-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sht0qZULY3ebL9dm4S5LYZEDLVnRt8qsLJOXUW2mo2fZ86LZx2Fqd8DCQ11j02KU MkN+qIOwwmEjavYpNU8ScA== 0000950109-96-008290.txt : 19961213 0000950109-96-008290.hdr.sgml : 19961213 ACCESSION NUMBER: 0000950109-96-008290 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19961212 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RADIANT SYSTEMS INC CENTRAL INDEX KEY: 0000845818 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 112749765 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: 1933 Act SEC FILE NUMBER: 333-17723 FILM NUMBER: 96679813 BUSINESS ADDRESS: STREET 1: 1000 ALDERMAN DRIVE STREET 2: STE A CITY: ALPHARETTA STATE: GA ZIP: 30202 BUSINESS PHONE: 7707723000 MAIL ADDRESS: STREET 1: 1000 ALDERMAN DRIVE STREET 2: STE A CITY: ALPHARETTA STATE: GA ZIP: 30202 S-1 1 REGISTRATION STATEMENT As filed with the Securities and Exchange Commission on December 12, 1996 Registration No. 333- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------- RADIANT SYSTEMS, INC. (Exact name of registrant as specified in its charter) GEORGIA 7373 11-2749765 (State or other (Primary Standard (IRS Employer jurisdiction of Industrial Identification Number) incorporation or Classification Code organization) Number) 1000 ALDERMAN DRIVE, SUITE A ALPHARETTA, GEORGIA 30202 (770) 772-3000 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) JOHN H. HEYMAN EXECUTIVE VICE PRESIDENT RADIANT SYSTEMS, INC. 1000 ALDERMAN DRIVE, SUITE A ALPHARETTA, GEORGIA 30202 (770) 772-3000 (Name, address, including zip code, and telephone number, including area code, of agent for service) Copies to:
ARTHUR JAY SCHWARTZ, ESQ. WILLIAM H. AVERY, ESQ. SMITH, GAMBRELL & RUSSELL, LLP ALSTON & BIRD SUITE 1800 ONE ATLANTIC CENTER 3343 PEACHTREE ROAD, N.E. 1201 WEST PEACHTREE STREET ATLANTA, GEORGIA 30326 ATLANTA, GEORGIA 30309 (404) 264-2620 (404) 881-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
TITLE OF EACH CLASS PROPOSED MAXIMUM OF SECURITIES TO AGGREGATE AMOUNT OF BE REGISTERED OFFERING PRICE (1)(2) REGISTRATION FEE - ----------------------------------------------------------------------------------------------- Common Stock, no par value....... $40,710,000 $12,337 - -----------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- (1) Includes 442,500 shares that may be sold by the Company and certain selling shareholders upon exercise of the Underwriters' over-allotment option. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended. -------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- Subject to Completion December 12, 1996 2,950,000 Shares [LOGO APPEARS HERE] Common Stock -------- Of the 2,950,000 shares of Common Stock being offered hereby, 2,500,000 shares are being sold by Radiant Systems, Inc. ("Radiant" or the "Company") and 450,000 shares are being sold by certain shareholders of the Company (the "Selling Shareholders"). See "Principal and Selling Shareholders." The Company will not receive any proceeds from the sale of shares by the Selling Shareholders. Prior to this offering, there has been no public market for the Common Stock of the Company. It is currently estimated that the initial public offering price will be between $10.00 and $12.00 per share. See "Underwriting" for the factors to be considered in determining the initial public offering price. The Company will apply for listing of the Common Stock on the Nasdaq National Market under the trading symbol "RADS." -------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7. -------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
PRICE UNDERWRITING PROCEEDS PROCEEDS TO TO DISCOUNTS AND TO SELLING PUBLIC COMMISSIONS COMPANY(1) SHAREHOLDERS - ------------------------------------------------------------------------------- Per Share......................... $ $ $ $ - ------------------------------------------------------------------------------- Total(2).......................... $ $ $ $ - -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- (1) Before deducting expenses of the offering payable by the Company estimated at $500,000. (2) The Company and certain of its shareholders have granted the Underwriters a 30-day option to purchase up to 442,500 additional shares of Common Stock solely to cover over-allotments, if any. To the extent that the option is exercised, the Underwriters will offer the additional shares at the Price to Public shown above. If the option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Shareholders will be $ , $ , $ and $ , respectively. See "Underwriting." -------- The shares of Common Stock are offered by the several Underwriters, subject to prior sale, when, as and if delivered to and accepted by them, and subject to the right of the Underwriters to reject any order in whole or in part. It is expected that delivery of the shares of Common Stock will be made at the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about , 1997. Alex. Brown & Sons INCORPORATED Deutsche Morgan Grenfell The Robinson-Humphrey Company, Inc. THE DATE OF THIS PROSPECTUS IS , 1997 ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A + +REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE + +SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY + +OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT + +BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR + +THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE + +SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE + +UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF + +ANY SUCH STATE. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ DESCRIPTION OF RADIANT SYSTEMS, INC. INSIDE FRONT COVER DIAGRAM TITLE: The Radiant Solution STRUCTURE: Diagram mapping the flow of information created by deploying the Company's technology solution. The diagram begins with a depiction of a consumer initiating a transaction at the Company's consumer- activated system, which transmits data to a point of sale system, which in turn is connected to a back office management system. The back office system periodically transmits data to the Company's headquarters management system, which has the capability to communicate electronically with user's vendors and suppliers. Each stage is depicted by a disc with a stylized picture of the relevant device or object (a PC for back office systems, a headquarters building for headquarters management systems, etc.). Arrows connect those components of the system having direct, online connections while jagged lines depict nonreal time, batch connections. The discs are arranged in a semicircle with stylized pictures of businesspeople in the center, representing the Company's consulting and implementation services, connected with each disc with a dotted line. SUPPORTING TEXT: "The Company offers a series of fully integrated, software-based retail automation products that comprise the Radiant solution. The Radiant solution enables retailers to interact electronically with consumers, capture data at the point of sale, manage site operations and logistics and communicate electronically with their sites, vendors and credit networks. The Radiant solution can be deployed on an enterprise-wide basis." The Company intends to furnish its shareholders with annual reports containing audited financial statements and an opinion thereon expressed by independent auditors and will make available copies of quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER THE COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by and should be read in conjunction with the more detailed information and combined financial statements, including the notes thereto, appearing elsewhere in this Prospectus. Except as otherwise specified herein, all information in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment option and (ii) reflects the conversion of all outstanding shares of non-voting Class A Common Stock into an equal number of shares of Common Stock simultaneously with the completion of this offering. See "Description of Capital Stock." THE COMPANY Radiant Systems, Inc. ("Radiant" or the "Company") provides enterprise-wide technology solutions to selected vertical markets within the retail industry. The Company offers fully integrated retail automation solutions including point of sale ("POS") systems, consumer-activated ordering systems, back office management systems and headquarters-based management systems. The Company's products enable retailers to interact electronically with consumers, capture data at the point of sale, manage site operations and logistics and communicate electronically with their sites, vendors and credit networks. In addition, the Company offers systems planning, design and implementation services that tailor the automation solution to each retailer's specifications. The Company believes that its site solutions are easy to implement, typically requiring less than a week to install and a few hours to train individual users. Radiant is currently a leading provider of integrated retail automation solutions to the convenience store market and has a growing presence in the entertainment market through its PrysmTech joint venture. In addition, the Company intends to expand its presence in the quick service restaurant ("QSR") market in 1997. Since these markets require many of the same product features and functionality, the Company believes it can leverage its existing technology across these markets with limited incremental product development efforts. In the convenience store market, the Company offers a fully integrated retail automation solution, including the site-based Compu-Touch product, an integrated point of sale and back office solution; OrderPoint, a consumer- activated ordering system with multimedia capabilities; and Core-Tech, a headquarters-based, enterprise-wide management system. In the entertainment market, the Company markets an integrated site-based solution through its PrysmTech joint venture. This solution includes BoxMan, a box-office POS system; ConcMan, a concession stand POS system; OrderPoint, a consumer- activated ticket and concession management and ordering system; and OfficeMan, a back office solution. Radiant expects to introduce its headquarters-based Core-Tech enterprise-wide management system to the entertainment market in 1997. To accelerate its entry into the QSR market, Radiant acquired a company with a limited product offering in May 1996. The Company is developing a new suite of products for this market using its core technologies and its recently introduced Radiant platform. This platform allows multiple multimedia software applications to operate on separate terminals simultaneously, all driven by a single PC. As of December 1, 1996, the Company had installed its products in over 2,200 sites and had over 50 customers in its various vertical markets, including Conoco, Inc., Ultramar Diamond Shamrock Corporation, Dillon Companies, Inc., Emro Marketing Company (Speedway/Starvin' Marvin), Sheetz, Inc., Regal Cinemas, Loews Theatre Management Corporation and Wawa, Inc. The Company's objective is to be the leading worldwide provider of enterprise-wide technology solutions to the vertical markets it serves. To this end, the Company introduced several new solutions in 1996, including OrderPoint, Core-Tech, a Windows NT version of Compu-Touch and Radiant, a multimedia networking platform. In addition, the Company has expanded its direct sales effort during the last twelve months and intends to further expand this effort in 1997. 3 The Company originally was organized under the laws of the state of New York on August 1, 1985, and subsequently reincorporated under the laws of the state of Georgia on October 27, 1995. The reincorporation was effected through a merger of the New York corporation with and into the Georgia corporation. The name of the Company was changed to Radiant Systems, Inc. from Softsense Computer Products, Inc. on November 13, 1996. Since its inception, the Company has elected to be treated as a corporation subject to taxation under Subchapter S of the Internal Revenue Code of 1986, as amended. The Company's S Corporation status, however, will terminate upon completion of this offering. The Company's principal executive offices are located at 1000 Alderman Drive, Suite A, Alpharetta, Georgia 30202, and its telephone number is (770) 772-3000. RISK FACTORS The Common Stock offered hereby involves a high degree of risk. See "Risk Factors." THE OFFERING Common Stock offered by the Company........... 2,500,000 shares Common Stock offered by the Selling Sharehold- ers.......................................... 450,000 shares Common Stock to be outstanding after the of- fering....................................... 10,983,701 shares(1) Use of proceeds............................... Repayment of indebtedness, repurchase of outstanding shares of Common Stock and general corporate purposes, including working capital. Proposed Nasdaq National Market symbol........ RADS
- -------- (1) Excludes (i) 2,819,750 shares of Common Stock issuable upon the exercise of stock options outstanding as of December 1, 1996, of which options to purchase 292,500 shares were exercisable, (ii) 20,000 shares of Common Stock issuable upon the exercise of stock purchase warrants to be outstanding upon completion of this offering, and (iii) 781,851 shares of Common Stock which will be repurchased by the Company with the proceeds of this offering, some of which are the result of the exercise of certain warrants. See "Management--Stock Option Plan," "Underwriting" and "Use of Proceeds." 4 SUMMARY COMBINED AND PRO FORMA FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS PRO FORMA ENDED NINE MONTHS YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED -------------------------------------- --------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1995 1996 1996(1) ------ ------ ------ ------- ------- ------ ------- ------------- STATEMENT OF OPERATIONS DATA: Revenues: Systems sales.......... $ 686 $1,079 $3,748 $13,529 $14,078 $9,447 $17,472 $23,343 Customer support, maintenance and other services.............. 361 412 552 919 1,804 1,366 2,514 3,243 ------ ------ ------ ------- ------- ------ ------- ------- Total revenues.......... 1,047 1,491 4,300 14,448 15,882 10,813 19,986 26,586 Cost of revenues: Systems sales.......... 332 462 2,307 9,459 9,863 6,769 10,602 14,546 Customer support, maintenance and other services.............. 279 366 588 1,208 2,300 1,660 3,644 3,867 ------ ------ ------ ------- ------- ------ ------- ------- Total cost of revenues.. 611 828 2,895 10,667 12,163 8,429 14,246 18,413 ------ ------ ------ ------- ------- ------ ------- ------- Gross profit............ 436 663 1,405 3,781 3,719 2,384 5,740 8,173 Income (loss) from operations before purchased research and development costs.. (75) 26 547 (94) (2,101) (1,777) (632) 374 Income (loss) from operations............. (75) 26 547 (94) (2,101) (1,777) (662) 344 Interest expense, net... -- 3 19 82 166 83 305 496 Other (income).......... -- -- -- -- (406) (374) (572) (35) ------ ------ ------ ------- ------- ------ ------- ------- Income (loss) before provision for income taxes....... (75) 23 528 (176) (1,861) (1,486) (395) (117) Pro forma income tax provision (benefit)(2)........... (27) 11 206 (61) (709) (566) (146) (46) ------ ------ ------ ------- ------- ------ ------- ------- Pro forma net income (loss)................. $ (48) $ 12 $ 322 $ (115) $(1,152) $ (920) $ (249) $ (71) ====== ====== ====== ======= ======= ====== ======= ======= Pro forma net income (loss) per common and common equivalent share(3)............... $ (0.10) $ (0.02) $ (0.01) ======= ======= ======= Weighted average common and common equivalent shares outstanding............ 11,595 11,187 11,587 ======= ======= =======
SEPTEMBER 30, 1996 ----------------------- ACTUAL AS ADJUSTED(4) ------- -------------- BALANCE SHEET DATA: Working capital........................................ $ (555) $17,076 Total assets .......................................... 10,014 27,302 Long-term debt and shareholder loan, including current portion ............................ 5,898 733 Shareholders' equity (deficit)......................... (3,489) 20,490
5 - -------- (1) The pro forma statement of operations data for the nine months ended September 30, 1996 gives effect to the proposed acquisition of PrysmTech, L.L.C. ("PrysmTech") as if such acquisition occurred on January 1, 1996. See "Pro Forma Financial Information." (2) As a result of its election to be treated as an S Corporation for income tax purposes, the Company has not been subject to federal or state income taxes. Pro forma net income amounts include additional provisions for income taxes determined by applying the Company's anticipated statutory tax rate to pretax income (loss), adjusted for permanent tax differences. (3) Pro forma net income (loss) per share is computed by dividing pro forma net income (loss) available to common shareholders by weighted average shares outstanding. Supplementary pro forma net income (loss) per share (resulting from the anticipated repayment of borrowings with a portion of the proceeds of this offering as indicated in "Use of Proceeds") is $(0.10) for the year ended December 31, 1995 and $(0.01) for the nine months ended September 30, 1996. (4) Adjusted to reflect the sale of 2,500,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $11.00 per share and the exercise of outstanding warrants to purchase 1,265,551 shares of Common Stock, which will occur prior to the closing of this offering, for an aggregate exercise price of $962,000, after deducting estimated underwriting discounts and offering expenses and the application of the net proceeds therefrom (other than repayment of the proposed PrysmTech note, which was not outstanding at September 30, 1996). See "Use of Proceeds." Softsense(R), Compu-Touch(R) and OrderPoint(R) are registered trademarks of the Company. The Company has applied for registration of its SoftsenseTM design, Core-TechTM and RadiantTM and design trademarks. The following trademarks and tradenames used in this Prospectus are the property of owners other than the Company: Smile Gas, Speedway/Starvin' Marvin, Panasonic, Novell, Microsoft SQL Server, Windows NT, PowerBuilder and Pizzeria Uno. 6 RISK FACTORS In addition to the other information contained in this Prospectus, the following factors should be considered carefully in evaluating an investment in the shares of Common Stock offered by this Prospectus. History of Operating Losses; Accumulated Deficit. As of September 30, 1996, the Company had an accumulated deficit of $3.7 million. For the nine months ended September 30, 1996 and for fiscal years 1995 and 1994, the Company incurred net losses of $249,000, $1.2 million and $115,000, respectively. There can be no assurance that the Company will be able to achieve profitability for fiscal 1996 and, if achieved, will sustain such profitability. The Company anticipates that completing its products under development and marketing existing products and new releases will require substantial expenditures. Accordingly, an investment in the Common Stock is extremely speculative in nature and involves a high degree of risk. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Management of Growth. The growth in the size and complexity of the Company's business and the expansion of its product lines and its customer base will place a significant strain on the Company's management and operations. An increase in the demand for the Company's products could strain the Company's resources or result in delivery problems, delayed software commitments, slow response time, or insufficient resources for assisting customers with implementation of the Company's products and services, which could have a material adverse effect on the Company's business, operating results and financial condition. The Company anticipates that continued growth, if any, will require it to recruit, hire and assimilate a substantial number of new employees, including consulting, product development, sales and marketing personnel. Since September 1995, the Company has hired a new President and Chief Operating Officer, a new Chief Financial Officer and several other members of senior management. There can be no assurance that the new management can effectively manage the Company's operations. The Company's ability to compete effectively and to manage future growth, if any, also will depend on its ability to continue to implement and improve operational, financial and management information systems on a timely basis and to expand, train, motivate and manage its work force, particularly its direct sales force and consulting services organization. There can be no assurance that the Company will be able to manage any future growth, and any failure to do so could have a material adverse effect on the Company's business, operating results and financial condition. The Company's ability to undertake new projects and increase revenues is dependent on the availability of the Company's personnel to assist in the development and implementation of the Company's technology solutions. The Company currently is attempting to increase consulting capacity in anticipation of future sales. Should the Company increase its consulting capacity and such sales fail to materialize, the Company's business, operating results and financial condition would be adversely affected. Fluctuations in Quarterly Operating Results. The Company has experienced and expects to continue to experience quarterly fluctuations in its operating results. The Company's recent revenue growth should not be taken as indicative of the rate of revenue growth, if any, that can be expected in the future. The Company believes that period-to-period comparisons of its operating results are not meaningful and that the results for any period should not be relied upon as an indication of future performance. Moreover, a significant portion of the Company's quarterly revenues has been derived from a limited number of customers in the convenience store market. The Company currently anticipates that this trend will continue. Any significant cancellation or deferral of customer orders could have a material adverse effect on the Company's operating results in any particular quarter. The introduction of new research and development projects requires the Company to significantly increase its operating expenses to fund greater levels of product development and to develop and commercialize additional products and services. To the extent that such expenses precede or are not subsequently followed by increased revenues, the Company's business, results of operations and financial condition will be materially and adversely affected. 7 The Company's operating results may fluctuate significantly in the future as a result of a variety of factors, many of which are outside the Company's control. These factors include the level of usage of computer-based and consumer-activated products and services, the size and timing of individual customer orders, the introduction of new products or services by the Company or its competitors, pricing changes in the industry, technical difficulties with respect to the use of computer-based products and services developed by the Company, general economic conditions and economic conditions specific to the computer, convenience store, entertainment and QSR markets. As a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service or marketing decisions or acquisitions that could have a material adverse effect on the Company's business, results of operations and financial condition. Due to all of the foregoing factors, in some future quarters the Company's operating results may fall below the expectations of securities analysts and investors. In such event, the trading price of the Company's Common Stock would likely be materially and adversely affected. Industry Concentration and Cyclicality. All of the Company's total revenues in 1995 and approximately 74.7% of the Company's total pro forma revenues in the first nine months of 1996 were related to the convenience store market, which is dependent on the domestic and international economy. The convenience store market is affected by a variety of factors, including global and regional instability, governmental policy and regulation, natural disasters, consumer buying habits, consolidation in the petroleum industry, war and general economic conditions. Adverse developments in the convenience store market could materially affect the Company's business, operating results and financial condition. In addition, the Company believes the purchase of its products is relatively discretionary and generally involves a significant commitment of capital, because purchases of the Company's products are often accompanied by large scale hardware purchases. As a result, although the Company believes its products can assist convenience stores in a competitive environment, demand for the Company's products and services could be disproportionately affected by instability or downturns in the convenience store market which may cause customers to exit the industry or delay, cancel or reduce planned expenditures for information management systems and software products. Concentration of Customers. The Company sells systems and services to a number of major customers. During the first nine months of 1996, approximately 62.9% of the Company's total revenues were derived from four customers. During 1995 and 1994, approximately 59.4% and 75.9%, respectively, of the Company's total revenues were derived from two customers. There can be no assurance that the loss of one or more of these customers will not have a material adverse effect on the Company's business, operating results and financial condition. New Product Development and Rapid Technological Change. The Company periodically introduces new products in order to remain competitive. The Company and its prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in the rapidly evolving market for computer-based products and services. To address these risks, the Company must, among other things, continue to respond to competitive developments; attract, retain and motivate qualified personnel; implement and successfully execute its sales strategy; develop and market additional products and services in present and future markets; upgrade its technologies and commercialize products and services incorporating such technologies. There can be no assurance that the Company will be successful in addressing such risks. The types of products sold by the Company are subject to rapid and continual technological change. Products available from the Company, as well as from its competitors, have increasingly offered a wider range of features and capabilities. The Company believes that in order to compete effectively in selected vertical markets, it must provide compatible systems incorporating new technologies at competitive prices. There can be no assurance that the Company will be able to continue funding research and 8 development at levels sufficient to enhance its current product offerings or will be able to develop and introduce on a timely basis new products that keep pace with technological developments and emerging industry standards and address the evolving needs of customers. There can also be no assurance that the Company will not experience difficulties that will result in delaying or preventing the successful development, introduction and marketing of new products in its existing markets or that its new products and product enhancements will adequately meet the requirements of the marketplace or achieve any significant degree of market acceptance. Likewise, there can be no assurance as to the acceptance of Company products in new markets, nor can there be any assurance as to the success of the Company's penetration of these markets, or to the revenue or profit margins with respect to these products. The inability of the Company, for any reason, to develop and introduce new products and product enhancements in a timely manner in response to changing market conditions or customer requirements could materially adversely affect the Company's business, operating results and financial condition. See "Business--Product Development and Radiant Technology." In addition, the Company strives to achieve compatibility between the Company's products and retail systems the Company believes are or will become popular and widely adopted. The Company invests substantial resources in development efforts aimed at achieving such compatibility. Any failure by the Company to anticipate or respond adequately to technology or market developments could materially adversely affect the Company's business, operating results and financial condition. Competition. The market for retail information systems is intensely competitive. The Company believes the principal competitive factors in such market are product quality, reliability, performance and price, vendor and product reputation, financial stability, features and functions, ease of use and quality of support. A number of companies offer competitive products addressing certain of the Company's target markets. The Company competes with in-house systems developed by the Company's targeted customers and with third- party suppliers such as Dresser Industries, Inc., Gilbarco, Inc., International Business Machines Corporation, NCR Corporation, Matsushita Electric Corporation of America (Panasonic), JDA Software Group, Inc. and Tandem Computers, Inc., among others. In addition, the Company believes that new market entrants may attempt to develop fully integrated systems targeting the retail industry. In the market for consulting services, the Company competes with the consulting divisions of the big six accounting firms, Electronic Data Systems, Inc. and other systems integrators. Many of the Company's existing competitors, as well as a number of potential new competitors, have significantly greater financial, technical and marketing resources than the Company. There can be no assurance that the Company will be able to compete successfully against its current or future competitors or that competition will not have a material adverse effect on the Company's business, operating results and financial condition. See "Business--Company Operations-- Convenience Store Market--Competition," "--Entertainment Market--Competition" and "--Quick Service Restaurant Market." Dependence on Key Personnel; Ability to Attract and Retain Technical Personnel. The Company's future success depends in part on the performance of its executive officers and key employees. The Company does not have in place employment agreements with any of its executive officers. The Company maintains a $1.0 million "key person" life insurance policy on each of Erez Goren and Alon Goren, the Chief Executive Officer and Chief Technical Officer, respectively, of the Company. The loss of the services of any of its executive officers or other key employees could have a material adverse effect on the business, operating results and financial condition of the Company. The Company is heavily dependent upon its ability to attract, retain and motivate skilled technical and managerial personnel, especially highly skilled engineers involved in ongoing product development and consulting personnel who assist in the development and implementation of the Company's total business solutions. The market for such individuals is intensely competitive. Due to the critical role of the Company's product development and consulting staffs, the inability to recruit successfully or the loss of a 9 significant part of its product development or consulting staffs would have a material adverse effect on the Company. The software industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel. There can be no assurance that the Company will be able to retain its current personnel, or that it will be able to attract, assimilate or retain other highly qualified technical and managerial personnel in the future. The inability to attract, hire or retain the necessary technical and managerial personnel could have a material adverse effect upon the Company's business, operating results and financial condition. See "Business -- Employees" and "Management." Dependence on Proprietary Technology. The Company's success and ability to compete is dependent in part upon its ability to protect its proprietary technology. The Company relies on a combination of patent, copyright and trade secret laws and non-disclosure agreements to protect this proprietary technology. The Company enters into confidentiality and non-compete agreements with its employees and license agreements with its customers and potential customers which limits access to and distribution of its software, documentation and other proprietary information. There can be no assurance that the steps taken by the Company to protect its proprietary rights will be adequate to prevent misappropriation of its technology or that the Company's competitors will not independently develop technologies that are substantially equivalent or superior to the Company's technology. In addition, the laws of some foreign countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. Certain technology used in conjunction with the Company's products is licensed from third parties, generally on a non-exclusive basis. The termination of any such licenses, or the failure of the third-party licensors to adequately maintain or update their products, could result in delay in the Company's ability to ship certain of its products while it seeks to implement technology offered by alternative sources, and any required replacement licenses could prove costly. While it may be necessary or desirable in the future to obtain other licenses relating to one or more of the Company's products or relating to current or future technologies, there can be no assurance that the Company will be able to do so on commercially reasonable terms or at all. See "Business -- Proprietary Rights." Control by Management. Upon completion of the offering, Erez Goren, the Company's Co-Chairman and Chief Executive Officer, and Alon Goren, the Company's Co-Chairman and Chief Technical Officer, will collectively own approximately 62.4% of the Common Stock then outstanding (approximately 59.4% if the Underwriters' over-allotment option is exercised in full). Consequently, together they will continue to be able to elect the Company's directors, to determine the outcome of most corporate actions requiring shareholder approval and otherwise to control the business of the Company. See "Principal and Selling Shareholders." Broad Discretion over Use of Proceeds. Approximately 57.1% of the net proceeds to the Company of this offering ($14.3 million) are allocated to general corporate purposes, including product development and working capital. The Company's management will have broad discretion over the application of these funds. There can be no assurance that management will make such application effectively or in a manner that will not result in a material adverse effect on the Company or its results of operations. See "Use of Proceeds." Absence of Prior Public Market; Dilution. Prior to this offering, there has been no public market for shares of the Company's Common Stock. Although the Company intends to apply for listing of the Common Stock on the Nasdaq National Market, there can be no assurance that an active trading market for the Common Stock will develop or continue after the offering. The initial offering price of the Common Stock will be determined by negotiations among the Company, the Selling Shareholders and the Underwriters based on several factors and may not be indicative of the market price for the Common Stock after this offering. See "Underwriting." Investors in the offering will experience immediate and substantial dilution of the net tangible book value of the Common Stock, and current shareholders will receive a material increase in the net tangible book value of their shares of Common Stock. See "Dilution." 10 Shares Eligible for Future Sale; Registration Rights. Upon completion of this offering, the Company will have 10,983,701 shares of Common Stock outstanding, assuming no exercise of the Underwriters' over-allotment option and the repurchase of certain outstanding shares of Common Stock as set forth in "Use of Proceeds." Of these shares, 2,950,000 shares offered hereby will be eligible for sale in the open market without restriction. All of the remaining 8,033,701 shares of Common Stock are "restricted securities" as that term is defined in Rule 144 promulgated under the Securities Act of 1933, as amended (the "Securities Act"). Of these restricted securities, approximately 7,199,968 shares will be eligible for sale in the public market 90 days following the date of this Prospectus pursuant to Rule 144. Additional shares of Common Stock, including shares issuable upon exercise of options and warrants, will also become eligible for sale in the public market pursuant to Rule 144 from time to time. The Company and its directors, executive officers and current shareholders have agreed, however, not to sell any of their shares of Common Stock (other than the shares to be sold by the Company and the Selling Shareholders in this offering) for a period of 180 days from the date of this Prospectus without the prior written consent of the Underwriters. Following this offering, sales and potential sales of substantial amounts of the Company's Common Stock in the public market pursuant to Rule 144 or otherwise could adversely affect the prevailing market prices for the Common Stock and impair the Company's ability to raise additional capital through the sale of equity securities. See "Principal and Selling Shareholders," "Description of Capital Stock," "Shares Eligible for Future Sale" and "Underwriting." Upon the completion of this offering, the holder of 43,638 shares of Common Stock will be entitled to certain piggyback registration rights with respect to such shares. If the Company were required to include in a Company-initiated registration shares held by such holder pursuant to the exercise of its piggyback registration rights, such sale might have an adverse effect on the Company's ability to raise needed capital in the capital markets at a time and price favorable to the Company. See "Description of Capital Stock" and "Shares Eligible for Future Sale." Volatility of Market Price for Common Stock. From time to time after this offering there may be significant volatility in the market price for the Common Stock. Quarterly operating results of the Company or of other companies participating in the computer-based products and services industry, changes in conditions in the economy, the financial markets of the computer products and services industries, natural disasters or other developments affecting the Company or its competitors could cause the market price of the Common Stock to fluctuate substantially. Anti-Takeover Provisions. The Company will amend its Articles of Incorporation to authorize the Board of Directors to issue up to 5,000,000 shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of the preferred stock without further vote or action by the Company's stockholders. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. While the Company has no present intention to issue additional shares of preferred stock, such issuance, while providing desired flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. See "Description of Capital Stock-- Preferred Stock." In addition, certain current and proposed provisions of the Company's Articles of Incorporation and Bylaws may discourage proposals or bids to acquire the Company. This could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. The Company's Articles of Incorporation will be amended to divide the Board of Directors into three classes, as nearly equal in size as possible, with staggered three-year terms. One class will be elected each year. The classification of the Board of Directors could have the effect of making it more difficult for a third party to acquire control of the Company. The Company is also subject to certain provisions of the Georgia Business Corporation Code which relate to business combinations with interested shareholders. See "Description of Capital Stock--Certain Charter and Bylaw Provisions." 11 USE OF PROCEEDS The net proceeds to the Company from the sale of the 2,500,000 shares of Common Stock offered by the Company at an assumed initial public offering price of $11.00 per share, are estimated to be approximately $25.1 million after deducting the estimated underwriting discounts and offering expenses payable by the Company. Additionally, prior to the closing of this offering the Company will receive net proceeds of $962,000 from the exercise of outstanding stock purchase warrants. The Company will not receive any proceeds from the sale of Common Stock by the Selling Shareholders. The Company anticipates that the net proceeds of the offering will be used (i) to repay all of the Company's outstanding debt to Sirrom Capital Corporation (approximately $4.5 million at December 1, 1996) (the "Sirrom Debt"), (ii) to repay debt to be incurred in connection with the proposed acquisition of PrysmTech ($3.0 million) (the "PrysmTech Debt"), (iii) to repay an outstanding note to Emro Marketing Company, a customer of the Company (approximately $873,000 at December 1, 1996) (the "Emro Note"), (iv) to repay an outstanding note to Lawrence D. Parker, a shareholder of the Company (the "Shareholder Note") (approximately $184,000 at December 1, 1996), (v) to repurchase 781,851 shares of Common Stock for a total of approximately $2.2 million from two shareholders from whom the Company has a right of repurchase at a substantial discount to the initial public offering price and (vi) for general corporate purposes, including research and development, sales and marketing, possible strategic acquisitions and the increased working capital requirements of the Company generated by its growth. The Sirrom Debt was incurred to finance working capital requirements resulting from the Company's growth. The Sirrom Debt bears interest at a fixed rate of 14.0% and is payable in monthly installments of accrued interest to maturity (due June 2001 with respect to $3.0 million of the original principal amount and due September 2001 with respect to $1.5 million of the original principal amount). The PrysmTech Debt will be incurred in connection with the acquisition of PrysmTech in December 1996, will bear interest at a rate of 8.5% and will be due December 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Shareholder Note was incurred in October 1994 to repurchase a portion of Mr. Parker's equity interest in the Company, bears interest at a rate of 8.0% and is payable in equal monthly installments through December 1997. The Emro Note bears interest at a rate of 6.0% and is due February 2002. See "Certain Transactions." The Company has no current specific plan for the remaining estimated net offering proceeds of approximately $14.3 million. The Company is raising such monies at this time in order to increase the Company's working and equity capital, to create a market for the Company's Common Stock, to facilitate future access by the Company to public equity markets, to enhance the Company's public image and credibility to support its marketing efforts, particularly with current and potential future strategic partners, and for general corporate purposes. Such general corporate purposes include the funding of the support of the Company's sales and marketing efforts, funding the development and enhancement of the Company's services and technology and expanding customer support operations. The Company also may use a portion of the net proceeds to acquire other businesses, technologies, services or products complementary to the Company's current business, although the Company currently has no agreements or understandings with respect to any acquisition, and no portion of the net proceeds has been allocated to specific acquisitions. Pending such uses, the net proceeds of this offering will be invested in short-term, interest-bearing investment grade securities. DIVIDEND POLICY The Company currently anticipates that all of its earnings will be retained for development of the Company's business and does not anticipate paying any cash dividends in the foreseeable future. The Sirrom Debt, which will be repaid with the proceeds of this offering, contains restrictions on the ability of the Company to pay dividends. Future cash dividends, if any, will be at the discretion of the Company's Board of Directors and will depend upon, among other things, the Company's future earnings, operations, capital requirements and surplus, general financial condition, contractual restrictions and such other factors as the Board of Directors may deem relevant. 12 CAPITALIZATION The following table sets forth the actual indebtedness and capitalization of the Company as of September 30, 1996 and as adjusted to reflect (i) the sale by the Company of 2,500,000 shares of Common Stock offered hereby (at an assumed initial public offering price of $11.00 per share) and the application of the estimated net proceeds therefrom as described under "Use of Proceeds" (other than repayment of the PrysmTech Debt, which was not outstanding at September 30, 1996) and (ii) the issuance of 1,265,551 shares of Common Stock upon the exercise of outstanding stock purchase warrants and the receipt by the Company of net proceeds therefrom of $962,000. See "Principal and Selling Shareholders." The following table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the Company's combined financial statements and notes thereto included elsewhere in this Prospectus.
SEPTEMBER 30, 1996 -------------------- ACTUAL AS ADJUSTED ------- ----------- (IN THOUSANDS) Current portion of long-term debt and shareholder loan... $ 721 $ 380 ------- ------- Long-term debt and shareholder loan...................... $ 5,187 $ 353 Shareholders' equity: Common stock, no par value per share, 30,000,000 shares authorized, 8,000,001 shares issued and outstanding; 10,983,701 shares issued and outstanding, as adjusted (1)(2)................................................. 0 25 Additional paid-in capital.............................. -- 24,126(3) Warrants................................................ 359 40 Deferred sales discount................................. (147) -- Accumulated deficit..................................... (3,701) (3,701) ------- ------- Total shareholders' equity (deficit).................. (3,489) 20,490 ------- ------- Total capitalization................................. $ 1,698 $20,843 ======= =======
- -------- (1) Actual and as adjusted shares issued and outstanding exclude (i) an aggregate of 3,000,000 shares of Common Stock reserved for issuance under the Company's 1995 Incentive Stock Option Plan, of which 2,455,750 shares were subject to outstanding incentive stock options as of September 30, 1996, and (ii) 264,000 shares of Common Stock issuable upon the exercise of non-qualified stock options which were outstanding on September 30, 1996. Actual shares issued and outstanding exclude 1,285,551 shares of Common Stock issuable upon the exercise of stock purchase warrants which were outstanding on September 30, 1996. Options to purchase 270,300 shares of Common Stock were exercisable as of September 30, 1996. See "Management - Stock Option Plan" and Note 8 to the combined financial statements of the Company. (2) Issued and outstanding shares, as adjusted, includes 174,642 shares of Common Stock issuable upon the exercise of stock purchase warrants which will be exercised by Sirrom Capital Corporation prior to the completion of this offering and 909,091 shares of Common Stock issuable upon the exercise of stock purchase warrants which will be exercised by Emro Marketing Company prior to the completion of this offering. See "Principal and Selling Shareholders." Issued and outstanding shares, as adjusted excludes 781,851 shares of Common Stock which will be repurchased by the Company with the proceeds of this offering. See "Use of Proceeds." (3) Includes $962,000 to be received upon the exercise of the stock purchase warrants referenced in Note 2, above. 13 DILUTION The deficit in net tangible book value of the Company at September 30, 1996, was approximately $4.3 million or $(0.53) per share of Common Stock. Net tangible book value per share represents the amount of the Company's total assets less intangible assets and total liabilities, divided by the total number of shares of Common Stock outstanding. After giving effect to the sale by the Company of 2,500,000 shares of Common Stock offered hereby at an assumed initial public offering price of $11.00 per share, the exercise of outstanding stock purchase warrants to purchase 1,265,551 shares of Common Stock (the "Warrants") and the repurchase by the Company of 781,851 shares of Common Stock (the "Stock Repurchase"), the pro forma net tangible book value of the Company at September 30, 1996 would have been $19.7 million or $1.79 per share of Common Stock. This represents an immediate increase in net tangible book value of $2.32 per share to existing shareholders and an immediate dilution in net tangible book value of $9.21 per share to investors purchasing shares of Common Stock in this offering. The following table illustrates the resulting per share dilution to new investors: Assumed initial public offering price per share............. $11.00 Deficit in net tangible book value per share at September 30, 1996................................................... $(0.53) Increase per share attributable to new investors........... 2.32 ------ Pro forma net tangible book value per share after this offering.................................................... 1.79 ------ Net tangible book value dilution per share to new investors................................................... $ 9.21 ======
The following table summarizes, on a pro forma basis as of September 30, 1996, the number of shares of Common Stock previously purchased from the Company, giving effect to the exercise of the Warrants, the total consideration paid and the average price per share paid to the Company by existing stockholders and by new investors purchasing the shares of Common Stock offered hereby, assuming an initial public offering price of $11.00 per share:
SHARES PURCHASED TOTAL CONSIDERATION ------------------ ------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ----------- ------- ------------- Existing shareholders...... 9,265,552 78.8% $ 962,000 3.4% $ 0.10 New investors.............. 2,500,000 21.2 27,500,000 96.6 $11.00 ---------- ----- ----------- ----- Total..................... 11,765,552 100.0% $28,462,000 100.0% ========== ===== =========== =====
The sale of shares by the Selling Shareholders in this offering and the Stock Repurchase will cause the pro forma number of shares held by all existing shareholders of September 30, 1996 to be reduced to 8,033,701 shares, or 73.1% of total shares of Common Stock to be outstanding after this offering, and the pro forma number of shares held by new investors as of September 30, 1996 to be 2,950,000 shares, or 26.9% of the total shares of Common Stock to be outstanding after this offering. See "Principal and Selling Shareholders." The foregoing discussion and tables assume no exercise of stock options outstanding on September 30, 1996. As of September 30, 1996, there were options outstanding to purchase a total of 2,719,750 shares of Common Stock (including options to purchase 264,000 shares issued outside of the 1995 Incentive Stock Option Plan) at a weighted average exercise price of $1.62 per share and 544,250 additional shares were reserved for grant of future options under the Company's 1995 Incentive Stock Option Plan. See "Management--Stock Option Plan" and Note 8 to the Company's combined financial statements. In addition, the foregoing discussion and tables assume no exercise of warrants to purchase 20,000 shares of Common Stock, as such warrants will not be exercised prior to the completion of this offering. 14 SELECTED COMBINED AND PRO FORMA FINANCIAL DATA The following table sets forth selected combined and pro forma financial data of the Company for the periods indicated, which data has been derived from the combined and pro forma financial statements of the Company. The combined financial statements of the Company as of December 31, 1994 and 1995, and for each of the years in the three-year period ended December 31, 1995, have been audited by Arthur Andersen LLP, independent public accountants. The selected combined financial data for the nine month periods ended September 30, 1995 and 1996 are derived from the unaudited combined financial statements of the Company. The unaudited combined financial statements include all adjustments, consisting of normal recurring adjustments, which the Company considers necessary for a fair presentation of the financial condition and results of operations for these periods. Operating results for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the entire year ending December 31, 1996. This selected combined financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations," the combined financial statements of the Company and the notes thereto, and the pro forma financial data should be read in conjunction with the Pro Forma Financial Information included elsewhere in this Prospectus.
