigned to it in Section 5.2.1(b).
1.7. Assumed Liabilities shall have the meaning assigned to it
in Section 2.8.
1.8. Audit Right shall have the meaning assigned to it in
Section 8.5.
1.9. Base Purchase Price shall have the meaning assigned to it
in Section 2.3.
1.10. Xxxx of Sale shall have the meaning assigned to it in
Section 5.2.1(c).
1.11. Binary Code shall mean Computer Program code that loads
and executes without further processing by a software compiler or linker, or
that results when Source Code is processed by a software compiler.
1.12. Books and Records shall mean all records, documents, lists
and files, relating to the Purchased Assets, the Business and the Personnel,
including, without limitation, executed originals (or copies of executed
originals when executed originals are not available) of all Tax Returns,
Contracts, purchase orders, sales orders, price lists, lists of accounts,
customers, suppliers, employees, contractors, consultants and other personnel,
shipping records, all product, business and marketing plans, sales and product
brochures and catalogs and other sales literature and materials, historical
sales and commissions data and all books, ledgers, files and business records
relating to the Purchased Assets, the Business and the Personnel, whether in
hard copy, electronic form or otherwise.
1.13. Business Day shall mean any calendar day which is not a
Saturday, Sunday or public holiday under the laws of the State of Delaware.
1.14. Business shall mean the discrete business unit of VASCO
known as VACMAN Enterprise (f/k/a SnareWorks) charged with the support and
maintenance of the Purchased Software.
1.15. Claim shall mean any written or oral demand, claim,
complaint, suit, action, cause of action, investigation, proceeding or notice
by any Person alleging actual or potential Liability for any Loss, or for any
Default under any Law, Contract, License or Permit.
1.16. Claim Notice shall have the meaning assigned to it in
Section 7.4.2(a).
1.17. Closing shall mean the consummation of the Contemplated
Transactions on the Closing Date, effective as of the Effective Date, pursuant
to Article 5.
1.18. Closing Date shall have the meaning set forth in the
introductory paragraph hereof.
1.19. Code shall mean the Internal Revenue Code of 1986 and the
rules and regulations promulgated thereunder, as amended and supplemented from
time to time, or any successors thereto.
1.20. Collateral Documents shall mean any documents or
Contracts, other than this Agreement, that relate to the Contemplated
Transactions.
1.21. Computer Program shall mean a list of steps or list of
statements and/or instructions which are capable when incorporated in a
machine-readable medium of causing a computer to indicate, perform or achieve
particular functions, tasks or results.
1.22. Consents shall mean any consent, waiver, approval,
authorization, certification or exemption required from any Person or under
any Contract or Law, as applicable.
1.23. Contemplated Transactions shall mean the sale and purchase
of the Purchased Assets hereunder and all of the transactions ancillary
thereto which are referred to in this Agreement or any of the Collateral
Documents.
1.24. Contracts shall mean, with respect to any Person, all
contracts, Leases, agreements, loan documents, instruments, Licenses,
undertakings and other commitments, whether written or oral, to which such
Person is, or such Person's properties, operations, business or assets are,
bound.
1.25. Copyrights shall mean registered copyrights, copyright
applications and unregistered copyrights.
1.26. Default shall mean, with respect to a Contract, Permit,
License, Law, Organizational Document or other instrument or agreement, (a) a
violation, breach or default, (b) the occurrence of an event which with the
passage of time or the giving of notice or both would constitute a violation,
breach or default, or (c) the occurrence of an event that (with or without the
passage of time or the giving of notice or both) would give rise to a right of
damages, specific performance, termination, renegotiation or acceleration
(including the acceleration of payment).
1.27. Documentation shall mean all documentation, whether in
written or electronic format, in VASCO's possession, custody or control
pertaining to the Software, including, the System Documentation and User
Documentation for the Software, any marketing materials, product
specifications, flow charts, diagrams, algorithms, other design documentation,
training manuals, bug lists, and any electronic machine-readable and Source
Code versions of the same, any and all Software-related answer books or other
records of customer service issues and/or responses, and any and all written
notes, plans and other documentation describing problems with respect to the
Software and proposed and implemented solutions therefor, written proposals
with respect to future development of the Software, or other matters related
to the use, operation, development, or enhancement of the Software, if any.
1.28. DOD Integic Consulting Services shall mean any and all
services, employing the Purchased Assets, provided to the U.S. Department of
Defense with respect to the CHCS II Healthcare Application.
1.29. Dolfin shall have the meaning assigned to it in Section
5.3.2.
1.30. Dolfin Agreement shall have the meaning assigned to it in
Section 5.3.2.
1.31. Employment Agreement shall have the meaning assigned to it
in Section 5.2.2(e).
1.32. Encumbrances shall mean, with respect to any asset, any
security interests, liens, encumbrances, pledges, mortgages, charges, claims,
conditional or installment sales Contracts, title retention Contracts,
transferability restrictions and other claims or burdens of any nature
whatsoever attached to or adversely affecting such asset.
1.33. Escrow Agreement shall have the meaning assigned to it in
Section 5.11.
1.34. Exchange Act shall mean the Securities Exchange Act of
1934, as amended.
1.35. Excluded Assets shall have the meaning assigned to it in
Section 2.2
1.36. Excluded Obligations shall have the meaning assigned to it
in Section 8.4.
1.37. GAAP shall mean generally accepted accounting principles
in the United States, applied on a basis consistent with past practices and
preceding years and throughout the periods involved.
1.38. Goodwill shall mean (i) the expectation of continued
patronage from customers and new patronage from prospective clients of VASCO,
(ii) the Business as a going concern and all of the goodwill incident to the
Business, and (iii) all Trademarks, trade names, trade dress and similar
intangible indicators of origin related exclusively to the Business.
1.39. Governmental Consent shall mean any and all licenses,
franchises, permits, easements, rights, consents, Orders, approvals,
variances, waivers, filings and other authorizations with, of or from any
Governmental Entity, (a) necessary to consummate the Contemplated Transactions
in the manner contemplated hereby, or (b) otherwise relating to (i) any
Contract or other instrument with any Governmental Entity and to which the
subject Person, its subsidiaries or any of its stockholders is a party (or by
which any of their respective properties or assets is bound or affected), or
(ii) any Permit, including the transfer of any such Contract, Permit or other
instrument in accordance with the terms.
1.40. Governmental Entity shall mean any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality
of the government of the United States or of any foreign country, any state or
any political subdivision of any such government (whether state, provincial,
county, city, municipal or otherwise).
1.41. Indebtedness of any Person shall mean all obligations of
such Person (a) for borrowed money, including related fees and expenses, (b)
evidenced by notes, bonds, debentures or similar instruments, (c) for the
deferred purchase price of goods or services (other than trade payables or
accruals incurred in the ordinary course of business), (d) under capital
leases or (e) in the nature of guarantees of the obligations described in
clauses (a) through (d) above of any other Person and, as it relates to the
Company, shall include all indebtedness and other amounts owed or to be
distributed to either Individual or their respective Affiliates.
1.42. Indemnified Party shall have the meaning assigned to it in
Section 7.4.1.
1.43. Indemnifying Party shall have the meaning assigned to it
in Section 7.4.1.
1.44. Indemnity Notice shall have the meaning assigned to it in
Section 7.4.1.
1.45. Intellectual Property shall mean, collectively, (a) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all Patents, (b) all Trademarks,
trade dress, logos, trade names, fictitious names, brand names, brand marks,
domain names and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all Copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and
all applications, registrations, and renewals in connection therewith, (e) all
trade secrets and confidential business information (including ideas, research
and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (f) all Software, (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
1.46. IRS shall mean the United States Internal Revenue Service.
1.47. Knowledge, and all variations thereof, shall mean with
respect to any representation, warranty or statement of any party in this
Agreement that is qualified by such party's "knowledge," the actual knowledge
of such party or, in the case of an entity, the actual knowledge of any
officer or director of such entity.
1.48. Law shall mean, with respect to any Person, any applicable
law, statute, treaty, ordinance, rule, regulation, Order, pronouncement having
the effect of law, or other requirement of any Governmental Entity, including,
without limitation, the Foreign Corrupt Practices Act of 1977, and those
covering safety, health, transportation, bribery, record keeping, zoning,
employment, tax, anti-discrimination, antitrust, wage and hour and price and
wage control matters, to which, in each of the foregoing cases, such Person
is, or any of such Person's properties, operations, business or assets are,
bound or subject.
1.49. Lease shall mean any lease, agreement (whether verbal or
written) or tenancy for property or assets, together with all subleases,
amendments, extensions, addenda, assignments, waivers and all other rights of
use and/or occupancy, and Contracts and documents relating to any of the
foregoing.
1.50. Legal Proceeding shall mean any Claim or any legal,
administrative or other similar proceeding by or before any Governmental
Entity or arbitration or alternative dispute resolution panel.
1.51. Liabilities and words of similar import include, without
limitation, any direct or indirect indebtedness, guaranty, endorsement, claim,
loss, damage, deficiency, cost, expense, obligation or responsibility, fixed
or unfixed, known or unknown, asserted or unasserted, xxxxxx or inchoate,
liquidated or unliquidated, secured or unsecured.
1.52. Licenses shall mean, with respect to any Person, all
licenses, permits, authorizations, approvals, registrations, franchises,
rights, variances (including zoning variances), easements, rights of way, and
similar consents or certificates granted or issued by any other Person, other
than a Governmental Entity, relating to the business of the subject Person.
1.53. Losses shall mean, with respect to any event or
circumstance, any and all Liabilities, Encumbrances, penalties, fines,
settlements, and causes of action, including, without limitation, any
diminution in value of any real or personal property and reasonable
attorneys', experts' and accountants' fees, expenses and disbursements and
court costs in connection with any of the foregoing incurred by a Person in
connection with such event or circumstance.
1.54. Material Adverse Effect shall mean, with respect to any
event or circumstance, an effect caused thereby or resulting therefrom that is
or would be materially adverse as to, or in respect of, the condition
(financial or otherwise), business, results of operation or prospects of a
specified Person or Persons when taken as a whole.
1.55. Material Contract shall have the meaning assigned to it in
Section 3.8.
1.56. Net Revenue shall mean gross collections less applicable
sales Tax.
1.57. Object Code shall mean the fully compiled or assembled
series of Computer Programs in machine language in either printed form or as
stored software media.
1.58. Order shall mean any judgment, order, writ, decree,
injunction, award, ruling or other determination whatsoever of any
Governmental Entity or any other entity or body (including, without
limitation, any arbitration or similar panel) whose finding, ruling or holding
is legally binding or is enforceable as a matter of right (in any case,
whether preliminary or final).
1.59. Organizational Documents shall mean the articles or
certificate of incorporation, bylaws, operating agreement, certificate of
partnership or other governing or constituent documents of a Person.
1.60. Patents shall mean all letters patent and pending
applications for patents of the United States and all countries foreign
thereto, including regional patents, certificates of invention and utility
models, rights of license or otherwise to or under letters patent,
certificates of intention and utility models which have been opened for public
inspection and all reissues, divisions, continuations and extensions thereof.
1.61. Permits shall mean all licenses, permits, certificates of
authority, authorizations, approvals, registrations, franchises, rights,
Orders, qualifications and similar rights or approvals granted or issued by
any Governmental Entity relating to either the Purchased Assets or the
Business or both.
1.62. Person shall mean any natural person, corporation, general
partnership, limited partnership, limited liability company, proprietorship,
joint venture, trust, association, union, entity, or other form of business
organization or any Governmental Entity whatsoever.
1.63. Personnel shall mean the individuals listed on Exhibit
Aattached hereto.
1.64. Post-Closing Integic Revenue Share shall have the meaning
assigned to it in Section 2.6.
1.65. Pre-Closing Integic Revenue Share shall have the meaning
assigned to it in Section 2.6.
1.66. Prepaid Expenses shall mean, as of any date of
determination, payments made by VASCO with respect to the Business, that
constitute prepaid expenses of the Business in accordance with GAAP.
1.67. Prepaid Expense Adjustment Amount shall mean the aggregate
amount of the specified Prepaid Expenses set forth on Schedule 2.1.4.
1.68. Prepaid Receivables Amount shall mean the aggregate amount
of those Accounts Receivable attributable to the Purchased Assets for the
period after the Effective Date but received by VASCO prior to the Closing
Date as full or partial prepayment for services to be provided with respect to
the Purchased Assets.
1.69. Promissory Note shall have the meaning assigned to it in
Section 2.4.2.
1.70. Proposed Reorganization shall have the meaning assigned to
it in Section 5.3.3.
1.71. Proposed Reorganization Agreement shall have the meaning
assigned to it in Section 5.3.3.
1.72. Proprietary Information shall mean (i) with respect to any
party to this Agreement or any Affiliate of such party, all financial,
technical, commercial or other information, including but not limited to
information, materials, documents, customer lists, financial reports, business
plans and marketing data that relate to the business, strategies or operations
of the parties hereto, disclosed or otherwise made available by such party or
such Affiliate to another party or affiliate (the "Recipient") in connection
with the transactions contemplated by this Agreement and (ii) each of the
terms, conditions and other provisions contained in this Agreement and in the
agreements or documents to be delivered pursuant to this Agreement.
Notwithstanding the preceding sentence, the definition of Proprietary
Information shall not include any information that (i) is in the public domain
at the time of disclosure to the Recipient or becomes part of the public
domain after such disclosure through no fault of the Recipient, (ii) is
lawfully possessed in writing by the Recipient at the time of disclosure to
such Recipient, or (iii) is disclosed to a party by any Person other than a
party to this Agreement; provided, that the party to whom such disclosure has
been made does not have actual knowledge that such Person is prohibited from
disclosing such information (either by reason of contractual, or legal or
fiduciary duty or obligation). For the purposes hereof, public domain shall
not include disclosure of information, except as otherwise provided herein, to
any other person in connection with the transactions contemplated hereby.
1.73. Purchase Price shall have the meaning assigned to it in
Section 2.3.
1.74. Purchased Assets shall have the meaning assigned to it in
Section 2.1.
1.75. Purchased Contracts shall mean those Contracts listed on
Schedule 2.1.2 as part of the Purchased Assets.
1.76. Purchased Software shall mean that Software listed on
Schedule 2.1.1 as part of the Purchased Assets.
1.77. Retained Liabilities shall mean all Liabilities of VASCO
of any nature whatsoever, whether now existing or hereafter arising or
incurred, except for the Assumed Liabilities.
1.78. SEC shall mean the Securities and Exchange Commission.
1.79. Securities Act shall mean the Securities Act of 1933, or
any successors thereto, and the rules and regulations promulgated thereunder,
as amended and supplemented from time to time.
1.80. Security Agreement shall have the meaning assigned to it
in Section 2.9.
1.81. Software shall mean all Computer Programs (including
related Documentation) related to the Business and set forth on the Schedule
of VACMAN Intellectual Property, attached hereto as Schedule 2.1.1, and all
modifications, customizations, enhancements and updates thereof (including
foreign language versions) contained in subsequent "versions" or "releases,"
including, without limitation, the protocols, all data bases, compilations,
tool sets, work benches, compilers, decompilers or other intangible property
that are expressed in Object Code, and shall consist of the Source Code,
Binary Code and Object Code therefor; provided, however, that "Software" shall
not include non-copyrightable ideas or principles expressed therein.
1.82. Source Code shall mean the Computer Programs in human
readable form.
1.83. SSGI shall mean Southern Software Group, Inc., a Delaware
corporation.
1.84. SSI Business Plan shall have the meaning assigned to it in
Section 4.12.
1.85. SSI Common Stock shall mean the common stock, par value
$0.001 per share, of SSI.
1.86. SSI Preferred Stock shall mean the Series A Preferred
Stock, par value $0.001 per share, of SSI.
1.87. SSI Preferred Stock Certificates shall have the meaning
assigned to it in Section 2.4.1.
1.88. Subsidiary means any entity with respect to which a
specified Person (or a Subsidiary thereof) owns a majority of the voting stock
or otherwise has the power to vote or direct the voting of sufficient
securities to elect a majority of the directors.
1.89. System Documentation shall mean documentation, however
recorded, other than Source Code, which documents collectively the design and
details of a particular software program and provides information to enable a
reasonably knowledgeable computer programmer to make enhancements, revisions
and modifications.
1.90. Tangible Personal Property shall mean, when used with
respect to any Person, any and all of the following: equipment, machinery,
furniture, leasehold improvements, office supplies, trade fixtures, and other
tangible personal property, used or intended for use by such Person in the
conduct of such Person's business.
1.91. Tax Returns shall mean all returns, reports, claims for
refunds or other information required or permitted to be supplied to or filed
with any Governmental Entity in connection with Taxes (including, without
limitation, information returns and declarations of estimated tax).
1.92. Taxes shall mean (i) all taxes, charges, fees, levies or
other assessments including, without limitation, all net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, payroll,
employment, social security, unemployment, excise, estimated, stamp,
occupancy, occupation, property or other similar taxes, including any interest
or penalties thereon, and additions to tax or additional amounts imposed by
any federal, state, local or foreign Governmental Entity, domestic or foreign
(a "Taxing Authority") or (ii) all liability for the payment of any taxes,
interest, penalty, addition to tax or like additional amount resulting from
the application of Treasury Regulation 1.1502-6 or comparable Law.
1.93. Third Party shall mean any Person other than VASCO, SSI or
an Affiliate of either of the foregoing.
1.94. Threshold Amount shall have the meaning assigned to it in
Section 7.5.1.
1.95. Trademarks shall mean registered trademarks, registered
service marks, trademark and service xxxx applications, and unregistered
trademarks and service marks.
1.96. Underpayment Amount shall have the meaning assigned to it
in Section 8.5.
1.97. User Documentation shall mean any documentation, however
recorded, intended for instruction or reference in use of any Software.
1.98. VACMAN Enterprise Trademark shall mean the "VACMAN
Enterprise" trademark of VASCO, including all proprietary rights therein and
goodwill associated therewith.
1.99. VACMAN Intellectual Property shall have the meaning
assigned to it in Section 2.1.1.
ARTICLE 2
SALE AND PURCHASE OF ASSETS;
CONSIDERATION; ASSUMPTION OF LIABILITIES
2.1. Agreement to Sell and Purchase Assets. Subject to the
terms and conditions set forth in this Agreement, SSI hereby agrees to
purchase and/or assume and VASCO hereby agrees to sell and/or assign, as
applicable, on the Closing Date and effective as of the Effective Date, all of
VASCO's right, title and interest in and to the following assets
(collectively, the "Purchased Assets"):
2.1.1. The Intellectual Property of VASCO listed in the
Schedule of VACMAN Intellectual Property, attached hereto as Schedule
2.1.1(collectively, the "VACMAN Intellectual Property"), including, without
limitation, all Software described thereon (the "Purchased Software"), all as
existing immediately prior to the Effective Date, to the extent assignable by
VASCO.
2.1.2. VASCO's rights under Contracts which are described in
the Schedule of Purchased Contracts, attached hereto as Schedule 2.1.2 (the
"Purchased Contracts"), including, without limitation, the right to provide
the Business to Persons who are parties to such Purchased Contracts.
2.1.3. The physical assets used by VASCO exclusively to
conduct the Business and listed in the Schedule of Physical Assets, attached
hereto as Schedule 2.1.3.
2.1.4. All Prepaid Expenses associated with the Business and
in existence at the Effective Date and listed and fully described in the
Schedule of Prepaid Expenses attached hereto as Schedule 2.1.4.
2.1.5. All of VASCO's interest in all Permits and Licenses
relating to the Business or the Purchased Assets and listed in the Schedule of
Permits and Licenses, attached hereto as Schedule 2.1.5, to the extent
assignable and transferable.
2.2. Excluded Assets. The Purchased Assets shall not include
(i) any asset owned by VASCO which is not used by VASCO exclusively in the
provision of the Business, (ii) any of VASCO's rights or consideration under
this Agreement, (iii) VASCO's physical assets which are not listed on Schedule
2.1.3, (iv) all cash, cash equivalents and marketable securities of VASCO and
(v) all Accounts Receivable or other amounts earned prior to the Closing by
VASCO from any Person in connection with the provision of the Business,
regardless of whether such Accounts Receivable or other amounts are received
prior to the Closing (collectively, the "Excluded Assets").
2.3. Consideration and Payment As full consideration for the
Purchased Assets being purchased pursuant to this Agreement, SSI shall pay,
deliver or cause to be paid and delivered to VASCO (in addition to the
assumption of the Assumed Liabilities) the sum of $3,073,093.83 plus the
Prepaid Expense Adjustment Amount (the "Base Purchase Price"), in the manner
set forth in Section 2.4, plus the aggregate amount of 3M Revenue Share, Pre-
Closing Integic Revenue Share and Post-Closing Integic Revenue Share payable
pursuant to Sections 2.5 and 2.6 (collectively, the "Purchase Price").
2.4. Base Purchase Price. The Base Purchase Price shall be
paid as follows:
2.4.1. SSI Preferred Stock. SSI shall issue and deliver to
VASCO at the Closing, effective as of the Effective Date, Two Million
(2,000,000) certificated shares of SSI Preferred Stock, which the parties
hereto agree is valued at $2,000,000 (the "SSI Preferred Stock Certificates").
2.4.2. Delivery of Promissory Note. SSI shall deliver at
the Closing, effective as of the Effective Date, a senior secured promissory
note of SSI for a principal amount of $1,073,093.83 to and in favor of VASCO
in the form of Exhibit B (the "Promissory Note"). The parties hereto agree
that the Promissory Note shall be payable in thirty-six (36) equal and
consecutive monthly payments of $32,645.59, such amount representing the
aggregate principal amount of the Promissory Note plus interest thereon
accrued at a rate of six percent (6%) per annum, compounded monthly.
2.5. Post-Closing 3M Revenue Share. For each month during the
thirty-six (36) months following the Effective Date, SSI shall pay VASCO an
amount equal to forty percent (40%) of the Net Revenue attributable to the 3M
Contract during such month (the "3M Revenue Share"). SSI shall deliver the 3M
Revenue Share to VASCO monthly in arrears within ten (10) days of receipt
thereof.
2.6. Post-Closing Integic Revenue Share. For each month during
the thirty-six (36) months following the Effective Date, SSI shall pay VASCO:
(a) an amount equal to sixty percent (60%) of the Net Revenue attributable to
all DOD Integic Consulting Services provided by SSI during such month, where
such services were first provided by SSI following the Effective Date (the
"Post-Closing Integic Revenue Share"); provided, however, that the amount of
Post-Closing Integic Revenue Share payable by SSI to VASCO shall not exceed
$90,000.00 for each successive twelve month period during the thirty-six (36)
months following the Effective Date; and (b) an amount equal to one hundred
percent (100%) of the Net Revenue attributable to all DOD Integic Consulting
Services provided by SSI during such month, where such services are related to
a project initiated by VASCO prior to the Effective Date (the "Pre-Closing
Integic Revenue Share"). SSI shall deliver the Pre-Closing and Post-Closing
Integic Revenue Share to VASCO monthly in arrears within ten (10) days of
receipt thereof.
2.7. Allocation of Purchase Price. SSI shall on or before
sixty (60) days after the Effective Date initially determine and send to VASCO
a schedule containing the allocation of the purchase price, as defined in the
Code, among the Purchased Assets as is required by Section 1060 of the Code
(the "Allocation Schedule"), such schedule which will include the allocation
set forth on Schedule 2.7 attached hereto. The Allocation Schedule will be
deemed to be accepted by VASCO unless VASCO provides a written notice of
disagreement to SSI within ten (10) Business Days after receipt of the
Allocation Schedule. If VASCO provides such written notice, VASCO and SSI
shall proceed to negotiate in good faith to agree on a mutually acceptable
Allocation Schedule. If no mutually acceptable Allocation Schedule is created
within ten (10) business days of SSI's receipt of the written notice of
disagreement, then an independent accountant mutually satisfactory to VASCO
and SSI (the "Independent Accountant") shall be engaged to determine the
Allocation Schedule taking into account the fair market value of each of the
Purchased Assets. The fees for such determination shall be split evenly by
VASCO and SSI. Such determination by the Independent Accountant, or the
original Allocation Schedule if not objected to by VASCO, or the mutually
acceptable Allocation Schedule shall be binding and conclusive to all parties
to the Agreement and all parties shall file all relevant tax returns
consistent with such final determination, unless otherwise required by
applicable law; provided, however, that if the Purchase Price is adjusted in
accordance with Section 2.5 or 2.6, the Allocation Schedule otherwise
determined shall be adjusted in accordance with the requirements of Section
1060 of the Code.
2.8. Assumption of Liabilities. At the Closing, and effective
as of the Effective Date, SSI will assume only those Liabilities of VASCO
expressly listed on Schedule 2.8, if any (collectively, the "Assumed
Liabilities"). All other Liabilities of VASCO shall be Retained Liabilities
and shall not be assumed by SSI.
2.9. Security Agreement. SSI's obligations under the
Promissory Note and its obligations under Sections 2.5 and 2.6 shall be
secured by (a) the Purchased Assets and (b) all Accounts Receivables related
to the Purchased Assets and earned after the Effective Date, pursuant to the
terms of a Security Agreement in the form attached hereto as Exhibit C (the
"Security Agreement").
2.10. Trademark License. VASCO hereby grants to SSI, effective
as of the Effective Date and subject to the terms and conditions of this
Agreement, a non-exclusive, non-transferable, fully paid-up license to use,
reproduce and display the VACMAN Enterprise Trademark in connection with the
promotion and marketing of the Business by SSI; provided, however, that VASCO
shall have the right to reasonably monitor SSI's use of the VACMAN Enterprise
Trademark to ensure compliance by SSI with VASCO's standards of quality and
presentation of the VACMAN Enterprise Trademark, and SSI agrees to cooperate
with VASCO in connection therewith. The license granted under this Section
2.10 shall terminate upon the earlier of (a) the one-year anniversary of the
Effective Date or (b) the date on which SSI has completed its anticipated re-
branding of the Purchased Software. SSI covenants and agrees that the VACMAN
Enterprise Trademark is and shall remain the sole and exclusive property of
VASCO, and SSI shall not hold itself out as having any ownership rights with
respect thereto or, except as specifically granted hereunder, any other rights
therein. Any and all goodwill associated with the VACMAN Enterprise Trademark
shall inure directly and exclusively to the benefit of VASCO.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF VASCO
As a material inducement for SSI to enter into and perform its
obligations under this Agreement, VASCO hereby represents and warrants to SSI
as follows:
3.1. Organization. VASCO (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of Delaware,
(ii) has the power and authority to own and operate its properties and assets
and to transact its business as currently conducted and (iii) is duly
qualified and authorized to do business and is in good standing in all
jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon its business, operations,
results of operations, assets, liabilities or condition (financial or
otherwise).
3.2. Authorization. VASCO has the corporate power and authority
to enter into and perform this Agreement, each of the Collateral Documents to
which it is a party, and to consummate the Contemplated Transactions. The
execution, delivery and performance by VASCO of this Agreement and each of the
Collateral Documents to which it is a party, and the consummation by VASCO of
the Contemplated Transactions, have been duly authorized by all necessary
corporate action on the part of VASCO. This Agreement and each of the
Collateral Documents to which VASCO is a party have been duly executed and
delivered by VASCO and constitute a legal, valid and binding obligation of
VASCO, enforceable against VASCO in accordance with their respective terms,
except as such enforcement may be limited by applicable bankruptcy,
insolvency, moratorium or similar Laws affecting the rights of creditors'
generally and general equity principles (regardless of whether enforceability
is considered a proceeding at law or in equity).
3.3. Conflict with other Instruments; Absence of Restrictions.
The execution, delivery and performance of this Agreement and each of the
Collateral Documents, and the consummation of the Contemplated Transactions,
by VASCO, do not and will not: (i) result in a Default, of or under (A) any
of the terms of the Organizational Documents of VASCO, (B) assuming the
receipt of all Governmental Consents listed on Schedule 3.6, any Law, Permit
or Order applicable to or binding upon VASCO, or (C) assuming the receipt of
all Consents from Persons other than Governmental Entities listed on Schedule
3.6, any Contracts or Licenses to which VASCO is a party or by which it is
bound; (ii) result in the creation or imposition of any Encumbrance upon any
of the equity interests of VASCO or upon any of the assets or properties of
VASCO; or (iii) assuming the receipt of all Consents listed on Schedule 3.6,
(A) result in the termination, amendment or modification of, or give any party
the right to terminate, amend, modify, abandon, or refuse to perform any
material Contract, License or Permit to which VASCO is a party or by which it,
or any of its properties or assets, is bound, or (B) result in the
acceleration or modification, or give any party the right to accelerate or
modify, the time within which, or the terms under which, any duties or
obligations are to be performed, or any rights or benefits are to be received
under any material Contract, License or Permit to which VASCO is a party or by
which it, or any of its properties or assets, is bound.
3.4. Title to Properties; Adequacy of Properties. VASCO has good
and valid title to all of the Purchased Assets, free and clear of any and all
Encumbrances. The Purchased Assets are in good working order and fit for
their intended use, other than the Tangible Personal Property comprising a
part of the Purchased Assets, which are being conveyed to SSI in an "as is,
where is" condition, with respect to physical attributes only.
3.5. Compliance with Law. (a) VASCO has complied with every, and
are not in violation of any, Law or Order to which the Business is subject and
(b) VASCO has not failed to obtain, or to adhere to the requirements of, any
License or Permit necessary to the ownership of the Purchased Assets or the
operation of the Business, to the extent, in each of the foregoing cases, the
failure to obtain or the violation of which would have a Material Adverse
Effect upon the Business, its results of operations, financial condition,
business or prospects.
3.6. Government and Third-Party Approvals. Except as set forth
on Schedule 3.6, no Governmental Consent or Consent of any Person (including
any party to any material Contract with VASCO) is required (i) for the
execution, delivery and performance by VASCO of this Agreement or any of the
Collateral Documents to which it is a party or (ii) in connection with VASCO's
consummation of the Contemplated Transactions.
3.7. Legal Proceedings. There is no Legal Proceeding or Claim
pending or, to the Knowledge of VASCO, threatened, against or affecting VASCO
that relates to or affects the Business, the Purchased Assets or the
Personnel.
3.8. Contracts and Commitments. Schedule 3.8 sets forth a
correct and complete list of all Contracts to which VASCO is a party that fall
into one or more of the following categories (each a "Material Contract"):
3.8.1. All bonds, debentures, notes, mortgages, indentures or
guarantees by which any of the Purchased Assets are bound, and any oral or
written direct or indirect guarantee of any such obligation; and
3.8.2. All Leases by which any of the Purchased Assets (real,
personal or mixed, tangible or intangible) are bound.
3.9. Absence of Certain Developments. Except as required by or
pursuant to the Contemplated Transactions, VASCO has not, from the Effective
Date through the Closing Date:
3.9.1. mortgaged, pledged or been subjected to any
Encumbrance on any of the Purchased Assets;
3.9.2. sold, assigned, transferred or otherwise disposed of
or committed to sell, assign, transfer or otherwise dispose of any of the
Purchased Assets, except in the ordinary course of business, or canceled any
material debts or claims;
3.9.3. suffered any unusual or extraordinary losses related
to the Purchased Assets or waived any rights of material value, whether or not
in the ordinary course of business or consistent with past practice;
3.9.4. paid or committed to pay any bonuses or similar
payments, except in the ordinary course of business consistent with past
practice;
3.9.5. suffered any material damage, destruction or casualty
loss related to the Purchased Assets, whether or not covered by insurance;
3.9.6. increased the compensation payable or to become
payable to any of the Personnel, or increased benefits for any such Personnel
under any employee benefit plan or other employee or consultant compensation
arrangement;
3.9.7. had any payment default or event of default under any
debt, Lease or other Material Contract related to the Purchased Assets except
for overdue payables arising in the ordinary course of business;
3.9.8. taken any other action related to the Purchased
Assets outside of the ordinary course of business; or
3.9.9. taken or agreed to take any action contemplated by
this Section 3.9 or that would otherwise cause any representation or warranty
made by VASCO in this Agreement to be untrue or inaccurate as of the Closing
or result in the breach of any covenant or agreement in this Agreement
required to be performed by VASCO on or prior to the Closing.
3.10. Intellectual Property. Set forth on Schedule 2.1.1 is a
true and complete list, with a brief description of each, including, where
relevant, the owner, the applicable jurisdiction, the registration number,
application number or issuance number, the date of application, issuance
and/or filing, of all VACMAN Intellectual Property. Where applicable, each of
the federal and state registrations pertaining to the VACMAN Intellectual
Property is valid and in full force and effect, and all required filings in
association with such registrations have been properly made and all required
fees have been paid. VASCO owns or otherwise has the right to use all VACMAN
Intellectual Property and the consummation of the Contemplated Transactions
will not alter or impair any such rights. No claims are pending against VASCO
by any person with respect to the use of any VACMAN Intellectual Property or
challenging or questioning the validity or effectiveness of any license or
agreement relating to the same.
3.11. Corporate Records. From the date of this Agreement to the
Closing, VASCO will (i) give to SSI and its authorized representatives full
access during normal business hours to all VASCO Books and Records so that SSI
may inspect them; and (ii) furnish such additional information related to the
Contemplated Transactions including all related properties and affairs of
VASCO as SSI may reasonably request.
3.12. Statements and Other Documents Not Misleading. Neither this
Agreement, including all Schedules and Exhibits, nor any Collateral Document
or other instrument heretofore or hereafter furnished by VASCO to SSI in
connection with the Contemplated Transactions contains or will contain any
untrue statement of any material fact or omits or will omit to state any
material fact required to be stated in order to make such statement, document
or other instrument not misleading.
3.13. Effective Date of Warranties, Representations and Covenants.
Each warranty, representation and covenant set forth in this Article 3 shall
be deemed to be made on and as of the date of Closing. The representations
and warranties contained in this Article 3 shall not be affected or deemed
waived by reason of the fact that SSI and/or its representatives knew or
should have known that any such representations or warranty is or might be
inaccurate in any material respect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SSI
As a material inducement for VASCO to enter into and perform its
obligations under this Agreement, SSI hereby represents and warrants to VASCO
as follows:
4.1. Organization. SSI (i) is a corporation duly incorporated,
validly existing and in good standing under the laws of the state of Delaware,
(ii) has the power and authority to own and operate its properties and assets
and to transact its business as currently conducted and (iii) is duly
qualified and authorized to do business and is in good standing in all
jurisdictions where the failure to be duly qualified, authorized and in good
standing would have a Material Adverse Effect upon its business, operations,
results of operations, assets, liabilities or condition (financial or
otherwise).
4.2. Authorization for Agreement. SSI has the corporate power
and authority to enter into and perform this Agreement, each of the Collateral
Documents to which it is a party, and to consummate the Contemplated
Transactions. The execution, delivery and performance by SSI of this
Agreement and each of the Collateral Documents to which it is a party, and the
consummation by SSI of the Contemplated Transactions, have been duly
authorized by all necessary corporate action on the part of SSI. This
Agreement and each of the Collateral Documents to which SSI is a party have
been duly executed and delivered by SSI and constitute the legal, valid and
binding obligations of SSI, enforceable against SSI in accordance with their
respective terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar Laws affecting the rights of
creditors' generally and general equity principles (regardless of whether
enforceability is considered a proceeding at law or in equity).
4.3. Conflict with other Instruments; Absence of Restrictions.
The execution, delivery and performance of this Agreement and each of the
Collateral Documents, and the consummation of the Contemplated Transactions,
by SSI do not and will not: (i) result in a Default of or under (A) any of
the terms of the Organizational Documents of SSI, (B) assuming the receipt of
all Governmental Consents listed on Schedule 4.4, any Law, Permit or Order
applicable to or binding upon SSI, or (C) assuming the receipt of all Consents
from Persons other than Governmental Entities listed on Schedule 4.4, any
Contracts or Licenses to which SSI is a party or by which it is bound, or (ii)
assuming the receipt of all Consents listed on Schedule 4.4, (A) result in the
termination, amendment or modification of, or give any party the right to
terminate, amend, modify, abandon, or refuse to perform any material Contract,
License or Permit to which SSI is a party or by which it, or any of its
properties or assets, is bound, or (B) result in the acceleration or
modification, or give any party the right to accelerate or modify, the time
within which, or the terms under which, any duties or obligations are to be
performed, or any rights or benefits are to be received under any material
Contract, License or Permit to which SSI is a party or by which it, or any of
its properties or assets, is bound.
4.4. Government and Third-Party Approvals. Except as set forth
on Schedule 4.4, no Governmental Consent or Consent of any Person (including
any party to any material Contract with SSI) is required (i) for the
execution, delivery and performance by SSI of this Agreement or any of the
Collateral Documents to which it is a party or (ii) in connection with SSI's
consummation of the Contemplated Transactions.
4.5. Legal Proceedings. There is no Legal Proceeding or Claim
pending or, to the Knowledge of SSI, threatened, against or affecting SSI that
relates to or affects the business, operations, properties, assets, income or
employees of SSI.
4.6. SSI Stock.(a) The SSI Preferred Stock, when issued, sold
and delivered in accordance with the terms of this Agreement, will be duly and
validly issued, fully paid, non-assessable and free and clear of all
Encumbrances (other than transfer restrictions imposed solely by virtue of
applicable securities Laws); and (b) the SSI Common Stock issuable upon
conversion or redemption of, or as dividends upon, the SSI Preferred Stock
have been duly and validly reserved and, upon issuance in accordance with the
conversion, redemption or dividend provisions of the SSI Preferred Stock, will
be duly and validly issued, fully paid, non-assessable and free and clear of
all Encumbrances.
4.7. Capitalization. Immediately prior to the date of
execution of this Agreement, the authorized capital stock of SSI consists of
50,000,000 shares of SSI Common Stock, of which 3,900,000 shares are issued
and outstanding, all fully paid and non-assessable; and 5,000,000 shares of
SSI Preferred Stock, of which no shares are issued and outstanding. Except as
otherwise provided in Schedule 4.7, there are no outstanding options, warrants
or calls pursuant to which any Person has the right to purchase any authorized
and unissued SSI Common Stock or other securities of SSI. SSI has no
Subsidiaries.
4.8. Tax Returns. SSI has filed all Tax Returns that have been
required to be filed by it or has received currently effective extensions of
the required filing dates.
4.9. Undisclosed Liabilities. Except as set forth in Schedule
4.9, SSI has no material assets or Liabilities of any nature whatsoever,
whether accrued, absolute, contingent or otherwise, including, without
limitation, Tax Liabilities and interest due or to become due.
4.10. Books and Records. From the date of this Agreement to the
Closing, SSI will (i) give to VASCO or its representatives full access during
normal business hours to all of SSI's offices, books, records, Contracts,
Organizational Documents and other corporate documents and properties so that
VASCO or its representative may inspect them; and (ii) furnish such
information concerning the property, business and affairs of SSI related to
the Contemplated Transactions as VASCO or its representatives may reasonably
request.
4.11. Access to Information Regarding VASCO. SSI acknowledges
that: (a) it has had access during the twelve (12) months prior to the
execution of this Agreement to all reports and registration statements and
other filings made by VASCO with the SEC by personal delivery to SSI and/or by
notification of access to the reports and registration statements of VASCO
that contain such information in the XXXXX Archives of the SEC at xxx.xxx.xxx;
(b) it has had a reasonable opportunity to review such documentation and
discuss it, to the extent desired, with its legal counsel, directors and
executive officers; (c) it has had, to the extent desired, the opportunity to
ask questions of and receive responses from the directors and executive
officers of VASCO, and with the legal and accounting firms of VASCO, with
respect to such documentation; and (d) to the extent requested, all questions
raised have been answered to SSI's complete satisfaction.
4.12. Statements and Other Documents Not Misleading. Neither
this Agreement, including all Schedules and Exhibits, nor any Collateral
Document or other instrument heretofore or hereafter furnished by SSI to VASCO
in connection with the Contemplated Transactions contains or will contain any
untrue statement of any material fact or omits or will omit to state any
material fact required to be stated in order to make such statement, document
or other instrument not misleading.
4.13. SSI Business Plan. Attached hereto as Exhibit D is a true
and correct copy of the business plan of SSI (the "SSI Business Plan"). SSI
represents and warrants that (a) the SSI Business Plan does not contain an
untrue statement of any material fact or omit to state any material fact
required to be stated in order to make such statement, document or other
instrument not misleading, (b) the forward looking statements contained in the
SSI Business Plan are reasonable estimates based upon current knowledge and
reasonable assumptions and (c) the SSI Business Plan, including with
preparation and dissemination thereof, complies with all applicable federal
and state securities Laws.
4.14. Additional Investment. SSI shall, following the date of
this Agreement and without interruption, continue to use its best efforts to
raise funds, in addition to and not in duplication of those funds required to
be raised pursuant to Section 5.3.1, in an amount no less than $2,000,000 from
the sale of shares of SSI Common Stock to Accredited Investors at a price of
$0.75 per share or an aggregate of 2,666,667 shares, which offering may
include one warrant to acquire an additional share of SSI Common Stock at an
exercise price of $1.50 per share for every two shares of SSI Common Stock
purchased at $0.75 per share.
4.15. Effective Date of Warranties, Representations and
Covenants. Each warranty, representation and covenant set forth in this
Article 4 shall be deemed to be made on and as of the date of Closing. The
representations and warranties contained in this Article 4 shall not be
affected or deemed waived by reason of the fact that VASCO and/or its
representatives knew or should have known that any such representations or
warranty is or might be inaccurate in any material respect.
ARTICLE 5
CLOSING
5.1. Closing. On the Closing Date, all Contemplated
Transactions to be consummated at the Closing shall be consummated. All
actions taken at Closing shall be deemed to have occurred simultaneously, and
shall be effective as of the Effective Date. Closing shall take place at the
offices of SSI's legal counsel, Morse, Zelnick, Rose & Lander, at 000 Xxxx
Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000-0000, or such other place as is
mutually acceptable to the parties.
5.2. Deliveries at Closing. At the Closing and as a condition
to Closing:
5.2.1. VASCO will deliver to SSI:
(a) a certificate or certificates dated as of the
Closing Date and signed on VASCO's behalf by its Secretary, in customary form
and substance, to the effect that: (i) the resolutions of the Board of
Directors of VASCO authorizing the actions taken in connection with the
Contemplated Transactions were duly adopted at a duly convened meeting
thereof, at which a quorum was present and acting throughout, or by unanimous
written consent, remain in full force and effect, and have not been amended,
rescinded or modified; (ii) the officers or other individuals executing this
Agreement and each of the Collateral Documents to which VASCO is a party are
incumbent officers or otherwise duly authorized to execute such agreements and
documents on behalf of VASCO and the specimen signatures on such certificate
are their genuine signatures; (iii) each of the representations and warranties
of VASCO contained in Article 3 hereof is true and correct as of the Closing
Date; (iv) VASCO has performed or complied with all covenants and agreements
contained herein and in each of the Collateral Documents, to which VASCO is a
party, that are required to be performed or complied with by it on or prior to
the Closing Date; and (v) VASCO has fulfilled all conditions set forth in
Article 5 hereof that are required to be fulfilled by it on or prior to the
Closing Date;
(b) An Assignment and Assumption Agreement, duly
executed by VASCO, with respect to each Purchased Contract and all other
Purchased Assets, in the form of Exhibit E attached hereto (the "Assignment
and Assumption Agreement");
(c) A Xxxx of Sale, duly executed by VASCO, in the
form of Exhibit F attached hereto (the "Xxxx of Sale"); and
(d) The Escrow Agreement, duly executed by VASCO, in
the form of Exhibit G attached hereto.
5.2.2. SSI shall deliver to VASCO:
(a) The SSI Preferred Stock Certificates;
(b) The Promissory Note, duly executed by SSI, in
the form of Exhibit B;
(c) The Assignment and Assumption Agreement, duly
executed by SSI, in the form of Exhibit E;
(d) An Employment Agreement with respect to each of
the Personnel, each duly executed by SSI, in the form of Exhibit H (each, an
"Employment Agreement");
(e) The Escrow Agreement, duly executed by SSI, in
the form of Exhibit G;
(f) The Security Agreement, duly executed by SSI, in
the form of Exhibit C;
(g) A fully executed copy of the Dolfin Agreement
(as defined in Section 5.3.2);
(h) A fully executed copy of the Proposed
Reorganization Agreement (as defined in Section 5.3.3);
(i) Evidence that SSI's Certificate of Incorporation
has been amended to reflect the revised terms of the SSI Preferred Stock, such
amendment to be in the form of Exhibit I attached hereto, and such evidence to
be in the form of a copy of SSI's Certificate of Incorporation, as amended,
and certified by the Secretary of State of the State of Delaware;
(j) A certificate or certificates dated as of the
Closing Date and signed on behalf of SSI by its Secretary to the effect that:
(i) (A) its Organizational Documents attached to the certificate are true and
complete, (B) its Organizational Documents have been in full force and effect
in the form attached to the certificate since the date of the adoption of the
resolutions referred to in clause (C) below and no amendment to such
Organizational Documents has occurred since the date of the last amendment
annexed thereto, (C) the resolutions of the Board of Directors of SSI
authorizing the actions taken in connection with the Contemplated Transactions
were duly adopted at a duly convened meeting thereof, at which a quorum was
present and acting throughout, or by unanimous written consent, remain in full
force and effect, and have not been amended, rescinded or modified; (ii) the
officers or other individuals executing this Agreement and each of the
Collateral Documents to which SSI is a party are incumbent officers or
otherwise duly authorized to execute such agreements and documents on behalf
of such party and the specimen signatures on such certificate are their
genuine signatures; (iii) SSI is in good standing in all jurisdictions in
which it is organized or registered to do business; (iv) each of the
representations and warranties of SSI contained in Article 4 hereof is true
and correct as of the Closing Date; (v) SSI has performed or complied with all
covenants and agreements contained herein and in each of the Collateral
Documents, to which it is a party, that are required to be performed or
complied with by it on or prior to the Closing Date; (vi) SSI has fulfilled
all conditions set forth in Article 5 hereof that are required to be fulfilled
by it on or prior to the Closing Date; and (vii) SSI has on deposit
subscription funds in an amount at least equal to that referenced in Section
5.3.1. The certificates referred to above in clause (iii) shall (1) attach a
subsistence certificate with respect to SSI certified by the Secretary of
State of the State of Delaware, or other appropriate Delaware state officials,
dated as of a date not more than five (5) days prior to the Closing Date, and
a certificate of no tax liens in Delaware with respect to SSI; and (2) shall
include a declaration of the Secretary of SSI that, as of the Closing Date,
SSI is not registered to do business in any jurisdiction other than Delaware.
Such certificate or certificates shall be in customary form and substance.
The certificates referred to above in clause (vii) shall attach proof
reasonably acceptably to VASCO (e.g., SSI bank account statement), that, as of
the Closing Date, the requisite funds remain in the possession of SSI and have
not been withdrawn by the parties to the SSI Common Stock subscription
agreements; and
(k) An opinion from Morse, Zelnick, Rose & Lander,
LLP, in the form set forth on Exhibit L.
5.3. Additional Conditions Precedent. In addition to the
deliveries required by Section 5.2, the Closing of this Agreement is subject
to the satisfaction of the following conditions precedent:
5.3.1. SSI shall have raised not less than the sum of
$750,000 from the sale of shares of SSI Common Stock to Accredited Investors,
at a price of $0.75 per share or an aggregate of 1,000,000 shares, which
offering may include one warrant to acquire an additional share of SSI Common
Stock at an exercise price of $1.50 per share for every two shares of SSI
Common Stock purchased at $0.75 per share; and SSI shall have provided VASCO,
prior to Closing, with copies of the subscription agreements contemplated by
this Section 5.3.1;
5.3.2. SSI shall have executed the Asset Purchase Agreement
with Xxxxxx.xxx, Inc., a Delaware corporation ("Dolfin"), in the form of
Exhibit J (the "Dolfin Agreement"), which agreement shall be effective as of
the Effective Date, and each of SSI and Dolfin shall have satisfied all
conditions required by the Dolfin Agreement such that all transactions
contemplated thereunder shall have closed, all on a basis consistent with the
SSI Business Plan; and SSI shall have provided VASCO, prior to Closing, with a
copy of the Dolfin Agreement;
5.3.3. SSI and SSGI shall have consummated, or shall
simultaneous with Closing, consummate, the proposed reorganization
contemplated by such parties, pursuant to which SSI would be acquired by or
merged into SSGI (the "Proposed Reorganization"). SSI represents, covenants
and agrees that, upon consummation of the Proposed Reorganization, which shall
be documented by an agreement between SSI and SSGI in the form attached hereto
as Exhibit K (the "Proposed Reorganization Agreement"), which agreement shall
be effective as of the Effective Date, SSI shall ensure that (a) the terms and
conditions of the Proposed Reorganization do not and, with the passage of time
will not, adversely effect any right or privilege possessed by VASCO pursuant
to this Agreement or any of the Collateral Documents and (b) either (i) SSI's
rights and obligations under this Agreement and the Collateral Documents are
assigned in full to SSGI, pursuant to an instrument of assignment in form and
substance satisfactory to VASCO or (ii) SSGI shall enter into a new set of
documents with VASCO, substantially identical to the Collateral Documents, for
the express purpose of SSGI assuming without variation SSI's obligations under
the Contemplated Transactions; and SSI shall have provided VASCO, prior to
Closing, with a copy of the Proposed Reorganization Agreement; and
5.3.4. VASCO and SSI shall have obtained all Consents and
Governmental Consents set forth on Schedules 3.6 and 4.4.
5.4. Financial Statements. No later than seventy-five (75)
days after the Closing Date, at no cost to SSI, VASCO shall deliver or cause
to be delivered to SSI copies of (a) the audited financial statements with
respect to the Business for the fiscal years ended December 31, 2001 and 2002
and (b) VASCO management-reviewed financial statements with respect to the
Business for the fiscal quarter ended March 31, 2003.
5.5. Expenses. VASCO shall be responsible for the payment of
costs it has incurred and will incur in connection with the negotiation,
execution and delivery of this Agreement and the Collateral Documents and the
consummation of the Contemplated Transactions. SSI shall be responsible for
the payment of costs it has incurred and will incur in connection with the
negotiation, execution and delivery of this Agreement and the Collateral
Documents and the consummation of the Contemplated Transactions.
5.6. Subsequent Documentation. VASCO shall at any time and
from time to time upon the request of SSI execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, all such further
assignments, instruments of sale and transfer and other documents as may be
reasonably required for the better assigning, transferring and confirming to
SSI or its successors and assigns, the Purchased Assets for the purpose of
carrying out the intent of this Agreement.
5.7. Third Party Consents. Unless otherwise agreed to by SSI,
to the extent that any Purchased Contract is not assignable without Consent,
this Agreement shall not constitute an assignment or an attempted assignment
thereof, or an assumption or attempted assumption of Liabilities arising
thereunder, if such assignments or attempted assignment would constitute a
breach thereof unless the necessary Consents are obtained. VASCO shall use
best efforts to obtain the Consents required for the assignment of the
Purchased Contracts and SSI shall provide full cooperation in such effort. If
any such Consent shall not be obtained with respect to a Contract, then
either, at SSI's option, (i) such Contract shall be an Excluded Asset and SSI
shall not assume any Liabilities related thereto or arising thereunder, or
(ii) VASCO and SSI shall cooperate in a reasonable arrangement (a) providing
SSI with the benefits intended to be assigned to SSI hereunder with respect to
any such Contract and (b) to relieve VASCO of its obligations to the other
contracting party under any such Contract. If and to the extent that such
arrangement cannot be made on terms and conditions acceptable to SSI, then SSI
shall have no obligation to Close under this Agreement.
5.8. Employment, Compensation and Employee Benefits From and
After Closing. The respective undertakings and covenants of SSI from and
after the Closing with respect to the employment by SSI of the Personnel, and
the compensation and employee benefits to be provided such Personnel by SSI,
shall be as set forth below:
5.8.1. Employment. SSI shall offer employment to each of
the Personnel. The offer of employment to any such Personnel shall be (i) for
the same or a comparable position as held by such Personnel in the Business
immediately prior to the Closing, (ii) at the same or a greater rate of
compensation as paid by VASCO immediately prior to the Closing, (iii) non-
cancelable by SSI, other than for cause, for a term of one (1) year from and
after the Effective Date and (iv) made pursuant to and memorialized by an
Employment Agreement with respect to such Personnel in the form attached
hereto as Exhibit H. All such Personnel shall be treated as employees of SSI
from the date of commencement of their employment with VASCO, such that the
Personnel shall receive credit from SSI for the amount of time they previously
served VASCO, as such timing of employment may affect, inter alia, such
Personnel's eligibility for vacation time and other benefits.
5.8.2. Benefits. Upon hiring by SSI, each Personnel member
shall be entitled to enroll in and be covered by health care, disability and
other benefit plans of SSI, all of which plans shall be reasonably comparable
to those plans provided by VASCO to the Personnel prior to the Close, and the
Personnel's coverage under such SSI plans shall commence as soon as
practicable upon hiring, and shall not be subject to any waiting or other
probationary period requirement.
5.9. Severance. VASCO represents that no Personnel member is
entitled to severance pay for a voluntary or an involuntary termination of
employment with VASCO. VASCO has not made any representations or promises or
otherwise created any expectation among such employees respecting any
severance benefits or payments from SSI.
5.10. Unemployment Compensation. VASCO shall cooperate with SSI
with respect to establishing SSI's obligations for unemployment taxes and
similar obligations in a manner satisfactory to SSI, and shall take such steps
as reasonably directed by SSI in anticipation of SSI's potential employment of
any of the Personnel.
5.11. Escrow Agreement. On the Closing Date, SSI and VASCO
shall enter into the Escrow Agreement, in the form attached hereto as Exhibit
G, which agreement shall be effective as of the Effective Date, with DSI
Technology Escrow Services, Inc. serving as escrow agent thereunder (the
"Escrow Agent"). Pursuant to the Escrow Agreement, SSI shall deposit with
Escrow Agent within fourteen (14) days after the Closing Date two (2) full and
complete copies of the then-current and immediately preceding releases of the
Source Code and Object Code for all Software and copies of all Documentation
related to the Software. After the Closing Date, within sixty (60) days of
the release of any new version of the Software incorporating any enhancements,
improvements or modifications to a previous version or release, SSI shall
deposit with Escrow Agent two (2) full and complete copies of the Source Code
and Object Code for such new version or release of the Software, the name and
address of the Manager of Software Engineering responsible for development of
the new version or release, and copies of all Documentation related to the new
version or release. The Escrow Agreement shall provide, inter alia, for the
immediate release by Escrow Agent of the Software and Documentation to VASCO
upon the occurrence of either of the following events: (a) the material
uncured breach by SSI of this Agreement or of any of the Collateral Documents
to which it is a party, or (b) the dissolution, liquidation, bankruptcy or
insolvency of SSI.
5.12. Prepaid Receivables Amount and Prepaid Expense Amount;
Offset Against Promissory Note. The parties hereto agree that the amount
designated as "Total Prepaid Receivables" on Schedule 5.12 represents the
Prepaid Receivables Amount and the amount designated as "Total" on Schedule
2.1.4 represents the Prepaid Expense Amount. SSI acknowledges and agrees that
VASCO shall retain the Prepaid Receivables Amount. VASCO acknowledges and
agrees that SSI shall not remit the Prepaid Expense Amount to VASCO at the
Closing. VASCO and SSI agree that the Prepaid Expense Amount shall be
subtracted from the Prepaid Receivables Amount and the remainder shall be the
"Offset Amount" and such amount shall be offset against the monthly payments
otherwise due to VASCO from SSI under the Promissory Note, until the balance
of the Offset Amount has been offset. Nothing in this Section 5.12 shall
relieve SSI of any obligations under the Promissory Note other than the
obligation to make the first consecutive monthly payments thereunder equaling
the Offset Amount. For the avoidance of doubt, and notwithstanding anything
to the contrary herein or in the Promissory Note, (a) each of SSI's monthly
payments of $32,645.59 due August 1, 2003and September 1, 2003 shall be offset
against the Offset Amount retained by VASCO and (b) $28,498.04 of the monthly
payment due October 1, 2003 under the Promissory Note shall be offset against
the remaining balance of the Offset Amount, and SSI shall be required to pay
VASCO the balance of the October 1, 2003 payment ($4,147.55) in accordance
with the terms of the Promissory Note.
ARTICLE 6
CONFIDENTIALITY AND COVENANT NOT TO COMPETE
6.1. Confidentiality. Each party hereto shall and shall cause
its counsel, accountant, financial advisors and lenders to: (a) keep all
Proprietary Information confidential and not to disclose or reveal any
Proprietary Information to any Person other than its officers, directors,
Affiliates, employees, attorneys, accountants, other agents and
representatives, including engineers, financial advisors, current and
prospective lenders and debt securities underwriters who are participating in
the evaluation of the Contemplated Transactions or who otherwise need to know
the Proprietary Information for the purpose of evaluating the Contemplated
Transactions; and (b) not to use the Proprietary Information for any purpose
other than (i) in connection with the evaluation and/or consummation of the
Contemplated Transactions; (ii) to the extent necessary to obtain any of the
Consents listed on Schedule 3.6 or 4.4 or (iii) to enforce such party's rights
and remedies under this Agreement. Notwithstanding anything to the contrary
in this Section 6.1, to the extent either party to this Agreement is required
by Law or Order to disclose the Proprietary Information of the other party to
another Person, the disclosing party will provide the minimum Proprietary
Information required to be disclosed, and will make such disclosure only after
providing the non-disclosing party with a reasonable opportunity to revise or
enjoin its disclosure and will use reasonable efforts to ensure that the
Proprietary Information receives confidential treatment by those to whom it is
disclosed. The obligations of each party hereto under this Section 6.1 shall
terminate three (3) years from the date of this Agreement.
6.2. Return of Proprietary Information. If Closing does not
occur by July 15, 2003 (as such date may be extended by mutual agreement of
the parties hereto), each party shall promptly thereafter return all written
and electronic copies of Proprietary Information of the other party.
6.3. Covenant Not To Compete. As a material inducement to
SSI's consummation of the Contemplated Transactions, neither VASCO nor any of
its Subsidiaries shall, during the five (5) years following the date of this
Agreement, do any of the following, directly or indirectly, without the prior
written cosent of SSI in its sole discretion:
6.3.1. Compete, directly or indirectly, in the Business as
conducted on the Closing Date with SSI or any of its Affiliates or
Subsidiaries, or any of their respective successors or assigns, within any
geographic area located within the United States of America; provided, that
SSI acknowledges and agrees that none of the business activities conducted by
VASCO as of the date of this Agreement, other than the Business, currently,
or, if conducted in the future, would, breach the covenant contained in this
Section 6.3.1;
6.3.2. invest in, undertake, carry on or be engaged in or
concerned with or have a financial interest in or advise, lend money to,
guarantee the debts or obligations of or permit its name or a part thereof or
that of any Subsidiary to be employed by or associated with any individual,
partnership, sole proprietorship, association, organization, or corporation
that competes with SSI through the provision of products or services similar
to the Business; provided, that VASCO or any or its Subsidiaries may own, as a
passive investor, not more than one percent (1%) of the outstanding securities
of any class of any publicly traded securities of such Person; or
6.3.3. solicit, hire or engage the services of any of the
Personnel whose employment is transferred to SSI, or persuade or attempt to
persuade any such individual to terminate his or her employment with SSI. For
the avoidance of doubt, neither VASCO nor any of its Subsidiaries shall be
bound by the restrictions of this Section 6.3.3 with respect to any Personnel
member (a) to whom SSI elects not to offer employment (notwithstanding SSI's
obligation to do so pursuant to Section 5.8.1 herein), (b) whose employment
with SSI has been terminated by SSI for reasons other than cause.
ARTICLE 7
INDEMNIFICATION
7.1. Survival. All covenants and other agreements shall
survive the Closing in accordance with the applicable statute of limitations.
7.2. VASCO's Indemnification. Regardless of any investigation
undertaken or made by SSI, or any of its stockholders, employees, agents or
representatives prior to the Effective Date, VASCO hereby agrees to indemnify,
defend and hold harmless SSI and its directors, officers, employees,
Affiliates, agents, stockholders, successors and assigns and legal
representatives, and each Person who controls (within the meaning of the
Securities Act) any of them, from and against any and all Claims (including,
without limitation, Claims arising out of facts or circumstances that have
occurred on or prior to the Effective Date, even though such Claims may not be
filed or come to light until after the Effective Date) or Losses that may be
imposed upon, incurred by or asserted against any of them arising out of,
based upon or resulting from: (a) any misrepresentation, breach of any
warranty or non-fulfillment of any covenant to be performed by VASCO under
this Agreement or any Collateral Document; (b) any Retained Liabilities; and
(c) any Legal Proceeding or Order arising out of any of the foregoing, even
though such Legal Proceeding or Order may not be filed, become final, or come
to light until after the Effective Date.
7.3. SSI's Indemnification. Regardless of any investigation
undertaken or made by VASCO or any of its stockholders, employees, agents or
representatives prior to the Effective Date, SSI hereby agrees to indemnify,
defend and hold harmless VASCO and its directors, officers, employees,
Affiliates, agents, stockholders, successors and assigns and legal
representatives, and each Person who controls (within the meaning of the
Securities Act) any of them, from and against any and all Claims (including,
without limitation, Claims arising out of facts or circumstances that have
occurred on or prior to the Effective Date, even though such Claim may not be
filed or come to light until after the Effective Date) or Losses that may be
imposed upon, incurred by or asserted against any of them arising out of,
based upon or resulting from: (a) any misrepresentation, breach of any
warranty or non-fulfillment of any covenant to be performed by SSI under this
Agreement or any Collateral Document; (b) any Assumed Liabilities; (c) the SSI
Business Plan; and (d) any Legal Proceeding or Order arising out of any of the
foregoing, even though such Legal Proceeding or Order may not be filed, become
final, or come to light until after the Effective Date.
7.4. Payment; Procedure for Indemnification.
7.4.1. Claim or Loss. In the event that the party seeking
indemnification under this Article 7 (the "Indemnified Party") shall suffer a
Claim or Loss, it shall promptly, after obtaining knowledge of the incurrence
of any such indemnifiable Claim or Loss, give a notice of intent to seek
indemnity, describing the Claim or Loss in reasonable detail (an "Indemnity
Notice") to the party from whom indemnification under this Article 7 is sought
(the "Indemnifying Party"). The failure of any Indemnified Party to give the
Indemnifying Party the Indemnity Notice shall not release the Indemnifying
Party of liability under this Article 7, except (a) to the extent that the
Indemnifying Party's ability to defend such Claim is materially prejudiced by
the failure to give such notice, (b) that the Indemnifying Party shall not be
liable for Claims or Losses incurred by the Indemnified Party that would not
have been incurred but for the delay in the delivery of, or failure to
deliver, the Indemnity Notice and (c) the Indemnified Party shall be
responsible for any legal fees and expenses incurred in connection with
opening a default judgment in connection with the Claim or Loss that was
incurred as a direct result of the failure to so notify. For the purposes of
the foregoing sentence, if a default judgment in connection with a Claim or
Loss is not opened by the court, then the Indemnifying Party shall have been
deemed to be materially prejudiced. Within fifteen (15) days after the
receipt by the Indemnifying Party of the Indemnity Notice, the Indemnifying
Party shall either (i) pay to the Indemnified Party an amount equal to the
indemnifiable Claim or Loss or (ii) object to such claim, in which case the
Indemnifying Party shall give written notice to the Indemnified Party of such
objection together with the reasons therefor, it being understood that the
failure of the Indemnifying Party to so object shall preclude the Indemnifying
Party from asserting any claim, defense or counterclaim relating to the
Indemnifying Party's failure to pay any indemnifiable Claim or Loss. The
Indemnifying Party's objection shall not, in and of itself, relieve the
Indemnifying Party from its obligations under this Article 7. In the event
that the parties are unable to resolve the subject of the Indemnity Notice,
the issue shall be submitted to a court of competent jurisdiction for
resolution as set forth in this Agreement.
7.4.2. Third Party Claim or Loss.
(a) Notwithstanding anything set forth in Section
7.4.1, in the event the facts giving rise to the claim for indemnification
under this Article 7 shall involve any action, or threatened Claim or demand
by any Third Party, the Indemnified Party shall, promptly after obtaining
knowledge of such Third Party Claim or demand giving rise to the claim for
indemnification, send written notice of intent to seek indemnity, describing
such action or Claim in reasonable detail (a "Claim Notice") to the
Indemnifying Party. The failure of the Indemnified Party to give the
Indemnifying Party the Claim Notice shall not release the Indemnifying Party
of Liability under this Article 7, except (a) to the extent that the
Indemnifying Party's ability to defend such Claim or Loss is materially
prejudiced by the failure to give such notice, (b) that the Indemnifying Party
shall not be liable for Claims or Losses incurred by the Indemnified Party
that would not have been incurred but for the delay in the delivery of, or
failure to deliver, the Claim Notice and (c) the Indemnified Party shall be
responsible for any legal fees and expenses incurred in connection with
opening a default judgment in connection with the Claim or Loss that was
incurred as a direct result of the failure to so notify. For the purposes of
the foregoing sentence, if a default judgment in connection with a Claim or
Loss is not opened by the court, then the Indemnifying Party shall have been
deemed to be materially prejudiced. The Indemnifying Party shall be entitled
to defend such action or Claim in the name of the Indemnified Party at its own
expense and through counsel of its own choosing; provided, that if the
applicable action or Claim is against, or if the defendants in any such Legal
Proceeding shall include, both the Indemnified Party and the Indemnifying
Party and the Indemnified Party reasonably concludes that there are defenses
available to it that are different or additional to those available to the
Indemnifying Party or if the interests of the Indemnified Party may be
reasonably deemed to conflict with those of the Indemnifying Party, then the
Indemnified Party shall have the right to select separate counsel and to
assume the Indemnified Party's defense of such Claim or Legal Proceeding, with
the reasonable fees, expenses and disbursements of such counsel to be
reimbursed by the Indemnifying Party as incurred. The Indemnifying Party
shall give the Indemnified Party notice in writing within five (5) days after
receiving the Claim Notice from the Indemnified Party in the event of Legal
Proceeding or otherwise of its intent to exercise its right to assume the
defense of such action or Claim. If the Indemnified Party has received no
such notice within such time period, the Indemnified Party may take control of
the defense of such action or Claim but the Indemnifying Party shall pay the
reasonable costs of such defense incurred by the Indemnified Party (and all
such costs shall be deemed to be Losses for purposes of this Article 7).
(b) Whenever the Indemnifying Party is entitled to
defend any Claim hereunder, the Indemnified Party may elect, by notice in
writing to the Indemnifying Party, to continue to participate through its own
counsel, at its expense, but the Indemnifying Party shall have the right to
control the defense of the Claim or the Legal Proceeding; provided, that the
Indemnifying Party retains counsel reasonably satisfactory to the Indemnified
Party and pursuant to an arrangement reasonably satisfactory to the
Indemnified Party; otherwise, the Indemnified Party shall have the right to
control the defense of the Claim or the Legal Proceeding.
(c) Notwithstanding any other provision contained in
this Agreement, the party controlling the defense of the Claim or the Legal
Proceeding shall not settle any such Claim or Legal Proceeding without the
written consent of the other party; provided, that if the Indemnified Party is
controlling the defense of the Claim or the Legal Proceeding and shall have,
in good faith, negotiated a settlement thereof, which proposed settlement
contains terms that are reasonable under the circumstances, then the
Indemnifying Party shall not withhold or delay the giving of such consent (and
in the event the Indemnifying Party and Indemnified Party are unable to agree
as to whether the proposed settlement terms are reasonable, the Indemnifying
Party and Indemnified Party will submit the disagreement to a court of
competent jurisdiction for resolution as set forth in this Agreement). In the
event that the Indemnifying Party is controlling the defense of the Claim or
the Legal Proceeding and shall have negotiated a settlement thereof, which
proposed settlement is substantively final and unconditional as to the parties
thereto (other than the consent of the Indemnified Party required under this
Section 7.4) and contains an unconditional release of the Indemnified Party
and does not include the taking of any actions by, or the imposition of any
restrictions on the part of, the Indemnified Party and the Indemnified Party
shall refuse to consent to such settlement, the liability of the Indemnifying
Party under this Article 7, upon the ultimate disposition of such Legal
Proceeding or Claim, shall be limited to the amount of the proposed settlement
with any amounts over and above the amount of the proposed settlement being
the liability of the Indemnified Party; provided, however, that in the event
the proposed settlement shall require that the Indemnified Party make an
admission of liability, a confession of judgment, or shall contain any other
non-financial obligation which, in the reasonable judgment of the Indemnified
Party, renders such settlement unacceptable, then the Indemnified Party's
failure to consent shall not give rise to the limitation of Indemnifying
Party's liability as provided for in this Section 7.4, and the Indemnifying
Party shall continue to be liable to the full extent of such Legal Proceeding
or Claim; and provided further, that notwithstanding any provision to the
contrary, no indemnifiable Claims or Losses with respect to Taxes shall be
settled without the prior written consent of the SSI.
7.5. Limitations of Indemnity.
7.5.1. Neither VASCO nor SSI shall make a Claim for
indemnifiable Losses pursuant to Section 7.2(a) or Section 7.3(a), as the case
may be, unless the aggregate amount of such indemnifiable Losses for either
VASCO or SSI, as the case may be, exceeds Ten Thousand Dollars ($10,000) (the
"Threshold Amount") at which point such recovery shall include the full amount
of any such indemnifiable Losses, including the Threshold Amount and such
claim is made within three (3) years from the Effective Date. Except for
Third Party Claims or Losses set forth in Section 7.4.2 above, each of VASCO's
and SSI's respective indemnifiable Losses, at any time within the indemnity
period (as provided in the preceding sentence), shall be limited to an amount
(such amount being the "Cap") equal to (a) $3,073,093.83 minus (b) the sum of:
(i) the then fair market value of the SSI Preferred Stock Certificates held by
VASCO plus the value of any consideration received by VASCO for the sale of
any shares of such SSI Preferred Stock Certificates; and (ii) the then fair
market value of the Promissory Note plus all payments previously made on such
Promissory Note, provided however, that if SSI is not then in default on such
Promissory Note, the fair market value of the Promissory Note shall be deemed
to be its then current balance including interest. For purposes of
calculating the amount of an Indemnified Party's Losses incurred by such
Indemnified Party arising out of or resulting from any breach of a
representation, covenant or agreement, the references to a "Material Adverse
Effect" or materiality (or other correlative terms) shall be disregarded.
Neither the Cap nor the Threshold Amount shall apply to, nor shall either in
any way limit the right of any party to pursue, any rights, remedies or Claims
based on fraud.
7.5.2. SSI shall not be entitled to indemnification under
this Article 7, and VASCO shall have no liability whatsoever, for any Claim or
Loss arising out of, related to or based on the assistance provided to SSI by
employees of VASCO, including without limitation Xxxxx Xxxx, in the
preparation of the SSI Business Plan.
7.5.3. No party shall be entitled to indemnification under
this Article 7 if and to the extent that such party's claim for
indemnification is directly or indirectly related to a breach by such Person
of any representation, warranty, covenant or other agreement set forth in this
Agreement.
7.5.4. No claim under this Article 7 shall be made unless an
Indemnity Notice, or a Claim Notice (as applicable) has been given prior to
the applicable survival period.
7.6. Characterization of Indemnity Payments. Except as
otherwise required by applicable Law, any payment made pursuant to this
Article 7 shall be treated, for Tax purposes, as an adjustment to the Purchase
Price and will be allocated in a manner consistent with the allocation set
forth on Schedule 2.7.
ARTICLE 8
POST-CLOSING COVENANTS
8.1. Further Cooperation. From and after the Closing Date,
VASCO shall (i) assist and cooperate with SSI in effecting the orderly
transfer of the Purchased Assets to SSI and/or its Affiliate and (ii) execute
and deliver such documents and take such other actions as SSI reasonably
requests to fully consummate the Contemplated Transactions.
8.2. Post-Closing Receivables. If, at any time after the
Effective Date, VASCO shall receive any payments on account of any Accounts
Receivables related to the Purchased Assets, where such Accounts Receivable
were earned by SSI after the Effective Date, then VASCO shall hold such funds
in trust for, and shall promptly remit such funds to SSI immediately upon
receipt thereof.
8.3. Post-Closing Excluded Assets. If, at any time after the
Effective Date, SSI shall receive any payments on account of any of the
Excluded Assets (including, without limitation, any Accounts Receivable
related to the Purchased Assets, where such Accounts Receivable were earned by
VASCO prior to the Effective Date), then SSI shall hold such funds in trust
for, and shall promptly remit such funds to VASCO immediately upon receipt
thereof.
8.4. Post-Closing Expenses and Liabilities. Except as otherwise
provided in this Agreement, it is understood and agreed that VASCO shall
retain all liability for, and SSI shall not assume or have any obligation with
respect to, any expenses, obligations or liabilities of VASCO which arise,
accrue or occur prior to the Effective Date and are attributable to the
Purchased Assets, the Business, or the Personnel (all such obligations and
liabilities being herein referred to as the "Excluded Obligations"),
including, without limitation, all obligations and liabilities attributable to
any and all obligations arising under Law or Contract with respect to any
employee benefit plan, program, or arrangement and/or any of the Personnel in
connection with his or her employment by VASCO. If, at any time after the
Effective Date, SSI shall receive any demand for payments on account of any
expenses, obligations or liabilities related to the Excluded Obligations, then
SSI shall promptly notify VASCO of such demand. If VASCO does not dispute
such underlying third-party demand for payment, VASCO shall promptly remit
sufficient funds to SSI for payment thereon. If, however, VASCO disputes the
underlying third-party demand for payment, VASCO shall (a) notify SSI of the
dispute, (b) work directly with such third party to resolve such dispute and
(c) have no obligation to tender any payment to SSI on account of such
disputed third-party demand.
8.5. Public Announcements. Neither party shall issue any public
report, statement, press release or similar item or make any other public
disclosure with respect to the substance of this Agreement prior to the
approval of the non-disclosing party and any such approval shall be provided
on a timely basis and shall not be unreasonably withheld; provided, however,
that, to the extent that either party is required by applicable Law to issue
such a public statement or disclosure within a certain amount of time, such
party shall be permitted to do so without the approval of the other party, so
long as the disclosing party has made commercially reasonable efforts to
obtain such approval prior to the issuance of the public statement or
disclosure.
8.6. Audit Right. For so long as amounts are due and owing to
VASCO pursuant to Section 2.5 or 2.6, and for an additional six (6) months
thereafter, VASCO or its representative shall be provided, at VASCO's sole
expense, full access to all books and records of SSI with respect to the
Purchased Assets for the purpose of auditing and confirming SSI's compliance
with its payment obligations under Sections 2.5 and 2.6 (the "Audit Right");
provided, however, that, subject to clause (b) of the immediately succeeding
sentence, VASCO's Audit Right may be exercised no more frequently than once
every six (6) months. If, upon exercise of its Audit Right, VASCO or its
representative determines that SSI has underpaid its obligation pursuant to
either Section 2.5 or 2.6, calculated on a monthly basis, by five percent (5%)
or more (the "Underpayment Amount"), (a) interest at the rate of one and one-
half percent (1.5%) per month shall be assessed on the Underpayment Amount and
shall be immediately due and payable to VASCO and (b) until the Underpayment
Amount plus accrued interest thereon is paid to VASCO, VASCO shall be entitled
to exercise its Audit Right, at SSI's sole expense, once every three (3)
months thereafter.
8.7. SSI Stock. For so long as VASCO owns a majority of the
SSI Preferred Stock, SSI shall not (a) amend its Organizational Documents in
such a manner as to adversely affect the rights, privileges or preferences of
VASCO in such capital stock or (b) take any other action which would effect
the same result.
ARTICLE 9
TAXES RELATED TO PURCHASED ASSETS
SSI shall pay and shall indemnify and hold harmless VASCO
from and against all Taxes related to the transfer of the Purchased Assets, if
any. All Taxes on the ownership or use of the Purchased Assets (specifically
excluding Taxes measured by the net income of any party) that accrue on or
prior to the Effective Date shall be paid by VASCO, and all such Taxes that
accrue after the Effective Date shall be paid by SSI; provided, that all such
Taxes shall be prorated to the Effective Date. Should SSI pay any such Taxes,
VASCO shall, within thirty (30) days of SSI's request, pay to SSI that portion
of such Taxes that accrued prior to the Effective Date.
ARTICLE 10
SECURITIES LAWS REPRESENTATIONS
VASCO acknowledges that the shares of SSI Preferred Stock to
be delivered to VASCO pursuant to this Agreement have not been registered
under the Securities Act or any other state securities laws, and therefore may
not be resold without compliance with the Securities Act. VASCO further
acknowledges that the SSI Preferred Stock to be acquired by VASCO pursuant to
this Agreement is being acquired solely for the account of VASCO, with no
present intention of distributing, selling or otherwise disposing of it in
connection with a distribution.
10.1. Compliance with Law. VASCO covenants, warrants and
represents that none of the shares of SSI Preferred Stock issued to VASCO will
be offered, sold, assigned, pledged, hypothecated, transferred or otherwise
disposed of except after full compliance with all of the applicable provisions
of the Securities Act and all of the applicable provisions of the rules and
regulations of the SEC and applicable state securities Laws. All the SSI
Preferred Stock shall bear a legend restricting the sale, assignment,
hypothecation or other disposition of the SSI Preferred Stock unless such
disposition can be made in accordance with applicable securities Laws.
10.2. Economic Risk; Sophistication. VASCO is able to bear the
economic risk of an investment in the SSI Preferred Stock acquired pursuant to
this Agreement and can afford to sustain a total loss of such investment and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the merits and risks of the proposed investment in the
SSI Preferred Stock. VASCO or its representative has had an adequate
opportunity to ask questions and receive answers from the officers of SSI
concerning any and all matters relating to the Contemplated Transactions
including, without limitation, the background and experience of the current
and proposed officers and directors of SSI, the plans for the operations of
the business of SSI, the business, operations and financial condition of SSI,
the SSI Business Plan and any plans for additional acquisitions and the like.
10.3. Accreditation. VASCO covenants, warrants and represents
that it is an Accredited Investor with respect to the purchase of the SSI
Preferred Stock pursuant to this Agreement.
10.4. SSI Common Stock; Rule 144(k). SSI covenants, warrants
and represents that all SSI Common Stock issued to VASCO upon conversion or
redemption of, or as dividend shares upon, the SSI Preferred Stock purchased
by VASCO pursuant to this Agreement shall be validly issued, fully paid and
nonassessable, free and clear of all Encumbrances and, if publicly traded, all
such SSI Common Stock shall be registered in accordance with the terms and
provisions of SSI's Certificate of Incorporation attached hereto as Exhibit I
and as may thereafter be amended; provided, however, and without limiting the
foregoing, SSI and VASCO acknowledge and agree that, to the extent that any
such SSI Common Stock is issued to VASCO on a date on or after the second
anniversary of the Effective Date, such SSI Common Stock shall be exempt from
the registration requirements of the Securities Act pursuant to Rule 144(k)
thereof.
ARTICLE 11
MISCELLANEOUS
11.1. Notices. All notices, documents or other deliverables
required to be given, sent or delivered to any of the parties to this
Agreement shall be in writing and shall be deemed to have been sufficiently
given, sent or delivered, subject to the further provisions of this Section
11.1, for all purposes when presented personally to such party or sent by
certified or registered mail, return receipt requested, with proper postage
prepaid, or any United States national overnight delivery service, with proper
charges prepaid, or by facsimile transmission with receipt confirmed by such
party, to the sender, at its address set forth below:
If to SSI:
0000 Xxxxx Xxxxxxx Xxxx Xxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxx X0X 0X0
XXXXXX
Fax:
Attention: King Xxxxx, Chief
Executive Officer
with a copy to:
Morse, Zelnick, Rose & Lander,
LLP
000 Xxxx Xxxxxx
Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000-0000
Fax: (000) 000-0000
Attention: Xxxxxxx Xxxxxxx,
Esquire
If to VASCO:
0000 Xxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx
00000
Fax:
Attention: T. Xxxxxxx Xxxx,
Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxxx LLP
000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000-0000
Fax: 000-000-0000
Attention: Xxxxxx Xxxxxx,
Esquire
Such notice shall be deemed to be received when delivered if
delivered personally, or the next Business Day after the date sent if sent by
a United States national overnight delivery service, or three (3) Business
Days after the date mailed if mailed by certified or registered mail. Any
notice of any change in such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived in writing by the party entitled to receive such notice.
11.2. No Third Party Beneficiaries. Except as is otherwise
expressly provided in this Agreement, this Agreement is not intended to, and
does not, create any rights in or confer any benefits upon anyone other than
the parties hereto.
11.3. Schedules and Exhibits. All schedules and exhibits
attached to this Agreement are incorporated by reference into this Agreement
for all purposes. Unless the context otherwise requires, all references
herein to "Schedule" or "Exhibit" are references to the schedules and exhibits
attached to this Agreement.
11.4. Expenses. The parties to this Agreement shall pay their
own expenses incident to the preparation, negotiation and execution of this
Agreement including, without limitation, all fees and costs and expenses of
their respective accountants and legal counsel.
11.5. Further Assurances. Each of the parties hereto shall, at
their own respective expense, from time to time upon the request of the other
party, execute and deliver, or cause to be executed and delivered, at such
times as may reasonably be requested by such other party, such other
documents, certificates and instruments and take such actions as such other
party deem reasonably necessary to consummate more fully the Contemplated
Transactions.
11.6. Entire Agreement; Amendment. This Agreement, the
Collateral Documents and any other documents, instruments or other writings
delivered or to be delivered pursuant to this Agreement constitute the entire
agreement among the parties with respect to the subject matter of this
Agreement and supersede all prior agreements, understandings, and
negotiations, whether written or oral, with respect to the subject matter of
this Agreement. None of the terms and provisions contained in this Agreement
can be changed without a writing signed by all parties hereto.
11.7. Section and Paragraph Titles The section and paragraph
titles used in this Agreement are for convenience only and are not intended to
define or limit the contents or substance of any such section or paragraph.
Unless the context otherwise requires, all references herein to "Section" or
"Article" are references to the sections and articles of this Agreement.
11.8. Binding Effect. This Agreement shall be binding upon and
inure to the benefit of each of the parties to this Agreement and their
respective heirs, personal representatives, and successors and permitted
assigns. Neither SSI nor VASCO shall have the right to assign this Agreement
without the prior written consent of the other and such consent shall not be
unreasonably withheld.
11.9. Counterparts. This Agreement may be executed in any
number of counterparts, including by means of facsimile, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute one and the same instrument.
11.10. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this
Agreement or such provision, and any such prohibition or unenforceability in
any jurisdiction shall not invalidate or render unenforceable such provision
in any other jurisdiction.
11.11. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF DELAWARE
WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE
(WHETHER OF THE STATE OF DELAWARE OR ANY OTHER JURISDICTION) THAT WOULD CAUSE
THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION OTHER THAN THE STATE OF
DELAWARE.
11.12. WAIVER OF JURY TRIAL. EACH OF SSI AND VASCO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY OF THE CONTEMPLATED TRANSACTIONS.
11.13. No Tax Representations. Without affecting the parties'
obligations herein, SSI and VASCO agree that no representation or warranty has
been made by them as to the Tax consequences of the Contemplated Transactions,
that each is engaging separate counsel with respect to such Tax consequences,
and that each is assuming its own respective Tax liability, if any, arising
out of this Agreement or the consummation of the Contemplated Transactions.
11.14. Waiver. No failure or delay by any party hereto in
exercising any right, power or privilege hereunder or under any of the
Collateral Documents (and no course of dealing between the parties) shall
operate as a waiver of any such right, power or privilege. No waiver of any
default on any one occasion shall constitute a waiver of any subsequent or
other default. No single or partial exercise of any such right, power or
privilege shall preclude the further or full exercise of such right, power or
privilege.
11.15. Default In the event of default hereunder, the non-
defaulting party shall be entitled to recover reasonable attorney's fees and
costs in enforcing the terms and provisions hereof.
11.16. Relationship of the Parties. The relationship between SSI
and VASCO established by this Agreement is solely that of vendor and vendee
and nothing contained herein shall be deemed to create a joint venture or
other fiduciary relationship between SSI and VASCO. Neither SSI nor VASCO, nor
their respective officers, directors, managers, employees, representatives or
agents, shall be deemed to be agent or servant of the other party nor have the
right or authority to enter into any contract, agreement, commitment or other
obligation in the name of or on behalf of the other party or otherwise purport
to bind the other party in any manner.
11.17. Interpretation. This Agreement shall not be construed more
strictly against either party hereto regardless of which party is responsible
for its preparation, it being agreed that this Agreement was fully negotiated
by both parties.
[remainder of page intentionally left blank; signatures follow]
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first written above.
SECURED SERVICES, INC.
By:_____________________________________
Name
Title:
VASCO DATA SECURITY INTERNATIONAL, INC.
By:_____________________________________
Name:
Title:
EXHIBIT A
List of Personnel
Name Date if Initial
(Last, First) Employment Job Title Annual Salary Annual Bonus**
Xxxxxxxxxx, Xxxxx 01/01/96 Vice President $128,750* $10,000
Engineering
Zhong, Xiadong 10/01/96 Senior Engineer $118,450 $23,690
Xxxx, Xxxxx 06/07/98 Senior Engineer $61,800 $9,270
Xxxxxx, Xxxx 01/01/99 Senior Engineer $69,700 $10,455
* = Excludes $3,000 per month paid as rent to X. Xxxxxxxxxx
** = Bonuses are paid quarterly based on achievement of targets.
EXHIBIT B
Promissory Note
SECURED SERVICES, INC.
SECURED PROMISSORY NOTE
$1,073,093.83 ___________, 2003
(the "Principal Amount") New York, New York
FOR VALUE RECEIVED, SECURED SERVICES, INC., a Delaware corporation (the
"Company" or "Maker") with its principal executive office at c/o Morse,
Zelnick, Rose & Lander, LLP 000 Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx
00000, promises to pay to:
VASCO Data Security International, Inc.
0000 Xxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
(the "Payee" or the "Holder of this Note") or permitted successors and assigns
of the Payee, the Principal Amount together with the interest thereon, at the
rate of 6.00% per annum from the date hereof until maturity, and on the terms
and conditions described below in this Promissory Note (the "Note").
1. Payment of Principal and Interest.
A. Principal and interest shall be payable, in arrears, in
equal monthly installments as follows:
* Thirty Two Thousand Six Hundred Forty Five and 59/100
Dollars ($32,645.59) on the 1st day of each month commencing
August 2003 (each such date, a "Payment Date") through July
2006 (the "Maturity Date"),
in such coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private debts.
B. Each payment shall be payable at Payee's address, set forth
herein, or at such other place as the Payee shall have notified the Company
before any Payment Date.
2. Security. This Note is the promissory note referred to in that
certain Security Agreement, dated as of even date herewith, by and between the
Maker and the Payee (the "Security Agreement"). Reference is made to the
Security Agreement for a statement of the collateral security for the
obligations of the Maker hereunder, the respective rights and obligations of
the parties, and the terms and conditions therein provided under which all or
a part of the Principal Amount, accrued interest thereon and other amounts
payable under the Security Agreement may become immediately due and payable.
3. Events of Default and Remedies.
A. Events of Default. Each of the following events is herein
referred to as an Event of Default:
(i) any default in the payment of any principal and
interest hereunder when the same shall be due and payable not remedied within
ten (10) days of written notice given pursuant to Section 4 (B) herein;
(ii) any material default in the due observance or
performance of any other covenant, condition or agreement to be observed or
performed pursuant to the terms hereof, and the continuance of such default
unremedied for a period of thirty (30) days after written notice thereof to
the Company setting forth in reasonable detail the circumstances of such Event
of Default;
(iii) if the Company shall: (A) apply for or consent to the
appointment of a receiver, trustee, custodian or liquidator of it or any of
its properties, (B) admit in writing its inability to pay its debts as they
mature, (C) make a general assignment for the benefit of creditors, (D) be
adjudicated a bankrupt or insolvent or be the subject of an order for relief
under Title 11 of the United States Code, or (E) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an
arrangement with creditors or to take advantage or any bankruptcy,
reorganization, insolvency, readjustment of debt, dissolution or liquidation
law or statute, or an answer admitting the material allegations of a petition
filed against him or it in any proceeding under any such law, or (vi) take or
permit to be taken any action in furtherance of or for the purpose of
effecting any of the foregoing; and
(iv) if any order, judgment or decree shall be entered,
without the application, approval or consent of the Company, by any court of
competent jurisdiction, approving a petition seeking reorganization of the
Company, or appointing a receiver, trustee, custodian or liquidator of any of
the Company, or of all or any substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in effect for any period of
sixty (60) consecutive days.
B. Remedies. Upon the occurrence of any Event of Default, and
at all times thereafter during the continuance thereof: (i) this Note shall,
at the option of the Holder of this Note, become immediately due and payable,
both as to principal and interest without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything
contained herein to the contrary notwithstanding; (ii) the Holder of this Note
may file suit against the Company on the Note and/or seek specific performance
or injunctive relief hereunder (whether or not a remedy exists at law or is
adequate); (iii) the Holder of this Note shall have the right, in accordance
with this Note to exercise any and all remedies as such holder may determine
in such holders' discretion (without any requirement of marshalling of assets,
or other such requirement).
C. Enforcement. If there is any default under this Note, and
this Note is placed in the hands of an attorney for collection, or is
collected through any court, including any bankruptcy court, the Maker
promises to pay to the order of the Holder of the Note such Holder's
reasonable attorney's fees and court costs incurred in collecting or
attempting to collect or securing or attempting to secure this Note or
enforcing the Holder's rights with respect to any collateral securing this
Note, to the extent allowed by the laws of the State of New York or any state
in which any collateral for this Note is situated.
4. Prepayment. Notwithstanding anything to the contrary herein, the
Maker shall have the option at any time to pay to the Payee the outstanding
Principal Amount plus all accrued interest to the payment date without any
additional fees, costs or penalties, and such payment will be considered full
satisfaction of Maker's obligations under this Note.
5. Miscellaneous.
A. Parties in Interest. All covenants, agreements and
undertakings in this Note binding upon the Company or the Payee shall bind and
inure to the benefit of the permitted successors and assigns of the Company
and the Payee, respectively, whether so expressed or not.
B. Notice Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered personally,
telegraphed or sent by certified, registered, or express mail, postage
prepaid, and shall be deemed given when so delivered personally, telegraphed
or, if mailed, five days after the date of deposit in the United States mail
as follows:
(i) if to the Maker: SecureD Services, Inc.
c/o Morse, Zelnick, Rose & Lander, LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Attn: King Xxxxx, Chief Executive Officer
(ii) if to the Payee: VASCO Data Security International, Inc.
0000 Xxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Attn: Xxxxxxxx X. Xxxx, Chief Financial Officer
C. Construction. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws
of the State of Delaware and any applicable laws of the United States of
America, without giving effect to the conflicts or choice of law principles
thereof.
D. Enforceability. Maker acknowledges that this Note and
Maker's obligations hereunder are and shall at all times continue to be
absolute and unconditional in all respects, and shall at all times be valid
and enforceable irrespective of any other agreements or circumstances of any
nature whatsoever which might otherwise constitute a defense to this Note and
the obligations of Maker evidenced hereby, unless otherwise expressly
evidenced in a writing duly executed by the Holder of this Note.
E. Payment. If the date for any payment due hereunder would
otherwise fall on a day which is not a Business Day, such payment or
expiration date shall be extended to the next following Business Day.
"Business Day" shall mean any day other than a Saturday, Sunday, or any day
which shall be in the State of Delaware a legal holiday or a day on which
banking institutions are authorized by law to close.
F. Waiver. Maker hereby waives diligence, presentment, demand,
protest and notice of any kind whatsoever. Failure of the Holder of this Note
to exercise any of its rights and remedies shall not constitute a waiver of
any provision of this Note or of the Security Agreement or of any of such
Holder's rights and remedies, nor shall it prevent the Holder from exercising
any rights or remedies with respect to the subsequent happening of the same or
similar occurrences. All remedies of the Holder hereof shall be cumulative to
the greatest extent permitted by law. Time shall be of the essence for
payment of all payments of interest and principal on this Note.
G. Lost Documents. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this Note
or any Note exchanged for it, and (i) in the case of loss, theft or
destruction, of indemnity satisfactory to it and (ii) in the case of
mutilation, of surrender for cancellation of such Note, and, in any case, upon
reimbursement to the Company of all reasonable expenses incidental thereto,
the Company will make and deliver in lieu of such Note a new Note of like
tenor and amount and dated as of the original date of this Note.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
SecureD Services, Inc.
By________________________________
King Xxxxx, CEO
EXHIBIT C
Security Agreement
SECURITY AGREEMENT
This is a Security Agreement dated as of ______________, 2003 (this
"Agreement"), between VASCO Data Security International, Inc., a Delaware
corporation (the "Payee") and SecureD Services, Inc., a Delaware corporation
(the "Maker").
Recitals
A. The Maker has agreed to provide the Payee with the Promissory Note
(the "Note" as that term is defined in Section 1 below).
B. The Maker is entering into this Agreement to secure the payment of
the Secured Obligations to the Payee, including under the Note and the other
Maker Documents (as those terms are defined in Section 1 below).
C. This Agreement is being entered into concurrently with the making
of the Note pursuant to an Asset Purchase Agreement (the "Purchase Agreement")
dated as of the date hereof between Payee and Maker, and the Payee is
accepting the Note in reliance upon the Maker's obligations evidenced by this
Agreement. Capitalized terms used but not otherwise defined herein shall have
the meanings ascribed to such terms in the Purchase Agreement.
THE PARTIES, INTENDING TO BE LEGALLY BOUND, AGREE AS FOLLOWS:
1. Definitions. The following terms shall have the following
meanings, and the meanings assigned to all capitalized terms used herein shall
be equally applicable to both the singular and plural forms of the terms
defined:
"Accounts Receivable" shall mean any and all rights to payment for
any services performed, whether such right to payment exists on the date of
this Agreement or is created thereafter, and whenever and wherever acquired or
arising, whether or not such right to payment has been earned by performance,
and whether or not such right to payment is evidenced by any document,
instrument or chattel paper, so long as such property is attributable to the
Purchased Contracts after the date of this Agreement. The amount of an
Account Receivable shall be the amount of the receivable net of all
contractual allowances and other discounts.
"Maker Documents" shall mean, collectively, the Note, this
Agreement, the Purchase Agreement, the SSI Certificate of Incorporation in the
form of Exhibit I attached to the Purchase Agreement and any and all other
documents, instruments, agreements and writings, the execution of which by the
Maker is required by this Agreement.
"Collateral" shall mean any or all of the property in which the
Maker grants to the Payee a security interest under Section 2 of this
Agreement.