NINE MONTHS PRO FORMA ENDED NINE MONTHS YEAR ENDED DECEMBER 31, SEPTEMBER 30, ENDED ------------------------------------- ---------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1995 1996 1996(1) ----- ------ ------ ------- ------- ------- ------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues: Systems sales.......... $ 686 $1,079 $3,748 $13,529 $14,078 $ 9,447 $17,472 $23,343 Customer support, maintenance and other services.............. 361 412 552 919 1,804 1,366 2,514 3,243 ----- ------ ------ ------- ------- ------- ------- ------- Total revenues........ 1,047 1,491 4,300 14,448 15,882 10,813 19,986 26,586 Cost of revenues: Systems sales.......... 332 462 2,307 9,459 9,863 6,769 10,602 14,546 Customer support, maintenance and other services.............. 279 366 588 1,208 2,300 1,660 3,644 3,867 ----- ------ ------ ------- ------- ------- ------- ------- Total cost of revenues.............. 611 828 2,895 10,667 12,163 8,429 14,246 18,413 ----- ------ ------ ------- ------- ------- ------- ------- Gross profit............ 436 663 1,405 3,781 3,719 2,384 5,740 8,173 Operating expenses: Product development.... 161 196 271 984 1,640 1,174 2,078 2,401 Purchased research and development costs...... -- -- -- -- -- -- 30 30 Sales and marketing.... 173 203 209 470 607 436 793 889 Depreciation and amortization........... 20 19 46 178 583 387 676 777 General and administrative......... 157 219 332 2,243 2,990 2,164 2,825 3,732 ----- ------ ------ ------- ------- ------- ------- ------- Income (loss) from operations.............. (75) 26 547 (94) (2,101) (1,777) (662) 344 Interest expense, net... -- 3 19 82 166 83 305 496 Other (income).......... -- -- -- -- (406) (374) (572) (35) ----- ------ ------ ------- ------- ------- ------- ------- Income (loss) before provision for pro forma income taxes........... (75) 23 528 (176) (1,861) (1,486) (395) (117) Pro forma income tax provision (benefit)(2).. (27) 11 206 (61) (709) (566) (146) (46) ----- ------ ------ ------- ------- ------- ------- ------- Pro forma net income (loss).................. $ (48) $ 12 $ 322 $ (115) $(1,152) $ (920) $ (249) $ (71) ===== ====== ====== ======= ======= ======= ======= ======= Pro forma net income (loss) per common and common equivalent shares(3).............. $ (0.10) $ (0.02) $ (0.01) ======= ======= ======= Weighted average common and common equivalent shares outstanding..... 11,595 11,187 11,587 ======= ======= =======
DECEMBER 31, ------------------------------------- SEPTEMBER 30, 1991 1992 1993 1994 1995 1996 ----- ----- ----- ------- ------- ------------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital.......... $(235) $(310) $(102) $(1,027) $(3,664) $ (555) Total assets............. 128 409 2,716 4,818 4,235 10,014 Long-term debt and shareholder loan, including current portion.................. -- 7 89 1,067 970 5,898 Shareholders' equity (deficit)................ (196) (273) 145 (722) (3,154) (3,489)
- -------- (1) The pro forma statement of operations data for the nine months ended September 30, 1996 gives effect to the proposed acquisition of PrysmTech, as if such acquisition occurred on January 1, 1996. See "Pro Forma Financial Information." (2) As a result of its election to be treated as an S Corporation for income tax purposes, the Company has not been subject to federal or state income taxes. Pro forma net income amounts include additional provisions for income taxes determined by applying the Company's anticipated statutory tax rate to pretax income (loss), adjusted for permanent tax differences. (3) Pro forma net income (loss) per share is computed by dividing pro forma net income (loss) available to common shareholders by weighted average shares outstanding. Supplementary pro forma net income (loss) per share (resulting from the anticipated repayment of borrowings with a portion of the proceeds of this offering as indicated in "Use of Proceeds") is $(0.10) for the year ended December 31, 1995 and $(0.01) for the nine months ended September 30, 1996. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company historically has focused on providing integrated technology solutions to selected vertical markets within the retail industry. The Company derives its revenues primarily from the sale of integrated systems, including software, hardware and related support and consulting services. The Company plans to increase licensing of certain of its software products on a stand- alone basis. In addition, the Company, through its Radiant Solutions Group, offers implementation and integration services which are billed on a per diem basis. The Company's revenues from its various technology solutions are, for the most part, dependent on the number of installed sites a customer has. Accordingly, while the typical sale is the result of a long, complex process, the Company's customers usually continue installing additional sites over an extended period of time. Revenues from systems sales are recognized as products are shipped, provided that collection is probable and no significant post shipment vendor obligations remain. Revenues from customer support, maintenance and other services are generally recognized as the service is performed. Prior to 1993, the Company developed software solutions for the video rental and car care markets. The Company entered the convenience store market in 1993 by establishing relationships with two customers. Sales to these two customers represented approximately 75.9%, 59.4% and 26.4% of the Company's total revenues in 1994, 1995 and the first nine months of 1996, respectively. In order to increase the Company's focus on revenue growth and profitability, the Company expanded its senior management team in 1995 and 1996. In addition, the Company responded to strong demand for its technology solutions by investing heavily in new product development. The Company also identified additional market opportunities for its new products. As a result, the Company has substantially increased its sales, marketing and product development activities. Since November 1995, a number of events resulted in strong revenue growth for the Company. The Company developed new products, established relationships with new customers and increased sales to existing customers. The Company also entered two new vertical markets -- the entertainment market and the QSR market. The Company expanded its presence in the entertainment market in November 1995 by entering into a joint venture (PrysmTech) to market enterprise-wide technology solutions to this industry. To accelerate its entry into the QSR market, in May 1996 the Company purchased Liberty Systems International, Inc. ("LSI"), a technology solution provider to the QSR industry. During this period, the Company also expanded its sales force and continued to add management, consulting and product development personnel. The revenue growth of the Company and PrysmTech has resulted in profitability in the second and third quarters of 1996. As a result of its election to be treated as an S Corporation for income tax purposes, the Company has not been subject to federal or state income taxes. Pro forma net income amounts discussed herein include additional provisions for income taxes determined by applying the Company's anticipated statutory tax rate to pretax income (loss), adjusted for permanent tax differences. The Company's S Corporation status will terminate upon completion of this offering. 16 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage relationship of certain statement of operation items to total revenues:
NINE MONTHS ENDED YEAR ENDED SEPTEMBER DECEMBER 31, 30, --------------------- ------------- PRO FORMA NINE MONTHS ENDED 1993 1994 1995 1995 1996 SEPTEMBER 30, 1996 ----- ----- ----- ----- ----- ------------------ Revenues: Systems sales.......... 87.2 % 93.6 % 88.6 % 87.4 % 87.4 Customer support, maintenance and other services.............. 12.8 6.4 11.4 12.6 12.6 12.2 ----- ----- ----- ----- ----- ----- Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues: Systems sales.......... 53.6 65.4 62.1 62.6 53.1 54.7 Customer support, maintenance and other services.............. 13.7 8.4 14.5 15.4 18.2 14.6 ----- ----- ----- ----- ----- ----- Total cost of revenues............. 67.3 73.8 76.6 78.0 71.3 69.3 ----- ----- ----- ----- ----- ----- Gross profit............ 32.7 26.2 23.4 22.0 28.7 30.7 Operating expenses: Product development.... 6.3 6.8 10.3 10.8 10.4 9.0 Purchased research and development costs..... -- -- -- -- 0.1 0.1 Sales and marketing.... 4.9 3.3 3.8 4.1 4.0 3.3 Depreciation and amor- tization.............. 1.1 1.3 3.7 3.6 3.4 2.9 General and administra- tive.................. 7.7 15.5 18.8 19.9 14.1 14.1 ----- ----- ----- ----- ----- ----- Income (loss) from oper- ations................. 12.7 (0.7) (13.2) (16.4) (3.3) 1.3 Interest expense, net... 0.4 0.5 1.0 0.8 1.6 1.8 Other (income).......... -- -- (2.5) (3.5) (2.9) (0.1) ----- ----- ----- ----- ----- ----- Income (loss) before pro forma income taxes..... 12.3 (1.2) (11.7) (13.7) (2.0) (0.4) Pro forma income tax provision (benefit).... 4.8 (0.4) (4.4) (5.2) (0.8) (0.1) ----- ----- ----- ----- ----- ----- Pro forma net income (loss)................. 7.5% (0.8)% (7.3)% (8.5)% (1.2)% (0.3)% ===== ===== ===== ===== ===== =====
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Systems Sales. The Company derives the majority of its revenues from sales and licensing fees for its headquarters and site-based solutions. Systems sales increased 84.9% to $17.5 million for the nine months ended September 30, 1996, compared to $9.4 million for the same period in 1995. The increase related to sales and license fees from new and existing customers. Additionally, the Company introduced several new products in 1996, including Core-Tech, OrderPoint, its Radiant platform and a Windows NT version of Compu- Touch. Initial demand for these products contributed to the Company's increase in revenues. Customer Support, Maintenance and Other Services. The Company also derives revenues from customer support, maintenance and other services, which increased 84.0% to $2.5 million for the nine month period ended September 30, 1996, compared to $1.4 million for the same period in 1995. The increase was due to increased support and maintenance revenues and the establishment and expansion of the Company's Radiant Solutions Group. 17 Cost of Systems Sales. Cost of systems sales consist primarily of hardware and peripherals for site-based systems and labor. These costs are expensed as products are shipped. Cost of systems sales increased 56.6% to $10.6 million for the nine months ended September 30, 1996, compared to $6.8 million for the same period in 1995. The increase was directly attributable to the increase in systems sales. Cost of systems sales as a percentage of total revenues declined to 53.1% from 62.6%. Cost of systems sales as a percentage of systems revenues declined to 60.7% from 71.7%. The decreases were due to increased sales of existing and newly introduced software products, which have higher margins. Cost of Customer Support, Maintenance and Other Services. Cost of customer support, maintenance and other services consists primarily of personnel and other costs associated with the Company's services operations. Cost of customer support, maintenance and other services increased 119.5% to $3.6 million for the nine months ended September 30, 1996 from $1.7 million for the same period for 1995. The increase was due primarily to the Company's decision to establish the Radiant Solutions Group and the related increase in wages associated with this effort. Cost of customer support, maintenance and other services as a percentage of total revenues increased to 18.2% from 15.4%. Cost of customer support, maintenance and other services as a percentage of customer support, maintenance and other services revenues increased to 144.9% from 121.5%. These increases reflect the investment in the Company's Radiant Solutions Group. Product Development Expenses. Product development expenses consist primarily of wages and materials expended on product development efforts. Product development expenses increased 77.1% to $2.1 million for the nine months ended September 30, 1996, compared to $1.2 million for the same period in 1995. The increase was due to higher development costs associated with new product development, including development activity associated with the Company's QSR industry efforts and development of new credit card network interfaces. Product development expenses as a percentage of total revenues decreased to 10.4% from 10.8% because total revenues increased at a faster pace than product development expenses. The Company capitalizes a portion of its software development costs. In the first nine months of 1996, software development costs of $416,000 were capitalized by the Company, as compared to $247,000 for the same period in 1995. The Company capitalized 16.7% of its product development costs in the first nine months of 1996, as compared to 17.4% for the same period in 1995. Sales and Marketing Expenses. Sales and marketing expenses increased 81.7% to $793,000 during the nine months ended September 30, 1996, compared to $436,000 for the same period in 1995. The increase was associated with the Company's expansion of its sales force and increased commission expense attributable to higher sales. Sales and marketing expenses as a percentage of total revenues decreased to 4.0% from 4.1%. Depreciation and Amortization. Depreciation and amortization expense increased 74.7% to $676,000 for the nine months ended September 30, 1996, compared to $387,000 for the same period in 1995. The increase resulted from an increase in computer equipment and other assets required to support an increased number of employees. Depreciation and amortization as a percentage of total revenues decreased to 3.4% from 3.6% during the period, primarily because revenues increased at a faster pace than associated personnel support costs. Additionally, amortization of capitalized software development costs increased 135.8% to $158,000 for the nine months ended September 30, 1996, compared to $67,000 for the same period in 1995 as a result of higher capitalized software development costs. General and Administrative Expenses. General and administrative expenses increased 30.6% to $2.8 million for the nine months ended September 30, 1996, compared to $2.2 million for the same period in 1995. The increase was due primarily to personnel increases in 1996. General and administrative expenses as a percentage of total revenues decreased to 14.1% from 19.9% as a result of higher sales volumes. Interest Expense. Interest expense increased 268.3% to $306,000 for the nine months ended September 30, 1996, compared to $83,000 for the same period in 1995. The increase resulted from the 18 Company borrowing $4.5 million in the second and third quarters of 1996 and the borrowing costs associated therewith. Interest expense as a percentage of total revenues increased to 1.6% from 0.8% due to the increase in borrowings. Other Income. Other income for the nine months ended September 30, 1996 consisted primarily of earnings from the Company's PrysmTech joint venture, while, in the same period for 1995, other income represented gain on the sale of Company assets. Other income increased 53.1% to $573,000 for the nine months ended September 30, 1996 compared to $374,000 for the same period in 1995. Pro Forma Income Tax Provision (Benefit). The pro forma effective tax rate for the nine months ended September 30, 1996 was a benefit of 36.8%, compared to a benefit of 38.1% for the same period in 1995. Pro Forma Net Income (Loss). Pro forma net loss decreased 72.9% to $249,000 for the nine months ended September 30, 1996, compared to $920,000 for the same period in 1995. The decrease resulted from increased revenues and improved margins in the first nine months of 1996 over the same period in 1995. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Systems Sales. Systems sales increased 4.1% to $14.1 million for the year ended December 31, 1995 ("fiscal 1995"), compared to $13.5 million for the year ended December 31, 1994 ("fiscal 1994"). The increase related to sales and license fees from new customers and increased sales and license fees to existing customers. Customer Support, Maintenance and Other Services. Customer support, maintenance and other services increased 96.3% to $1.8 million for fiscal 1995, compared to $919,000 for fiscal 1994. The increase was due to a greater number of customer sites supported by the Company. Cost of Systems Sales. Cost of systems sales increased 4.3% to $9.9 million for fiscal 1995, compared to $9.5 million for fiscal 1994. The increase was directly attributable to increased systems sales. Cost of systems sales as a percentage of total revenues declined to 62.1% from 65.5%. Cost of systems sales as a percentage of systems sales increased to 70.1% from 69.9%. Cost of Customer Support, Maintenance and Other Services. Cost of customer support, maintenance and other services increased 90.5% to $2.3 million for fiscal 1995 from $1.2 million for fiscal 1994. The increase was due primarily to increased personnel costs associated with the support of more customers and sites. Cost of customer support, maintenance and other services as a percentage of total revenues increased to 14.5% from 8.4%. Cost of support, maintenance and other services as a percentage of customer support, maintenance and other services revenues decreased to 127.5% from 131.4%, as growth in support and maintenance revenues grew at a faster rate than expenses. Product Development Expenses. Product development expenses increased 66.6% to $1.6 million for fiscal 1995, compared to $984,000 million for fiscal 1994. The increase was associated with increased development costs associated with new product development and new credit card network interfaces. Product development expenses as a percentage of total revenues increased to 10.3% from 6.8% due to the development efforts discussed above. In fiscal 1995, software development costs of $329,000 were capitalized by the Company, as compared to $133,000 for fiscal 1994. The Company capitalized 16.7% of its product development costs in fiscal 1995, as compared to 11.9% in fiscal 1994. Sales and Marketing Expenses. Sales and marketing expenses increased 29.0% to $607,000 during fiscal 1995, compared to $470,000 for fiscal 1994. The increase was associated with increased salaries and commissions. Sales and marketing expenses as a percentage of total revenues increased to 3.8% from 3.3% in fiscal 1995 primarily because of commission plans introduced during the period. 19 Depreciation and Amortization. Depreciation and amortization expense increased 228.2% to $583,000 for fiscal 1995, compared to $178,000 for fiscal 1994. The increase resulted from an increase in computer equipment and other assets required to support a greater number of employees. Depreciation and amortization as a percentage of total revenues increased to 3.7% from 1.3% during the period due to the increased expense. Additionally, amortization of capitalized software development costs increased 350.0% to $99,000 for fiscal 1995, compared to $22,000 for fiscal 1994 as a result of higher capitalized software development costs. General and Administrative Expenses. General and administrative expenses increased 33.3% to $3.0 million for fiscal 1995, compared to $2.2 million for fiscal 1994, due to the Company's investment in infrastructure. General and administrative expenses as a percentage of total revenues increased to 18.8% from 15.5%. Interest Expense. Interest expense increased 103.6% to $166,000 for fiscal 1995, compared to $82,000 for fiscal 1994. Other Income. Other income increased to $406,000 for fiscal 1995 compared to none for fiscal 1994. Other income in 1995 primarily represented gain on the sale of Company assets of $374,000 and equity in earnings of PrysmTech of $32,000. Pro Forma Income Tax Provision (Benefit). The pro forma effective tax rate for fiscal 1995 was a benefit 38.1%, compared to a benefit of 34.5% for fiscal 1994. The increase in the benefit relates to a decrease in the relative significance of permanent tax differences to pretax loss. Pro Forma Net Income (Loss). Pro forma net loss increased 898.9% to $1.2 million for fiscal 1995, compared to $115,000 for fiscal 1994. The increase in the loss was the result of increased research and development costs and continued investments in infrastructure. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 Systems Sales. Systems sales increased 261.0% to $13.5 million for fiscal 1994, compared to $3.7 million for the year ended December 31, 1993 ("fiscal 1993"). The increase related to sales and license fees from new customers and increased sales and license fees to existing customers. Customer Support, Maintenance and Other Services. Customer support, maintenance and other services increased 66.4% to $919,000 for fiscal 1994, compared to $552,000 for fiscal 1993. The increase resulted from a greater number of customer sites supported by the Company. Cost of Systems Sales. Cost of systems sales increased 310.1% to $9.5 million for fiscal 1994, compared to $2.3 million for fiscal 1993. The increase was directly attributable to increased systems sales. Cost of systems sales as a percentage of total revenues increased to 65.4% from 53.6%. Cost of systems sales as a percentage of systems sales increased to 69.9% from 60.0% due to a higher component of hardware sales in fiscal 1994. Cost of Customer Support, Maintenance and Other Services. Cost of customer support, maintenance and other services increased 105.2% to $1.2 million for fiscal 1994 from $588,000 for fiscal 1993. The increase was due primarily to increased personnel costs associated with the support of more customers and sites. Cost of customer support, maintenance and other services as a percentage of total revenues decreased to 8.4% from 13.7%. Cost of customer support, maintenance and other services as a percentage of customer support, maintenance and other services revenues increased to 131.4% from 106.6% as customer support and maintenance revenues grew at a faster rate than related expenses. Product Development Expenses. Product development expenses increased 263.4% to $984,000 for fiscal 1994, compared to $271,000 for fiscal 1993. The increase was associated with increased development costs associated with new product development. Product development expenses as a 20 percentage of total revenues increased to 6.8% from 6.3% due to the development efforts discussed above. In fiscal 1994, software development costs of $133,000 were capitalized by the Company, as compared to none for fiscal 1993. The Company capitalized 11.9% of its product development costs in fiscal 1994. Sales and Marketing Expenses. Sales and marketing expenses increased 125.5% to $470,000 during fiscal 1994, compared to $208,000 for fiscal 1993 as a result of higher sales. Sales and marketing expenses as a percentage of total revenues decreased to 3.3% from 4.9% in fiscal 1994 primarily because fixed expenses were spread over higher sales volumes. Depreciation and Amortization. Depreciation and amortization expense increased 284.6% to $178,000 for fiscal 1994, compared to $46,000 for fiscal 1993. The increase resulted from an increase in computer equipment and other assets required to support an increased number of employees. Depreciation and amortization as a percentage of total revenues increased to 1.3% from 1.1% during the period due to the increased expense. Additionally, amortization of capitalized software development costs increased to $22,000 for fiscal 1994, compared to none for fiscal 1993 as a result of higher capitalized software development costs. General and Administrative Expenses. General and administrative expenses increased 575.1% to $2.2 million for fiscal 1994, compared to $332,000 for fiscal 1993 due to the Company's investment in infrastructure. General and administrative expenses as a percentage of total revenues increased to 15.5% from 7.7%. Interest Expense. Interest expense increased 332.6% to $82,000 for fiscal 1994, compared to $19,000 for fiscal 1993. Pro Forma Income Tax Provision (Benefit). The pro forma effective rate for fiscal 1994 was a benefit of 34.5%, compared to a provision of 39.0% in fiscal 1993. Pro Forma Net Income (Loss). The Company had a pro forma net loss of $115,000 for fiscal 1994, compared to pro forma net income of $322,000 for fiscal 1993. The pro forma net loss was the result of the foregoing factors. 21 QUARTERLY INFORMATION The following tables set forth certain unaudited financial data for each of the Company's last seven calendar quarters and such data expressed as a percentage of the Company's total revenues for the respective quarters. The information has been derived from unaudited combined financial statements that, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of such quarterly information. The operating results for any quarter are not necessarily indicative of the results to be expected for any future period.
QUARTER ENDED ---------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1995 1995 1995 1995 1996 1996 1996 -------- -------- --------- -------- -------- -------- --------- (IN THOUSANDS) Revenues: Systems sales.......... $4,521 $2,377 $2,549 $4,631 $2,709 $7,191 $7,572 Customer support, maintenance and other services.............. 461 461 444 438 542 833 1,139 ------ ------ ------ ------ ------ ------ ------ Total revenues........ 4,982 2,838 2,993 5,069 3,251 8,024 8,711 Cost of revenues: Systems sales.......... 3,436 1,549 1,784 3,093 1,968 4,503 4,131 Customer support, maintenance and other services.............. 555 538 568 640 1,006 1,119 1,519 ------ ------ ------ ------ ------ ------ ------ Total cost of revenues............. 3,991 2,087 2,352 3,733 2,974 5,622 5,650 ------ ------ ------ ------ ------ ------ ------ Gross profit............ 991 751 641 1,336 277 2,402 3,061 Operating expenses: Product development.... 347 409 417 467 601 708 769 Purchased research and development costs..... -- -- -- -- -- 30 -- Sales and marketing.... 149 179 109 170 216 282 295 Depreciation and amor- tization.............. 128 126 133 196 186 214 276 General and administra- tive.................. 706 719 738 827 803 1,017 1,005 ------ ------ ------ ------ ------ ------ ------ Income (loss) from oper- ations................. (339) (682) (756) (324) (1,529) 151 716 Interest expense, net... 31 27 25 84 36 40 229 Other (income).......... -- (374) -- (33) (90) (281) (201) ------ ------ ------ ------ ------ ------ ------ Income (loss) before pro forma income taxes..... (370) (335) (781) (375) (1,475) 392 688 Pro forma income tax provision (benefit).... (141) (128) (297) (143) (544) 144 254 ------ ------ ------ ------ ------ ------ ------ Pro forma net income (loss)................. $ (229) $ (207) $ (484) $ (232) $ (931) $ 248 $ 434 ====== ====== ====== ====== ====== ====== ======
22
QUARTER ENDED -------------------------------------------------------------------- MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, 1995 1995 1995 1995 1996 1996 1996 -------- -------- --------- -------- -------- -------- --------- Revenues: Systems sales.......... 90.7% 83.8% 85.2% 91.4% 83.3% 89.6% 86.9% Customer support, maintenance and other services.............. 9.3 16.2 14.8 8.6 16.7 10.4 13.1 ----- ----- ----- ----- ----- ----- ----- Total revenues........ 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Cost of revenues: Systems sales.......... 69.0 54.6 59.6 61.0 60.5 56.1 47.4 Customer support, maintenance and other services.............. 11.1 18.9 19.0 12.6 31.0 14.0 17.5 ----- ----- ----- ----- ----- ----- ----- Total cost of revenues............. 80.1 73.5 78.6 73.6 91.5 70.1 64.9 ----- ----- ----- ----- ----- ----- ----- Gross profit............ 19.9 26.5 21.4 26.4 8.5 29.9 35.1 Operating expenses: Product development.... 7.0 14.5 13.9 9.2 18.5 8.8 8.8 Purchased research and development costs..... -- -- -- -- -- 0.4 -- Sales and marketing.... 3.0 6.3 3.6 3.4 6.6 3.5 3.4 Depreciation and amor- tization.............. 2.5 4.4 4.5 3.9 5.7 2.6 3.2 General and administra- tive.................. 14.2 25.3 24.7 16.3 24.7 12.7 11.5 ----- ----- ----- ----- ----- ----- ----- Income (loss) from oper- ations................. (6.8) (24.0) (25.3) (6.4) (47.0) 1.9 8.2 Interest expense, net... 0.6 1.0 0.8 1.7 1.1 0.5 2.6 Other (income).......... -- (13.2) -- 0.7 (2.7) (3.5) (2.3) ----- ----- ----- ----- ----- ----- ----- Income (loss) before pro forma income taxes..... (7.4) (11.8) (26.1) (7.4) (45.4) 4.9 7.9 Pro forma income tax provision (benefit).... (2.8) (4.5) (9.9) (2.8) (16.8) 1.8 2.9 ----- ----- ----- ----- ----- ----- ----- Pro forma net income (loss)................. (4.6)% (7.3)% (16.2)% (4.6)% (28.6)% 3.1% 5.0% ===== ===== ===== ===== ===== ===== =====
LIQUIDITY AND CAPITAL RESOURCES Since its inception, the Company has financed its operations primarily through cash generated from operations and recently from financing obtained during fiscal 1996. As of September 30, 1996, the Company had $882,000 in cash and cash equivalents. The Company's operating activities provided cash in fiscal 1993, 1994 and 1995 of $652,000, $844,000 and $841,000, respectively, while during the nine months ended September 30, 1996 the Company's operating activities used cash of $2.7 million. In fiscal 1993, cash flow from operating activities arose principally from the Company's profitable operations, partially offset by an increase in accounts receivable. Additionally, in both fiscal 1993 and 1994, cash from operating activities was significantly increased due to customer deposits received in advance of product shipment. In fiscal 1995, the Company's operating cash was the result of extended payment terms with vendors. During the first nine months of fiscal 1996, the Company's uses of cash were the result of increased accounts receivables due to increased sales somewhat offset by continued receipt of customer deposits in advance of sales. Cash used in investing activities in fiscal 1993, 1994 and 1995 and the nine months ended September 30, 1996 was $242,000, $537,000, $641,000 and $804,000, respectively. Such investing activities primarily consisted of purchases of property and equipment and capitalized software development costs. Cash used in financing activities was $136,000, $249,000 and $402,000 in fiscal 1993, 1994 and 1995, respectively, while $4.2 million was provided by financing activities during the nine months ended September 30, 1996. Financing activities during fiscal 1993, 1994 and 1995 consisted of shareholder distributions and repayment of a shareholder note beginning in fiscal 1995. Additionally, in fiscal 1994 and 1995 the Company's repayment of borrowings under capital lease agreements increased as the Company 23 purchased equipment under capital lease agreements of $599,000 and $218,000, respectively, in those years. Financing activities in fiscal 1996 consisted primarily of borrowings of $4.5 million from Sirrom Capital Corporation. These loan proceeds were offset somewhat by payment of loan origination fees as well as continued repayments of borrowings under capital lease agreements. See Note 6 of the combined financial statements of the Company. Capital expenditures were approximately $242,000, $303,000, $312,000 and $420,000 in fiscal 1993, 1994 and 1995 and the nine months ended September 30, 1996, respectively. These expenditures were primarily for purchases of computer equipment, furniture and fixtures. The Company does not expect significant capital expenditures in the near term. In order to finance its recent growth, the Company in fiscal 1996 borrowed $4.5 million from Sirrom Capital Corporation (the "Sirrom Debt"). Funds were disbursed to the Company in two installments; the first in June 1996 ($3.0 million) and the second in September 1996 ($1.5 million), which borrowings were utilized to finance the Company's working capital requirements. The Sirrom Debt is secured by substantially all the assets of the Company, bears interest at a fixed rate of 14.0% and is payable in equal monthly installments of accrued interest to maturity (due June 2001 with respect to the $3.0 million tranche and due September 2001 with respect to the $1.5 million tranche). As of December 1, 1996, the Sirrom Debt had a balance of $4.5 million. The Sirrom Debt will be repaid from the proceeds of this offering. See "Use of Proceeds." In addition, in connection with this financing, the Company granted to Sirrom Capital Corporation warrants to purchase 174,642 shares of Common Stock at an exercise price of $.01 per share, which will be exercised prior to the completion of this offering. See "Principal and Selling Shareholders." In connection with the proposed acquisition of PrysmTech in December 1996 the Company will issue promissory notes in the principal amount of $3.0 million. These notes will be due December 1998 and bear interest at a rate of 8.5%. The PrysmTech Debt will be repaid from the proceeds of this offering. See "Use of Proceeds." The exercise of outstanding warrants to purchase 1,265,551 shares of Common Stock prior to the completion of this offering will provide the Company with proceeds of approximately $962,000. These proceeds, together with the net proceeds of this offering, will be utilized for the purposes set forth in "Use of Proceeds." Because the remaining 20,000 warrants have a nominal exercise price, they will not represent a potential source of liquidity for the Company. The Company believes that the net proceeds from this offering and the exercise of the warrants referred to above will provide adequate liquidity to meet the Company's planned capital and operating requirements for at least the twelve month period following this offering. Thereafter, if the Company's spending plans change, the Company may find it necessary to seek to obtain additional sources of financing to support its operations. There can be no assurance that such financing will be available on commercially reasonable terms, if at all. ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not have a significant impact on the Company's combined financial statements. The American Institute of Certified Public Accountants has issued an exposure draft to amend the provisions of Statement of Position ("SOP") 91-1, "Software Revenue Recognition." The adoption of the standards in the current version of the exposure draft is not expected to have a significant impact on the Company's combined financial statements. 24 PRO FORMA FINANCIAL INFORMATION The Company intends to purchase the remaining 50.0% interest in PrysmTech for 300,000 shares of Common Stock and the PrysmTech Debt. The acquisition will be accounted for as a purchase. The accompanying unaudited pro forma condensed combined balance sheet as of September 30, 1996, gives effect to the proposed acquisition as if it had occurred on that date. The accompanying unaudited pro forma condensed combined statement of operations for the nine months ended September 30, 1996, has been prepared to reflect adjustments to the Company's historical results of operations to give effect to the proposed acquisition as if it had occurred on January 1, 1996. Pro forma condensed combined statement of operations for the year ended December 31, 1995, have not been presented due to the insignificance of PrysmTech's operations from November 27, 1995 (inception of PrysmTech) to December 31, 1995. The purchase price allocation reflected in the accompanying pro forma condensed combined financial statements has been prepared on an estimated basis. The effects resulting from any differences in the final allocation of the purchase price are not expected to be material. The accompanying pro forma statements are not necessarily indicative of the results of operations which would have been attained had the acquisition been consummated on the dates indicated or which may be attained in the future. These pro forma statements should be read in conjunction with the historical combined financial statements of the Company and related notes thereto, which are included elsewhere in this Prospectus. 25 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (IN THOUSANDS)
PRO PRO FORMA FORMA RADIANT PRYSMTECH ADJUSTMENTS COMBINED ------- --------- ----------- -------- ASSETS Current assets: Cash and cash equivalents.......... $ 882 $ 783 $ -- $ 1,665 Receivables, net................... 3,515 1,143 -- 4,658 Inventories........................ 2,422 555 -- 2,977 Other.............................. 462 23 -- 485 ------- ------ ------- ------- Total current assets............... 7,281 2,504 -- 9,785 Property and equipment, net ........ 1,271 233 -- 1,504 Software development costs, net .... 598 -- -- 598 In process product development ..... -- -- 3,628 (1) -- (3,628)(1) Investment in PrysmTech............. 471 -- (471)(2) -- Other assets ....................... 393 62 907 (1) 1,362 ------- ------ ------- ------- Total assets....................... $10,014 $2,799 $ 436 $13,249 ======= ====== ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable and accrued lia- bilities.......................... $ 3,922 $1,713 $ 50 (3) $ 5,685 Customer deposits and deferred rev- enue.............................. 3,192 -- -- 3,192 Current portion of shareholder loan.............................. 167 -- -- 167 Current portion long-term debt..... 554 -- -- 554 ------- ------ ------- ------- Total current liabilities.......... 7,835 1,713 50 9,598 Shareholder loan, less current por- tion............................... 44 -- -- 44 Long-term debt...................... 5,143 -- 3,000 (3) 8,143 ------- ------ ------- ------- Total liabilities.................. 13,022 1,713 3,050 17,785 ------- ------ ------- ------- Put warrants........................ 481 -- -- 481 Shareholders' equity (deficit)...... (3,489) 1,086 2,100 (3) (5,017) (3,628)(4) (1,086)(4) ------- ------ ------- ------- Total liabilities and shareholders' equity............................ $10,014 $2,799 $ 436 $13,249 ======= ====== ======= =======
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (1) Reflects adjustments to record the fair market value of the identifiable intangible assets acquired plus the resulting goodwill related to the excess purchase price over the fair value of net assets acquired. The value associated with the purchased research and development costs is written-off immediately (in thousands). Total consideration and transaction costs (Note 3).............. $5,150 Joint venture partner's interest in equity of PrysmTech ........ 615 ------ Excess of purchase price over fair value of net assets acquired ............................................................... 4,535 Value associated with purchased research and development costs.. 3,628 ------ Adjustments to goodwill......................................... $ 907 ======
(2) Reflects elimination of the Company's investment in PrysmTech. (3) Reflects (i) issuance of 300,000 shares of Common Stock with a market value of approximately $2.1 million as of the expected close date of December 31, 1996, (ii) the PrysmTech Debt, and (iii) transaction related expenses of $50,000. (4) Reflects the elimination of PrysmTech's shareholders' equity of $1.1 million and the immediate write-off of purchased research and development costs of $3.6 million. 26 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO PRO FORMA FORMA RADIANT PRYSMTECH ADJUSTMENTS COMBINED ------- --------- ----------- -------- Revenues: Systems sales................... $17,472 $6,253 $ (382)(1) $23,343 Customer support, maintenance... 2,514 729 -- 3,243 ------- ------ ------ ------- Total revenues................. 19,986 6,982 (382) 26,586 Cost of Revenue: Systems sales................... 10,602 4,126 200 (2) 14,546 (382)(1) Customer support, maintenance... 3,644 223 -- 3,867 ------- ------ ------ ------- Total cost of revenues......... 14,246 4,349 (182) 18,413 ------- ------ ------ ------- Gross profit.................... 5,740 2,633 (200) 8,173 Operating expenses: Product development............. 2,078 -- 323 (2) 2,401 Purchased research and develop- ment costs..................... 30 -- 3,628 (3) 30 (3,628)(4) Sales and marketing............. 793 -- 96 (2) 889 Depreciation and amortization... 676 -- 33 (2) 777 68 (5) General and administrative...... 2,825 -- 907 (2) 3,732 PrysmTech operating expenses.... -- 1,559 (1,559)(2) -- ------- ------ ------ ------- Total operating expenses....... 6,402 1,559 (132) 7,829 ------- ------ ------ ------- Income (loss) from operations.... (662) 1,074 (68) 344 Interest expense, net............ 305 -- 191 (6) 496 Equity in (earnings) of PrysmTech....................... (537) -- 537 (7) -- Other income..................... (35) -- -- (35) ------- ------ ------ ------- Income (loss) before provision for income taxes................ (395) 1,074 (796) (117) Pro forma income tax provision (benefit)....................... (146) -- 100 (8) (46) ------- ------ ------ ------- Pro forma net income (loss)...... $ (249) $1,074 $ (896) $ (71) ======= ====== ====== ======= Pro forma net income (loss) per common and common equivalent share........................... $ (.02) $ (.01) ======= ======= Weighted average common and common equivalent shares outstanding..................... 11,187 11,587 (9) ======= =======
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (1) Reflects elimination of sales from the Company to PrysmTech at cost. (2) Reflects reclassification of PrysmTech statement of operations accounts to conform with the Company's presentation. (3) Reflects charge of $3.6 million related to the write-off of purchased research and development costs. The allocation to purchased research and development costs represents the estimated fair value related to incomplete projects, determined by an independent appraisal. The development of these projects had not yet reached technology feasibility and the technology has no alternative future use. The technology acquired in the acquisition will require substantial additional development by the Company. (4) Reflects elimination from the pro forma information of one-time, non- recurring charges for purchased research and development costs of $3.6 million which will be recorded by the Company when the acquisition is consummated. (5) Reflects additional amortization of goodwill of $907,000 over 10 years. (6) Reflects interest expense on the PrysmTech Debt at an annual rate of 8.5%. (7) Reflects elimination of the Company's equity in earnings of PrysmTech. (8) Reflects benefit for income taxes for the tax effect of the pro forma adjustments and a pro forma tax provision for PrysmTech as if PrysmTech were liable for federal and state income taxes. (9) Weighted average common shares outstanding is calculated assuming that the 300,000 shares of Common Stock issued occurred January 1, 1996. In addition, the weighted average common shares outstanding include the dilutive effect of options to purchase 275,000 shares of Common Stock to be granted to certain employees of PrysmTech. 27 BUSINESS Radiant provides enterprise-wide technology solutions to selected vertical markets within the retail industry. The Company offers fully integrated retail automation solutions including POS systems, consumer-activated ordering systems, back office management systems and headquarters-based management systems. The Company's products enable retailers to interact electronically with consumers, capture data at the point of sale, manage site operations and logistics and communicate electronically with their sites, vendors and credit networks. In addition, the Company offers system planning, design and implementation services that tailor the automation solution to each retailer's specifications. Radiant is currently a leading provider of integrated retail automation solutions to the convenience store market and has a growing presence in the entertainment market through its PrysmTech joint venture. In addition, the Company intends to expand its presence in the QSR market in 1997. Since these markets require many of the same product features and functionality, the Company believes it can leverage its existing technology across these markets with limited incremental product development efforts. INDUSTRY BACKGROUND Successful retailers increasingly require information systems that capture a detailed picture of consumer activity at the point of sale and store that data in an accessible fashion. Early technology innovators in the retail industry deployed robust, integrated information systems at the point of sale and used the information to react rapidly to changing consumer preferences, ultimately gaining market share in the process. In addition, these integrated information systems helped retailers achieve operational efficiencies. Many large national retailers have followed suit by investing in proprietary information systems. For many types of retailers, however, this type of automation did not make economic or business sense. In particular, merchants with a large number of relatively small sites, such as convenience stores, petroleum retailers, restaurants and entertainment venues, generally have not been able to cost- effectively develop and deploy sophisticated, enterprise-wide information systems. Economic and standardization problems for these markets are exacerbated by the fact that many sites operate as franchises, dealerships or other decentralized ownership and control structures. Without an investment in technology, these retailers continue to depend on labor and paper to process transactions. Management believes that high labor costs, lack of centralized management control of remote sites and inadequate informational reporting, together with emerging technology trends, have caused many of these retailers to reexamine how technology solutions can benefit their operations. A large number of retail sites face these challenges. At the end of 1995, there were more than 90,000 convenience stores nationwide, while the cinema industry had approximately 27,000 screens at 6,500 sites nationwide. At the end of 1994, the QSR industry had over 170,000 domestic units. Typically, the existing systems in these industries consist of stand-alone devices such as cash registers or other POS systems with little or no integration with either the back office of the site or an enterprise-wide information system. Implementation of such systems providing this functionality typically involves three or more vendors and an independent systems integration firm. The resulting proprietary solutions are often difficult to support and have inherently high risks associated with implementation. Management believes that technology solutions that are highly functional and scalable, relatively inexpensive, and easy to deploy are critical for successful implementation in these retail markets. 28 In the absence of an integrated solution, retailers in these markets typically rely on manual reporting to capture data on site activity and disseminate it to different levels of management at the regional and national headquarters. Basic information on consumers (i.e., who they are, when they visit and what they buy) is not captured in sufficient detail, at the right time or in a manner that can be communicated easily to others in the organization. Similarly, information such as price changes does not flow from headquarters to individual sites in a timely manner. In addition, communications with vendors often remain manual, involving paperwork, delays and related problems. Recent trends in the retailing industry have accelerated the need for enterprise-wide information and have heightened demand for integrated retailing systems. The Company believes consumer preferences have shifted away from retailer loyalty toward value and convenience, creating a greater need for timely data concerning consumer buying patterns and preferences. Management also believes that convenient consumer-activated ordering and payment systems, such as ATMs, voice response units and "pay at the pump" systems, have become important to retailers who wish to retain and build a customer base. Additionally, retailers can improve operational and logistical efficiencies through better management of inventory, purchasing, merchandising, pricing, promotions and shrinkage control. Management believes that the constant flow of information among the point of sale, the back office, headquarters and the supply chain has become a key competitive advantage in the retail industry, causing retailers to demand more sophisticated, integrated solutions from their systems vendors. In a parallel development, technological advances have improved the capability of systems available to retailers. With the price of computing power declining, technology investments have become economically feasible for many retailers. Further, computing power has become increasingly flexible and distributable, facilitating data capture and processing by applications located at the point of sale. Also, new front-end graphical user interfaces are making systems easier to use, which reduces training time and transaction costs and facilitates more types of consumer-activated applications. To meet increasing systems demands from retailers, providers of hardware and software point of sale solutions are attempting to integrate existing products. This process often requires independent systems integrators to provide enterprise-wide data communications. These systems often are based on proprietary, closed protocols and technology platforms from several different vendors. As a result, the effort required to implement and maintain these systems can be difficult, time consuming and expensive. 29 THE RADIANT SOLUTION The Company offers fully integrated technology solutions that enable retailers to improve site operations, serve consumers better and route information throughout their organization and supply chains. The Company believes its core technology and solutions are applicable to a variety of retail markets. The Company's suite of products links store level point of sale information with centralized merchandising and financial functions that ultimately drive replenishment communications with suppliers and vendors. The Company believes that its site solutions are easy to implement, typically requiring less than a week to install and a few hours to train individual users. The following summarizes the solutions provided by Radiant: A five segment diagram presenting in brief form the principal features and functions of the company's primary technology solutions and services. The diagram includes the text: CONSUMER-ACTIVATED HEADQUARTERS - ------------------ ------------ Touch Screen Interactive Executive Information Video, Graphics, Audio Electronic Price Book Credit/Cash Payment Vendor EDI Compact, Enclosed Terminals Centralized Menu Management Suggestive Selling POINT OF SALE BACK OFFICE - ------------- ----------- Touch Screen Interactive Inventory Control Transaction Auditing Vendor Management Credit Processing Purchasing/Receiving Data Capture Employee Management Peripheral Integration Cash Reconciliation SERVICES - -------- Consulting Training Maintenance Technical Support Integration The Company's technology solutions enable retailers to: allow consumers to place their own orders for items such as food, movie tickets and concessions through graphical touch screen interfaces; capture transaction information and communicate with credit card networks; manage and analyze in-store inventory movement, including electronic ordering; schedule and manage staffing; and connect headquarters to each of the retailer's local sites and vendors, enabling management to quickly change pricing and review operating performance in a timely and efficient manner. The Company's products have been deployed successfully in retail operations ranging in size from one to more than 600 sites. Retailers derive the following benefits from Radiant's solutions: Integrated information flows. The Company's technology solutions provide retailers with tools for monitoring and analyzing sales data, stock status, vendor relationships, merchandising and other important activities, both at their sites and headquarters. These products further enable retailers to communicate electronically with their suppliers in order to exchange purchase orders, invoices and payments. 30 Centralized management of highly decentralized operations. Information provided by the Company's solutions enables headquarters management to monitor site performance in a consistent manner on a near-real time basis, implement price changes simultaneously throughout the enterprise and rapidly initiate targeted marketing programs. Tighter on-site control over operations. The Company's back office systems enable site managers to closely manage inventory, reconcile accounts and control issues such as shift scheduling and hourly wage calculations. The Company's solutions incorporate sophisticated inventory management techniques to help a retailer optimize its merchandising strategy. Improved labor productivity. The Company incorporates user friendly graphics within its solutions, reducing employee training and order processing times which are important benefits in retail environments due to high employee turnover. The Company's back office solutions can alleviate extensive paperwork required of site managers, allowing them more time to focus on operations. Improved customer service. The Company's consumer-activated ordering systems permit customers to place their own orders, answer surveys and electronically communicate with the retailer. These systems can improve customer service, reduce site labor costs and, through automating suggestive selling concepts, help the retailer implement revenue enhancement opportunities. Lower cost of technology deployment. In addition to the cost savings realized through better site management, the actual cost of deploying the Company's multimedia networking platform is less than networked PC systems due to platform efficiencies. Software modification requirements are limited due to the high degree of functionality inherent in the core applications, and systems integration problems are minimized because the Company offers an integrated solution based on an open-architecture design which facilitates integration with other systems. COMPANY STRATEGY The Company's objective is to be the leading worldwide provider of enterprise-wide technology solutions to the vertical retail markets it serves. The Company is pursuing the following strategies to achieve this objective: Expand existing position in selected markets. The Company believes that it is in a strong position to expand its current market share in the convenience store and cinema markets due to its highly functional solutions and its practical experience in deploying and implementing retail solutions. The Company has experience integrating all aspects of its solutions into existing retail technology infrastructures. In particular, the Company has developed interfaces with a number of the widely-used electronic information and payment networks, including networks of certain major petroleum retailers. The Company currently is developing interfaces to credit networks of additional major petroleum retailers, which if certified, will allow the Company access to a large number of potential sites. Introduce new products to current markets. The Company has introduced a variety of new products and services in 1996, including consumer-activated systems, a headquarters-based, enterprise-wide management system, a Windows NT version of its local site-based products, consulting services and its multimedia networking platform. Additional products and services, such as on-line consumer loyalty systems and solutions utilizing the Internet, are in development or under review. Continue to develop sales and services infrastructure. To meet the anticipated requirements of growth in its business, the Company intends to continue expanding its direct sales force and its professional services organization. The Company also plans to develop relationships with additional distributors. 31 Expand markets for the Company's solutions. The Company believes that its core technology and solutions are applicable to a variety of retail markets. The Company acquired LSI to accelerate its entry into the QSR market, and the Company plans to expand its presence in the QSR market with pilot installations of certain new solutions scheduled for the first half of 1997. The Company believes that additional markets such as full service restaurants, stadiums, arenas and amusement parks represent additional opportunities for the Company's solutions. Attract and retain outstanding personnel. The Company believes its strongest asset is its people. To attract and retain top talent, the Company intends to maintain its entrepreneurial culture and to continue offering competitive benefit programs. The Company has granted stock options to a majority of its employees and will strive to continue to align employee interests with those of the Company's shareholders. COMPANY OPERATIONS The Company is a leading provider of integrated technology solutions to the convenience store market, has a growing presence in the entertainment market and currently has plans to apply its core technologies to the QSR market. Substantially all of the Company's total revenues in 1995 and in the first nine months of 1996 were related to the convenience store market. The Company believes that its core technology may be adapted to provide solutions to a variety of vertical markets, but it has concentrated its efforts to date in these three markets. The Company's principal products, sales and marketing efforts, customers and competitors are discussed below for each of these three markets. The following table depicts the Company's main offerings and the vertical markets served by those offerings:
QUICK SERVICE CONVENIENCE STORE ENTERTAINMENT RESTAURANT(1) ----------------------- ----------------------- ----------------------- Software: Consumer-Activated Ordering OrderPoint OrderPoint OrderPoint Point of Sale Compu-Touch BoxMan, ConcMan (2) Back Office Compu-Touch OfficeMan (3) Headquarters Management Core-Tech Core-Tech(4) Core-Tech(4) Services: Consulting and Training Radiant Solutions Group Radiant Solutions Group Radiant Solutions Group Integration and Logistics Integration Services Integration Services Integration Services Platform: Radiant Platform Radiant Platform Radiant Platform
(1) Does not reflect products acquired with LSI. (2) Under development, with planned release in the first half of 1997. (3) To be developed. (4) Modifications for these markets currently are under development. CONVENIENCE STORE MARKET In the United States, there currently are approximately 90,000 convenience store sites which derive a significant portion of revenues from selling products other than gasoline. The Company believes that the international convenience store market represents a substantial opportunity for its solutions. Management believes that the industry is currently under-invested in technology. Only 16.1% of the industry's retail sites use scanning equipment, compared to grocery stores, which have implemented scanning at approximately 90.0% of their locations. Yet, in a recent convenience store industry survey, 71.0% of respondents perceive integrated scanning and price book management as being important for their operations and a majority of respondents indicated that they were investigating whether to 32 implement scanning at their retail locations. The same survey further reveals that 54.0% of respondents plan to increase spending for technology solutions. The Company thus believes that the demand for the Company's solutions for the foreseeable future will remain strong. This demand is fueled in part by the fact that many convenience store operators are finding that their consumers prefer "pay at the pump" systems, and many operators are upgrading their POS systems to interface with these consumer-activated systems. Seventeen percent of convenience stores currently utilize pay at the pump technology. Implementing this technology requires a site to upgrade its system for controlling and managing fuel sales. Management believes that installation of pay at the pump systems will remain strong for the foreseeable future, encouraging additional investment in store automation. The Company markets a variety of products and services as part of its strategy to serve as an integrated solutions provider. From consumer-activated ordering solutions to feature-rich, highly functional point of sale and back office systems tied into headquarters through advanced client/server software, the Company's enterprise-wide solutions interact with the consumer, site employees and management and the senior management of a retailer's operations. To help retailers optimize the impact these systems have on their operations, the Company also offers a wide array of consulting, training and support services provided by experienced professionals. The Company further provides "ruggedized" hardware systems designed to cope with harsh retailing environments. Site-Based Products Compu-Touch. Compu-Touch is the Company's principal product serving the convenience store market. Compu-Touch, which can be licensed as modules or as a complete system, is a comprehensive site-based solution that allows retailers to process transactions and capture data at the point of sale, as well as to manage other front and back office operations. Compu-Touch consists of several modules, as described below. As of December 1, 1996, the Company has licensed Compu-Touch systems to over 2,000 convenience store sites. The following modules are offered with Compu-Touch: CT POS -- provides point of sale functionality. Its PC-based architecture allows non-POS functions (adding inventory and employees, changing fuel prices, etc.) to be performed through a menu driven, user friendly interface. In addition, CT POS produces reports that provide store managers with valuable insight into their businesses. CT POS can be interfaced to other systems using industry standard file formats. CT Inventory -- allows convenience stores to manage inventory on an item level basis, enabling two critical processes: item level audits and electronic ordering. CT Inventory accepts sales data from either CT POS or a third party system. CT Fuel -- manages fuel inventory using the same closed loop approach as CT Inventory. Real time fuel sales, received from CT POS, are combined with deliveries, pump tests and stick readings, allowing for instant reconciliation and analysis. CT Fuel includes a competitive survey feature so fuel managers can set prices to maximize volume and margin. CT Lottery -- utilizes the business logic embodied in CT Inventory. Lottery sales, received from CT POS in real-time, are combined with deliveries allowing for instant reconciliation. CT Employee -- records and monitors key employee data such as hire date, advanced payments and termination date. Operators can compare budgeted and scheduled hours against actual hours worked with the labor schedule feature. An electronic task list, complete with instructions, can be scheduled to appear automatically on CT POS during an employee's shift. 33 CT Money -- allows store managers quickly to compare funds collected against safe drops, pay-ins and pay-outs and make adjustments as necessary. Compu-Touch includes features such as a touch screen interface, user friendly applications and flexibility in set-up and configuration to accommodate operational variables at each site. The Compu-Touch system is based on an open architecture and runs on either the Windows NT or Novell platform. The application supports multiple POS terminals and a separate back office system. The product is upgradable so that customers can phase in their investment with additional hardware and software modules. It also offers customers scalability, such that the same application can be run in chains with widely varying numbers and sizes of sites; yet the enterprise solution remains consistent and supportive of each site. OrderPoint. Within the convenience store market, the trend toward increased branded food service offerings has created a demand for consumer-activated ordering systems. In response, the Company has developed its easy to use, consumer-activated OrderPoint system. OrderPoint allows a consumer to place an order, answer a survey, pay with a plastic card, make inquiries and view promotions through the use of a touch screen. OrderPoint's development environment and authoring tools allow various media, such as video clips, logos, pictures and recordings, to be quickly integrated into a consumer- friendly application. Management believes OrderPoint allows a retailer to increase labor productivity, increase revenues through suggestive selling, increase consumer ordering speed and accuracy, capture consumer information at the point of sale and respond quickly to changing consumer preferences. OrderPoint was commercially released in the second quarter of 1996, and, to date, the Company has sold systems or licensed software to a number of convenience store chains. Headquarters-Based Product Core-Tech. In 1996, the Company introduced Core-Tech, a client/server based software application which allows retailers to better manage multiple convenience store sites. As of December 1, 1996, the Company had installed Core-Tech at several headquarters locations and connected it to POS systems at an aggregate of over 800 retail sites. Current customers include Wawa, Inc., Sheetz, Inc., Conoco, Inc., Ultramar Diamond Shamrock Corporation and Petronas Dagangan Berhad, the national petroleum company of Malaysia. The following is a summary of the features and functionality of Core-Tech: Price book -- allows retailers to set prices for products in a timely manner on a site-by-site, zone-by-zone or system wide basis. Price book also allows retailers to target prices based on a variety of different factors, including markups based on cost, gross margins, and target margins. Site configuration and management -- allows retailers to define and control the parameters of site operations, such as prohibiting clerks from authorizing fuel dispensing without prepayment. Fuel management -- allows retailers to manage fuel inventory movement and pricing. Such features allow management to define and regulate site pricing and strategies, including responding to price changes at competitors' sites. Executive Information System ("EIS") -- supports headquarters analysis of site operations, such as sales vs. cost analysis, sales vs. budget analysis, labor productivity analysis and category management analysis. EIS also facilitates "what if" analyses, allowing retailers to incorporate and ascertain the sensitivities of operational variables such as price, cost and volume. Electronic Data Interchange -- supports the routing and analysis of purchase orders and vendor invoices. 34 The Company believes that Core-Tech is one of the most functional and comprehensive headquarters management application widely marketed to convenience store chains. The Core-Tech product is built with state of the art software tools and is flexible and expandable based on application architecture and database structure. The application is written in PowerBuilder, and the database, Microsoft SQL Server, is highly scalable. The user interface is intuitive and easy to use. Sales and Marketing The Company has independent sales efforts in each of its vertical markets. The Company believes this strategy positions its sales force to understand its customers' businesses, trends in the marketplace, competitive products and opportunities for new product development and allows the Company to take a consultative approach to working with customers. Within the convenience store market, the Company's Director of National Accounts manages a staff focusing on national accounts, including all major petroleum companies. Further, the Company's Director of Sales manages two distinct efforts: sales to large independent accounts via a geographically dispersed sales force and sales to international accounts primarily through distributors. The Company also has implemented a telemarketing effort directed at chains with a limited number of sites. All sales personnel are compensated with a base salary and commission based on gross margins and other profitability measures. To date, the Company's primary marketing objective has been to increase awareness of all of the Company's technology solutions. To this end, the Company has attended industry trade shows and selectively advertised in industry publications. The Company intends to increase its sales and marketing activities both domestically and internationally in 1997, and will expand its advertising in relevant industry publications. Additionally, the Company intends to continue developing an independent distribution network to sell and service its products to certain segments of the domestic and international markets. Customers Convenience store customers who have selected the Company as their technology solutions provider operate over 7,000 sites. As of December 1, 1996, the Company has installed its technology solutions in over 2,000 of these sites. In 1994 and 1995, two customers accounted for 75.9% and 59.4% of the Company's total revenues, respectively In the first nine months of 1996, four customers accounted for 62.9% of the Company's total revenues. The following is a partial list of major convenience store customers who have licensed and purchased the Company's products and services: Boardman Petroleum (Smile Gas) Go-Mart, Inc. Conoco, Inc. Petronas Dagangan Berhad Dillon Companies, Inc. Sheetz, Inc. Emro Marketing Company (Speedway/Starvin' Marvin) Ultramar Diamond Shamrock Corporation Giant Industries, Inc. Wawa, Inc.
Competition In marketing its technology solutions, the Company faces intense competition, including internal efforts by potential customers. The Company believes the principal competitive factors are product quality, reliability, performance, price, vendor and product reputation, financial stability, features and functions, ease of use, quality of support and degree of integration effort required with other systems. Within the convenience store market, the Company believes it is the only integrated technology solution provider of POS, back office and headquarters management systems. Within these product lines, the Company faces different levels of competition. Verifone, Ltd., Dresser Industries, Inc., Gilbarco, Inc., 35 Tokheim Corporation, Stores Automated Software, Inc., Matsushita Electric Corporation of America (Panasonic), Auto-Gas Systems, Inc. and others provide POS systems with varying degrees of functionality. Back office and headquarters client/server software providers include The Software Works!, Professional Datasolutions Inc. and JDA Software Group, Inc. In addition, the Company faces competition from systems integrators and other companies such as Tandem Computers, Inc. who offer an integrated technology solutions approach by integrating other third party products. The Company believes there are barriers to entry in the market for convenience store automation solutions. The Company has invested a significant amount of time and effort to create the functionality of Compu-Touch and Core- Tech. The Company believes that the time required for a competitor to duplicate the functionality of Compu-Touch or Core-Tech is substantial and would require detailed knowledge of a retailer's operations at local sites and headquarters. Also, developing a credit card network interface often can take an additional six to nine months, as the certification process can be time consuming. Moreover, the major petroleum companies are extremely selective about which automation system providers are permitted to interface to their credit networks. As of December 1, 1996, the Company was certified on seven credit networks, and it currently has initiated the process to become certified on four other major petroleum company credit networks. ENTERTAINMENT MARKET Within the entertainment market, the Company has focused on the cinema market and plans to expand into amusement parks and stadiums. The Company markets its products to the cinema market through its PrysmTech joint venture. There are approximately 27,000 cinema screens in the United States. These screens are operated at approximately 6,500 sites, with recent trends emphasizing more screens per site. The domestic cinema industry is concentrated, with the top six chains operating approximately 33.0% of the cinema screens. In addition to increasing screens per site, "megaplexes" have evolved, which combine restaurants, movies and other forms of entertainment in one facility. While cinema sites typically are operated in a decentralized manner, the Company believes cinema operators are focused on implementing cost controls from headquarters. The Company believes its core technology and products are easily adaptable for other entertainment venues, such as amusement parks, stadiums and arenas. To date, the Company has installed systems in one of these facilities and has pilot installations scheduled for two other amusement parks. While fewer in number than cinemas, these venues are typically much larger, and management believes that technology solutions for such operators represents significant revenue potential for the Company. Site-Based Products To date, a majority of the Company's sales to the entertainment market has consisted of comprehensive site-based solutions that allow retailers to process transactions and capture data at the point of sale and to manage other front and back office operations. As of December 1, 1996, the Company had installed these products at approximately 175 sites. These site-based solutions are marketed under the "BoxMan," "ConcMan," "OrderPoint," and "OfficeMan" names. These systems include features such as a touch screen interface, user-friendly applications and flexibility in configuration to accommodate operational variables at each site. These systems are based on an open architecture and run on the Windows NT or Novell platform. The applications are made to be highly configurable, typically supporting multiple POS terminals and a separate back office system. The products are upgradable so that customers can phase in their 36 investment with additional hardware and software modules. These solutions offer customers scalability, such that the same application can be run in chains with widely varying numbers and sizes of sites; yet the enterprise solutions remain consistent and supportive of each site. BoxMan. BoxMan processes ticket sales, incorporating touch screen technology at the point of sale. BoxMan provides for a variety of ticket alternatives and payment options (such as cash, credit card or coupons). Individual sales and performance are easily tracked, and all of the information gathered at the point of sale can be communicated throughout the system on a real-time basis. BoxMan also provides for advanced ticketing and teleticketing, as well as will-call and self-service ticketing. ConcMan. ConcMan processes concession sales, incorporating touch screen technology at the point of sale. ConcMan communicates real time information to other POS and back office systems. In addition, ConcMan allows a number of payment methods, such as cash, credit card or coupons, and tracks point of sale performance data, such as average transaction value and rate of sales. OrderPoint. OrderPoint is the Company's consumer-activated, multimedia software. It utilizes graphics, full motion video and audio and allows consumers to preview movies and purchase tickets and concessions by placing orders through the use of a touch screen ordering system. It further allows for remote ticketing and simple credit card purchases. By properly positioning high profit items, retailers can use OrderPoint to promote combination sales and implement suggestive selling programs. As of December 1, 1996, OrderPoint is installed in over 50 cinema sites. See "--Convenience Store Market--Site- Based Products" for a further description of the OrderPoint system. OfficeMan. OfficeMan is a back office manager that provides the means for cinemas to readily gather point of sale and management information. OfficeMan provides real-time sales monitoring, with automatic updates of point of sale information, thereby allowing cinemas to manage multiple sites more effectively. Additionally, OfficeMan permits a cinema operator to define an employee's security level, manage changes in movie schedules and manage inventory. OfficeMan also provides an interface to other open systems and credit card networks. Headquarters-Based Product Core-Tech. Core-Tech is the Company's client/server based solution that permits retailers to manage individual sites from headquarters. Management believes that there is demand within the entertainment market for a solution with Core-Tech's features. As a result, the Company currently is adapting Core-Tech for this market. See "--Convenience Store Market--Headquarters-Based Product" for a description of the Core-Tech system. Sales and Marketing To date, the Company's sales and marketing efforts have consisted primarily of involvement of senior management of PrysmTech. The Company's primary marketing objective has been to increase awareness of all of the Company's technology solutions. In November 1996, the Company hired a manager to plan and manage the Company's efforts in the amusement park market. The Company intends to increase its sales and marketing efforts in 1997. Customers Cinema customers who have selected the Company as their technology solutions provider operate a total of 890 sites, or approximately 13.7% of the domestic cinema sites. As of December 1, 1996, the Company has installed its technology solutions in approximately 175 of these sites. The following is a partial list of major cinema customers who have licensed and purchased the Company's products and services: Cobb Theatres Loews Theatre Management Corporation Mann Theatres The Marcus Corporation Regal Cinemas 37 Competition The market for the Company's technology solutions is intensely competitive and includes internal efforts by potential customers. The Company believes the principal competitive factors are product quality, reliability, performance, price, vendor and product reputation, financial stability, features and functions, ease of use, quality of support and degree of integration effort required with other systems. Within the cinema market, the Company faces competition from Pacer/CATS, a subsidiary of Ticketmaster, Inc., and several smaller software providers. QUICK SERVICE RESTAURANT MARKET The Company believes that its core technology and capabilities effectively address the needs of the QSR market. To accelerate its entry into this market, the Company in May 1996 acquired LSI -- an established provider of technology solutions to the QSR market. LSI provided the Company with a team of experienced QSR software developers, a functional product line and a customer base that includes approximately 150 sites, including KFC Corporation and UNO Restaurant Corporation (Pizzeria Uno). The Company does not intend to actively market LSI's existing product line. However, the Company believes that its core technology can be combined with LSI's industry expertise to create a highly functional technology solution for the QSR market. The QSR market is the largest and fastest growing segment in the food service market. As of the end of 1994, there were over 170,000 QSRs in the United States. Restaurants increasingly require real time information access and management that permit employees to increase the speed and accuracy with which they take an order, prepare the food and fill the order, and they must accommodate numerous concurrent consumer orders at multiple counter top and drive-through locations. Multiple order input devices, such as wireless, hand- held terminals and touch screen monitors, may be required to handle high-order volumes at peak periods. The captured transaction data may be shared with store management, as well as regional headquarters management. Such data can be analyzed to provide performance, market and trend information. Such tasks are substantially similar to those required in the convenience store and entertainment markets. The Company is developing a new suite of products based on its Radiant solution tailored to address the QSR market. Pilots for these products are scheduled for the first half of 1997. In marketing its technology solutions, the Company faces intense competition, including internal efforts by potential customers. The Company believes the principal competitive factors are product quality, reliability, performance, price, vendor and product reputation, financial stability, features and functions, ease of use, quality of support and degree of integration effort required with other systems. Within the QSR market, the Company faces competition from companies such as International Business Machines Corporation, NCR Corporation, Matsushita Electric Corporation of America (Panasonic), Par Technology Corporation, Compris Technologies, Inc., Progressive Software, Inc., Micros Systems, Inc. and many others who currently deliver technology solutions to the market. PROFESSIONAL SERVICES In 1995, the Company determined that the integration, design, implementation, application and installation of technology solutions were critical to its ability to effectively market its solutions. Consequently, in early 1996, the Company established its Radiant Solutions Group to provide these services to its customers. The Radiant Solutions Group operates as a stand-alone profit center. The following is a summary of some of the professional services the Company provides: Consulting. Business consultants, systems analysts and technical personnel assist retailers in all phases of systems development, including systems planning and design, customer-specific configuration of application modules and on-site implementation or conversion from existing systems. Directors in the Company's consulting organization typically have significant consulting or 38 retail technology experience. The Company's consulting personnel undergo extensive training in retail operations and the Company's products. Consulting services typically are billed on a per diem basis. Customization. The Company provides custom application development work for customers billed on a project or per diem basis. Such enhancements remain the property of the Company. Training. The Company has a formalized training program available to its customers, which is provided on a per diem rate at the Company's offices or at the customer's site. Integration. Typically, as part of its site solution, the Company integrates standard PC components for its customers. This is done as part of the overall technology solution for the customers to protect the quality of the overall site solution and to provide the customers with a system that is easy to support over the long term. The market for the Company's professional services is intensively competitive. The Company believes the principal competitive factors are the professional qualifications, expertise and experience of individual consultants. In the market for professional services, the Company competes with the consulting divisions of the big six accounting firms, Electronic Data Systems, Inc. and other systems integrators. MAINTENANCE AND CUSTOMER SUPPORT The Company offers customer support on a 24-hour basis, a service which historically has been purchased by a majority of its customers and also entitles the customer to product upgrades. In some cases, hardware support is provided by third parties. The Company can remotely access its customers' systems in order to perform quick diagnostics and provide on-line assistance. The annual support option is typically priced at a percentage of the software and hardware cost. PRODUCT DEVELOPMENT AND RADIANT TECHNOLOGY The Company's product development strategy is focused on creating common technology elements that can be leveraged in applications across various vertical retail markets. The base technology architecture is designed so that it can be integrated with products developed by other vendors and can be phased into a retailer's operations. The Company has developed numerous applications running on a Windows NT platform. The software architecture incorporates Microsoft's Component Object Model, providing an efficient environment for application development. To implement its strategy, the Company has created Radiant Labs ("Labs"), with responsibility for developing common technology elements intended for use across the Company's vertical markets. In addition, the Company maintains development groups for each of the convenience store, entertainment and QSR markets. The vertical market development efforts focus on developing industry- specific applications that leverage the common technology elements developed by Labs. To facilitate new product development, teams are formed to combine technical expertise from Labs and industry knowledge from the vertical groups. 39 The Company's Radiant platform, graphically depicted below, was developed for use across the Company's various vertical markets. It allows multiple, multimedia software applications to run on separate workstation clients simultaneously, all driven by a single PC acting as a server. With a Radiant platform, only one PC is required -- functionality is duplicated through specialty peripherals ("Radiant Nodes") connected by a fiber optic ring. The server is responsible for almost all data processing and functionality and serves as a repository for multimedia data. TITLE: DESCRIPTION OF RADIANT SYSTEMS, INC. RADIANT PLATFORM DIAGRAM STRUCTURE: Diagram illustrating the operating system of the Company's Radiant platform. The diagram depicts a personal computer acting as a host to nine nodes, all connected by a solid line representing a fiber optic connection. The nodes are depicted as rectangular boxes arranged in a loop to the right of the depiction of the personal computer. The diagram is meant to illustrate the fact that as many as 50 nodes may operate as specialty peripherals or workstations when connected to the personal computer acting as a server. A brief description is included of the host personal computer, the nodes and the fibre optic line. Each of these descriptions point to the relevant component with an arrow. SUPPORTING TEXT: Connected by an arrow to the personal computer: "Radiant Host . IBM PC compatible . Windows NT . Serves in excess of 50 nodes . Second host provides redundancy" Connected by an arrow to the nodes: "Radiant Nodes . Solid-state multimedia device . MPEG I & II, SVGA . Stereo/mono sound . Intercom . Mag stripe reader . 8 Serial devices . Compact, enclosed design" Connected by an arrow to the line: "Bidirectional Fault-tolerant Fiber-optic loop" The Company's Radiant platform offers a number of advantages to the retailer. Principally, it extends the processing power and functionality of a PC throughout a dedicated network. A Radiant platform is highly scalable, depending on the requirements of the customer. It reduces software and network maintenance costs because the retailer only manages applications on one server. Moreover, Radiant Nodes require substantially less space than a PC, improve reliability and reduce cost of ownership. PROPRIETARY RIGHTS The Company's success and ability to compete is dependent in part upon its proprietary technology, including its software source code. To protect its proprietary technology, the Company relies on a combination of trade secret, nondisclosure, copyright and patent law, which may afford only limited protection. In addition, effective copyright and trade secret protection may be unavailable or limited in certain foreign countries. Although the Company relies on the limited protection afforded by such intellectual property laws, it also believes that factors such as the technological and creative skills of its personnel, new product developments, frequent product enhancements, name recognition and reliable maintenance are essential to establishing and maintaining a technology leadership position. The Company presently has one patent pending. The source code for the Company's proprietary software is protected both as a trade secret and as a copyrighted work. The Company generally enters into confidentiality or license agreements with its employees, consultants and customers and generally controls access to and distribution of its software, documentation and other proprietary information. Although the Company restricts the use by the customer of the Company's software and does not permit the re-sale, sublicense or other transfer of such software, there can be no assurance that unauthorized use of the Company's technology will not occur. 40 Despite the measures taken by the Company to protect its proprietary rights, unauthorized parties may attempt to reverse engineer or copy aspects of the Company's products or to obtain and use information that the Company regards as proprietary. Policing unauthorized use of the Company's products is difficult. In addition, litigation may be necessary in the future to enforce the Company's intellectual property rights, to protect the Company's trade secrets, to determine the validity and scope of the proprietary rights of others, or to defend against claims of infringement or invalidity. Such litigation could result in substantial costs and diversion of resources and could have a material adverse effect on the Company's business, operating results and financial condition. Certain technology used in conjunction with the Company's products is licensed from third parties, generally on a non-exclusive basis. These licenses usually require the Company to pay royalties and fulfill confidentiality obligations. The Company believes that there are alternative resources for each of the material components of technology licensed by the Company from third parties. However, the termination of any such licenses, or the failure of the third-party licensors to adequately maintain or update their products, could result in delay in the Company's ability to ship certain of its products while it seeks to implement technology offered by alternative sources. Any required replacement licenses could prove costly. Also, any such delay, to the extent it becomes extended or occurs at or near the end of a fiscal quarter, could result in a material adverse effect on the Company's results of operations. While it may be necessary or desirable in the future to obtain other licenses relating to one or more of the Company's products or relating to current or future technologies, there can be no assurance that the Company will be able to do so on commercially reasonable terms or at all. In the future, the Company may receive notices claiming that it is infringing on the proprietary rights of third parties, and there can be no assurance that the Company will not become the subject of infringement claims or legal proceedings by third parties with respect to current or future products. In addition, the Company may initiate claims or litigation against third parties for infringement of the Company's proprietary rights or to establish the validity of the Company's proprietary rights. Any such claim could be time consuming, result in costly litigation, cause product shipment delays or force the Company to enter into royalty or license agreements rather than dispute the merits of such claims. Moreover, an adverse outcome in litigation or similar adversarial proceedings could subject the Company to significant liabilities to third parties, require the expenditure of significant resources to develop non-infringing technology, require disputed rights to be licensed from others or require the Company to cease the marketing or use of certain products, any of which could have a material adverse effect on the Company's business, operating results and financial condition. To the extent the Company desires or is required to obtain licenses to patents or proprietary rights of others, there can be no assurance that any such licenses will be made available on terms acceptable to the Company, if at all. As the number of software products in the industry increases and the functionality of these products further overlaps, the Company believes that software developers may become increasingly subject to infringement claims. Any such claims against the Company, with or without merit, as well as claims initiated by the Company against third parties, can be time consuming and expensive to defend, prosecute or resolve. EMPLOYEES As of December 1, 1996, the Company employed 213 persons. None of the Company's employees is represented by a collective bargaining agreement nor has the Company experienced any work stoppage. The Company considers its relations with its employees to be good. The Company's future operating results depend in significant part upon the continued service of its key technical, consulting and senior management personnel and its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense, and there can be no assurance that the Company will retain its key managerial or technical personnel or attract such personnel in the future. The Company has at times experienced and continues to experience difficulty recruiting qualified personnel, and there can be no assurance that the Company will not experience such 41 difficulties in the future. The Company, either directly or through personnel search firms, actively recruits qualified product development, consulting and sales and marketing personnel. If the Company is unable to hire and retain qualified personnel in the future, such inability could have a material adverse effect on the Company's business, operating results and financial condition. FACILITIES The Company's principal facility occupies approximately 43,000 square feet in Alpharetta, Georgia, under two lease agreements. These lease agreements expire on January 31, 2000 and August 31, 2000, respectively. The Company is currently negotiating to lease additional space at its current location. The Company believes that suitable additional or alternative space is available on commercially reasonable terms. LEGAL PROCEEDINGS There are no material pending legal proceedings to which the Company is a party or of which any of its properties are subject; nor are there material proceedings known to the Company to be contemplated by any governmental authority. There are no material proceedings known to the Company, pending or contemplated, in which any director, officer or affiliate or any principal security holder of the Company, or any associate of any of the foregoing is a party or has an interest adverse to the Company. 42 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company and their ages as of December 1, 1996, are as follows:
NAME AGE POSITION ---- --- -------- Erez Goren..................... 32 Co-Chairman of the Board and Chief Executive Officer Alon Goren..................... 31 Co-Chairman of the Board and Chief Technology Officer Eric B. Hinkle................. 36 President, Chief Operating Officer and Director John H. Heyman................. 35 Executive Vice President, Chief Financial Officer and Director Andrew S. Heyman............... 33 Vice President and Managing Director of Radiant Solutions Group Carlyle M. Taylor.............. 43 Vice President--Integration and Customer Response Center
Mr. Erez Goren has served as Co-Chairman of the Board and Chief Executive Officer of the Company since its inception in 1985 and as its President from 1985 to October 1996. Mr. Goren attended State University of New York at Stony Brook prior to devoting his full time and energy to the Company. He is the brother of Alon Goren. Mr. Alon Goren has served as Co-Chairman of the Board and Chief Technology Officer of the Company since its inception in 1985. Mr. Goren has a B.S. in Computer Systems Engineering from Rensselaer Polytechnic Institute. He is the brother of Erez Goren. Mr. Hinkle has served as President, Chief Operating Officer and a Director of the Company since October 1996. Mr. Hinkle served in various capacities with the Avionics Divisions of AlliedSignal Corporation from January 1994 to October 1996, including most recently as Vice President of Communications and Navigation Products. From 1991 to January 1994, Mr. Hinkle served as a Senior Engagement Manager for McKinsey & Co., a consulting firm. Mr. Hinkle has an M.B.A. from Harvard Business School, a M.S. degree in Electrical Engineering from Stanford University, and a B.S. degree in Computer Engineering from Brown University. Mr. John H. Heyman has served as Executive Vice President, Chief Financial Officer and a Director of the Company since September 1995. Mr. Heyman served as Vice President and Chief Financial Officer of Phoenix Communications, Inc., a commercial printer, from March 1991 to August 1995. From 1989 to 1991, Mr. Heyman served as Vice President, Acquisitions of Forsch Corporation, a diversified manufacturing company. From 1983 to 1987, Mr. Heyman served in a variety of capacities with Arthur Andersen LLP, where he worked primarily with middle market companies and technology firms. Mr. Heyman has an M.B.A. from Harvard Business School and a B.B.A. degree in Accounting from the University of Georgia. He is the brother of Andrew S. Heyman. Mr. Andrew S. Heyman has served as Vice President and Managing Director of the Radiant Solutions Group of the Company since January 1996. Mr. Heyman served as a senior manager with Andersen Consulting from 1987 to December 1995. He holds a M.S. degree in Computer Information Systems from Georgia State University and a B.B.A. in Finance from the University of Georgia. He is the brother of John H. Heyman. Mr. Taylor has served as Vice President--Integration and Customer Response Center of the Company since September 1995. Mr. Taylor served in various capacities with NCR Corporation (formerly AT&T Global Information Solutions) in the retail information systems area from 1978 to September 1995, including most recently as Assistant Vice President of the scanner business unit. Mr. Taylor received a B.S. degree in Mathematics from North Carolina Wesleyan College. 43 The Company intends, within 90 days of this Prospectus, to appoint at least two additional independent directors (not yet identified) who will be unaffiliated with the Company. BOARD OF DIRECTORS The number of directors of the Company is currently fixed at four. The Company's Board of Directors will be divided into three classes, with members of each class of directors serving for staggered three-year terms. The Board will consist of two Class I Directors (Mr. Erez Goren and Mr. Alon Goren), one Class II Director (Mr. John H. Heyman) and one Class III Director (Mr. Hinkle), whose initial terms shall expire at the 1997, 1998 and 1999 annual meetings of the shareholders, respectively. After the consummation of this offering, there will be two standing Committees of the Board of Directors: the Compensation Committee and the Audit Committee. The Compensation Committee, which will be composed of the two independent directors to be appointed following this offering, will review and make recommendations to the Board of Directors regarding salaries, compensation and benefits of executive officers and key employees of the Company. In addition, the Compensation Committee will administer the Company's 1995 Incentive Stock Option Plan. The Audit Committee will be composed of the two independent directors to be appointed following this offering. Among other duties, the Audit Committee will review the internal and external financial reporting of the Company, review the scope of the independent audit and consider comments by the auditors regarding internal controls and accounting procedures and management's response to these comments. The Board of Directors does not have a nominating committee. EXECUTIVE COMPENSATION The following table presents certain information concerning compensation earned for services rendered in all capacities by the Company's Chief Executive Officer during the year ended December 31, 1995. None of the other executive officers of the Company had total annual salary and bonus which exceeded $100,000 during fiscal 1995. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION NAME AND ------------------ PRINCIPAL POSITION SALARY($) BONUS($) ------------------ --------- -------- Erez Goren ............................................... $60,714 $14,730 Co-Chairman and Chief Executive Officer
No stock options or stock appreciation rights have been granted to Mr. Goren. STOCK OPTION PLAN On December 20, 1995, the Company's directors and shareholders adopted the 1995 Incentive Stock Option Plan (the "Plan") for employees who are contributing significantly to the business of the Company or its subsidiaries as determined by the Company's Board of Directors or the committee administering the Plan. The Plan provides for the grant of options to purchase up to 3,000,000 shares of Common Stock at the discretion of the Board of Directors of the Company or a committee designated by the Board of Directors to administer the Plan. The option exercise price must be at least 100.0% (110.0% in the case of a holder of 10.0% or more of the Common Stock) of the fair market value of the stock on the date the option is granted and the options are exercisable by the holder thereof in full at any time prior to their expiration in accordance with the terms of the Plan. Stock options granted pursuant to the Plan will expire on or before (1) the date which is the tenth anniversary of the date the option is granted, or (2) the date which is the fifth anniversary of the date the option is granted in the event that the option is granted to a key employee who owns more than 10.0% of the total combined voting power of all classes of stock of the Company or any subsidiary of the Company. Options granted under the Plan typically vest over a period of four to five years. As of December 1, 1996, options to purchase 2,555,750 shares of Common Stock were outstanding pursuant to the Plan. In addition, non-qualified options to purchase 264,000 shares of Common Stock have been granted by the Company outside of the Plan as of December 1, 1996. 44 AGREEMENTS WITH EMPLOYEES All employees of the Company, including executive officers, are required to sign a confidentiality and non-compete agreement with the Company restricting the ability of the employee to compete with the Company during his or her employment and for a period ranging from six months to two years thereafter, restricting solicitation of customers and employees following employment with the Company, and providing for ownership and assignment of intellectual property rights to the Company. The agreements have an indefinite term, but the employee may terminate employment with the Company at any time. 401(K) PROFIT SHARING PLAN The Company maintains a 401(k) Profit Sharing Plan (the "401(k) Plan") which is intended to be a tax-qualified defined contribution plan under Section 401(k) of the Internal Revenue Code of 1986, as amended (the "Code"). In general, all employees of the Company who have completed six months of service and have attained age 21 are eligible to participate. The 401(k) Plan includes a salary deferral arrangement pursuant to which participants may contribute, subject to certain Code limitations, a minimum of 3.0% and a maximum of 15.0% of their salary on a pre-tax basis (up to $9,500 per year). Subject to certain Code limitations, the Company may make both matching and additional contributions at the discretion of the Board of Directors of the Company each year. To date, no contributions have been made by the Company to the 401(k) Plan. A separate account is maintained for each participant in the 401(k) Plan. The portion of a participant's account attributable to his or her own contributions is 100.0% vested. Distributions from the 401(k) Plan may be made in the form of a lump-sum cash payment or in installment payments. 45 CERTAIN TRANSACTIONS On May 29, 1995, the Company repurchased 2,628,523 shares of Common Stock (representing 24.7% of the Company's then outstanding shares of Common Stock) from Thomas J. Barrella in exchange for certain assets and technology. In connection therewith, Mr. Barrella resigned his positions as an executive officer and director of the Company. The transferred assets and technology had a value of approximately $616,000. As part of the transaction, Mr. Barrella issued to the Company a note in the amount of $61,171 due in May 1997. As of December 1, 1996, $17,000 remained outstanding under this note. On June 7, 1996, Mr. Barrella granted to Erez Goren, the Chief Executive Officer of the Company, an option to purchase all 600,033 remaining shares of Common Stock held by Mr. Barrella. This option, exercisable for a period of one year thereafter at an exercise price of $1.875 per share, will be assigned to the Company by Mr. Goren for nominal consideration prior to the completion of this offering. The Company will utilize a portion of the proceeds of this offering to repurchase all of such shares from Mr. Barrella. See "Use of Proceeds." On October 31, 1994, the Company repurchased 3,085,700 shares of Common Stock (representing 22.5% of the Company's then outstanding shares of Common Stock) from Lawrence D. Parker in exchange for a note in the amount of $473,086 due December 31, 1997, and bearing interest at a rate of 8.0%. As of December 1, 1996, $184,000 remained outstanding under this note. The Company will utilize a portion of the proceeds of this offering to repay this note. See "Use of Proceeds." In connection with this transaction, Mr. Parker resigned his positions as an executive officer and director of the Company and entered into a five-year consulting agreement with the Company. In October 1995, the monthly consulting fees payable to Mr. Parker were reduced to $2,500 from $14,000. Consulting fees totalling $150,000, $131,000 and $28,000 were paid by the Company to Mr. Parker in 1994, 1995 and the first eleven months of 1996, respectively. On May 27, 1994, the Company entered into a Software License, Support and Equipment Purchase Agreement (the "Emro License Agreement") with Emro Marketing Company (Speedway/Starvin' Marvin) ("Emro") pursuant to which Emro agreed to purchase licenses for Compu-Touch systems. Under the terms of the Emro License Agreement, Emro is to receive a cash rebate upon purchasing a defined number of software licenses. In the event the Company is unable to pay the rebates when due, Emro has the option of applying the rebate to the purchase of additional licenses or requiring the Company to deliver a promissory note therefor. Accordingly, on March 27, 1996, the Company issued to Emro a promissory note for accrued rebates in the amount of $873,000 due March 2001, and bearing interest at a rate of 6.0%. As of December 1, 1996, $914,000, including accrued interest, remained outstanding under this note. The Company will utilize a portion of the proceeds of this offering to repay this note. See "Use of Proceeds." Revenues of $3.4 million, $6.9 million and $3.7 million were recorded by the Company for systems sales and customer support, maintenance and other services pursuant to the Emro License Agreement in 1994, 1995 and the first eleven months of 1996, respectively. In connection with the Emro License Agreement, the Company granted to Emro a stock purchase warrant (the "Emro Warrant") to purchase 10.0% of the outstanding shares of Common Stock of the Company at an exercise price of $80,000 per percentage unit exercised. The Emro Warrant was subsequently amended to increase the number of shares of Common Stock issuable thereunder to 12.0% of the outstanding shares of Common Stock of the Company and to provide the Company with the right to repurchase 2.0% upon the exercise of the Emro Warrant at a price equal to the average of the exercise price of the Emro Warrant and the fair market value of the Common Stock. The Emro Warrant will be exercised in full prior to the completion of this offering, whereupon 318,996 shares of Common Stock will be sold by Emro hereby, 181,818 shares of Common Stock will be repurchased by the Company for $1.1 million from the proceeds of this offering and 590,095 shares of Common Stock will be retained by Emro. See "Principal and Selling Shareholders" and "Use of Proceeds." 46 PRINCIPAL AND SELLING SHAREHOLDERS The following table sets forth information with respect to the beneficial ownership of shares of the Company's Common Stock as of December 1, 1996, and as adjusted to reflect the sale of the shares offered hereby, by (i) the Selling Shareholders; (ii) each director of the Company; (iii) each person known by the Company to own beneficially more than 5.0% of the outstanding shares of the Common Stock; and (iv) all executive officers and directors of the Company as a group. Unless otherwise indicated, each shareholder has sole voting and investment power with respect to the indicated shares.