"Event of Default" shall have the meaning given that term in
Section 8 of this Agreement.
"Note" shall mean one or more promissory notes substantially in
the form of Annex A attached hereto, and any and all notes and other
instruments executed and delivered in renewal, replacement, substitution,
extension, payment and/or novation thereof.
"Person" shall mean any individual, partnership, association,
firm, trust, corporation or other entity.
"Purchased Contracts" shall mean those Contracts listed on
Schedule 2.1.2 of the Purchase Agreement.
"Secured Obligations" shall mean all of the obligations secured by
this Agreement as set forth in Section 3 of this Agreement.
"Tangible Property" shall mean, when used with respect to any
Person, any and all of the following, whether owned or held on the date of
this Agreement or acquired thereafter: equipment, machinery, furniture,
leasehold improvements, office supplies, trade fixtures, and other tangible
personal property, excluding inventory owned by such Person, used or intended
for use by such Person in the conduct of such Person's business; so long as
such property described in the foregoing is included among the Purchased
Assets. Some of the Tangible Property in existence on the date of this
Agreement may be more particularly described on any UCC-1 financing statement
executed in favor of the Payee in connection with this Agreement, and one or
more Exhibits referenced in one or more Schedules to this Agreement.
"Uniform Commercial Code" shall mean the Uniform Commercial Code
as in effect in the State of Delaware.
2. Grant of Security Interests.
(a) The Maker grants to the Payee a security interest in the
following property:
(1) all of the Maker's right, title and interest in and to
the Purchased Assets (as defined in the Purchase Agreement) and listed on
Schedule 1, attached hereto and incorporated herein by this reference, plus
any and all enhancements, improvements or modifications made to the VACMAN
Intellectual Property subsequent to the Closing Date;
(2) any and all property and monies which the Maker
receives or is or may hereafter be entitled to receive on account of any
collections of or with respect to the Accounts Receivable;
(3) any and all property which the Maker receives or which
the Maker may hereafter become entitled to receive on account of any sale,
exchange, transfer or other disposition of the Purchased Assets, or any part
thereof; and
(b) The Maker grants a further security interest to the Payee in
the proceeds and products of any sale, exchange, collection or other
disposition of the Collateral or any part thereof.
3. Obligations Secured. The security interests granted by the Maker
hereby secure the payment and performance of all of the following Secured
Obligations: (a) any and all indebtedness of the Maker to the Payee evidenced
by the Note, and any and all obligations contained in the Note; and (b)
Maker's obligations under Sections 2.5 and 2.6 of the Purchase Agreement,
provided, however, that the obligations referenced in this Section 3(b) shall
constitute Secured Obligations only for so long as any of Maker's obligations
under the Note remain outstanding.
4. Representations and Warranties. To induce the Payee to enter into
this Agreement, any and all of the representations and warranties made by the
Maker in the other Maker Documents are incorporated herein by reference, and
the Maker further represents, warrants and agrees as follows:
(a) The Maker has full right, power, authority and capacity to
enter into and perform this Agreement; and this Agreement has been duly
entered into and delivered and constitutes a legal, valid and binding
obligation of the Maker enforceable in accordance with its terms.
(b) Subject to receipt from the Payee pursuant to the Purchase
Agreement, the Maker has good and marketable title to the Collateral, and the
Collateral is not subject to any lien, charge, pledge, encumbrance, claim or
security interest other than the security interests created by this Agreement.
(c) The books and records with respect to all Purchased Assets
and the Maker's Accounts Receivable are kept at the Maker's chief place of
business in Oakville, Ontario.
(d) The Maker's chief place of business is located at Oakville,
Ontario.
(e) The Collateral is used and will be used for business use
only.
(f) The registered office of the Maker's registered agent in
Delaware is located at
0 Xxxx Xxxxxxxxxx Xxxxxx
Xxxxx 0X
Xxxxx, Xxxxxxxx 00000
(g) Within the five (5) consecutive years last preceding the
date of this Agreement, the Maker has not conducted business under, or
otherwise used, any name other than SecureD Services, Inc.
(h) The Maker understands and acknowledges that the Payee is
accepting the Note and entering into the Purchase Agreement and Collateral
Documents in reliance upon the security interests granted by the Maker, as
evidenced by this Agreement. The Maker intends to induce the Payee to accept
the Note, recognizing that such inducement results in this Agreement becoming
legally valid and enforceable.
5. Duration of Security Interests. The Payee, its successors and
assigns, shall hold the security interests created hereby upon the terms of
this Agreement, and this Agreement shall continue until Maker's obligations
under the Note have been paid in full. For further clarity, if and when the
Note is paid off in full, this Agreement will expire and have no further force
and effect. After payment of any part of the Secured Obligations, the Payee
may, at its option, retain all or any portion of the security interests in the
Collateral as security for any remaining Secured Obligations and retain this
Agreement as evidence of such security. The security interests granted
hereunder shall not be impaired or affected by any renewals or extensions of
time for payment of any of the Secured Obligations, or by release of any party
liable on the Secured Obligations; by any acquisition, release or surrender of
other security, collateral or guaranty; by delay in enforcement of payment of
any of the Secured Obligations; or by delay in enforcement of any security.
6. Certain Notices. The Maker shall notify the Payee of any and all
changes of location of the Maker's chief place of business and of the
registered office of the Maker's registered agent in Delaware, and of the
books and records with respect to any Accounts Receivable, and of the location
of any other of the Collateral at least five (5) business days prior to
effecting any such change if such change is made by the Maker and within five
(5) business days of Maker being informed of the change if made by other than
Maker.
7. Covenant Not to Dispose of or Impair Collateral. The Maker shall
not, without the prior written consent of the Payee, sell, transfer or
otherwise dispose of the Collateral, or any part thereof or interest therein,
except (a) collections of Accounts Receivable permitted under this Agreement,
and (b) otherwise as permitted by the Maker Documents. The Maker shall not
permit any of the Collateral to be levied upon under any legal process, nor
permit anything to be done that may impair the value of the Collateral or the
security intended to be provided by this Agreement.
8. Default. At the option of the Payee, the happening of any of the
following events shall constitute a default under this Agreement (an "Event of
Default"):
(a) Failure of the Maker to pay any amount owed according to any
Secured Obligations when due and not remedied within ten (10) days of written
notice given pursuant to Section 19 herein.
(b) The occurrence of any event of default by the Maker, as
defined under the Note or any other of the Maker Documents or under any other
instrument or agreement providing security for the Secured Obligations
(collectively, the "Related Documents"), and the expiration of any applicable
cure period provided for in the Note, the Maker Documents or the Related
Documents.
(c) Any warranty, representation or other statement of fact
contained in any of the Maker Documents made or otherwise furnished to the
Payee by or on behalf of the Maker pursuant to or in connection with any of
the Secured Obligations proves, as of the time of its making or furnishing, to
be false or misleading in any material respect or omits a material fact,
whether or not made with knowledge.
(d) Loss, theft, damage, or destruction of any material part of
the Tangible Property if the loss is not fully insured against.
(e) Encumbrance of any of the Collateral, or the making of a
levy, seizure or attachment thereof or thereon, which is not permitted under
the Maker Documents, and which has not been cured to the Payee's satisfaction
within twenty (20) days after notice that it has occurred.
(f) The sale or other disposition of the Collateral or any
interest therein, or the creation of any lien or other encumbrance on the
Collateral, either of which is not in the ordinary course of business, or
otherwise not permitted under this Agreement, and is without the prior written
consent of the Payee.
(g) If the Maker shall (1) have an order of relief entered in
any proceeding filed by the Maker under the federal bankruptcy laws (as in
effect on the date of this Agreement or as they may be amended from time to
time); (2) be unable to pay debts generally as they become due; (3) make a
general assignment for the benefit of creditors; (4) file a petition, or admit
(by answer, default or otherwise) the material allegations of any petition
filed against the Maker in bankruptcy under the federal bankruptcy laws (as in
effect on the date of this Agreement or as they may be amended from time to
time), or under any other law for the relief of debtors, or for the discharge,
arrangement or compromise of debts; or (5) consent to the appointment of a
receiver, conservator, trustee or liquidator of all or any part of the Maker's
assets.
(h) If a petition shall have been filed against the Maker in
proceedings under the federal bankruptcy laws (as in effect on the date of
this Agreement, or as they may be amended from time to time), or under any
other laws for the relief of debtors, or for the discharge, arrangement or
compromise of debts, or an order shall be entered by any court of competent
jurisdiction appointing a receiver, conservator, trustee or liquidator of all
or part of the Maker's assets, and such petition or order is not dismissed or
stayed within sixty (60) consecutive days after entry thereof.
(i) If the Maker or any Person affiliated with the Maker takes
any action that is intended to result in the termination, dissolution or
liquidation of the Maker.
(j) If a final judgment or judgments for the payment of money in
excess of the sum of $50,000.00 in the aggregate, or with respect to property
with a value in excess of such amount, shall be rendered against the Maker and
such judgment or judgments shall remain unsatisfied for a period of thirty
(30) consecutive days after the entry thereof and within that thirty (30) days
has not been (a) stayed pending appeal, or (b) discharged, and is not being
actively disputed in the courts by the Maker.
9. Remedies. If an Event of Default exists and is continuing, the
Payee may at its option declare any and all of the Note to be immediately due
and payable. In addition to the foregoing right, and in addition to
exercising all other rights or remedies, the Payee may proceed to exercise
with respect to the Collateral all rights, options and remedies of a secured
party upon default as provided for under the Uniform Commercial Code. The
rights of the Payee upon the existence and continuation of an Event of Default
shall include, without limitation, any and all rights and remedies in any and
all other documents, instruments, agreements and other writings between the
Payee and the Maker, all rights and remedies as provided by law, in equity or
otherwise, and, in addition thereto, the following:
(a) The right to require the Maker to assemble the Collateral
and the books and records with respect to Accounts Receivable and make them
available to the Payee at the place where these items have been located in the
normal course of business.
(b) The right to sell the Collateral at public or private sale
in one or more lots in accordance with Uniform Commercial Code. The Payee may
bid upon and purchase any or all of the Collateral at any public sale thereof,
and shall be entitled to apply the unpaid portion of the Secured Obligations
as a credit against the purchase price and any such amount applied as a credit
against the purchase price will also be applied in satisfaction of the
outstanding Secured Obligations. The Payee's purchase of all or any of the
Collateral shall extinguish the Maker's rights under Section 9-506 of the
Uniform Commercial Code upon application of the unpaid portion of the Secured
Obligations. The Payee shall be entitled to apply the proceeds of any such
sale to the satisfaction of the Secured Obligations and to expenses incurred
in realizing upon the Collateral in accordance with the Uniform Commercial
Code.
(c) The right to notify the account debtors on all or any part
of the Maker's Accounts Receivable of the Payee's interest therein and to
require such account debtors to begin making payments directly to the Payee
regardless of whether the Maker was previously making collections on all or
any part of such Accounts Receivable. The Payee shall have the right to
proceed against any such account debtors in its own name, or in the name of
the Maker (as appropriate) with or without the consent of the Maker. The
Payee may retain any such payments or collections and apply them to the
satisfaction of the Secured Obligations and to expenses incurred in
collection, all in accordance with the Uniform Commercial Code.
(d) The right to recover the reasonable expenses of taking
possession of any of the Collateral that may be reduced to possession,
preparing the Collateral for sale, selling the Collateral, collecting all or
any part of the Maker's Accounts Receivable, and other like expenses.
(e) The right to recover all of the Payee's expenses of
collection, including, without limitation, court costs and reasonable
attorneys' fees and disbursements incurred in realizing upon the Collateral or
enforcing or attempting to enforce any provision of this Agreement.
(f) The right to retain the Collateral and become the owner
thereof, in accordance with the provisions of the Uniform Commercial Code.
(g) The right to proceed by appropriate legal process at law or
in equity to enforce any provision of this Agreement or in aid of the
execution of any power of sale, or for foreclosure of the security interests
of the Payee, or for the sale of the Collateral under the judgment or decree
of any court.
(h) The right to enter any premises where any Collateral may be
located for the purpose of taking possession or removing the same.
(i) The right, as set forth in the Escrow Agreement, to provide
the Escrow Agent with notice that a Release Event has occurred and remains
uncured and to instruct Escrow Agent to release to Payee all of the Purchased
Software held pursuant to the Escrow Agreement.
10. Cumulative Remedies. The rights and remedies of the Payee shall
be deemed to be cumulative, and any exercise of any right or remedy shall not
be deemed to be an election of that right or remedy to the exclusion of any
other right or remedy. Notwithstanding the foregoing, the Payee shall be
entitled to recover by the cumulative exercise of all remedies no more than
the sum of (a) the Secured Obligations at the time of exercise of remedies,
plus (b) the costs, fees and expenses the Payee is otherwise entitled to
recover.
11. Waivers. The Maker acknowledges that this Agreement involves the
grant of multiple security interests, and the Maker hereby waives, to the
extent permitted by applicable law, (a) any requirement of marshaling assets
or proceeding against Persons or assets in any particular order, and (b) any
and all notices of every kind and description which may be required to be
given by any statute or rule of law and any defense of any kind which the
Maker may now or hereafter have with respect to the rights of the Payee with
respect to the Collateral under this Agreement.
12. Collections from Accounts Receivable.
(a) At any time when the Payee may exercise remedies under
Section 9 of this Agreement, the Payee shall have the right to notify account
debtors obligated on any or all Accounts Receivable to make payments directly
to the Payee.
(b) If any Event of Default has occurred and is continuing, the
Maker may not use the proceeds from payments on such Accounts Receivable to
satisfy any indebtedness to any Person other than the Payee. Maker covenants
and agrees that, during the continuance of any Event of Default, Maker shall
have an affirmative obligation under this Agreement to continue active
collections of Accounts Receivable. If the Maker collects payments on any
such Accounts Receivable after an Event of Default has occurred and while it
is continuing, the Maker shall hold the proceeds received from that collection
up to the amount of the outstanding Secured Obligations as a constructive
trust for the Payee and shall turn over such proceeds to the Payee immediately
upon demand in the identical form received, if so requested by the Payee. In
the event of such payment, the Payee shall credit the proceeds as payment of
the Secured Obligations first to costs if any, second to interest, and then to
principal. Any credit given to the Maker for Accounts Receivable shall be
adjusted to reflect the actual cash received by Payee for such Accounts
Receivable and the amount of any difference shall be charged to the Maker,
and such amount shall be a part of the obligations secured by this Agreement.
(c) The Maker shall have no power to, and shall not, waive,
compromise or discount any Accounts Receivable, without the prior written
consent of the Payee, except for (1) ordinary trade discounts and allowances
for payment within thirty days of the date of invoice or billing, and
(2) discounts or allowances in the ordinary course of collecting such Accounts
Receivable.
(d) If the Payee exercises remedies under Section 9 of this
Agreement and if any Account Receivable shall be evidenced by a promissory
note, trade acceptance or other instrument with an original principal balance
of $5,000.00 or more, the Maker shall immediately deliver such instrument to
the Payee, appropriately endorsed to the Payee's order. The Maker authorizes
the Payee to endorse same on the Maker's behalf and hereby waives presentment,
demand, notice of dishonor, protest and notice of protest and all other
notices with respect thereto.
13. The Payee as Agent. The Maker hereby irrevocably constitutes the
Payee as the Maker's agent and attorney-in-fact at any time during any period
when the Payee may exercise the remedies set forth in Section 9 of this
Agreement, solely for the purpose of collecting the Collateral in satisfaction
of the Secured Obligations, to (a) proceed against account debtors obligated
on Accounts Receivable, in the Maker's name or in the Payee's name, and (b)
sign and endorse all checks, drafts and other instruments in payment of such
Accounts Receivable, and (c) perform all such other acts with respect to such
Accounts Receivable as the Payee may in its discretion deem necessary to
effectuate the security intended to be granted in this Agreement.
14. Special Collection Procedure. Upon the Payee's demand at any time
when the Payee may exercise remedies under Section 9 of this Agreement and
until the Secured Obligations have been satisfied in full, the Maker shall
forthwith, upon receipt of all checks, drafts, cash and other remittances in
payment or on account of Accounts Receivable or for the sale of Tangible
Property by the Maker, deposit the same in a special bank account maintained
with the Payee over which the Payee alone, to the exclusion of the Maker, has
the power of withdrawal. The funds in such account shall be held by the Payee
for application toward the Secured Obligations. Such proceeds paid on any
such Accounts Receivable shall be deposited in precisely the form received,
except for the endorsement of the Maker where necessary to permit collection
of items, which endorsement the Maker agrees to make and which the Payee is
also hereby authorized by to make in the Maker's name and on the Maker's
behalf as attorney-in-fact. Pending such deposit, the Maker agrees that the
Maker will not commingle any such checks, drafts, cash and other remittances
with any other funds or property, but will hold them separate and apart
therefrom in express trust for the Payee until deposited in that special
account. The Payee will, once each day, apply the whole or any part of the
collected funds on deposit in such special account against the principal
and/or interest of the Note, the order and method of such application being in
the sole discretion of the Payee. Any portion of the funds in the special
account which the Payee elects not to apply as provided in the preceding
sentence must be paid over promptly by the Payee to the Maker.
15. Books and Records. The Maker shall maintain books and records
with respect to Accounts Receivable in form and manner according to relevant
local, state and federal regulations, and the Payee shall have the right
during business hours with reasonable notice to inspect any and all of the
business properties, premises or books and records of the Maker relating to
such Accounts Receivable or other Collateral or the proceeds thereof. The
Maker further agrees from time to time to furnish such reports, data and
financial statements with respect to the Collateral as the Payee may
reasonably request from time to time.
16. Insurance. The Maker, at the Maker's cost and expense, shall
insure the Maker's business and all of the Maker's insurable properties with
insurance policies in such form, with such types of coverage, to such extent,
against such liabilities and hazards, in such amounts of coverage and with
such deductibles as those carried by prudent businesses similarly situated
Without limiting the foregoing, such insurance shall name the Payee as an
additional insured and shall provide for payment of the proceeds thereof to
the Maker and to the Payee as their interests may appear.
17. Certain Obligations Regarding Collateral.
(a) The Maker shall keep and maintain the Maker's Tangible
Property in similar condition and repair to which it was received from Payee,
reasonable wear and tear excepted.
(b) The Maker shall keep the Collateral free and clear of any
and all liens other than the security interests created in favor of the Payee
under this Agreement or permitted by the Maker Documents, and shall declare
and pay any and all fees, assessments, charges and taxes allocable to the
Collateral, or which might result in a lien against the Collateral if left
unpaid unless the Maker at the Maker's own expense is contesting the validity
or amount thereof in good faith by an appropriate proceeding timely instituted
which shall operate to prevent the collection or satisfaction of the lien or
amount so contested. If the Maker fails to pay such amount and is not
contesting the validity or amount thereof in accordance with the preceding
sentence, the Payee may, but is not obligated to, pay such amount, and such
payment shall be deemed conclusive evidence of the legality or validity of
such amount. The Maker shall promptly reimburse the Payee for any and all
payments made by the Payee in accordance with the preceding sentence, and
until reimbursement, such payments shall be part of the Secured Obligations.
18. Use and Inspection of Collateral. The Maker shall not use the
Collateral in violation of any statute or ordinance, and the Payee shall have
the right, at reasonable hours, with reasonable notice, to inspect the
Collateral at the premises of the Maker or wherever the Collateral may be
located.
19. Notice.
(a) Any requirement of the Uniform Commercial Code or other
applicable law of reasonable notice shall be met if such notice is given at
least five (5) business days before the time of sale, disposition or other
event or thing giving rise to the requirement of notice.
(b) Except as provided in subsection (c) below, all notices or
communications under this Agreement shall be in writing and shall be hand-
delivered, sent by courier, or mailed to the parties addressed as follows, and
any notice so addressed and (1) hand-delivered, shall be deemed to have been
given when so delivered, or (2) mailed by registered or certified mail, return
receipt requested, shall be deemed to have been given five (5) business days
following when mailed, or (3) delivered to a recognized small package
overnight courier service to the address of the intended recipient with
shipping prepaid, shall be deemed to have been given on the next business day
following when so delivered to such courier:
(1) If to the Maker:
SecureD Services Inc.
0000 Xxxxx Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxxx, Xxxxxxx X0X 0X0
Fax: 000-000-0000
Attention: King Xxxxx
with a copy to:
Morse, Zelnick, Rose & Lander LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Fax: 000-000-0000
Attention: Xxxxx Xxxxxxx, Esquire
(2) If to the Payee:
VASCO Data Security International, Inc.
0000 Xxxxx Xxxxxx Xxxx, Xxxxx 000
Xxxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Fax: 000-000-0000
Attention: Xxxxx Xxxx
with a copy to:
Xxxxxx Xxxxxxxx LLP
000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, XX 00000-0000
Fax: 000-000-0000
Attention: Xxxxxx X. Xxxxxx, Esq.
(c) The Maker and the Payee may at any time, and from time to
time, change the address or addresses to which notice shall be mailed by
written notice setting forth the changed addressed or addresses.
20. Further Assurance. The Maker shall sign from time to time such
financing statements and other documents and instruments and take such other
actions as the Payee may reasonably request from time to time to more fully
create, perfect, continue, maintain or terminate the security interests in the
Collateral intended to be created in this Agreement.
21. Miscellaneous.
(a) Failure by the Payee to exercise any right shall not be
deemed a waiver of that right, and any single or partial exercise of any right
shall not preclude the further exercise of that right. Every right of the
Payee shall continue in full force and effect until such right is specifically
waived in a writing signed by the Payee.
(b) If any part, term or provision of this Agreement is held by
any court to be prohibited by any law applicable to this Agreement, the rights
and obligations of the parties shall be construed and enforced with that part,
term or provision enforced to the greatest extent allowed by law, or if it is
totally unenforceable, as if this Agreement did not contain that particular
part, term or provision.
(c) The headings in this Agreement have been included for ease
of reference only, and shall not be considered in the construction or
interpretation of this Agreement.
(d) This Agreement shall inure to the benefit of the Payee and
the Maker and their respective successors and assigns, and all obligations of
the Maker shall bind the Maker's successors and assigns.
(e) To the extent allowed under the Uniform Commercial Code,
this Agreement shall in all respects be governed by and construed in
accordance with the laws of the State of Delaware.
(f) This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof. No change, modification,
addition or termination of this Agreement shall be enforceable unless in
writing and signed by the party against whom enforcement is sought.
(g) This Agreement may be signed by each party upon a separate
copy, and in such cases one counterpart of this Agreement shall consist of
enough of such copies to reflect the signature of each party.
(h) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, and it shall not be necessary in
making proof of this Agreement or the terms thereof to produce or account for
more than one such counterpart.
(i) The Maker consents to one or more actions being instituted
and maintained in the state and federal courts resident in Delaware to enforce
this Agreement and/or one or more of the other Maker Documents, and waives any
objection to any such action based upon lack of personal or subject matter
jurisdiction or improper venue. The Maker agrees that any process or other
legal summons in connection with any such action or proceeding may be served
by mailing a copy thereof by certified mail, or any substantially similar form
of mail, addressed to the Maker as provided in Section 19 above.
(j) The Maker acknowledges that the Maker has received a copy of
this Agreement and each of the other Maker Documents, as fully executed by the
parties thereto. The Maker acknowledges that the Maker (a) has READ THIS
AGREEMENT AND THE OTHER MAKER DOCUMENTS OR HAS CAUSED SUCH DOCUMENTS TO BE
EXAMINED BY THE MAKER'S REPRESENTATIVES OR ADVISORS; (b) is thoroughly
familiar with the transactions contemplated in this Agreement and the other
Maker Documents; and (c) has had the opportunity to ask such questions to
representatives of the Payee, and receive answers thereto, concerning the
terms and conditions of the transactions contemplated in this Agreement and
the other Maker Documents as the Maker deems necessary in connection with the
Maker's decision to enter into this Agreement.
IN WITNESS WHEREOF, the Maker and the Payee have executed and delivered
this Agreement as of the date set out in the preamble hereto, but actually on
the dates set forth below.
MAKER:
SECURED SERVICES, INC.
By ______________________________
Title_____________________________
Date:____________________________
PAYEE:
VASCO DATA SECURITY INTERNATIONAL,
INC.
By_______________________________
Title:_____________________________
Date:_____________________________
ANNEX A
Form of Note
See Exhibit B to the Vasco Asset Purchase Agreement.
SCHEDULE 1
Locations of Tangible Property
000 Xxxxxxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxx, XX 00000
SCHEDULE 2
Purchased Assets
SCHEDULE 2.1.1
Schedule of VACMAN Intellectual Property
1. Purchased Software:
SnareWorks Server v.3.24
SnareWorks 4.0
SnareWorks Server v.4.10
SnareWorks Server v.5.03
SnareWorks Client/VPN
SnareWorks Server Media Manual Kit
SnareWorks C API library
SnareWorks JNI API library
SnareWorks Java API library
Web Plugin for Apache v.1.3 s/ SSL
Web Plugin for Apache v.1.3 no SSL
Web Plugin for Apache v 1.3 Proxy
Web Plugin for IIS v.4, v.5 and v.6
Web Plugin for Netscape/Iplanet v.4 and v.5
Web Plugin for Netscape Proxy v.3.x
Ldap Plugin for Netscape/Iplanet
Ldap Plugin for Secureway
RACF Synchronization Agent
Windows Synchronization Agent
Windows Xxxx
Windows Network Provider
VACMAN Enterprise, a user authentication and security product line,
comprises the above-referenced Software modules. VACMAN Enterprise provides a
foundation for organizations to: centrally control user access and
management; increase security and user efficiency through Secure Single Sign-
On across multiple applications, platforms and environments; leverage
investments in existing infrastructure; enable security without application
programming or re-coding; and deploy rapidly with smart implementation tools.
VASCO and SSI acknowledge and agree that the immediately preceding
paragraph is provided solely for the purpose of describing the Purchased
Software being transferred by VASCO to SSI pursuant to the Agreement. Nothing
in the immediately preceding paragraph should be interpreted as, nor is it
intended to be, a representation or warranty by VASCO with respect to the
Purchased Software, and VASCO disclaims all such representations and
warranties, whether express or implied, including, without limitation,
merchantability and fitness for a particular purpose.
2. Trade names: Intellisoft, DCE/Sleuth, PSM.
DCE/Sleuth from IntelliSoft Corp. is the first graphical protocol and
network analyzer for the OSF Distributed Computing Environment ("DCE"). The
tool operates in a completely passive and non-intrusive manner.
PSM - The Protocol Support Module represents a set of 'knowledge modules'
which provide the SnareWorks server with decoding and messaging native to
the protocol.
SCHEDULE 2.1.2
Schedule of Purchased Contracts
1. Customer: First Allmerica Financial
End User Software Products License Agreement
Dated: December 14, 2000
2. Customer: Universal Systems Inc. (a/k/a: Integic Corporation)
Subcontract Agreement; Subcontract number 1901-02
Dated: July 26, 1999
3. Customer: Xxxx Xxxxxxx Life Insurance Company
Software Licensing Agreement
Dated: December 15, 2000
4. Customer: People's Bank
Software Licensing Agreement
Dated: January 31, 2000 (Estimated based on initial invoice copy of
agreement not found)
5. Customer: Minnesota Mining and Manufacturing Company
Software Licensing Agreement
Dated: December 20, 1997
6. Customer: Computer Sciences Corporation
Software Licensing Agreement
Dated: Unknown
SCHEDULE 2.1.3
Schedule of Physical Assets
Tag # General Location Asset Type Serial Number Make/Model
521 GA -Home Xxxxxx Xxxx Xxxxxx XX X00X0000000 Generic
522 GA -Home Office Xxxx Xxxxxx Monitor 0010968-0046LB4437 Sun 19"
523 GA - Home Xxxxxx Xxxx Xxxxxx Xxxxxxx XXXX000000 HP LaserJet
4050TN
524 GA - Home Office Xxxx Xxxxxx File Cabinet 3 Drawer
525 GA - Home Xxxxxx Xxxx Xxxxxx XX XX00000000 HP Net
Server E60
526 GA - Home Xxxxxx Xxxx Xxxxxx Xxxxxxx 0000000-0000XX0000 Sun 21"
527 GA - Home Xxxxxx Xxxx Xxxxxx XX XX00000000 HP Net
Server #60
528 GA - Home Office Xxxx Xxxxxx Desk
529 GA - Home Office Xxxx Xxxxxx Chair
530 GA - Home Xxxxxx Xxxx Xxxxxx XX XX00000000 Sun Blade
533 VA - Home Xxxxxx Xxx Xxxxx XX XX00000000 HP
Visualize
B2000
534 VA - Home Office Xxx Xxxxx PC 000-0000-00 SUN ULTRA
10
535 VA - Home Office Xxx Xxxxx PC 23BRX10 IBM
Intellistation
536 VA - Home Office Xxx Xxxxx PC 000-0000-00 SUN Ultra 5
537 VA - Home Office Xxx Xxxxx PC 000-0000-00 Sun Sparc
Station 10
538 VA - Home Office Xxx Xxxxx PC 6428A50384 HP 712/60
539 VA - Home Office Xxx Xxxxx PC D0ZLM01 Dell
Precision 220
540 VA - Home Office Xxx Xxxxx Monitor Intellisoft #1251 KDS
541 VA - Home Office Xxx Xxxxx Monitor Intellisoft #1239 SUN
542 VA - Home Office Xxx Xxxxx Monitor KR04508360 HP920
543 VA - Home Office Xxx Xxxxx Monitor 040364311J56 Dell
544 VA - Home Office Xxx Xxxxx Battery APC Smart
UPS 1400
563 Baltimore Office Filing Cabinet
566 Baltimore Office Desk
567 Baltimore Office Desk
568 Baltimore Office Desk
570 Baltimore Office Pegboard
571 Baltimore Office Desk
572 Baltimore Office Pegboard
573 Baltimore Office Computer Racks
574 Baltimore Office Computer Racks
575 Baltimore Office Computer Racks
578 Baltimore Office Computer Racks
579 Baltimore Office Computer Racks
580 Baltimore Office Computer Racks
581 Baltimore Office Computer Racks
582 Baltimore Office Computer Racks
583 Xxxxx Xxxxxxxxxx Office Workstation Table Ergonomic
584 Xxxxx Xxxxxxxxxx Office Workstation Table Ergonomic
585 Xxxxx Xxxxxxxxxx Office Workstation Table Ergonomic
586 Xxxxx Xxxxxxxxxx Office Workstation Table Ergonomic
802 Baltimore Lab Laptop X00-0000 Xxxxxxx XX0
000 Xxxxxxxxx Desk Laptop AF-1FBV3 IBM Thinkpad 390X
804 Baltimore Office Security Items DSC Power 832
805 Baltimore Lab Air Conditioner0500-0085-260 MovinCool
Classic Plus 26
806 Baltimore Lab Air Conditioner C3-12640 Ocean-Aire
OACH3612
000 Xxxxxxxxx Xxxxxx XX Xxxxxx XXX 000000 Dupli 126
808 Baltimore Lab Router/Switch 0101-7MAV545B108 3COM-
Super stack 3
3300XM
809 Baltimore Lab Phone System 00000000 JB-R0000AP00
810 Baltimore Kitchen Cabinets/Counter
811 Baltimore Office Cubicle L-shaped, 2 rolling
drawers
000 Xxxxxxxxx Xxxxxx XX X00X00000000-0000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X00X0000000-0000 Trilogy
814 Baltimore Xxxxx Xxxxxxxxxx Projector 940DA53PA193 Compaq MP1600
816 Baltimore Xxxxx Xxxxxxxxxx Laptop 78-NA677 IBM 770Z Type
9549
817 Baltimore Xxxxx Xxxxxxxxxx PC FW12040040 Ultra 10- Sun
Micro
818 Baltimore Xxxxx Xxxxxxxxxx Monitor Sun
819 Baltimore Xxxxx Xxxxxxxxxx PC Trilogy
820 Baltimore Xxxxx Xxxxxxxxxx Monitor KDS
000 Xxxxxxxxx Xxxxx Xxxxxxxxxx XX X00X0000000 Trilogy
822 Baltimore Xxxxx Xxxxxxxxxx Monitor KDS
823 Baltimore Lab hp-goose SG04922284 HP Visualize
B2000
000 Xxxxxxxxx Xxx xx-xxxx XX00000000 HP Visualize
B2000
825 Baltimore Lab hp-quack SG04922154 HP Visualize
B2000
826 Baltimore Lab Tapes DEV-TP 00339, 340 DCE Source
Code
827 Baltimore Lab PC FT12040045 Sun Blade
000 Xxxxxxxxx Xxx XX XX00000000 Sun Blade
831 Baltimore Office Laptop 78-CL957 IBM Thinkpad
A20M
000 Xxxxxxxxx Xxx XX X00X0000000 Trilogy
000 Xxxxxxxxx Xxx XX X00X0000000 Trilogy
000 Xxxxxxxxx Xxx XX X00X00000000 Trilogy
000 Xxxxxxxxx Xxx XX X00X0000000 Trilogy
000 Xxxxxxxxx Xxx XX X00X000000 Trilogy
838 Baltimore Lab sun-ultrakatz FW03420936 Sun Ultra 5
839 Baltimore Lab sun-ultraspotts FW03420915 Sun Ultra 5
840 Baltimore Lab sun-xxxxxx FW03420931 Sun Ultra 5
841 Baltimore Lab sun-xxxxxx FW03420933 Sun Ultra 5
842 Baltimore Lab aix-mvs 10-19081 7025 RISC
Power Station
843 Baltimore Lab Monitor For #842
844 Baltimore Lab PC P98A3900147 Trilogy
852 Baltimore Office Monitor 202028334 KDS 17"
853 Baltimore Office Monitor 1983BAA24042429 KDS 17"
854 Baltimore Office Monitor 1983BAA18014089 KDS 17"
855 Baltimore Office Monitor 003ZLL3615 SUN CPD-4410
856 Baltimore Office Monitor 0032LL3619 SUN CPD-4410
857 MD - Home Xxx Xxxxxxxx Monitor 791235465 KDS 15"
858 Baltimore Office Monitor 0049LB6589 SUN GDM-5410
859 Baltimore Office Monitor 0049LB6604 SUN GDM-5410
860 Baltimore Office Monitor 0049LB6609 SUN GDM-5410
861 Baltimore Office Monitor 0046LB4438 SUN GDM-5410
862 Baltimore Lab Monitor 1292074473 KDS 17"
879 Baltimore Lab Monitor 691183541 KDS 15"
880 Baltimore Lab Monitor 000-0000-00 SUN CHB7727L
881 Baltimore Copier 56921 Xerox Work
Center-
XD155DF
882 Baltimore Office Scanner 936B021103D1 Visioneer One
Touch
883 Baltimore Office Printer/Fax C4256A HP LaserJet
3150
884 Baltimore Office Printer VSCB194452 HP LaserJet
4SI
000 Xxxxxxxxx Xxxxxx XX X00X0000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X00X0000000 Trilogy
887 Baltimore Office PC Trilogy
888 Baltimore Office PC VS02620790 HP NetServer
EG0
000 Xxxxxxxxx Xxxxxx XX 00XXX00 XXX
Intellistation
890 Baltimore Office PC 23ABX49 IBM
Intellistation
000 Xxxxxxxxx Xxxxxx XX XX000000 Trilogy
892 Baltimore Office linux-fire H03QV01 Dell
893 Baltimore Office sun-ultra10 PR13090538 SUN Ultra 10
894 Baltimore Office PC 23ABM32 IBM
Intellistation
000 Xxxxxxxxx Xxxxxx XX X000X0000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X00X000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X0X00000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX XX000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX XXX00000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X00X0000000 Trilogy
901 Baltimore Office builder VS02620794 HP NetServer
902 Baltimore Office PC VS02924813 HP NetServer
903 Baltimore Office PC Trilogy
000 Xxxxxxxxx Xxxxxx XXX 000000XX000X00X 3COM Super
Stack 2
905 Baltimore Office HUB 080172BU2014124 0XXX Xxxxx
Xxxxx 0
000 Xxxxxxxxx Xxxxxx XX X00X0000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X0X00000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX Xx000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X00X0000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X00X0000000 Trilogy
000 Xxxxxxxxx Xxxxxx XX X00X0000000
Trilogy
000 Xxxxxxxxx Xxxxxx XX X000X000000 Trilogy
913 Baltimore Office PC VS02924797 HP NetServer
914 Baltimore Office PC VS025179022 HP NetServer
000 Xxxxxxxxx Xxxxxx XX X000X0000000 Trilogy
917 Baltimore Office linux-cdrom 23ABT24 IBM
Intellistation
918 Baltimore Office linux-terminator 29749 Trilogy
919 Baltimore Office Monitor 791237492 KD5
920 Baltimore Office Battery QS7951227214 ACP UPS 1400
921 MD - Home Xxxxx Xxxxxxxxxx Monitor 991313986 KDS 17"
922 MD - Home Xxxxx Xxxxxxxxxx PC Intel Clone
923 MD - Home Xxxxx Xxxxxxxxxx PC P98A360025 Trilogy
924 MD - Home Xxxxx Xxxxxxxxxx Monitor 1983BAA24042440 KDS 19"
000 Xxxxxxxxx Xxxxx Xxxxxxxxxx XX X0X00000000 Trilogy
926 MD - Home Xxxxx Xxxxxx PC 1S689828U23BTC54 IBM M Pro
927 MD - Home Xxxxx Xxxxxx PC 1S689828U23BRY40 IBM M Pro
000 XX - Xxxx Xxx Xxxxxxxx XX X000XX0000000 Trilogy
000 Xxxxxxxxxx XX X000XXX00000 Compaq
Proliant
000 Xxxxxxxxxx XX X00X0000000 Trilogy Clone
932 Baltimore Office 2YQH20J Dell Server
933 Adrenamail Monitor Hitachi CM714
934 Adrenamail PC US02518888 HP NetServer
E-60
935 Baltimore Office File Cabinet
937 Baltimore Office Bookcase
938 Baltimore Office Bookcase
939 Baltimore Office Bookcase
940 Baltimore Office File Cabinet
941 Baltimore Office File Cabinet
942 Baltimore Office Refrigerator 990868225 Sanyo SR-361W
943 Baltimore Office Conference Table
944 Baltimore Office Whiteboard Quartet
945 Baltimore Office Whiteboard
951 Baltimore Office Crendenza
952 Baltimore Office Crendenza
953 Baltimore Office Drawers
957 Baltimore Office Whiteboard
959 Baltimore Office Whiteboard Quartet
960 Baltimore Office Whiteboard
962 Baltimore Lab PC SUN Ultra 5
964 Baltimore Lab hp-web 6424A30263 HP 715/100
967 Baltimore Lab linux-ftp 310F4089 SUN Sparc 10
968 Baltimore Lab Monitor SUN 13"
970 Baltimore Lab rocketport PC Clone
971 Baltimore Lab sun-fido 633F04F8 SUN Sparc 5
972 Baltimore Lab PC FW02210430 SUN Ultra 5
000 Xxxxxxxxx Xxx XX XX00000000 SUN Ultra 5
974 Baltimore Lab firewall US0391605 HP LC 2000
975 Baltimore Lab PC 23ABT87 IBM
Intellistation
M Pro
977 Baltimore Lab linux-gatekeeper Trilogy
978 Baltimore Lab Monitor 000-0000-00 SUN CPD 4410
979 Baltimore Lab aix 10-D0A0D IBM B-50
980 Baltimore Lab aix 10-D086D IBM B-50
981 Baltimore Lab aix 10D0BAD IBM B-50
982 Baltimore Lab aix 10-D0170 IBM B-50
983 Baltimore Lab aix 0000-00-00000 IBM 43P-140
984 Baltimore Lab aix 10-88153 IBM43P Model
140
985 Baltimore Lab aix 10-88191 IBM 438 Model
140
986 Baltimore Lab Monitor IBM 17" P76
987 Baltimore Lab PC 3312557 Intel Server
988 Baltimore Lab Monitor 791226662 KDS 17"
989 Baltimore Lab Battery Q50042115615 APC UPS 1400
990 Baltimore Lab Router 2501057526 Cisco 2501
000 Xxxxxxxxx Xxx Xxxxxx XXX0X0X0XX ADC Kentrox
DSU/CSU
992 Baltimore Lab Switch 3COM Super
Stack II
993 Baltimore Lab Switch 3COM Super
Stack II
995 Baltimore Lab Battery QS0042115684 APC UPS 1400
996 Baltimore Lab Battery WS0000000000 APC UPS 1400
997 Baltimore Lab Battery QS9951227355 APC UPS 1400
998 Baltimore Lab Battery WS9624000522 APC UPS 1400
999 Baltimore Lab Battery QS995128066 APC UPS 1400
1001 Baltimore Lab aix 10-57513 IBM 43P
1002 Baltimore Lab Battery WS99100340 APC UPS 1400
1003 Xxxxx Xxxxxxxxxx Storage Rack 3001091-02 SUN 59-2346--1
1004 Baltimore Lab hp-snake 6633A50110 HP 712/60
1005 Baltimore Lab hp-wisdom 6508A30361 HP 715/100
1006 Baltimore Lab aix-blackhawk 10-57773 IBM 7043-260
1007 Baltimore Lab Battery FS9908005693 APC UPS 1400
1008 Baltimore Lab Monitor JP01177237 HP A4033A
1009 Baltimore Lab Battery 2S9951128046 APC UPS 1400
1010 Baltimore Office Chair
1011 Baltimore Office Chair
1012 Baltimore Office Chair
1013 Baltimore Office Chair
1014 Baltimore Office Chair
1015 Baltimore Office Chair
1016 Baltimore Office Chair
1017 Baltimore Office Chair
1018 Baltimore Office Chair
1019 Baltimore Office Chair
1020 Baltimore Office Chair
1021 Baltimore Office Chair
1022 Baltimore Office Chair
1023 Baltimore Office Chair
1024 Baltimore Office Chair
1025 Baltimore Office Chair
1026 Baltimore Office Chair
1030 Baltimore Office Chair
1031 Baltimore Office Chair
1033 Baltimore Office Chair
1034 Baltimore Office Chair
1035 Baltimore Office Chair
1036 Baltimore Office Table
1037 Baltimore Office Table
1038 Baltimore Office Table
1039 Baltimore Office Computer Racks
1040 Baltimore Office Computer Racks
Adrenamail Monitor KDS 17"
SCHEDULE 2.1.4
Schedule of Prepaid Expenses
Rent deposit Pikesville Plaza Building Co. $ 4,950.00
Rent for month of July Pikesville Office 2,704.14
Rent for month of July X. Xxxxxxxxxx 3,000.00
Verizon ISDN line 87.70
Serious Simon 15.00
Total $ 10,756.84
Note: The above amounts exclude payments made to providers of benefit plans
for the current employees. If the employees are not covered under the benefit
plans of SecureD Services, Inc. as of July 1, 2003, the amount of payments to
the providers that would constitute additional Prepaid Expenses would total
$4,634.59 ($3,996.03 paid to Blue Cross Blue Shield for medical; $325.41 paid
to The Guardian for dental; and $313.15 paid to UNUM for life insurance).
SCHEDULE 2.1.5
Schedule of Permits and Licenses
1. License Agreement: Sleepycat Software, Inc. (Licensor)
Software Licensing Agreement
Dated: December 2, 2000
2. License Agreement: Snare Networks Corporation (Licensor)
Subsequently acquired by Computer Associates
Software Licensing Agreement
(Contract Number 970101-01)
Dated: January 1, 1997
3. License Agreement: The Open Group
Software Licensing Agreement for DCE Source (Agreement Number 3115)
Dated: August 1999
4. License Agreement: Raptor
Software Licensing Agreement for firewall product
5. License Agreement: Humingbird
Software Licensing Agreement
6. License Agreement: Adobe
Software Licensing Agreement for Adobe Framemaker product
7. License Agreement: Televantage
Telephone system Licensing Agreement
8. Developer Agreement: Rational Purify
9. Developer Agreement: Microsoft
Developer Network Agreement
In addition to the foregoing, it is explicitly understood by the parties to
this Agreement, that there are third-party software packages that are used in
the conduct of the Business that, by their terms and conditions, are not
transferable. As a result, SSI explicitly acknowledges and agrees that VASCO
shall use its commercially best efforts to achieve the transfer to SSI of such
Licenses by the Effective Date. To the extent that any such License is not
effectively transferred by VASCO to SSI as of the Effective Date, and
thereafter SSI encounters any difficulty in purchasing upgrades, maintenance
or renewals with respect to such licenses based on a question of the
appropriate licensee or title to such License, then VASCO shall use its
reasonable efforts to cooperate with SSI in effecting the transfer thereof to
SSI.
Additional License with The Kernal Group: VASCO and SSI acknowledge and agree
that, notwithstanding its best efforts, VASCO has been unable to obtain the
consent of The Kernal Group or its affiliate, Zerofault, to the assignment to
SSI of that certain software license agreement by and between VASCO and The
Kernal Group (the "Kernal License"). SSI has determined that it does not
currently require an assignment of the Kernal License for the continued
operation of the Business and hereby acknowledges and agrees that the Kernal
License is not among the Permits and Licenses to be transferred to SSI
pursuant to the Agreement; provided, however, that if, within twelve (12)
months following the Effective Date, SSI concludes that the Kernal License is
necessary or reasonably beneficial to the operation of the Business, SSI shall
inform VASCO of its desire to assume the Kernal License, and VASCO shall use
commercially best efforts, with the full cooperation of SSI, to obtain the
necessary consent to assign the Kernal License to SSI.
SCHEDULE 2.7
Allocation Schedule
Allocation of Purchase Price for the VACMAN Enterprise transaction
Purchase Price
Preferred Shares $ 2,000,000
Note 1,073,094
Total Purchase Price $ 3,073,094
Allocation of Purchase Price:
1 - Intangible Assets
Technology $ 1,500,000
Workforce 400,000
Customer Contracts 1,073,094
$ 2,973,094
2 - Tangible Assets 100,000
Total Allocation of Purchase Price $ 3,073,094
SCHEDULE 2.8
Assumed Liabilities
SecureD Services Inc. ("SSI") shall not be responsible for any activities that
occurred or any liabilities or expenses related to the Business that were
created prior to the Effective Date of the Agreement.
Following the Effective Date of the Agreement, SSI shall be responsible for
the performance of all duties under and the payment of all liabilities and
expenses related to the following agreements and activities:
1. Employment of Personnel, including their compensation, benefit plans
and related taxes,
2. Performance under the Technology Collateral Escrow Agreement,
3. Performance in accordance with each of the Purchased Contracts' terms
and conditions, and
4. Compliance with the terms and conditions of any and all license
agreements transferred under the Agreement, including but not limited
to the agreements listed on Schedule 2.1.5 and Schedule 3.6.
SCHEDULE 3.6
Government and Third Party Approvals Required of VASCO
1. License Agreement: First Allmerica Financial (Licensee)
End User Software Products License Agreement
Dated: December 14, 2000
2. License Agreement: Xxxx Xxxxxxx Life Insurance Company (Licensee)
Software Licensing Agreement
Dated: December 15, 2000
3. License Agreement: Sleepycat Software, Inc. (Licensor)
Software Licensing Agreement
Dated: December 2, 2000
4. License Agreement: The Open Group (Licensor)
Software Licensing Agreement for DCE Source (Agreement Number 3115)
Dated: August 1999
Status of Consent: to be reviewed by Open Group legal counsel, who, as
of 6/26/03, is out of country and will not be able to begin review of
consent until 6/30/03 at earliest
5. Developer Agreement: Rational Purify (Licensor)
Status of Consent: Rational Purify requires own consent form. VASCO
signed 6/24 and sent to SSI for signature and forwarding
6. Lease Agreement: Holabird Management Company (Landlord)
Office Space at 000 Xxxxxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxxxx XX
Dated: March 6, 2003 (amendment) Original lease dated January 20,
0000
XXXXX and SSI acknowledge and agree that the Licenses described above are the
only Licenses to be assigned to and assumed by SSI where the consent of the
relevant third-party licensor is required. Notwithstanding the foregoing, to
the extent that the relevant licensor's consent is not obtained by the
Effective Date with respect to any of the Licenses described above, SSI hereby
waives such consent to assign as a condition to Closing; provided, however,
that VASCO shall continue to use its best efforts, with the full cooperation
of SSI, to obtain such consents.
In addition to the foregoing, it is explicitly understood by the parties to
this Agreement, that there are third-party software packages that are used in
the conduct of the Business that, by their terms and conditions, are not
transferable. As a result, SSI explicitly acknowledges and agrees that VASCO
shall use its commercially best efforts to achieve the transfer to SSI of such
Licenses by the Effective Date. To the extent that any such License is not
effectively transferred by VASCO to SSI as of the Effective Date, and
thereafter SSI encounters any difficulty in purchasing upgrades, maintenance
or renewals with respect to such licenses based on a question of the
appropriate licensee or title to such License, then VASCO shall use its
reasonable efforts to cooperate with SSI in effecting the transfer thereof to
SSI.
Additional License with The Kernal Group: VASCO and SSI acknowledge and agree
that, notwithstanding its best efforts, VASCO has been unable to obtain the
consent of The Kernal Group or its affiliate, Zerofault, to the assignment to
SSI of that certain software license agreement by and between VASCO and The
Kernal Group (the "Kernal License"). SSI has determined that it does not
currently require an assignment of the Kernal License for the continued
operation of the Business and hereby acknowledges and agrees that the Kernal
License is not among the Permits and Licenses to be transferred to SSI
pursuant to the Agreement; provided, however, that if, within twelve (12)
months following the Effective Date, SSI concludes that the Kernal License is
necessary or reasonably beneficial to the operation of the Business, SSI shall
inform VASCO of its desire to assume the Kernal License, and VASCO shall use
commercially best efforts, with the full cooperation of SSI, to obtain the
necessary consent to assign the Kernal License to SSI.
SCHEDULE 3.8
Material Contracts
NONE
SCHEDULE 4.4
Government and Third Party Approvals Required of SSI
NONE
Schedule 4.7
Holders of Warrants to Purchase SSI Stock
There are nine investors who hold 333,333 warrants to purchase SSI common
Stock at $1.50.
Schedule 4.9 SSI Undisclosed Liabilities
King Xxxxx Consultants Ltd. $12,430.78
Morse, Zelnick, Rose and Lander $40,000.00 (est.)
SCHEDULE 5.12
Prepaid Receivables Amount
PREPAID RECEIVABLES:
The following reflect payments made by customers for services that are to be
rendered for the periods noted subsequent to the Effective Date.
Customer Amount Service Period Paid
First Allmerica Financial Life
Insurance Company $ 96,250.00 7/1/03 through 1/31/04
People's Bank 7,522.37 7/1/03 through 1/31/04
Computer Sciences Corporation 773.69 7/1/03 through 3/31/04
Total Prepaid Receivables $104,546.06
OPEN ACCOUNTS RECEIVABLE:
The following reflect services billed to customers but not paid by such
customers as of the Effective Date. As noted below, services may either have
been rendered prior to the Effective Date or will be rendered after the
Effective Date.
Customer Amount Period Services Provided
Integic Billed $ 194,114.50 Consulting Prior to Effective Date
Integic Unbilled 3,819.40 Consulting Prior to Effective Date
Integic Billed 169,420.50 Maintenance Prior to Effective Date
Xxxx Xxxxxxx Financial
Services 118,525.88 7/1/03 through 6/30/04
3M/ IT Admin Services 58,210.00 7/1/03 through 9/30/03
Total Unpaid Receivables$ 544,090.28
SCHEDULE 5.2.1(e)
Prepaid Receivables Amount
PREPAID RECEIVABLES:
The following reflect payments made by customers for services that are to be
rendered for the periods noted subsequent to the Closing Date.
Customer Amount Service Period Paid
First Allmerica Financial Life
Insurance Company $96,250.00 7/1/03 through 1/31/04
People's Bank 7,522.37 7/1/03 through 1/31/04
Computer Sciences Corporation 773.69 7/1/03 through 3/31/04
Total Prepaid Receivables $104,546.06
OPEN ACCOUNTS RECEIVABLE:
The following reflect services billed to customers but not paid by such
customers as of the Closing Date. As noted below, services may either have
been rendered prior to the Closing Date or will be rendered after the Closing
Date.
Customer Amount Period Services Provided
Integic Billed $194,114.50 Consulting Prior to Closing
Integic Unbilled 3,819.40 Consulting Prior to Closing
Integic Billed 169,420.50 Maintenance Prior to Closing
Xxxx Xxxxxxx Financial Services 118,525.88 7/1/03 through 6/30/04
3M/ IT Admin Services 58,210.00 7/1/03 through 9/30/03
Total Unpaid Receivables $544,090.28
EXHIBIT D
SSI Business Plan
[cover page]
SecureD Services
eBusiness
Commerce
Security
Good Things Come in e's
SecureD Services
e-Security Consulting and Managed Services
xxxx://xxx.xxxxxxx-xxxxxxxx.xxx
TABLE OF CONTENTS
1.0) EXECUTIVE SUMMARY 4
2.0) BACKGROUND AND INDUSTRY ANALYSIS 7
3.0) THE COMPANY 10
3.1) INTRODUCTION 10
3.2) PRODUCTS AND SERVICES 11
3.3) INTELLECTUAL PROPERTY 17
3.4) STRATEGY 19
3.5) ACQUISITION MODEL 19
3.6) SALES, MARKETING, AND OPERATIONS 21
3.7) COMPETITION 23
4.0) MANAGEMENT 25
5.0) FINANCIAL PROJECTIONS 28
6.0) APPENDICES 33
6.1) SECURED SERVICES, FINANCIAL DETAILS 33
DISCLAIMERS
CONFIDENTIALITY & NON-DISCLOSURE
This Business Plan and its contents are confidential and are the property of
the Company. No reproduction of all or any part of this business plan and
accompanying projections or any redistribution thereof is permissible without
the prior written consent of the Company.
SECURITIES DISCLAIMER
Except for historical information contained herein, the matters
discussed in this document are forward-looking statements that involve risks
and uncertainties. The forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. In addition to the factors set forth above, other important factors
that could cause actual results to differ materially include, but are not
limited to technical risks associated with new technology development,
government regulatory approvals or continued working capital. Additional
information concerning factors are set forth in this document. This is not an
offer to buy or sell securities; those may only be made via a Private
Placement Memorandum or Prospectus.
1.0) EXECUTIVE SUMMARY
This Business Plan describes the business plans of SecureD Services, Inc. (the
"Company") an Information Security Services firm providing professional and
managed services to business and government (e-Security). The Company will be
created through a combination of certain business assets of XXXXXX.XXX, Inc.
("DOLFIN") and VASCO DATA International, Inc. ("VASCO").
The assets of VASCO's VACMAN Enterprise division ("VACMAN") including
intellectual property and customers will be acquired by the Company. XXXXX
produces security software that enables companies to securely manage end user
access and single sign-on to web, client/server, and legacy applications in
one integrated system. It provides users with secure access to applications,
web pages, and data objects based on their company's security policies. VACMAN
is currently installed in many large name brand accounts including the US
department of defense, NASA, Xxxx Xxxxxxx, etc. where information security is
a core organizational requirement. See appendix 6.3 for more details on the
acquisition.
Certain assets of XXXXXX.XXX including its intellectual property and customers
will be acquired by the Company. XXXXXX.XXX is a leader in the field of data
and network security. It has offices; in Toronto, Ontario, Philadelphia
Pennsylvania and Washington DC. DOLFIN has been in operation since 1988.
DOLFIN offers the following services:
* Information Security Audits and Assessments
* Penetration Testing & Wireless LAN Infiltration
* Security Policy Development and Verification
* Secure Infrastructure Design, Implementation and Integration
* Forensic Analysis
* Managed Security Services
* Managed Firewall
* Managed Intrusion Prevention and Detection
* Managed Content Blocking, Filtering and Tracking
XXXXXX.XXX's clientele include financial service companies (community banks,
national banks, insurance companies and fund companies), large national
telecommunications companies, government agencies & organizations, prominent
e-commerce based companies, health care organizations and other businesses in
most every segment of the market.
Along with significant organic growth of the acquired assets from DOLFIN and
VASCO the Company will grow thru strategic acquisitions to achieve its
business plans. The Company will acquire cash flow positive security
consulting and managed services firms. The Company will provide them with
access to working capital, the best practices in, and the best products for,
total information security allowing them to grow organically at an accelerated
rate. Synergies from SG&A and R&D savings as well as concentrated customer
focus will produce above average returns.
The premise behind the opportunity is that there has been an explosion in the
utilization of computers and networks to support a multitude of commercial
activities including business to business and business to consumer
transactions, usually referred to as "e-Commerce" or "eBusiness". IDC
estimates that in 2003 these transactions will top $1.5 trillion. Regrettably
it is now widely recognized that computer systems, as they are architected
today, are highly vulnerable to attack and compromise. The Internet was
invented to share information, files, transactions, and other computer
resources not to secure them. In a February 1997 issue, Fortune magazine
estimated that losses from computer crime are as high as $10 billion/year. In
the spring of 2000 the "Love Bug" virus alone cost industry and government
over $15 billion in estimated losses. As Internet use has expanded in
corporate America, standard security measures such as firewalls and encryption
are no longer sufficient. The business risk and costs associated with breaches
in security are significant and increasing. Based on the recent CSI/FBI
Computer Crime and Security Survey of 538 small to large U.S. companies, the
following table represents the reported loss (categorized by the type of
fraud):
CSI/FBI Computer Crime and Security Survey Results:
Type of Fraud Largest Reported Average Loss
Theft of Proprietary Information $50,000,000 $2,850,941
Sabotage of Data or Network $3,000,000 $199,350
Telecom Eavesdropping $500,000 $55,375
System Penetration by Outsider $10,000,000 $453,967
Insider Abuse of Net Access $10,000,000 $357,160
Financial Fraud $40,000,000 $8,049,237
Denial of Service $2,000,000 $122,389
Virus $20,000,000 $243,845
Unauthorized Insider Access $5,000,000 $275,636
Telecom Fraud $8,000,000 $502,278
Active Wiretapping $0 $0
Laptop Theft $2,000,000 $61,881
The Company believes that there will be no sustainable e-Commerce unless those
who wish to use its capabilities are convinced of its structural integrity.
Furthermore, there is no one dominant player today who is providing a complete
offering that ensures the structural integrity of an organization's computers,
clients, networks and applications with an end-to-end integrated security
solution. The Company intends to become a dominant force providing this end-
to-end security solution.
The Company's fundamental value proposition is to enable its
customers' e-Commerce infrastructures by providing them with end-to-
end e-Security services.
After the close of the two acquisitions the company will operate with offices
in Baltimore Maryland, Philadelphia Pennsylvania and Toronto Ontario. The
Company will serve Federal, State and Municipal Government, Institutional,
Business and certain vertical markets, such as Banking and Healthcare, where
highly sensitive information and high value transactions occur inside the
corporate network, on corporate Intranets, and through the Internet.
Projections for the 2003, 2004 and 2005 are that the Company could reach
proforma revenues of $8.9M, $15.2M and $25.9M with $1.3M, $2.9M and $6.1M in
earnings before tax.
Larger and larger e-Security projects in the $10M dollar plus range are being
awarded in part because of 911 and the Home Land Security act. New and higher
security standards are required to secure the critical information
infrastructure of government and commerce. The Company must grow significantly
to be able to compete successfully for these larger and larger opportunities.
The Company is seeking to raise $3 million in the form equity financing to
fund its operations after acquiring the assets of both DOLFIN and VASCO as
described above. The funds from the financing will be used as follows:
$500K Additional Sales and Marketing
$1,750,000 Working capital to fund organic growth
$750,000 R&D for continued development of its
Managed Service offering
$3,000,000 Total
After the successful completion of the first phase of acquisitions and the
integration of the merged companies, the Company will move forward with a
second phase of mergers and acquisitions aimed at broadening market reach and
adding other industry specific application solutions that will be funded with
the proceeds from a second financing.
Management believes that the funds it is seeking will be sufficient to operate
the company after acquisition of the initial target companies, including
integration costs. A significant part of the investment capital will be used
for expanding the sales channel and funding a targeted marketing campaign in
order to accelerate revenue growth.
2.0) BACKGROUND AND INDUSTRY ANALYSIS
IDC has projected the number of Internet users to grow to 600 million users in
2002. New Internet applications, including an explosion in wireless Internet
applications, are developed daily and demonstrate the flexibility and
versatility of the Internet as a communications and publishing media.
Unfortunately, the Internet's structure of interconnecting computer networks
creates an unlimited number of opportunities to launch network attacks on
sensitive and proprietary information.
IDC predicts "Corporations Will Reset Their IT Security Plans in 2003."
September 11 has corporations rethinking security in all aspects. Call it the
"Bin Laden effect." The focus of IT security will grow from authentication,
authorization, and administration (3As) to include business continuity.
Physical and IT security will become part of the same whole. This will provide
an opportunity for suppliers of IT services and products but create challenges
for CIOs and IT managers. As shown in Figure 1 below, demand for information
security services will reach $21 billion in worldwide annual spending by 2005.
Demand for security software is also on the rise. As shown in Figure 2 below,
worldwide spending on security software will increase to $9.4 billion in 2005.
Security technology is moving into a concept of being baked in to the IT
infrastructure as opposed to being smeared on. This means that security is
becoming a more fundamental component of IT strategy at a foundation level. In
fact, security is an important foundation element for many of the leading
growth drivers in the IT market today, including Web services and digital
identity services.
Worldwide Information Security Services Spending,
2001-2005
2001 7,000,000
2002 9,500,000
2003 12,000,000
2004 16,000,000
2005 21,000,000
Source IDC, January 2002
Figure 1
The news is filled with reports of security breaches, which seem to occur all
the time. These attacks have resulted in billions of dollars in lost revenue,
outright theft, productivity losses and significant legal fees and insurance
claims from liability lawsuits from companies who have not adequately secured
their IT infrastructure.
World Wide Security Software Spending (3As)
2001-2005
2001 3,700,000
2002 4,300,000
2003 5,800,000
2004 7,000,000
2005 9,400,000
Source IDC, January 2002
Figure 2
a. Security Market Challenges and Opportunities
Several economic and technological issues, transcend all areas of information
security services, including the following:
The rapid development of Internet, intranet, extranet, remote access, and
mobile wireless networking infrastructure technologies has left end users at
all levels of the corporate structure demanding increased network access to
greater amounts of information from variable locations. This unprecedented
level of network accessibility is being leveraged to enable all stakeholders
(e.g., employees, customers, partners, and suppliers) to access internal
corporate information and allow users to engage in ecommerce activities (both
business to consumer [B2C] and business to business [B2B]) to purchase and
transfer goods and services over the public network. These trends have
expanded the market opportunities for security service providers (e.g.,
managed security services providers [MSSP]). Many large organizations lacking
sophisticated security expertise have experienced tremendous benefits by
having a third party with a team of security professionals manage their
security requirements rather than undertaking the costly and burdensome
endeavor of building an in-house security staff.
Concerns about network security vulnerabilities continued to receive increased
attention over the past year with several new worms and viruses infecting
email and servers worldwide. Nimbda, Code Red and Bug Bear became household
names, as media accounts of widespread viruses and network breaches continue
to capture the attention of enterprises, as well as branches of the local,
state, and federal governments, many of these organizations have come to a
revelation: It is no longer a matter of "if" a security incident will occur,
but more important, "when" will the breach occur and how much damage will it
cause to your organization. The byproduct of these headlines includes
increased demand for security policy reviews and vulnerability assessments to
test the preparedness not only for external attacks but also for a host of
internal threats (e.g., contractors and disgruntled employees). The demand for
information and services from Web sites such as XxXxxx.xxx and Symantec has
also increased because of the latest round of deadly viruses. As a result,
services for information security assessments and integration services have
become some of the fastest-growing segments in the information security
services industry.
IT departments continue to experience budgetary pressures with regard to
proper staffing levels, while simultaneously being asked to provide higher
levels of network accessibility and security. IT departments are increasingly
finding that outside information security service providers present a cost-
effective alternative to developing and maintaining specific types of security
skills and capabilities in-house (particularly in the context of an extremely
competitive information security skills market). This type of selective
outsourcing trend among enterprise organizations and service providers can
help relieve the arduous task of day-to-day IT security management and allow a
sharper focus on core business objectives (e.g., healthcare,
telecommunications, financial services, manufacturing and education etc.).
The resulting rise in security awareness has also driven interest in security
training and education programs, particularly in the United States. Spending
on information security training and education in the United States is
expected to reach $725 million by 2005, representing a 16.3% CAGR. Security
product vendors such as Check Point, RSA, and Cisco often utilize the services
of independent third-party training firms to broaden their access to a larger
number of students. Firms typically utilize three different mediums to deliver
education and training: instructor led, technology based, and text based.
As the competition among security software vendors increases, profit margins
on products will remain under pressure. As a result, security software is
increasingly being integrated into hardware appliances. Initially, computer
security was embodied in "black boxes" that did their work with limited user
interaction. While the Internet grew, the security functions moved to software
that could be modified to address new threats and business requirements. Over
the past few years, however, the black box has returned in the form of the
firewall/virtual private network (VPN) security appliance.
The September 11 attacks on the World Trade Center and the Pentagon, as well
as outbreaks of Distributed Denial of Service Attacks in February 2000, and
more recently, the Code Red and Nimda worms, have created a sense of
vulnerability in business organizations never seen before. While these events
differ in their overall magnitude, each is having a significant impact on the
economy as well as on management priorities and focus. One area that has
certainly increased in importance is IT security and availability. Most
businesses and government organizations have had to re-evaluate their efforts
in response to expected future threats.
With the credible threat of additional cyber attacks and cyber terrorism, all
levels of government and business are making secure IT networks a mission-
critical priority. U.S. Xxxxxxxxx Xxxx recently named Xxxxxxx Xxxxxx to head
the Office of Cyberspace Security. Xxxxxx has warned of the possibility of a
"digital Pearl Harbor" in which a terrorist attack would paralyze computers,
electrical grids and other key infrastructure.
An analysis issued on September 22, 2001 concludes that the potential exists
for devastating cyber attacks following any retaliation to the September 11
events and those attacks could significantly debilitate U.S. and allied
information networks.
According to a report by the President's Commission on Critical Infrastructure
Protection, it is estimated that 19 million people worldwide have the skills
to engage in malicious hacking. According to Xxx Xxxxx, who was the
commission's chairman, the worst-case scenarios are nightmarish a determined
coalition of hackers, he said, could disrupt 911 services, air traffic
control, the power-switching centers that move electricity around the country,
rail networks, the financial networks and more. "It's a major undertaking,"
said Xx. Xxxxx, a retired U.S. Air Force general, "but it's not beyond the
realm of possibility." The complexity of the attacks on the World Trade Center
and the Pentagon, he said, showed that "even terrorist organizations can
conduct very well-organized and sophisticated attacks."
In addition to these external attacks, internal threats, already on the rise,
will become even more problematic in the coming months. History indicates that
70% of all security incidents originate from internal sources. In an
environment of downsizing, internal security and security control efforts will
become much more important.
IT is a critical component of most business processes and recent events have
reinforced just how much businesses rely on their IT infrastructure. As a
result, IT vulnerability has become a high priority executive and boardroom
issue.
Tightening IT infrastructure security has become "issue one" for many leading
business organizations around the world. Top management must provide proactive
sponsorship for efforts that will ensure adequate security and availability in
their business or they are placing their organizations at great risk.
The challenge for most executives is finding an e-Security supplier that can
meet all of their needs across all geographic locations providing consistency,
reliability and affordability.
3.0) THE COMPANY
3.1) INTRODUCTION
The Company is a Delaware corporation formed in September 2002 to
develop and market IT and Internet Security Consulting and Managed services
("e-Security") to Fortune 2000 organizations. The Company's first two
acquisitions are preferred providers in the delivery of Information Security
(e-Security) services operating out of Toronto, Philadelphia and Baltimore.
The Company's customers will include financial institutions, healthcare
providers, telecommunications providers, state and federal government
agencies. Through a technique known as "Industry Buildup" (IB) and aggressive
organic growth the Company is seeking to become a dominant provider of e-
Security on a national and international scale. The Company has identified e-
Security Systems Integrators in each major market in which it wishes to
operate. It has currently entered into letters of intent with two candidate
organizations.
Acquisitions will be made with a combination of common and preferred
stock, options and warrants. Based on marketing studies and industry
projections and the expected demand for, and costs of, security consulting
employees, the Company expects to experience profit margins substantially
higher than those of general purpose IT consulting organizations. In this
regard, the Company expects to operate with gross margins growing to greater
than 60%. See "Financial Projections." The Company has three founding
stockholders, King Xxxxx, Xxxxxxx Xxxxxxxx and Xxx Xxxx.
The Company has identified over 400 additional candidate Information
Security providers that have the right profile. That profile initially
includes an established revenue stream in the range of $3M to $15M. The
Company is in preliminary discussions with four of these enterprises at this
time.
The Company may seek additional funding to add between two to three
acquisitions in the US by the end of December 2003. The Company's primary
focus will be on acquisitions that are either profitable and have the
potential with funding to grow organically at 50% plus.
3.2) PRODUCTS AND SERVICES
Products and Services
The utilizing the services and technology from the acquisitions the
Company will offer a comprehensive set of security services designed to meet
the Internet and computer security needs of its clients. The Company's
security products and services are designed to provide organizations with an
integrated Information Security Architecture that will protect their
information assets without compromising their ability to do business. This
Architectural approach allows the Company's clients to take full advantage of
the Internet and Internet related technologies such as e-Commerce with minimal
"business" risk.
The Company's Offerings will include all the policy development
consulting services, products, implementation, testing certification and
ongoing monitoring required by an organization to protect its information
assets and reputation from theft and attack. The Company's offerings will
include:
1. Security Needs-Analysis, Requirements and Budget Definition:
The first step in developing an e-Security Architecture is to review a
Client's information infrastructure and business requirements. Using a well-
defined and tested methodology this review of the Client's security
requirements is used to develop a high-level requirements document from which
a preliminary risk assessment and cost benefit analysis is developed.
2. Current Threat, Risk, and Vulnerability Assessment:
The Company assesses all of the factors that could determine a client's risk
of sabotage or tampering. The assessment includes but is not limited to the
following: size of the client's organization, number of competitors in the
marketplace, distance from competitors' market, interest of the general public
in the client's software, products or information, the number of concurrent
connections to the Internet, plus other factors. Part of the Company's
assessment process is to identify which risks may affect its clients the
greatest and to design a high payoff e-Security Architecture that can handle
these risks. Not all threats and vulnerabilities apply to all Information
Systems situations. To get a clear understanding of what an environment's real
vulnerabilities are an "As Is" Analysis is completed. This is a comprehensive
detailing of the environment's characteristics. This analysis can be very
effectively summarized in a three dimensional "Security Matrix." The analysis
begins with an enumeration of applicable threats. These make up one axis of
the Security Matrix. Figure 3 below summarizes the most common network
threats examined in such an analysis.
Intra-facility Threats
Network Sniffing Remote Corporate Dedicated Branch
Browsers Users--Headquarters-----Line----Office
Communication Protocol |
Attacks |
Unauthorized User Access |
Trojan Horse and Virus |
Attacks |
System Security Holes |
Denial of Service |
|
Inter-facility Threats |
Other(uncontrolled) sites |
Hacker Access |
Imposter Access Internet --------------- Customer
Site
Figure 3: Threats and Their Sources
The next variables that are examined are vulnerabilities. Figure 4 below
suggests some of them that are examined in a comprehensive vulnerability
analysis. These vulnerabilities become the second axis of the Security
Matrix.
[Architectural plan with the threats described above attacking a Secure Data
Center]
Figure 4: Typical Site Vulnerabilities
Five classifications of security protection and their "worth" or "remedy
figure of merit" are examined and become the third axis of the Security
Matrix:
1. Access Control implemented with VACMAN Enterprise software and Firewalls,
Tokens, Network Reference Monitors, and Secure Operating Systems.
2. Identification and Authorization implemented with VACMAN Enterprise and
devices that include passwords, PID systems, Retina Scans, Voice
Identification Systems, and hybrids or combinations thereof.
3. System Integrity checks range from simple parity schemes to elaborate
check sum systems.
4. Data Integrity and Privacy is accomplished by one of the many Encryption
algorithms in hardware or software implementation choices.
5. Auditing procedures, which detect, isolate and identify security violation
attempts, have a myriad of implementation choices.
This analysis can be summarized graphically. When presented in graphical
form, the resulting three-dimensional matrix becomes a contour map. The
contour volume represents total system security.
[Graph with Threats on the bottom and Vulnerabilities on the side]
Remedy Figure of Merit
V
U
L
N
E
R
A
B
I
L
I
T
I
E
S
THREATS
Figure 5: Security Contour Map
3. Existing Security Technology, Information Systems and Policy Review:
Another essential component to total information security is assurances that
sound and sensible policies with respect to information integrity are in
place. The Company performs a detailed audit and inventory of its Client's
existing security technology, their information systems, and all existing
Security Policies and Procedures. This Audit and Inventory is used as the
baseline from which an e-Security Architecture is designed to meet the
Client's security requirements.
4. Security Architecture Design and Development:
The Company designs an e-Security architecture upon which its Clients can
securely and affordably operate their information systems, including
conducting commerce and other business operations over the Internet. The
Company's e-Security Architectures encompass providing a framework that
includes corporate security policies, user authentication, hardware and
software tools, data and application classification, proactive security
monitoring, and reactive response procedures to detected threats, etc.
The Company then creates a transition plan and prescribes remedial measures
to achieve the required IT system security. It will develop a "To Be Model"
which prescribes mandatory remedies. The client's existing Enterprise-wide
business model should determine the policy of who needs to have access to
resources from the perspective of the organization's day-to-day needs. The
mapping of an organization's resources, e.g., information, equipment,
communications, facilities, is structured into levels and categories from
"top to bottom" throughout the Enterprise with policy rules being defined for
access. Every player and contingency needs to be covered to assure an
effective policy. Additionally, a system design includes impact analysis to
maintain performance and reliability levels of the system. Finally,
discretionary remedies for future implementation are presented and discussed
so that the e-Security Architecture is able to evolve and change as
circumstances, threats, and vulnerabilities themselves change.
5. Security Policy and Standards Development (Organization/System):
The Company develops Security Policies and Standards for its Clients that,
when followed, will reduce the possibility of a successful security
intrusion. In addition to being an immediate revenue stream, this practice
will also lead to recurring revenue in the area of Managed Security Services
(MSSP) because most Clients will be challenged to maintain a stringent set of
Security Policies and Standards.
6. Security Management and Monitoring Plan Development:
The Company provides security management and operational monitoring plans,
which implement a Client's security policy with a maximum of efficiency and
effectiveness. Security Management includes changing user passwords,
assigning user authentication devices, adding and revoking application
privileges, etc. Security monitoring looks for attempted intrusions, policy
breaches, new security holes, etc. to allow for remedial responses before any
damage is incurred.
7. System Security Implementation Including Planning, Procurement,
Installation, Customization And Configuration:
The Company implements, on behalf of its Clients, the recommended e-Security
Architecture that best meet their security requirements as mandated by
industry best practices and or legislative requirements. This includes the
procurement or custom development of required security hardware and software;
also, the installation and testing of such equipment.
8. Staff Security Awareness Training and Development:
The Company performs security awareness training for all staff, customers and
suppliers. This training can be delivered using simple email messages;
computer based training modules, and classroom sessions. The training
emphasizes the role of the individual in maintaining a safe and secure
environment, as well as the consequences to them, and the organization for
not following the security policies.
9. Ongoing Certification, including: Penetration Testing, Cryptographic
Testing, Vulnerability Testing, Policy and Standards Adherence Review:
The Company will provide its Clients with ongoing certification that their
information infrastructure is secure, properly monitored, maintained and in
accordance with the Client's security policy. This service is typically
performed on a regular basis at the client site and/or remote from the client
site.
10. Best of Breed e-Security Products:
The Company provides third party security hardware and software products to
implement the Security Architecture it develops for its customers. The third
party security products the Company recommends are the best available in the
product class at the time. The products are ranked based on capability,
security robustness, adherence to standards, ease of integration, management,
maintenance, and upgradeability. These products are categorized into the
following classes:
User Security
Data Security
Network Security
System and Application Security
Enterprise Security Management and Maintenance
The Company has developed custom applications to meet unique customer needs,
or to integrate existing applications into an overall security architecture.
These applications are based as much as possible on existing solutions to
reduce price, development time, and ongoing maintenance costs.
11. Managed Security Services (MSSP)
Most organizations lack the security knowledge and resources to protect
themselves adequately. In addition, there are significant costs involved in
establishing, training and retaining the professional staff required to
manage information security requirements on a 24 hour a day x 7 day a week
(24 X 7) basis. Combined with the severe shortage of trained information
security professionals and already burdened IT staffs, the Company provides
outsourced experts who reside at its clients sites on a part-time to full
time basis. This is not much different from conventional outsourcing, which
has been embraced by many corporations trying to reduce operational costs
while creating more focus on their core competencies.
The Company will provide MSSP services remotely on a 24 x 7 basis monitoring
the ongoing security functions of its clients such as access control,
firewall, authentication, content filtering, intrusion detection, virtual
private networks and bandwidth management. These services have been developed
in-house using Open Source applications of their base and then have been
customized and highly integrated to reduce the cost on maintenance and
management.
Additionally the Company provides to its customers who do not have their own
qualified security staff on-going on-site "Security Change Management" for
the following critical e-Security parameters:
User IDs - For employees, customers and suppliers
User Tokens - New, lost and expired
Passwords - New, forgotten and expired
User Access - Based on user access requirements
Application Change - To ensure continued security policy conformance
Management
System Changes - To ensure continued security policy conformance
Network Changes - To ensure continued security policy conformance
In addition to the above core offerings, the Company will continue to develop
its Product and Service Offerings to meet the ever-changing requirements of
business. The rapid pace of change of business continues to evolve around
the development of new and innovative uses for the Internet and the Company
will stay at the cutting edge of the technology.
3.3) INTELLECTUAL PROPERTY
The Company's intellectual property consists of its know how, methodology,
staff experience, and certain proprietary applications. The Company's e-
Security Architecture as described above is delivered using an integrated
suite of Security systems through a service offering called SecureD, which
will form the core offering of its Managed Security Services.
The Company's SecureD service is the next evolutionary step in enterprise
security. Using a proven secure operating platform, the Company has
incorporated the critical Internet security functions into a single gateway
that allows the Company to tailor a security solution to meet its client's
specific security requirements. The Company's SecureD service "acts" on its
clients network as a Security Gateway to provide automated, real-time network
security, all-in-one integrated software solution.
The Company has developed its SecureD service such that it incorporates its
client's required Internet security requirements into one easy to maintain and
manage software solution on one hardware appliance in most instances. The
SecureD service comes in several hardware configurations designed to best fit
a client's throughput and fault tolerance requirements.
The Company's VACMAN Enterprise 5.0 software enables its clients to securely
manage user access and single sign-on to web, client/server, and legacy
applications in one integrated system. It provides users with secure access to
applications, web pages, and data objects based on their policies.
Additionally, users have single sign-on to any application protected by VACMAN
that they are permitted to use. Unlike other solutions, VACMAN Enterprise
addresses the need of an enterprise by combining the power of directory and
security technologies utilizing a common framework.
VACMAN Enterprise provides a foundation for organizations to:
* Centrally control user access and management
* Increase security and user efficiency through
Secure Single Sign-On
* Leverage investments in existing infrastructure
* Enable security without application programming
* Deploy rapidly with smart implementation tools
Centralization is fundamental to reducing administration costs and complexity.
Centralized security management allows administrators to easily manage large
numbers of users' privileges across all applications and platforms,
eliminating the need for proprietary and redundant security systems.
Single sign-on across multiple applications, platforms, and environments
provides a rich user experience, increased security, productivity, and reduced
customer support costs. VACMAN Enterprise fine-grained access control and
single sign-on provides an easy way to address the specific needs and access
rights of each user, while restricted resources and applications remain hidden
and secure.
VACMAN Enterprise leverages a client's technology investments by supporting
all leading infrastructure components, including directories, web servers,
applications servers, legacy applications, and authentication methods. It is
one of only a few products that can address the needs of a large enterprise
from web to mainframe. More importantly, it provides one infrastructure to
handle web, client/server, and legacy platforms.
VACMAN Enterprise employs a simple, yet sophisticated approach to provide
access control and single sign-on services for users. This approach--Protocol
Support Module ("PSM")--easily allows for new applications, platforms and
databases to be snapped into the VACMAN Enterprise environment, without
recoding the application. This dramatically reduces the time, cost and effort
of implementing and supporting VACMAN Enterprise when compared to other
products.
A mature SSO system must be capable of a smooth, almost seamless integration
of the existing security environments into its own. VACMAN Enterprise
provides: 1) Dynamic User Registration (DUR) and 2) Password Auto-learning.
This allows organizations to authenticate and automatically register a user
into the new SSO system and grant their global identity. From here, the global
identity will securely map to the user's account on any other target
system(s). In addition, VACMAN Enterprise can be configured to learn target,
application-specific user IDs and passwords as the user enters them the first
time.
VACMAN Enterprise enables a transparent, non-invasive security architecture
that allows an organization to deploy a wide range of services, quickly and
efficiently, across web, client-server and legacy environments. Whether a
client is focused on B2B or B2C, VACMAN Enterprise delivers increased
productivity, decreased time-to-market, leverages a client's IT resources and
decreases its total costs of ownership.
As the additional planned acquisitions are closed, each of the acquired
companies have their own methodologies, know-how and, in most cases, some
proprietary applications, trademarks, and in a few cases some patents (herein
"IP"). All of this IP will be inventoried and cataloged into the Company's
knowledge base. This knowledge base will be securely accessed from all of the
Company's locations through a Virtual Private Network. Each office will search
the database for pertinent know-how or applications as it applies to their
particular client's situation. As IP is developed it will be added to the
knowledge base. The benefit of this approach is that the staff of each office
will have the experience of all Company locations, providing a formidable
competitive advantage.
3.4) STRATEGY
The Company will integrate its first two acquisitions ensuring that they will
meet their revenue and profit targets per its financial projections. The
Company will then seek to accelerate growth thru acquisition, acquiring firms
that are profitable, or at a minimum breakeven and that on average are in the
$3M to $15M revenue range. The acquired firms will already have most, if not
all, of their business based on providing Internet Security Services, through
the implementation of AntiVirus software, the installation of Virtual Private
Networks, the implementation of firewalls and encryption products, the
securing of existing and new business applications, etc. The company will
train and certify its acquired staff with the required security skills to
offer the Company's full e-Security Architecture to their new and existing
clients.
In addition, the Company expects to hire and attract those individuals in each
market who see Internet Security as their career by positioning the Company
through Branding as the "place to be" for Internet security professionals.
Advanced training, security clearances, and other perks will be made available
to the best and the brightest. All staff will be put through certification
training, for both commercial and government organizations. The Company will
provide its employees with opportunity for career advancement and development
in their chosen field of expertise that will be difficult for them to attain
anywhere else.
Each office will operate as a separate profit center, retaining the
entrepreneurial spirit of the acquired professionals. The Principals of the
acquired companies will become Managing Partners of the organization in their
territory. All Administration, Human Resources, Finance, Formal Technology
Review, and Marketing functions will be centralized through headquarters. The
Company believes that by centralizing these services, the professionals in the
field offices will see a dramatic productivity improvement, which will lead to
increases in revenue, and improvements in revenue and profit margins.
As the junior Security consulting professionals advance through the ranks
based on increased certifications, education and business experience they will
be developed into practice area leaders leading to P&L responsibilities and
eventually operating their own branch office.
3.5) ACQUISITION MODEL
Over 400 candidate companies have been identified. Some of these companies
provide geographic coverage. Others provide expertise on a particular security
service offering or in a particular market vertical. Still other candidates
have intellectual capital strategic to developing a complete service offering.
Others represent the acquisition of a potential competitor down the road
through their own organic growth or by acquisition of another group following
a similar strategy to the Company.
The Company believes it will be successful in attracting the Candidate
companies it is interested in because of the leadership and experience of the
management team and the comprehensive nature of its business plan and the many
benefits that are delivered to the candidate companies. However there are
many suitors for the Company's primary acquisition targets, but there are some
specific benefits that the Company offers potential e-Security integrators.
They are:
1. Focus There are many candidate companies being targeted today by many
full service systems integrators who are looking to add e-Security to
their offerings. The challenge for these target companies is that they
will lose focus and cease to have their service offerings developed as a
priority as they become part of a larger whole.
The Company will give these candidate companies the competitive tools
necessary for them to be successful in the e-Security market. As such,
they will quickly be viewed differently by their customers and will have
a clearer value proposition. This will give them the ability to
successfully sell a broader arrange of higher margin e-Security
services.
2. e-Security Service Offering The Company will give acquired companies
a pre-packaged set of security consulting and managed services that will
be easily marketable to their existing clients. These offerings will be
continually updated with the latest advances in the industry.
3. Growth Financing the Company will have the financial backing necessary
to support accelerated growth by its acquisition targets. They will
have the ability to experience unencumbered growth and will have access
to larger and more sophisticated opportunities that they could not
pursue in the past due to their size and capitalization. Because
principals will not have to focus on financing and administration, the
acquired company will be able to invest more time into opportunity
development and sales thus continuing to grow their successful
businesses.
4. Human Resources The Company will provide traditional HR services
ranging from recruiting to training to benefits administration, but
leaving essential decision control in the local markets.
5. Research and Development The Company's Research and Development
efforts will provide the acquired company with early identification of
threat/risk trends and associated opportunities. The acquired company
will have access to reviews of leading edge technologies, product
accreditation, and product integration.
6. Marketing and Branding By creating a brand name in the Company, the
acquired company will be able to utilize name recognition, thus making
more substantial sales. The prospective client will have a clearer
message of the their core competencies that will result in an increase
in unsolicited prospects. This focused Branding will make it easier to
attract and retain staff and the overall close rate will increase
dramatically.
7. Value Realization and Liquidity An acquired company will be able to
receive a value for their company that will recognize their past,
present, and future performance. This value will be real and will
likely be liquid within 12 months or less after being acquired.
Valuation for these companies will be in the .5 to 1.5 times revenue or 3 to 5
times free cash flow. Valuation will depend on the levels of profitability,
the length and breadth of backlog and existing long-term contracts. Further
intellectual property and unique extensible service offerings will influence
valuation.
Over time the company expects that valuations may increase. At this point in
time valuations are steady and are influenced by the severe reduction in
values as seen in the broader IT services and products market.
3.6) SALES, MARKETING, AND OPERATIONS
Sales, Marketing and Operations
The Company believes its e-Security Consulting Services will be in great
demand, given the projected security skills shortfall over the next three
years. Through a strategic brand awareness based marketing and public
relations program, the Company will position itself as a 100% focused,
manufacturer/developer independent, International Provider of IT and Internet
security services. A direct sales force in each local market that the Company
will operate in, will fulfill the demand created through the marketing
campaign. Alliances will also be pursued with other application developers,
product manufacturers, Internet Service Providers (ISPs), Telecommunications
Companies (Telcos), and Wireless and Cable operators.
The Company will operate each local office as a separate profit center. The
organizational model will be that of a large consulting firm. The principals
from the acquired company will each manage their office with a title of
Managing Partner. The other managers, senior consultants and sales executives
will carry the title of partner, associate partner, principal, manager,
consultant, sales representative, etc. based on their position and experience.
The local staff in their market will make all sales and provide all "in-
market" fulfillment. The sales office location, in which the customer's
decision-making occurs, will handle any national or international sales
opportunity. National Account Project Managers located regionally will assist
in coordinating the fulfillment of national or international sales.
The initial focus will be to develop the North American market. The
International market will be initially handled on an opportunistic basis until
the Company believes it has enough xxxxxxxx xxxx in North America. Over time
the Company will focus on seven major markets throughout the world: five in
the US, one in Canada, and one internationally.
The Company believes its market appeal will be its capability to integrate
best-of-breed security products, services and processes to provide an
integrated Enterprise e-Security Architecture to its clients. Market research
has indicated that organizations want more than just a firewall or an anti-
virus solution. Today's Client wants to rely on neutral third party systems
security integrators that can provide comprehensive security solutions that
encompass the entire enterprise. Typically, organizations are seeking an e-
Security Architecture that can protect them from outside intrusions, internal
security violations, and the ability to transact e-Commerce business and move
digital transactions safely on Corporate LANs, Intranet and extranet
environments. Therefore, the Company has set the goal of providing "end-to-
end" security solutions to protect the most important asset intellectual
property that resides in computers and database repositories on networks. The
Company's security services model is comprehensive and has specific targetable
opportunities that the competition does not address.
The Company believes it has significant opportunities with the following
market characteristics:
1. A market for e-Security consulting services and products that is rapidly
growing;
2. Highly fragmented industry without a clear market leader;
3. Significant economies of scale to be realized by implementing best
practices on a global basis;
4. No national/international company focused on end-to-end, product
independent, e-Security consulting;
The Company intends to exploit this opportunity by:
1. Growing its market leadership position in providing "an integrated
e-Security Architecture" from which business can embrace the new economy
with a minimal of "non-business" risk.
2. Providing consistent levels of e-Security services, implementation and
monitoring in all the major markets;
3. Partnering with those organizations that must secure their service
offering in order to do business with their clients (telecommunications,
banking, healthcare, utilities and government etc.).
The Company believes that its innovative approach to e-Security will create
significant market awareness and intends to use this awareness to capitalize
on the unique marketing opportunities described above. Our sales and marketing
strategy will include the following:
1. A clear focus on target markets;
2. A clear understanding of how to leverage various market entry sales
strategies to obtain maximum sales coverage and mitigate risks;
3. The planned geographic representation and sales infrastructure to
capitalize on the explosive growth in e-Security;
4. e-Business security application solutions ranging from secure
transactions to secure document distribution over the Internet.
5. A communications program that will create an awareness of the Company
among clients and other key industry influencers;
6. Advertising and public relations agency relationships that will assure
the quality, consistency, and effectiveness of our communications.
In summary, the Company intends to become a dominant force in the e-Security
space with its comprehensive security solutions and its aggressive
marketing/sales strategy that incorporates direct sales, mass merchandising,
annuity services "managed" and strategic partnerships.
3.7) COMPETITION
As mentioned above, there is no one dominant player in the market at this
time, but there is a lot of activity. Key market trends include an increase
in the number of single "point" solution security-related products and
services and the vertical integration of market segments (such as firewalls
and AntiVirus products), reducing over time the total number of vendors and
products.
After surveying the current security firms that provide hardware, software
and/or services in the $16 Billion worldwide information security market, the
Company believes that there is no dominant security services provider in this
sector. The Company has reviewed the major providers of security services,
hardware and software products such as Symantec, VeriSign, Network Associates,
Cisco and Checkpoint; the large consulting firms such as Accenture, Bearing
Point, Electronic Data Systems (EDS), Xxxxx Systems and IBM; as well as many
small and mid-sized firms such as, ISS, Counterplane, RSA, Vasco, Guardent,
@Stake, Red Siren, and Found Stone.
Further, the Company has reviewed market requirements and industry projections
from firms like the Gartner Group, IDC, and those of many trade publications.
As a result of these investigations, the Company believes that no other North
America firm currently offers the focused services that the Company is
currently offering or planning to offer.
Most competing manufacturers offer a single solution product, or a suite of
products that meet a portion of a customer's needs. The large consulting
providers of security services such as Accenture, IBM, EDS and Bearing Point
are broadly focused on many different consulting services from accounting, to
manufacturing, to business process reengineering. These large providers
deliver security consulting as only a small part of their total IT consulting
practice. Because they are not focused, these services are most often
prohibitively expensive and not current with market requirements and
technological advances. Further, most of these large firms lose their top
quality consultants to small, more innovative and entrepreneurial firms. The
Company believes that its focus and structure will allow it to attract and
retain many of these top quality consultants.
Figure 6 below suggests how the Company looks to differentiate itself in the
e-Security space, namely as the entity offering comprehensive and innovative
e-Security consulting, products and management services.
[Graph with Enterprise Security on the vertical axis and Range of Services on
the horizontal axis with SecureD Services at the end of both axis']
Figure 6. Competative Positioning
4.0) MANAGEMENT
Board of Directors and Executive Officers
The Company's Board members and executive officers are listed below. The
strong leadership team has been but in place to ensure that the Company has
the experience and capacity to execute on its business plan. It is anticipated
that Board members will receive fees in the form of cash and/or Stock
commensurate with their involvement in Board related activities. Executive
officers will be paid in cash, Stock and/or options commensurate with their
roles and responsibilities and their success in achieving the Company's goals,
financial and otherwise.
Xxxxxxx X. Xxxxxxxx, 00, Xxxxxxxx. Xx. Xxxxxxxx brings 19 years of strong
general business team building, sales, start-up, and acquisition experience to
the Company. Xx. Xxxxxxxx currently serves as CEO and Chairman of DOLFIN. Xx.
Xxxxxxxx was involved with the startup of USWeb, a successful international
Web site development company that grew organically, and through many
acquisitions to over 2000 employees in North America, Europe and Asia, with
sales approaching $300MM. Prior to USWeb, Xx. Xxxxxxxx served as President of
Keywitness, a startup Internet Security Technology company providing secure
identification technology (digital certificates) for electronic commerce. In
1995, Xx. Xxxxxxxx was involved in the startup of iStar Internet, as
Executive, Business Development, which grew through acquisitions to become
Canada's largest national ISP. He developed iSTAR's Value Added Services
strategies, including Hosting, Web development, Intranets and E-Commerce and
Security Services. In 1990, Xx. Xxxxxxxx co-founded BGI Systems Integration, a
firm that specializes in providing Technical Call Center services for Apple
Canada, IBM Canada and others. In 1988, he led the founding and development of
Businessland Canada, a wholly-owned subsidiary of Businessland U.S., into a
$60 MM computer integrations firm providing systems integration services,
network consulting and computer education services to the Financial Post 1000.
While at Businessland he led, in partnership with IBM Canada, the acquisition
of GE Computer Services. Xx. Xxxxxxxx holds a B.S. Mathematics from the
University of Waterloo where he focused on computer science, business and
economics.
King Xxxxx, 58, CEO. King Xxxxx has been actively involved in the IT industry
for over 35 years. He brings a strong Marketing, Sales and Operations
background to the Company. Prior to joining SecureD Services Xx. Xxxxx was
President & CEO of Mastech Canada. During his career Xx. Xxxxx has held
positions as a Data Processing Manager with Chrysler Canada Ltd.; as a Systems
Manager with Xxxxxxxxxxx Canada Ltd, and as Manager of Information Systems
with Fairbanks Xxxxx Canada where he was a member of senior management
reporting directly to the president. Fairbanks's parent company, Colt
Industries, established a separate information processing company, Colt Data
Services, to service the IT operations of its forty business units, and to
develop an external IT services business. Mr. .Xxxxx was appointed Assistant
General Manager of Colt Data Services, where his responsibilities included
developing CDSI's external business from a Fortune 1000 client base in New
York City.