SHARES BENEFICIALLY SHARES BENEFICIALLY OWNED OWNED PRIOR TO OFFERING(1) NUMBER OF AFTER OFFERING(2) -------------------------- SHARES -------------------------- NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED(2) NUMBER PERCENT - ------------------------ ------------ ---------- ---------- ------------ ---------- Erez Goren(3)........... 3,428,556 42.9% -- 3,428,556 31.2% Alon Goren(3)........... 3,428,556 42.9 -- 3,428,556 31.2 Eric B. Hinkle.......... 55,000(4) * -- 55,000(4) * John H. Heyman.......... 350,000(5) 4.3 -- 350,000(5) 3.1 Emro Marketing Company.. 1,090,909(6) 12.0 318,996 590,095(6) 5.4 Sirrom Capital Corporation............. 174,642(7) 2.1 131,004 43,638 * Executive officers and directors as a group (6 persons)............... 7,262,112 88.2 -- 7,262,112 64.8
- -------- * Less than 1.0% of outstanding shares. (1) Pursuant to the rules of the Commission, certain shares of the Company's Common Stock that a beneficial owner has the right to acquire within 60 days pursuant to the exercise of stock options or warrants are deemed to be outstanding for the purpose of computing the percentage ownership of such owner but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. (2) If the over-allotment option is exercised, Mr. Erez Goren and Mr. Alon Goren will each sell up to 100,000 shares of Common Stock, and Mr. John H. Heyman will sell up to 10,000 shares of Common Stock. See "Underwriting." (3) The address of Erez Goren and Alon Goren is 1000 Alderman Drive, Suite A, Alpharetta, Georgia 30202. (4) Represents 55,000 shares of Common Stock subject to stock options exercisable within the next 60 days. (5) Includes 175,000 shares of Common Stock subject to stock options exercisable within the next 60 days. (6) Represents shares of Common Stock issuable upon the exercise of outstanding common stock purchase warrants which will be exercised prior to the completion of this offering. Shares beneficially owned after the offering exclude 181,818 shares of Common Stock which will be repurchased by the Company upon completion of this offering. See "Use of Proceeds." The address of Emro Marketing Company is P.O. Box 1500, Springfield, Ohio 45501. (7) Represents shares of Common Stock issuable upon the exercise of outstanding common stock purchase warrants, which will be exercised prior to the completion of this offering. 47 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 20,000,000 shares of Common Stock, no par value per share and 10,000,000 shares of non-voting Class A Common Stock, no par value per share. Simultaneously with the completion of this offering, all shares of Class A Common Stock will automatically be converted into shares of Common Stock. The following description is qualified in its entirety by reference to the Company's Articles of Incorporation, as amended (the "Articles"), and Bylaws (the "Bylaws"), which are filed as exhibits to the Registration Statement of which this Prospectus is a part. COMMON STOCK As of December 1, 1996, there were 6,857,112 shares of Common Stock outstanding, held of record by two shareholders. The holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders and shall vote with all other shares of Common Stock as a single class. Cumulative voting in the election of directors is not permitted. Holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. In the event of the liquidation, dissolution or winding up of the Company, holders of Common Stock shall possess equal rights and privileges on a share-for-share basis. Holders of Common Stock have no conversion, preemptive or other rights to subscribe for additional shares or other securities, and there are no redemption or sinking fund provisions with respect to such shares. The issued and outstanding shares of Common Stock are, and the shares offered hereby will be upon payment therefor, fully paid and nonassessable. CLASS A COMMON STOCK As of December 1, 1996, there were 1,142,889 shares of Class A Common Stock outstanding, held of record by four shareholders. The shares of Class A Common Stock will automatically be converted into shares of Common Stock on a one- for-one basis upon consummation of this offering. Except with respect to voting rights, which (except as provided by law) are denied to the holders of Class A Common Stock, the Class A Common Stock ranks pari passu with the Common Stock and possesses equal rights and privileges. PREFERRED STOCK The Company proposes to amend its Articles to authorize the Board of Directors, subject to certain limitations prescribed by law, without further shareholder approval, to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock in one or more series and to fix or alter the designations, preferences, rights and any qualifications, limitations or restrictions on the shares of each such series thereof, including the dividend rights, dividend rates, conversion rights, voting rights, terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations of such series. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change of control of the Company. No shares of Preferred Stock are presently outstanding. CERTAIN CHARTER AND BYLAW PROVISIONS Shareholders' rights and related matters are governed by the Georgia Business Corporation Code and the Company's Articles and Bylaws. Certain current and proposed provisions of the Articles and Bylaws, which are summarized below, could, either alone or in combination with each other, have the effect of preventing a change in control of the Company or making changes in management more difficult. 48 Corporate Takeover Provisions. The Company's Bylaws will be amended to make applicable to the Company provisions authorized by the Georgia Business Corporation Code relating to business combinations with interested shareholders ("Corporate Takeover Provisions"). The Corporate Takeover Provisions are designed to encourage any person, before acquiring 10.0% of the Company's voting shares, to seek approval of the Board of Directors for the terms of any contemplated business combination. The Corporate Takeover Provisions will prevent for five years certain business combinations with an "interested shareholder" (as defined in the Corporate Takeover Provisions) unless (i) prior to the time such shareholder became an interested shareholder the Board of Directors approved either the business combination or the transaction that resulted in the shareholder becoming an interested shareholder, (ii) in the transaction that resulted in the shareholder becoming an interested shareholder, the interested shareholder became the beneficial owner of at least 90.0% of the outstanding voting shares of the Company excluding, however, shares owned by the Company's officers, directors, affiliates, subsidiaries and certain employee stock plans or (iii) subsequent to becoming an interested shareholder, such shareholder acquired additional shares resulting in the interested shareholder becoming the owner of at least 90% of the Company's outstanding voting shares and the business combination is approved by the holders of majority of the Company's voting shares, excluding from said vote the stock owned by the interested shareholder or by the Company's officers, directors, affiliates, subsidiaries and certain employee stock plans. Shareholders of the Company who became interested shareholders prior to the time of the adoption of the Corporate Takeover Provisions are not subject to such provisions. The Board of Directors will be divided into three classes, as nearly equal in size as possible, with staggered three-year terms. One class is elected each year. The classification of the Board of Directors could have the effect of making it more difficult for a third party to acquire control of the Company. Constituency Considerations. The Company's Articles provide for the right of the Board of Directors to consider the interests of various constituencies, including employees, customers, suppliers and creditors of the Company, as well as the communities in which the Company is located, in addition to the interest of the Company and its shareholders, in discharging their duties in determining what is in the Company's best interests. Limitation of Directors' Liability. The Company's Articles eliminate, subject to certain exceptions, the personal liability of directors to the Company or its shareholders for monetary damages for breaches of such directors' duty of care or other duties as a director. The Articles do not provide for the elimination of or any limitation on the personal liability of a director for (i) any appropriation, in violation of the director's duties, of any business opportunity of the Company, (ii) acts or omissions that involve intentional misconduct or a knowing violation of law, (iii) unlawful corporate distributions or (iv) any transaction from which the director received an improper benefit. In addition, the Company's Bylaws provide broad indemnification rights to directors and officers so long as the director or officer acted in a manner believed in good faith to be in or not opposed to the best interests of the Company, and with respect to criminal proceedings, if the director has no reasonable cause to believe his or her conduct was unlawful. These provisions of the Articles and Bylaws will limit the remedies available to a shareholder who is dissatisfied with a Board decision protected by these provisions. The Articles will be amended to provide for the affirmative vote of holders of at least 75.0% of shares of Common Stock entitled to vote generally in the election of directors, voting as a single voting group, is required to alter or amend the provisions of the Articles providing for a staggered board of directors, or to alter or amend the following provisions of the Bylaws: indemnification of officers and directors, the vote required to amend the Bylaws, fair price provisions, business combinations with interested shareholders, special meetings of shareholders, the number of the Company's directors, removal of directors, and who may fill vacancies within the board of directors. 49 REGISTRATION RIGHTS Upon completion of this offering, the holder of 43,638 shares of Common Stock will be entitled to piggyback registration rights with respect to such shares. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for the Common Stock is SunTrust Bank, Atlanta. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of this offering, the Company will have outstanding 10,983,701 shares of Common Stock assuming no exercise of the Underwriters' over-allotment option. See "Underwriting." Of these shares, all of the 2,950,000 shares of Common Stock sold in this offering will be freely transferable without restriction or limitation under the Securities Act. The remaining 8,033,701 shares are "restricted" shares within the meaning of Rule 144 adopted under the Securities Act (the "Restricted Shares"). The Restricted Shares were issued and sold by the Company in private transactions in reliance upon exemptions from registration under the Securities Act and may not be sold except in compliance with the registration requirements of the Securities Act or pursuant to an exemption from registration, such as the exemption provided by Rule 144 under the Securities Act. Beginning 90 days after the date of this Prospectus, approximately 7,199,968 Restricted Shares will be eligible for sale in the public market pursuant to Rule 144. No other Restricted Shares will be eligible for sale under Rule 144 at that time. In general, under Rule 144 as currently in effect, any person (or persons whose shares are aggregated), including an affiliate of the Company, who has held shares for at least a two-year period (as computed under Rule 144) is entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) 1.0% of the then outstanding shares of the Company's Common Stock (approximately 110,000 shares after giving effect to this offering) and (ii) the average weekly trading volume in the Company's Common Stock during the four calendar weeks immediately preceding the date on which the notice of sale is filed with the Securities and Exchange Commission. Sales under Rule 144 are also subject to certain provisions relating to the manner of sale, the filing of a notice of sale and the availability of current public information about the Company. A person (or persons whose shares are aggregated) who is not deemed an affiliate of the Company at any time during the 90 days immediately preceding a sale, and who has held shares for at least a three-year period (as computed under Rule 144), would be entitled to sell such shares under Rule 144(k) without regard to the volume limitation and other conditions described above. Rule 144A under the Securities Act permits the immediate sale by the current holders of Restricted Shares of all or a portion of their shares to certain qualified institutional buyers as defined in Rule 144A. Upon completion of this offering, the holder of 43,638 shares of Common Stock will be entitled to piggyback registration rights with respect to such shares. Prior to this offering, there has been no market for the Common Stock and no prediction can be made as to the effect, if any, that market sales of shares or the availability of such shares for sale will have on the market price of the Common Stock. Nevertheless, sales of substantial amounts of Common Stock in the public market may have an adverse impact on such market price. The Company and its executive officers, directors and shareholders (who hold an aggregate of 8,000,001 shares of Common Stock) have agreed not to offer, sell, sell short or otherwise dispose of any of their shares of Common Stock (other than the shares offered by the Company and the Selling Shareholders in this offering) in the public market for a period of 180 days after the date of this Prospectus without the prior consent of the Representatives of the Underwriters (the "Lock-up Period"). Following the Lock-up Period, these shares will be eligible for sale in the public market, subject to the conditions and restrictions of Rule 144, as described above. 50 UNDERWRITING Subject to the terms and conditions of the Underwriting Agreement, the Underwriters named below (the "Underwriters"), through their representatives, Alex. Brown & Sons Incorporated, Deutsche Morgan Grenfell Inc. and The Robinson-Humphrey Company, Inc. (the "Representatives"), have severally agreed to purchase from the Company and the Selling Shareholders the following respective numbers of shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus:
NUMBER OF UNDERWRITER SHARES ----------- --------- Alex. Brown & Sons Incorporated....................................... Deutsche Morgan Grenfell Inc.......................................... The Robinson-Humphrey Company, Inc.................................... --------- Total................................................................. 2,950,000 =========
The Underwriting Agreement provides that the obligations of the Underwriters are subject to certain conditions precedent and that the Underwriters will purchase all shares of the Common Stock offered hereby if any of such shares are purchased. The Company and the Selling Shareholders have been advised by the Representatives of the Underwriters that the Underwriters propose to offer the shares of Common Stock to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. The Underwriters may allow, and such dealers may reallow, a concession not in excess of $ per share to certain other dealers. After the initial public offering, the public offering price and other selling terms may be changed by the Representatives of the Underwriters. The Company and certain of the Company's shareholders (the "Option Holders") have granted to the Underwriters an option, exercisable not later than 30 days after the date of this Prospectus, to purchase up to 442,500 additional shares of Common Stock at the initial public offering price less the underwriting discounts and commissions set forth on the cover page of this Prospectus. To the extent that the Underwriters exercise such option, each of the Underwriters will have a firm commitment to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by each of them shown in the above table bears to 2,950,000, and the Company and the Option Holders will be obligated, pursuant to the option, to sell such shares to the Underwriters. The Underwriters may exercise such option only to cover over-allotments made in connection with the sale of the Common Stock offered hereby. If purchased, the Underwriters will offer such additional shares on the same terms as those on which the 2,950,000 shares are being offered. The Underwriting Agreement contains covenants of indemnity among the Underwriters, the Company, the Selling Shareholders and the Option Holders against certain liabilities, including liabilities under the Securities Act. The Company has agreed not to offer, sell, sell short or otherwise dispose of any shares of Common Stock for a period of 180 days from the date of this Prospectus without the prior consent of Alex. Brown & Sons Incorporated, except that the Company may issue and may grant options representing the right to purchase shares of Common Stock under its current stock option plan and may issue shares of Common 51 Stock upon exercise of currently outstanding employee stock options. Directors, executive officers and shareholders of the Company, owning in the aggregate 8,000,001 shares of Common Stock and options representing the right to purchase 945,000 shares of Common Stock, have agreed not to offer, sell, sell short or otherwise dispose of any such shares of Common Stock beneficially owned by them or any shares issuable upon exercise of stock options for a period of 180 days from the date of this Prospectus without the prior written consent of Alex. Brown & Sons Incorporated. See "Shares Eligible for Future Sale." The Representatives of the Underwriters have advised the Company that the Underwriters do not intend to confirm sales to any accounts over which they exercise discretionary authority. Prior to this offering, there has been no public market for the Common Stock of the Company. Consequently, the initial public offering price for the Common Stock has been determined by negotiations among the Company, the Selling Shareholders and the Representatives of the Underwriters. Among the factors to be considered in such negotiations will be prevailing market conditions, the results of operations of the Company in recent periods, the capital structure of the Company, the market capitalizations and stages of development of other companies which the Company and the Representatives of the Underwriters believe to be comparable to the Company, estimates of the business potential of the Company, an assessment of the Company's management, the present state of the Company's development and other factors deemed relevant. From time to time in the ordinary course of their respective businesses, the Representatives have provided and may in the future provide investment banking or other services to the Company. In accordance with an agreement in July 1996, the Company will issue to The Robinson-Humphrey Company, Inc., a warrant to purchase 20,000 shares of Common Stock for a term expiring in July 2001 at an exercise price of $.01 per share as compensation for investment banking services rendered in connection with financing provided to the Company by Sirrom Capital Corporation. The Company will apply for listing of the Common Stock on the Nasdaq National Market. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Smith, Gambrell & Russell, LLP, Atlanta, Georgia. Certain legal matters in connection with this offering are being passed upon for the Underwriters by Alston & Bird, Atlanta, Georgia. EXPERTS The combined financial statements of the Company as of December 31, 1994 and 1995 and for each of the three years in the period ended December 31, 1995 included herein have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report thereon included herein in reliance upon the authority of such firm as experts in accounting and auditing in giving said report. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission") a Registration Statement on Form S-1 (the "Registration Statement") under the Securities Act with respect to the Common Stock offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all the information set forth in the Registration Statement and the exhibits and schedules thereto, certain items of which are omitted in accordance with the rules and regulations of the Commission. For further information with respect to the Company and the Common Stock, reference is hereby made to the Registration Statement and such exhibits and schedules filed as a part thereof, which 52 may be inspected, without charge, at the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at Seven World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the Registration Statement may be obtained from the Public Reference Section of the Commission, upon payment of prescribed fees. Such material also may be accessed electronically by means of the Commission's home page on the Internet at http://www.sec.gov. Statements made in this Prospectus as to the contents of any contract, agreement or other document referred to are necessarily summaries of such documents. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the exhibit for a more complete description of the matter involved, and each such statement shall be deemed qualified in its entirety by such reference. 53 INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE ---- Report of Independent Public Accountants.................................. F-2 Combined Balance Sheets--December 31, 1994 and 1995, September 30, 1996 (unaudited) and pro forma shareholders' deficit at September 30, 1996 (unaudited)................................ F-3 Combined Statements of Operations--years ended December 31, 1993, 1994 and 1995 and nine months ended September 30, 1995 and 1996 (unaudited)... F-4 Combined Statements of Shareholders' Equity (Deficit)--years ended December 31, 1993, 1994 and 1995 and nine months ended September 30, 1996 (unaudited)........................................... F-5 Combined Statements of Cash Flows--years ended December 31, 1993, 1994 and 1995 and nine months ended September 30, 1995 and 1996 (unaudited)............ F-6 Notes to Combined Financial Statements.................................... F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Radiant Systems, Inc.: We have audited the accompanying combined balance sheets of RADIANT SYSTEMS, INC. (a Georgia corporation) and LIBERTY SYSTEMS INTERNATIONAL, INC. (a Georgia corporation) as of December 31, 1994 and 1995 and the related statements of operations, shareholders' equity (deficit), and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Radiant Systems, Inc. and Liberty Systems International, Inc. as of December 31, 1994 and 1995 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ ARTHUR ANDERSEN LLP Atlanta, Georgia December 6, 1996 F-2 RADIANT SYSTEMS, INC. COMBINED BALANCE SHEETS DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
PRO FORMA SHAREHOLDERS' DEFICIT AT SEPTEMBER 30, SEPTEMBER 30, 1994 1995 1996 1996 ---------- ---------- ------------- ------------- (UNAUDITED) (UNAUDITED) ASSETS CURRENT ASSETS: Cash and cash equivalents............. $ 367,254 $ 164,550 $ 882,178 Accounts receivable, net of allowances for doubtful accounts of $0, $41,500, and $50,000 in 1994, 1995, and 1996, respectively............ 1,126,982 624,179 3,514,387 Inventories.............. 2,090,470 1,802,716 2,422,382 Other.................... 42,928 116,971 461,880 ---------- ---------- ----------- Total current assets... 3,627,634 2,708,416 7,280,827 PROPERTY AND EQUIPMENT, net of accumulated depreciation of $220,827, $670,266, and $1,183,459 in 1994, 1995, and 1996, respectively.............. 1,055,022 1,030,669 1,271,197 SOFTWARE DEVELOPMENT COSTS, net of accumulated amortization of $22,183, $121,365, and $279,538 in 1994, 1995, and 1996, respectively.............. 110,912 340,630 597,960 INVESTMENT IN PRYSMTECH.... 0 32,274 471,513 OTHER ASSETS............... 24,136 122,950 392,735 ---------- ---------- ----------- $4,817,704 $4,234,939 $10,014,232 ========== ========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable......... $1,164,460 $2,298,068 $ 2,677,758 Accrued liabilities...... 116,744 1,264,465 1,243,863 Customer deposits and deferred revenue........ 3,058,707 2,399,596 3,192,479 Current portion of shareholder loan........ 145,302 157,361 167,059 Current portion of long term debt............... 169,879 252,979 554,327 ---------- ---------- ----------- Total current liabilities........... 4,655,092 6,372,469 7,835,486 Accrued customer rebates................. 132,804 457,317 0 Shareholder loan, less current portion......... 327,784 170,423 43,887 Long term debt, less current portion......... 424,455 389,044 5,142,845 ---------- ---------- ----------- Total liabilities...... 5,540,135 7,389,253 13,022,218 ---------- ---------- ----------- COMMITMENTS PUT WARRANTS............... 0 0 481,200 ---------- ---------- ----------- SHAREHOLDERS' EQUITY (DEFICIT): Common stock, no par value; 20,000,000 shares authorized; 10,285,668 issued and outstanding in 1994 and 6,857,112 shares issued and outstanding in 1995 and 1996.................... 94 63 63 $ 83 Class A common stock, no par value; 10,000,000 shares authorized; 342,856 shares issued and outstanding in 1994 and 1,142,889 shares issued and outstanding in 1995 and 1996........ 3 10 10 0 Additional paid-in capital................. 0 0 0 1,279,000 Warrants................. 240,000 240,000 359,000 40,000 Deferred sales discount.. (202,500) (111,900) (146,800) 0 Accumulated deficit...... (760,028) (3,282,487) (3,701,459) (3,701,459) ---------- ---------- ----------- ----------- (722,431) (3,154,314) (3,489,186) $(2,382,376) ---------- ---------- ----------- =========== $4,817,704 $4,234,939 $10,014,232 ========== ========== ===========
The accompanying notes are an integral part of these combined balance sheets. F-3 RADIANT SYSTEMS, INC. COMBINED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
FOR THE NINE MONTHS FOR THE YEARS ENDED DECEMBER 31 ENDED SEPTEMBER 30 ----------------------------------- ------------------------ 1993 1994 1995 1995 1996 ---------- ----------- ----------- ----------- ----------- (UNAUDITED) REVENUES: Systems sales.......... $3,747,587 $13,528,808 $14,077,704 $ 9,446,622 $17,471,787 Customer support, maintenance, and other services.............. 552,048 918,801 1,804,291 1,366,196 2,514,443 ---------- ----------- ----------- ----------- ----------- Total revenues......... 4,299,635 14,447,609 15,881,995 10,812,818 19,986,230 ---------- ----------- ----------- ----------- ----------- COST OF REVENUES: Systems sales.......... 2,306,481 9,459,034 9,862,477 6,769,258 10,601,909 Customer support, maintenance, and other services.............. 588,490 1,207,684 2,300,239 1,659,968 3,644,249 ---------- ----------- ----------- ----------- ----------- Total cost of revenues.............. 2,894,971 10,666,718 12,162,716 8,429,226 14,246,158 ---------- ----------- ----------- ----------- ----------- GROSS PROFIT............ 1,404,664 3,780,891 3,719,279 2,383,592 5,740,072 ---------- ----------- ----------- ----------- ----------- OPERATING EXPENSES: Product development.... 270,786 983,999 1,639,669 1,173,503 2,077,753 Purchased research and development costs..... 0 0 0 0 30,000 Sales and marketing.... 208,498 470,177 606,658 436,243 792,667 Depreciation and amortization.......... 46,233 177,790 583,483 387,071 676,384 General and administrative........ 332,250 2,243,097 2,990,039 2,163,745 2,824,977 ---------- ----------- ----------- ----------- ----------- Total operating expenses.............. 857,767 3,875,063 5,819,849 4,160,562 6,401,781 ---------- ----------- ----------- ----------- ----------- INCOME (LOSS) FROM OPERATIONS............. 546,897 (94,172) (2,100,570) (1,776,970) (661,709) INTEREST EXPENSE, net... 18,899 81,748 166,478 82,975 305,565 EQUITY IN (EARNINGS) OF PRYSMTECH.............. 0 0 (32,274) 0 (537,094) OTHER (INCOME).......... 0 0 (374,018) (374,018) (35,408) ---------- ----------- ----------- ----------- ----------- INCOME (LOSS) BEFORE PRO FORMA INCOME TAXES..... 527,998 (175,920) (1,860,756) (1,485,927) (394,772) PRO FORMA INCOME TAX PROVISION (BENEFIT).... 205,721 (60,632) (709,165) (566,138) (145,635) ---------- ----------- ----------- ----------- ----------- PRO FORMA NET INCOME (LOSS)................. $ 322,277 $ (115,288) $(1,151,591) $ (919,789) $ (249,137) ========== =========== =========== =========== =========== PRO FORMA NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE.................. $ (0.10) $ (0.02) =========== =========== WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING..... 11,594,597 11,186,899 =========== ===========
The accompanying notes are an integral part of these combined statements. F-4 RADIANT SYSTEMS, INC. COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
CLASS A COMMON STOCK COMMON STOCK DEFERRED ACCUMULATED ------------------ ---------------- SALES EARNINGS SHARES AMOUNT SHARES AMOUNT WARRANTS DISCOUNT (DEFICIT) TOTAL ---------- ------ --------- ------ -------- --------- ----------- ----------- BALANCE, December 31, 1992................... 13,714,224 $125 0 $ 0 $ 0 $ 0 $ (272,783) $ (272,658) Distributions to shareholders.......... 0 0 0 0 0 0 (110,000) (110,000) Income before pro forma income taxes.......... 0 0 0 0 0 0 527,998 527,998 ---------- ---- --------- --- -------- --------- ----------- ----------- BALANCE, December 31, 1993................... 13,714,224 125 0 0 0 0 145,215 145,340 Issuance of customer warrant............... 0 0 0 0 240,000 (240,000) 0 0 Sales of software licenses under customer warrant...... 0 0 0 0 0 37,500 0 37,500 Treasury stock purchase.............. (3,428,556) (31) 342,856 3 0 0 (573,057) (573,085) Distributions to shareholders.......... 0 0 0 0 0 0 (156,266) (156,266) Loss before pro forma income taxes.......... 0 0 0 0 0 0 (175,920) (175,920) ---------- ---- --------- --- -------- --------- ----------- ----------- BALANCE, December 31, 1994................... 10,285,668 94 342,856 3 240,000 (202,500) (760,028) (722,431) Sales of software licenses under customer warrants..... 0 0 0 0 0 90,600 0 90,600 Treasury stock purchase.............. (3,428,556) (31) 800,033 7 0 0 (616,000) (616,024) Distributions to shareholders.......... 0 0 0 0 0 0 (45,703) (45,703) Loss before pro forma income taxes.......... 0 0 0 0 0 0 (1,860,756) (1,860,756) ---------- ---- --------- --- -------- --------- ----------- ----------- BALANCE, December 31, 1995................... 6,857,112 63 1,142,889 10 240,000 (111,900) (3,282,487) (3,154,314) Issuance of customer warrant............... 0 0 0 0 79,000 (79,000) 0 0 Sales of software licenses under customer warrants..... 0 0 0 0 0 44,100 0 44,100 Issuance of warrant for loan origination fees.................. 0 0 0 0 40,000 0 0 40,000 Accretion of put warrants.............. 0 0 0 0 0 0 (13,200) (13,200) Distributions to shareholders.......... 0 0 0 0 0 0 (11,000) (11,000) Loss before pro forma income taxes.......... 0 0 0 0 0 0 (394,772) (394,772) ---------- ---- --------- --- -------- --------- ----------- ----------- BALANCE, September 30, 1996 (Unaudited)....... 6,857,112 $ 63 1,142,889 $10 $359,000 $(146,800) $(3,701,459) $(3,489,186) ========== ==== ========= === ======== ========= =========== ===========
The accompanying notes are an integral part of these combined statements. F-5 RADIANT SYSTEMS, INC. COMBINED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
FOR THE NINE MONTHS FOR THE YEARS ENDED DECEMBER 31 ENDED SEPTEMBER 30 ------------------------------------- ---------------------- 1993 1994 1995 1995 1996 ----------- ----------- ----------- --------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Pro forma net income (loss)............... $ 322,277 $ (115,288) $(1,151,591) $(919,789) $ (249,137) Adjustments to reconcile pro forma net income (loss) to net cash provided by (used in) operating activities: Pro forma income tax provision (benefit).. 205,721 (60,632) (709,165) (566,138) (145,635) Depreciation and amortization......... 46,233 177,790 583,483 387,071 676,384 Amortization of debt discount............. 0 0 0 0 87,777 Gain on disposition of assets............... 0 0 (374,018) (374,018) 0 Discounts earned on software license sales................ 0 37,500 90,600 49,200 44,100 Purchased research and development costs.... 0 0 0 0 30,000 Equity in earnings of PrysmTech............ 0 0 (32,274) 0 (537,094) Changes in assets and liabilities: Accounts receivable.. (1,119,618) 294,010 255,303 500,377 (2,687,691) Inventories.......... (634,339) (1,443,175) 287,754 777,700 (619,666) Other assets......... (10,522) (37,618) (100,313) (85,825) (474,260) Accounts payable..... 469,765 539,560 1,177,653 207,636 354,436 Accrued liabilities.. 0 116,744 1,147,721 0 (413,418) Accrued customer rebates............. 0 132,804 324,513 175,664 57,834 Customer deposits and deferred revenue.... 1,372,062 1,201,922 (659,111) 309,733 1,150,233 ----------- ----------- ----------- --------- ----------- Net cash provided by (used in) operating activities......... 651,579 843,617 840,555 461,611 (2,726,137) ----------- ----------- ----------- --------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment........ (241,573) (303,499) (312,104) (174,937) (419,812) Capitalized software development costs.... 0 (133,095) (328,900) (246,518) (415,505) Purchase of treasury stock................ 0 (100,000) 0 0 0 Purchase of LSI, net of $30,919 cash acquired............. 0 0 0 0 30,819 ----------- ----------- ----------- --------- ----------- Net cash used in investing activities......... (241,573) (536,594) (641,004) (421,455) (804,498) ----------- ----------- ----------- --------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayments of shareholder loan..... 0 0 (145,302) (107,884) (116,837) Borrowings under long- term debt............ 0 0 0 0 4,594,202 Repayments of long- term debt............ 0 (92,928) (169,878) (131,894) (233,763) PrysmTech (borrowings) repayments........... 0 0 (25,000) 0 25,000 Dividends received from PrysmTech....... 0 0 0 0 97,855 Payment of loan origination fees..... 0 0 0 0 (129,638) Distributions to shareholders......... (110,000) (156,266) (45,703) (21,450) (11,000) Repayments of note from shareholder..... 0 0 13,628 8,972 22,444 Other................. (26,413) 0 (30,000) (30,000) 0 ----------- ----------- ----------- --------- ----------- Net cash (used in) provided by financing activities......... (136,413) (249,194) (402,255) (282,256) 4,248,263 ----------- ----------- ----------- --------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... 273,593 57,829 (202,704) (242,100) 717,628 CASH AND CASH EQUIVALENTS, beginning of period............. 35,832 309,425 367,254 367,254 164,550 ----------- ----------- ----------- --------- ----------- CASH AND CASH EQUIVALENTS, end of period................ $ 309,425 $ 367,254 $ 164,550 $ 125,154 $ 882,178 =========== =========== =========== ========= =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest.. $ 3,136 $ 81,748 $ 166,478 $ 82,975 $ 212,846 =========== =========== =========== ========= =========== NONCASH INVESTING AND FINANCING ACTIVITIES: Equipment purchases under capital lease obligations.......... $ 72,905 $ 598,538 $ 217,568 $ 149,319 $ 230,208 =========== =========== =========== ========= =========== Note issued for treasury stock purchase............. $ 0 $ 473,085 $ 0 $ 0 $ 0 =========== =========== =========== ========= =========== Treasury stock acquired on sale of noncash assets....... $ 0 $ 0 $ 616,024 $ 0 $ 0 =========== =========== =========== ========= =========== Warrants issued to customer............. $ 0 $ 240,000 $ 0 $ 0 $ 79,000 =========== =========== =========== ========= =========== Note payable issued for customer rebates.............. $ 0 $ 0 $ 0 $ 0 $ 872,501 =========== =========== =========== ========= =========== Put warrants issued in connection with Sirrom Notes......... $ 0 $ 0 $ 0 $ 0 $ 468,000 =========== =========== =========== ========= =========== Warrant issued for loan origination fees................. $ 0 $ 0 $ 0 $ 0 $ 40,000 =========== =========== =========== ========= =========== Accretion of put warrants............. $ 0 $ 0 $ 0 $ 0 $ 13,200 =========== =========== =========== ========= =========== Assumption of net liabilities in connection with LSI purchase............. $ 0 $ 0 $ 0 $ 0 $ 78,349 =========== =========== =========== ========= ===========
The accompanying notes are an integral part of these combined statements. F-6 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 1. ORGANIZATION AND BACKGROUND Radiant Systems, Inc. (the "Company") provides enterprise-wide technology solutions to selected vertical markets within the retail industry. The Company offers fully integrated retail automation solutions, including point of sale systems, consumer-activated order systems, back office management systems and headquarters-based management systems. The Company's products enable retailers to interact electronically with consumers, capture data at the point of sale, manage site operations and logistics and communicate electronically with their sites, vendors and credit networks. In addition, the Company offers system planning, design and implementation services that tailor the automation solution to each retailer's specifications. The Company originally was organized under the laws of the state of New York on August 1, 1985 and subsequently reincorporated under the laws of the state of Georgia on October 27, 1995. The name of the Company was changed to Radiant Systems, Inc. from Softsense Computer Products, Inc. on November 13, 1996. In connection with the reincorporation of the Company in October 1995, each outstanding share of Common Stock and Class A Common Stock of the Company was exchanged for 109,714 shares of Common Stock and Class A Common Stock, as applicable. The shares outstanding and all other references to shares of Common Stock and Class A Common Stock reported have been restated to give effect to the reincorporation. In the first quarter of 1997, the Company is planning an initial public offering (the "Offering") of its Common Stock. In connection with the planned Offering, the Company will convert from an S corporation to a C corporation and one of the Company's principal shareholders will contribute his 21% ownership in Liberty Systems International, Inc. ("LSI") to the Company, whereby LSI will become a wholly-owned subsidiary of the Company. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Combination The accompanying combined financial statements include the accounts of Radiant Systems, Inc. and, since May 1996, its 79%-owned subsidiary, LSI. The remaining 21% ownership of LSI has been combined with the Company's financial statements since it will be contributed to the Company in connection with the planned Offering. All significant intercompany accounts have been eliminated. Presentation The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Interim Financial Information The accompanying financial statements as of September 30, 1996 and for the nine-month periods ended September 30, 1995 and 1996 are unaudited. In the opinion of the management of the Company, these financial statements reflect all adjustments, consisting only of normal and recurring adjustments, necessary for a fair presentation of the financial statements. The results of operations for the nine-month period ended September 30, 1996, are not necessarily indicative of the results that may be expected for the full year. F-7 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 Revenue Recognition The Company's revenue is generated primarily through software and system sales, support and maintenance, and installation and training: . Software and System Sales. The Company sells its products, which include both hardware and software licenses, directly to end users. Revenue from software licenses and system sales is generally recognized as products are shipped, provided that no significant vendor and post-contract support obligations remain, and the collection of the related receivable is probable. . Support and Maintenance. The Company offers to its customers post- contract support in the form of maintenance, telephone support, and unspecified software enhancements. Revenue from support and maintenance is generally recognized as the service is performed. . Installation and Training. The Company offers installation and training services to its customers through its Radiant Solutions Group. Revenue from installation and training is generally recognized at the time the service is performed. Payments received in advance are recorded as customer deposits and deferred revenue in the accompanying balance sheets and are recognized as revenue when the related product is shipped or related revenue is earned. Inventories Inventories consist principally of computer hardware and software media and are stated at the lower of cost (first-in, first-out method) or market. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation and amortization. Depreciation and amortization are provided using the straight-line method over estimated useful lives of three to five years. Property and equipment at December 31, 1994 and 1995 are summarized as follows:
1994 1995 ---------- ---------- Computers and office equipment....................... $ 905,539 $1,201,747 Furniture and fixtures............................... 283,997 383,869 Purchased software................................... 86,313 115,319 ---------- ---------- 1,275,849 1,700,935 Less accumulated depreciation and amortization....... (220,827) (670,266) ---------- ---------- $1,055,022 $1,030,669 ========== ==========
Software Development Costs Capitalized software development costs consist principally of salaries and certain other expenses directly related to development and modification of software products. Capitalization of such costs begins when a working model has been produced as evidenced by the completion of design, planning, coding and testing such that the product meets its design specifications and has thereby established technological feasibility. Capitalization of such costs ends when the resulting product is available for general release to the public. Amortization of capitalized software development costs is provided at the greater of the ratio of current product revenue to the total of current and anticipated product revenue or on a straight-line basis over the estimated economic life of the software, which the Company has determined is not more than three years. F-8 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 Purchased Research and Development Costs In connection with the acquisition of LSI in May 1996, the Company allocated $30,000 of the purchase price to incomplete research and development projects. Accordingly, these costs were expensed as of the acquisition date. The allocation represents the estimated fair value related to incomplete projects. The development of these projects had not yet reached technological feasibility, and the technology has no alternative future use. The technology acquired in the acquisition will require substantial additional development by the Company. The Company intends to purchase 50% of PrysmTech, L.L.C. ("PrysmTech") currently owned by Billmart, L.L.C. ("Billmart") (Note 4). The Company expects to expense approximately $3,628,000 of the purchase price as purchased research and development costs. Income Taxes The Company has elected to be treated as an S corporation for federal and state income tax purposes. As a result, the income tax effects of the Company accrue directly to its shareholders. Amounts are distributed to shareholders for making applicable tax payments. The accompanying combined financial statements reflect a provision for income taxes on a pro forma basis as if the Company were liable for federal and state income taxes as a taxable corporate entity throughout the years presented. The pro forma income tax provision has been computed by applying the Company's anticipated statutory tax rate to pretax income (loss), adjusted for permanent tax differences. Pro Forma Net Income (Loss) Per Share Pro forma net income (loss) per share is computed using the weighted average number of shares of common stock and dilutive common stock equivalent shares ("CSEs") from stock options and warrants (using the treasury stock method). Pursuant to the Securities and Exchange Commission Staff Accounting Bulletins, common stock and CSEs issued at prices below the expected public offering price during the 12-month period prior to the Company's planned Offering have been included in the calculation as if they were outstanding for all periods prior to the Offering presented, regardless of whether they are dilutive. Net income is not reduced by the $13,200 provision for accretion of Put Warrants redemption values because the calculation assumes the related Common Stock was outstanding in lieu of the Put Warrants (Notes 6 and 8). Historical net income per share has not been presented in view of the S corporation status in prior periods and the anticipated change in capital structure upon closing of the planned Offering. Fair Value of Financial Instruments The book values of cash, trade accounts receivable, trade accounts payable, and other financial instruments approximate their fair values principally because of the short-term maturities of these instruments. The fair value of the Company's long-term debt is estimated based on the current rates offered to the Company for debt of similar terms and maturities. Under this method, the Company's fair value of long-term debt was not significantly different than the stated value at December 31, 1995. Statement of Cash Flows The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash. F-9 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 Significant Customer Concentration A majority of the Company's customers operate within the convenience store market, and a significant portion of the Company's revenues are derived from a limited number of customers. During the nine months ended September 30, 1996, sales to four customers accounted for 63% of the Company's total revenues. At September 30, 1996, 29% of the Company's accounts receivable related to these four customers. During the years ended December 31, 1995 and 1994, sales to two customers accounted for 59% and 76% of the Company's total revenues, respectively. At December 31, 1995, 40% of the Company's accounts receivable related to these two customers. During the year ended December 31, 1993, sales to three customers accounted for 64% of the Company's total revenues. New Accounting Pronouncements In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company's adoption of SFAS No. 121 in the first quarter of 1996 did not have a significant impact on the Company's combined financial statements. The American Institute of Certified Public Accountants has issued an exposure draft to amend the provisions of Statement of Position ("SOP") 91-1, "Software Revenue Recognition." The adoption of the standards in the current version of the exposure draft is not expected to have a significant impact on the Company's combined financial statements. 3. PRODUCT DEVELOPMENT EXPENDITURES Product development expenditures for the years ended December 31, 1994 and 1995 are summarized as follows:
1994 1995 ---------- ---------- Total development expenditures...................... $1,117,094 $1,968,569 Less additions to capitalized software development costs prior to amortization.................... 133,095 328,900 ---------- ---------- Product development expense......................... $ 983,999 $1,639,669 ========== ========== The activity in the capitalized software development account during 1994 and 1995 is summarized as follows: 1994 1995 ---------- ---------- Balance at beginning of period, net................. $ 0 $ 110,912 Additions......................................... 133,095 328,900 Amortization expense.............................. (22,183) (99,182) ---------- ---------- Balance at end of period, net....................... $ 110,912 $ 340,630 ========== ==========
All capitalized software development costs at December 31, 1995, were subject to amortization as products were available for general release. F-10 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 4. INVESTMENT IN PRYSMTECH In November 1995, the Company and Billmart formed PrysmTech to pursue the development and sale of integrated site solutions to the entertainment market. The Company contributed an exclusive license to market its software to the entertainment market while Billmart contributed net assets of $143,253 and an exclusive license to modify and market the Billmart software. Each party received a 50% interest for its contribution. Net profits and losses of PrysmTech are generally allocated pro rata. The investment in PrysmTech is being accounted for using the equity method of accounting. Simultaneously with the formation of PrysmTech, the Company made available to PrysmTech a revolving line of credit of up to $350,000 under which PrysmTech may make borrowings and repayments in accordance with certain criteria based primarily on PrysmTech's inventory and eligible accounts receivable, as defined within the loan agreement. All loans to PrysmTech are secured by all of PrysmTech's existing assets and bear interest at the prime rate (8.5% at December 31, 1995). At December 31, 1995, $25,000 was outstanding under the line of credit. Condensed financial information for PrysmTech is as follows (unaudited):
DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------------- ------------- Assets: Current assets......................... $463,351 $2,503,817 Noncurrent assets...................... 158,441 294,618 -------- ---------- $621,792 $2,798,435 ======== ========== Liabilities and equity: Liabilities............................ $413,991 $1,712,156 -------- ---------- Equity: The Company.......................... 32,274 471,513 Other................................ 175,527 614,766 -------- ---------- 207,801 1,086,279 -------- ---------- $621,792 $2,798,435 ======== ========== PERIOD FROM INCEPTION NINE MONTHS (NOVEMBER 27, 1995) ENDED TO DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------------- ------------- Total revenues........................... $322,853 $6,981,798 Cost of revenues and operational expenses................................ 258,305 5,907,610 -------- ---------- Net income............................... $ 64,548 $1,074,188 ======== ========== Company interest in net income........... $ 32,274 $ 537,094 ======== ==========
The accompanying combined statement of operations includes approximately $382,000 of sales from the Company to PrysmTech during the nine months ended September 30, 1996. All sales to the joint venture are recorded at cost. The Company intends to purchase Billmart's interest in PrysmTech for 300,000 shares of Common Stock and a $3,000,000 note. Total consideration, including transaction costs of $50,000, is expected to F-11 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 approximate $5,150,000 as of the scheduled closing date in December 1996. Subject to completion of an independent appraisal, the Company expects to allocate approximately $907,000 to intangibles and $3,628,000 to purchased research and development costs. Intangibles will be amortized over 10 years. Upon closing, the Company will retroactively consolidate PrysmTech pursuant to Accounting Research Bulletin Opinion No. 51. 5. ACQUISITION On May 17, 1996, the Company acquired LSI for $100 cash and assumed net liabilities of $78,349. The transaction was accounted for as a purchase. Intangibles of $48,349 were recorded, after adjusting for purchased research and development costs (Note 2), which are being amortized over seven years. The financial statements include the operating results of LSI from the date of acquisition. Pro forma results of operations have not been presented because the effect of this acquisition is not significant. 6. LONG-TERM DEBT Long-term debt, including obligations under capital leases, consists of the following:
DECEMBER 31, -------------------- SEPTEMBER 30, 1994 1995 1996 --------- --------- ------------- (UNAUDITED) Notes payable to Sirrom Capital Corporation ("Sirrom") ("Sirrom Notes"), interest at 14%, $3,000,000 principal due June 2001, $1,500,000 due September 2001, secured by all of the assets of the Company and all shares of the Company's principal shareholders.......................... $ 0 $ 0 $4,092,000 Note payable to Emro Marketing Corporation, interest at 6%, due in five annual installments of $174,500 through 2001.......................... 0 0 872,501 Capital lease obligations, interest ranging from 5% to 31%, payable monthly through 2000, secured by equipment............................. 594,334 642,023 732,671 --------- --------- ---------- 594,334 642,023 5,697,172 Less current portion................... (169,879) (252,979) (554,327) --------- --------- ---------- $ 424,455 $ 389,044 $5,142,845 ========= ========= ==========
At December 31, 1995, aggregate maturities of long-term debt, including obligations under capital leases, are as follows: 1996................................ $252,979 1997................................ 249,611 1998................................ 111,657 1999................................ 27,776 -------- $642,023 ========