Upon returning to Canada in 1970, Xx. Xxxxx assumed control of Quantum
Information Resources Ltd. (Quantum). Xx. Xxxxx took Quantum from a money
losing operation with one employee to a C$75.0 million company with over 800
employees in Canada and the United States. During his tenure as President &
CEO, Xx. Xxxxx developed and expanded Quantum to become one of the largest
private IT services companies in Canada. By 1998 Quantum's four business units
operated out of 10 locations; five in Canada; five in the United States.
Quantum generated a pre-tax profit every year including 1970 and financed its
expansion completely from retained earnings. In 1996 Xx. Xxxx created, in
conjunction with McMaster University, North America's largest private IT MBA
program. Located on Quantum's Mississauga campus, over 100 students worked and
studied over a three year period to obtain their MBA's and demonstrated their
academic excellence by heading up the Xxxx'x list three years in a row. In
1998, the Quantum was purchased by Mastech Systems Corp., a public company
traded on NASDAQ. Xx. Xxxxx was retained as President & CEO of Mastech
Canada to oversee the integration of Quantum's operations into Mastech's
corporate structure.
Dr. Xxxx Xxx, 57, Executive Vice President Sales and Marketing. Xx. Xxx
currently serves President and CEO of Galaxy Computer Services, Inc. He brings
strong management and leadership skills to the Company. He served as
President, FFC Technologies, a technology assessment services and equipment
brokerage company. He was also Chief Operating Officer of Genesis Imaging
Technologies and its sister company, Revelation Products Corporation, which
specialized in the sales and service of document imaging systems and optical
storage products, respectively. At Unisys and Sperry Corporation, Xx. Xxx
managed large divisions with full P&L responsibilities, including the
Technical Markets Operation. His major customers at Sperry, FFC, and Genesis
have included AT&T Xxxx Laboratories, other major telecommunication
corporations, CIGNA, Citibank, major oil, engineering, and aerospace
companies, as well as the National Security Agency (NSA). He has extensive
experience in the information security arena, including four years of
consultative business development for Probity International; whose team
members developed the first B2 certified LAN for NSA. In 1991, Xx. Xxx was
awarded a Letter of Commendation by NSA for the work done at Genesis Imaging
on behalf of Operation Desert Storm. Xx. Xxx holds an AB from Harvard College
and a Ph.D. in theoretical physics from Cornell University.
Mr. John Day, 58, Chief Financial Officer. Mr. Day's career has covered all
aspects of Financial and Information Management on an International scope.
His background includes holding senior positions in both large and small
companies. Formally trained in Physics and Accountancy his skills include a
rigorous aptitude for analysis combined with a highly intuitive style. He has
had a very varied business experience, which encompasses Professional
Services, Manufacturing, Construction, Consumer Products, Pharmaceutical and
E-Commerce Companies. He has held senior management positions in both Fortune
500 and small entrepreneurial companies. Positions held include Audit
Director, Controller, Treasurer, Chief Financial Officer and Chief Information
Officer. His duties have always involved start up or turnaround situations,
which necessitated instigating great change in short periods of time. His
achievements include aligning functions to meet corporate objectives and
obtaining significant cost savings, increasing revenues, assembling teams and
obtaining performance improvements. Xxxx has been responsible for leading
Xxxxxxxxx Xxxx from #53 to #37 in the Information Week 500 a ranking of the
most innovative corporate users of I.T. He has also played a leadership role
in raising capital, developing products and services and undertaking mergers
and acquisitions, and divestitures. An early adaptor of e-commerce Xxxx has
experienced the development of web based processes from several aspects,
including site design, business transactions, e-book downloads and technical
performance. His creative side has lead to several recognition awards ranging
from New Product Development to Introduction of new systems. He has also had
several business articles published and has been featured in the Wall Street
Journal about change management. Xxxx holds a degree in Special Physics from
London University and is a Fellow Member of the Institute of Chartered
Accountants, and member of Financial Executives International, Inc., He has
also attended Executive Training Courses at Insead, Stanford, Cornell and
Columbia.
T. Xxxxxxx Xxxx, 58, serves as a Director. Xx. Xxxx is currently Chairman and
CEO of VASCO Data Security International, Inc., a publicly traded company
listed on the NASDAQ SC (Symbol: vdsi). Xx. Xxxx is the founder of VASCO, and
served as its President and CEO from May 1984 through June 1999. Xx. Xxxx has
extensive experience in international business and the acquisition of multiple
companies in the US and in Europe. Primary professional experience is in
Internet and network security, software, computers, general financial
management and audit compliance, SEC reporting, and capital formation
including debt and private placements. Prior to founding VASCO, he was the
President and CEO of Deltak, Inc., an $85 million international technical
services company that specialized in the creation and distribution of
information programs, training, and job support and productivity software
tools with 7,000 ship-to locations around the world. Prior to Deltak, he was
President of Itel Corporation's $220 million Computer System Division that
sold, leased and serviced IBM compatible computer products worldwide. Prior
to Itel, he had positions with Proprietary Systems Corporation and IBM. Xx.
Xxxx is President of the Belgian Business Club of Chicago. He is also
affiliated with several high-tech early-stage companies, providing business
consulting services and serving as a member of the Board of Directors. He
holds an MBA from Pepperdine University, Malibu, California, 1979 and a BBA
from the University of Xxxxx, Xxxxxxx, 0000.
5.0) FINANCIAL PROJECTIONS
Three-Year Financial Projections
Projections are based on the combined Organic growth of the acquired
business from XXXXXX.XXX and Vacman Enterprise plus the assumption of one
additional acquisition contributing $2.95M in revenue.
Organic revenues for 2003 are projected to increase on an annual basis by
52%, reflecting the prolific growth of the industry, and the value-added
potential of the Company's service offerings and launch of a three year
managed security services agreement with a large wireless Telco. The
Company's sales backlog going into 2003 is just over $2M with a qualified
sales pipeline of $9M. Consulting will comprise 61.9% of revenue, MSSP
revenue is projected to reach 12.6% software and product revenue
representing the remaining 25.5% of revenue. Operating expenses have been
projected based on reducing SG&A to 42%, and assume increasing
competitiveness in the industry, affecting the need to invest in marketing
for branding, and on salaries to retain key personnel. Any savings in
staff and management redundancy and other synergies will be offset by
costs of integration.
Except for historical information contained herein, the matters discussed
in this document are forward-looking statements that involve risks and
uncertainties. The forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995.
In addition to the factors set forth above, other important factors that
could cause actual results to differ materially include, but are not
limited to technical risks associated with new technology development,
government regulatory approvals or continued working capital. Additional
information concerning factors are set forth in this document. This is not
an offer to buy or sell securities; those may only be made via a Private
Placement Memorandum or Prospectus.
SecureD Services, Inc.
Proforma Consolidated Income Statement
(Dollars in Thousands)
SecureD Services
Year 1 Year 2 Year 3
Revenues:
United States $ 7,584 $ 13,113 $ 21,780
Other Countries 1,358 2,042 3,594
------- -------- --------
Total Revenues $ 8,942 $ 15,154 $ 25,374
======= ======== ========
Revenues:
Professional Services $ 5,531 $ 8,933 $ 13,218
Managed Services 1,129 4,004 8,427
Product/Software 2,281 2,218 3,730
------- -------- --------
Total Revenue $ 8,942 $ 15,154 $ 25,374
------- -------- --------
Cost of Goods Sold
Professional Services $ 2,546 $ 3,598 $ 5,040
Managed Services 462 1,602 3,371
Software 311 476 821
------- -------- --------
Total Cost of Goods Sold $ 3,318 $ 5,675 $ 9,232
------- -------- --------
Gross Profit
Gross Profit % $ 5,624 $ 9,479 $ 16,143
62.9% 62.6% 63.6%
SG & A Costs (Excluding Depreciation
and Amortization) 3,756 6,055 9,722
------- -------- --------
42% 40% 38%
EBITDA $ 1,868 $ 3,424 $ 6,421
Restructuring - - -
Interest Income (expense) (32) 47 178
Other Income (expense) - - -
Depreciation/Amortization (expense) (878) (1,103) (1,516)
------- -------- --------
Provision for doubtful accounts
Income (loss) before income taxes $ 958 $ 2,369 $ 5,083
Provision (benefit) for income taxes 383 948 2,033
------- -------- --------
Net income (loss) $ 575 $ 1,422 $ 3,050
Preferred stock dividend - - -
------- -------- --------
Net income (loss) available to common
stockholders $ 575 $ 1,422 $ 3,050
======= ======== ========
6% 9% 12%
SecureD Services, Inc.
Proforma Consolidated Balance Sheet
(Dollars in Thousands)
SecureD Services
Year 1 Year 2 Year 3
Cash $ 3,779 $ 5,023 $ 7,714
Accounts receivable, net 1,123 2,144 3,564
Inventory - - -
Other current assets 13 13 13
------- -------- --------
Total current assets $ 4,914 $ 7,180 $ 11,291
Property and equipment, net 357 865 1,659
Intangible assets, net 5,996 5,236 4,475
Other assets - - -
------- -------- --------
Total Assets $11,267 $ 13,281 $ 17,425
======= ======== ========
Current maturities of LTD and Notes
Payable 337 379 357
Accounts Payable 478 621 788
Deferred revenue 675 1,334 2,499
Other accrued expenses 20 28 50
------- -------- --------
Total current liabilities $ 1,511 $ 2,362 $ 3,694
LTD Note Payable 737 357 -
Stockholders' equity:
Preferred stock 2,000 2,000 2,000
Preferred stock dividends - - -
Common stock (at par .001) 11 12 12
Additional paid-in capital 6,434 6,553 6,673
Accumulated earnings (deficit) 575 1,996 5,046
Accumulated other comprehensive
earnings (loss) - - -
------- -------- --------
Total Stockholders' Equity $ 9,020 $ 10,561 $ 13,731
------- -------- --------
Total Liabilities and Stockholders'
Equity $11,267 $ 13,281 $ 17,425
======= ======== ========
SecureD Services, Inc.
Proforma Consolidated Statements of Cash Flow
(Dollars in Thousands)
SecureD Services
Year 1 Year 2 Year 3
Net income (loss) $ 575 $ 1,422 $ 3,050
Adjustments to reconcile net income
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 878 1,103 1,516
Changes in assets and liabilities,
net of effects of acquisitions
Accounts receivable, net (1,054) (1,021) (1,420)
Inventories, net - - -
Prepaid expenses (13) - -
Other current assets - - -
Prepaid royalties and other assets 481 444 854
Accounts payable 105 142 167
Accrued expenses 214 222 333
------- -------- --------
Net cash provided by (used in)
operating activities $ 1,187 $ 2,311 $ 4,500
------- -------- --------
Cash flows from investing activities:
Additions to property and equipment (275) (606) (1,006)
Additions to intangible assets (3,204) (244) (544)
------- -------- --------
Net cash provided by (used in)
investing activities $(3,479) $ (850) $ (1,550)
------- -------- --------
Cash flows from financing activities:
Borrowing (repayment) of debt - (337) (379)
Issuance of stock 6,070 120 120
------- -------- --------
Net cash provided by (used in)
financing activities $ 6,070 $ (217) $ (260)
Effect of exchange rate changes on cash - - -
------- -------- --------
Net increase (decrease in cash 3,779 1,245 2,691
Cash, beginning of year - 3,779 5,023
------- -------- --------
Cash, end of year $ 3,779 $ 5,023 $ 7,714
------- -------- --------
SecureD Services, Inc.
Proforma Consolidated Income Statement
(Dollars in Thousands)
By Source-Year 1
VME Dolfin Acq. Total
Revenues:
United States $1,768 $ 2,522 $ 3,294 $ 7,584
Other Countries - 1,358 - 1,358
------ ------- -------- --------
Total Revenues $1,768 $ 3,880 $ 3,294 $ 8,942
====== ======= ======== ========
Revenues:
Professional Services $ 765 $ 2,830 $ 2,701 $ 6,296
Managed Services 25 800 329 1,154
Product/Software 978 250 264 1,491
------ ------- -------- --------
Total Revenue $1,768 $ 3,880 $ 3,294 $ 8,942
------ ------- -------- --------
Cost of Goods Sold
Professional Services $ 191 $ 1,115 $ 1,239 $ 1,546
Managed Services 10 320 132 462
Software 196 63 53 311
------ ------- -------- --------
Total Cost of Goods Sold $ 397 $ 1,498 $ 1,424 $ 3,318
------ ------- -------- --------
Gross Profit
Gross Profit % $1,371 $ 2,382 $ 1,870 $ 5,624
77.6% 61.4% 56.8% 62.9%
SG & A Costs (Excluding
Depreciation
and Amortization) 698 1,707 1,351 3,756
------ ------- -------- --------
40% 44% 41% 42%
EBITDA $ 673 $ 675 $ 520 $ 1,868
Restructuring - - -
Interest Income (expense) (52) 20 0 (32)
Other Income (expense) - - - -
Depreciation/Amortization
(expense) (573) (107) (197) (878)
------ ------- -------- --------
Provision for doubtful
accounts
Income (loss) before income
taxes $ 48 $ 558 $ 322 $ 958
Provision (benefit) for income
taxes 19 235 129 383
------ ------- -------- --------
Net income (loss) $ 29 $ 353 $ 193 $ 575
Preferred stock dividend - - - -
------ ------- -------- --------
Net income (loss) available
to common stockholders $ 29 $ 353 $ 193 $ 575
====== ======= ======== ========
SecureD Services, Inc.
Proforma Consolidated Income Statement
(Dollars in Thousands)
By Source-Year 2
VME Dolfin Acq. Total
Revenues:
United States $2,407 $ 6,125 $ 4,581 $ 13,113
Other Countries - 2,042 - 2,042
------ ------- -------- --------
Total Revenues $2,407 $ 8,166 $ 4,581 $ 15,154
====== ======= ======== ========
Revenues:
Professional Services $ 950 $ 4,227 $ 3,756 $ 8,933
Managed Services 250 3,296 458 4,004
Product/Software 1,207 644 366 2,218
------ ------- -------- --------
Total Revenue $2,407 $ 8,166 $ 4,581 $ 15,154
------ ------- -------- --------
Cost of Goods Sold
Professional Services $ 209 $ 1,665 $ 1,723 $ 3,598
Managed Services 100 1,318 183 1,602
Software 241 161 73 476
------ ------- -------- --------
Total Cost of Goods Sold $ 550 $ 3,145 $ 1,980 $ 5,675
------ ------- -------- --------
Gross Profit
Gross Profit % $1,857 $ 5,022 $ 2,601 $ 9,479
77.1% 61.5% 56.8% 62.6%
SG & A Costs (Excluding
Depreciation
and Amortization) 951 3,226 1,878 6,055
------ ------- -------- --------
40% 40% 41% 40%
EBITDA $ 960 $ 1,796 $ 723 $ 3,424
Restructuring
Interest Income (expense) (27) 74 0 47
Other Income (expense) - - - -
Depreciation/Amortization
(expense) (648) (257) (197) (1,103)
------ ------- -------- --------
Provision for doubtful
accounts
Income (loss) before income
taxes $ 231 $ 1,613 $ 525 $ 2,369
Provision (benefit) for income
taxes 93 645 210 948
------ ------- -------- --------
Net income (loss) $ 139 $ 968 $ 315 $ 1,422
Preferred stock dividend - - - -
------ ------- -------- --------
Net income (loss) available
to common stockholders $ 139 $ 968 $ 315 $ 1,422
====== ======= ======== ========
SecureD Services, Inc.
Proforma Consolidated Income Statement
(Dollars in Thousands)
By Source-Year 3
VME Dolfin Acq. Total
Revenues:
United States $4,629 $10,782 $ 6,369 $ 21,780
Other Countries - 3,594 - 3,594
------ ------- -------- --------
Total Revenues $4,629 $14,376 $ 6,369 $ 25,374
====== ======= ======== ========
Revenues:
Professional Services $1,900 $ 6,095 $ 5,223 $ 13,218
Managed Services 1,000 6,790 627 8,427
Product/Software 1,729 1,492 510 3,730
------ ------- -------- --------
Total Revenue $4,629 $14,376 $ 6,369 $ 25,374
------ ------- -------- --------
Cost of Goods Sold
Professional Services $ 380 $ 2,402 $ 2,259 $ 5,040
Managed Services 400 2,712 255 3,371
Software 346 373 102 821
------ ------- -------- --------
Total Cost of Goods Sold $1,126 $ 5,491 $ 2,615 $ 9,232
------ ------- -------- --------
Gross Profit
Gross Profit % $3,503 $ 8,886 $ 3,754 $ 16,143
75.7% 61.8% 58.9% 63.6%
SG & A Costs (Excluding
Depreciation
and Amortization) 1,713 5,319 2,690 9,722
------ ------- -------- --------
37% 37% 42% 38%
EBITDA 1,790 $ 3,567 $ 1,064 $ 6,421
Restructuring
Interest Income (expense) 17 161 0 178
Other Income (expense) - - - -
Depreciation/Amortization
(expense) (798) (521) (197) (1,516)
------ ------- -------- --------
Provision for doubtful accounts
Income (loss) before income
taxes $1,010 $ 3,207 $ 867 $ 5,083
Provision (benefit) for income
taxes 404 1,283 347 2,033
------ ------- -------- --------
Net income (loss) $ 606 $ 1,924 $ 520 $ 3,050
------ ------- -------- --------
Net income (loss) available to
common stockholders $ 606 $ 1,924 $ 520 $ 3,050
====== ======= ======== ========
SecureD Services, Inc.
Proforma Consolidated Balance Sheet
(Dollars in Thousands)
By Source-Year 1
VME Dolfin SSI Acq. Total
Cash $ 681 $ 21 $3,000 $ 77 $ 3,779
Accounts receivable, net 385 372 366 1,123
Inventory - - - - -
Other current assets 13 - - - 13
------ ------- ------ -------- --------
Total current assets $1,078 $ 393 $3,000 $ 443 $ 4,914
Property and equipment, net 192 103 - 62 357
Intangible assets, net 2,458 619 - 2,919 5,996
Other assets - - - - -
------ ------- ------ -------- --------
Total Assets $3,728 $ 1,114 $3,000 $ 3,424 $ 11,267
====== ======= ====== ======== ========
Current maturities of LTD
and Notes Payable 337 - - - 337
Accounts Payable 5 192 - 281 478
Deferred revenue 481 - - 481
Other accrued expenses 20 194 - - 214
------ ------- ------ -------- --------
Total current liabilities $ 843 $ 386 $ - $ 281 $ 1,511
LTD Note Payable 737 - - - 737
Stockholders' equity:
Preferred stock 2,000 - - - 2,000
Preferred stock dividends - - - - -
Common stock (at par .001) 0 1 8 3 11
Additional paid-in capital 120 375 2,992 2,947 6,434
Accumulated earnings
(deficit) 29 353 - 193 575
Accumulated other
comprehensive earnings (loss) - - - - -
------ ------- ------ -------- --------
Total Stockholders'
Equity $2,149 $ 728 $3,000 $ 3,143 $ 9,020
------ ------- ------ -------- --------
Total Liabilities and
Stockholders' Equity $3,728 $ 1,114 $3,000 $ 3,424 $ 11,267
====== ======= ====== ======== ========
SecureD Services, Inc.
Proforma Consolidated Balance Sheet
(Dollars in Thousands)
By Source-Year 2
VME Dolfin SSI Acq. Total
Cash $1,047 $ 629 $3,000 $ 347 $ 5,023
Accounts receivable, net 741 895 - 509 2,144
Inventory - - - - -
Other current assets 13 - - - 13
------ ------- ------ -------- --------
Total current assets $1,800 $ 1,524 $3,000 $ 856 $ 7,180
Property and equipment, net 358 352 - 155 865
Intangible assets, net 1,944 563 - 2,729 5,236
Other assets - - - - -
------ ------- ------ -------- --------
Total Assets $4,102 $ 2,439 $3,000 $ 3,739 $ 13,281
====== ======= ====== ======== ========
Current maturities of LTD
and Notes Payable 379 - - - 379
Accounts Payable 5 335 - 281 621
Deferred revenue 926 - - 926
Other accrued expenses 28 408 - - 436
------ ------- ------ -------- --------
Total current liabilities $1,338 $ 743 $ - $ 281 $ 2,362
LTD Note Payable 357 - - - 357
Stockholders' equity:
Preferred stock 2,000 - - - 2,000
Preferred stock dividends - - - - -
Common stock (at par .001) 0 1 8 3 12
Additional paid-in capital 240 375 2,992 2,947 6,553
Accumulated earnings
(deficit) 167 1,321 - 508 1,996
Accumulated other
comprehensive earnings (loss) - - - - -
------ ------- ------ -------- --------
Total Stockholders'
Equity $2,407 $ 1,696 $3,000 $ 3,458 $ 10,561
------ ------- ------ -------- --------
Total Liabilities and
Stockholders' Equity $4,102 $ 2,439 $3,000 $ 3,739 $ 13,281
====== ======= ====== ======== ========
SecureD Services, Inc.
Proforma Consolidated Balance Sheet
(Dollars in Thousands)
By Source-Year 3
VME Dolfin SSI Acq. Total
Cash $1,784 $ 2,071 $3,000 $ 859 $ 7,714
Accounts receivable, net 1,424 1,575 565 3,564
Inventory - - - - -
Other current assets 13 - - - 13
------ ------- ------ -------- --------
Total current assets $3,221 $ 3,647 $3,000 $ 1,423 $ 11,291
Property and equipment, net 675 686 - 298 1,659
Intangible assets, net 1,429 507 - 2,538 4,475
Other assets - - - - -
------ ------- ------ -------- --------
Total Assets $5,325 $ 4,840 $3,000 $ 4,259 $ 17,425
====== ======= ====== ======== ========
Current maturities of LTD
and Notes Payable 357 - - - 357
Accounts Payable 5 502 - 281 778
Deferred revenue 1,780 - - 1,780
Other accrued expenses 50 719 - - 769
------ ------- ------ -------- --------
Total current liabilities $2,192 $ 1,221 $ - $ 281 $ 3,694
LTD Note Payable - - - - -
Stockholders' equity:
Preferred stock 2,000 - - - 2,000
Preferred stock dividends - - - - -
Common stock (at par .001) 0 1 8 3 12
Additional paid-in capital 359 375 2,992 2,947 6,673
Accumulated earnings
(deficit) 773 3,245 - 1,028 5,046
Accumulated other
comprehensive earnings (loss) - - - - -
------ ------- ------ -------- --------
Total Stockholders'
Equity $3,133 $ 3,620 $3,000 $ 3,978 $ 13,731
------ ------- ------ -------- --------
Total Liabilities and
Stockholders' Equity $5,325 $ 4,840 $3,000 $ 4,259 $ 17,425
====== ======= ====== ======== ========
SecureD Services, Inc.
Proforma Consolidated Statements of Cash Flow
(Dollars in Thousands)
By Source-Year 1
VME Dolfin SSI Acq. Total
Net income (loss) $ 29 $ 353 $ - $ 193 $ 575
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)operating
activities:
Depreciation and
amortization 573 107 - 197 878
Changes in assets and
liabilities, net of effects
of acquisitions
Accounts receivable, net (384) (302) - (366) (1,054)
Inventories, net - - - - -
Prepaid expenses (13) - - - -
Other current assets - - - - -
Prepaid royalties and other
assets 481 - - - 481
Accounts payable 5 (181) - 281 105
Accrued expenses 20 194 - - 214
----- ------- ------ -------- --------
Net cash provided by (used in)
operating activities $ 711 $ 171 $ - $ 306 $ 1,187
----- ------- ------ -------- --------
Cash flows from investing
activities:
Additions to property and
equipment (150) (206) - (69) (425)
Additions to intangible
assets - 56 - (3,110) (3,054)
----- ------- ------ -------- --------
Net cash provided by (used in)
investing activities $(150) $ (150) $ - $(3,179) $ (3,479)
----- ------- ------ -------- --------
Cash flows from financing
activities:
Borrowing (repayment) of
debt - - - - -
Issuance of stock 120 - 3,000 2,950 6,070
----- ------- ------ -------- --------
Net cash provided by (used in)
financing activities $ 120 $ - $3,000 $ 2,950 $ 6,070
Effect of exchange rate
changes on cash - - - - -
----- ------- ------ -------- --------
Net increase (decrease) in
cash 681 21 3,000 77 3,779
Cash, beginning of year - - - - -
----- ------- ------ -------- --------
Cash, end of year $ 681 $ 21 $3,000 $ 77 $ 3,779
----- ------- ------ -------- --------
SecureD Services, Inc.
Proforma Consolidated Statements of Cash Flow
(Dollars in Thousands)
By Source-Year 2
VME Dolfin SSI Acq. Total
Net income (loss) $ 139 $ 968 $ - $ 315 $ 1,422
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)operating
activities:
Depreciation and
amortization 648 257 - 197 1,103
Changes in assets and
liabilities, net of effects
of acquisitions
Accounts receivable, net (355) (523) - (143) (1,021)
Inventories, net - - - - -
Prepaid expenses - - - - -
Other current assets - - - - -
Prepaid royalties and other
assets 444 - - - 444
Accounts payable - 142 - - 142
Accrued expenses 7 214 - - 222
----- ------- ------ -------- --------
Net cash provided by (used in)
operating activities $ 883 $ 1,059 $ - $ 370 $ 2,311
----- ------- ------ -------- --------
Cash flows from investing
activities:
Additions to property and
equipment (300) (506) - (100) (906)
Additions to intangible
assets - 56 - - 56
----- ------- ------ -------- --------
Net cash provided by (used in)
investing activities $(300) $ (450) $ - $ (100) $ (850)
----- ------- ------ -------- --------
Cash flows from financing
activities:
Borrowing (repayment) of
debt (337) - - - (337)
Issuance of stock 120 - - - 120
----- ------- ------ -------- --------
Net cash provided by (used in)
financing activities $(217) $ - $ - $ - $ (217)
Effect of exchange rate
changes on cash - - - - -
----- ------- ------ -------- --------
Net increase (decrease) in
cash 366 609 - 270 1,245
Cash, beginning of year 681 21 - 77 3,779
----- ------- ------ -------- --------
Cash, end of year $1,047 $ 629 $ - $ 347 $ 5,023
----- ------- ------ -------- --------
SecureD Services, Inc.
Proforma Consolidated Statements of Cash Flow
(Dollars in Thousands)
By Source-Year 3
VME Dolfin SSI Acq. Total
Net income (loss) $ 606 $ 1,924 $ - $ 520 $ 3,050
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)operating
activities:
Depreciation and
amortization 798 521 - 197 1,516
Changes in assets and
liabilities, net of effects
of acquisitions
Accounts receivable, net (683) (681) - (56) (1,420)
Inventories, net - - - - -
Prepaid expenses - - - - -
Other current assets - - - - -
Prepaid royalties and other
assets 854 - - - 854
Accounts payable - 167 - - 167
Accrued expenses 22 311 - - 333
----- ------- ------ -------- --------
Net cash provided by (used in)
operating activities $1,597 $ 2,242 $ - $ 662 $ 4,500
----- ------- ------ -------- --------
Cash flows from investing
activities:
Additions to property and
equipment (600) (856) - (150) (1,606)
Additions to intangible
assets - 56 - - 56
----- ------- ------ -------- --------
Net cash provided by (used in)
investing activities $(600) $ (800) $ - $ (150) $ (1,550)
----- ------- ------ -------- --------
Cash flows from financing
activities:
Borrowing (repayment) of
debt (379) - - - (379)
Issuance of stock 120 - - - 120
----- ------- ------ -------- --------
Net cash provided by (used in)
financing activities $(260) $ - $ - $ - $ (260)
Effect of exchange rate
changes on cash - - - - -
----- ------- ------ -------- --------
Net increase (decrease) in
cash 737 1,442 - 512 2,691
Cash, beginning of year 1,047 629 - 347 5,023
----- ------- ------ -------- --------
Cash, end of year $1,784 $ 2,071 $ - $ 859 $ 7,714
----- ------- ------ -------- --------
Exhibit E
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Agreement") dated
___________, 2003, between VASCO DATA SECURITY INTERNATIONAL, INC., a Delaware
corporation ("VASCO") and SECURED SERVICES, INC., a Delaware corporation
("SSI"), is entered into in connection with the consummation of the
transactions contemplated by that certain Asset Purchase Agreement (the "Asset
Purchase Agreement") dated of even date herewith between VASCO and SSI.
Capitalized terms used but not otherwise defined herein shall have the
meanings assigned to them in the Asset Purchase Agreement.
WHEREAS, pursuant to the Asset Purchase Agreement, VASCO has
agreed to sell to SSI and SSI has agreed to purchase from VASCO all right,
title and interest of VASCO in, to and under the Purchased Assets, and SSI has
agreed to assume the Assumed Liabilities, all upon the terms and conditions
set forth therein.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, SSI agrees as follows:
1. VASCO hereby assigns, and SSI hereby assumes and agrees to
perform, pay or discharge, when due, to the extent not theretofore performed,
paid or discharged, the Assumed Liabilities.
2. This Agreement shall inure to the benefit of and be binding upon
VASCO and SSI and their respective successors and assigns.
3. This Agreement is expressly made pursuant to, and subject to the
limitations contained in, the Asset Purchase Agreement. Nothing herein is
intended to modify, limit or otherwise affect the representations, warranties,
covenants and agreements contained in the Asset Purchase Agreement, and such
representations, warranties, covenants and agreements shall remain in full
force and effect in accordance with the terms of the Asset Purchase Agreement.
In the event of a conflict between the terms of this Agreement and the terms
of the Asset Purchase Agreement, the terms of the Asset Purchase Agreement
shall govern and control.
4. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without regard to its rules of conflict
of laws.
IN WITNESS WHEREOF, the undersigned has executed and delivered
this Agreement on the day and year first above written.
VASCO DATA SECURITY
INTERNATIONAL, INC.
By:_______________________________
Name:
Title:
SECURED SERVICES, INC.
By:_______________________________
Name:
Title:
Exhibit F
XXXX OF SALE
THIS XXXX OF SALE ("Xxxx of Sale"), dated ___________, 2003, by
VASCO DATA SECURITY INTERNATIONAL, INC., a Delaware corporation ("VASCO"), is
entered into in connection with the consummation of the transactions
contemplated by that certain Asset Purchase Agreement (the "Asset Purchase
Agreement") dated of even date herewith, between VASCO and SECURED SERVICES,
INC., a Delaware corporation ("SSI"). Capitalized terms used but not
otherwise defined herein shall have the meanings assigned to them in the Asset
Purchase Agreement.
WHEREAS, pursuant to the Asset Purchase Agreement, VASCO has
agreed to sell to SSI and SSI has agreed to purchase from VASCO all right,
title and interest of VASCO in, to and under the Purchased Assets.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and intending to be legally bound, VASCO agrees as
follows:
1. VASCO hereby sells, assigns, transfers, delivers and conveys
to SSI, all of VASCO's right, title and interest in, to and under the
Purchased Assets, free and clear of all Encumbrances, to have and to hold unto
SSI, its successors and assigns, to and for their use forever.
2. This Xxxx of Sale shall inure to the benefit of SSI and its
successors and assigns.
3. This Xxxx of Sale is expressly made pursuant to, and subject
to the limitations contained in, the Asset Purchase Agreement. Nothing herein
is intended to modify, limit or otherwise affect the representations,
warranties, covenants and agreements contained in the Asset Purchase
Agreement, and such representations, warranties, covenants and agreements
shall remain in full force and effect in accordance with the terms of the
Asset Purchase Agreement. In the event of a conflict between the terms of
this Xxxx of Sale and the terms of the Asset Purchase Agreement, the terms of
the Asset Purchase Agreement shall govern and control.
4. This Xxxx of Sale shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules
of conflicts of laws.
IN WITNESS WHEREOF, VASCO has executed and delivered this Xxxx of
Sale on the day and year first above written.
VASCO DATA SECURITY INTERNATIONAL, INC.
By:________________________________
Name:
Title:
EXHIBIT G
Escrow Agreement
TECHNOLOGY COLLATERAL ESCROW AGREEMENT
This Agreement is effective July 1, 2003 among DSI Technology Escrow Services,
Inc. ("DSI"), Secured Services, Inc. ("Depositor") and Vasco Data Security
International, Inc. ("Beneficiary"), who collectively may be referred to in
this Agreement as "the parties."
A. Depositor and Beneficiary have entered or will enter into a security
agreement (the "Security Agreement") and an asset purchase agreement
(the "Purchase Agreement"), each as of even date herewith, regarding
certain proprietary technology of Depositor.
B. Depositor desires to avoid disclosure of its proprietary technology
except under certain limited circumstances.
C. The availability of the collateral, the proprietary technology of
Depositor, is critical to Beneficiary in the conduct of its business and
in the performance of the Security Agreement. Therefore, Beneficiary
needs access to the proprietary technology under certain limited
circumstances.
D. Depositor and Beneficiary desire to establish an escrow with DSI to
provide for the retention, administration and controlled access of the
proprietary technology materials of Depositor.
E. The parties desire this Agreement to be supplementary to the Security
Agreement pursuant to Section 365(n) of Title 11 of the U.S. Code.
ARTICLE 1 - DEPOSITS
1.1. Obligation to Make Deposit. Upon the signing of this Agreement by the
parties, Depositor shall deliver to DSI the proprietary technology and
other materials ("Deposit Materials") required to be deposited by, and
in the number and form set forth in, the Purchase Agreement, including,
without limitation, as specified in Section 5.11 thereof.
1.2. Identification of Tangible Media. Prior to the delivery of the Deposit
Materials to DSI, Depositor shall conspicuously label for identification
each document, magnetic tape, disk, or other tangible media upon which
the Deposit Materials are written or stored. Additionally, Depositor
shall complete Exhibit A to this Agreement by listing each such tangible
media by the item label description, the type of media and the quantity.
The Exhibit A must be signed by Depositor and delivered to DSI with the
Deposit Materials. Unless and until Depositor makes the initial deposit
with DSI, DSI shall have no obligation with respect to this Agreement,
except the obligation to notify the parties regarding the status of the
deposit account as required in Section 2.2 below.
1.3. Deposit Inspection. When DSI receives the Deposit Materials and the
Exhibit A, DSI will conduct a deposit inspection by visually matching
the labeling of the tangible media containing the Deposit Materials to
the item descriptions and quantity listed on Exhibit A. In addition to
the deposit inspection, Beneficiary may elect to cause a verification of
the Deposit Materials in accordance with Section 1.6 below.
1.4. Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item
descriptions and quantity on Exhibit A, DSI will date and sign the
Exhibit A and mail a copy thereof to Depositor and Beneficiary. If DSI
determines that the labeling does not match the item descriptions or
quantity on the Exhibit A, DSI will (a) note the discrepancies in
writing on the Exhibit A; (b) date and sign the Exhibit A with the
exceptions noted; and (c) mail a copy of the Exhibit A to Depositor and
Beneficiary. DSI's acceptance of the deposit occurs upon the signing of
the Exhibit A by DSI. Delivery of the signed Exhibit A to Beneficiary
is Beneficiary's notice that the Deposit Materials have been received
and accepted by DSI.
1.5. Depositor's Representations. Depositor represents as follows:
a. Depositor lawfully possesses all of the Deposit Materials
deposited with DSI;
b. With respect to all of the Deposit Materials, Depositor has the
right and authority to grant to DSI and Beneficiary the rights as
provided in this Agreement;
c. The Deposit Materials are subject only to the lien or other
encumbrance specified in the Security Agreement;
d. The Deposit Materials consist of the proprietary technology and
other materials identified in the Security Agreement and Purchase
Agreement; and
e. The Deposit Materials are readable and useable in their current
form or, if any portion of the Deposit Materials is encrypted, the
decryption tools and decryption keys have also been deposited.
1.6. Verification. Beneficiary shall have the right, at Beneficiary's
expense, to cause a verification of any Deposit Materials. Beneficiary
shall notify Depositor and DSI of Beneficiary's request for
verification. Depositor shall have the right to be present at the
verification. A verification determines, in different levels of detail,
the accuracy, completeness, sufficiency and quality of the Deposit
Materials. If a verification is elected after the Deposit Materials
have been delivered to DSI, then only DSI, or at DSI's election an
independent person or company selected and supervised by DSI, may
perform the verification.
1.7. Deposit Updates. Depositor shall update the Deposit Materials within 60
days of each release of a new version of the product and references in
this Agreement to the Deposit Materials shall include the initial
Deposit Materials and any updates.
1.8. Removal of Deposit Materials. The Deposit Materials may be removed
and/or exchanged only on written instructions signed by Depositor and
Beneficiary, or as otherwise provided in this Agreement.
ARTICLE 2 - CONFIDENTIALITY AND RECORD KEEPING
2.1. Confidentiality. DSI shall maintain the Deposit Materials in a secure,
environmentally safe, locked facility which is accessible only to
authorized representatives of DSI. DSI shall have the obligation to
reasonably protect the confidentiality of the Deposit Materials. Except
as provided in this Agreement, DSI shall not disclose, transfer, make
available, or use the Deposit Materials. DSI shall not disclose the
content of this Agreement to any third party. If DSI receives a
subpoena or other order of a court or other judicial tribunal pertaining
to the disclosure or release of the Deposit Materials, DSI will
immediately notify the parties to this Agreement unless prohibited by
law. It shall be the responsibility of Depositor and/or Beneficiary to
challenge any such order; provided, however, that DSI does not waive its
rights to present its position with respect to any such order. DSI will
not be required to disobey any court or other judicial tribunal order.
(See Section 7.5 below for notices of requested orders.)
2.2. Status Reports. DSI will issue to Depositor and Beneficiary a report
profiling the account history at least semi-annually. DSI may provide
copies of the account history pertaining to this Agreement upon the
request of any party to this Agreement.
2.3. Audit Rights. During the term of this Agreement, Depositor and
Beneficiary shall each have the right to inspect the written records of
DSI pertaining to this Agreement. Any inspection shall be held during
normal business hours and following reasonable prior notice.
ARTICLE 3 - GRANT OF RIGHTS TO DSI
3.1. Title to Media. Depositor hereby transfers to DSI the title to the
media upon which the proprietary technology and materials are written or
stored. However, this transfer does not include the ownership of the
proprietary technology and materials contained on the media such as any
copyright, trade secret, patent or other intellectual property rights.
3.2. Right to Make Copies. DSI shall have the right to make copies of the
Deposit Materials as reasonably necessary to perform this Agreement.
DSI shall copy all copyright, nondisclosure, and other proprietary
notices and titles contained on the Deposit Materials onto any copies
made by DSI. With all Deposit Materials submitted to DSI, Depositor
shall provide any and all instructions as may be necessary to duplicate
the Deposit Materials including but not limited to the hardware and/or
software needed. Any copying expenses incurred by DSI as a result of a
request to copy will be borne by the party requesting the copies. Upon
the reasonable request of DSI, the Depositor agrees to cooperate with
DSI in the performance of its copying duties under this Section 3.2.
3.3. Right to Transfer Upon Release. Depositor hereby grants to DSI the
right to transfer the Deposit Materials to Beneficiary upon any release
of the Deposit Materials for use by Beneficiary in accordance with
Section 4.2. Except upon such a release or as otherwise provided in
this Agreement, DSI shall not transfer the Deposit Materials.
ARTICLE 4 - RELEASE OF DEPOSIT
4.1. Release Conditions. As used in this Agreement, "Release Condition"
shall mean any of the following:
a. the material uncured breach by Depositor of the Purchase
Agreement, the Security Agreement or any of the Collateral
Documents (as such term is defined in the Purchase Agreement); or
b. the dissolution, liquidation, bankruptcy or insolvency of
Depositor.
4.2. Release. If Beneficiary believes in good faith that a Release Condition
has occurred, Beneficiary may provide to DSI an affidavit, signed by a
corporate officer of Beneficiary, certifying the occurrence of the
Release Condition and a request for the release of the Deposit
Materials. Upon receipt of such affidavit, DSI is authorized to and
shall release the Deposit Materials to the Beneficiary. DSI shall not
be required to inquire into the truth of the affidavit or evaluate the
merit of the affidavit. DSI may not refuse to deliver the Deposit
Material. DSI shall provide Depositor with a copy of Beneficiary's
affidavit and notice of DSI's delivery of the Deposit Materials to
Beneficiary. This Agreement will terminate upon the release of the
Deposit Materials held by DSI.
4.3. Right to Use Following Release. Unless otherwise provided in the
Security Agreement, upon release of the Deposit Materials in accordance
with this Article 4, Beneficiary shall have the right to use the Deposit
Materials for the sole purpose of continuing the benefits afforded to
Beneficiary by the Security Agreement. Beneficiary shall be obligated
to maintain the confidentiality of the released Deposit Materials.
ARTICLE 5 - TERM AND TERMINATION
5.1. Term of Agreement. The initial term of this Agreement is for a period
of one year. Thereafter, this Agreement shall automatically renew from
year-to-year unless:
a. Depositor and Beneficiary jointly instruct DSI in writing that the
Agreement is terminated;
b. Beneficiary no longer holds any of the Preferred Shares referred
to in the Security Agreement; or
c. The Agreement is terminated by DSI for nonpayment in accordance
with Section 5.2. If the Deposit Materials are subject to another
escrow agreement with DSI, DSI reserves the right, after the
initial one-year term, to adjust the anniversary date of this
Agreement to match the then prevailing anniversary date of such
other escrow arrangements.
5.2. Termination for Nonpayment. In the event of the nonpayment of fees owed
to DSI, DSI shall provide written notice of delinquency to all parties
to this Agreement. Any party to this Agreement shall have the right to
make the payment to DSI to cure the default. If the past due payment is
not received in full by DSI within one month of the date of such notice,
then DSI shall have the right to terminate this Agreement at any time
thereafter by sending written notice of termination to all parties. DSI
shall have no obligation to take any action under this Agreement so long
as any payment due to DSI remains unpaid.
5.3. Disposition of Deposit Materials Upon Termination. Upon termination of
this Agreement, DSI shall destroy, return, or otherwise deliver the
Deposit Materials in accordance with Depositor's instructions. If there
are no instructions, DSI may, at its sole discretion, destroy the
Deposit Materials or return them to Depositor. DSI shall have no
obligation to return or destroy the Deposit Materials if the Deposit
Materials are subject to another escrow agreement with DSI.
5.4. Survival of Terms Following Termination. Upon termination of this
Agreement, the following provisions of this Agreement shall survive:
a. Depositor's Representations (Section 1.5);
b. The obligations of confidentiality with respect to the Deposit
Materials;
c. The rights granted in the sections entitled Right to Transfer Upon
Release (Section 3.3) and Right to Use Following Release (Section
4.5), if a release of the Deposit Materials has occurred prior to
termination;
d. The obligation to pay DSI any fees and expenses due;
e. The provisions of Article 7; and
f. Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
ARTICLE 6 - DSI'S FEES
6.1. Fee Schedule. DSI is entitled to be paid its standard fees and expenses
applicable to the services provided. The parties hereto acknowledge and
agree that, with the exception of a verification requested by
Beneficiary under Section 1.6, Depositor shall be solely responsible for
paying DSI's fees pursuant to this Agreement. DSI shall notify
Depositor at least 60 days prior to any increase in fees. For any
service not listed on DSI's standard fee schedule, DSI will provide
Depositor with a quote prior to rendering the service, if requested.
6.2. Payment Terms. DSI shall not be required to perform any service unless
the payment for such service and any outstanding balances owed to DSI
are paid in full. Fees are due upon receipt of a signed contract or
receipt of the Deposit Materials whichever is earliest. If invoiced
fees are not paid, DSI may terminate this Agreement in accordance with
Section 5.2. Late fees on past due amounts shall accrue interest at the
rate of one and one-half percent per month (18% per annum) from the date
of the invoice.
ARTICLE 7 - LIABILITY AND DISPUTES
7.1. Right to Rely on Instructions. DSI may act in reliance upon any
instruction, instrument, or signature reasonably believed by DSI to be
genuine. DSI may assume that any executive employee of a party to this
Agreement who gives any written notice, request, or instruction has the
authority to do so. DSI shall not be responsible for failure to act as
a result of causes beyond the reasonable control of DSI. DSI will not
be required to inquire into the truth, or evaluate the merit, of any
statement or representation contained in any notice or document.
7.2. Indemnification. Depositor and Beneficiary each agree to indemnify,
defend and hold harmless DSI from any and all claims, actions, damages,
arbitration fees and expenses, costs, attorney's fees and other
liabilities ("Liabilities") incurred by DSI relating in any way to this
escrow arrangement unless such Liabilities were caused solely by the
negligence or willful conduct of DSI.
7.3. Limitation of Liability. In no event will DSI, its directors, officers,
employers, agents and representatives be liable for any incidental,
indirect, special, exemplary, punitive or consequential damages,
including, but not limited to, damages (including loss of data, revenue,
and/or profits) costs or expenses (including, without limitation, lost
goodwill, lost profits, work stoppage, impairment of goods, legal fees
and expenses), whether foreseeable or unforeseeable, that may arise out
of or in connection with this Agreement; and in no event shall the
collective liability of DSI exceed ten times the fees paid under this
Agreement. The foregoing limitation of liability does not apply with
respect to any acts of gross negligence, personal injury claims,
property damage claims (excluding the Deposit), or intellectual property
infringement.
7.4. Dispute Resolution. Any dispute relating to or arising from this
Agreement shall be resolved by arbitration under the Commercial Rules of
the American Arbitration Association. Three arbitrators shall be
selected. The Depositor and Beneficiary shall each select one
arbitrator and the two chosen arbitrators shall select the third
arbitrator, or failing agreement on the selection of the third
arbitrator, the American Arbitration Association shall select the third
arbitrator. However, if DSI is a party to the arbitration, DSI shall
select the third arbitrator. Unless otherwise agreed by Depositor and
Beneficiary, arbitration will take place in Chicago, Illinois, U.S.A.
Any court having jurisdiction over the matter may enter judgment on the
award of the arbitrator(s). Service of a petition to confirm the
arbitration award may be made by First Class mail or by commercial
express mail, to the attorney for the party or, if unrepresented, to the
party at the last known business address.
7.5. Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the State of Delaware, without regard to its
conflict of law provisions.
7.6. Notice of Requested Order. If any party intends to obtain an order from
the arbitrator or any court of competent jurisdiction which may direct
DSI to take, or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be paid
for the reasonable value of the services to be rendered pursuant
to such order; and
c. Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the Deposit Materials if DSI may need to
retain the original in its possession to fulfill any of its other
duties.
ARTICLE 8 - GENERAL PROVISIONS
8.1. Entire Agreement. This Agreement, which includes the Exhibits described
herein, embodies the entire understanding among the parties with respect
to its subject matter and supersedes all previous communications,
representations or understandings, either oral or written. DSI is not a
party to the Security Agreement between Depositor and Beneficiary and
has no knowledge of any of the terms or provisions of any such Security
Agreement. DSI's only obligations to Depositor or Beneficiary are as
set forth in this Agreement. No amendment or modification of this
Agreement shall be valid or binding unless signed by all the parties
hereto, except that Exhibit A need not be signed by Beneficiary and
Exhibit B need not be signed.
8.2. Notices. All notices, invoices, payments, deposits and other documents
and communications shall be given to the parties at the addresses
specified in the attached Exhibit B. It shall be the responsibility of
the parties to notify each other as provided in this Section in the
event of a change of address. The parties shall have the right to rely
on the last known address of the other parties. Unless otherwise
provided in this Agreement, all documents and communications may be
delivered by First Class mail.
8.3. Severability. In the event any provision of this Agreement is found to
be invalid, voidable or unenforceable, the parties agree that unless it
materially affects the entire intent and purpose of this Agreement, such
invalidity, voidability or unenforceability shall affect neither the
validity of this Agreement nor the remaining provisions herein, and the
provision in question shall be deemed to be replaced with a valid and
enforceable provision most closely reflecting the intent and purpose of
the original provision.
8.4. Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI
shall have no obligation in performing this Agreement to recognize any
successor or assign of Depositor or Beneficiary unless DSI receives
clear, authoritative and conclusive written evidence of the change of
parties.
8.5. Regulations. Depositor and Beneficiary are responsible for and warrant
compliance with all applicable laws, rules and regulations, including
but not limited to customs laws, import, export, and re-export laws and
government regulations of any country from or to which the Deposit
Materials may be delivered in accordance with the provisions of this
Agreement.
SecureD Services, Inc. VASCO Data Security International, Inc.
Depositor Beneficiary
By: By:
Name: Name:
Title: Title:
Date: Date:
DSI Technology Escrow Services, Inc.
By:
Name:
Title:
Date:
EXHIBIT A
DESCRIPTION OF DEPOSIT MATERIALS
Depositor Company Name
Account Number
Product Name Version
(Product Name will appear as the Exhibit A Name on Account History report)
DEPOSIT MATERIAL DESCRIPTION:
Quantity Media Type & Size Label Description of Each Separate Item
_____ Disk 3.5" or ____
_____ DAT tape ____mm
_____ CD-ROM
_____ Data cartridge tape ____
_____ TK 70 or ____ tape
_____ Magnetic tape ____
_____ Documentation
_____ Other __________________
PRODUCT DESCRIPTION:
Environment
DEPOSIT MATERIAL INFORMATION:
Is the media encrypted? Yes / No If yes, please include any passwords and
the decryption tools.
Encryption tool name____________________________________ Version
Hardware required
Software required
Other required information
I certify for Depositor that the above DSI has inspected and accepted the
described Deposit Materials have been above materials (any exceptions
transmitted to DSI: are noted above):
Signature Signature
Print Name Print Name
Date Date Accepted
Exhibit A#
EXHIBIT B
DESIGNATED CONTACT INFORMATION
Account Number
Notices, Deposit Material returns and
communications to Depositor Invoices to Depositor should be
should be addressed to: addressed to:
Company Name:
Address:
Contact: Contact:
Telephone:
Facsimile: P.O.#, if required:
Notices and communications to Beneficiary Invoices to Beneficiary should be
should be addressed to: addressed to:
Company Name: VASCO Data Security Company Name: VASCO Data Security
International, Inc. International, Inc.
Address: 0000 Xxxxx Xxxxxx Xxxx, Address: 0000 Xxxxx Xxxxxx Xxxx,
Xxxxx 000 Xxxxx 000
Xxxxxxxx Terrace, Illinois 60181 Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Contact: Contact:
Telephone:
Facsimile: P.O.#, if required:
Requests from Depositor or Beneficiary to change the designated contact should
be given in writing by the designated contact or an authorized employee of
Depositor or Beneficiary.
Contracts, Deposit Materials and notices Invoice inquiries and fee remittance
to DSI should be addressed to: to DSI should be addressed to:
DSI Technology Escrow Services. Inc. DSI Technology Escrow Services, Inc.
Contract Administration PO Box 27131
0000 Xxxxxxxx Xxxxxxx, Xxxxx 000 Xxx Xxxx, XX 00000-0000
Xxxxxxxx, XX 00000
Telephone: 000 000-0000
Fax: 000 000-0000
EXHIBIT H
Employment Agreement
Employment Agreement
This Employment Agreement (the "Agreement") is entered into this _______ day
of ________, ______ (the "Effective Date") by and between:
Secured Services Inc. (SSI), a Delaware Corporation, with an office
located at 000 Xxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, XX 00000
and
____________________, a resident of ______________, __________. (the
"Employee).
Whereas the Employee has represented that he has skills, experience and
competence in the field(s) of ____________________________;
Whereas, SSI desires to employ the Employee as a _________________ upon the
terms and conditions set forth herein; and
Whereas, the Employee is willing to enter into this Agreement with respect to
his employment upon the terms and conditions set forth herein.
In consideration of the mutual promises and obligations contained in this
Agreement, SSI hereby employs the Employee and the Employee hereby accepts
such employment and the parties hereto covenant and agree with each other as
follows:
1. The Employee will devote substantially all of his professional and
business related time, skill and efforts to the business of SSI.
2. The Employee will perform all services required of him in a prompt,
competent and professional manner. Such services shall normally be
performed during a forty (40) hour workweek.
3. The Employee agrees that his employment with SSI is full time and that,
while employed by SSI, he will not perform any ______________________
services for anyone else.
4. SSI will pay the Employee for his services on the basis set out in
Appendix A to this Agreement. The Employee will be responsible for all
of his own employment related expenses including transportation to and
from the SSI office, accommodation and meals while in the
______________________ area.
5. If the Employee is required by SSI to travel to a customer location, the
expenses incurred by the Employee to do so will be reimbursed according
to the standard policies of SSI at the time the expenses were incurred.
6. Any invention or improvement in any way relating to SSI's business which
the Employee may conceive during his employment with SSI shall become the
exclusive property of SSI. The Employee will transfer to SSI all rights
in such inventions and improvements. The Employee will not, either
during his employment with SSI or after it ends, use or disclose any such
inventions or improvements except for use as an employee of SSI in
performing services for SSI's clients.
7. In the course of his employment with SSI, the Employee will be exposed to
and learn of confidential information and trade secrets relating to SSI's
business, SSI's clients and prospective clients and SSI's employees. Use
and disclosure of such confidential information and trade secrets except
in relation to Employee performing his duties for SSI according to this
Agreement, would be highly detrimental to SSI. Therefore, the Employee
agrees that he will not use or disclose such confidential information and
trade secrets except in his employment with SSI in performing services
for SSI's clients.
8. After his employment with SSI ends, for the number of months equal to the
number of months he was employed by SSI up to a maximum of twelve (12)
months, the Employee will not, alone or with others, directly or
indirectly:
(a) In any manner solicit, take away or attempt to solicit or take
away any clients of SSI for whom he performed services during the
last twelve (12) months of his employment or such lesser number of
months equal to the length of employment if less than twelve (12)
months; or
(b) In any manner solicit, take away or attempt to solicit or take
away any SSI employee or consultant; or
(c) Provide similar services to any SSI client for whom the Employee
performed services during the last twelve (12) months of his
employment or such lesser number of months equal to the length of
employment if less than twelve (12) months:
i) as an Employee of that client; or
ii) in any other capacity.
9. The Employee's employment with SSI shall continue until terminated as
follows:
(a) The Employee will be on probation for six (6) months, during which
time SSI may terminate the Employee by giving one (1) week's
notice in writing to the Employee.
(b) Following the six (6) month probationary period, either SSI or the
Employee may terminate the employment of the Employee as follows:
i) by the Employee, by giving SSI two (2) weeks prior written
notice; or
ii) by SSI, by giving the Employee a written notice within the
delays and in the manner prescribed by legislation
applicable to the employment of the Employee by SSI.
10.Paragraphs 9(a) and 9(b) do not apply to SSI where the Employee has been
guilty of dishonesty, violence, willful misconduct, willful disobedience
or willful neglect of duty or for any other cause sufficient in law. In
such cases, SSI may terminate the employment of the Employee without
notice.
11.All notices relative to this Agreement will be given in writing and
delivered to SSI at the address stated in the preamble or to any other
subsequent business address of which the Employee is notified, and to the
Employee at the address maintained in the Employee's personnel file at
SSI.
12.The terms of this Agreement replace all prior agreements between SSI and
the Employee.
13.The Employee and SSI agree that many aspects of the employment
relationship will be governed by SSI's Standard Policies and Procedures,
which may from time to time be modified according to the requirements of
the business, but at all times will meet or exceed the requirements of
the relevant legislation governing the employment of the Employee by SSI.
14.The terms of this Agreement and the employment of the Employee by SSI
shall be governed by the laws of the State of New York.
15.The provisions of Clauses 6, 7 and 8 will survive termination of this
agreement and will continue in full force and effect.
16.The invalidity or unenforceability of one or several paragraphs of this
Agreement shall not have any effect on the validity or enforceability of
the remaining provisions of this Agreement, which shall continue to be
applicable to the fullest extent without regard to the invalid or
unenforceable provisions.
SecureD Services Inc.
___________________________ per: _________________________________
Date
___________________________ per: _________________________________
Date
I, _____________, the Employee, have been given a copy of this agreement and
have had time to read it and seek any professional advice that I thought
necessary.
______________________________ _____________________________________
Date Employee
EXHIBIT I
Amendment to Certificate of Incorporation of SSI
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
SecureD Services, Inc.
__________________________
Pursuant to Section 242 of the
Delaware General Corporation Law
__________________________
SecureD Services, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law (the
"DGCL") does hereby certify that:
1. The name of the Corporation is SecureD Services, Inc.
2. The Certificate of Incorporation of the Corporation (the
"Certificate") is hereby amended to: (a) increase and change the authorized
capitalization from 10,000 to 55,000,000 shares, consisting of 50,000,000
shares of common stock and 5,000,000 shares of preferred stock; (b) split
13,000 for one each of the outstanding 300 shares of common stock (or an
aggregate of 3,900,000 shares of common stock after the split) without
changing the par value per share; and (c) designate a series of preferred
stock.
3. In order to effect the changes described in Paragraph 2 hereof, the
Certificate of Incorporation of the Corporation is hereby amended by striking
out Article FOURTH and by substituting the following new Article:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 55,000,000
shares, consisting of (i) 50,000,000 shares of common stock,
$0.001 par value per share (the "Common Stock") and (ii) 5,000,000
shares of preferred stock, $0.001 par value per share (the
"Preferred Stock").
Upon the filing of this Certificate of Amendment, each of
the 300 shares of Common Stock of the Corporation outstanding on
such date shall automatically be split and changed into 13,000
shares of Common Stock or an aggregate of 3,900,000 shares of
Common Stock.
I. Common Stock
(a) General. All shares of Common Stock shall be identical,
and shall entitle the holders thereof to the same rights,
preferences, qualifications, limitations and restrictions. No
shares of Common Stock shall be subdivided or combined unless an
identical subdivision or combination, as the case may be, shall be
effected with respect to all authorized shares of Common Stock.
(b) Dividends and Distributions. Subject to the provisions
of this Article FOURTH, including without limitation Section
II(b), the holders of shares of Common Stock shall be entitled to
receive such dividends and distributions, payable in cash or
otherwise, as may be declared thereon by the Board from time to
time out of assets or funds of the Corporation legally available
therefor, provided that the holders of shares of Common Stock
shall be entitled to share equally, on a per share basis, in such
dividends or distributions.
(c) Voting. Each holder of Common Stock shall be entitled
to vote on each matter (i) expressly required by the DGCL and (ii)
otherwise submitted to a vote of the stockholders of the
Corporation, including the election of directors, except for
matters subject to a separate class vote by one or more classes
and/or series of capital stock of the Corporation other than the
Common Stock to the extent such separate class vote is required by
the DGCL or this Certificate. Each such holder shall be entitled
to one vote per share of Common Stock on each matter to be voted
on by such stock. The Common Stock shall have no cumulative
voting rights.
(d) Liquidation. After the payments to the holders of
Series A Preferred pursuant to Article FOURTH, Section II(b)5 of
this Certificate, the holders of Common Stock shall be entitled to
liquidation distributions, if any.
(e) Restrictions. No holder of any of the shares of the
capital stock of the Corporation, including without limitation the
Common Stock, whether now or hereafter authorized and issued,
shall be entitled as of right to purchase or subscribe for (1) any
unissued stock of any class, or (2) any additional shares of any
class to be issued by reason of any increase of the authorized
capital stock of the Corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities
convertible into stock of the Corporation, or carrying any right
to purchase stock of any class, but any such unissued stock or
such additional authorized issue of any stock or of other
securities convertible into stock, or carrying any right to
purchase stock, may be issued and disposed of pursuant to
resolution of the Board to such persons, firms, corporations or
associations and upon such terms as may be deemed advisable by the
Board in the exercise of its discretion.
II. Preferred Stock
(a) Preferred Stock. The Board of Directors, in the
exercise of its discretion, is authorized to issue the
undesignated Preferred Stock in one or more series, to determine
the powers, preferences and rights, and qualifications,
limitations or restrictions, granted to or imposed upon any wholly
unissued series of undesignated Preferred Stock, and to fix the
number of shares constituting any series and the designation of
such series, without any further vote or action by the
stockholders. No holder of any of the shares of any series of
Preferred Stock of the Corporation, whether now or hereafter
authorized and issued, shall be entitled as of right to purchase
or subscribe for (1) any unissued stock of any class, or (2) any
additional shares of any class to be issued by reason of any
increase of the authorized capital stock of the Corporation of any
class, or (3) bonds, certificates of indebtedness, debentures or
other securities convertible into stock of the Corporation, or
carrying any right to purchase stock of any class; but any such
unissued stock or such additional authorized issue of such stock
or of other securities convertible into such stock, or carrying
any right to purchase such stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, partnerships, corporations, associations or other entities
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its discretion.
(b) Series A Preferred.
1. Designation. There shall be a series of Preferred Stock
designated as "Series A Convertible Preferred Stock" (the
"Series A Preferred"). The number of shares constituting
the Series A Preferred shall be Two Million (2,000,000). In
accordance with the terms hereof, each share of Series A
Preferred shall have the same relative rights as and be
identical in all respects with each other share of Series A
Preferred and each shall have the powers, designations,
preferences and rights set forth in this Section II(b).
2. Dividends.
a. General. Dividends on each issued and outstanding
share of the Series A Preferred shall accrue at an
annual rate of six percent (6%) of the Series A Stated
Value, compounded quarterly, from and including the
Series A Original Issuance Date to and including the
first to occur of (i) the date on which such share of
Series A Preferred is redeemed by the Corporation as
provided in Section II(b)7 below or (ii) the date on
which such share of Series A Preferred is converted
into shares of Common Stock as provided in Section
II(b)6 below.
b. Payment of Quarterly Dividends. Subject to Section
II(b)2.a, to the extent permitted under the DGCL, the
Corporation shall pay preferential cumulative
dividends quarterly in shares of Common Stock
("Dividend Shares") to the holders of the Series A
Preferred for each of the calendar quarters ending on
the last day of March, June, September and December.
Such dividend shall be paid, in arrears, within ten
(10) business days from the end of the quarter. The
number of Dividend Shares issuable in connection with
the payment of the dividend shall be calculated as
follows: (i) if, on the last day of the quarter
immediately preceding payment of a dividend, the
Common Stock is publicly traded, by dividing (A) the
Quarterly Dividend Amount by (B) the Average Public
Trading Price of Common Stock for the ten (10)
business days immediately prior to the end of the
respective quarter; and (ii) if, on the last day of
the quarter immediately preceding payment of a
dividend, the Common Stock is not publicly traded, by
dividing (A) the Quarterly Dividend Amount by (B) the
Private Per Share Amount. Such dividends shall accrue
whether or not they have been declared and whether or
not there are profits, surplus or other funds of the
Corporation legally available for the payment of
dividends, and such dividends shall be cumulative such
that all accrued and unpaid dividends shall be fully
paid before any dividends, distributions, redemptions
or other payments may be made with respect to any Pari
Passu Securities, the Common Stock or any other Series
A Junior Securities. Prior to the payment of each
dividend required by this Section II(b)2.b, the
Corporation shall take all such actions as are
necessary in order to insure that the Dividend Shares
shall be validly issued, fully paid and nonassessable,
free and clear of all taxes, liens, charges and
encumbrances with respect to the issuance thereof.
c. Most-Favored Registration of Dividend Shares. If the
Common Stock is registered as a class under Section 12
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), then the holders of the Series A
Preferred shall at all times be entitled to require
that the Corporation register such holders' Dividend
Shares for resale (in accordance with all applicable
securities laws), in accordance with the most
preferential registration rights of any Corporation
security now in existence or subsequently authorized.
To the extent that no Corporation security has
registration rights preferable to those of the Series
A Preferred, the Corporation shall be required to
provide the holders of Series A Preferred with the
registration rights described in Section II(b)2.dbelow.
d. Series A Preferred Minimum Registration Rights for
Dividend Shares. If the Corporation at any time
proposes to file a registration statement to register
any of its securities under the Securities Act of
1933, as amended (the "Securities Act")(except for a
registration filed on Forms S-4 or S-8), whether or
not for sale for its own account, it will at each such
time give prompt written notice to the holders of the
Series A Preferred outstanding of its intention to do
so. Upon the written request of a holder of the
Series A Preferred outstanding (the "Requesting
Holder"), which request shall specify the amount of
Dividend Shares the Requesting Holder wants included
in any such registration statement, made as promptly
as practicable and in any event within ten (10) days
after the receipt of notice from the Corporation, the
Corporation will use its best efforts to effect the
registration under the Securities Act of all the
Dividend Shares which the Corporation has been so
requested to register by the Requesting Holder (a
"Piggy-Back Registration"). However, if the managing
underwriter of any underwritten offering in its sole
discretion determines that the total amount of
Dividend Shares requested to be included in such
registration would jeopardize the success of the
offering by the Corporation, then the Corporation
shall include in such registration, only the number
which the Corporation is so advised can be sold in (or
during the time of) such offering; provided, that if
Common Stock are being offered for the account of
other selling shareholders as well as the Corporation,
any reduction in the amount of Dividend Shares
included in such offering shall be in equal proportion
to reductions imposed on such other selling
shareholders.
e. Rule 144(k). Notwithstanding Sections II(b)2.c and d above,
the Corporation shall not be required to
register any Dividend Shares which can be immediately
sold pursuant to Rule 144(k) promulgated under the
Securities Act.
f. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the
Corporation pays less than the total amount of
dividends then accrued with respect to the Series A
Preferred, such payment shall be distributed pro rata
among the holders thereof based upon the aggregate
accrued but unpaid dividends on the Series A Preferred
held by each such holder.
g. Treatment of Accrued and Unpaid Dividends. Upon any
liquidation, conversion or redemption of shares of
Series A Preferred into Common Stock, as provided in
Sections II(b)5-7 below, all accrued and unpaid
dividends on the Series A Preferred shall be paid.
h. Election to Receive Cash Dividends. If, at any time,
the Corporation pays cash dividends to holders of
Common Stock, then the holders of a majority of the
Series A Preferred, may, at its option, elect to have
all future Quarterly Dividend Amounts paid in cash.
3. Restrictions on Distributions. Except: (a) to the extent
that in any instance approval is provided in writing by the
holders of a majority of the outstanding shares of Series A
Preferred voting as a separate class; (b) as provided for
pursuant to Section II(b)2 hereof; or (c) in the ordinary
course of business pursuant to Section 170 of the DGCL,
provided that the maximum annual distribution contemplated
by this clause (c) shall not exceed five percent (5%) of the
Corporation's surplus (as determined in accordance with
Sections 154 and 244 of the DGCL) or net profits otherwise
available for such distribution under the DGCL; with respect
to any of the foregoing cases, for so long as any shares of
Series A Preferred are outstanding, the Corporation shall
not declare or pay any dividends on, make any distributions
on, or purchase, redeem, retire, or otherwise acquire for
value, any shares of its capital stock (or rights, options
or warrants to purchase such shares) now or hereafter
outstanding, return any capital or make any distribution to
the holders of any capital stock, or permit any Subsidiary
(as defined below) to do any of the foregoing. "Subsidiary"
or "Subsidiaries" means any corporation, partnership, or
joint venture or other entity of which the Corporation
and/or any of its other Subsidiaries (as herein defined)
directly or indirectly owns at the time at least fifty
percent (50%) of the outstanding voting shares or similar
interests. Notwithstanding the foregoing, Subsidiaries may
declare and make payment of cash and stock dividends, return
capital and make distributions of assets to the Corporation.
Nothing contained in this Section II(b)3 shall prevent the
Corporation from: (i) effecting a stock split or declaring
or paying any dividend consisting of shares of any class of
capital stock paid to the holders of shares of such class of
capital stock; (ii) complying with any specific provision of
the terms of any currently or subsequently designated series
of Preferred Stock in accordance with its terms;
(iii) redeeming or repurchasing any stock of a deceased
stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or
repurchasing any stock of any director, officer, employee,
advisor, consultant or other person or entity, pursuant to a
stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to
repurchase such shares in the event of death, termination of
employment or of the consulting arrangement, or other
similar discontinuation of a business relationship at a
price not in excess of the original purchase price of such
shares.
4. Voting Rights.
a. General. In addition to the rights specified in
Section II(b)4.b below and any other rights provided
in the Corporation's By-laws or by law, the holders of
the Series A Preferred shall be entitled to notice of
all stockholders meetings in accordance with the By-
laws at the same time and in the same manner as notice
is given to all other stockholders entitled to vote at
such meetings. Except as otherwise provided herein or
required by applicable law, the holders of the Series
A Preferred shall be entitled to vote on all matters
submitted to the stockholders for a vote (including
without limitation the election of directors), voting
as a single class with the Common Stock and other
securities that vote with the Common Stock, with the
holders of Series A Preferred entitled to one vote for
each share of Series A Preferred held as of the record
date for such vote or, if no record date is specified,
as of the date of such vote.
b. Special. The Corporation shall not, without the
affirmative vote of the holders of a majority of the
Series A Preferred then outstanding:
i. authorize, create (by way of
reclassification or otherwise) or issue any
additional shares of Series A Preferred, or any
other securities which are senior to the Series
A Preferred as to dividends, distributions or
distributions upon liquidation, winding up or
dissolution of the Corporation ("Senior
Securities") or any obligation or security
convertible into, exchangeable for or evidencing
the right to purchase any Senior Securities;
ii. amend or otherwise alter this Certificate
in any manner that adversely affects the rights,
privileges and preferences of the Series A
Preferred as set forth in this Certificate; or
iii. take any action requiring a vote of
stockholders of the Corporation that adversely
affects the rights, preferences and privileges
of the Series A Preferred set forth in this
Certificate.
5. Liquidation Preference.
a. Preference on Liquidation. In the event that the
Corporation shall liquidate, dissolve or wind up,
whether voluntarily or involuntarily, or if there
shall occur any reduction or decrease in the
Corporation's equity securities resulting in a
distribution of assets to the holders of any class or
series of the Corporation's equity securities, the
holders of each share of Series A Preferred shall be
entitled to receive out of the assets of the
Corporation available for distribution to holders of
the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings
("Available Assets"), before any distribution or
payment is made to any holders of Pari Passu
Securities, Common Stock or Series A Junior
Securities, or any other class or series of capital
stock of the Corporation designated to be junior to
the Series A Preferred in liquidation preference,
jointly (to the extent there exist more than one
Series A Preferred holder), the Vacman Property (the
"Vacman Preference"); provided, that, if the total
value of the Vacman Preference (as determined in
accordance with Section II(b)5.c below) is: (i) less
than the product of (a) the Series A Stated Value
multiplied by (b) the total number of then issued and
outstanding shares of Series A Preferred (such product
being the "Liquidation Value"), then a percentage
ownership interest in Available Assets equal to the
difference between the Liquidation Value and the
Vacman Preference (such difference being the
"Shortfall Preference") equal to each Series A
Preferred holder's percentage ownership interest in
the authorized Series A Preferred shall be distributed
to each such Series A Preferred holder; or (ii)
greater than the Liquidation Value, then, the Series A
Preferred holders shall, at their option, either (a)
accept the Vacman Property, acknowledge and agree to
the third party valuation thereof and pay to the
Corporation the difference between the Liquidation
Value and the Vacman Preference or (b) reject the
Vacman Property and require that the Corporation sell
the Vacman Property at auction, the proceeds of which,
up to a maximum amount of the Liquidation Value, shall
be distributed by the Corporation pro rata to the
holders of the Series A Preferred. The aggregate
value of the Vacman Preference, as adjusted if
necessary, and the Shortfall Preference, if any, shall
be equal to, and shall mean, the "Liquidation
Preference".
b. Participation Rights. Upon payment in full of the
Liquidation Preference, the remaining Available
Assets, if any, shall be ratably distributed: first,
on a share for share basis, among the holders of the
Common Stock and any Pari Passu Securities; and
second, on a share for share basis, among the holders
of any Series A Junior Securities. The Series A
Preferred shall not be entitled to a distribution of
any remaining Available Assets.
c. Form of Consideration. Whenever the distribution
provided for in this Section II(b)5 shall be payable
in securities or property other than cash, the value
of such securities or property shall be the fair
market value thereof as determined by the Board in
good faith; provided, that (1) the value of the Vacman
Property shall be determined by a third party mutually
agreeable to the Corporation and the Series A
Preferred holders, following the distribution of the
Vacman Property to the holders of the Series A
Preferred; and (2) to the extent any securities or
other property (other than the Vacman Property)
contemplated by this Section II(b)5.c are, as of the
date of distribution, traded on a public exchange or
otherwise have a fair market value readily accessible
by reference to a publicly available source, the Board
shall determine the fair market value of such
securities or other property to be equal in value as
reported on such publicly available source as of such
date.
6. Conversion.
a. Conversion Right. The Series A Preferred may be
converted by any holder thereof, in such holder's sole
discretion, as follows:
i. Commencing on the second anniversary date of the
Series A Original Issuance Date (the "1stConversion Date")
each share of Series A
Preferred, up to a maximum of five hundred
thousand (500,000) shares (the "1st Conversion
Date Shares"), may be converted into an equal
number of shares of Common Stock;
ii. Commencing on or after the third
anniversary date of the Series A Original
Issuance Date (the "2nd Conversion Date") each
share of Series A Preferred, up to a maximum of
five hundred thousand (500,000) shares, plus any
1st Conversion Date Shares not previously
converted, may be converted into an equal number
of shares of Common Stock; and
iii. Commencing on or after the fourth
anniversary date of the Series A Original
Issuance Date (the "3rd Conversion Date") each
issued and outstanding share of Series A
Preferred not converted in to Common Stock prior
to the 3rd Conversion Date may be converted into
an equal number of shares of Common Stock.
b. Conversion Procedure.
i. Each conversion of Series A Preferred shall be
deemed to have been effected as of the close of
business on the date on which the certificate or
certificates representing the Series A Preferred
to be converted have been surrendered for
conversion at the principal office of the
Corporation. At the time any such conversion
has been effected, the rights of the holder of
the shares of Series A Preferred converted as a
holder of Series A Preferred shall cease and the
Person or Persons in whose name or names any
certificate or certificates for shares of Common
Stock are to be issued upon such conversion (the
"Conversion Shares") shall be deemed to have
become the holder or holders of record of the
shares of Common Stock represented thereby.
ii.The issuance of certificates for the Conversion
Shares shall be made without charge to the
holders of such Series A Preferred for any
issuance tax in respect thereof or other cost
incurred by the Corporation in connection with
such conversion and the related issuance of
shares of Common Stock.
iii.The Corporation will at no time close its
transfer books against the transfer of any
shares of Series A Preferred or of any share of
Common Stock issued or issuable upon conversion
of any shares of Series A Preferred in any
manner which interferes with the timely
conversion of such shares of Series A Preferred,
except as may otherwise be required to comply
with applicable securities or tax laws.
iv.Upon conversion of each share of Series A
Preferred, the Corporation shall take all such
actions as are necessary in order to insure that
the Conversion Shares shall be validly issued,
fully paid and nonassessable, free and clear of
all taxes, liens, charges and encumbrances with
respect to the issuance thereof.
v. Most-Favored Registration of Conversion Shares.
If the Common Stock is registered as a class
under Section 12 of the Exchange Act, then the
holders of the Series A Preferred shall at all
times be entitled to require that the
Corporation register such holders' Conversion
Shares for resale (in accordance with all
applicable securities laws), in accordance with
the most preferential registration rights of any
Corporation security now in existence or
subsequently authorized. To the extent that no
Corporation security has registration rights
preferable to those of the Series A Preferred,
the Corporation shall be required to provide the
holders of Series A Preferred with the
registration rights described in Section
II(b)0.x.xx below.
vi.Series A Preferred Minimum Registration Rights
for Conversion Shares. If the Corporation at
any time proposes to file a registration
statement to register any of its securities
under the Securities Act (except for a
registration filed on Forms S-4 or S-8), whether
or not for sale for its own account, it will at
each such time give prompt written notice to the
holders of the Series A Preferred outstanding of
its intention to do so. Upon the written
request of a Requesting Holder, which request
shall specify the amount of Conversion Shares
the Requesting Holder wants included in any such
registration statement, made as promptly as
practicable and in any event within ten (10)
days after the receipt of notice from the
Corporation, the Corporation will use its best
efforts to effect a Piggy-Back Registration with
respect to such Conversion Shares. However, if
the managing underwriter of any underwritten
offering in its sole discretion determines that
the total amount of Conversion Shares requested
to be included in such registration would
jeopardize the success of the offering by the
Corporation, then the Corporation shall include
in such registration, only the number which the
Corporation is so advised can be sold in (or
during the time of) such offering; provided,
that if Common Stock are being offered for the
account of other selling shareholders as well as
the Corporation, any reduction in the amount of
Conversion Shares included in such offering
shall be in equal proportion to reductions
imposed on such other selling shareholders.
vii.Rule 144(k). Notwithstanding Sections
II(b)6.b.v and vi above, the Corporation shall
not be required to register any Conversion
Shares which can be immediately sold pursuant to
Rule 144(k) promulgated under the Securities
Act.
c. Subdivisions or Combinations of Common Stock. If the
Corporation at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a
greater number of shares, the number of shares of Common
Stock that the Series A Preferred are convertible into
immediately prior to such subdivision shall be increased
proportionately, and if the Corporation at any time combines
(by reverse stock split or otherwise) its outstanding shares
of Common Stock into a smaller number of shares, the number
shares of Common Stock that the Series A Preferred are
convertible into immediately prior to such combination shall
be reduced proportionately.
d. Material Change; Recapitalization, Reorganization or
Reclassification. If (i) the Common Stock shall be changed
into the same or different number of shares of any other
class or classes of capital stock, whether by capital
reorganization, recapitalization, reclassification or
otherwise (other than pursuant to a stock split or
combination of the Common Stock), or (ii) in the event of a
Material Change, then, in each such event, the holder of
each share of Series A Preferred shall have the right
thereafter to receive, upon the terms and conditions
specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of
such shares of Series A Preferred, such shares, securities
or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock equal to
the number of shares of Common Stock immediately receivable
upon such conversion had such Material Change,
reorganization or reclassification not taken place, and in
any such case appropriate provisions shall be made with
respect to the rights and interests of such holder to the
end that the provisions hereof shall thereafter be
applicable in relation to any shares, securities or assets
thereafter deliverable upon the exercise of such conversion
rights. The provision for such conversion right to the
holders of Series A Preferred shall be a condition precedent
to the consummation by the Corporation of any such
transaction.
e. Acceleration of Conversion Right.
i.Options of Series A Preferred. At least ten
(10) business days prior to the consummation of
a Material Change, the Corporation and the other
holders of shares to the extent a party to such
event shall provide the holders of the shares of
Series A Preferred written notice of such event
(the "Event Notice"). Upon the election of a
Majority Interest of the holders of the shares
of Series A Preferred given to the Corporation
within five (5) business days after receipt of
an Event Notice, the Corporation shall, and each
holder of shares of Series A Preferred shall be
entitled to require, that prior to or
concurrently with consideration from any such
Material Change being paid to the Corporation
(if the consideration is to be received by the
Corporation in an asset transaction), or by any
third party to stockholders of the Corporation
other than holders of Series A Preferred (if the
consideration is to be received directly by such
stockholders in a merger or stock purchase
transaction), the holders of shares of Series A
Preferred shall, at their option, be entitled to
immediately convert their existing shares of
Series A Preferred into an equivalent number of
shares of Common Stock (notwithstanding anything
to the contrary in Section II(b)6) and be issued
by the Corporation all accrued but undeclared
Dividend Shares (the "Accelerated Conversion
Option").
ii.Cancellation of Series A Preferred. Upon the
exercise by the holders of the Series A
Preferred of the Accelerated Conversion Option,
the shares of Series A Preferred shall be deemed
cancelled and shall no longer be outstanding and
the holders of such shares shall have no further
rights in respect thereof.
7. Redemption.
a. At any time, the Corporation shall be entitled to
redeem for cash, at its option, all but not less than
all the issued and outstanding shares of Series A
Preferred, at a price of $1.00 per share.
b. If the Corporation does not redeem all the issued and
outstanding shares of Series A Preferred for cash, as
provided in Section II(b)7.a above, the Corporation
shall be entitled to redeem, at its option, the issued
and outstanding shares of Series A Preferred in
increments of five hundred thousand (500,000) shares,
at a price of $1.00 per share, as follows:
i. At any time: (i) prior to the 1st Conversion
Date, five hundred thousand (500,000) shares;
(ii) between the 1st Conversion Date and the
date immediately prior to the 2nd Conversion
Date, a maximum of one million (1,000,000), but
in no event less than five hundred thousand
(500,000) shares; and (iii) between the 2nd
Conversion Date and the date immediately prior
to the 3rd Conversion Date, any Series A
Preferred remaining issued and outstanding.
ii.The Corporation shall provide five (5) days
prior written notice of redemption to the holder
or holders, as the case may be, of Series A
Preferred at their respective addresses
appearing on the books or transfer records of
the Corporation or such other address designated
in writing by such holder to the Corporation.
c. At the time any such redemption of Series A Preferred
has been effected, the rights of the holder of the
shares of Series A Preferred redeemed, as a holder of
Series A Preferred shall cease.
8. No Dilution or Impairment. The Corporation will not, by
amendment of this Certificate or through any reorganization,
transfer of capital stock or assets, consolidation, merger,
dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Series A Preferred
set forth herein, but will at all times in good faith assist
in the carrying out of all such terms. Without limiting the
generality of the foregoing, the Corporation will take such
action as may be necessary or appropriate in order that the
Corporation may validly and legally issue fully-paid and
nonassessable shares of stock on the conversion of the
Series A Preferred from time to time outstanding or as
Dividend Shares pursuant to Section II(b)2.b.
9. Reservation of Capital Stock. The Corporation shall at all
times reserve and keep available out of its authorized but
unissued shares of Common Stock, shares of Common Stock
solely for the purpose of effecting the conversion of the
shares of the Series A Preferred, and if at any time the
number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the
then convertible outstanding shares of the Series A
Preferred, the Corporation shall take such action as may be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purpose.
10. General.
a. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and
shall be delivered by registered or certified mail,
return receipt requested and postage prepaid, by
reputable overnight courier service, charges prepaid
or by personal delivery, and shall be deemed to have
been given (i) three (3) business days after being
sent by registered or certified mail, (ii) one (1)
business day after being deposited with such an
overnight courier service, and (iii) upon delivery, if
by personal delivery, if mailed or delivered (A) to
the Corporation, at its principal executive offices,
or (B) to any stockholder, at such holder's address as
it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder).
11. Definitions.
"1st Conversion Date" has the meaning set forth in Section
II(b)6.a.i above.
"1st Conversion Date Shares" has the meaning set forth in Section
II(b)6.a.i above.
"2nd Conversion Date" has the meaning set forth in Section
II(b)6.a.ii above.
"3rd Conversion Date" has the meaning set forth in Section
II(b)6.a.iii above.
"Accelerated Conversion Option" is defined in Section
II(b)6.e.iabove.
"Available Assets" is defined in Section II(b)5.a above.
"Average Public Trading Price" means the average of the daily
high and low sales prices for one share of Common Stock in its
principal public trading market.
"Board" means the Board of Directors of the Corporation.
"By-laws" means the By-laws of the Corporation, as they may be
amended from time to time.
"Conversion Shares" is defined in Section II(b)6.b.i above.
"Corporation" means SecureD Services, Inc., a Delaware
corporation.
"Dividend Shares" is defined in Section II(b)2.b above.
"Event Notice" is defined in Section II(b)6.e.i above.
"Exchange Act" is defined in Section II(b)2.c above.
"Liquidation Preference" is defined in Section II(b)5.a above.
"Liquidation Value" is defined in Section II(b)5.a above.
"Majority Interest" means, with respect to a particular class of
capital stock entitled to vote on a particular matter, the votes
of such class of capital stock representing greater than fifty
percent (50%) of the total number of votes eligible to be case on
the matter being voted on.
"Material Change" means any acquisition of all or substantially
all of the assets of the Corporation, or transaction or series of
transactions involving the Corporation, or its securities, whether
by consolidation, merger, purchase of shares of capital stock or
other reorganization or combination or otherwise, in which the
holders of the Corporation's outstanding shares of capital stock
immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%)
of the voting power of the entity surviving such transaction.
"Pari Passu Securities" means any of the Corporation's equity
securities (whether or not currently authorized or outstanding)
that by its terms are pari passu, other than with respect to the
Liquidation Preference, with the Series A Preferred.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political
subdivision thereof.
"Piggy-Back Registration" is defined in Section II(b)2.d above.
"Private Per Share Amount" means, if the Corporation is privately
held and the Common Stock is not publicly traded: (a) at any time
after the Series A Original Issuance Date but prior to the first
anniversary thereof, an amount per share of Common Stock equal to
the per share price for a share Common Stock paid by a third-
party, non-Affiliate investor most recent in time prior to the
determination of such Private Per Share Amount; or (b) on or at
any time after the first anniversary of the Series A Original
Issuance Date, an amount per share of Common Stock equal to the
fair market value of such Common Stock as determined by the Board
in good faith; provided, that, such good faith determination shall
be based on a valuation of the Corporation as being equal to the
greater of (1) the total revenue received by the Corporation
during the twelve months immediately preceding such determination,
and (2) seven (7) times the total earnings of the Corporation,
before interest, taxes, depreciation and amortization, during the
twelve months immediately preceding such determination,
"Quarterly Dividend Amount" means the amount determined by
dividing (a) the amount resulting from multiplying (i) the Series
A Stated Value for all the issued and outstanding Series A
Preferred by (ii) the daily basis rate of six percent (6%) per
annum; by (b) four (4).
"Requesting Holder" is defined in Section II(b)2.d above.
"Securities Act" is defined in Section II(b)2.d above.
"Senior Securities" is defined in Section II(b)4.b.i above.
"Series A Preferred" means the Series A Convertible Preferred
Stock of the Corporation, $0.001 par value.
"Series A Junior Securities" means any of the Corporation's
equity securities (whether or not currently authorized or
outstanding) that by its terms is junior to the Series A
Preferred.
"Series A Original Issuance Date" means the date of the original
issuance of Series A Preferred.
"Series A Stated Value" means an amount per Series A Preferred
share equal to $1.00.
"Shortfall Preference" is defined in Section II(b)5.a above.
"Transaction Documents" means, collectively, that certain Asset
Purchase Agreement, dated as of June 30, 2003, by and between the
Corporation and Vasco Data Security International, Inc., and all
documents contemplated thereby to be entered into by and between
the parties thereto, including, without limitation, the Promissory
Note and the Security Agreement, as such terms are defined in such
Asset Purchase Agreement.
"Vacman Preference" is defined in Section II(b)5.a above.
"Vacman Property" means the intellectual property rights to the
"Snareworks" software of VACMAN Enterprises, a business unit of
Vasco Data Security Inc., plus any and all enhancements,
improvements or modifications made thereto, as such rights are
more specifically described in that certain Asset Purchase
Agreement, dated as of June 30, 2003, by and between the
Corporation and Vasco Data Security International, Inc.
4. The Amendments of the Certificate of Incorporation herein
certified have been duly adopted in accordance with the provisions of Sections
228 and 242 of the DGCL by the Unanimous Written Consent of the Directors
followed by the Unanimous Written Consent of the Stockholders.
5. This Certificate of Amendment shall become effective upon the
filing hereof in the Office of the Secretary of State of the State of
Delaware.
Executed on this 20th day of June, 2003.
SecureD Services, Inc.
By:/S/King Xxxxx
King X. Xxxxx, President and Chief Executive
Officer
EXHIBIT J
Dolfin Agreement
See Exhibit A of Exhibit 2.1 of this 8-K for the Dolfin Agreement in its
entirety.
EXHIBIT K
Proposed Reorganization Agreement
See Exhibit 2.1 of this 8-K for the Proposed Reorganization Agreement in its
entirety.
EXHIBIT L
Form of Opinion from Morse, Zelnick, Rose & Lander, LLP
MORSE, ZELNICK, ROSE & LANDER, LLP
000 XXXX XXXXXX
XXX XXXX, XXX XXXX 00000
(000) 000-0000
July 8, 2003
VASCO Data Security International, Inc.
0000 Xxxxx Xxxxxx Xxxx
Xxxxx 000
Xxxxxxxx Xxxxxxx, Xxxxxxxx 00000
Re: Purchase of Assets from VASCO Data Security International, Inc.
Gentlemen:
This opinion is being furnished pursuant to Section 5.2.2(k) of the Asset
Purchase Agreement, dated July 8, 2003, and effective as of July 1, 2003 (the
"Agreement"), by and between VASCO Data Security International, Inc. ("VASCO")
and SecureD Services, Inc. (the "Company"). Capitalized terms used herein and
not otherwise defined herein shall have the respective meanings ascribed to
them in the Agreement. As used herein, the term "Agreement" includes all
exhibits and schedules annexed thereto.
We have acted as counsel to the Company in connection with the transactions
contemplated under the Agreement. In connection therewith, we have examined
and are familiar with and have relied upon the following documents:
(1) The Agreement;
(2) The Certificate of Incorporation of the Company, as amended to date,
including the Certificate of Designation filed on June 20, 2003 (the
"Charter");
(3) The Bylaws of the Company, as amended to date (the "Bylaws");
(4) Certificate, dated as of a recent date, of the Secretary of State of the
State of Delaware certifying to the good standing of the Company in Delaware
(the "Good Standing Certificate");
(5) The Stockholder Acknowledgements as executed by each of the U.S.
purchasers (each an accredited investor), effective as of July 8, 2003,
subscribing for securities of the Company under the terms of the Subscription
Agreement, effective as of an even date hereof; and
(6) Such other documents, instruments and certificates (including, but not
limited to, certificates of public officials and officers of the Company) as
we have considered necessary for purposes of this opinion.
We have also made such inquiries of officers of the Company and considered
such questions of law as we have deemed necessary to render the opinions set
forth herein.
In our examination of the documents described above, we have assumed the
completeness of the corporate and stock record books of the Company, the
genuineness of all signatures, the legal capacity of each signatory to such
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as
certified, facsimile or photostatic copies and the authenticity of the
originals of such certified, facsimile or photostatic documents. We have
assumed that the Agreement accurately describes and contains the mutual
understanding of the parties thereto as to all matters contained therein, and
that no other agreements or understandings exist between such parties with
respect to the transactions contemplated thereby.
Insofar as this opinion relates to factual matters, information with respect
to which is in the possession of the Company, we have relied, without
independent investigation, upon certificates, statements and representations
made to us by one or more officers or employees of the Company and upon the
representations and warranties made by the Company in the Agreement.
Any reference herein to "our knowledge," or to matters "known to us," or to
any matter of which we "are aware" or coming "to our attention" or any
variation of any of the foregoing, shall mean, as used herein, the conscious
awareness of those attorneys of this firm who have rendered substantive
attention to the transaction to which this opinion relates of the existence or
absence of any facts which would contradict our opinions set forth below. We
have not undertaken, for purposes of this opinion, any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from the fact of our representation of the Company. Moreover, we
have not, for purposes of our opinions below, searched computerized or
electronic databases or the docket of any court, governmental agency or
regulatory body or other filing office in any jurisdiction.
For purposes of this opinion, we have assumed that the Agreement has been duly
authorized, executed and delivered by the signatories thereto other than the
Company, that the signatories thereto other than the Company have the legal
capacity and all requisite power and authority to effect the transactions
contemplated by the Agreement and that the Agreement is the valid and binding
obligations of the signatories thereto other than the Company, enforceable
against them in accordance with their respective terms. We are expressing no
opinion herein as to the application of or compliance with any foreign,
federal or state law or regulation to the power, authority or competence of
any party to the documents other than the Company.
Our opinions expressed in paragraph 1 below, insofar as they relate to the due
incorporation, valid existence and good standing of the Company are based
solely on the Good Standing Certificate, a copy of which has been made
available to you, and our opinions with respect to such matters are rendered
as of the respective dates of such Certificate and limited accordingly.
The opinions hereinafter expressed are qualified to the extent that they may
be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent transfer or other laws relating
to or affecting the rights and remedies of creditors generally; (ii) statutory
or decisional law concerning recourse by creditors to security in the absence
of notice or hearing; and (iii) duties and standards imposed on creditors and
parties to contracts, including without limitation, requirements of good
faith, reasonableness and fair dealing. We express no opinion as to the
availability of the remedy of specific performance, injunctive relief or any
other equitable or specific remedy upon any breach of any documents or
obligations referred to herein, or to the successful assertion of any
equitable defenses, inasmuch as the availability of such remedies or the
success of such defenses may be subject to the discretion of the court before
which any proceeding therefor may be brought. Furthermore, we express no
opinion herein as to any provision of any agreement (i) which may be deemed to
or construed to waive any right of the Company, (ii) to the effect that rights
and remedies are not exclusive, that every right or remedy is cumulative and
may be exercised in addition to or with any other right or remedy and does not
preclude recourse to one or more other rights or remedies, (iii) relating to
the effect of invalidity or enforceability of the provisions of the Agreement
on the validity or enforceability of any other provision thereof, (iv)
requiring the payment of consequential damages or liquidated damages, (v)
relating to non-competition and non-solicitation, (vi) relating to
indemnification and contribution with respect to securities law claims, and
(vii) relating to choice of law, consent to jurisdiction or waiver of trial by
jury.
We express no opinion as to compliance by the Company with any state or
federal antifraud laws or with the fraudulent transfer laws of any
jurisdiction.
We are opining herein only with respect to the Delaware General Corporation
Law and the federal laws of the United States of America. Accordingly, to the
extent that any laws other than those upon which we are opining govern any of
the matters as to which we express an opinion below, we have assumed for
purposes of this opinion, with your permission and without independent
investigation, that the laws of such jurisdiction are identical to the state
laws of the State of New York, and we express no opinion as to whether such
assumption is reasonable or correct.
On the basis of and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing and in
good standing under the laws of the State of Delaware. The Company has
requisite corporate power to own and operate its properties and assets and to
carry on its business as presently conducted.
2. The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock having a par value of $0.001 per share (the "Common
Stock"), and 5,000,000 shares of Preferred Stock having a par value of $0.001
per share, of which 2,000,000 shares have been designated as Series A
Convertible Preferred Stock.
3. The Agreement and the other agreements contemplated by the Agreement to
which the Company is a party are duly authorized, executed and delivered by
the Company and each such agreement is valid and binding upon the Company and
is enforceable against the Company in accordance with its terms except as such
enforcement may be limited by applicable bankruptcy, insolvency or other laws
of general application affecting the rights of creditors and the availability
of equitable remedies such as specific performance and injunction which are
only available in the discretion of the court from which they are sought.
4. The execution and delivery by the Company of the Agreement and the other
agreements contemplated by the Agreement and the fulfillment of and the
compliance with the respective terms thereof by the Company, do not and will
not (or would not with the giving of notice, the lapse of time or the
happening of any event or condition), to our knowledge, result in the
violation of any terms or provisions of any existing documents of the Company,
any law applicable to the Company or of any agreement, written or oral, to
which the Company is a party or by which it is bound.