The Sirrom Notes were issued in June 1996 and September 1996 for $3,000,000 and $1,500,000, respectively. As discussed in Note 8, warrants ("Put Warrants") to purchase 174,642 shares at $.01 per share were issued with the notes. The value of these warrants was determined to be $468,000 based on the relative fair value of the warrants to the notes. A corresponding amount of the proceeds that has been allocated to the warrants has been accounted for as a debt discount and is being amortized over the F-12 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 expected life of the related notes using the effective interest method. At September 30, 1996, the unamortized debt discount amounted to $408,000. On May 27, 1994, the Company entered into an agreement with a customer whereby the customer would receive a cash rebate upon purchasing a defined number of software licenses. In the event the Company was unable to pay the rebates when due, the agreement provided the customer the option of applying the rebate to the purchase of additional licenses or requiring the Company to deliver a promissory note for any remaining portion of the rebate. At December 31, 1994 and 1995, the Company had recorded customer rebate accruals of $132,804 and $457,317, respectively, as it was probable that such purchase criteria would ultimately be met. During 1996, the customer met the purchase criteria, at which time the Company delivered a promissory note in the amount of $872,501. 7. INCOME TAXES In connection with the planned Offering, the Company will convert from an S corporation to a C corporation and, accordingly, will be subject to future federal and state income taxes. Upon conversion to C corporation status, the Company will record deferred taxes for which it will be responsible following termination of S corporation status. The components of the pro forma net deferred tax liability as of December 31, 1995 are as follows: Deferred tax liabilities: Depreciation................................................... $ (59,126) Capitalized software........................................... (131,143) --------- Total deferred tax liabilities............................... (190,269) --------- Deferred tax assets: Allowance for doubtful accounts................................ 15,987 Other.......................................................... 9,593 --------- Total deferred tax assets.................................... 25,580 --------- Net pro forma deferred tax liability............................. $(164,689) =========
The following summarizes the components of the pro forma income tax provision (benefit):
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------ 1993 1994 1995 ---------- ---------- ----------- Current taxes: Federal........................... $ 215,896 $ 0 $ 0 State............................. 28,575 0 0 Deferred............................ (38,750) (60,632) (709,165) ---------- ---------- ----------- Pro forma income tax provision (benefit).......................... $ 205,721 $ (60,632) $ (709,165) ========== ========== =========== A reconciliation from the federal statutory rate to the pro forma tax provision (benefit) is as follows: 1993 1994 1995 ---------- ---------- ----------- Statutory federal tax rate.......... 34.0% (34.0)% (34.0)% State income taxes, net of federal tax benefit........................ 4.5 (4.5) (4.5) Other............................... 0.5 4.0 0.4 ---------- ---------- ----------- 39.0% (34.5%) (38.1)% ========== ========== ===========
F-13 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 8. SHAREHOLDERS' EQUITY (DEFICIT) Common Stock In October 1995, the Company was reincorporated in Georgia, and the Company's Articles of Incorporation and capital structure were amended. Among other changes, the authorized capital of the Company was changed to consist of 30,000,000 shares of capital stock comprised of 20,000,000 shares of no par Common Stock and 10,000,000 shares of no par Class A Common Stock. Both classses of stock have a stated value of $.00001 per share. The Class A Common Stock is nonvoting and is automatically convertible into Common Stock without further action on the part of the Company or its shareholders, at a rate of one share of Common Stock for one share of Class A Common Stock on the earlier of (i) the closing time of an initial public offering by the Company, as defined, or (ii) the closing time of a change in control of the Company, as defined. Options In December 1995, the Company adopted the 1995 Stock Incentive Plan (the "Plan"), under which the Company may grant up to 3,000,000 incentive Class A Common Stock options to key employees. Options are granted at an exercise price which is not less than fair market value as estimated by the Board of Directors and become exercisable as determined by the Board of Directors, generally over a period of four to five years. Options granted under the Plan expire ten years from the date of grant. At September 30, 1996, options to purchase 544,250 shares of Class A Common Stock were available for future grant under the Plan. The Company has granted 264,000 non-qualified stock options. Of these options, 164,000 vest over four years. The remaining 100,000 options vest at the end of eight years, subject to acceleration based on specified terms within the agreement. Transactions related to stock options for the year ended December 31, 1995 and for the nine months ended September 30, 1996 are as follows:
PRICE SHARES PER SHARE --------- ------------ Options outstanding at December 31, 1994............ 0 $ 0.00 Granted........................................... 1,784,000 1.00 Exercised......................................... 0 0.00 --------- ------------ Options outstanding at December 31, 1995............ 1,784,000 1.00 Granted........................................... 980,750 1.00 - 4.50 Canceled.......................................... (45,000) 1.00 Exercised......................................... 0 0.00 --------- ------------ Options outstanding at September 30, 1996........... 2,719,750 $1.00 - 4.50 ========= ============ Exercisable September 30, 1996...................... 270,300 =========
During 1995, the Financial Accounting Standards Board issued SFAS No. 123 ("Accounting for Stock-Based Compensation") which defines a fair value-based method of accounting for an employee stock option plan or similar equity instrument. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB No. 25 must make pro forma disclosures of net income and, if presented, F-14 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 earnings per share, as if the fair value-based method of accounting defined in the statement had been applied. The Company has elected to account for its stock-based compensation plan under APB No. 25; however, the Company has computed for pro forma disclosure purposes the value of all options granted during 1995 and 1996 using the Black Sholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions used for grants in 1995 and 1996: Risk free interest rate........................................... 5.7% Expected dividend yield........................................... 0% Expected lives.................................................... 4 years Expected volatility............................................... 56%
The total value of the options granted during the year ended December 31, 1995 and the nine months ended September 30, 1996 were computed as approximately $823,000 and $1,386,000, respectively, which would be amortized over the vesting period of the options. If the Company had accounted for these plans in accordance with SFAS No. 123, the Company's reported pro forma net loss and pro forma net loss per share for the year ended December 31, 1995 and for the nine months ended September 30, 1996 would have increased to the following pro forma amounts:
DECEMBER 31, 1995 SEPTEMBER 30, 1996 ----------------- ------------------ Net loss: As reported.............................. $(1,151,591) $(249,137) Pro forma................................ (1,202,028) (700,296) Primary EPS: As reported.............................. $ (0.10) $ (0.02) Pro forma................................ (0.10) (0.06)
Warrants Customer Warrants In May 1994, the Company and one of its major customers (the "Customer") entered into an agreement (the "Agreement") whereby the Customer was granted the right (the "Customer Warrant") to acquire 10% of the Company's outstanding Class A Common Stock for $800,000, provided the Customer meets certain purchase criteria. The Customer Warrant may be exercised at any time on or after May 27, 1999 or at the earlier of (i) the closing time of an initial public offering or (ii) the closing time of a change in control of the Company. The Customer Warrant terminates on the earlier of (i) May 27, 1999 in the event the specified purchase criteria are not met, (ii) the closing time of an initial public offering by the Company, or (iii) 5:00 p.m. eastern time on May 27, 2014, the twentieth anniversary of the Agreement. A deferred sales discount of $240,000 was charged on the date of grant, which represented the fair market value of the Customer Warrant on such date, and is being amortized as a reduction of sales as the Customer makes purchases under the Agreement. In February 1996, the Company amended the Agreement such that the Customer Warrant was increased to 12% of the Company's outstanding common shares. An additional deferred sales discount of $79,000 was charged on the date of grant, which represented the fair market value on the date of the increase of the Customer Warrant. The Company has the option to repurchase one-sixth of the shares issuable under the Customer Warrant at a price midway between the Customer's exercise price and the fair market value of the shares. F-15 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 Put Warrants In connection with issuance of the Sirrom Notes (Note 6), the Company issued Put Warrants to purchase 1.5% of the Company's outstanding Common Stock at an exercise price of $.01. In the event that the notes remain outstanding on March 31, 1997, Sirrom receives an additional warrant to purchase .5% of the Company's shares, and if the notes remain outstanding on July 1, 1997, Sirrom receives an additional warrant to purchase 1.5% of the Company's Common Stock. Beginning July 1, 1998, warrants to purchase additional shares of Common Stock accrue at 2% per year until prepayment or maturity of the notes. Sirrom also has the option to require the Company to redeem the warrants beginning in 2001 for fair value, as defined. The excess of the redemption value over the carrying value is being accrued by periodic charges to retained earnings in the absence of additional paid-in-capital over the redemption period. This accretion amounted to $13,200 for the nine months ended September 30, 1996. Loan Origination Warrant In 1996, the Company issued warrants to purchase 20,000 shares of Class A Common Stock at an exercise price of $.01 for payment of loan origination fees ("Loan Origination Warrant"). The fair value of the warrant was determined to be $40,000 and has been capitalized as loan origination fees. A summary of the warrants to purchase shares of Common Stock and Class A Common Stock which remain outstanding (and for which shares of Common Stock and Class A Common Stock are reserved for issuance) is as follows as of September 30, 1996:
PRICE PER WARRANT SHARES SHARE EXPIRATION ------- --------- --------- ---------- Customer Warrants............................. 1,090,909 $.88 2014 Put Warrants.................................. 174,642 .01 2001 Loan Origination Warrant...................... 20,000 .01 2001
9. COMMITMENTS Leases The Company leases office space, equipment, and certain vehicles under noncancelable operating lease agreements expiring on various dates through 2001. At December 31, 1995, future minimum rental payments for noncancelable leases with terms in excess of one year were as follows: 1996................................ $493,192 1997................................ 477,544 1998................................ 466,388 1999................................ 460,978 2000................................ 201,590
Total rent expense under operating leases was $125,027, $227,267, and $374,206 for the years ended December 31, 1993, 1994, and 1995, respectively. F-16 RADIANT SYSTEMS, INC. NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED) DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996 Benefit Plan The Company has a 401(k) profit-sharing Plan (the "Plan") available to all employees of the Company who have completed six months of service and have attained age 21. The Plan includes a salary deferral arrangement pursuant to which employees may contribute a minimum of 3% and a maximum of 15% of their salary on a pretax basis. The Company may make both matching and additional contributions at the discretion of the Board of Directors. The Company made no such contributions during 1993, 1994 or 1995. 10. RELATED-PARTY TRANSACTIONS In October 1994, the Company repurchased 3,085,700 shares of Common Stock for a note in the amount of $473,086. The note is unsecured, bears interest at 8% per annum, and is payable in monthly installments of $14,825 through December 31, 1997. In connection with the share repurchase, the Company entered into an agreement with the shareholder whereby the Company would pay the shareholder an initial payment of $150,000 and a monthly payment of $14,000 for five years in return for certain consulting services, as defined. In October 1995, this agreement was amended in order to reduce the quantity of services and related monthly payment. Fees paid under the consulting agreement were $150,000 and $131,000 in 1994 and 1995, respectively. In May 1995, the Company entered into an agreement with a shareholder to transfer certain assets and technology to the shareholder in a tax-free exchange in return for 2,628,523 shares of Common Stock. A gain of $374,018, included in other income, was recorded in connection with the transaction which represents the excess of the fair market value of the stock acquired over the net assets distributed. As part of the transaction, the Company recorded a note receivable in the amount of $61,171, which is payable in monthly installments of $2,966 through May 1997. In June 1996, a shareholder sold 200,000 shares of Class A Common Stock for $1.875 per share. The shareholder also issued to one of the Company's principal shareholders an option to repurchase the remaining 600,033 shares of Class A Common Stock for $1.875 per share through June 1997. The principal shareholder intends to assign this option to the Company prior to the planned Offering. 11. SUBSEQUENT EVENTS Initial Public Offering In the first quarter of 1997, the Company is planning an initial public offering of its Common Stock. The Company plans to issue 2,500,000 shares at an estimated initial public offering price of between $10.00 and $12.00 per share. There can be, however, no assurance that the offering will be completed at a per share price within the estimated range, or at all. Pro Forma Shareholders' Equity (Deficit) The pro forma shareholders' equity (deficit) at September 30, 1996, gives effect to the conversion of 1,142,889 shares of Class A Common Stock and 1,090,909 shares issuable under Customer Warrants into Class A Common Stock upon the close of the Company's planned Offering. Preferred Stock Prior to the planned Offering, the Company will authorize 5,000,000 shares of preferred stock with no par value. The Board of Directors will have the authority to issue these shares and to fix dividends, voting and conversion rights, redemption provisions, liquidation preferences, and other rights and restrictions. F-17 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF. ----------- TABLE OF CONTENTS
PAGE ---- Prospectus Summary....................................................... 3 Risk Factors ............................................................ 7 Use of Proceeds.......................................................... 12 Dividend Policy.......................................................... 12 Capitalization........................................................... 13 Dilution................................................................. 14 Selected Combined and Pro Forma Financial Data.......................................................... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 16 Pro Forma Financial Information.......................................... 25 Business................................................................. 28 Management............................................................... 43 Certain Transactions..................................................... 46 Principal and Selling Shareholders....................................... 47 Description of Capital Stock............................................. 48 Shares Eligible for Future Sale.......................................... 50 Underwriting............................................................. 51 Legal Matters............................................................ 52 Experts.................................................................. 52 Additional Information................................................... 52 Index to Combined Financial Statements................................... F-1
----------- UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2,950,000 Shares LOGO Common Stock ----------- PROSPECTUS ----------- Alex. Brown & Sons INCORPORATED Deutsche Morgan Grenfell The Robinson-Humphrey Company, Inc. , 1997 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth all expenses expected to be incurred in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions. All of the amounts shown are estimated except for the registration fees of the Securities and Exchange Commission and the National Association of Securities Dealers, Inc.:
AMOUNT TO BE PAID BY COMPANY --------------- SEC registration fee..................................... $12,337 NASD filing fee.......................................... 4,571 Nasdaq National Market listing fee....................... 17,500 Blue sky qualification fees and expenses................. 10,000 Printing and engraving expenses.......................... 100,000 Legal fees and expenses.................................. 125,000 Accounting fees and expenses............................. 125,000 Transfer agent and registrar fees........................ 10,000 Miscellaneous............................................ 95,592 ------- Total................................................... 500,000 =======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS. As provided under Georgia law, the Company's Articles of Incorporation provide that a Director shall not be personally liable to the Company or its shareholders for monetary damages, for breach of duty of care or any other fiduciary duty owed to the Company as a Director, except that such provisions shall not eliminate or limit the liability of a Director (a) for any appropriation, in violation of his or her duties, of any business opportunity of the Company; (b) for acts or omissions which involve intentional misconduct or a knowing violation of law; (c) for unlawful corporate distributions; or (d) for any transaction from which the Director received an improper personal benefit. If applicable law is amended to authorize corporate action further eliminating or limiting the liability of Directors, the liability of each Director of the Company shall be eliminated or limited to the fullest extent permitted by applicable law. These provisions apply to claims against officers, employees, and agents of the Company as well. Article VI of the Company's Bylaws provides that the Company shall indemnify a Director who has been successful in the defense of any proceeding to which he or she was a party or in defense of any claim, issue or matter therein because he or she is or was a Director of the Company, against reasonable expenses incurred by him or her in connection with such defense. The Company's Bylaws also provide that the Company may indemnify any Director, officer, employee or agent made a party to a proceeding because he or she is or was a Director, officer, employee or agent against liability incurred in the proceeding if he or she acted in a manner he or she believed in good faith to be in or not opposed to the best interests of the Company and, in the case of any criminal proceeding, he or she had no reasonable cause to believe his or her conduct was unlawful. Determination concerning whether or not the applicable standard of conduct has been met can be made by (a) a disinterested majority of the Board of Directors; (b) a majority of a committee of disinterested Directors; (c) independent legal counsel; or (d) the shareholders. No indemnification may be made to or on behalf of a Director, officer, employee or agent (1) in connection with a proceeding by or in the right of the Company in which such person was adjudged liable to the Company, or (2) in connection with any other proceeding in which such person was adjudged liable on the basis that personal benefit was improperly received by him or her. The Company may, if authorized by its shareholders by a majority of votes which would be entitled to be cast in a vote to amend the Company's Articles of Incorporation, indemnify or obligate itself to indemnify a Director, officer, employee or agent made a party to a proceeding, including a proceeding brought by or in the right of the Company. II-1 ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. On October 27, 1995, the Registrant issued 6,857,112 shares of Common Stock and 1,142,889 shares of Class A Common Stock to the four shareholders of Softsense Computer Products Inc., a New York corporation. These shares were issued in connection with the reincorporation of the Registrant from the State of New York to the State of Georgia. Except as otherwise noted, all issuances of securities described above were made in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933 as transactions by an issuer not involving a public offering. All of the securities were acquired by the recipients thereof for investment and with no view toward the resale or distribution thereof. In each instance, the purchaser had a pre-existing relationship with the Registrant or its founders, the offers and sales were made without any public solicitation, the certificates bear restrictive legends and appropriate stop transfer instructions have been or will be given to the transfer agent. No underwriter was involved in the transactions and no commissions were paid. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. The exhibits listed below are filed with this Registration Statement. (a) Exhibits NUMBER DESCRIPTION OF EXHIBIT 1.1 Form of Underwriting Agreement 3(i) Articles of Incorporation, as amended 3(ii) Bylaws 4.1 Specimen Certificate of Common Stock (to be provided by amendment) 5.1 Opinion of Smith, Gambrell & Russell, LLP (to be provided by amendment) 10.1 Form of License, Support and Equipment Purchase Agreement 10.2 Stock Transfer and Redemption Agreement dated May 29, 1995 by and between the Registrant and Thomas Barrella 10.3 1995 Incentive Stock Option Plan 10.4 Loan Agreement dated June 28, 1996 by and between the Registrant and Sirrom Capital Corporation regarding $3.0 million term loan 10.4.1 First Amendment to Loan Agreement and Loan Documents dated September 25, 1996 by and between the Registrant and Sirrom Capital Corporation regarding $1.5 million term loan 10.5 Promissory Note dated March 27, 1996 from the Registrant to Emro Marketing Company in the principal amount of $872,501 10.6 Promissory Note dated October 31, 1994 from the Registrant to Lawrence D. Parker in the principal amount of $473,086 10.7 Consulting Agreement dated October 31, 1994, as amended on October 24, 1995 by and between the Registrant and LP Technologies, Inc. 10.8 Commercial Lease Agreement dated December 19, 1994 by and between the Registrant and Digital Communications Associates, Inc. for lease of office space in Alpharetta, Georgia 10.9 Office Lease dated June 30, 1995 by and between the Registrant and Attachmate Corporation for lease of office space in Alpharetta, Georgia 21.1 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP 23.2 Consent of Smith, Gambrell & Russell, LLP (included as part of Exhibit 5.1) 24.1 Powers of Attorney (included on the signature page of this Registration Statement) 27.1 Financial Data Schedule II-2 (b) The financial statements and schedules filed as a part of this Registration Statement are as follows: 1. FINANCIAL STATEMENTS. See Index to Financial Statements on page F-1 of the Prospectus included in this Registration Statement. 2. FINANCIAL STATEMENT SCHEDULES. Financial statement schedules have been omitted because they are not applicable or are not required, as the information required to be set forth therein is included in the combined financial statements of the registrant. ITEM 17. UNDERTAKINGS. (a) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referred to in Item 15, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this Registration Statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Alpharetta, Georgia on December 10, 1996. RADIANT SYSTEMS, INC. By: /s/ Erez Goren -------------------------------- Erez Goren, Co-Chairman and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Erez Goren and John H. Heyman and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution for him, in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, including a Registration Statement filed under Rule 462(b) of the Securities Act of 1933, as amended, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Erez Goren Co-Chairman of the Board and December 10, 1996 _________________________________ Chief Executive Officer EREZ GOREN /s/ Alon Goren Co-Chairman of the Board and December 10, 1996 _________________________________ Chief Technology Officer ALON GOREN /s/ Eric Hinkle President, Chief Operating December 10, 1996 _________________________________ Officer and Director ERIC HINKLE /s/ John H. Heyman Executive Vice President, December 10, 1996 _________________________________ Chief Financial Officer and JOHN H. HEYMAN Director /s/ Paul Ilse Controller (Principal December 10, 1996 _________________________________ Accounting Officer) PAUL ILSE
EXHIBIT INDEX
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION OF EXHIBIT PAGE NUMBER - ------- ---------------------- ----------- 1.1 Form of Underwriting Agreement 3(i) Articles of Incorporation, as amended 3(ii) Bylaws 10.1 Form of License, Support and Equipment Purchase Agreement 10.2 Transfer and Redemption Agreement dated May 29, 1995 by and between the Registrant and Thomas Barrella 10.3 1995 Incentive Stock Option Plan 10.4 Loan Agreement dated June 28, 1996 by and between the Registrant and Sirrom Capital Corporation regarding $3.0 million term loan 10.4.1 First Amendment to Loan Agreement and Loan Documents dated September 25, 1996 by and between the Registrant and Sirrom Capital Corporation regarding $1.5 million term loan 10.5 Promissory Note dated March 27, 1996 from the Registrant to Emro Marketing Company in the principal amount of $872,501 10.6 Promissory Note dated October 31, 1994 from the Registrant to Lawrence D. Parker in the principal amount of $473,086 10.7 Consulting Agreement dated October 31, 1994, as amended on October 24, 1995 by and between the Registrant and LP Technologies, Inc. 10.8 Commercial Lease Agreement dated December 19, 1994 by and between the Registrant and Digital Communications Associates, Inc. for lease of office space in Alpharetta, Georgia 10.9 Office Lease dated June 30, 1995 by and between the Registrant and Attachmate Corporation for lease of office space in Alpharetta, Georgia 21.1 Subsidiaries of the Registrant 23.1 Consent of Arthur Andersen LLP 27.1 Financial Data Schedule
EX-1.1 2 UNDERWRITING AGREEMENT EXHIBIT 1.1 2,950,000 Shares Radiant Systems, Inc. Common Stock (No Par Value) UNDERWRITING AGREEMENT ---------------------- _______________, 1997 Alex. Brown & Sons Incorporated Deutsche Morgan Grenfell Inc. The Robinson-Humphrey Company, Inc. As Representatives of the Several Underwriters c/o Alex. Brown & Sons Incorporated 135 East Baltimore Street Baltimore, Maryland 21202 Gentlemen: Radiant Systems, Inc., a Georgia corporation (the "Company"), and certain shareholders of the Company (the "Selling Shareholders") propose to sell to the several underwriters (the "Underwriters") named in Schedule I hereto for whom you are acting as representatives (the "Representatives") an aggregate of 2,950,000 shares of the Company's Common Stock, no par value (the "Firm Shares"), of which 2,500,000 shares will be sold by the Company and 450,000 shares will be sold by the Selling Shareholders. The respective amounts of the Firm Shares to be so purchased by the several Underwriters are set forth opposite their names in Schedule I hereto, and the respective amounts to be sold by the Selling Shareholders are set forth opposite their names in Schedule II hereto. The Company and the Selling Shareholders are sometimes referred to herein collectively as the "Sellers." The Company and certain Selling Shareholders also propose to sell at the Underwriters' option an aggregate of up to 442,500 additional shares of the Company's Common Stock (the "Option Shares") as set forth below. As the Representatives, you have advised the Company and the Selling Shareholders (a) that you are authorized to enter into this Agreement on behalf of the several Underwriters, and (b) that the several Underwriters are willing, acting severally and not jointly, to purchase the numbers of Firm Shares set forth opposite their respective names in Schedule I, plus their pro rata portion of the Option Shares if you elect to exercise the over-allotment option in whole or in part for the accounts of the several Underwriters. The Firm Shares and the Option Shares (to the extent the aforementioned option is exercised) are herein collectively called the "Shares." In consideration of the mutual agreements contained herein and of the interests of the parties in the transactions contemplated hereby, the parties hereto agree as follows: 1. Representations and Warranties of the Company and the Selling ------------------------------------------------------------- Shareholders. ------------ (a) The Company represents and warrants to each of the Underwriters as follows: (i) A registration statement on Form S-1 (File No. 333-______) with respect to the Shares has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the Rules and Regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and has been filed with the Commission. Copies of such registration statement, including any amendments thereto, the preliminary prospectuses (meeting the requirements of the Rules and Regulations) contained therein and the exhibits, financial statements and schedules, as finally amended and revised, have heretofore been delivered by the Company to you. Such registration statement, together with any registration statement filed by the Company pursuant to Rule 462(b) of the Act, herein referred to as the "Registration Statement," which shall be deemed to include all information omitted therefrom in reliance upon Rule 430A and contained in the Prospectus referred to below, has become effective under the Act and no post-effective amendment to the Registration Statement has been filed as of the date of this Agreement. "Prospectus" means (a) the form of prospectus first filed with the Commission pursuant to Rule 424(b) or (b) the last preliminary prospectus included in the Registration Statement filed prior to the time it becomes effective or filed pursuant to Rule 424(a) under the Act that is delivered by the Company to the Underwriters for delivery to purchasers of the Shares, together with the term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Each preliminary prospectus included in the Registration Statement prior to the time it becomes effective is herein referred to as a "Preliminary Prospectus." Any reference herein to any Prospectus shall be deemed to include any supplements or amendments thereto, filed with the Commission after the date of filing of the Prospectus under Rules 424(b) or 430A, and prior to the termination of the offering of the Shares by the Underwriters. -2- (ii) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Georgia, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. Each of the subsidiaries of the Company as listed in Exhibit 21 to Item 16(a) of the Registration Statement (collectively, the "Subsidiaries") has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement. The Subsidiaries are the only subsidiaries, direct or indirect, of the Company. The Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification or in which the failure to qualify would have a materially adverse effect upon the business of the Company and the Subsidiaries taken as a whole. The outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company or another Subsidiary free and clear of all liens, encumbrances and equities and claims; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into shares of capital stock or ownership interests in the Subsidiaries are outstanding. (iii) The outstanding shares of Common Stock of the Company, including all shares to be sold by the Selling Shareholders, have been duly authorized and validly issued and are fully paid and non-assessable; the portion of the Shares to be issued and sold by the Company have been duly authorized and when issued and paid for as contemplated herein will be validly issued, fully paid and non-assessable; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue and sale thereof. Neither the filing of the Registration Statement nor the offering or sale of the Shares as contemplated by this Agreement gives rise to any rights, other than those which have been waived or satisfied, for or relating to the registration of any shares of Common Stock. (iv) The information set forth under the caption "Capitalization" in the Prospectus is true and correct. All of the Shares conform to the description thereof contained in the Registration Statement. The form of certificates for the Shares conforms to the corporate law of the jurisdiction of the Company's incorporation. (v) The Commission has not issued an order preventing or suspending the use of any Prospectus relating to the proposed offering of the Shares nor instituted proceedings for that purpose. The Registration Statement contains, and the Prospectus and any amendments or supplements thereto will contain, all statements which are required to be stated therein by, and will conform in all material respects, to the requirements of the Act and the Rules and Regulations. The Registration Statement and any amendment thereto do not contain, and will not contain, any untrue statement of a material fact and do not omit, and will not omit, to state any material fact required to be -3- stated therein or necessary to make the statements therein not misleading. The Prospectus and any amendments and supplements thereto do not contain, and will not contain, any untrue statement of material fact and do not omit, and will not omit, to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the Company makes no representations or warranties as to information contained in or omitted from the Registration Statement or the Prospectus, or any such amendment or supplement, in reliance upon, and in conformity with, written information furnished to the Company by or on behalf of any Underwriter through the Representatives, specifically for use in the preparation thereof. (vi) The consolidated financial statements of the Company and the Subsidiaries, together with related notes and schedules as set forth in the Registration Statement, present fairly the financial position and the results of operations and cash flows of the Company and the consolidated Subsidiaries, at the indicated dates and for the indicated periods. Such financial statements and related schedules have been prepared in accordance with generally accepted principles of accounting, consistently applied throughout the periods involved, except as disclosed therein, and all adjustments necessary for a fair presentation of results for such periods have been made. The summary financial and statistical data included in the Registration Statement presents fairly the information shown therein and such data has been compiled on a basis consistent with the financial statements presented therein and the books and records of the Company. The pro forma financial statements and other pro forma financial information included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements, have been properly compiled on the pro forma bases described therein, and, in the opinion of the Company, the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions or circumstances referred to therein. (vii) Arthur Andersen LLP, who have certified certain of the financial statements filed with the Commission as part of the Registration Statement, are independent public accountants as required by the Act and the Rules and Regulations. (viii) There is no action, suit, claim or proceeding pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries before any court or administrative agency or otherwise which if determined adversely to the Company or any of its Subsidiaries might result in any material adverse change in the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and of the Subsidiaries taken as a whole or prevent the consummation of the transactions contemplated hereby, except as set forth in the Registration Statement. (ix) The Company and the Subsidiaries have good and marketable -4- title to all of the properties and assets reflected in the financial statements (or as described in the Registration Statement) hereinabove described, subject to no lien, mortgage, pledge, charge or encumbrance of any kind except those reflected in such financial statements (or as described in the Registration Statement) or which are not material in amount. The Company and the Subsidiaries occupy their leased properties under valid and binding leases conforming in all material respects to the description thereof set forth in the Registration Statement. (x) The Company and the Subsidiaries have filed all Federal, State, local and foreign income tax returns which have been required to be filed and have paid all taxes indicated by said returns and all assessments received by them or any of them to the extent that such taxes have become due. All tax liabilities have been adequately provided for in the financial statements of the Company. (xi) Since the respective dates as of which information is given in the Registration Statement, as it may be amended or supplemented, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise), or prospects of the Company and its Subsidiaries taken as a whole, whether or not occurring in the ordinary course of business, and there has not been any material transaction entered into or any material transaction that is probable of being entered into by the Company or the Subsidiaries, other than transactions in the ordinary course of business and changes and transactions described in the Registration Statement, as it may be amended or supplemented. The Company and the Subsidiaries have no material contingent obligations which are not disclosed in the Company's financial statements which are included in the Registration Statement. (xii) Neither the Company nor any of the Subsidiaries is or with the giving of notice or lapse of time or both, will be, in violation of or in default under its Articles of Incorporation or by-laws or under any agreement, lease, contract, indenture or other instrument or obligation to which it is a party or by which it, or any of its properties, is bound and which violation or default is of material significance in respect of the condition, financial or otherwise of the Company and its Subsidiaries taken as a whole or the business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole. The execution and delivery of this Agreement and the consummation of the transactions herein contemplated and the fulfillment of the terms hereof will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust or other agreement or instrument to which the Company or any Subsidiary is a party, or of the Articles of Incorporation or by-laws of the Company or any order, rule or regulation applicable to the Company or any Subsidiary of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction. -5- (xiii) Each approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body necessary in connection with the execution and delivery by the Company of this Agreement and the consummation of the transactions herein contemplated (except such additional steps as may be required by the Commission, the National Association of Securities Dealers, Inc. (the "NASD") or such additional steps as may be necessary to qualify the Shares for public offering by the Underwriters under state securities or Blue Sky laws) has been obtained or made and is in full force and effect. (xii) The Company and each of the Subsidiaries holds all material licenses, certificates and permits from governmental authorities which are necessary to the conduct of their businesses; and neither the Company nor any of the Subsidiaries has infringed any patents, patent rights, trade names, trademarks or copyrights, which infringement is material to the business of the Company and the Subsidiaries taken as a whole. The Company knows of no material infringement by others of patents, patent rights, trade names, trademarks or copyrights owned by or licensed to the Company or any Subsidiary. (xiii) Neither the Company, nor to the Company's knowledge, any of its affiliates, has taken or may take, directly or indirectly, any action designed to cause or result in, or which has constituted or which might reasonably be expected to constitute, the stabilization or manipulation of the price of the shares of Common Stock to facilitate the sale or resale of the Shares. (xiv) Neither the Company nor any Subsidiary is an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. (xv) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (xvi) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of their respective businesses and the value of their respective properties and as is customary for companies engaged in similar industries. (xvii) The Company is in compliance in all material respects with -6- all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); and each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification. (xviii) The Shares have been approved for listing, subject to notice of issuance, on the Nasdaq National Market. (b) Each of the Selling Shareholders severally represents and warrants as follows: (i) Such Selling Shareholder now has and at the Closing Date and the Option Closing Date, as the case may be (as such dates are hereinafter defined) will have good and valid title to the Firm Shares and the Option Shares to be sold by such Selling Shareholder, without notice of any adverse claim, free and clear of any liens, encumbrances, equities and claims, and full right, power and authority to effect the sale and delivery of such Firm Shares and Option Shares; and upon the delivery of, against payment for, such Firm Shares and Option Shares pursuant to this Agreement, the Underwriters will acquire good and valid title thereto, free and clear of any liens, encumbrances, equities and claims. (ii) Such Selling Shareholder has full right, power and authority to execute and deliver this Agreement, the Power of Attorney, and the Custodian Agreement referred to below and to perform its obligations under such Agreements. The execution and delivery of this Agreement and the consummation by such Selling Shareholder of the transactions herein contemplated and the fulfillment by such Selling Shareholder of the terms hereof will not require any consent, approval, authorization, or other order of any court, regulatory body, administrative agency or other governmental body (except as may be required under the Act, state securities laws or Blue Sky laws) and will not result in a breach of any of the terms and provisions of, or constitute a default under, organizational documents of such Selling Shareholder, if not an individual, or any indenture, mortgage, deed of trust or other agreement or instrument to which such Selling Shareholder is a party, or of any order, rule or regulation applicable to such Selling Shareholder of any court or of any regulatory body or administrative agency or other governmental body having jurisdiction. -7- (iii) Such Selling Shareholder has not taken and will not take, directly or indirectly, any action designed to, or which has constituted, or which might reasonably be expected to cause or result in the stabilization or manipulation of the price of the Common Stock of the Company and, other than as permitted by the Act, the Selling Shareholder will not distribute any prospectus or other offering material in connection with the offering of the Shares. (iv) Without having undertaken to determine independently the accuracy or completeness of either the representations and warranties of the Company contained herein or the information contained in the Registration Statement, such Selling Shareholder has no reason to believe that the representations and warranties of the Company contained in this Section 1 are not true and correct, is familiar with the Registration Statement and has no knowledge of any material fact, condition or information not disclosed in the Registration Statement which has adversely affected or may adversely affect the business of the Company or any of the Subsidiaries; and the sale of the Firm Shares and the Option Shares by such Selling Shareholder pursuant hereto is not prompted by any information concerning the Company or any of the Subsidiaries which is not set forth in the Registration Statement. The information pertaining to such Selling Shareholder under the caption "Selling Shareholders" in the Prospectus is complete and accurate in all material respects. (v) The Power of Attorney appointing certain individuals as such Selling Shareholders' attorney-in-fact to the extent set forth therein and the Custodian Agreement (as defined in Section 2) have been duly executed and delivered by such Selling Shareholder and are the valid and binding agreements of such Selling Shareholder. 2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES. ---------------------------------------------- (a) On the basis of the representations, warranties and covenants herein contained, and subject to the conditions herein set forth, the Sellers agree to sell to the Underwriters and each Underwriter agrees, severally and not jointly, to purchase, at a price of $_____ per share, the number of Firm Shares set forth opposite the name of each Underwriter in Schedule I hereof, subject to adjustments in accordance with Section 9 hereof. The number of Firm Shares to be purchased by each Underwriter from each Seller shall be as nearly as practicable in the same proportion to the total number of Firm Shares being sold by each Seller as the number of Firm Shares being purchased by each Underwriter bears to the total number of Firm Shares to be sold hereunder. The obligations of the Company and of each of the Selling Shareholders shall be several and not joint. (b) Certificates in negotiable form for the total number of the Shares to be sold hereunder by the Selling Shareholders have been placed in custody with ____________________ as custodian (the "Custodian") pursuant to the Custodian -8- Agreement executed by each Selling Shareholder for delivery of all Firm Shares and any Option Shares to be sold hereunder by the Selling Shareholders. Each of the Selling Shareholders specifically agrees that the Firm Shares and any Option Shares represented by the certificates held in custody for the Selling Shareholders under the Custodian Agreement are subject to the interests of the Underwriters hereunder, that the arrangements made by the Selling Shareholders for such custody are to that extent irrevocable, and that the obligations of the Selling Shareholders hereunder shall not be terminable by any act or deed of the Selling Shareholders (or by any other person, firm or corporation including the Company, the Custodian or the Underwriters) or by operation of law (including the death of an individual Selling Shareholder or the dissolution of a corporate Selling Shareholder) or by the occurrence of any other event or events, except as set forth in the Custodian Agreement. If any such event should occur prior to the delivery to the Underwriters of the Firm Shares or the Option Shares hereunder, certificates for the Firm Shares or the Options Shares, as the case may be, shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such event has not occurred. The Custodian is authorized to receive and acknowledge receipt of the proceeds of sale of the Shares held by it against delivery of such Shares. (c) Payment for the Firm Shares to be sold hereunder is to be made in New York Clearing House funds by certified or bank cashier's checks drawn to the order of the Company for the shares to be sold by it and to the order of each Selling Shareholder for the shares to be sold by such Selling Shareholders, in each case against delivery of certificates therefor to the Representatives for the several accounts of the Underwriters. Such payment and delivery are to be made at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland, at 10:00 a.m., Baltimore time, on _______________, 1997, or at such other time and date not later than five business days thereafter as you and the Company shall agree upon, such time and date being herein referred to as the "Closing Date." (As used herein, "business day" means a day on which the New York Stock Exchange is open for trading and on which banks in New York are open for business and not permitted by law or executive order to be closed.) The certificates for the Firm Shares will be delivered in such denominations and in such registrations as the Representatives requests in writing not later than the second full business day prior to the Closing Date, and will be made available for inspection by the Representatives at least one business day prior to the Closing Date. (d) In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company and certain Selling Shareholders listed on Schedule III hereto hereby grant an option to the several Underwriters to purchase the Option Shares at the price per share as set forth in the first paragraph of this Section 2. The maximum number of Option Shares to be sold by the Company and the Selling Shareholders is set forth opposite their respective names on Schedule III hereto. The option granted hereby may be exercised in whole or in part by giving written notice (i) at any time before the Closing Date and (ii) only once -9- thereafter within 30 days after the date of this Agreement, by you, as Representatives of the several Underwriters, to the Company, the Attorney-in- Fact, and the Custodian setting forth the number of Option Shares as to which the several Underwriters are exercising the option, the names and denominations in which the Option Shares are to be registered and the time and date at which such certificates are to be delivered. If the option granted hereby is exercised in part, the respective number of Option Shares to be sold by the Company and each of the Selling Shareholders listed in Schedule III hereto shall be determined on a pro rata basis in accordance with the percentages set forth opposite their names on Schedule II hereto, adjusted by you in such manner as to avoid fractional shares. The time and date at which certificates for Option Shares are to be delivered shall be determined by the Representatives but shall not be earlier than three nor later than 10 full business days after the exercise of such option, nor in any event prior to the Closing Date (such time and date being herein referred to as the "Option Closing Date"). If the date of exercise of the option is three or more days before the Closing Date, the notice of exercise shall set the Closing Date as the Option Closing Date. The number of Option Shares to be purchased by each Underwriter shall be in the same proportion to the total number of Option Shares being purchased as the number of Firm Shares being purchased by such Underwriter bears to the total number of Firm Shares, adjusted by you in such manner as to avoid fractional shares. The option with respect to the Option Shares granted hereunder may be exercised only to cover over-allotments in the sale of the Firm Shares by the Underwriters. You, as Representatives of the several Underwriters, may cancel such option at any time prior to its expiration by giving written notice of such cancellation to the Company and the Attorney-in-Fact. To the extent, if any, that the option is exercised, payment for the Option Shares shall be made on the Option Closing Date in New York Clearing House funds by certified or bank cashier's check drawn to the order of the Company for the Option Shares to be sold by it and to the order of each Selling Shareholder for the Option Shares to be sold by such Selling Shareholders against delivery of certificates therefor at the offices of Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland. (e) If on the Closing Date or Option Closing Date, as the case may be, any Selling Shareholder fails to sell the Firm Shares or Option Shares which such Selling Shareholder has agreed to sell on such date as set forth in Schedule II or Schedule III hereto, the Company agrees that it will sell or - ----------- ------------ arrange for the sale of that number of shares of Common Stock to the Underwriters which represents Firm Shares or the Option Shares which such Selling Shareholder has failed to so sell, as set forth in Schedule II or ----------- Schedule III hereto, or such lesser number as may be requested by the - ------------ Representatives. 3. Offering by the Underwriters. ---------------------------- It is understood that the several Underwriters are to make a public offering of the Firm Shares as soon as the Representatives deem it advisable to do so. The Firm Shares are to be initially offered to the public at the initial public offering price set forth in the Prospectus. The Representatives may from time to time thereafter change the public -10- offering price and other selling terms. To the extent, if at all, that any Option Shares are purchased pursuant to Section 2 hereof, the Underwriters will offer them to the public on the foregoing terms in accordance with Section 2(a) hereof. It is further understood that you will act as the Representatives for the Underwriters in the offering and sale of the Shares in accordance with a Master Agreement Among Underwriters entered into by you and the several other Underwriters. 4. Covenants of the Company and the Selling Shareholders. ----------------------------------------------------- (a) The Company covenants and agrees with the several Underwriters that: (i) The Company will (A) use its best efforts to cause the Registration Statement to become effective or, if the procedure in Rule 430A of the Rules and Regulations is followed, to prepare and timely file with the Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a form approved by the Representatives containing information previously omitted at the time of effectiveness of the Registration Statement in reliance on Rule 430A of the Rules and Regulations and (B) not file any amendment to the Registration Statement or supplement to the Prospectus of which the Representatives shall not previously have been advised and furnished with a copy or to which the Representatives shall have reasonably objected in writing or which is not in compliance with the Rules and Regulations. (ii) The Company will advise the Representatives promptly (A) when the Registration Statement or any post-effective amendment thereto shall have become effective, (B) of receipt of any comments from the Commission, (C) of any request of the Commission for amendment of the Registration Statement or for supplement to the Prospectus or for any additional information, and (D) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the use of the Prospectus or of the institution of any proceedings for that purpose. The Company will use its best efforts to prevent the issuance of any such stop order preventing or suspending the use of the Prospectus and to obtain as soon as possible the lifting thereof, if issued. (iii) The Company will cooperate with the Representatives in endeavoring to qualify the Shares for sale under the securities laws of such jurisdictions as the Representatives may reasonably have designated in writing and will make such applications, file such documents, and furnish such information as may be reasonably required for that purpose, provided the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction where it is not now so qualified or required to file such a consent. The Company will, from time to time, prepare and file such statements, reports, and other documents, as are or may be required to continue such qualifications in effect for so long a period as the Representatives may reasonably request for distribution of the Shares. -11- (iv) The Company will deliver to, or upon the order of, the Representatives, from time to time, as many copies of any Preliminary Prospectus as the Representatives may reasonably request. The Company will deliver to, or upon the order of, the Representatives during the period when delivery of a Prospectus is required under the Act, as many copies of the Prospectus in final form, or as thereafter amended or supplemented, as the Representatives may reasonably request. The Company will deliver to the Representatives at or before the Closing Date, four signed copies of the Registration Statement and all amendments thereto including all exhibits filed therewith, and will deliver to the Representatives such number of copies of the Registration Statement (including such number of copies of the exhibits filed therewith that may reasonably be requested), and of all amendments thereto, as the Representatives may reasonably request. (v) The Company will comply with the Act and the Rules and Regulations, and the Securities Exchange Act of 1934 (the "Exchange Act"), and the rules and regulations of the Commission thereunder, so as to permit the completion of the distribution of the Shares as contemplated in this Agreement and the Prospectus. If during the period in which a prospectus is required by law to be delivered by an Underwriter or dealer, any event shall occur as a result of which, in the judgment of the Company or in the reasonable opinion of the Underwriters, it becomes necessary to amend or supplement the Prospectus in order to make the statements therein, in the light of the circumstances existing at the time the Prospectus is delivered to a purchaser, not misleading, or, if it is necessary at any time to amend or supplement the Prospectus to comply with any law, the Company promptly will prepare and file with the Commission an appropriate amendment to the Registration Statement or supplement to the Prospectus so that the Prospectus as so amended or supplemented will not, in the light of the circumstances when it is so delivered, be misleading, or so that the Prospectus will comply with the law. (vi) The Company will make generally available to its security holders, as soon as it is practicable to do so, but in any event not later than 15 months after the effective date of the Registration Statement, an earning statement (which need not be audited) in reasonable detail, covering a period of at least 12 consecutive months beginning after the effective date of the Registration Statement, which earning statement shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of the Rules and Regulations. (vii) The Company will, for a period of five years from the Closing Date, deliver to the Representatives copies of annual reports and copies of all other documents, reports and information furnished by the Company to its stockholders or filed with any securities exchange pursuant to the requirements of such exchange or with the Commission pursuant to the Act or the Securities Exchange Act of 1934, as amended. The Company will deliver to the Representatives similar reports with respect to significant subsidiaries, as that term is defined in the Rules and Regulations, which are not -12- consolidated inthe Company's financial statements. (viii) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other securities convertible into or exchangeable or exercisable for shares of Common Stock or a derivative of Common Stock (or agreement for such) will be made for a period of 180 days after the date of this Agreement, directly or indirectly, by the Company except pursuant to the Company's 1995 Incentive Stock Option Plan, as otherwise provided hereunder or with the prior written consent of Alex. Brown & Sons Incorporated. (ix) The Company will use its best efforts to list, subject to notice of issuance, the Shares on the Nasdaq National Market. (x) The Company has caused each officer and director and specific shareholders of the Company to furnish to you, on or prior to the date of this agreement, a letter or letters, in form and substance satisfactory to the Underwriters, pursuant to which each such person shall agree not to offer, sell, sell short or otherwise dispose of any shares of Common Stock of the Company or other capital stock of the Company, or any other securities convertible, exchangeable or exercisable for Common Stock or a derivative of Common Stock owned by such person or request the registration for the offer or sale of any of the foregoing (or as to which such person has the right to direct the disposition of) for a period of 180 days after the effective date of the Registration Statement, directly or indirectly, except with the prior written consent of Alex. Brown & Sons Incorporated ("Lockup Agreements"). (xi) The Company shall apply the net proceeds of its sale of the Shares as set forth in the Prospectus and shall file such reports with the Commission with respect to the sale of the Shares and the application of the proceeds therefrom as may be required in accordance with Rule 463 under the Act. (xii) The Company shall not invest, or otherwise use the proceeds received by the Company from its sale of the Shares in such a manner as would require the Company or any of the Subsidiaries to register as an investment company under the Investment Company Act of 1940, as amended (the "1940 Act"). (xiii) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar for the Common Stock. (xiv) The Company will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. (b) Each of the Selling Shareholders covenants and agrees with the several Underwriters that: -13- (i) No offering, sale, short sale or other disposition of any shares of Common Stock of the Company or other capital stock of the Company or other securities convertible, exchangeable or exercisable for Common Stock or a derivative of Common Stock owned by the Selling Shareholder and no request for registration for the offer or sale of any of the foregoing (or as to which the Selling Shareholder has the right to direct the disposition of) will be made for a period of 180 days after the date of this Agreement, directly or indirectly, by such Selling Shareholder except as otherwise provided hereunder or with the prior written consent of Alex. Brown & Sons Incorporated. (ii) In order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with respect to the transactions herein contemplated, each of the Selling Shareholders agrees to deliver to you prior to or at the Closing Date a properly completed and executed United States Treasury Department Form W-9 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). (iii) Such Selling Shareholder will not take, directly or indirectly, any action designed to cause or result in, or that has constituted or might reasonably be expected to constitute, the stabilization or manipulation of the price of any securities of the Company. 5. Costs and Expenses. ------------------ The Company will pay all costs, expenses and fees incident to the performance of the obligations of the Sellers under this Agreement, including, without limiting the generality of the foregoing, the following: accounting fees of the Company; the fees and disbursements of counsel for the Company and the Selling Shareholders; the cost of printing and delivering to, or as requested by, the Underwriters copies of the Registration Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the Underwriters' Invitation Letter, the Listing Application, the Blue Sky Survey and any supplements or amendments thereto; the filing fees of the Commission; the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale of the Shares; the Listing Fee of the Nasdaq National Market; and the expenses, including the fees and disbursements of counsel for the Underwriters, incurred in connection with the qualification of the Shares under State securities or Blue Sky laws and the laws of Canada. To the extent, if at all, that any of the Selling Shareholders engage special legal counsel to represent them in connection with this offering, the fees and expenses of such counsel shall be borne by such Selling Shareholder. Any transfer taxes imposed on the sale of the Shares to the several Underwriters will be paid by the Sellers pro rata. The Company agrees to pay all costs and expenses of the Underwriters, including the fees and disbursements of counsel for the Underwriters, incident to the offer and sale of directed shares of the Common Stock by the Underwriters -14- to employees and persons having business relationships with the Company and its Subsidiaries. The Company shall not, however, be required to pay for any of the Underwriters expenses (other than the filing fees incident to securing any required review by the NASD and those related to qualification and State securities or Blue Sky laws and the laws of Canada) except that, if this Agreement shall not be consummated because the conditions in Section 6 hereof are not satisfied, or because this Agreement is terminated by the Representatives pursuant to Section 11 hereof, or by reason of any failure, refusal or inability on the part of the Company or the Selling Shareholders to perform any undertaking or satisfy any condition of this Agreement or to comply with any of the terms hereof on their part to be performed, unless such failure to satisfy said condition or to comply with said terms be due to the default or omission of any Underwriter, then the Company shall reimburse the several Underwriters for reasonable out-of-pocket expenses, including fees and disbursements of counsel, reasonably incurred in connection with investigating, marketing and proposing to market the Shares or in contemplation of performing their obligations hereunder; but the Company shall not in any event be liable to any of the several Underwriters for damages on account of loss of anticipated profits from the sale by them of the Shares. 6. Conditions of Obligations of the Underwriters. --------------------------------------------- The several obligations of the Underwriters to purchase the Firm Shares on the Closing Date and the Option Shares, if any, on the Option Closing Date are subject to the accuracy, as of the Closing Date or the Option Closing Date, as the case may be, of the representations and warranties of the Company and the Selling Shareholders contained herein, and to the performance by the Company and the Selling Shareholders of their covenants and obligations hereunder and to the following additional conditions: (a) The Registration Statement and all post-effective amendments thereto shall have become effective and any and all filings required by Rule 424 and Rule 430A of the Rules and Regulations shall have been made, and any request of the Commission for additional information (to be included in the Registration Statement or otherwise) shall have been disclosed to the Representatives and complied with to their reasonable satisfaction. No stop order suspending the effectiveness of the Registration Statement, as amended from time to time, shall have been issued and no proceedings for that purpose shall have been taken or, to the knowledge of the Company or the Selling Shareholders, shall be contemplated by the Commission and no injunction, restraining order, or order of any nature by a Federal or state court of competent jurisdiction shall have been issued as of the Closing Date which would prevent the issuance of the Shares. (b) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of Smith, Gambrell & Russell, LLP, counsel for the Company and certain Selling Shareholders as indicated on Schedule II, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the -15- effect that: (i) The Company is duly organized and is validly existing as a corporation in good standing under the laws of the State of Georgia, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; each of the Subsidiaries has been duly organized and is validly existing as a corporation in good standing under the laws of the jurisdiction of its incorporation, with corporate power and authority to own or lease its properties and conduct its business as described in the Registration Statement; the Company and each of the Subsidiaries are duly qualified to transact business in all jurisdictions in which the conduct of their business requires such qualification, or in which the failure to qualify would have a materially adverse effect upon the business of the Company and the Subsidiaries taken as a whole; and the outstanding shares of capital stock of each of the Subsidiaries have been duly authorized and validly issued and are fully paid and non-assessable and are owned by the Company or a Subsidiary; and, to such counsel's knowledge, the outstanding shares of capital stock of each of the Subsidiaries is owned free and clear of all liens, encumbrances and equities and claims, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into any shares of capital stock or of ownership interests in the Subsidiaries are outstanding. (ii) The Company has authorized and outstanding capital stock as set forth under the caption "Capitalization" in the Prospectus; the authorized shares of the Company's Common Stock have been duly authorized; the outstanding shares of the Company's Common Stock, including the Shares to be sold by the Selling Shareholders, have been duly authorized and validly issued and are fully paid and non-assessable; all of the Shares conform to the description thereof contained in the Prospectus; the certificates for the Shares, assuming they are in the form filed with the Commission, are in due and proper form; the shares of Common Stock, including the Option Shares, if any, to be sold by the Company pursuant to this Agreement have been duly authorized and will be validly issued, fully paid and non-assessable when issued and paid for in accordance with this Agreement; and no preemptive rights of stockholders exist with respect to any of the Shares or the issue or sale thereof. (iii) Except as described in or contemplated by the Prospectus, to the knowledge of such counsel, there are no outstanding securities of the Company convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of capital stock of the Company and there are no outstanding or authorized options, warrants or rights of any character obligating the Company to issue any shares of its capital stock or any securities convertible or exchangeable into or evidencing the right to purchase or subscribe for any shares of such stock; and except as described in the Prospectus, to the knowledge of such counsel, no holder of any securities of the Company or any other person has the right, contractual or otherwise, which has not been satisfied or effectively waived, to cause the Company to sell or otherwise issue to them, or to permit -16- them to underwrite the sale of, any of the Shares or the right to have any Common Stock or other securities of the Company included in the Registration Statement or the right, as a result of the filing of the Registration Statement, to require registration under the Act of any shares of Common Stock or other securities of the Company. (iv) The Registration Statement has become effective under the Act and, to the knowledge of such counsel, no stop order proceedings with respect thereto have been instituted or are pending or threatened under the Act. (v) The Registration Statement, the Prospectus and each amendment or supplement thereto comply as to form in all material respects with the requirements of the Act and the applicable rules and regulations thereunder (except that such counsel need express no opinion as to the financial statements and related schedules therein). (vi) The statements under the captions "Description of Capital Stock" and "Shares Eligible for Future Sale" in the Prospectus, insofar as such statements constitute a summary of documents referred to therein or matters of law, fairly summarize in all material respects the information called for with respect to such documents and matters. (vii) Such counsel does not know of any contracts or documents required to be filed as exhibits to the Registration Statement or described in the Registration Statement or the Prospectus which are not so filed or described as required, and such contracts and documents as are summarized in the Registration Statement or the Prospectus are fairly summarized in all material respects. (viii) Such counsel knows of no material legal or governmental proceedings pending or threatened against the Company or any of the Subsidiaries except as set forth in the Prospectus. (ix) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated do not and will not conflict with or result in a breach of any of the terms or provisions of, or constitute a default under, the Articles of Incorporation or by-laws of the Company, or any agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries may be bound. (x) This Agreement has been duly authorized, executed and delivered by the Company. (xi) No approval, consent, order, authorization, designation, declaration or filing by or with any regulatory, administrative or other governmental body is necessary in connection with the execution and delivery of this Agreement and the -17- consummation of the transactions herein contemplated (other than as may be required by the NASD or as required by State securities and Blue Sky laws, as to which such counsel need express no opinion) except such as have been obtained or made, specifying the same. (xii) The Company is not, and will not become, as a result of the consummation of the transactions contemplated by this Agreement, and application of the net proceeds therefrom as described in the Prospectus, required to register as an investment company under the 1940 Act. (xiii) This Agreement has been duly authorized, executed and delivered on behalf of such Selling Shareholders. (xiv) Each such Selling Shareholder has full legal right, power and authority, and any approval required by law (other than as required by State securities and Blue Sky laws as to which such counsel need express no opinion), to sell, assign, transfer and deliver the portion of the Shares to be sold by such Selling Shareholder. (xv) The Custodian Agreement and the Power of Attorney executed and delivered by each such Selling Shareholder is a legal, valid and binding obligation of such Selling Shareholder, enforceable in accordance with their respective terms, except as enforceability thereof may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights generally and to the exercise of judicial discretion in accordance with general principles of equity. (xvi) The Underwriters (assuming that they are bona fide purchasers within the meaning of the Uniform Commercial Code as adopted in the State of Georgia) have acquired good and valid title to the Shares being sold by each such Selling Shareholder on the Closing Date, and the Option Closing Date, as the case may be, free and clear of all liens, encumbrances, equities and claims. In rendering such opinion Smith, Gambrell & Russell, LLP may rely as to matters governed by the laws of states other than Georgia or Federal laws on local counsel in such jurisdictions, provided that in each case Smith, Gambrell & Russell, LLP shall state that they believe that they and the Underwriters are justified in relying on such other counsel. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, at the time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact -18- necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading (except that with respect to each of clause (i) and (ii) above such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Smith, Gambrell & Russell, LLP may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (c) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, the opinion of ________________________, and ___________________, counsel for certain Selling Shareholders as indicated on Schedule II, dated the Closing Date or the Option Closing Date, as the case may be, addressed to the Underwriters (and stating that it may be relied upon by counsel to the Underwriters) to the effect that: (i) This Agreement has been duly authorized, executed and delivered on behalf of such Selling Shareholders. (ii) Each such Selling Shareholder has full legal right, power and authority, and any approval required by law (other than as required by State securities and Blue Sky laws as to which such counsel need express no opinion), to sell, assign, transfer and deliver the portion of the Shares to be sold by such Selling Shareholder. (iii) The Custodian Agreement and the Power of Attorney executed and delivered by each such Selling Shareholder is a legal, valid and binding obligation of such Selling Shareholder, enforceable in accordance with their respective terms, except as enforceability thereof may be limited by bankruptcy, insolvency, moratorium or similar laws affecting creditors' rights generally and to the exercise of judicial discretion in accordance with general principles of equity. (iv) The Underwriters (assuming that they are bona fide purchasers within the meaning of the Uniform Commercial Code as adopted in the State of Georgia) have acquired good and valid title to the Shares being sold by each such Selling Shareholder on the Closing Date, and the Option Closing Date, as the case may be, free and clear of all liens, encumbrances, equities and claims. (d) The Representatives shall have received from Alston & Bird, counsel for the Underwriters, an opinion dated the Closing Date or the Option Closing Date, as the case may be, with respect to the incorporation of the Company and the validity of the Shares being delivered at the Closing Date or the Option Close Date. In rendering such opinion Alston & Bird may rely as to all matters governed other than by the laws of the State of Georgia or Federal laws on the opinion of counsel referred to in Paragraph (b) of this Section 6. In addition to the matters set forth above, such opinion shall also include a statement to the effect that nothing has come to the attention of such counsel which leads them to believe that (i) the Registration Statement, or any amendment thereto, as of the -19- time it became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) the Prospectus, or any supplement thereto, on the date it was filed pursuant to the Rules and Regulations and as of the Closing Date or the Option Closing Date, as the case may be, contained an untrue statement of a material fact or omitted to state a material fact, necessary in order to make the statements therein, in the light of the circumstances under which they are made, not misleading (except that such counsel need express no view as to financial statements, schedules and statistical information therein). With respect to such statement, Alston & Bird may state that their belief is based upon the procedures set forth therein, but is without independent check and verification. (e) The Representatives shall have received at or prior to the Closing Date from Alston & Bird a memorandum or summary, in form and substance satisfactory to the Representatives, with respect to the qualification for offering and sale by the Underwriters of the Shares under the State securities or Blue Sky laws of such jurisdictions as the Representatives may reasonably have designated to the Company. (f) You shall have received, on each of the dates hereof, the Closing Date and the Option Closing Date, as the case may be, a letter dated the date hereof, the Closing Date or the Option Closing Date, as the case may be, in form and substance satisfactory to you, of Arthur Andersen LLP confirming that they are independent public accountants within the meaning of the Act and the applicable published Rules and Regulations thereunder and stating that in their opinion the financial statements and schedules examined by them and included in the Registration Statement comply in form in all material respects with the applicable accounting requirements of the Act and the related published Rules and Regulations; and containing such other statements and information as is ordinarily included in accountants' "comfort letters" to Underwriters with respect to the financial statements and certain financial and statistical information contained in the Registration Statement and Prospectus. (g) The Representatives shall have received on the Closing Date or the Option Closing Date, as the case may be, a certificate or certificates of the Chief Executive Officer and the Chief Financial Officer of the Company to the effect that, as of the Closing Date or the Option Closing Date, as the case may be, each of them severally represents as follows: (i) The Registration Statement has become effective under the Act and no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been taken or are, to his knowledge, contemplated by the Commission; -20- (ii) The representations and warranties of the Company contained in Section 1 hereof are true and correct as of the Closing Date or the Option Closing Date, as the case may be; (iii) All filings required to have been made pursuant to Rules 424 or 430A under the Act have been made; (iv) He or she has carefully examined the Registration Statement and the Prospectus and, in his or her opinion, as of the effective date of the Registration Statement, the statements contained in the Registration Statement were true and correct, and such Registration Statement and Prospectus did not omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading, and since the effective date of the Registration Statement, no event has occurred which should have been set forth in a supplement to or an amendment of the Prospectus which has not been so set forth in such supplement or amendment; and (v) Since the respective dates as of which information is given in the Registration Statement and Prospectus, there has not been any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and the Subsidiaries taken as a whole, whether or not arising in the ordinary course of business. (h) The Company and the Selling Shareholders shall have furnished to the Representatives such further certificates and documents confirming the representations and warranties, covenants and conditions contained herein and related matters as the Representatives may reasonably have requested. (i) The Firm Shares and Option Shares, if any, have been approved for designation upon notice of issuance on the Nasdaq National Market. (j) The Lockup Agreements described in Section 4(x) are in full force and effect. The opinions and certificates mentioned in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in all material respects reasonably satisfactory to the Representatives and to Alston & Bird, counsel for the Underwriters. If any of the conditions hereinabove provided for in this Section 6 shall not have been fulfilled when and as required by this Agreement to be fulfilled, the obligations of the Underwriters hereunder may be terminated by the Representatives by notifying the Company and the Selling Shareholders of such termination in writing or by telegram at or -21- prior to the Closing Date or the Option Closing Date, as the case may be. In such event, the Selling Shareholders, the Company and the Underwriters shall not be under any obligation to each other (except to the extent provided in Sections 5 and 8 hereof). 7. Conditions of the Obligations of the Sellers. -------------------------------------------- The obligations of the Sellers to sell and deliver the portion of the Shares required to be delivered as and when specified in this Agreement are subject to the conditions that at the Closing Date or the Option Closing Date, as the case may be, no stop order suspending the effectiveness of the Registration Statement shall have been issued and in effect or proceedings therefor initiated or threatened. 8. Indemnification. --------------- (a) The Company and the Selling Shareholders, jointly and severally, agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of the Act, against any losses, claims, damages or liabilities to which such Underwriter or any such controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; and will reimburse each Underwriter and each such controlling person upon demand for any legal or other expenses reasonably incurred by such Underwriter or such controlling person in connection with investigating or defending any such loss, claim, damage or liability, action or proceeding or in responding to a subpoena or governmental inquiry related to the offering of the Shares, whether or not such Underwriter or controlling person is a party to any action or proceeding; provided, however, that the Company and the Selling Shareholders will not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement, or omission or alleged omission made in the Registration Statement, any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. In no event, however, shall the liability of any Selling Shareholder for indemnification under this Section 8(a) exceed the proceeds received by such Selling Shareholder from the Underwriters in the offering. This indemnity agreement will be in addition to any liability which the Company or the Selling Shareholders may otherwise have. -22- (b) Each Underwriter severally and not jointly will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the Registration Statement, the Selling Shareholders, and each person, if any, who controls the Company or the Selling Shareholders within the meaning of the Act, against any losses, claims, damages or liabilities to which the Company or any such director, officer, Selling Shareholder or controlling person may become subject under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus or any amendment or supplement thereto, or (ii) the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances under which they were made; and will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, Selling Shareholder or controlling person in connection with investigating or defending any such loss, claim, damage, liability, action or proceeding; provided, however, that each Underwriter will be liable in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission has been made in the Registration Statement, any Preliminary Prospectus, the Prospectus or such amendment or supplement, in reliance upon and in conformity with written information furnished to the Company by or through the Representatives specifically for use in the preparation thereof. This indemnity agreement will be in addition to any liability which such Underwriter may otherwise have. (c) In case any proceeding (including any governmental investigation) shall be instituted involving any person in respect of which indemnity may be sought pursuant to this Section 8, such person (the "indemnified party") shall promptly notify the person against whom such indemnity may be sought (the "indemnifying party") in writing. No indemnification provided for in Section 8(a) or (b) shall be available to any party who shall fail to give notice as provided in this Section 8(c) if the party to whom notice was not given was unaware of the proceeding to which such notice would have related and was materially prejudiced by the failure to give such notice, but the failure to give such notice shall not relieve the indemnifying party or parties from any liability which it or they may have to the indemnified party for contribution or otherwise than on account of the provisions of Section 8(a) or (b). In case any such proceeding shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party and shall pay as incurred the fees and disbursements of such counsel related to such proceeding. In any such proceeding, any indemnified party shall have the right to retain its own counsel at its own expense. Notwithstanding the foregoing, the indemnifying party shall pay as incurred (or within 30 days of presentation) the fees and expenses of the counsel retained by the indemnified party in the event (i) the indemnifying party and the indemnified party shall -23- have mutually agreed to the retention of such counsel, (ii) the named parties to any such proceeding (including any impleaded parties) include both the indemnifying party and the indemnified party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them or (iii) the indemnifying party shall have failed to assume the defense and employ counsel acceptable to the indemnified party within a reasonable period of time after notice of commencement of the action. It is understood that the indemnifying party shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees and expenses of more than one separate firm for all such indemnified parties. Such firm shall be designated in writing by you in the case of parties indemnified pursuant to Section 8(a) and by the Company and the Selling Shareholders in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall not be liable for any settlement of any proceeding effected without its written consent but if settled with such consent or if there be a final judgment for the plaintiff, the indemnifying party agrees to indemnify the indemnified party from and against any loss or liability by reason of such settlement or judgment. In addition, the indemnifying party will not, without the prior written consent of the indemnified party, settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action or proceeding of which indemnification may be sought hereunder (whether or not any indemnified party is an actual or potential party to such claim, action or proceeding) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action or proceeding. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or (b) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other from the offering of the Shares. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the Selling Shareholders on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities, (or actions or proceedings in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company and the Selling Shareholders on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total net proceeds from the offering (before deducting expenses) received by the Company and the Selling Shareholders bear to the total underwriting discounts and commissions received by the Underwriters, in each case as set forth in the table on the cover page of the Prospectus. The relative fault shall be -24- determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company or the Selling Shareholders on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, the Selling Shareholders and the Underwriters agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 8(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to above in this Section 8(d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discounts and commissions applicable to the Shares purchased by such Underwriter, (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation, and (iii) no Selling Shareholder shall be required to contribute any amount in excess of the lesser of (A) that proportion of the total of such losses, claims, damages or liabilities indemnified or contributed against equal to the proportion of the total Shares sold hereunder which is being sold by such Selling Shareholder, or (B) the proceeds received by such Selling Shareholder from the Underwriters in the offering. The Underwriters' obligations in this Section 8(d) to contribute are several in proportion to their respective underwriting obligations and not joint. (e) In any proceeding relating to the Registration Statement, any Preliminary Prospectus, the Prospectus or any supplement or amendment thereto, each party against whom contribution may be sought under this Section 8 hereby consents to the jurisdiction of any court having jurisdiction over any other contributing party, agrees that process issuing from such court may be served upon him or it by any other contributing party and consents to the service of such process and agrees that any other contributing party may join him or it as an additional defendant in any such proceeding in which such other contributing party is a party. (f) Any losses, claims, damages, liabilities or expenses for which an indemnified party is entitled to indemnification or contribution under this Section 8 shall be paid by the indemnifying party to the indemnified party as such losses, claims, damages, liabilities or expenses are incurred. The indemnity and contribution agreements contained in this Section 8 and the representations and warranties of the Company set forth in this Agreement shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Underwriter or any person controlling any -25- Underwriter, the Company, its directors or officers or any persons controlling the Company, (ii) acceptance of any Shares and payment therefor hereunder, and (iii) any termination of this Agreement. A successor to any Underwriter, or to the Company, its directors or officers, or any person controlling the Company, shall be entitled to the benefits of the indemnity, contribution and reimbursement agreements contained in this Section 8. 9. Default by Underwriters. ----------------------- If on the Closing Date or the Option Closing Date, as the case may be, any Underwriter shall fail to purchase and pay for the portion of the Shares which such Underwriter has agreed to purchase and pay for on such date (otherwise than by reason of any default on the part of the Company or a Selling Shareholder), you, as Representatives of the Underwriters, shall use your reasonable efforts to procure within 36 hours thereafter one or more of the other Underwriters, or any others, to purchase from the Company and the Selling Shareholders such amounts as may be agreed upon and upon the terms set forth herein, the Firm Shares or Option Shares, as the case may be, which the defaulting Underwriter or Underwriters failed to purchase. If during such 36 hours you, as such Representatives, shall not have procured such other Underwriters, or any others, to purchase the Firm Shares or Option Shares, as the case may be, agreed to be purchased by the defaulting Underwriter or Underwriters, then (a) if the aggregate number of shares with respect to which such default shall occur does not exceed 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the other Underwriters shall be obligated, severally, in proportion to the respective numbers of Firm Shares or Option Shares, as the case may be, which they are obligated to purchase hereunder, to purchase the Firm Shares or Option Shares, as the case may be, which such defaulting Underwriter or Underwriters failed to purchase, or (b) if the aggregate number of shares of Firm Shares or Option Shares, as the case may be, with respect to which such default shall occur exceeds 10% of the Firm Shares or Option Shares, as the case may be, covered hereby, the Company and the Selling Shareholders or you as the Representatives of the Underwriters will have the right, by written notice given within the next 36-hour period to the parties to this Agreement, to terminate this Agreement without liability on the part of the non-defaulting Underwriters or of the Company or of the Selling Shareholders except to the extent provided in Section 8 hereof. In the event of a default by any Underwriter or Underwriters, as set forth in this Section 9, the Closing Date or Option Closing Date, as the case may be, may be postponed for such period, not exceeding seven days, as you, as Representatives, may determine in order that the required changes in the Registration Statement or in the Prospectus or in any other documents or arrangements may be effected. The term "Underwriter" includes any person substituted for a defaulting Underwriter. Any action taken under this Section 9 shall not relieve any defaulting Underwriter from liability in respect of any default of such Underwriter under this Agreement. 10. Notices. ------- -26- All communications hereunder shall be in writing and, except as otherwise provided herein, will be mailed, delivered, telecopied or telegraphed and confirmed as follows: if to the Underwriters, to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202, Attention: ________________; with a copy to Alex. Brown & Sons Incorporated, 135 East Baltimore Street, Baltimore, Maryland 21202. Attention: General Counsel; if to the Company or the Selling Shareholders, to: ________________________. 11. Termination. ----------- This Agreement may be terminated by you by notice to the Sellers as follows: (a) at any time prior to the earlier of (i) the time the Shares are released by you for sale by notice to the Underwriters, or (ii) 11:30 a.m. on the first business day following the date of this Agreement; (b) at any time prior to the Closing Date if any of the following has occurred: (i) since the respective dates as of which information is given in the Registration Statement and the Prospectus, any material adverse change or any development involving a prospective material adverse change in or affecting the condition, financial or otherwise, of the Company and its Subsidiaries taken as a whole or the earnings, business, management, properties, assets, rights, operations, condition (financial or otherwise) or prospects of the Company and its Subsidiaries taken as a whole, whether or not arising in the ordinary course of business, (ii) any outbreak or escalation of hostilities or declaration of war or national emergency or other national or international calamity or crisis or change in economic or political conditions if the effect of such outbreak, escalation, declaration, emergency, calamity, crisis or change on the financial markets of the United States would, in your reasonable judgment, make it impracticable to market the Shares or to enforce contracts for the sale of the Shares, or (iii) suspension of trading in securities generally on the New York Stock Exchange or the American Stock Exchange or limitation on prices (other than limitations on hours or numbers of days of trading) for securities on either such Exchange, (iv) the enactment, publication, decree or other promulgation of any statute, regulation, rule or order of any court or other governmental authority which in your opinion materially and adversely affects or may materially and adversely affect the business or operations of the Company, (v) declaration of a banking moratorium by United States or New York State authorities, (vi) any downgrading in the rating of the Company's debt securities by any "nationally recognized statistical rating organization" (as defined for purposes of Rule 436(g) under the Exchange Act); (vii) the suspension of trading of the Company's common stock by the Commission on the Nasdaq National Market or (viii) the taking of any action by any governmental body or agency in respect of its monetary or fiscal affairs which in your reasonable opinion has a material adverse effect on the securities markets in the United States; or -27- (c) as provided in Sections 6 and 9 of this Agreement. 12. Successors. ---------- This Agreement has been and is made solely for the benefit of the Underwriters, the Company and the Selling Shareholders and their respective successors, executors, administrators, heirs and assigns, and the officers, directors and controlling persons referred to herein, and no other person will have any right or obligation hereunder. No purchaser of any of the Shares from any Underwriter shall be deemed a successor or assign merely because of such purchase. 13. Information Provided by Underwriters. ------------------------------------ The Company, the Selling Shareholders and the Underwriters acknowledge and agree that the only information furnished or to be furnished by any Underwriter to the Company for inclusion in any Prospectus or the Registration Statement consists of the information set forth in the last paragraph on the front cover page (insofar as such information relates to the Underwriters), legends required by Item 502(d) of Regulation S-K under the Act and the information under the caption "Underwriting" in the Prospectus. 14. Miscellaneous. ------------- The reimbursement, indemnification and contribution agreements contained in this Agreement and the representations, warranties and covenants in this Agreement shall remain in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Underwriter or controlling person thereof, or by or on behalf of the Company or its directors or officers and (c) delivery of and payment for the Shares under this Agreement. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Maryland. If the foregoing letter is in accordance with your understanding of our agreement, please sign and return to us the enclosed duplicates hereof, whereupon it will become a binding agreement among the Selling Shareholders, the Company and the several Underwriters in accordance with its terms. -28- Any person executing and delivering this Agreement as Attorney-in-Fact for a Selling Shareholder represents by so doing that he has been duly appointed as Attorney-in-Fact by such Selling Shareholder pursuant to a validly existing and binding Power of Attorney which authorizes such Attorney-in-Fact to take such action. Very truly yours, Radiant Systems, Inc. By ----------------------------------------------------- President [Selling Shareholders listed on Schedule II By ----------------------------------------------------- Attorney-in-Fact] The foregoing Underwriting Agreement is hereby confirmed and accepted as of the date first above written. ALEX. BROWN & SONS INCORPORATED DEUTSCHE MORGAN GRENFELL INC. THE ROBINSON-HUMPHREY COMPANY, INC. As Representatives of the several Underwriters listed on Schedule I By: Alex. Brown & Sons Incorporated By: ---------------------------------- Authorized Officer -29- SCHEDULE I Schedule of Underwriters Number of Firm Shares Underwriter to be Purchased ----------- --------------- Alex. Brown & Sons Incorporated Deutsche Morgan Grenfell Inc. The Robinson-Humphrey Company, Inc. ----------- Total 2,950,000 -30- SCHEDULE II Schedule of Selling Shareholders
Number of Firm Shares Selling Shareholder to be Sold - ------------------- --------------------- Emro Marketing Company........... 318,996 Sirrom Capital Corporation....... 131,004 ------- Total 450,000
-31- SCHEDULE III Schedule of Option Shares
Maximum Number Percentage of of Option Shares Total Number of Name of Seller to be Sold Option Shares -------------- ---------------- ---------------- Erez Goren 100,000 22.6% Alon Goren 100,000 22.6% John H. Heyman 10,000 2.3% The Company 232,500 52.5% ------- ---- Total 442,500 100% ---