This opinion is based upon currently existing statutes, rules, regulations and
judicial decisions and is rendered as of the date hereof, and we disclaim any
obligation to advise you of any change in any of the foregoing sources of law
or subsequent developments in law or changes in fact or circumstances which
might affect any matters or opinions set forth herein. Please note that we
are opining only as to the matters expressly set forth herein, and no opinion
should be inferred as to any other matters.
This opinion is being furnished to you, at your request and it is solely for
the purpose set forth in the first paragraph hereof and solely for your
benefit and may not be relied upon for any other purpose or by any other
person or entity without our prior written consent.
Very truly yours,
Morse, Zelnick, Rose & Lander, LLP
VASCO Data Security International, Inc.
Page 4
EXHIBIT C
PRIVATE PLACEMENT TERM SHEET
SecureD Services, Inc.
Common Stock
Issuer SecureD Services, Inc., (the "Company").
Securities Offered Up to 1,500,000 shares but not less than
1,000,000 shares of common stock ("Common
Stock") with minimum gross proceeds of
$750,000.
Price Per Share $.75 USD.
Transaction Private Placement pursuant to Section 4(2)
or Rule 506 of Regulation D of the United
States Securities and Exchange Commission.
Offering to be made only to "accredited
investors" and/or "non-United States
persons" pursuant to the signing of a
Subscription Agreement.
Minimum Investment $100,000 USD, or 133,333 shares.
Dividend Rate No dividends are payable.
Liquidation Preference Upon the dissolution, liquidation or
winding-up of the Company, Common Stock
shareholders shall be positioned behind
any creditors and preferred stockholders,
if any, in terms of liquidating
distribution.
Warrant Coverage The investor shall receive a five (5) year
Warrant to purchase Common Stock of the
Company, calculated as 50% of the
principal investment, divided by the
exercise price of one dollar and fifty
cents ($1.50). This means that an
investment of $100,000 would receive
33,333 warrants to purchase 33,333 shares
of Common Stock priced at $1.50 per share.
Convertible at any time after twelve (12)
months into shares of the Company's Common
Stock at the conversion price of $1.50 per
share. Automatic conversion (i) if the
Company completes a public offering, or
(ii) in the event of a change in control,
or (iii) the Company's Shares trade at
greater than $3.00 per share for more than
10 trading days.
Fees If a broker is involved, 5% of the gross
proceeds raised, excluding any money
raised by the Company directly. 10%
Warrant coverage at the same terms as
above if a broker is involved.
Schedule 2.1(e)(i)
SSGI Stockholders
Lock-Up/Leak-Out Agreement List
Xxxxx Xxxxxx
Xxxxx Xxxxx
Xxxx Xxxxxxx
Houston Associates, Inc.
Powell, Goldstein, Xxxxxxx & Xxxxxx
National Capital
Schedule 2.1(e)(ii)
LOCK-UP/LEAK-OUT AGREEMENT
THIS LOCK-UP/LEAK-OUT AGREEMENT (the "Agreement") is made and
entered into as of the ___ day of June, 2003, between Southern Software Group,
Inc., a Delaware corporation ("SSGI"), and the individuals and entities that
execute and deliver a Counterpart Signature Page hereof, each a shareholder of
SSGI or an owner of common stock, warrants to purchase common stock or
preferred stock or debt instruments that may be convertible into shares of
common stock of SecureD Services, Inc., a Delaware corporation ("SecureD
Services"), and sometimes collectively referred to herein as the
"Shareholders" and each, a "Shareholder."
WHEREAS, the Shareholders are all present shareholders of common
stock of SSGI that SSGI has agreed to include in a registration statement to
be filed with the Securities and Exchange Commission or owners of shares of
common stock, warrants to purchase common stock or preferred stock or debt
instruments that may be convertible into shares of common stock of SecureD
Services ("SecureD Services Shareholders"); and
WHEREAS, the SecureD Services Shareholders intend to exchange
their respective securities of SecureD Services for like securities of SSGI
pursuant to that certain Plan of Reorganization and Stock Exchange Agreement
(the "Reorganization Agreement") between SSGI, SecureD Services and the
SecureD Services Shareholders, to which the execution and delivery of this
Agreement is a condition precedent to the closing of the Reorganization
Agreement; and
WHEREAS, on the closing of the Reorganization Agreement with
SecureD Services, the SecureD Services Shareholders shall exchange their
respective securities of SecureD Services for like securities of SSGI,
obtaining common stock of SSGI in exchange for their respective shares of
common stock of SecureD Services, like warrants to acquire SSGI common stock
on the exercise of exchanged SecureD Services warrants and like preferred
stock or debt instruments of SSGI with conversion rights to acquire common
stock of SSGI, all as described in the respective Counterpart Signature Pages
of the Shareholders that are attached hereto and incorporated herein by
reference (the "Common Stock"), and which Common Stock SSGI has agreed to
include in a registration statement to be filed with the Securities and
Exchange Commission;
WHEREAS, in order to facilitate the consummation of the
transactions contemplated by the Reorganization Agreement and to provide for
an orderly market for the Common Stock of SSGI subsequent to the closing of
the Reorganization Agreement, the Shareholders have agreed to enter into this
Agreement and to restrict the sale, assignment, transfer, conveyance,
hypothecation or alienation of the Common Stock, all on the terms set forth
below.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Notwithstanding anything contained in this Agreement, a
Shareholder may transfer his/her/its shares of Common Stock to his/her/its
affiliates, partners in a partnership, subsidiaries and trusts, or spouses and
lineal descendants for estate planning purposes provided that the transferee
(or the legal representative of the transferee) executes an agreement to be
bound by all of the terms and conditions of this Agreement.
2. Except as otherwise expressly provided herein, and except as
each Shareholder may be otherwise restricted from selling shares of Common
Stock, each Shareholder may only sell Common Stock subject to the following
conditions for the eighteen (18) month period from the closing of the
Reorganization Agreement (the "Lock-Up/Leak-Out Period"):
2.1 No Shareholder may sell any Common Stock except as covered
by this Agreement, unless approved in a prior writing by the
Board of Directors of SSGI, pro rata as to all Shareholders,
with respect to all Shareholders covered hereby.
2.2 If a Shareholder has an approved brokerage account meaning
an account with a broker/dealer who has executed and
delivered to SSGI a broker/dealer agreement in a form
satisfactory to SSGI, a reasonable facsimile of which is
attached hereto as Exhibit A and incorporated herein by
reference (the "Broker/Dealer Agreement"), to the effect
that any such broker/dealer will comply with and monitor the
terms and conditions of this Agreement for the benefit of
SSGI and the Shareholders (the "Approved Broker/Dealer"),
then the Common Stock of the Shareholder that can be sold or
has qualified to be sold hereunder will be delivered to the
Shareholder's account at the Approved Broker Dealer through
the Depository Trust Corporation ("DTC") or by paper
delivery; and provided, however, that if the Shareholder
does not have an account with an Approved Broker/Dealer, the
Common Stock of the Shareholder that can be sold or has
qualified to be sold hereunder will be delivered to the
Shareholder in the form of an actual stock certificate that
is imprinted with a legend indicating that resale of the
Common Stock is subject to the terms and conditions of this
Agreement, one of which shall be a resale through an
Approved Broker/Dealer.
2.3 Each Shareholder shall be allowed to sell no more
than 3,000 shares of Common Stock per month during the Lock-
Up/Leak-Out Period, on a cumulative basis, meaning that if
no Common Stock was sold during one month while Common Stock
was qualified to be sold, up to 6,000 shares of Common Stock
could be sold in the next successive month and so forth;
provided, however, with respect to (i) shares of Common
Stock that are "restricted securities" that SSGI has agreed
to register for resale with the Securities and Exchange
Commission, the commencement of the right of any such
Shareholder to sell shares of Common Stock and to cumulate
unsold Common Stock into sales in the next successive month
hereunder shall begin on the earlier of the month in which
the Securities and Exchange Commission grants SSGI an
effective date (the "Effective Date") on any such
registration statement, or in the month in which any such
Shareholder qualifies in all respects to sell the Common
Stock under Rule 144 of the Securities and Exchange
Commission following the expiration of the required one year
holding period from the closing of the Reorganization
Agreement; and with respect to (ii) shares of Common Stock
that are "restricted securities" that SSGI has not agreed to
register for resale with the Securities and Exchange
Commission, in the month in which any such Shareholder
qualifies in all respects to sell the Common Stock under
Rule 144 of the Securities and Exchange Commission following
the expiration of the required one year holding period from
the closing of the Reorganization Agreement (the "Resale
Qualification Dates"). All Shareholders fully understand
that certain shares of Common Stock covered by this
Agreement have already satisfied the Resale Qualification
Dates (approximately 280,000 shares of Common Stock held by
five (5) persons); that the Resale Qualification Date of
some other shares of Common Stock that may be allowed to be
registered by SSGI for resale on Form S-3 of the Securities
and Exchange Commission (Common Stock that can be acquired
on the exercise of warrants or the conversion of preferred
stock or debt instruments may qualify for use of Form S-3)
may be earlier than Common Stock required to be registered
on some other Form; and that Common Stock required to be
registered on some other Form of the Securities and Exchange
Commission, like Form SB-2, may not have a Resale
Qualification Date for up to six (6) to nine (9) months,
depending upon the time involved in the Securities and
Exchange Commission review and comment process.
2.4 The Common Stock may only be sold at or above the lowest
"offer" or "ask" prices stated by the relevant market maker
for the Common Stock on the OTC Bulletin Board or any
nationally recognized medium on which the Common Stock is
publicly traded. Each Shareholder agrees that no sales will
be made at the "bid" prices for the Common Stock.
2.5 The Common Stock may not be sold at a price below $2.00 per
share (the "Price Floor").
2.6 The Shareholders agree that they will not engage in any
short selling of the Common Stock during the Lock-Up/Leak-
Out Period.
2.7 From the date hereof and for a period of not less than
eighteen (18) months from the expiration of the Lock-
Up/Leak/Out Period, SSGI shall maintain its "reporting"
status with the Securities and Exchange Commission; file all
reports that are required to be filed by it during such
period; and use its "best efforts" to ensure that the Common
Stock is continually quoted for public trading on a
nationally recognized medium of no less significance than
the OTC Electronic Bulletin Board of the National
Association of Securities Dealers, Inc. (the "NASD"), or if
its existence ceases, the BBX, the NASDAQ Small Cap or a
recognized national stock exchange.
3. By executing this Agreement, each Shareholder represents
that the Common Stock set forth in his/her/its Counterpart Signature Page is
all of the shares of SSGI Common Stock that such Shareholder beneficially owns
as of the date hereof. In addition to the Common Stock set forth in the
Counterpart Signature Page, this Agreement shall apply to all SSGI Common
Stock of which each Shareholder become the beneficial owner of during the
Lock-Up/Leak-Out Period.
4. Notwithstanding anything to the contrary set forth herein,
SSGI may, at any time and from time to time, waive any of the conditions or
restrictions contained herein to increase the liquidity of the Common Stock or
if such waiver would otherwise be in the best interests of the development of
the trading market for the Common Stock.
5. In the event of a tender offer to purchase all or
substantially all of SSGI's issued and outstanding securities, or a merger,
consolidation or other reorganization with or into an unaffiliated entity, and
if the requisite number of the record and beneficial owners of SSGI securities
then outstanding are voted in favor of such tender offer, merger,
consolidation or reorganization, and such tender offer, merger, consolidation
or reorganization is completed this Agreement shall terminate as of the
closing of such event and the Common Stock restricted pursuant hereto shall be
released from such restrictions.
6. Except as otherwise provided in this Agreement or any other
agreements between the parties, the Shareholders shall be entitled to their
respective beneficial rights of ownership of the Common Stock, including the
right to vote the Common Stock for any and all purposes.
7. The Common Stock and per share price restrictions covered by
this Agreement shall be appropriately adjusted should SSGI make a dividend or
distribution, undergo a forward split or a reverse split or otherwise
reclassify its shares of Common Stock.
8. No transfer of any of the shares of Common Stock that are
subject to this Agreement shall be made in any transaction other than a
"broker's transaction" unless the transferee executes and delivers a copy of
this Agreement prior to the transfer of any stock certificate representing any
of the Common Stock so transferred.
9. This Agreement may be executed in any number of counterparts
with the same force and effect as if all parties had executed the same
document.
10. All notices, instructions or other communications required
or permitted to be given pursuant to this Agreement shall be given in writing
and delivered by certified mail, return receipt requested, overnight delivery
or hand-delivered to all parties to this Agreement, to SSGI, at 0000 Xxxxx
Xxxxxxx Xxxx Xxxx, Xxxxx 000, Xxxxxxxx, Xxxxxxx X0X 0X0, and to the
Shareholders, at the addresses in their Counterpart Signature Pages. All
notices shall be deemed to be given on the same day if delivered by hand or on
the following business day if sent by overnight delivery or the second
business day following the date of mailing.
11. The resale restrictions on the Common Stock set forth in
this Agreement shall be in addition to all other restrictions on transfer
imposed by applicable United States and state securities laws, rules and
regulations.
12. SSGI or each Shareholder who fails to fully adhere to the
terms and conditions of this Agreement shall be liable to every other party
for any damages suffered by any party by reason of any such breach of the
terms and conditions hereof. Each Shareholder agrees that in the event of a
breach of any of the terms and conditions of this Agreement by any such
Shareholder, that in addition to all other remedies that may be available in
law or in equity to the non-defaulting parties, a preliminary and permanent
injunction and an order of a court requiring such defaulting Shareholder to
cease and desist from violating the terms and conditions of this Agreement and
specifically requiring such Shareholder to perform his/her/its obligations
hereunder is fair and reasonable by reason of the inability of the parties to
this Agreement to presently determine the type, extent or amount of damages
that SSGI or the non-defaulting Shareholders may suffer as a result of any
breach or continuation thereof.
13. This Agreement sets forth the entire understanding of the
parties hereto with respect to the subject matter hereof, and may not be
amended except by a written instrument executed by the parties hereto.
14. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts
entered into and to be performed wholly within said State; and SSGI and the
Shareholders agree that any action based upon this Agreement may be brought in
the United States and state courts of Delaware only, and each submits
himself/herself/itself to the jurisdiction of such courts for all purposes
hereunder.
15. In the event of default hereunder, the non-defaulting
parties shall be entitled to recover reasonable attorney's fees incurred in
the enforcement of this Agreement.
IN WITNESS WHEREOF, the undersigned have duly executed and
delivered this Agreement as of the day and year first above written.
Date: 7/2/03. SOUTHERN SOFTWARE GROUP, INC.
By__/s/ Xxxxx Xxxxxx
Its President
LOCK-UP/LEAK-OUT AGREEMENT
COUNTERPART SIGNATURE PAGE
This Counterpart Signature Page for that certain Lock-Up/Leak-Out
Agreement (the "Agreement") dated as of the day of June 2003, among
Southern Software Group, Inc., a Delaware corporation ("SSGI"); and certain
persons who are "Shareholders" of SSGI, by which the undersigned, through
execution and delivery of this Counterpart Signature Page, intends to be
legally bound by the terms of the Agreement, as a Shareholder, of the number
of shares of SSGI set forth below or hereafter acquired during the Lock-
Up/Leak-Out Period as defined in the Agreement.
_________________________________________
(Printed Name)
-----------------------------------------
(Signature)
_________________________________________
(Street Address)
-----------------------------------------
(City and State)
-----------------------------------------
(Number of Shares Owned or
Underlying Other Securities)
_________________________________________
(Date)
Schedule 2.3
Designation of Series A Preferred Shares and Rights, Privileges and
Preferences Thereof
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF
SOUTHERN SOFTWARE GROUP, INC.
__________________________
Pursuant to Sections 141 and 242 of the
Delaware General Corporation Law
__________________________
SOUTHERN SOFTWARE GROUP, INC.. (the "Corporation"), a corporation
organized and existing under and by virtue of the Delaware General Corporation
Law (the "DGCL") does hereby certify that:
1. The name of the Corporation is SOUTHERN SOFTWARE GROUP, INC.
2. The Certificate of Incorporation of the Corporation (the
"Certificate") is hereby amended to: (a) to change the name of the
Corporation; and (b) to designate a series of preferred stock.
3. In order to effect the name change described in Paragraph 2 hereof,
the Certificate of Incorporation of the Corporation is hereby amended by
striking out Article FIRST and by substituting the following new Article in
its stead:
"FIRST: The name of the Corporation is SecureD Services, Inc."
4. In order to effect the changes described in Paragraph 2 hereof, the
Certificate of Incorporation of the Corporation is hereby amended by striking
out Article FOURTH and by substituting the following new Article in its stead:
"FOURTH: The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 55,000,000
shares, consisting of (i) 50,000,000 shares of common stock,
$0.001 par value per share (the "Common Stock") and (ii) 5,000,000
shares of preferred stock, $0.001 par value per share (the
"Preferred Stock").
I. Common Stock
(a) General. All shares of Common Stock shall be identical,
and shall entitle the holders thereof to the same rights,
preferences, qualifications, limitations and restrictions. No
shares of Common Stock shall be subdivided or combined unless an
identical subdivision or combination, as the case may be, shall be
effected with respect to all authorized shares of Common Stock.
(b) Dividends and Distributions. Subject to the provisions
of this Article FOURTH, including without limitation Section
II(b), the holders of shares of Common Stock shall be entitled to
receive such dividends and distributions, payable in cash or
otherwise, as may be declared thereon by the Board from time to
time out of assets or funds of the Corporation legally available
therefor, provided that the holders of shares of Common Stock
shall be entitled to share equally, on a per share basis, in such
dividends or distributions.
(c) Voting. Each holder of Common Stock shall be entitled
to vote on each matter (i) expressly required by the DGCL and (ii)
otherwise submitted to a vote of the stockholders of the
Corporation, including the election of directors, except for
matters subject to a separate class vote by one or more classes
and/or series of capital stock of the Corporation other than the
Common Stock to the extent such separate class vote is required by
the DGCL or this Certificate. Each such holder shall be entitled
to one vote per share of Common Stock on each matter to be voted
on by such stock. The Common Stock shall have no cumulative
voting rights.
(d) Liquidation. After the payments to the holders of
Series A Preferred pursuant to Article FOURTH, Section II(b)5 of
this Certificate, the holders of Common Stock shall be entitled to
liquidation distributions, if any.
(e) Restrictions. No holder of any of the shares of the
capital stock of the Corporation, including without limitation the
Common Stock, whether now or hereafter authorized and issued,
shall be entitled as of right to purchase or subscribe for (1) any
unissued stock of any class, or (2) any additional shares of any
class to be issued by reason of any increase of the authorized
capital stock of the Corporation of any class, or (3) bonds,
certificates of indebtedness, debentures or other securities
convertible into stock of the Corporation, or carrying any right
to purchase stock of any class, but any such unissued stock or
such additional authorized issue of any stock or of other
securities convertible into stock, or carrying any right to
purchase stock, may be issued and disposed of pursuant to
resolution of the Board to such persons, firms, corporations or
associations and upon such terms as may be deemed advisable by the
Board in the exercise of its discretion.
II. Preferred Stock
(a) Preferred Stock. The Board of Directors, in the
exercise of its discretion, is authorized to issue the
undesignated Preferred Stock in one or more series, to determine
the powers, preferences and rights, and qualifications,
limitations or restrictions, granted to or imposed upon any wholly
unissued series of undesignated Preferred Stock, and to fix the
number of shares constituting any series and the designation of
such series, without any further vote or action by the
stockholders. No holder of any of the shares of any series of
Preferred Stock of the Corporation, whether now or hereafter
authorized and issued, shall be entitled as of right to purchase
or subscribe for (1) any unissued stock of any class, or (2) any
additional shares of any class to be issued by reason of any
increase of the authorized capital stock of the Corporation of any
class, or (3) bonds, certificates of indebtedness, debentures or
other securities convertible into stock of the Corporation, or
carrying any right to purchase stock of any class; but any such
unissued stock or such additional authorized issue of such stock
or of other securities convertible into such stock, or carrying
any right to purchase such stock, may be issued and disposed of
pursuant to resolution of the Board of Directors to such persons,
firms, partnerships, corporations, associations or other entities
and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its discretion.
(b) Series A Preferred.
1. Designation. There shall be a series of Preferred Stock
designated as "Series A Convertible Preferred Stock" (the
"Series A Preferred"). The number of shares constituting
the Series A Preferred shall be Two Million (2,000,000). In
accordance with the terms hereof, each share of Series A
Preferred shall have the same relative rights as and be
identical in all respects with each other share of Series A
Preferred and each shall have the powers, designations,
preferences and rights set forth in this Section II(b).
2. Dividends.
a. General. Dividends on each issued and outstanding
share of the Series A Preferred shall accrue at an
annual rate of six percent (6%) of the Series A Stated
Value, compounded quarterly, from and including the
Series A Original Issuance Date to and including the
first to occur of (i) the date on which such share of
Series A Preferred is redeemed by the Corporation as
provided in Section II(b)7 below or (ii) the date on
which such share of Series A Preferred is converted
into shares of Common Stock as provided in Section
II(b)6 below.
b. Payment of Quarterly Dividends. Subject to Section
II(b)2.a, to the extent permitted under the DGCL, the
Corporation shall pay preferential cumulative
dividends quarterly in shares of Common Stock
("Dividend Shares") to the holders of the Series A
Preferred for each of the calendar quarters ending on
the last day of March, June, September and December.
Such dividend shall be paid, in arrears, within ten
(10) business days from the end of the quarter. The
number of Dividend Shares issuable in connection with
the payment of the dividend shall be calculated as
follows: (i) if, on the last day of the quarter
immediately preceding payment of a dividend, the
Common Stock is publicly traded, by dividing (A) the
Quarterly Dividend Amount by (B) the Average Public
Trading Price of Common Stock for the ten (10)
business days immediately prior to the end of the
respective quarter; and (ii) if, on the last day of
the quarter immediately preceding payment of a
dividend, the Common Stock is not publicly traded, by
dividing (A) the Quarterly Dividend Amount by (B) the
Private Per Share Amount. Such dividends shall accrue
whether or not they have been declared and whether or
not there are profits, surplus or other funds of the
Corporation legally available for the payment of
dividends, and such dividends shall be cumulative such
that all accrued and unpaid dividends shall be fully
paid before any dividends, distributions, redemptions
or other payments may be made with respect to any Pari
Passu Securities, the Common Stock or any other Series
A Junior Securities. Prior to the payment of each
dividend required by this Section II(b)2.b, the
Corporation shall take all such actions as are
necessary in order to insure that the Dividend Shares
shall be validly issued, fully paid and nonassessable,
free and clear of all taxes, liens, charges and
encumbrances with respect to the issuance thereof.
c. Most-Favored Registration of Dividend Shares. If the
Common Stock is registered as a class under Section 12
of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), then the holders of the Series A
Preferred shall at all times be entitled to require
that the Corporation register such holders' Dividend
Shares for resale (in accordance with all applicable
securities laws), in accordance with the most
preferential registration rights of any Corporation
security now in existence or subsequently authorized.
To the extent that no Corporation security has
registration rights preferable to those of the Series
A Preferred, the Corporation shall be required to
provide the holders of Series A Preferred with the
registration rights described in Section II(b)2.dbelow.
d. Series A Preferred Minimum Registration Rights for
Dividend Shares. If the Corporation at any time
proposes to file a registration statement to register
any of its securities under the Securities Act of
1933, as amended (the "Securities Act")(except for a
registration filed on Forms S-4 or S-8), whether or
not for sale for its own account, it will at each such
time give prompt written notice to the holders of the
Series A Preferred outstanding of its intention to do
so. Upon the written request of a holder of the
Series A Preferred outstanding (the "Requesting
Holder"), which request shall specify the amount of
Dividend Shares the Requesting Holder wants included
in any such registration statement, made as promptly
as practicable and in any event within ten (10) days
after the receipt of notice from the Corporation, the
Corporation will use its best efforts to effect the
registration under the Securities Act of all the
Dividend Shares which the Corporation has been so
requested to register by the Requesting Holder (a
"Piggy-Back Registration"). However, if the managing
underwriter of any underwritten offering in its sole
discretion determines that the total amount of
Dividend Shares requested to be included in such
registration would jeopardize the success of the
offering by the Corporation, then the Corporation
shall include in such registration, only the number
which the Corporation is so advised can be sold in (or
during the time of) such offering; provided, that if
Common Stock are being offered for the account of
other selling shareholders as well as the Corporation,
any reduction in the amount of Dividend Shares
included in such offering shall be in equal proportion
to reductions imposed on such other selling
shareholders.
e. Rule 144(k). Notwithstanding Sections II(b)2.c and d above,
the Corporation shall not be required to
register any Dividend Shares which can be immediately
sold pursuant to Rule 144(k) promulgated under the
Securities Act.
f. Distribution of Partial Dividend Payments. Except as
otherwise provided herein, if at any time the
Corporation pays less than the total amount of
dividends then accrued with respect to the Series A
Preferred, such payment shall be distributed pro rata
among the holders thereof based upon the aggregate
accrued but unpaid dividends on the Series A Preferred
held by each such holder.
g. Treatment of Accrued and Unpaid Dividends. Upon any
liquidation, conversion or redemption of shares of
Series A Preferred into Common Stock, as provided in
Sections II(b)5-7 below, all accrued and unpaid
dividends on the Series A Preferred shall be paid.
h. Election to Receive Cash Dividends. If, at any time,
the Corporation pays cash dividends to holders of
Common Stock, then the holders of a majority of the
Series A Preferred, may, at its option, elect to have
all future Quarterly Dividend Amounts paid in cash.
3. Restrictions on Distributions. Except: (a) to the extent
that in any instance approval is provided in writing by the
holders of a majority of the outstanding shares of Series A
Preferred voting as a separate class; (b) as provided for
pursuant to Section II(b)2 hereof; or (c) in the ordinary
course of business pursuant to Section 170 of the DGCL,
provided that the maximum annual distribution contemplated
by this clause (c) shall not exceed five percent (5%) of the
Corporation's surplus (as determined in accordance with
Sections 154 and 244 of the DGCL) or net profits otherwise
available for such distribution under the DGCL; with respect
to any of the foregoing cases, for so long as any shares of
Series A Preferred are outstanding, the Corporation shall
not declare or pay any dividends on, make any distributions
on, or purchase, redeem, retire, or otherwise acquire for
value, any shares of its capital stock (or rights, options
or warrants to purchase such shares) now or hereafter
outstanding, return any capital or make any distribution to
the holders of any capital stock, or permit any Subsidiary
(as defined below) to do any of the foregoing. "Subsidiary"
or "Subsidiaries" means any corporation, partnership, or
joint venture or other entity of which the Corporation
and/or any of its other Subsidiaries (as herein defined)
directly or indirectly owns at the time at least fifty
percent (50%) of the outstanding voting shares or similar
interests. Notwithstanding the foregoing, Subsidiaries may
declare and make payment of cash and stock dividends, return
capital and make distributions of assets to the Corporation.
Nothing contained in this Section II(b)3 shall prevent the
Corporation from: (i) effecting a stock split or declaring
or paying any dividend consisting of shares of any class of
capital stock paid to the holders of shares of such class of
capital stock; (ii) complying with any specific provision of
the terms of any currently or subsequently designated series
of Preferred Stock in accordance with its terms;
(iii) redeeming or repurchasing any stock of a deceased
stockholder out of proceeds of insurance held by the
Corporation on that stockholder's life; or (iv) redeeming or
repurchasing any stock of any director, officer, employee,
advisor, consultant or other person or entity, pursuant to a
stock repurchase agreement or stock restriction agreement
under which the Corporation has the right or obligation to
repurchase such shares in the event of death, termination of
employment or of the consulting arrangement, or other
similar discontinuation of a business relationship at a
price not in excess of the original purchase price of such
shares.
4. Voting Rights.
a. General. In addition to the rights specified in
Section II(b)4.b below and any other rights provided
in the Corporation's By-laws or by law, the holders of
the Series A Preferred shall be entitled to notice of
all stockholders meetings in accordance with the By-
laws at the same time and in the same manner as notice
is given to all other stockholders entitled to vote at
such meetings. Except as otherwise provided herein or
required by applicable law, the holders of the Series
A Preferred shall be entitled to vote on all matters
submitted to the stockholders for a vote (including
without limitation the election of directors), voting
as a single class with the Common Stock and other
securities that vote with the Common Stock, with the
holders of Series A Preferred entitled to one vote for
each share of Series A Preferred held as of the record
date for such vote or, if no record date is specified,
as of the date of such vote.
b. Special. The Corporation shall not, without the
affirmative vote of the holders of a majority of the
Series A Preferred then outstanding:
i. authorize, create (by way of
reclassification or otherwise) or issue any
additional shares of Series A Preferred, or any
other securities which are senior to the Series
A Preferred as to dividends, distributions or
distributions upon liquidation, winding up or
dissolution of the Corporation ("Senior
Securities") or any obligation or security
convertible into, exchangeable for or evidencing
the right to purchase any Senior Securities;
ii. amend or otherwise alter this Certificate
in any manner that adversely affects the rights,
privileges and preferences of the Series A
Preferred as set forth in this Certificate; or
iii. take any action requiring a vote of
stockholders of the Corporation that adversely
affects the rights, preferences and privileges
of the Series A Preferred set forth in this
Certificate.
5. Liquidation Preference.
a. Preference on Liquidation. In the event that the
Corporation shall liquidate, dissolve or wind up,
whether voluntarily or involuntarily, or if there
shall occur any reduction or decrease in the
Corporation's equity securities resulting in a
distribution of assets to the holders of any class or
series of the Corporation's equity securities, the
holders of each share of Series A Preferred shall be
entitled to receive out of the assets of the
Corporation available for distribution to holders of
the Corporation's capital stock of all classes,
whether such assets are capital, surplus or earnings
("Available Assets"), before any distribution or
payment is made to any holders of Pari Passu
Securities, Common Stock or Series A Junior
Securities, or any other class or series of capital
stock of the Corporation designated to be junior to
the Series A Preferred in liquidation preference,
jointly (to the extent there exist more than one
Series A Preferred holder), the Vacman Property (the
"Vacman Preference"); provided, that, if the total
value of the Vacman Preference (as determined in
accordance with Section II(b)5.c below) is: (i) less
than the product of (a) the Series A Stated Value
multiplied by (b) the total number of then issued and
outstanding shares of Series A Preferred (such product
being the "Liquidation Value"), then a percentage
ownership interest in Available Assets equal to the
difference between the Liquidation Value and the
Vacman Preference (such difference being the
"Shortfall Preference") equal to each Series A
Preferred holder's percentage ownership interest in
the authorized Series A Preferred shall be distributed
to each such Series A Preferred holder; or (ii)
greater than the Liquidation Value, then, the Series A
Preferred holders shall, at their option, either (a)
accept the Vacman Property, acknowledge and agree to
the third party valuation thereof and pay to the
Corporation the difference between the Liquidation
Value and the Vacman Preference or (b) reject the
Vacman Property and require that the Corporation sell
the Vacman Property at auction, the proceeds of which,
up to a maximum amount of the Liquidation Value, shall
be distributed by the Corporation pro rata to the
holders of the Series A Preferred. The aggregate
value of the Vacman Preference, as adjusted if
necessary, and the Shortfall Preference, if any, shall
be equal to, and shall mean, the "Liquidation
Preference".
b. Participation Rights. Upon payment in full of the
Liquidation Preference, the remaining Available
Assets, if any, shall be ratably distributed: first,
on a share for share basis, among the holders of the
Common Stock and any Pari Passu Securities; and
second, on a share for share basis, among the holders
of any Series A Junior Securities. The Series A
Preferred shall not be entitled to a distribution of
any remaining Available Assets.
c. Form of Consideration. Whenever the distribution
provided for in this Section II(b)5 shall be payable
in securities or property other than cash, the value
of such securities or property shall be the fair
market value thereof as determined by the Board in
good faith; provided, that (1) the value of the Vacman
Property shall be determined by a third party mutually
agreeable to the Corporation and the Series A
Preferred holders, following the distribution of the
Vacman Property to the holders of the Series A
Preferred; and (2) to the extent any securities or
other property (other than the Vacman Property)
contemplated by this Section II(b)5.c are, as of the
date of distribution, traded on a public exchange or
otherwise have a fair market value readily accessible
by reference to a publicly available source, the Board
shall determine the fair market value of such
securities or other property to be equal in value as
reported on such publicly available source as of such
date.
6. Conversion.
a. Conversion Right. The Series A Preferred may be
converted by any holder thereof, in such holder's sole
discretion, as follows:
i. Commencing on the second anniversary date of the
Series A Original Issuance Date (the "1stConversion Date")
each share of Series A
Preferred, up to a maximum of five hundred
thousand (500,000) shares (the "1st Conversion
Date Shares"), may be converted into an equal
number of shares of Common Stock;
ii. Commencing on or after the third
anniversary date of the Series A Original
Issuance Date (the "2nd Conversion Date") each
share of Series A Preferred, up to a maximum of
five hundred thousand (500,000) shares, plus any
1st Conversion Date Shares not previously
converted, may be converted into an equal number
of shares of Common Stock; and
iii. Commencing on or after the fourth
anniversary date of the Series A Original
Issuance Date (the "3rd Conversion Date") each
issued and outstanding share of Series A
Preferred not converted in to Common Stock prior
to the 3rd Conversion Date may be converted into
an equal number of shares of Common Stock.
b. Conversion Procedure.
i. Each conversion of Series A Preferred shall be
deemed to have been effected as of the close of
business on the date on which the certificate or
certificates representing the Series A Preferred
to be converted have been surrendered for
conversion at the principal office of the
Corporation. At the time any such conversion
has been effected, the rights of the holder of
the shares of Series A Preferred converted as a
holder of Series A Preferred shall cease and the
Person or Persons in whose name or names any
certificate or certificates for shares of Common
Stock are to be issued upon such conversion (the
"Conversion Shares") shall be deemed to have
become the holder or holders of record of the
shares of Common Stock represented thereby.
ii. The issuance of certificates for the Conversion
Shares shall be made without charge to the
holders of such Series A Preferred for any
issuance tax in respect thereof or other cost
incurred by the Corporation in connection with
such conversion and the related issuance of
shares of Common Stock.
iii. The Corporation will at no time close its
transfer books against the transfer of any
shares of Series A Preferred or of any share of
Common Stock issued or issuable upon conversion
of any shares of Series A Preferred in any
manner which interferes with the timely
conversion of such shares of Series A Preferred,
except as may otherwise be required to comply
with applicable securities or tax laws.
iv. Upon conversion of each share of Series A
Preferred, the Corporation shall take all such
actions as are necessary in order to insure that
the Conversion Shares shall be validly issued,
fully paid and nonassessable, free and clear of
all taxes, liens, charges and encumbrances with
respect to the issuance thereof.
v. Most-Favored Registration of Conversion Shares.
If the Common Stock is registered as a class
under Section 12 of the Exchange Act, then the
holders of the Series A Preferred shall at all
times be entitled to require that the
Corporation register such holders' Conversion
Shares for resale (in accordance with all
applicable securities laws), in accordance with
the most preferential registration rights of any
Corporation security now in existence or
subsequently authorized. To the extent that no
Corporation security has registration rights
preferable to those of the Series A Preferred,
the Corporation shall be required to provide the
holders of Series A Preferred with the
registration rights described in Section
II(b)0.x.xx below.
vi. Series A Preferred Minimum Registration Rights
for Conversion Shares. If the Corporation at
any time proposes to file a registration
statement to register any of its securities
under the Securities Act (except for a
registration filed on Forms S-4 or S-8), whether
or not for sale for its own account, it will at
each such time give prompt written notice to the
holders of the Series A Preferred outstanding of
its intention to do so. Upon the written
request of a Requesting Holder, which request
shall specify the amount of Conversion Shares
the Requesting Holder wants included in any such
registration statement, made as promptly as
practicable and in any event within ten (10)
days after the receipt of notice from the
Corporation, the Corporation will use its best
efforts to effect a Piggy-Back Registration with
respect to such Conversion Shares. However, if
the managing underwriter of any underwritten
offering in its sole discretion determines that
the total amount of Conversion Shares requested
to be included in such registration would
jeopardize the success of the offering by the
Corporation, then the Corporation shall include
in such registration, only the number which the
Corporation is so advised can be sold in (or
during the time of) such offering; provided,
that if Common Stock are being offered for the
account of other selling shareholders as well as
the Corporation, any reduction in the amount of
Conversion Shares included in such offering
shall be in equal proportion to reductions
imposed on such other selling shareholders.
vii. Rule 144(k). Notwithstanding Sections
II(b)6.b.v and vi above, the Corporation shall
not be required to register any Conversion
Shares which can be immediately sold pursuant to
Rule 144(k) promulgated under the Securities
Act.
c. Subdivisions or Combinations of Common Stock. If the
Corporation at any time subdivides (by any stock split,
stock dividend, recapitalization or otherwise) one or more
classes of its outstanding shares of Common Stock into a
greater number of shares, the number of shares of Common
Stock that the Series A Preferred are convertible into
immediately prior to such subdivision shall be increased
proportionately, and if the Corporation at any time combines
(by reverse stock split or otherwise) its outstanding shares
of Common Stock into a smaller number of shares, the number
shares of Common Stock that the Series A Preferred are
convertible into immediately prior to such combination shall
be reduced proportionately.
d. Material Change; Recapitalization, Reorganization or
Reclassification. If (i) the Common Stock shall be changed
into the same or different number of shares of any other
class or classes of capital stock, whether by capital
reorganization, recapitalization, reclassification or
otherwise (other than pursuant to a stock split or
combination of the Common Stock), or (ii) in the event of a
Material Change, then, in each such event, the holder of
each share of Series A Preferred shall have the right
thereafter to receive, upon the terms and conditions
specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of
such shares of Series A Preferred, such shares, securities
or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock equal to
the number of shares of Common Stock immediately receivable
upon such conversion had such Material Change,
reorganization or reclassification not taken place, and in
any such case appropriate provisions shall be made with
respect to the rights and interests of such holder to the
end that the provisions hereof shall thereafter be
applicable in relation to any shares, securities or assets
thereafter deliverable upon the exercise of such conversion
rights. The provision for such conversion right to the
holders of Series A Preferred shall be a condition precedent
to the consummation by the Corporation of any such
transaction.
e. Acceleration of Conversion Right.
i. Options of Series A Preferred. At least ten
(10) business days prior to the consummation of
a Material Change, the Corporation and the other
holders of shares to the extent a party to such
event shall provide the holders of the shares of
Series A Preferred written notice of such event
(the "Event Notice"). Upon the election of a
Majority Interest of the holders of the shares
of Series A Preferred given to the Corporation
within five (5) business days after receipt of
an Event Notice, the Corporation shall, and each
holder of shares of Series A Preferred shall be
entitled to require, that prior to or
concurrently with consideration from any such
Material Change being paid to the Corporation
(if the consideration is to be received by the
Corporation in an asset transaction), or by any
third party to stockholders of the Corporation
other than holders of Series A Preferred (if the
consideration is to be received directly by such
stockholders in a merger or stock purchase
transaction), the holders of shares of Series A
Preferred shall, at their option, be entitled to
immediately convert their existing shares of
Series A Preferred into an equivalent number of
shares of Common Stock (notwithstanding anything
to the contrary in Section II(b)6) and be issued
by the Corporation all accrued but undeclared
Dividend Shares (the "Accelerated Conversion
Option").
ii. Cancellation of Series A Preferred. Upon the
exercise by the holders of the Series A
Preferred of the Accelerated Conversion Option,
the shares of Series A Preferred shall be deemed
cancelled and shall no longer be outstanding and
the holders of such shares shall have no further
rights in respect thereof.
7. Redemption.
a. At any time, the Corporation shall be entitled to
redeem for cash, at its option, all but not less than
all the issued and outstanding shares of Series A
Preferred, at a price of $1.00 per share.
b. If the Corporation does not redeem all the issued and
outstanding shares of Series A Preferred for cash, as
provided in Section II(b)7.a above, the Corporation
shall be entitled to redeem, at its option, the issued
and outstanding shares of Series A Preferred in
increments of five hundred thousand (500,000) shares,
at a price of $1.00 per share, as follows:
i. At any time: (i) prior to the 1st Conversion
Date, five hundred thousand (500,000) shares;
(ii) between the 1st Conversion Date and the
date immediately prior to the 2nd Conversion
Date, a maximum of one million (1,000,000), but
in no event less than five hundred thousand
(500,000) shares; and (iii) between the 2nd
Conversion Date and the date immediately prior
to the 3rd Conversion Date, any Series A
Preferred remaining issued and outstanding.
ii. The Corporation shall provide five (5) days
prior written notice of redemption to the holder
or holders, as the case may be, of Series A
Preferred at their respective addresses
appearing on the books or transfer records of
the Corporation or such other address designated
in writing by such holder to the Corporation.
c. At the time any such redemption of Series A Preferred
has been effected, the rights of the holder of the
shares of Series A Preferred redeemed, as a holder of
Series A Preferred shall cease.
8. No Dilution or Impairment. The Corporation will not, by
amendment of this Certificate or through any reorganization,
transfer of capital stock or assets, consolidation, merger,
dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Series A Preferred
set forth herein, but will at all times in good faith assist
in the carrying out of all such terms. Without limiting the
generality of the foregoing, the Corporation will take such
action as may be necessary or appropriate in order that the
Corporation may validly and legally issue fully-paid and
nonassessable shares of stock on the conversion of the
Series A Preferred from time to time outstanding or as
Dividend Shares pursuant to Section II(b)2.b.
9. Reservation of Capital Stock. The Corporation shall at all
times reserve and keep available out of its authorized but
unissued shares of Common Stock, shares of Common Stock
solely for the purpose of effecting the conversion of the
shares of the Series A Preferred, and if at any time the
number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all the
then convertible outstanding shares of the Series A
Preferred, the Corporation shall take such action as may be
necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient
for such purpose.
10. General.
a. Except as otherwise expressly provided hereunder, all
notices referred to herein shall be in writing and
shall be delivered by registered or certified mail,
return receipt requested and postage prepaid, by
reputable overnight courier service, charges prepaid
or by personal delivery, and shall be deemed to have
been given (i) three (3) business days after being
sent by registered or certified mail, (ii) one (1)
business day after being deposited with such an
overnight courier service, and (iii) upon delivery, if
by personal delivery, if mailed or delivered (A) to
the Corporation, at its principal executive offices,
or (B) to any stockholder, at such holder's address as
it appears in the stock records of the Corporation
(unless otherwise indicated by any such holder).
11. Definitions.
"1st Conversion Date" has the meaning set forth in Section
II(b)6.a.i above.
"1st Conversion Date Shares" has the meaning set forth in Section
II(b)6.a.i above.
"2nd Conversion Date" has the meaning set forth in Section
II(b)6.a.ii above.
"3rd Conversion Date" has the meaning set forth in Section
II(b)6.a.iii above.
"Accelerated Conversion Option" is defined in Section
II(b)6.e.iabove.
"Available Assets" is defined in Section II(b)5.a above.
"Average Public Trading Price" means the average of the daily
high and low sales prices for one share of Common Stock in its
principal public trading market.
"Board" means the Board of Directors of the Corporation.
"By-laws" means the By-laws of the Corporation, as they may be
amended from time to time.
"Conversion Shares" is defined in Section II(b)6.b.i above.
"Corporation" means SecureD Services, Inc., a Delaware
corporation.
"Dividend Shares" is defined in Section II(b)2.b above.
"Event Notice" is defined in Section II(b)6.e.i above.
"Exchange Act" is defined in Section II(b)2.c above.
"Liquidation Preference" is defined in Section II(b)5.a above.
"Liquidation Value" is defined in Section II(b)5.a above.
"Majority Interest" means, with respect to a particular class of
capital stock entitled to vote on a particular matter, the votes
of such class of capital stock representing greater than fifty
percent (50%) of the total number of votes eligible to be case on
the matter being voted on.
"Material Change" means any acquisition of all or substantially
all of the assets of the Corporation, or transaction or series of
transactions involving the Corporation, or its securities, whether
by consolidation, merger, purchase of shares of capital stock or
other reorganization or combination or otherwise, in which the
holders of the Corporation's outstanding shares of capital stock
immediately prior to such transaction own, immediately after such
transaction, securities representing less than fifty percent (50%)
of the voting power of the entity surviving such transaction.
"Pari Passu Securities" means any of the Corporation's equity
securities (whether or not currently authorized or outstanding)
that by its terms are pari passu, other than with respect to the
Liquidation Preference, with the Series A Preferred.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a
governmental entity or any department, agency or political
subdivision thereof.
"Piggy-Back Registration" is defined in Section II(b)2.d above.
"Private Per Share Amount" means, if the Corporation is privately
held and the Common Stock is not publicly traded: (a) at any time
after the Series A Original Issuance Date but prior to the first
anniversary thereof, an amount per share of Common Stock equal to
the per share price for a share Common Stock paid by a third-
party, non-Affiliate investor most recent in time prior to the
determination of such Private Per Share Amount; or (b) on or at
any time after the first anniversary of the Series A Original
Issuance Date, an amount per share of Common Stock equal to the
fair market value of such Common Stock as determined by the Board
in good faith; provided, that, such good faith determination shall
be based on a valuation of the Corporation as being equal to the
greater of (1) the total revenue received by the Corporation
during the twelve months immediately preceding such determination,
and (2) seven (7) times the total earnings of the Corporation,
before interest, taxes, depreciation and amortization, during the
twelve months immediately preceding such determination,
"Quarterly Dividend Amount" means the amount determined by
dividing (a) the amount resulting from multiplying (i) the Series
A Stated Value for all the issued and outstanding Series A
Preferred by (ii) the daily basis rate of six percent (6%) per
annum; by (b) four (4).
"Requesting Holder" is defined in Section II(b)2.d above.
"Securities Act" is defined in Section II(b)2.d above.
"Senior Securities" is defined in Section II(b)4.b.i above.
"Series A Preferred" means the Series A Convertible Preferred
Stock of the Corporation, $0.001 par value.
"Series A Junior Securities" means any of the Corporation's
equity securities (whether or not currently authorized or
outstanding) that by its terms is junior to the Series A
Preferred.
"Series A Original Issuance Date" means the date of the original
issuance of Series A Preferred.
"Series A Stated Value" means an amount per Series A Preferred
share equal to $1.00.
"Shortfall Preference" is defined in Section II(b)5.a above.
"Transaction Documents" means, collectively, that certain Asset
Purchase Agreement, dated July 8, 2003 and effective as of July 1,
2003, by and between the Corporation and Vasco Data Security
International, Inc., and all documents contemplated thereby to be
entered into by and between the parties thereto, including, without
limitation, the Promissory Note and the Security Agreement, as such
terms are defined in such Asset Purchase Agreement.
"Vacman Preference" is defined in Section II(b)5.a above.
"Vacman Property" means the intellectual property rights to the
"Snareworks" software of VACMAN Enterprises, a business unit of
Vasco Data Security Inc., plus any and all enhancements,
improvements or modifications made thereto, as such rights are
more specifically described in that certain Asset Purchase
Agreement, dated July 8, 2003, and efective as of July 1, 2003, by
and between the Corporation and Vasco Data Security International,
Inc.
4. The Amendments of the Certificate of Incorporation herein
certified have been duly adopted in accordance with the provisions of Sections
141 and 242 of the DGCL by the Unanimous Written Consent of the Directors.
5. This Certificate of Amendment shall become effective upon the
filing hereof in the Office of the Secretary of State of the State of
Delaware.
Executed on this 17th day of July, 2003.
SOUTHERN SOFTWARE GROUP, INC.
By: /s/ Xxxxx Xxxxxx
Xxxxx Xxxxxx, President and Chief Executive
Officer
Schedule 2.5
SSI Stock Option Plan
SECURED SERVICES INC. INCENTIVE STOCK OPTION PLAN
1. Definitions
(a) The "Company" means SecureD Services Inc.
(b) The "Code" means the Internal Revenue Code of 1986, as
amended.
(c) "Affiliated Institution" means any entity that is a parent
or subsidiary corporation of the Company (as defined in
Section 425(e) and (f) of the Code).
(d) The "Plan" means this Incentive Stock Option Plan.
(e) "Shares" means common stock of the Company.
(f) "Outstanding Shares" is defined as the authorized and issued
common stock of the Company. Such issued stock may include
previously issued shares that have been reacquired by the
Company.
(g) The "Board" means the Board of Directors of the Company.
(h) "Option" means any option to purchase Shares as awarded
under the Plan.
(i) "Optionee" means any key employee or consultant of the
Company who is awarded an Option.
(j) "Optionee's Family" shall be limited to parents, brothers
and sisters, spouse, children (whether or not adopted) and
grandchildren, or a trust or family limited partnership of
which the beneficiaries or partners are limited to the
Optionee and such family.
(k) "Incentive Options" means Options which constitute Incentive
Stock Options under Section 422 of the Code.
(l) "Nonqualified Options" is defined as Options which do not
constitute Incentive Options.
(m) The "Stock Option Agreement" is an agreement which:
(i) specifies the terms of the Option;
(ii)shall expressly state or incorporate by reference the
provisions of this Plan;
(iii)shall state whether the option is an Incentive Option
or Nonqualified Option; and
(iv)is executed by the Company and the Optionee as soon as
practicable after an award.
A copy of a standard Stock Option Agreement is attached to
this plan as Appendix A.
(n) The "Standard Terms and Conditions" are defined and
specified in the attached Stock Option Agreement.
(o) "Standard Vesting Schedule" is defined as the following
schedule by which Options will vest and become exercisable:
1/3rd of Shares granted through an Option shall vest and
become exercisable on the twelve month anniversary of the
grant date and 1/24th of such Shares shall vest on each
monthly anniversary thereafter until the total number of
Shares is vested.
2. Purpose of the Plan
This SECURED SERVICES INC. INCENTIVE STOCK OPTION PLAN is intended to
(a) provide incentive to key employees and consultants of the Company and its
Affiliated Institutions to stimulate their efforts to operate and manage the
Company in a manner that will provide for long-term growth and profitability
of the Company; (b) encourage stock ownership by key employees and consultants
by providing them with a means to acquire a proprietary interest and a sense
of personal involvement in the Company, and to receive compensation which is
based on appreciation in the value of the Shares, and (c) encourage key
employees and consultants to remain with and devote their best efforts to the
business of the Company, thereby advancing the interests of the Company and
its shareholders.
Accordingly, the Company may grant one or more Options to designated employees
and consultants who shall then be entitled to acquire Shares pursuant to the
terms and conditions established herein and those conditions set forth in a
Stock Option Agreement entered into pursuant to Paragraph 5 below.
3. Administration of the Plan
The Plan shall be administered by the Board. The Board shall have sole
authority to select from time to time the employees and consultants from among
those eligible to whom Options shall be granted under the Plan, to establish
the number of such Shares which may be sold to each employee or consultant and
the time when certificates for such Shares shall be issued, and to prescribe
the legend to be affixed to the certificate representing such Shares. The
Board is also authorized to interpret the Plan and may from time to time adopt
such rules, regulations, forms and agreements, not otherwise inconsistent with
the provisions of the Plan, as the Board may deem advisable to carry out the
Plan. All decisions made by the Board in administering the Plan shall be
final. The Board may delegate the administration of the plan to a committee
that consists of a subset of the members of the Board. Further a duly
designated officer of the company may be appointed by such committee to
perform the day-to-day administration of the plan.
The Board or its designates have the authority to administer all aspects of
the plan including: determining which persons may receive Options, the method
of awarding Options, terms and conditions of Options (price, period, vesting,
etc.), the ability to adjust terms, forms utilized to award Options,
determining disability or retirement, the ability to cancel Options, plan
interpretation, conditions necessary for a participant to receive a
certificate (i.e., paperwork, tax withholding, etc.), the type of employee
termination event, final say on transferability, determining allowable methods
of award/exercise/payment the appointment and compensation of consultants to
assist in its duties, among other things.
4. Shares Subject to the Plan
The aggregate number of Shares which may be acquired under the Plan
shall not exceed 1,000,000 Shares. Except as may otherwise be provided
herein, any Shares subject to an award that expires for any reason or
terminates unexercised, shall again be available for issuance under this Plan.
Any Shares which remain unissued at the termination of the Plan shall cease to
be subject to the Plan, but until termination of the Plan, the Company shall
at all times make sufficient Shares available to meet the requirements of the
Plan. The aggregate number of Shares, which may be sold under the Plan, shall
be adjusted to reflect any stock dividend or stock split or any other change
to the capital structure of the Outstanding Shares of the Company. The Shares
which are sold according to this Plan may be designated restricted stock and
would therefore be subject to all accompanying rights and restrictions.
5. Stock Options
(a) Type of Options. Under the Plan, the Company may issue
Incentive Options and Nonqualified Options. To the extent that any Option is
not designated as an Incentive Option, or if it is so designated but does not
qualify as an Incentive Option, it shall constitute a Nonqualified Option.
(b) Terms of Options. Except as provided in Subparagraph (c)
below, each Option granted under the Plan shall be subject to the Standard
Terms and Conditions set forth by the Board in the Stock Option Agreement
including, but not limited to price, term and accompanying exercise and
vesting rights. Unless modified according to this section 5 (b) each Option
will vest and become exercisable in accordance with the Standard Vesting
Schedule. The Board or their designate(s) have the authority to alter the
Standard Terms and Conditions, including the Standard Vesting Schedule on a
case by case basis if, in their discretion, it is in the best interests of the
Company.
(c) Additional Terms Applicable To All Options. Each option
shall be subject to the following terms and conditions.
(i) Written Notice. An option may be exercised only by
giving written notice to the Company specifying the number of Shares to be
purchased.
(ii) Method of Purchase. Upon exercise, the purchase price
shall be paid by cash or certified or cashier's check, or to the extent
permitted by the Board, by delivery of previously-acquired shares of common
stock having a fair market value equal to the purchase price.
(iii) Death of Optionee. If an Optionee has Terminated
Employment due to death, each Option granted to that Optionee shall be
cancelled one hundred eighty (180) days after the date of appointment of legal
representative, or on the expiration date of such Option, whichever period is
shorter. If an Optionee dies prior to the exercise in full of any Options,
such Options may only be exercised, if at all, by a member of Optionee's
Family who is a beneficiary of such Option as designated on the written
beneficiary designation form as prescribed by the Board and filed by the
Optionee with the Company, or, if no such designation shall have been filed,
then by a member of the Optionee's Family designated under the Optionee's
will. Except as otherwise provided in the Stock Option Agreement, the death
of an Optionee shall not accelerate any vesting rights provided for in the
Stock Option Agreement.
If an Optionee has Terminated Employment due to a Disability, this Option
shall be cancelled one hundred eighty (180) days following the date of such
Termination of Employment or on the expiration of the Option, whichever period
is shorter.
If an Optionee has Terminated Employment due to Retirement or the Termination
of Employment is involuntary on the part of the Optionee (but is not due to
death or Disability or with Cause), any Option held by such Optionee shall
thereupon terminate, except that such Option, to the extent then exercisable,
may be exercised for the lesser of the one hundred eighty (180)-day period
following the date of such Termination of Employment or until the expiration
of the Option Period.
If the Optionee has Terminated Employment that is either (a) voluntary on the
part of the Optionee (and is not due to Retirement) or (b) with Cause, the
Option shall terminate immediately.
The death or Disability of an Optionee after a Termination of Employment
otherwise provided for herein shall not extend the time permitted to exercise
an Option. If the Optionee is subject to Section 16 of the Exchange Act at
the time he incurs a Termination of Employment other than for Cause, any time
period provided for in this Paragraph 4 shall be suspended or delayed during
the period the Optionee would be subject to liability for engaging in "short-
swing" transactions under Section 16 of the Exchange Act, but such suspension
or delay shall not extend such time period more than 6 months and one day, nor
beyond the original Option Period.
(iv) Transferability of Options. Options granted under
this Plan shall not be transferable, pledgable or assignable other than by
will or the laws of descent and distribution. Any attempt to transfer,
assign, pledge, hypothecate or otherwise dispose of any Option under this Plan
or of any rights or privilege conferred thereby, contrary to the provisions of
this Plan, or the sale or levy on any attachments or similar process upon the
rights and privileges conferred hereby, shall be null and void.
(v) Option Price. The option price per Share shall be
100% (110%, if the Option is intended to be an Incentive Option and at the
time of grant the Optionee is a 10% stockholder of the Company or an
Affiliated Institution within the meaning of Section 422 of the Code) of the
fair market value of such Share on the date the option is granted.
(vi) Term of Option. No option may be exercisable more
than ten years after the date of grant.
6. Shares Subject to Stockholders Agreement
All Shares issued under this Plan shall be subject to the Stockholders
Agreement (if any) in effect at the time Shares are issued.
7. Amendment or Termination of the Plan
The Board may in its discretion terminate the Plan at any time with
respect to any Shares which are not subject to issued but unexercised Options,
and may alter, or amend the Plan, or any part thereof from time to time,
except that any such termination, alteration or amendment shall not, without
the written consent of an Optionee, adversely affect that Optionee's rights
under an Option previously granted.
8. Term of Plan
The Plan shall be effective upon the date of its adoption by the Board
(the "Effective Date"), provided that Incentive Options may be granted only if
the shareholders of the Company approve the Plan within twelve months before,
or after the date of adoption of the Plan by the Board. Shares shall not be
awarded under the Plan after the expiration of ten years from the effective
date of the Plan.
9. Delegation of Authority
The Board may in its discretion appoint a committee (hereinafter
referred to as the "Committee") of not less than two non officer directors who
shall serve at the pleasure of the Board to administer the Plan. The Board
may delegate any authority conferred to the Board by this Plan to the
Committee and any determination by the Committee shall be considered the
equivalent of a determination by the Board.
10. Rights as Shareholder
Upon delivery of any Shares to an employee or consultant, such employee
or consultant shall have all of the rights of a shareholder of the Company
with respect to such Shares, including the right to vote such Shares and to
receive all dividends or other distributions paid with respect to such Shares.
The Company reserves the right to withhold the issuance of Shares under this
Plan if the Company is not publicly traded, if its shares are not registered,
or if the required tax withholding is not obtained from the Optionee.
11. Adjustments; Merger and Consolidation
In the event of any change in the number of outstanding shares of
common stock of the Company by reason of a stock dividend or distribution,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares or the like, the Board shall adjust the number of Shares which may be
issued under the Plan and shall provide for an equitable adjustment of any
outstanding option or Shares issuable pursuant to an outstanding option under
this Plan.
12. Employment Relationship
An employee shall be considered to be in the employment of the Company
or a related corporation as long as he remains an employee of the Company or
of an Affiliated Institution. Nothing herein shall confer on any employee the
right to continued employment with the Company or with an Affiliated
Institution or affect the right of the Company or an Affiliated Institution to
terminate such employment.
13. Withholding of Tax
To the extent the awarding of an Option or issuance of Shares results
in the receipt of compensation by an employee or consultant, the Company is
authorized to withhold from any other cash compensation then or thereafter
payable to such employee or consultant any tax required to be withheld by
reason of the receipt of compensation resulting from the issuance of Shares.
Alternatively, the employee or consultant may tender a certified or cashier's
check in the amount of tax required to be withheld.
14. Limitation on Value for Incentive Stock Options
For all Incentive Options granted under the terms of this Plan, to the
extent that the aggregate fair market value (determined at the time the
Incentive Option is granted) of the Shares with respect to which Incentive
Options are exercisable for the first time by the Optionee during any calendar
year (under this Plan and all other incentive stock option plans of the
Company, a related corporation or a predecessor corporation) exceeds $100,000,
such Options shall be treated as Nonqualified Options to the extent required
by Section 422 of the Code.
15. Change in Control
Notwithstanding anything in the foregoing to the contrary, in the
event of a "Change in Control" all unvested options shall vest and become
immediately exercisable. For purposes of this Plan, a "Change in Control"
shall be deemed to have occurred if (i) the Company is merged or consolidated
or reorganized into or with another corporation or other legal person other
than a shareholder as of the Effective Date (an "Acquiror") and as a result of
such merger, consolidation or reorganization less than 50% of the outstanding
voting securities or other capital interests of the surviving, resulting or
acquiring corporation or other legal person are owned, directly or indirectly,
in the aggregate by the stockholders of the Company immediately prior to such
merger, consolidation or reorganization, other than by the Acquiror or any
corporation or other legal person controlling, controlled by or under common
control with the Acquiror; (ii) the Company sells all or substantially all of
its business and/or assets to an Acquiror, of which less than 50% of the
outstanding voting securities or other capital interest are owned , directly
or indirectly, in the aggregate by the stockholders of the Company immediately
prior to such sale, other than by any corporation or other legal person
controlling, controlled by or under common control with the Acquiror; or (iii)
during any period of two consecutive years, individuals who at the beginning
of any such period constitute the directors of the Company cease for any
reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company's stockholders, of each new director of
the Company was approved by a vote of at least two-thirds of such directors of
the Company then still in office who were directors of the Company at the
beginning of any such period. If a Change in Control is deemed to have
occurred then the Optionee may elect to receive cash, less the option price
and any applicable tax withholdings, in lieu of being issuing Shares under
this plan.
16. Miscellaneous
The Board or their designates, at their discretion, may elect to pay any
Optionee out in cash in lieu of issuing shares upon the exercise of an option.
STOCK OPTION AGREEMENT
SecureD Services Inc.
Date of Grant:
THIS GRANT is delivered by SecureD Services Inc., a Delaware corporation
(the "Company"), to __________________ (the "Optionee"), an
employee/consultant of the Company.
WHEREAS, the Board of Directors of the Company has adopted the SecureD
Services Inc. Incentive Stock Option Plan (the "Plan"); and
WHEREAS, the Plan provides for the granting of stock options to eligible
employees and consultants to purchase shares of the Company's Common Stock,
par value $.01 per share (the "Shares"), in accordance with the terms and
provisions thereof; and
WHEREAS, the Board of Directors considers Optionee to be a person who is
eligible for this grant and has determined that it would be in the best
interest of the Company to grant this Option to him or her.
NOW THEREFORE, subject to the terms and conditions of the Plan, which is
incorporated herein by reference, and of this Agreement, the parties agree as
follows.
1. Grant of Option
The Board of Directors hereby grants to Optionee an option to purchase
up to ___________ shares of common stock at a price of $ per
share, which is the fair market value at the Date of Grant. This option is
hereinafter referred to as the "Option" and the shares of stock purchasable
upon exercise of the Option are sometimes referred to hereinafter as the
"Option Shares" or "Shares."
2. Vesting Rights
Optionee may exercise his or her right to purchase 1/3th of the total
number of Option Shares subject to this grant on the 12-month anniversary of
the Date of Grant and the remaining 2/3 of the grant may be exercised at a
rate of 1/24th on each subsequent monthly anniversary of the Date of Grant.
These option rights may be exercised singularly or on a cumulative basis.
3. Termination of Option
To the extent not previously exercised, an Option shall immediately
terminate and become null and void once Optionee is no longer employed by or
is no longer a consultant of the Company or an Affiliated Institution. This
provision shall not apply to termination by reason of death.
4. Optionee's Representations
As a condition to the exercise of this Option, the Optionee shall
represent to the Company that the Shares being acquired under this Option are
for investment, and not with a present view toward distribution or resale,
unless counsel for the Company is then of the opinion that such a
representation is not required under any applicable law, regulation or rule of
any governmental agency. This Option may not be exercised if the issuance of
Shares upon such exercise would constitute a violation of any applicable
federal or state securities law or any other valid law or regulation.
5. Transferability
This Option may not be transferred in any manner except by will or by
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee only by him or her. In the event of Optionee's death, this
Option may be exercised by an Optionee's Family member designated on the
Beneficiary Designation Form attached hereto, or in the absence of such
designation, the Option may be exercised pursuant to the Plan by his/her
personal representative. The terms of this Option shall be binding upon the
Optionee's executors, administrators, heirs, assigns and successors.
6. Term
The Option may not be exercised more than ten (10) years after the Date
of Grant specified above.
7. Amendment
The Board of Directors may amend this Option at any time without the
consent of Optionee; provided, however, that no amendment may adversely affect
Optionee's rights hereunder.
8. Shares Subject to Stockholders Agreement
All Shares issued upon the exercise of an Option shall be subject to
the Stockholders Agreement (if any) in effect at the time such Shares are
issued.
9. Incorporation by Reference
The Option is granted pursuant to the terms of the Plan, which are
hereby incorporated herein by reference, and this Agreement shall in all
respects be interpreted in accordance with the Plan. All Board
interpretations and determinations shall be conclusive and binding on the
parties hereto and on any other person claiming an interest hereunder.
10. Governing Law
The validity, construction, interpretation and effect of this Agreement
shall exclusively be governed by and determined in accordance with the laws of
the State of Delaware, except to the extent preempted by federal law.
11. Option Type (Check One)
________ Incentive Option - This Option is intended to constitute an
Incentive Stock Option as defined under Section 422 of the
Internal Revenue Code of 1986, as amended.
________ Nonqualified Option - This Option is not intended to
constitute an Incentive Stock Option.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Agreement, and Optionee has placed his or her signature
herein, effective as of the Date of Grant.
SecureD Services Inc.
By:
Its: .
ATTEST:
The Optionee acknowledges that he or she has received a copy of the
Plan and is familiar with the terms and conditions set forth therein. The
Optionee agrees to accept as binding, conclusive and final all decisions and
interpretations of the Board of Directors and, where applicable, any committee
appointed by the Board of Directors to administer the Plan. As a condition to
the exercise of this Option, the Optionee authorizes the Company to withhold
from any regular cash compensation payable by the Company any taxes required
to be withheld under any federal, state or local law as a result of exercising
this Option.
Dated:
By:
Optionee
(To be executed in duplicate)
BENEFICIARY DESIGNATION FORM
Name: _______________________ Social Security Number:___________ Date: ______
You may designate a primary beneficiary (one or more persons) and a
contingent beneficiary (one or more persons) to whom rights under your Option
will pass in the event of your death. Note that according to the Plan, your
beneficiary designation will only be effective if it names one or more members
of the Optionee's Family. You may name more than one person as a primary or
contingent beneficiary. For example, you may wish to name your spouse as
primary beneficiary and your children as contingent beneficiaries. Your
contingent beneficiary(ies) will have no rights with respect to your Option if
any of your primary beneficiaries survive you. All primary beneficiaries will
have equal rights with respect to your Option unless you indicate otherwise.
The same rule applies for contingent beneficiaries.
I hereby designate my beneficiary(ies):
Primary Beneficiary(ies)
Name:
Address:
Social Security Number
Relationship to You:
Contingent Beneficiary(ies)
Name:
Address:
Social Security Number
Relationship to You:
I certify that my designation of beneficiaries set forth above is my
free act and deed and acknowledge that when effective it will revoke any prior
designation I may have made with regard to the Option set forth above.
Name (Please Print): Signature: Date:
This Beneficiary Designation Form shall be effective on the day it is
received by the CEO (or his designee) of the Company at
__________________________________. This Form shall be (i) delivered by
personal delivery, facsimile, United States mail or by express courier
service, and (ii) deemed to be received upon personal delivery, upon
confirmation of receipt of facsimile transmission or upon receipt by the
President (or his designee) if by United States mail or express courier
service; provided, however, that if this Form is not received during regular
business hours, it shall be deemed to be received on the next succeeding
business day of the Company.
RECEIVED AND ACKNOWLEDGED:
SecureD Services Inc.
Date: ___________________ By:
CEO or a Duly Authorized Designee
Schedule 2.7
OFFICERS OF SSI
Xxxxxxx X. Xxxxxxxx Chairman of the Board and Secretary
T. Xxxxxx Xxxx Director
King X. Xxxxx President and Chief Executive
Officer
Schedule 2.8
Liabilities of SSGI at Closing
1. Engagement Letter of Xxxxxxx X. Xxxxxxxxxx, Esq. dated March
18, 2003, providing for the payment of a flat fee of
$15,000, plus costs provided therein.
2. Letter Agreement between SSGI, SSI and Corporate Capital
Management, LLC ("CCM") regarding:
(a) The execution by SSGI of a promissory note in the
amount of $20,000 payable to CCM and bearing interest at
the rate of 10% per annum; and
(b) The grant to CCM of 20,000 "cashless" warrants to
acquire 20,000 shares of common stock of SSGI at an
exercise price of $1.560 per share, with "piggy-back"
registration rights.
3. $75,000 for the line of credit referenced in the 10Q-SB
Quarterly Report of SSGI for the quarter ended March 31,
2003.
4. $9,900 to American Securities Transfer, Inc., $7,500 of
which allegedly represents costs for stock certificate
changes resulting from the recent change of name of SSGI,
and which amount is disputed, and the balance of which
represents the $600 monthly fee that has accrued for the
past four months.
5. Tax returns have not been filed for the year ended December
31, 2002, though no taxes are owed.
Schedule 3.1(c)
Material Adverse Changes
None; except as indicated in Schedule 2.8.
Schedule 3.1(d)
SSGI Subsidiaries
SSGI Acquisition Corp., a Delaware corporation
Schedule 3.1(e)(ii)
SSGI Outstanding Options
(a)
Options
Outstanding at
Exercise Prices 12/31/02
$ 2.80 - 5.25 51,391
6.30 - 12.25 1,286
13.30 14.35 9,373
62,050
(b) The grant to CCM of 20,000 "cashless" warrants to
acquire 20,000 shares of common stock of SSGI at an
exercise price of $1.560 per share, with "piggy-back"
registration rights.
Schedule 3.1(f)
Exceptions to Financial Statements at 3/31/03
See Schedule 2.8.
Schedule 3.1(g)(i)
Tax Returns
SSGI has not filed its state and federal income tax returns
for the year ended December 31, 2002 (its Delaware franchise tax return has
been filed); however, no taxes are due.
Schedule 3.1(i)
Other Agreements to Which SSGI is a Party
See Schedule 2.8.
Schedule 3.1(k)
Material Adverse Changes since Filing of Reports with the Securities and
Exchange Commission
None.
Schedule 3.1(m)
List of SSGI Employees and Compensation
None.
Schedule 3.1(o)
Employee Pension Plan, Savings Plan, Stock Option Plan or Profit Sharing Plan
(a) There are 62,050 outstanding options as listed in
Schedule 3.1(e)(ii), along with warrants to acquire
20,000 shares of common stock of SSGI at an exercise
price of $1.560 per share, with "piggy-back" registration
rights.
.
Schedule 3.1(p)
Material Contracts
See Schedule 2.8.
Schedule 3.1(q)
SSGI Stockholders List
Schedule 3.1(r)
Contingent Liabilities
See Schedule 2.8.
Schedule 3.2(c)
Material Adverse Changes
None.
Schedule 3.2(e)(i)
SSI Shares Not Authorized, Invalidly issued, Not Fully Paid and Assessable
None.
Schedule 3.2(e)(ii)
Holders of Warrants to Purchase SSI Stock
There are nine holders of a total of 333,333 warrants all at an
exercise price of $1.50.
Schedule 3.2(f)(i)
SSI Undisclosed Liabilities
Morse, Zelnick, Rose and Lander $40,000.00 (est.)
Schedule 3.2(f)(ii)
Disposed Assets
None.
Schedule 3.2(h)
Violations
None.
Schedule 3.2(i)
Other Agreements to which SSI is a Party
None other than those noted in Exhibits A and B, Schedules 2.1(e)(ii), 2.5
and the Warrant Purchase Agreement contemplated by the Financing.
Schedule 3.2(j)
Litigation
None.
Schedule 3.2(k)
Required Permits and Licenses not In-force
None.
Schedule 3.2(m)
Employee Pension Plan, Savings Plan or Profit Sharing Plan
None.
Schedule 3.2(n)
Material Contracts
None other than those noted in Exhibits A and B, Schedules 2.1(e)(ii), 2.5 and
the Warrant Purchase Agreement contemplated by the Financing.
Schedule 3.2(o)
List of SSI Shareholders
Common Preferred Share
Shares Series A Issue State/
First Name Last Name Issued Issued Date City
Prov
-----------------------------------------------------------------------------
Founder shares - Accredited
Xxx Xxxx 1,300,000 00-Xxx-00 Xxxx Xxxxx XX
Xxxxxxxx Family Trust 1,300,000 28-Apr-03 Toronto ONT
King Xxxxx Consultants 1,300,000 28-Apr-03 Oakville ONT
------------------------------------------------------------------------------
Staff Shares (Issued under Reg. S)
Xxxxxxx Xxxxxxx 20,000 27-Jun-03 Mississauga ONT
Xxxxx Xxxxx 60,000 27-Jun-03 Caledonia ONT
Xxxxx Xxxxxx 54,504 27-Jun-03 Burlington ONT
Xxxxxxx Xxxxx 25,000 27-Jun-03 Burlington ONT
Xxxxx Xxxxx 74,500 27-Jun-03 Burlington ONT
Xxxxx Xxxxxx 20,000 27-Jun-03 St.Catharines ONT
-----------------------------------------------------------------------------
Private Placement Shares - Accredited
Xxxxx Xxxx 133,333 7-Jul-03 Edina MN
Xxxx Xxxxxx 266,667 7-Jul-03 Bloomington MN
Xxxxx Xxxxxxxxxxx 33,333 7-Jul-03 Rosemount MN
King Xxxxx 266,667 7-Jul-03 Oakville ONT
Xxxxxx Xxxxx 33,333 7-Jul-03 Plymouth MN
Xxxxxx Xxxxxx 133,333 7-Jul-03 Grapevine TX
Xxxx Xxxxx 66,667 7-Jul-03 Oakville ONT
Xxxxx Xxxxx 66,667 7-Jul-03 Xxxxx MN
Xxxx Xxxxxxx 33,333 7-Jul-03 Eden Prairie MN
King Xxxxx 300,000 7-Jul-03 Oakville ONT
------------------------------------------------------------------------------
Acquisition Shares for the purchase of Assets from VASCO and DOLFIN -
Accredited
Xxxxxx.xxx, Inc. 500,000 1-Jul-03 Oakville ONT
VASCO Data Security
International, Inc. 2,000,000 1-Jul-03 Oakbrooke Ter IL
------------------------------------------------------------------------------
Consultant 701 Shares - Accredited
Xxxx Xxxxxx 42,667 7-Jul-03 Eden Prairie MN
Xxxx Xxxxxxxx 153,666 7-Jul-03 Eden Prairie MN
Xxxx XxxXxxxxxx 78,667 7-Jul-03 Eden Prairie MN
Xxxxxx Xxxxxx 135,000 7-Jul-03 Eden Prairie MN
Xxxxxx Xxxx 20,000 7-Jul-03 Eden Prairie MN
Xxxxxxx Xxxxxxxxxx 70,000 7-Jul-03 Salt Lake City UT
------------------------------------------------------------------------------
TOTALS 6,487,337 2,000,000
------------------------------------------------------------------------------
Schedule 4.1(a)
Dividend to be Paid Prior to Closing
None.
Schedule 4.1(d)
Additional Indebtedness
None.
Schedule 4.1(e)
Alterations to Employment Agreements
None.
Schedule 6.1(e)
Opinion of Xxxxxxx X. Xxxxxxxxxx, Esq.
July 18, 2003
SecureD Services, Inc.
c/o Morse, Zelnick, Rose & Lander, LLP
000 Xxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, Xxx Xxxx 00000
Re: Agreement and Plan of Merger
Gentlemen:
This opinion is being furnished pursuant to Section 6.1(e) of the
Agreement and Plan of Merger, dated July 8, 2003, but effective for all
accounting purposes as of July 1, 2003 (the "Agreement"), by and among
Southern Software Group, Inc. (the "Company" or "SSGI"), SSGI Acquisition
Corp., the Company's wholly-owned subsidiary ("Newco"), and SecureD Services,
Inc. ("SSI"). Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings ascribed to them in the Agreement. As used
herein, the term "Agreement" includes all exhibits and schedules annexed
thereto.
We have acted as counsel to the Company and Newco in connection with the
transactions contemplated under the Agreement. In connection therewith, we
have examined and are familiar with and have relied upon the following
documents:
(1) The Agreement;
(2) The Certificate of Incorporation of the Company, as amended to date (the
"Charter");
(3) The Bylaws of the Company, as amended to date (the "Bylaws");
(4) Certificate, dated July 3, 2003, of the Secretary of State of the State
of Delaware certifying to the good standing of the Company in Delaware (the
"Good Standing Certificate");
(5) 10-KSB Annual Report of the Company for the year ended December 31,
2002, which was filed with the Securities and Exchange Commission on or about
April 14, 2003;
(6) 10-QSB Quarterly Reports of the Company as filed with the Securities and
Exchange Commission for the past twelve months;
(7) Certificate of Incorporation of Newco as filed with the Secretary of
State of the State of Delaware on July 2, 2003;
(8) Consent of Directors of the Company and Newco adopting the Agreement; and
(9) Such other documents, instruments and certificates (including, but not
limited to, certificates of public officials and officers of the Company) as
we have considered necessary for purposes of this opinion.
We have also made such inquiries of officers of the Company and Newco
and considered such questions of law as we have deemed necessary to render the
opinions set forth herein.
In our examination of the documents described above, we have assumed the
completeness of the corporate and stock record books of the Company and Newco,
the genuineness of all signatures, the legal capacity of each signatory to
such documents, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified, facsimile or photostatic copies and the authenticity of the
originals of such certified, facsimile or photostatic documents. We have
assumed that the Agreement accurately describes and contains the mutual
understanding of the parties thereto as to all matters contained therein, and
that no other agreements or understandings exist between such parties with
respect to the transactions contemplated thereby.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Company and Newco, we have
relied, without independent investigation, upon certificates, statements and
representations made to us by one or more officers or employees of the Company
and Newco and upon the representations and warranties made by the Company and
Newco in the Agreement.
Any reference herein to "our knowledge," or to matters "known to us," or
to any matter of which we "are aware" or coming "to our attention" or any
variation of any of the foregoing, shall mean, as used herein, the conscious
awareness of those attorneys of this firm who have rendered substantive
attention to the transaction to which this opinion relates of the existence or
absence of any facts which would contradict our opinions set forth below. We
have not undertaken, for purposes of this opinion, any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from the fact of our representation of the Company and Newco.
Moreover, we have not, for purposes of our opinions below, searched
computerized or electronic databases or the docket of any court, governmental
agency or regulatory body or other filing office in any jurisdiction.
For purposes of this opinion, we have assumed that the Agreement has
been duly authorized, executed and delivered by the signatories thereto other
than the Company and Newco, that the signatories thereto other than the
Company and Newco have the legal capacity and all requisite power and
authority to effect the transactions contemplated by the Agreement and that
the Agreement is the valid and binding obligations of the signatories thereto
other than the Company and Newco, enforceable against them in accordance with
their respective terms. We are expressing no opinion herein as to the
application of or compliance with any foreign, federal or state law or
regulation to the power, authority or competence of any party to the documents
other than the Company and Newco.
Our opinions expressed in paragraph 1 below, insofar as they relate to
the due incorporation, valid existence and good standing of the Company are
based solely on the Good Standing Certificate, a copy of which has been made
available to you, and our opinions with respect to such matters are rendered
as of the respective dates of such Certificate and limited accordingly.
The opinions hereinafter expressed are qualified to the extent that they
may be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent transfer or other laws relating
to or affecting the rights and remedies of creditors generally; (ii) statutory
or decisional law concerning recourse by creditors to security in the absence
of notice or hearing; and (iii) duties and standards imposed on creditors and
parties to contracts, including without limitation, requirements of good
faith, reasonableness and fair dealing. We express no opinion as to the
availability of the remedy of specific performance, injunctive relief or any
other equitable or specific remedy upon any breach of any documents or
obligations referred to herein, or to the successful assertion of any
equitable defenses, inasmuch as the availability of such remedies or the
success of such defenses may be subject to the discretion of the court before
which any proceeding therefor may be brought. Furthermore, we express no
opinion herein as to any provision of any agreement (i) which may be deemed to
or construed to waive any right of the Company and Newco, (ii) to the effect
that rights and remedies are not exclusive, that every right or remedy is
cumulative and may be exercised in addition to or with any other right or
remedy and does not preclude recourse to one or more other rights or remedies,
(iii) relating to the effect of invalidity or enforceability of the provisions
of the Agreement on the validity or enforceability of any other provision
thereof, (iv) requiring the payment of consequential damages or liquidated
damages, (v) relating to non-competition and non-solicitation, (vi) relating
to indemnification and contribution with respect to securities law claims, and
(vii) relating to choice of law, consent to jurisdiction or waiver of trial by
jury.
We express no opinion as to compliance by the Company and Newco with any
state or federal antifraud laws or with the fraudulent transfer laws of any
jurisdiction.
We are opining herein only with respect to the Delaware General
Corporation Law and the federal laws of the United States of America.
Accordingly, to the extent that any laws other than those upon which we are
opining govern any of the matters as to which we express an opinion below, we
have assumed for purposes of this opinion, with your permission and without
independent investigation, that the laws of such jurisdiction are identical to
the state laws of the State of Delaware, and we express no opinion as to
whether such assumption is reasonable or correct.
On the basis of and subject to the foregoing, we are of the opinion
that:
1. The Company and Newco are corporations duly organized and validly
existing and in good standing under the laws of the State of Delaware. The
Company and Newco have requisite corporate power to own and operate their
respective properties and assets and to carry on their respective business as
presently conducted.
2. The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock having a par value of $0.0001 per share (the "Common
Stock"), and 5,000,000 shares of Preferred Stock having a par value of $0.0001
per share, of which 2,000,000 shares have been designated as SSGI Convertible
Preferred Shares ("Series A Preferred"); and the authorized capital stock of
Newco consists of 1,000 shares of common stock having a par value of $0.001
per share
3. The Agreement and the other agreements contemplated by the
Agreement to which the Company and Newco are party are duly authorized,
executed and delivered by the Company and Newco and each such agreement is
valid and binding upon the Company and Newco and is enforceable against the
Company and Newco in accordance with its terms except as such enforcement may
be limited by applicable bankruptcy, insolvency or other laws of general
application affecting the rights of creditors and the availability of
equitable remedies such as specific performance and injunction which are only
available in the discretion of the court from which they are sought.
4. The execution and delivery by the Company and Newco of the
Agreement and the other agreements contemplated by the Agreement and the
fulfillment of and the compliance with the respective terms thereof by the
Company and Newco, do not and will not (or would not with the giving of
notice, the lapse of time or the happening of any event or condition), to our
knowledge, result in the violation of any terms or provisions of any existing
documents of the Company and Newco, any law applicable to the Company and
Newco or of any agreement, written or oral, to which the Company and Newco are
party or by which they are bound.
5. The Common Stock and Series A convertible preferred stock of the
Company to be issued pursuant to the Agreement shall, on issuance, be validly
issued, fully paid and non-assessable.
6. That, subject to the filing of any required forms or notices with
the Securities and Exchange Commission and any similar state agencies, the
issuance of the Common Stock and Series A Preferred by the Company under the
Agreement does not require registration under the Securities Act of 1933, as
amended (the "Securities Act"), or registration or qualification under any
state securities laws.
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions and is rendered as of the date hereof, and
we disclaim any obligation to advise you of any change in any of the foregoing
sources of law or subsequent developments in law or changes in fact or
circumstances which might affect any matters or opinions set forth herein.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters.
This opinion is being furnished to you, at your request and it is solely
for the purpose set forth in the first paragraph hereof and solely for your
benefit and may not be relied upon for any other purpose or by any other
person or entity without our prior written consent.
Very truly yours,
/s/ Xxxxxxx X. Xxxxxxxxxx
LWB
SCHEDULE 6.1(f)
SSI Stockholder Acknowledgement
In consideration and as a condition of the merger (the
"Merger") between SOUTHERN SOFTWARE GROUP, INC., a Delaware corporation
("SSGI"), SSGI ACQUISITION CORP., a Delaware corporation ("Newco"), and
SECURED SERVICES, INC., a Delaware corporation ("SSI") (the "Merger
Agreement"), by which Newco shall merge with and into SSI and the SSI
Stockholders shall exchange their respective securities in SSI for securities
of SSGI thereunder (the "Exchange"), the undersigned SSI Stockholder
acknowledges as follows, to-wit:
1. That he/she/it is an "accredited investor" as that term is
defined under Regulation D of the Securities and Exchange
Commission or a non United States resident;
2. That he/she/it has had access to all material information
regarding SSGI through the Xxxxx Archives of the Securities
and Exchange Commission at xxx.xxx.xxx or by the delivery of
copies of all Reports and/or Registration Statements filed by
SSGI with the Securities and Exchange Commission during the
past twelve months;
3. That he/she/it has had access to all material information
regarding SSI by virtue of he/she/it being a holder of
outstanding securities or the right to acquire securities of
SSI.
4. That he/she/it has had access to all material information
regarding the Merger, the Merger Agreement and the Exchange;
5. That he/she/it is receiving the securities that he/she/it
will receive pursuant to the Merger and under the Merger
Agreement and in the Exchange for "investment purposes and
not with a view toward the further distribution thereof," and
that he/she/it acknowledges and understands that the
securities of SSGI are "restricted securities" as that term
is defined under Rule 144 of the Securities and Exchange
Commission;
6. That he/she/it consents to the Merger, the Merger Agreement
and the Exchange;
7. That he/she/it waives any dissenters' rights of appraisal
under the Delaware General Corporation Law (the "Delaware
Law");
8. That he/she/it has agreed to execute and has executed and
delivered the Lock-Up/Leak-Out Agreement respecting the
securities of SSGI that he/she/it will receive pursuant to
the Merger and under the Merger Agreement and in the Exchange
restricting the resale of such securities, a copy of which is
attached hereto and incorporated herein and as part of the
Merger Agreement as Schedule 2.1(e)(ii);
9. That he/she/it owns the securities being exchanged free of
any liens or encumbrances whatsoever; and
10. That he/she/it has the right power and authority to deliver
this Acknowledgement, without qualification.
11. That he/she/it has been advised and acknowledges that:
(i) SSI has received subscription agreements for investments
totaling $1,000,000 U.S. from the offer and sale of its
restricted common stock, par value $.001 per share, at a
price of $0.75 per share;
(ii) A portion of these funds were received through Canadian
subscription agreements that did not require that the
funds be held in escrow until the closing of the
transactions;
(iii) With the knowledge and permission of these Canadian
investors, SSI has used approximately $250,000 of the
$1,000,000 cash proceeds raised for the purposes of
furthering the acquisition and for protection of some of
the assets that SSI is acquiring or will have continuing
interest in; and
(iv) He/she/it agrees to waive any claims from such use or
the failure to hold such previously used amount in
escrow until the closing of the Plan of Reorganization
or Merger.
SSI INDIVIDUAL STOCKHOLDER:
Dated: ______________________. ____________________________________
Print Name
____________________________________
Signature
SSI CORPORATE STOCKHOLDER:
Dated: ______________________. By_________________________________
Print Name
____________________________________
Signature
SCHEDULE 6.2(g)
Opinion Letter from Morse, Zelnick, Rose & Lander LLP
(000) 000-0000
July 18, 2003
Southern Software Group, Inc.
0000 Xxxxxxxxx Xxxx
Xxxxx X
Xxxxxxxxx, Xxxxxxxx 00000
Re: Agreement and Plan of Merger
Gentlemen:
This opinion is being furnished pursuant to Section 6.2(g) of the
Agreement and Plan of Merger, dated July 8, 2003 and effective as of July 1,
2003 (the "Agreement"), by and among Southern Software Group, Inc. ("SSGI"),
SSGI Acquisition Corp. ("Newco")and SecureD Services, Inc. (the "Company").
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings ascribed to them in the Agreement. As used herein, the
term "Agreement" includes all exhibits and schedules annexed thereto.
We have acted as counsel to the Company in connection with the
transactions contemplated under the Agreement. In connection therewith, we
have examined and are familiar with and have relied upon the following
documents:
(1) The Agreement;
(2) The Certificate of Incorporation of the Company, as amended to
date, including the Certificate of Designation filed on June 20,
2003 (the "Charter");
(3) The Bylaws of the Company, as amended to date (the "Bylaws");
(4) Certificate, dated as of a recent date, of the Secretary of State
of the State of Delaware certifying to the good standing of the
Company in Delaware (the "Good Standing Certificate");
(5) The Stockholder Acknowledgements as executed by each of the U.S.
purchasers (each an accredited investor), effective as of July 8,
2003, subscribing for securities of the Company under the terms of
the Subscription Agreement, effective as of an even date hereof; and
(6) Such other documents, instruments and certificates (including, but
not limited to, certificates of public officials and officers of
the Company) as we have considered necessary for purposes of this
opinion.
We have also made such inquiries of officers of the Company and
considered such questions of law as we have deemed necessary to render the
opinions set forth herein.
In our examination of the documents described above, we have assumed the
completeness of the corporate and stock record books of the Company, the
genuineness of all signatures, the legal capacity of each signatory to such
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all documents submitted to us as
certified, facsimile or photostatic copies and the authenticity of the
originals of such certified, facsimile or photostatic documents. We have
assumed that the Agreement accurately describes and contains the mutual
understanding of the parties thereto as to all matters contained therein, and
that no other agreements or understandings exist between such parties with
respect to the transactions contemplated thereby.
Insofar as this opinion relates to factual matters, information with
respect to which is in the possession of the Company, we have relied, without
independent investigation, upon certificates, statements and representations
made to us by one or more officers or employees of the Company and upon the
representations and warranties made by the Company in the Agreement.
Any reference herein to "our knowledge," or to matters "known to us," or
to any matter of which we "are aware" or coming "to our attention" or any
variation of any of the foregoing, shall mean, as used herein, the conscious
awareness of those attorneys of this firm who have rendered substantive
attention to the transaction to which this opinion relates of the existence or
absence of any facts which would contradict our opinions set forth below. We
have not undertaken, for purposes of this opinion, any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from the fact of our representation of the Company. Moreover, we
have not, for purposes of our opinions below, searched computerized or
electronic databases or the docket of any court, governmental agency or
regulatory body or other filing office in any jurisdiction.
For purposes of this opinion, we have assumed that the Agreement has
been duly authorized, executed and delivered by the signatories thereto other
than the Company, that the signatories thereto other than the Company have the
legal capacity and all requisite power and authority to effect the
transactions contemplated by the Agreement and that the Agreement is the valid
and binding obligations of the signatories thereto other than the Company,
enforceable against them in accordance with their respective terms. We are
expressing no opinion herein as to the application of or compliance with any
foreign, federal or state law or regulation to the power, authority or
competence of any party to the documents other than the Company.
Our opinions expressed in paragraph 1 below, insofar as they relate to
the due incorporation, valid existence and good standing of the Company are
based solely on the Good Standing Certificate, a copy of which has been made
available to you, and our opinions with respect to such matters are rendered
as of the respective dates of such Certificate and limited accordingly.
The opinions hereinafter expressed are qualified to the extent that they
may be subject to or affected by (i) applicable bankruptcy, insolvency,
reorganization, moratorium, usury, fraudulent transfer or other laws relating
to or affecting the rights and remedies of creditors generally; (ii) statutory
or decisional law concerning recourse by creditors to security in the absence
of notice or hearing; and (iii) duties and standards imposed on creditors and
parties to contracts, including without limitation, requirements of good
faith, reasonableness and fair dealing. We express no opinion as to the
availability of the remedy of specific performance, injunctive relief or any
other equitable or specific remedy upon any breach of any documents or
obligations referred to herein, or to the successful assertion of any
equitable defenses, inasmuch as the availability of such remedies or the
success of such defenses may be subject to the discretion of the court before
which any proceeding therefor may be brought. Furthermore, we express no
opinion herein as to any provision of any agreement (i) which may be deemed to
or construed to waive any right of the Company, (ii) to the effect that rights
and remedies are not exclusive, that every right or remedy is cumulative and
may be exercised in addition to or with any other right or remedy and does not
preclude recourse to one or more other rights or remedies, (iii) relating to
the effect of invalidity or enforceability of the provisions of the Agreement
on the validity or enforceability of any other provision thereof, (iv)
requiring the payment of consequential damages or liquidated damages, (v)
relating to non-competition and non-solicitation, (vi) relating to
indemnification and contribution with respect to securities law claims, and
(vii) relating to choice of law, consent to jurisdiction or waiver of trial by
jury.
We express no opinion as to compliance by the Company with any state or
federal antifraud laws or with the fraudulent transfer laws of any
jurisdiction.
We are opining herein only with respect to the Delaware General
Corporation Law and the federal laws of the United States of America.
Accordingly, to the extent that any laws other than those upon which we are
opining govern any of the matters as to which we express an opinion below, we
have assumed for purposes of this opinion, with your permission and without
independent investigation, that the laws of such jurisdiction are identical to
the state laws of the State of New York, and we express no opinion as to
whether such assumption is reasonable or correct.
On the basis of and subject to the foregoing, we are of the opinion
that:
1. The Company is a corporation duly organized and validly existing
and in good standing under the laws of the State of Delaware. The Company has
requisite corporate power to own and operate its properties and assets and to
carry on its business as presently conducted.
2. The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock having a par value of $0.001 per share (the "Common
Stock"), and 5,000,000 shares of Preferred Stock having a par value of $0.001
per share, of which 2,000,000 shares have been designated as Series A
Convertible Preferred Stock.
3. The Agreement and the other agreements contemplated by the
Agreement to which the Company is a party are duly authorized, executed and
delivered by the Company and each such agreement is valid and binding upon the
Company and is enforceable against the Company in accordance with its terms
except as such enforcement may be limited by applicable bankruptcy, insolvency
or other laws of general application affecting the rights of creditors and the
availability of equitable remedies such as specific performance and injunction
which are only available in the discretion of the court from which they are
sought.
4. The execution and delivery by the Company of the Agreement and the
other agreements contemplated by the Agreement and the fulfillment of and the
compliance with the respective terms thereof by the Company, do not and will
not (or would not with the giving of notice, the lapse of time or the
happening of any event or condition), to our knowledge, result in the
violation of any terms or provisions of any existing documents of the Company,
any law applicable to the Company or of any agreement, written or oral, to
which the Company is a party or by which it is bound.
This opinion is based upon currently existing statutes, rules,
regulations and judicial decisions and is rendered as of the date hereof, and
we disclaim any obligation to advise you of any change in any of the foregoing
sources of law or subsequent developments in law or changes in fact or
circumstances which might affect any matters or opinions set forth herein.
Please note that we are opining only as to the matters expressly set forth
herein, and no opinion should be inferred as to any other matters.
This opinion is being furnished to you, at your request and it is solely
for the purpose set forth in the first paragraph hereof and solely for your
benefit and may not be relied upon for any other purpose or by any other
person or entity without our prior written consent.
Very truly yours,
/s/ Morse, Zelnick, Rose & Lander, LLP
Schedule 10.3
Brokers Receiving Commission
None