-32- EX-3.I 3 ARTICLES OF INCORPORATION, AS AMENDED Exhibit 3(i) ARTICLES OF INCORPORATION OF SOFTSENSE OF GEORGIA, INC. I. The name of the Corporation is Softsense of Georgia, Inc. II. The authorized capital of the Corporation shall consist of 15,000,000 shares of capital stock which shall be represented by the following securities: A. 10,000,000 shares of no par value common stock designated as Common Stock and having the following attributes: (1) On all matters as to which the stockholders of the Corporation are entitled to vote, and except as otherwise provided in these Articles of Incorporation or by law, each share of Common Stock shall have one vote and shall vote with all other shares of Common Stock as a single class. (2) Except as specifically provided for otherwise in these Articles of Incorporation, the Common Stock and Class A Common Stock shall rank pari passu and shall possess equal rights and privileges on a share for share basis, including any rights to liquidating or other distributions. B. 5,000,000 shares of no par value common stock designated as Class A Common Stock and having the following attributes: (1) On all matters as to which holders of shares of Common Stock are entitled to vote, and except as otherwise provided in these Articles of Incorporation or by law, holders of Class A Common Stock shall have no right to vote. (2) The shares of Class A Common Stock shall be convertible into the Corporation's Common Stock automatically, and without any further action on the part of either the Corporation or the stockholders, at the rate of one share of Common Stock for each share of Class A Common Stock on the earlier to occur of (i) the closing time of an initial public offering by the Corporation (as defined herein) or (ii) the closing time of a change in control of the Corporation (as defined herein). The Corporation shall promptly notify the holders of Class A Common Stock of any such conversion. As used herein, the phrase "closing time of an initial public offering by the Corporation" shall mean the closing time and date of the receipt by the Corporation of 1 not less than $8,000,000 in cash proceeds from a public offering of securities registered by the Corporation with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. As used herein, the phrase "closing time of a change in control of the Corporation" shall mean the closing time and date of: (i) any transaction, whether by merger, consolidation, asset sale, tender offer, reverse stock split or otherwise, which results in the acquisition or beneficial ownership (as such term is defined under rules and regulations promulgated under the Securities Exchange Act of 1934, as amended) by any person or entity or any group of persons or entities acting in concert, of 50% or more of the outstanding shares of common stock of the Corporation, (ii) the sale of all or substantially all of the assets of the Corporation, or (iii) the liquidation of the Corporation. Notwithstanding the foregoing, a change of control of the Corporation shall not be deemed to have occurred for purposes of this Article II(B)(2) in the event the Corporation reincorporates into another jurisdiction or in the event of any acquisition of Common Stock of the Corporation by any one or more of the following shareholders of the Corporation: Erez Goren, Thomas J. Barrella, Alon Goren or Lawrence D. Parker. III. The street address of the initial registered office of the Corporation is Suite 1800, East Tower, Atlanta Financial Center, 3343 Peachtree Road, N.E., Atlanta, Georgia 30326, located in Fulton County. The initial registered agent of the Corporation at such office is Richard G. Greenstein. IV. The mailing address of the initial principal office of the Corporation is 1155 Hammond Drive, Suite E-5200, Atlanta, Georgia 30328. V. The name and address of the Incorporator of the Corporation are: NAME ADDRESS ---- ------- Robert T. Molinet Suite 1800, East Tower Atlanta Financial Center 3343 Peachtree Road, N.E. Atlanta, Georgia 30326 VI. No director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach of duty of care or other duty as a director; provided, however, that to the extent required by applicable law, this Article shall not eliminate or limit the liability of a director (i) for any appropriation, in violation of his duties, of any 2 business opportunity of the Corporation, (ii) for acts or omissions which involve intentional misconduct or a knowing violation of law, (iii) for the types of liability set forth in Section 14-2-832 of the Georgia Business Corporation Code, or (iv) for any transaction from which the director derived an improper personal benefit. If applicable law is amended to authorize corporate action further eliminating or limiting the liability of directors, then the liability of each director of the Corporation shall be eliminated or limited to the fullest extent permitted by applicable law, as amended. Neither the amendment or repeal of this Article, nor the adoption of any provision of these Articles of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any acts or omissions occurring prior to such amendment, repeal or adoption of an inconsistent provision. VII. In discharging the duties of their respective positions and in determining what is believed to be in the best interests of the Corporation, the board of directors, committees of the board of directors, and individual directors, in addition to considering the effects of any action on the Corporation or its shareholders, may consider the interests of the employees, customers, suppliers, and creditors of the Corporation and its subsidiaries, the communities in which offices or other establishments of the Corporation and its subsidiaries are located, and all other factors such directors consider pertinent; provided, however, that this Article shall be deemed solely to grant discretionary authority to the directors and shall not be deemed to provide to any constituency any right to be considered. IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation on March 31, 1995. /s/ Robert T. Molinet --------------------------- Robert T. Molinet Incorporator 3 ARTICLES OF AMENDMENT OF SOFTSENSE OF GEORGIA, INC. I. The name of the Corporation is Softsense of Georgia, Inc. II. The Articles of Incorporation of the Corporation shall be amended by deleting Article II thereof in its entirety and substituting the following in lieu of Article II: "II. The authorized capital of the Corporation shall consist of 30,000,000 shares of capital stock which shall be represented by the following securities: A. 20,000,000 shares of no par value common stock designated as Common Stock and having the following attributes: (1) On all matters as to which the stockholders of the Corporation are entitled to vote, and except as otherwise provided in these Articles of Incorporation or by law, each share of Common Stock shall have one vote and shall vote with all other shares of Common Stock as a single class. (2) Except as specifically provided for otherwise in these Articles of Incorporation, the Common Stock and Class A Common Stock shall rank pari passu and shall possess equal rights and privileges on a share for share basis, including any rights to liquidating or other distributions. B. 10,000,000 shares of no par value common stock designated as Class A Common Stock and having the following attributes: (1) On all matters as to which holders of shares of Common Stock are entitled to vote, and except as otherwise provided in these Articles of Incorporation or by law, holders of Class A Common Stock shall have no right to vote. (2) The shares of Class A Common Stock shall be convertible into the Corporation's Common Stock automatically, and without any further action on the part of either the Corporation or the stockholders, at the rate of one share of Common Stock for each share of Class A Common Stock on the earlier to occur of (i) the closing time of an initial public offering by the Corporation (as defined herein) or (ii) the closing time of a change in control of the Corporation (as defined herein). The Corporation shall promptly notify the holders of Class A Common Stock of any such conversion. 1 As used herein, the phrase "closing time of an initial public offering by the Corporation" shall mean the closing time and date of the receipt by the Corporation of not less than $8,000,000 in cash proceeds from a public offering of securities registered by the Corporation with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended. As used herein, the phrase "closing time of a change in control of the Corporation" shall mean the closing time and date of: (i) any transaction, whether by merger, consolidation, asset sale, tender offer, reverse stock split or otherwise, which results in the acquisition or beneficial ownership (as such term is defined under rules and regulations promulgated under the Securities Exchange Act of 1934, as amended) by any person or entity or any group of persons or entities acting in concert, of 50% or more of the outstanding shares of common stock of the Corporation, (ii) the sale of all or substantially all of the assets of the Corporation, or (iii) the liquidation of the Corporation. Notwithstanding the foregoing, a change of control of the Corporation shall not be deemed to have occurred for purposes of this Article II(B)(2) in the event the Corporation reincorporates into another jurisdiction or in the event of any acquisition of Common Stock of the Corporation by any one or more of the following persons: Erez Goren, Thomas J. Barrella, Alon Goren or Lawrence D. Parker." III. The amendment set forth in Article II of these Articles of Amendment was adopted on March 31, 1995. IV. The amendment set forth in Article II of these Articles of Amendment was adopted by the Board of Directors without shareholder action. Because the Corporation has no shareholders, shareholder action was not required. IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be executed by Erez Goren, President of the Corporation, on this 19th day of October, 1995. SOFTSENSE OF GEORGIA, INC. By: /s/ Erez Goren ____________________________ Erez Goren, President 2 ARTICLES OF AMENDMENT OF SOFTSENSE COMPUTER PRODUCTS, INC. I. The name of the Corporation is Softsense Computer Products, Inc. II. The Articles of Incorporation of the Corporation shall be amended by deleting Article I thereof in its entirety and substituting the following in lieu of Article I: "I. The name of the Corporation is Radiant Systems, Inc." III. The amendment set forth in Article II of these Articles of Amendment was adopted on October 25, 1996. IV. The amendment was adopted by action of the Corporation's Board of Directors and the Corporation's Shareholders in accordance with Section 14-2- 1003 of the Georgia Business Corporation Code. IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment to be executed by its President, on this 25th day of October, 1996. SOFTSENSE COMPUTER PRODUCTS, INC. By: /s/ Erez Goren ---------------------------- Erez Goren, President 3 EX-3.II 4 BYLAWS Exhibit 3(ii) BY-LAWS OF SOFTSENSE COMPUTER PRODUCTS, INC., a Georgia corporation (formerly known as Softsense of Georgia, Inc.) BY-LAWS OF SOFTSENSE COMPUTER PRODUCTS, INC. TABLE OF CONTENTS
Page ---- ARTICLE I. - DEFINITIONS................................................. 1 ARTICLE II. - GENERAL PROVISIONS REGARDING NOTICES....................... 1 Section 1. NOTICES...................................................... 1 Section 2. WAIVER OF NOTICE............................................. 2 ARTICLE III. - SHAREHOLDERS' MEETINGS.................................... 3 Section 1. PLACE OF MEETING............................................. 3 Section 2. ANNUAL MEETING............................................... 4 Section 3. SPECIAL MEETINGS............................................. 4 Section 4. NOTICE TO SHAREHOLDERS....................................... 4 Section 5. FIXING OF RECORD DATE........................................ 5 Section 6. QUORUM AND VOTING REQUIREMENTS............................... 6 Section 7. PROXIES...................................................... 7 Section 8. INFORMAL ACTIONS BY SHAREHOLDERS............................. 7 ARTICLE IV. - DIRECTORS.................................................. 7 Section 1. GENERAL POWERS............................................... 7 Section 2. NUMBER, TENURE, QUALIFICATIONS............................... 8 Section 3. VACANCIES, HOW FILLED........................................ 8 Section 4. PLACE OF MEETING............................................. 8 Section 5. COMPENSATION................................................. 8 Section 6. REGULAR MEETINGS............................................. 8 Section 7. SPECIAL MEETINGS............................................. 8 Section 8. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER....................................................... 9 Section 9. QUORUM....................................................... 9 Section 10. MANNER OF ACTING............................................ 9 Section 11. COMMITTEES.................................................. 9 Section 12. ACTION WITHOUT FORMAL MEETING............................... 10 Section 13. CONFERENCE CALL MEETINGS.................................... 10 ARTICLE V. - OFFICERS.................................................... 10 Section 1. GENERALLY.................................................... 10
(i)
Page ---- Section 2. COMPENSATION................................................. 11 Section 3. VACANCIES.................................................... 11 Section 4. CHIEF EXECUTIVE OFFICER...................................... 11 Section 5. SECRETARY.................................................... 11 Section 6. DEPUTY OFFICERS.............................................. 12 Section 7. ASSISTANT OFFICERS........................................... 12 ARTICLE VI. - INDEMNIFICATION............................................ 12 Section 1. DEFINITIONS FOR INDEMNIFICATION PROVISIONS................... 12 Section 2. MANDATORY INDEMNIFICATION AGAINST EXPENSES................... 13 Section 3. AUTHORITY FOR PERMISSIVE INDEMNIFICATION..................... 13 Section 4. DETERMINATION AND AUTHORIZATION OF PERMITTED INDEMNIFICATION.............................................. 14 Section 5. SHAREHOLDER-APPROVED INDEMNIFICATION......................... 15 Section 6. ADVANCES FOR EXPENSES........................................ 16 Section 7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS........... 16 Section 8. INSURANCE.................................................... 16 Section 9. EXPENSES FOR APPEARANCE AS WITNESS........................... 16 ARTICLE VII. - REIMBURSEMENT OF NON-DEDUCTIBLE PAYMENTS TO OFFICERS AND EMPLOYEES........................ 17 ARTICLE VIII. - FISCAL YEAR.............................................. 17 ARTICLE IX. - ANNUAL STATEMENTS.......................................... 17 ARTICLE X. - CAPITAL STOCK............................................... 18 Section 1. FORM......................................................... 18 Section 2. TRANSFER..................................................... 19 Section 3. RIGHTS OF HOLDER............................................. 19 Section 4. LOST OR DESTROYED CERTIFICATES............................... 19 ARTICLE XI. - SEAL....................................................... 19 ARTICLE XII. - REGISTERED OFFICE AND REGISTERED AGENT.................... 19 ARTICLE XIII. - AMENDMENTS............................................... 20 Section 1. AMENDMENTS GENERALLY......................................... 20 Section 2. BY-LAW INCREASING QUORUM OR VOTING REQUIREMENTS................................................. 20
(ii) BY-LAWS OF SOFTSENSE COMPUTER PRODUCTS, INC. (formerly known as Softsense of Georgia, Inc.) (ADOPTED: MARCH 31, 1995) ARTICLE I. DEFINITIONS As used in these By-Laws, the terms set forth below shall have the meanings indicated, as follows: "Articles of Incorporation" means the Articles of Incorporation of the ------------------------- Corporation, as amended from time to time. "Board" shall mean the Board of Directors of the Corporation. ----- "Chief Executive Officer" shall mean the President of the Corporation, or ----------------------- such other officer as shall be designated by the Board as having the duties of the Chief Executive Officer, as described in Section 4 of Article V of these By- Laws. "Code" shall mean the Georgia Business Corporation Code, as amended from ---- time to time. "Corporation" shall mean Softsense Computer Products, Inc., a Georgia ----------- corporation. "Secretary" shall mean the Secretary of the Corporation, or such other --------- officer as shall be designated by the Board as having the duties of the corporate Secretary as described in Section 5 of Article V of these By-Laws. "Secretary of State" shall mean the Secretary of State of Georgia. ------------------ "Voting group" shall have the meaning set forth in subsection (a) of Section ------------ 6 of Article III of these By-Laws. ARTICLE II. GENERAL PROVISIONS REGARDING NOTICES Section 1. NOTICES. Except as otherwise provided in the Articles of Incorporation or these By-Laws, or as otherwise required by applicable law: 1 (a) Any notice required by these By-Laws or by law shall be in writing unless oral notice is reasonable under the circumstances. (b) Notice may be communicated in person; by telephone, telegraph, teletype, or other form of wire or wireless communication; or by mail or private carrier. If these forms of personal notice are impracticable, notice may be communicated by a newspaper of general circulation in the area where published, or by radio, television, or other form of public broadcast communication. (c) Written notice by the Corporation to any shareholder, if in a comprehensible form, is effective when mailed, if mailed with first-class postage prepaid and correctly addressed to the shareholder's address shown in the Corporation's current record of shareholders; provided that if the -------- Corporation has more than 500 shareholders of record entitled to vote at a meeting, it may utilize a class of mail other than first class if the notice of the meeting is mailed, with adequate postage prepaid, not less than 30 days before the date of the meeting. (d) Written notice to the Corporation may be addressed to its registered agent at its registered office or to the Corporation or its Secretary at its principal office shown in its most recent annual registration with the Secretary of State. (e) Except as provided in subsection (c) of this Section 1, written notice, if in a comprehensible form, is effective at the earliest of the following: (1) When received, or when delivered, properly addressed, to the addressee's last known principal place of business or residence; (2) Five days after its deposit in the mail, as evidenced by the postmark, if mailed with first-class postage prepaid and correctly addressed; or (3) On the date shown on the return receipt, if sent by registered or certified mail, return receipt requested, and the receipt is signed by or on behalf of the addressee. (f) Oral notice is effective when communicated if communicated in a comprehensible manner. (g) In calculating time periods for notice under these By-Laws, when a period of time measured in days, weeks, months, years, or other measurement of time is prescribed for the exercise of any privilege or the discharge of any duty, the first day shall not be counted but the last day shall be counted. Section 2. WAIVER OF NOTICE. Except as otherwise provided or required by the Articles of Incorporation, these By-Laws or applicable law: (a) A shareholder may waive any notice required to be given to such shareholder, before or after the date and time stated in the notice. The waiver must be in writing, be signed by the 2 shareholder entitled to the notice, and be delivered to the Corporation for inclusion in the minutes or filing with the Corporation's corporate records. (b) A shareholder's attendance at a meeting: (1) Waives objection to lack of notice or defective notice of the meeting, unless the shareholder at the beginning of the meeting objects to holding the meeting or transacting business at the meeting; and (2) Waives objection to consideration of a particular matter at the meeting that is not within the purpose or purposes described in the meeting notice, unless the shareholder objects to considering the matter when it is presented. (c) Neither the business transacted nor the purpose of the meeting need be specified in the waiver, except that any waiver by a shareholder of the notice of a meeting of shareholders with respect to an amendment of the Articles of Incorporation, a plan of merger or share exchange, a sale of assets or any other action which would entitle the shareholder to exercise statutory dissenter's rights under the Code and obtain payment for his shares shall not be effective unless: (1) Prior to the execution of the waiver, the shareholder shall have been furnished the same material that under the Code would have been required to be sent to the shareholder in a notice of the meeting, including notice of any applicable dissenters' rights as provided in the Code; or (2) The waiver expressly waives the right to receive the material required to be furnished. (d) A director may waive any notice required to be given to such director by the Code, the Articles of Incorporation, or these By-Laws before or after the date and time stated in the notice. Except as provided by subsection (e) of this Section 2, the waiver must be in writing, signed by the director entitled to the notice, and delivered to the Corporation for inclusion in the minutes or filing with the Corporation's corporate records. (e) A director's attendance at or participation in a meeting waives any required notice to him of the meeting unless the director at the beginning of the meeting (or promptly upon his arrival) objects to holding the meeting or transacting business at the meeting and does not thereafter vote for or assent to action taken at the meeting. ARTICLE III. SHAREHOLDERS' MEETINGS Section 1. PLACE OF MEETING. The Board may designate any place within or outside the State of Georgia as the place of meeting for any annual or special shareholders' meeting. A waiver 3 of notice signed by all shareholders entitled to vote at a meeting may designate any place within or outside the State of Georgia as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Corporation. Section 2. ANNUAL MEETING. An annual meeting of the shareholders shall be held on the second Tuesday in April of each year, if not a legal holiday (and if such is a legal holiday, then on the next following day not a legal holiday), at such time and place as the Board shall determine, at which time the shareholders shall elect a Board and transact such other business as may be properly brought before the meeting. Notwithstanding the foregoing, the Board may cause the annual meeting of shareholders to be held on such other date in any year as the Board shall determine to be in the best interests of the Corporation, and any business transacted at that meeting shall have the same validity as if transacted on the date designated herein. Section 3. SPECIAL MEETINGS. Except to the extent otherwise prescribed by statute or the Articles of Incorporation, special meetings of the shareholders, for any purpose or purposes, may be called by the Chief Executive Officer, or by the presiding officer of the Board, if any. The Chief Executive Officer or the Secretary shall call a special meeting when: (1) requested in writing by any two or more of the directors; or (2) requested in writing by shareholders owning shares representing at least twenty-five percent (25%) of all the votes entitled to be cast on any issue proposed to be considered at such meeting. Any such written request shall be signed and dated and shall state the purpose or purposes of the proposed meeting. Section 4. NOTICE TO SHAREHOLDERS. (a) Except as otherwise specifically provided in this Section 4, requirements with respect to the giving of notice and waiver of notice shall be governed by the provisions of Article II of these By-Laws. (b) The Corporation shall give notice to each shareholder entitled to vote thereat of the date, time and place of each annual and special shareholders' meeting no fewer than ten (10) nor more than sixty (60) days before the meeting date. (c) Unless otherwise required by the Code with respect to meetings at which specified actions will be considered (including but not limited to mergers, certain share exchanges, certain asset sales by the Corporation, and dissolution of the Corporation), notice of an annual meeting need not contain a description of the purpose or purposes for which the meeting is called. (d) Notice of a special meeting must include a description of the purpose or purposes for which the meeting is called. (e) Unless a new record date is set (or is required by law or by the terms of these By-Laws to be set) therefor, notice of the date, time and place of any adjourned meeting need not be given otherwise than by the announcement at the meeting before adjournment. If a new record date for the 4 adjourned meeting is or must be fixed, however, notice of the adjourned meeting must be given in accordance with these By-Laws as if such adjourned meeting were a newly-called meeting. (f) If any corporate action proposed to be considered at a meeting of shareholders would or might give rise to statutory dissenters' rights under the Code, the notice of such meeting shall state that the meeting is to include consideration of such proposed corporate action, and that the consummation of such action will or might give rise to such dissenters' rights, and shall include the description of such statutory dissenters' rights required by the Code. (g) If any corporate action which would give rise to statutory dissenters' rights under the Code is taken by written consent of shareholders without a meeting, or is taken at a meeting with respect to which less than all shareholders were entitled to receive notice, or is otherwise taken without a vote of shareholders, the Corporation shall cause notice thereof, including the information concerning statutory dissenters' rights contemplated by paragraph (b) above, to be given, not more than ten (10) days after the adoption of such action by shareholder vote at a meeting or by written consent to those shareholders who did not execute such written consent or who were not entitled to receive notice of such meeting, or to all shareholders if such action was otherwise taken without a vote of shareholders. Section 5. FIXING OF RECORD DATE. (a) For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to demand a special meeting of shareholders, or shareholders entitled to take any other action, the Board may fix in advance (but not retroactively from the date the Board takes such action) a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days prior to the meeting or action requiring such determination of shareholders. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, the close of business on the last business day before the first notice of such meeting is delivered to shareholders shall be the record date. If no record date is fixed for determining shareholders entitled to take action without a meeting, the date the first shareholder signs the consent shall be the record date for such purpose. If no record date is fixed for determining shareholders entitled to demand a special meeting, or to take other action, the date of receipt of notice by the Corporation of demand for such meeting, or the date on which such other action is to be taken by the shareholders, shall be the record date for such purpose. (b) A separate record date may be established for each voting group entitled to vote separately on a matter at a meeting. (c) A determination of shareholders entitled to notice of or to vote at a shareholders meeting is effective for any adjournment of the meeting unless the Board fixes a new record date, which it must do if the meeting is adjourned to a date more than 120 days after the date fixed for the original meeting. 5 (d) For the purpose of determining shareholders entitled to a distribution by the Corporation (other than one involving a purchase, redemption or other acquisition of the Corporation's shares), the record date shall be the date fixed for such purpose by the Board, or if the Board does not fix such a date, the date on which the Board authorizes such distribution. Section 6. QUORUM AND VOTING REQUIREMENTS. (a) Except as otherwise provided by the Articles of Incorporation or the Code: (i) A "voting group" with respect to any given matter means all shares of one or more class or series which, under the Articles of Incorporation or the Code, are entitled to vote and be counted together collectively on that matter, and unless specified otherwise in the Articles of Incorporation, the Code or these By- Laws, all shares entitled to vote on a given matter shall be deemed to be a single voting group for purposes of that matter. (ii) Each outstanding share, regardless of class, is entitled to one vote on each matter voted on at a shareholders' meeting. (iii)A majority of the votes entitled to be cast on the matter by a voting group constitutes a quorum of that voting group for action on that matter. (iv) The presence of a quorum of each voting group entitled to vote thereon shall be the requisite for transaction of business on a given matter. (v) Action on a matter other than election of directors is approved by a voting group if a quorum of such voting group exists and the number of votes cast within such voting group in favor of such action exceeds the number of votes cast within such voting group against such action. (vi) Except as otherwise provided in these By-Laws, all shares entitled to vote for election of directors shall vote thereon as a single voting group, and directors shall be elected by a plurality of votes cast by shares entitled to vote in the election in a meeting at which a quorum of such voting group is present. (b) Once a share is represented for any purpose other than solely to object to holding a meeting or transacting business at the meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is, or is required by law or these By-Laws to be, set for that adjourned meeting. (c) If a quorum for transaction of business shall not be present at a meeting of shareholders, the shareholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, until the requisite amount of voting stock shall be present. No notice other than announcements at the meeting before adjournment shall be required of the new -6- date, time or place of the adjourned meeting, unless a new record date for such adjourned meeting is, or is required by law or these By-Laws to be, fixed. At such adjourned meeting (for which no new record date is, or is required to be, set) at which a quorum shall be present in person or by proxy, any business may be transacted that might have been transacted at the meeting originally called. Section 7. PROXIES. At every meeting of the shareholders, any shareholder having the right to vote shall be entitled to vote in person or by proxy, but no proxy shall be: (i) effective unless given in writing and signed, either personally by the shareholder or his attorney-in-fact; or (ii) effective until received by the Secretary or other officer or agent authorized to tabulate votes; or valid after eleven months from its date, unless said proxy expressly provides for a longer period. Section 8. INFORMAL ACTIONS BY SHAREHOLDERS. Any action required or permitted to be taken at a meeting of the shareholders may be taken without a meeting if written consent (which may take the form of one or more counterpart copies), setting forth the action so taken, shall be signed by all the holders of all the shares entitled to vote with respect to the subject matter thereof and delivered to the Corporation for inclusion in the minutes or filing with the corporate records. Such consent shall have the same force and effect as a unanimous vote of the shareholders; provided, however, that no such consent which purports to be an approval of any plan of merger, share exchange, asset sale or other transaction (i) as to which shareholder approval is required by the Code and (ii) with respect to which specific disclosure requirements to voting shareholders are imposed by the Code, shall be effective unless: (1) prior to the execution of the consent, each consenting shareholder shall have been furnished the same material which, under the Code, would have been required to be sent to shareholders in a notice of a meeting at which the proposed action would have been submitted to the shareholders for action, including notice of any applicable dissenters' rights; or: (2) the written consent contains an express waiver of the right to receive the material otherwise required to be furnished. ARTICLE IV. DIRECTORS Section 1. GENERAL POWERS. All corporate powers of the Corporation shall be exercised by or under the authority of, and the business and affairs of the Corporation managed under the direction of, its Board, subject to any limitation set forth in the Articles of Incorporation, or any amendment to these By-Laws approved by the shareholders of the Corporation, or any otherwise lawful agreement among the shareholders of the Corporation. Section 2. NUMBER, TENURE, QUALIFICATIONS. The Board shall consist of one or more individuals, the precise number to be fixed by resolution of the Board of Directors from time to time. Each member of the Board shall hold office until the annual meeting of shareholders held -7- next after his election and until his successor has been duly elected and has qualified, or until his earlier resignation, removal from office, or death. Directors shall be natural persons who are eighteen (18) years of age or older, but need not be shareholders or residents of Georgia unless the Articles of Incorporation require otherwise. Section 3. VACANCIES, HOW FILLED. If any vacancy shall occur in the membership of the Board by reason of the resignation, removal or death of a director, the remaining directors shall continue to act, and such vacancies may be filled by the affirmative vote of the majority of the directors then in office, though less than a quorum, and if not therefore filled by action of the directors, may be filled by the shareholders at any meeting held during the existence of such vacancy. A director elected to fill a vacancy shall be elected for the unexpired term of his predecessor in office. Section 4. PLACE OF MEETING. The Board may hold its meetings at such place or places within or without the State of Georgia as it may from time to time determine. Section 5. COMPENSATION. Directors may be allowed such compensation for attendance at regular or special meetings of the Board and of any special or standing committees thereof as may be from time to time determined by resolution of the Board. Section 6. REGULAR MEETINGS. A regular annual meeting of the Board shall be held, without other notice than this By-Law, immediately after, and at the same place as, the annual meeting of shareholders. The Board may provide, by resolution, the time and place within or without the State of Georgia, for the holding of additional regular meetings without other notice than such resolution. Section 7. SPECIAL MEETINGS. Special meetings of the Board may be called by the Chief Executive Officer or the presiding officer of the Board, if different from the Chief Executive Officer, on not less than two (2) days' notice to each director by mail, telegram, cablegram or other form of wire or wireless communication, or personal delivery or other form of communication authorized under the circumstances by the Code, and shall be called by the Chief Executive Officer or the Secretary in like manner and on like notice on the written request of any two (2) or more members of the Board. Such notice shall state the time, date and place of such meeting, but need not describe the purpose of the meeting. Any such special meeting shall be held at such time and place as shall be stated in the notice of the meeting. Section 8. GENERAL PROVISIONS REGARDING NOTICE AND WAIVER. Except as otherwise expressly provided in this Article IV, matters relating to notice to directors and waiver of notice by directors shall be governed by the provisions of Article II of these By-Laws. Section 9. QUORUM. At all meetings of the Board, unless otherwise provided in the Articles of Incorporation or other provisions of these By-Laws, the presence of a majority of the Directors shall constitute a quorum for the transaction of business. In the absence of a quorum a majority of the Directors present at any meeting may adjourn from time to time until a quorum be had. Notice -8- of the time and place of any adjourned meeting need only be given by announcement at the meeting at which adjournment is taken. Section 10. MANNER OF ACTING. Except as expressly otherwise provided by the Articles of Incorporation or other provisions of these By-Laws, if a quorum is present when a vote is taken, the affirmative vote of a majority of directors present is the act of the Board. A director who is present at a meeting when corporate action is taken is deemed to have assented to the action unless: (1) He objects at the beginning of the meeting (or promptly upon his arrival) to holding it or transacting business at the meeting; (2) His dissent or abstention from the action taken is entered in the minutes of the meeting; or (3) He does not vote in favor of the action taken and delivers written notice of his dissent or abstention to the presiding officer of the meeting before its adjournment or to the Corporation immediately after adjournment of the meeting. Section 11. COMMITTEES. (a) Except as otherwise provided by the Articles of Incorporation, the Board may create one or more committees and appoint members of the Board to serve on them. Each committee may have one or more members, who serve at the pleasure of the Board. (b) The provisions of these By-Laws and of the Code which govern meetings, action without meetings, notice and waiver of notice, and quorum and voting requirements of the Board, shall apply as well to committees created under this Section 11 and their members. (c) To the extent specified by the Articles of Incorporation, these By-Laws and the resolution of the Board creating such committee, each committee may exercise the authority of the Board, provided that a committee may not: (1) Approve, or propose to shareholders for approval, action required by the Code to be approved by shareholders; (2) Fill vacancies on the Board or on any of its committees; (3) Exercise any authority which the Board may have to amend the Articles of Incorporation; (4) Adopt, amend, or repeal by-laws; or (5) Approve a plan of merger not requiring shareholder approval. -9- Section 12. ACTION WITHOUT FORMAL MEETING. Except as expressly otherwise provided in the Articles of Incorporation, any action required or permitted to be taken at any meeting of the Board or of any committee thereof may be taken without a meeting if written consent thereto (which may take the form of one or more counterparts) is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the Board or committee. A consent executed in accordance herewith has the effect of a meeting vote and may be described as such in any document. Section 13. CONFERENCE CALL MEETINGS. Members of the Board, or any committee of the Board, may participate in a meeting of the Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can simultaneously hear each other during the meeting, and participation in a meeting pursuant to this Section shall constitute presence in person at such meeting. ARTICLE V. OFFICERS Section 1. GENERALLY. The Board shall from time to time elect or appoint such officers as it shall deem necessary or appropriate to the management and operation of the Corporation, which officers shall hold their offices for such terms as shall be determined by the Board and shall exercise such powers and perform such duties as are specified in these By-Laws or in a resolution of the Board. Except as specifically otherwise provided in resolutions of the Board, the following requirements shall apply to election or appointment of officers: (a) The Corporation shall have, at a minimum, the following officers, which offices shall bear the titles designated therefor by resolution of the Board, but in the absence of such designation shall bear the titles set forth below: Office Title ------ ----- Chief Executive Officer President Secretary Secretary (b) All officers of the Corporation shall serve at the pleasure of the Board, and in the absence of specification otherwise in a resolution of the Board, each officer shall be elected to serve until the next succeeding annual meeting of the Board and the election and qualification of his successor, subject to his earlier death, resignation or removal. (c) Any person may hold two or more offices simultaneously, and no officer need be a shareholder of the Corporation. -10- (d) If so provided by resolution of the Board, any officer may be delegated the authority to appoint one or more officers or assistant officers, which appointed officers or assistant officers shall have the duties and powers specified in the resolution of the Board. Section 2. COMPENSATION. The salaries of the officers of the Corporation shall be fixed by the Board, except that the Board may delegate to any officer or officers the power to fix the compensation of any other officer. Section 3. VACANCIES. A vacancy in any office, because of resignation, removal or death may be filled by the Board for the unexpired portion of the term, or if so provided by resolution of the Board, by an officer of the Corporation to whom has been delegated the authority to appoint the holder of such vacated office. Section 4. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have such title or titles designated by the Board and shall be the principal executive officer of the Corporation. Subject to the control of the Board, the Chief Executive Officer shall in general manage, supervise and control all of the business and affairs of the Corporation. He shall, when present, preside at all meetings of all of the stockholders. He may sign, individually or in conjunction with any other proper officer of the Corporation thereunto authorized by the Board, certificates for shares of the Corporation, any deeds, mortgages, bonds, policies of insurance, contracts, investment certificates, or other instruments which the Board has authorized to be executed, except in cases where the execution thereof shall be expressly delegated by the Board or by the By-Laws to some other officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of the Chief Executive Officer of the Corporation and such other duties as may be prescribed by the Board from time to time. Section 5. SECRETARY. The Secretary may be designated by any such title as determined by resolution of the Board, but shall have the duties of the officer denominated the "Secretary" under the Code. Such officer shall: (a) attend and keep the Minutes of the shareholders' meetings and of the Board's meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these By-Laws or as otherwise required by law or the provisions of the Articles of Incorporation; (c) be custodian of the corporate records and of the seal of the Corporation and see that the seal of the Corporation is affixed to all documents, the execution of which on behalf of the Corporation under its seal is duly authorized; (d) maintain, or cause an agent designated by the Board to maintain, a record of the Corporation's shareholders in a form that permits the preparation of a list of the names and addresses of all shareholders in alphabetical order by class of shares, showing the number and class of shares held by each; (e) have general charge of the stock transfer books of the Corporation or responsibility for supervision, on behalf of the Corporation, of any agent to which stock transfer responsibility has been delegated by the Board; (f) have responsibility for the custody, maintenance and preservation of those corporate records which the Corporation is required by the Code or otherwise to create, maintain or preserve; (g) in general perform all duties incident to the legal office of "Secretary", as described in the Code, and such other duties as from time to time may be assigned to him by the Board. -11- Section 6. DEPUTY OFFICERS. The Board may create one or more deputy officers whose duties shall be, among any other designated thereto by the Board, to perform the duties of the officer to which such office has been deputized in the event of the unavailability, death or inability or refusal of such officer to act. Deputy officers may hold such titles as designated therefor by the Board; however, any office designated with the prefix "Vice" or "Deputy" shall be, unless otherwise specified by resolution of the Board, automatically a deputy officer to the office with the title of which the prefix term is conjoined. Deputy officers shall have such other duties as prescribed by the Board from time to time. Section 7. ASSISTANT OFFICERS. The Board may appoint one or more officers who shall be assistants to principal officers of the Corporation, or their deputies, and who shall have such duties as shall be delegated to such assistant officers by the Board or such principal officers, including the authority to perform such functions of those principal officers in the place of and with full authority of such principal officers as shall be designated by the Board or (if so authorized) by such principal officers. The Board may by resolution authorize appointment of assistant officers by those principal officers to which such appointed officers will serve as assistants. ARTICLE VI. INDEMNIFICATION Section 1. DEFINITIONS FOR INDEMNIFICATION PROVISIONS. As used in this Article VI, the term: (1) "Corporation" (when spelled with an initial capital letter) includes any domestic or foreign predecessor entity of the "Corporation" (as defined in Article I of these By-Laws) in a merger or other transaction in which the predecessor's existence ceased upon consummation of the transaction. (2) "director" means an individual who is or was a director of the Corporation or an individual who, while a director of the Corporation, is or was serving at the Corporation's request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. A director is considered to be serving an employee benefit plan at the Corporation's request if his duties to the Corporation also impose duties on, or otherwise involve services by, him to the plan or to participants in or beneficiaries of the plan. Director includes, unless the context requires otherwise, the estate or personal representative of a director. (3) "expenses" include attorneys' fees. (4) "liability" means the obligation to pay a judgment, settlement, penalty, fine (including an excise tax assessed with respect to an employee benefit plan), or reasonable expenses incurred with respect to a proceeding. -12- (5) "party" includes an individual who was, is, or is threatened to be made a named defendant or respondent in a proceeding. (6) "proceeding" means any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative and whether formal or informal. Section 2. MANDATORY INDEMNIFICATION AGAINST EXPENSES. Unless otherwise provided by the Articles of Incorporation, to the extent that a director has been successful, on the merits or otherwise, in the defense of any proceeding to which he was a party, or in defense of any claim, issue, or matter therein, because he is or was a director of the Corporation, the Corporation shall indemnify the director against reasonable expenses incurred by him in connection therewith. Section 3. AUTHORITY FOR PERMISSIVE INDEMNIFICATION. (a) Except as provided in subsections (d) and (e) of this Section 3, or as otherwise provided in the Articles of Incorporation, the Corporation may indemnify or obligate itself to indemnify an individual made a party to a proceeding because he is or was a director against liability incurred in the proceeding if he acted in a manner he believed in good faith to be in or not opposed to the best interests of the Corporation and, in the case of any criminal proceeding, he had no reasonable cause to believe his conduct was unlawful. (b) A director's conduct with respect to an employee benefit plan for a purpose he believed in good faith to be in the interests of the participants in and beneficiaries of the plan is conduct that satisfies the requirement of subsection (a) of this Section 3. (c) The termination of a proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director did not meet the standard of conduct set forth in subsection (a) of this Section 3. (d) The Corporation may not indemnify a director under this Section 3: (1) In connection with a proceeding by or in the right of the Corporation in which the director was adjudged liable to the Corporation; or (2) In connection with any other proceeding in which he was adjudged liable on the basis that personal benefit was improperly received by him. (e) Indemnification permitted under this Section 3 in connection with a proceeding by or in the right of the Corporation is limited to reasonable expenses incurred in connection with the proceeding. -13- Section 4. DETERMINATION AND AUTHORIZATION OF PERMITTED INDEMNIFICATION. (a) The Corporation may not indemnify a director under Section 3 of this Article VI unless a determination has been made in the specific case that indemnification of the director is permissible in the circumstances because he has met the standard of conduct set forth in subsection (a) of such Section 3. (b) The determination required by subsection (a) hereof shall be made: (1) By the Board by majority vote of a quorum consisting of directors not at the time parties to the proceeding; (2) If a quorum cannot be obtained under paragraph (1) of this subsection (b), by majority vote of a committee duly designated by the Board (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding; (3) By special legal counsel: (A) Selected by the Board or its committee in the manner prescribed in paragraph (1) or (2) of this subsection; or (B) If a quorum of the Board cannot be obtained under paragraph (1) of this subsection and a committee cannot be designated under paragraph (2) of this subsection, selected by majority vote of the full Board (in which directors who are parties may participate); or (4) By the shareholders, but shares owned by or voted under the control of directors who are at the time parties to the proceeding may not be voted on the determination. (c) Authorization of indemnification or an obligation to indemnify and evaluation as to reasonableness of expenses shall be made in the same manner as the determination that indemnification is permissible, as set forth in subsection (b) hereof, except that if such determination is made by special legal counsel, authorization of indemnification and evaluation as to reasonableness of expenses shall be made by those entitled to select counsel under paragraph (3) of subsection (b) of this Section 4. Section 5. SHAREHOLDER-APPROVED INDEMNIFICATION. (a) Without regard to any limitations contained in any other section of this Article VI, the Corporation may, if authorized by its shareholders by a majority of votes which would be entitled to be cast in a vote to amend the Corporation's Articles of Incorporation (which authorization may take the form of an amendment to the Articles of Incorporation or a contract, resolution or by-law -14- approved or ratified by the requisite shareholder vote), indemnify or obligate itself to indemnify a director made a party to a proceeding, including a proceeding brought by or in the right of the Corporation. (b) The Corporation shall not indemnify a director under this Section 5 for any liability incurred in a proceeding in which the director is adjudged liable to the Corporation or is subjected to injunctive relief in favor of the Corporation: (1) For any appropriation, in violation of his duties, of any business opportunity of the Corporation; (2) For acts or omissions which involve intentional misconduct or a knowing violation of law; (3) For any type of liability for unlawful distribution under Section 14- 2-832 of the Code, or any successor statute; or (4) For any transaction from which he received an improper personal benefit. (c) Where approved or authorized in the manner described in subsection (a) of this Section 5, the Corporation may advance or reimburse expenses incurred in advance of final disposition of the proceeding only if: (1) The director furnishes the Corporation a written affirmation of his good faith belief that his conduct does not constitute behavior of the kind described in subsection (b) of this Section 5; and (2) The director furnishes the Corporation a written undertaking, executed personally or on his behalf, to repay any advances if it is ultimately determined that he is not entitled to indemnification under this Section 5. Section 6. ADVANCES FOR EXPENSES. (a) The Corporation may pay for or reimburse the reasonable expenses incurred by a director who is a party to a proceeding in advance of final disposition of the proceeding if: (1) The director furnishes the Corporation a written affirmation of his good faith belief that he has met the standard of conduct set forth in subsection (a) of Section 3 of this Article VI; and (2) The director furnishes the Corporation a written undertaking, executed personally or on his behalf, to repay any advances if it is ultimately determined that he is not entitled to indemnification under this Article. -15- (b) The undertaking required by paragraph (2) of subsection (a) of this Section 6 must be an unlimited general obligation of the director but need not be secured and may be accepted without reference to financial ability to make repayment. Section 7. INDEMNIFICATION OF OFFICERS, EMPLOYEES, AND AGENTS. Except as otherwise provided in the Articles of Incorporation, an officer of the Corporation who is not a director is entitled to mandatory indemnification under Section 2 of this Article VI, and is entitled to permissive indemnification and advancement of expenses under the standards and procedures set forth in Section 3, 4 and 5 of this Article VI, to the same extent as a director, consistent with public policy. Section 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of an individual who is or was a director, officer, employee, or agent of the Corporation or who, while a director, officer, employee, or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, against liability asserted against or incurred by him in that capacity or arising from his status as a director, officer, employee, or agent, whether or not the Corporation would have power to indemnify him against the same liability under this Article VI or applicable law. Section 9. EXPENSES FOR APPEARANCE AS WITNESS. Nothing contained in this Article VI shall be deemed to limit the Corporation's power to pay or reimburse expenses incurred by a director or officer in connection with his appearance as a witness in a proceeding at a time when he has not been made a named defendant or respondent to the proceeding. ARTICLE VII. REIMBURSEMENT OF NON-DEDUCTIBLE PAYMENTS TO OFFICERS AND EMPLOYEES In the event any payments to an officer or employee of the Corporation, such as salary, commission, bonus, interest or rent expenses incurred by him, is thereafter disallowed in whole or in part by the Internal Revenue Service as a proper deduction for income tax purposes under Section 162 of the Internal Revenue Code of 1986 (or disallowed under any similar statutory section which may subsequently replace such Section 162), such disallowed payments shall be deemed to be an obligation owed by such officer or employee to the Corporation. Such disallowed payments shall be reimbursed by such officer or employee to the Corporation on or before ninety (90) days following the final determination of such disallowance by the Internal Revenue Service or entry of the final judgment of such determination if adjudicated. It shall be the duty of the Board to enforce reimbursement of each such amount disallowed, including the withholding from future compensation payments to such officer or employee until the amount owed to the Corporation has been recovered. -16- ARTICLE VIII. FISCAL YEAR The fiscal year of the Corporation shall be established by the Board or, in the absence of Board action establishing such fiscal year, by the Chief Executive Officer. ARTICLE IX. ANNUAL STATEMENTS (a) No later than four months after the close of each fiscal year, and in any case prior to the next annual meeting of shareholders, the Corporation shall prepare: (i) A balance sheet showing in reasonable detail the financial condition of the Corporation as of the close of the fiscal year, and (ii) A profit and loss statement showing the results of its operation during the fiscal year. Upon written request, the Corporation shall mail promptly to any shareholder of record a copy of the most recent such balance sheet and profit and loss statement. If prepared for other purposes, the Corporation shall also furnish upon written request a statement of sources and applications of funds and a statement of changes in shareholders' equity for the fiscal year. If financial statements are prepared by the Corporation on the basis of generally accepted accounting principles, the annual financial statements must also be prepared, and disclose that they are prepared, on that basis. If financial statements are prepared otherwise than on the basis of generally accepted accounting principles, they must so disclose and must be prepared on the same basis as other reports or statements prepared by the Corporation for the use of others. (b) If the annual financial statements are reported upon by a public accountant, his report must accompany them. If not, the statements must be accompanied by a statement of the Chief Executive Officer or the person responsible for the Corporation's accounting records: (1) Stating his reasonable belief whether the statements were prepared on the basis of generally accepted accounting principles and, if not, describing the basis of preparation; and (2) Describing any respects in which the statements were not prepared on a basis of accounting consistent with the statements prepared for the preceding year. -17- ARTICLE X. CAPITAL STOCK Section 1. FORM. (a) Except as otherwise provided for in paragraph (b) of this Section 1, the interest of each shareholder shall be evidenced by a certificate representing shares of stock of the Corporation, which shall be in such form as the Board may from time to time adopt and shall be numbered and shall be entered in the books of the Corporation as they are issued. Each certificate shall exhibit the holder's name, the number of shares and class of shares and series, if any, represented thereby, the name of the Corporation and a statement that the Corporation is organized under the laws of the State of Georgia. Each certificate shall be signed by one or more officers of the Corporation specified by resolution of the Board, but in the absence of such specifications, shall be valid if executed by the Chief Executive Officer or any Deputy or Assistant thereto, and such execution is countersigned by the Secretary, or any Deputy or Assistant thereto. Each stock certificate may but need not be sealed with the seal of the Corporation. (b) If authorized by resolution of the Board, the Corporation may issue some or all of the shares of any or all of its classes or series without certificates. The issuance of such shares shall not affect shares already represented by certificates until they are surrendered to the Corporation. Within a reasonable time after the issuance or transfer of any shares not represented by certificates, the Corporation shall send to the holder of such shares a written statement setting forth, with respect to such shares (i) the name of the Corporation as issuer and the Corporation's state of incorporation, (ii) the name of the person to whom such shares are issued, (iii) the number of shares and class of shares and series, if any, and (iv) the terms of any restrictions on transfer which, were such shares represented by a stock certificate would be required to be noted on such certificate, by law, by the Articles of Incorporation or these By-Laws, or by any legal agreement among the shareholders of the Corporation. Section 2. TRANSFER. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate, or, in the case of shares not represented by certificates, the person named in the Corporation's stock transfer records as the owner of such shares, or, in either case, by attorney lawfully constituted in writing. In addition, with respect to shares represented by certificates, transfers shall be made only upon surrender of the certificate therefor, or in the case of a certificate alleged to have been lost, stolen or destroyed, upon compliance with the provisions of Section 4, Article X of these By-Laws. Section 3. RIGHTS OF HOLDER. The Corporation shall be entitled to treat the holder of record of any share of the Corporation as the person entitled to vote such share (to the extent such share is entitled to vote), to receive any distribution with respect to such share, and for all other purposes and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. -18- Section 4. LOST OR DESTROYED CERTIFICATES. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit or affirmation of the fact in such manner as the Board may require and shall if the Board so requires, give the Corporation a bond of indemnity in the form and amount and with one or more sureties satisfactory to the Board, whereupon an appropriate new certificate may be issued in lieu of the one alleged to have been lost, stolen or destroyed. ARTICLE XI. SEAL The corporate seal shall be in such form as shall be specified in the minutes of the organizational meeting of the Corporation, or as the Board may from time to time determine. ARTICLE XII. REGISTERED OFFICE AND REGISTERED AGENT The address of the initial registered office of the corporation is Atlanta Financial Center, 3343 Peachtree Road, N.E., Suite 1800, Atlanta, Georgia 30326 and the name of the initial registered agent is Richard G. Greenstein. The corporation may amend this Article XII at any time to change its registered office or registered agent, without further action of its officers or directors, by filing with the Secretary of State a notice of such change, in accordance with Section 14-2-502 of the Code, or any successor statute. The corporation may have other offices at such places within or without the State of Georgia as the Board may from time to time designate or the business of the corporation may require or make desirable. ARTICLE XIII. AMENDMENTS Section 1. AMENDMENTS GENERALLY. (a) Except as otherwise provided in subsection (c) of this Section 1, or in the Articles of Incorporation or by applicable law, the Board may amend or repeal any provision of these By-Laws or adopt any new by-law, unless the shareholders have adopted, amended or repealed a particular by-law provision and, in doing so, have expressly reserved to the shareholders the right of amendment or repeal therefor. (b) The Corporation's shareholders have the right to amend or repeal any provision of these By-Laws, or to adopt new By-Law provisions, even though such provisions may also be adopted, amended or repealed by the Board. -19- (c) Any provision of these By-Laws limiting the authority of the Board or establishing staggered terms for directors may be adopted, amended or repealed only by the shareholders. Section 2. BY-LAW INCREASING QUORUM OR VOTING REQUIREMENTS. (a) Except as provided in Section 14-2-1113 of the Code or any successor statute thereto (relating to corporate business combinations with statutorily defined "interested shareholders"), any by-law which sets a greater quorum or voting requirement for shareholders (or voting groups of shareholders) than the minimum required by the Code may not be adopted, amended or repealed by the Board. (b) Except as otherwise provided in the Articles of Incorporation, a by-law that fixes a greater quorum or voting requirement for the Board than the minimum required by the Code: (1) May be adopted, amended, or repealed by the shareholders only by the affirmative vote of a majority of the votes entitled to be cast; or (2) May be adopted, amended, or repealed by the directors only by a majority of the entire Board. (c) A by-law adopted or amended by the shareholders that fixes a greater quorum or voting requirement for the Board may be amended or repealed only by a specified vote of either the shareholders or the Board, if such by-law provision so provides. -20- EX-10.1 5 FORM OF PURCHASE AGREEMENT EXHIBIT 10.1 SOFTSENSE COMPUTER PRODUCTS, INC. COMPU-TOUCH(R) LICENSE, SUPPORT AND EQUIPMENT PURCHASE AGREEMENT This Compu-Touch license, support and equipment purchase agreement (this "Agreement") is entered into this ___ day of ____________, ______, between Softsense computer products, Inc., a Georgia corporation, with its principal place of business at 1000 Alderman Drive, Suite A, Alpharetta, Georgia 30202 (hereinafter "Softsense"), and ________________________________, a corporation, organized and existing under the laws of the State of ______________, with its principal place of business at _________________________________________________ (hereinafter "Customer"). Now therefore, for and in consideration of the mutual premises, warranties and representations set forth in this Agreement and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. BACKGROUND Softsense is the developer and owner of several copyrighted ---------- computer programs (and associated copyrighted documentation) operable on certain microcomputer equipment which are designed for use in managing convenience stores and other retail establishments, and which are commonly referred to as Compu-Touch. Softsense is also the developer of certain items of computer equipment which are used in conjunction with these computer programs. Prior to the date of this Agreement, Customer accepted a proposal dated __________, 199__, from Softsense whereby Customer agreed to license one or more of Softsense's Compu-Touch programs from Softsense, purchase selected items of computer equipment from Softsense and receive support and maintenance services from Softsense with respect to such programs and equipment. The purpose of this Agreement is to establish the terms and conditions which will apply to the current and future licensing of the Compu-Touch programs, the purchase of equipment and the support and maintenance of such programs and equipment, whether such items are offered to Customer through one or more additional proposals. 2. DEFINITIONS In this Agreement, the following terms shall have the ----------- meanings set forth below: 2.1 "Enhancement" shall mean any change or addition to the Software that, when made, adds new function or improves the Software's utility, efficiency, functional capability or application. "Enhancement" shall not include separately priced or separately marketed computer programs, even if such computer programs are designed to interface with the Software. "Enhancement" includes all Error Corrections and Additional Enhancements (as defined in Section 6.2.2 herein). 2.2 "Equipment" shall mean the computer equipment, parts and supplies which have been formally approved by Softsense to be used in conjunction with the Software, and which are purchased by Customer from Softsense. "Equipment" includes equipment designed and manufactured by Softsense, equipment designed by Softsense and assembled by third parties (collectively, the "Softsense Equipment") and equipment designed and manufactured by third parties ("non-Softsense Equipment"). The Equipment is more particularly described in the Proposal, as defined below. 2.3 "Error" shall mean any failure of the Software to conform in all material respects to the published specifications for the Software. 2.4 "Error Correction" shall mean either a modification or addition that, when made, or added to the Software, establishes material conformity of the Software to its published specifications, or a procedure or routine that helps eliminate the practical adverse effect on Customer of such nonconformity. 2.5 "Order" shall mean a Customer issued purchase order in substantial conformity with the requirements of Section 3.6.2 herein, which when accepted by Softsense (as specified in Section 3.6.1 herein) shall bind the parties hereto to the terms on the face of the Order with respect to the Software, Equipment and Professional Services listed thereon. 2.6 "Proposal" shall mean a written offer by Softsense made to and accepted by Customer which relates to the licensing of Software, purchase of Equipment and provision of Software Support and Equipment Maintenance Services. The Proposal shall specify the Software and Equipment to be licensed and purchased by Customer, the fees and charges associated with the Software, Equipment, Software Support and Equipment Maintenance Services and other terms and conditions pertaining to the business transaction between Customer and Softsense. For purposes hereof, the proposal dated _____________, 19___ and referred to in Section 1 shall be deemed a "Proposal," as well as any future proposals offered to and accepted by Customer relating to the subject matter hereof. 2.7 "Services" shall mean the Equipment maintenance services that may be provided under an Equipment maintenance plan selected by Customer ("Equipment Maintenance Services"), Software support services that may be provided under a Software support plan selected by Customer ("Software Support Services"), and the professional services ("Professional Services") that may be provided by Softsense hereunder. 2.8 "Software" shall mean only the Softsense developed and owned computer programs licensed to Customer under this Agreement, consisting solely of machine readable computer code, user manuals, specifications and other materials in any form that relate to the Software. "Software" shall also include all Upgrades and Enhancements that are made available to Customer as part of the Software Support Services and Professional Services provided by Softsense hereunder. The Software is more particularly described in the Proposal. 2.9 "System" shall mean the Software and certain non-Softsense computer programs operating with the Equipment formally approved by Softsense. 2.10 "Upgrades" shall mean new versions or new releases of the Software, which may include Enhancements or maintenance modifications to the extent that such new versions and new releases are not developed to function under a new operating system. 3. FEES, ORDERING AND PAYMENT -------------------------- 2 3.1 System Pricing The fees for all Software and Equipment will -------------- be specified in each Proposal. Customer shall adhere to the following payment terms for any Accepted Orders (as defined in Section 3.6.1 herein) for Software and Equipment placed hereunder: (i) Customer will issue an Order to Softsense via fax, overnight mail or any other mutually agreed upon mode of delivery and shall remit with such Order a deposit for the purchase in the amount of eighty percent (80%) of the purchase amount; (ii) Softsense will deliver the Software and Equipment to the Customer - designated location by the delivery date specified on the Accepted Order; (iii) Softsense will generate and deliver to Customer an invoice for the unpaid purchase amount upon shipment of the System to the Customer-designated location; (iv) Customer will process the invoice and remit the payment due to Softsense within thirty (30) days of Customer's receipt of the invoice. 3.2 Services Fees ------------------- 3.2.1 Software Support Services Fees Customer shall ------------------------------ pay to Softsense an annual Software Support Services fee equal to ___ % of the total license fees paid or to be paid by Customer for each copy of the Software currently licensed and installed at each Licensed Site. Softsense will invoice Customer in advance on a monthly basis for the Software Support Services, such fee to be paid within thirty (30) days after Customer's receipt of Softsense's invoice. To the extent Customer licenses and installs additional Software, the monthly support fee will be recalculated based on the new total license fees paid or to be paid by Customer. 3.2.2 Equipment Maintenance Services Fees Customer ----------------------------------- shall pay to Softsense an annual Equipment Maintenance Services fee equal to ___ % of the total charges paid or to be paid by Customer for each item of Equipment installed at each Licensed Site. Softsense will invoice Customer in advance on a monthly basis for the Equipment Maintenance Services, such fee to be paid within thirty (30) days after Customer's receipt of Softsense's invoice. To the extent Customer purchases and installs additional Equipment items, the monthly maintenance fee will be recalculated based on the new total charges paid or to be paid by Customer. 3.2.3 Professional Services Fees Customer will pay for -------------------------- the Professional Services at Softsense's then-current Professional Services billing rates. Customer shall also pay all reasonable travel, meal and lodging expenses incurred by Softsense in connection with providing such services. Softsense will invoice Customer on a monthly basis for these expenses. Softsense will also invoice Customer on a monthly basis for the Professional Services unless the parties mutually agree to alternative payment terms. Customer shall pay all fees and expenses within thirty (30) days after its receipt of Softsense's invoices. 3.3 Softsense shall have the right, at any time, to change, alter or amend the fees, charges and billing rates associated with the Software, Equipment and Services upon sixty (60) days prior written notice to Customer. 3 3.4 Any amount past due shall bear interest at a rate of 1.5 percent per month until paid in full. 3.5 Taxes In addition to the fees due under this Agreement, ----- Customer agrees to pay the amounts equal to any federal, state and local taxes and import and export duties, designated, levied or based on this Agreement or any activities hereunder, exclusive of any taxes based on Softsense's net income, including any taxes or duties levied subsequent to the effective date of this Agreement. In regards to any applicable state and local sales and use taxes, Customer shall provide Softsense with either a valid exemption certificate or documentation indicating that Customer has self-assessed and paid any such taxes. 3.6 Ordering -------- 3.6.1 Specific Software, Equipment and Professional Services may be ordered by Customer under this Agreement by complying with the reasonable ordering procedures established by Softsense, which, at a minimum, will require Customer's submission of a signed Order to Softsense and Softsense's acceptance thereof. Only those terms on the face (not back) of the Accepted Order shall be enforceable. An Order for Professional Services which has been signed by an authorized representative of Softsense and returned to Customer shall be deemed accepted by Softsense ("Accepted Order"). An Order for Software and Equipment which has been signed by Softsense and returned to Customer or upon which Softsense has issued an invoice to Customer or upon which Softsense has otherwise commenced performance, shall be deemed accepted by Softsense. Unless otherwise agreed in writing by the parties, the Accepted Order listing the Software programs licensed and the Customer locations ("Licensed Sites") where the Software programs are to be installed, shall serve to conform and effectuate Customer's license to the Software at such Licensed Sites, effective as to each Licensed Site upon completion of payment of the charges stated in the Order for such Licensed Site. 3.6.2 Orders for Software and Equipment shall identify: (i) the subject Software and Equipment; (ii) the Customer location for the Software and Equipment; and (iii) the mutually agreed upon delivery date. Orders for Professional Services shall indicate: (i) the services requested; (ii) the mutually agreed upon completion dates (including all milestone dates), where applicable; (iii) the applicable billing rate; and (iv) the payment terms agreed upon by the parties. 4. SOFTWARE -------- 4.1 License ------- 4.1.1 Subject to compliance by Customer with the terms set forth herein, including payment of all license fees, Softsense hereby grants to Customer a nonexclusive, nontransferable, nonassignable (except as permitted by Section 17), limited and personal license to install, use and execute the Software at each Licensed Site solely in support of Customer's internal business activities. Customer acknowledges and agrees that a separate license from Softsense is required for each Customer location where the Software will be used, as designated in the applicable Accepted Orders. Customer may make one copy of the Software for "archival" or "backup" purposes only, provided such copy is 4 labeled with Softsense's name and the version and serial number of the Software and the label contains Softsense's copyright notices or other proprietary markings designated by Softsense. 4.1.2 Notwithstanding the license granted in Section 4.1.1, no license is granted to Customer to copy, reproduce or modify the Software, or to adapt, transcribe or merge the Software or any portion thereof, except with Softsense's express written consent. Customer has no right to market, sell, sublicense, disseminate, distribute or otherwise transfer the Software or any portion thereof, unless expressly authorized by Softsense in an addendum to this Agreement signed by both parties. Customer shall not decompile, disassemble or reverse engineer the Software, or attempt to do so. 4.1.3 With respect to the third-party computer programs provided by Softsense for use in conjunction with the Software, Customer acknowledges that any right and license to use such computer programs will be specified on the license agreement provided by the manufacturer of such computer programs. 4.1.4 The license granted to Customer hereunder is limited to the United States and the Software shall not be used outside the United States without first notifying and obtaining Softsense's consent, which consent will not be unreasonably withheld by Softsense after taking into consideration, among other factors, the extent of legal protection provided to intellectual property by the country where Customer desires to use the Software. 4.2 Ownership of Software --------------------- 4.2.1 Customer acknowledges and agrees that, as between Softsense and Customer, Softsense is the owner of the Software, including all modifications, changes, updates and additions, whether made by Softsense or by a third party with Softsense's permission. 4.2.2 Customer acknowledges and agrees that, except for Customer's license described in Section 4.1 of this Agreement, Customer has no right, title and interest in the Software, in any form, or in any copies thereof, including all worldwide copyrights, trade secrets, patent rights and any other Proprietary Information (as defined in Section 7.1) and confidential information rights therein. In connection therewith, Customer agrees to at all times hereafter keep the Software free of all security interests, liens, encumbrances, mortgages and claims whatsoever, and Customer agrees that neither it nor anyone at its direction shall file a financing statement, mortgage, notice of lien, deed of trust, security agreement or any other agreement or instrument creating or giving notice of an encumbrance or charge against the Software. Additionally, the Software shall remain the property of Softsense even if Customer, its employees or its contractors, may have contributed to the conception of such work or helped in its development. 4.2.3 Except in the context of claims by third parties who have established, by virtue of a final non-appealable judgment or order issued by a court of competent jurisdiction, ownership rights to the Software, or to any specific portion thereof, which are superior to those of Softsense, Customer hereby agrees not to challenge the validity of or impair Softsense's ownership of the Software, as well as not to challenge the 5 copyrights, trade secret rights, patent rights or confidential and Proprietary Information rights of Softsense therein. 4.2.4 Nothing herein shall be construed as granting Customer any right, title or interest in, or to, the trade names or trademarks owned or used by Softsense. 4.2.5 Nothing herein shall restrict Softsense from granting similar rights and licenses to the Software to other individuals and entities. 4.3 Software Limited Warranty and Disclaimers ----------------------------------------- 4.3.1 Softsense hereby warrants to Customer that the Software will conform, when shipped to Customer, to the published specifications for the Software, provided that the Software is properly used in the minimum operating environment recommended by Softsense. If Customer believes that there is a defect in the Software such that it does not conform to this limited warranty, Softsense must be notified immediately, but no later than ninety (90) days following the delivery of the Software to Customer. As Customer's exclusive remedy and sole measure of any recoverable damages by Customer and any third party for breach of this limited express warranty with respect to the Software, Softsense shall repair or replace, at Softsense's option and expense, the nonconforming Software. Softsense shall have no obligation under this Section 4.3.1 should the Software be modified, altered, merged or subjected to misuse, neglect, accident or improper use by Customer or any third party. Softsense does not warrant that the Software will operate in conjunction with equipment or software that is neither provided by nor formally approved by Softsense, or that the operation of the Software will always be uninterrupted or problem or Error free. 4.3.2 Customer understands and agrees that the limited express warranty set forth above in Section 4.3.1 is exclusive and Softsense disclaims any and all other warranties of any nature whatsoever with respect to the Software and any Software Support Services and Professional Services provided hereunder, whether oral or written, express or implied, particularly including the implied warranties of merchantability and fitness for a particular purpose. 4.4 Softsense will defend Customer against any claim that the Software supplied infringes a United States patent or copyright and, subject to the limitation of liability set forth in Section 8.1 herein, will pay all costs, damages and attorneys' fees that a court finally awards as a result of a determination of patent or copyright infringement. To qualify for such defense and payment, Customer must: (i) provide Softsense with prompt written notice of the initial claim and lawsuit relating thereto; (ii) permit Softsense the right to defend, compromise or settle the lawsuit in the sole discretion of Softsense; and (iii) provide Softsense with all available information, reasonable assistance, authority and cooperation to enable Softsense to defend, compromise or settle the lawsuit as provided herein. Customer, at its own expense, may participate in any such lawsuit, compromise or settlement in an advisory capacity. If such claim has occurred, or in Softsense's judgment, is likely to occur, Customer agrees to allow Softsense, at Softsense's option and expense, to modify the Software so that it becomes noninfringing, or to procure the right for Customer to continue using the Software or to substitute the Software, and if such remedies are not, in Softsense's judgment, reasonably available, then upon written request, Customer will return the Software to Softsense for a credit in the amount of the unamortized portion of the 6 Software, using a five-year straight line amortization schedule. Softsense shall not have any liability to Customer for any claim that the non-Softsense computer programs infringes a United States patent or copyright. Customer's sole recourse will be against the manufacturer of such non-Softsense computer programs to the extent that the manufacturer assumes any responsibility for patent or copyright infringement. The defense offered in this Section 4.4 shall not apply to any claim based upon the combination, operation or use of the Software with data or computer programs not provided, formally approved or manufactured by Softsense. The foregoing states the entire obligation of Softsense for patent and copyright infringement with respect to the Software. 4.5 Softsense hereby represents to Customer that Softsense is the author of the Software and has full and exclusive right, title and interest in the Software, including the exclusive right to grant the licenses and rights granted herein to the Software and that the Software is free and clear of any lien, claim or encumbrance whatsoever. 5. EQUIPMENT --------- 5.1 Title to the Equipment purchased hereunder will pass to Customer upon payment to Softsense of all fees or charges hereunder related to the Equipment. 5.2 Delivery of the Equipment will be made in accordance with the Accepted Order therefor and the Equipment will be delivered to Customer's location set forth in such Accepted Order. Softsense shall make all shipping arrangements, and will invoice Customer for all shipping charges. Softsense will assume all risk of loss, damage and destruction to the Equipment prior to the delivery of the Equipment to the carrier. Upon delivery of the Equipment to the carrier, Customer shall be responsible for and shall bear all risk of loss, damage and destruction with respect to the Equipment. 5.3 Disclaimers ----------- 5.3.1 Customer acknowledges and agrees that the Equipment Maintenance Services described in Exhibit A are the sole remedies available to Customer for defects in the Equipment. 5.3.2 With respect to the non-Softsense Equipment, Customer acknowledges and agrees that the sole warranty available to customer shall be such warranty, if any, that is offered by the non-Softsense Equipment manufacturer. Softsense disclaims all warranties of any nature with respect to the non-Softsense Equipment, and the Equipment Maintenance Services provided with respect to such Equipment, whether oral or written, express or implied, particularly including the implied warranties of merchantability and fitness for a particular purpose. 5.3.3 Customer further acknowledges and agrees that the Softsense Equipment is provided without a warranty from Softsense. Softsense disclaims all warranties of any nature with respect to the Softsense Equipment and the Equipment Maintenance Services provided with respect to such Equipment, whether oral or written, express or implied, particularly including the implied warranties of merchantability and fitness for a particular purpose. 7 5.4 Softsense will defend Customer against any claim that any item of Softsense Equipment infringes a United States patent or copyright and, subject to the limitation of liability set forth in Section 8.1 herein, will pay all costs, damages and attorneys' fees that a court finally awards as a result of a determination of patent or copyright infringement. To qualify for such defense and payment, Customer must: (i) provide Softsense with prompt written notice of the initial claim and lawsuit relating thereto; (ii) permit Softsense the right to defend, compromise or settle the lawsuit in the sole discretion of Softsense; and (iii) provide Softsense with all available information, reasonable assistance, authority and cooperation to enable Softsense to defend, compromise or settle the lawsuit as provided herein. Customer, at its own expense, may participate in any such lawsuit, compromise or settlement in an advisory capacity. If such claim has occurred, or in Softsense's judgment, is likely to occur, Customer agrees to allow Softsense, at Softsense's option and expense, to: (i) settle or defend against such claim; (ii) procure for Customer the right the use such item of Softsense Equipment; (iii) replace or modify such item of Softsense Equipment to avoid infringement; or (iv) remove such item of Softsense Equipment and refund the purchase price less a reasonable amount for depreciation. Softsense shall not have any liability to Customer for any claim that the non-Softsense Equipment infringes a United States patent or copyright. Customer's sole recourse will be against the manufacturer of such non-Softsense Equipment to the extent that the manufacturer assumes any responsibility for patent or copyright infringement. The defense offered in this Section 5.4 shall not apply to any claim resulting from the modification of the Softsense Equipment performed other than by Softsense or based upon the operation or use of the Softsense Equipment with data, computer programs or equipment not provided, formally approved or manufactured by Softsense. This Section 5.4 states Softsense's entire obligation regarding patent and copyright infringement with respect to the Equipment. 6. SERVICES -------- 6.1 Software Support and Equipment Maintenance Services For each --------------------------------------------------- System installed at a Licensed Site listed on an Accepted Order, Softsense will provide, in connection with Customer's operation of the System, Software Support Services and Equipment Maintenance Services pursuant to the terms of the Software support and Equipment maintenance plans selected by Customer. The aforementioned plans are more particularly described on Exhibit A attached hereto. As of the date of execution of this Agreement (the "Effective Date"), Customer elects to receive Equipment Maintenance Services under the ___________________ Plan and Software Support Services under the ___________________ Plan, such plans to be in effect at each Licensed Site for the initial term described on Exhibit A. Upon expiration of the initial term and each renewal term thereafter, Customer may receive such services under the alternative plans offered by Softsense, such plans to be in effect at each Licensed Site for the duration of each such renewal term, provided that Customer provides Softsense with written notification of such election ninety (90) days prior to the expiration of the then-current term. 6.2 Professional Services --------------------- 6.2.1 Customer may request and Softsense may provide, Professional Services related to Customer's operation of the Software provided hereunder, including, consultation services, user education services, implementation services and development services, and such other services to which the parties agree. 8 6.2.2 Customer may from time to time request that Softsense develop Enhancements or make modifications to the Software in addition to the Enhancements or modifications made by Softsense as part of its Software Support Services ("Additional Enhancements"). All such requests shall be made in the form of an Order for Professional Services, subject to Softsense's acceptance pursuant to Section 3.6.1 herein. Customer acknowledges and agrees that all Additional Enhancements delivered under an Order for Professional Services shall be deemed a part of the Software and shall be exclusively owned by Softsense. 7. NONDISCLOSURE AND CONFIDENTIALITY --------------------------------- 7.1 For purposes of this Agreement, "Proprietary Information" shall mean all ideas, concepts, techniques, know-how, technical information, or other information or material, in whatever form, received by one party to this Agreement from the other, that is either: (i) stamped or otherwise identified in writing as proprietary, or (ii) if orally disclosed, identified by the disclosing party as proprietary at the time of disclosure, although the failure to make such identification under either (i) or (ii) shall not alone change the classification of such information from Proprietary Information to non- Proprietary Information. Proprietary Information shall include the Software. 7.2 Each party agrees to hold all Proprietary Information of the other party in strictest confidence and not to copy, reproduce, distribute, remanufacture, duplicate, reveal, publish, report, disclose, caused to be disclosed, or otherwise transfer any such Proprietary Information to any third party, except as authorized in writing by the disclosing party, or utilize any such information for any purpose whatsoever other than specifically required under this Agreement, except that each party may disclose Proprietary Information of the other to its employees who have a specific need to know such information and who are advised of the confidential nature of the information and the provisions of this Section 7. The obligations under this Section 7 shall last for the term of this Agreement and for a period of five (5) years thereafter, except to the extent that the Proprietary Information disclosed rises to the level of a trade secret under applicable law, in which case, the obligations of this Section 7 shall continue for so long as such information constitutes a trade secret under applicable law. Each party further acknowledges and agrees that the Proprietary Information of the other party is and shall at all times remain the sole and exclusive property of the other party, and in the event of termination or expiration of this Agreement, for any reason, each party shall immediately return to the other party all Proprietary Information in its possession. 7.3 Each party agrees to neither discuss nor otherwise disclose to any third party the terms of this Agreement, but each party has the right to represent verbally or in any printed or visual promotion, advertisement or informational brochure that Customer is a user of the Software and a customer of Softsense, provided, however, that such representation is true, accurate and correct. 8. LIMITATION OF LIABILITY AND DAMAGES ----------------------------------- 8.1 Customer acknowledges and agrees that in no event shall Softsense, any affiliate or any officers, directors, employees, shareholders or representatives of Softsense be liable to Customer or any third party for special, 9 indirect, incidental or consequential damage or loss of any nature, including, but not limited to, damages resulting from delay, loss of profits, injury to person or loss of goodwill which may arise in connection with the Software, any copies thereof, the Equipment, the Services or otherwise pertaining to this Agreement, even if Softsense has been notified of the possibility or likelihood of such damages occurring. The parties agree that this limitation of liability shall survive in full force and effect despite any failure of any exclusive remedy. 8.2 Customer acknowledges and agrees that Softsense's liability for damages to Customer or any third party for any cause whatsoever related to this Agreement, the Software, the Equipment, the Services and regardless of the form of action, whether in contract or in tort, including negligence or strict liability, shall be limited to all payments received by Softsense from Customer hereunder for the particular Software program, Equipment component, or Service activity that caused the damage or that is the subject matter of or is directly related to, the cause of action. This limitation of liability will not apply to claims for personal injury or property damage caused by Softsense's gross negligence or willful misconduct or to claims of patent or copyright infringement as set forth in Sections 4.4 and 5.4. In no event will Softsense be liable for any damages arising from performance or nonperformance of the Software or Equipment caused by Customer's or any third party's failure to perform its or their responsibilities. 8.3 Softsense shall not be held responsible for misuse or incorrect operation of the Software or Equipment, use of the Software or Equipment by untrained personnel or improper entry of data in connection with the Software. Customer understands that the use of any Equipment outside the manufacturer's recommended specifications may seriously effect the performance of the Software. Softsense shall not be held liable or responsible for external environmental conditions that may affect the performance of the Software or Equipment, including, but not limited to, loss or interruption of power, interruption or degradation of phone or data line service or integrity, conflicting radio frequencies or other such factors. 9. TERMINATION ----------- 9.1 This Agreement is effective from the date on which it is signed and accepted by the parties and will remain in effect until terminated by Customer upon sixty (60) days written notice to Softsense, or by Softsense as provided in Section 9.2 herein. This Agreement may be terminated by Customer only when all Software and all associated documentation have been returned to Softsense or destroyed upon instructions from Softsense. 9.2 Softsense may terminate this Agreement upon the occurrence of a material breach hereof (including, without limitation, non-payment of fees by Customer) which breach has not been cured, with respect to non-payment of fees, within fifteen (15) days after the date of written notice thereof to Customer by Softsense, and with respect to any other material breach, within forty five (45) days after the date of written notice thereof to Customer by Softsense. Said notice will identify and describe the basis for such termination. If prior to the expiration of any cure period stated above, Customer cures such default, termination shall not take place. The filing of bankruptcy, voluntarily or 10 involuntarily, by either party shall not be a cause for termination of this Agreement, provided that such party continues to fully perform its obligations hereunder. 9.3 Upon expiration or termination of this Agreement for any reason, Customer shall return to Softsense all Softsense property including, but not limited to, all copies of the Software, all documentation relating thereto and all Equipment not fully paid for hereunder. Upon termination or expiration of this Agreement, the provisions of this Agreement providing for payment of charges to Softsense, protection of the parties' proprietary rights, Softsense's limited express warranties, Softsense's limitation of liability and other provisions of this Agreement concerning the ongoing interest of the parties, including, but not limited to, the provisions of Sections 4.2, 4.3, 4.4, 5.3, 5.4, 7, 8, 9, 13, 15, 20 and 21, shall continue and survive in full force and effect. 10. INDEPENDENT PRINCIPALS Softsense and Customer are independent ---------------------- principals in all actions contemplated by this Agreement. This Agreement shall not be construed to create or authorize any partnership, joint venture or agency relationship, nor to authorize either party to make any commitment or agreement binding on the other party, without such other party's prior written consent. 11. FORCE MAJEURE Neither party shall be in default by reason of any ------------- failure of performance of this Agreement if such failure arises, directly or indirectly, out of causes reasonably beyond the control or forseeability of such party including, but not limited to, default by suppliers, acts of God or of the public enemy, United States or foreign governmental acts in either a sovereign or contractual capacity, transportation contingencies, fire, flood, epidemic restrictions and strikes. 12. WAIVER Neither party shall, by mere lapse of time without giving ------ notice or taking other action hereunder, be deemed to have waived any breach by the other party of any of the provisions of this Agreement. Furthermore, the waiver by either party of a particular breach of this Agreement by the other party shall not be construed as, or constitute a continuing waiver of such breach, or of other breaches of the same or other provisions of this Agreement. 13. EQUITABLE REMEDIES AND SPECIFIC PERFORMANCE Customer acknowledges ------------------------------------------- that each provision of this Agreement providing for the protection of Softsense's copyrights, patents, Proprietary Information, trade secrets and other proprietary rights, is material to this Agreement. Customer acknowledges that any threatened or actual breach of Softsense's copyright, patents, proprietary rights or trade secrets shall constitute immediate and irreparable harm to Softsense, for which equitable remedies may be awarded by a court of competent jurisdiction. 14. NOTICES All notices and other communications required or permitted to ------- be given under this Agreement shall be in writing and shall be considered effective when: (i) mailed by registered or certified mail, postage pre-paid, return receipt requested; or (ii) hand delivered. All such notices shall be addressed as shown below or to such other address as may be designated by a party hereto or by written notice to the other party. Addresses for notices are as follows: If to Softsense: If to Customer: 11 Softsense Computer Products, Inc. _________________________ 1000 Alderman Drive, Suite A _________________________ Alpharetta, Georgia 30202 _________________________ Attention: Legal Services Division _________________________ 15. GOVERNING LAW This Agreement shall be governed, construed, and ------------- interpreted in accordance with the laws of the State of Georgia. In any civil action by either party relating to this Agreement, the prevailing party shall recover from and be reimbursed by the other party for all costs, reasonable attorneys' fees and related expenses. Customer hereby consents and submits to the exclusive jurisdiction and venue over any action, suit, or other legal proceeding that may arise out of, or in connection with this Agreement, by any state or federal court located within Fulton County in the State of Georgia. Customer stipulates and admits that it is transacting business in Fulton County in the State of Georgia. Customer shall bring any action, suit or other legal proceeding to enforce, directly or indirectly, this Agreement or any right based upon it only in Fulton County in the State of Georgia. 16. AUTHORITY TO CONTRACT Each party warrants and represents to the other --------------------- that it is legally free to enter into this Agreement, that its execution of this Agreement has been duly authorized and that full performance of the terms and conditions of this Agreement shall not conflict with or violate any terms or conditions of any other agreement by which it is bound. 17. ASSIGNMENT Customer represents that it is acting on its own behalf ---------- and is not acting as an agent for or on behalf of any third party and further agrees that it may not assign its rights or obligations under this Agreement without the prior written consent of Softsense. 18. SEVERABILITY If any provision herein is declared invalid by a court ------------ of competent jurisdiction, such provision shall be ineffective only to the extent of such invalidity so that the remainder of that provision and all remaining provisions of this Agreement will continue in full force and effect and be enforced to the maximum extent permitted by applicable law. 19. AMENDMENTS This Agreement can be amended or supplemented only by an ---------- instrument in writing signed by authorized representatives of both parties. 20. LIMITATIONS OF ACTIONS No action, regardless of form, whether based ---------------------- on contract, strict liability or tort, including any action based on negligence, arising out of this Agreement, may be brought: (i) in the case of an action arising out of a breach of the terms and conditions of Section 7 herein, more than five (5) years after the cause of action has arisen; or (ii) in the case of any other action, more than two (2) years after the cause of action has arisen, except that in the case of an action for monies due, an action may be brought within two (2) years of the date of the last payment. 21. GENERAL ------- 21.1 Each of the parties hereto acknowledge that it has read this Agreement, understands and agrees to be bound by its terms. The parties further agree that this 12 Agreement and each Proposal is the complete and exclusive statement of the agreement between the parties relating to the subject matter of the Agreement and supersedes and cancels all previous understandings, representations, conditions, warranties and all other communications between the parties relating to the subject matter of this Agreement. 21.2 The terms and conditions of any Proposal and any Exhibits attached to this Agreement are incorporated by reference and made a part of this Agreement. 21.3 Variance from the terms and conditions of this Agreement in any Order or other written communication shall be of no force or effect. In the event of a conflict between the terms of this Agreement and the terms of a Proposal, the terms and conditions specified in this Agreement shall take precedence. 21.4 The Agreement is neither valid nor binding upon either party until accepted by each party as evidenced by the execution of this Agreement by each party's authorized representative. In Witness Whereof, Softsense and Customer have caused this Agreement to be executed by their respective duly authorized representatives as of the date first above written. Accepted by: "Customer" "Softsense" _______________________________ Softsense computer products, inc. By:____________________________ By:________________________________ (Authorized Signature) (Authorized Signature) Name (Print): __________________ Name (Print):______________________ Title___________________________ Title:_____________________________ 13 EXHIBIT A EQUIPMENT MAINTENANCE AND SOFTWARE SUPPORT SERVICES 1. EQUIPMENT MAINTENANCE SERVICES ------------------------------ 1.1. Express Depot Maintenance Plan ------------------------------ 1.1.1 Under this plan, Softsense will provide a toll-free telephone hotline 24-hours a day, seven days a week, which will enable Customer to report Equipment malfunctions or defects to Softsense. Customer will be responsible for notifying Softsense immediately upon discovering an Equipment malfunction or defect. Upon receipt of such notification, a certified technical support technician ("Support Specialist") will diagnose the Equipment problem and make a determination as to whether a replacement component is required. If a replacement component is required, the Support Specialist will issue a returned merchandise authorization ("RMA") number to Customer, which number will authorize Customer to return the failed Equipment component to Softsense, at Customer's expense. 1.1.2 Softsense will dispatch replacement components to Customer's Licensed Site, or such other mutually agreed upon location, in accordance with one of the two following delivery options, as selected by Customer: (i) Normal Delivery Softsense will dispatch replacement --------------- components via surface freight carrier on the same business day that the Support Specialist determines that a replacement component is required if such determination is made prior to 4:30 PM, EST, and by the next business day if such determination is made after 4:30 PM, EST. Softsense agrees to pay all shipping charges and bear all risk of loss, damage and destruction with respect to the replacement components prior to the delivery of the components to Customer, provided Customer pays to Softsense Softsense's then-current Normal Delivery fee. (ii) Expedited Delivery Softsense will dispatch ------------------ replacement components via overnight delivery on the same business day that the Support Specialist determines that a replacement component is required if such determination is made prior to 4:30 PM, EST, and by the next business day if such determination is made after 4:30 PM, EST. Softsense agrees to pay all shipping charges and bear all risk of loss, damage and destruction with respect to the replacement components prior to the delivery of the components to Customer, provided Customer pays to Softsense Softsense's then-current Expedited Delivery fee. As of the Effective Date, Customer elects to receive replacement components in accordance with the _____________ Delivery option, such option to be in effect at each Licensed Site for the duration of the initial maintenance term. Upon expiration of the initial maintenance term and each renewal term thereafter, Customer may receive replacement components under the alternative delivery option offered by Softsense, provided that Customer provides Softsense with written notification of such election 90 days prior to expiration of the then- current term, such option to be in effect at each Licensed Site for the duration of each such renewal term. 1.1.3 Softsense will use reasonable efforts to dispatch the replacement components within the above response times. Customer acknowledges and agrees that there will be no penalties associated with Softsense's failure to dispatch the replacement components within such response times. 1.1.4 The on-site labor required to replace the failed Equipment components will not be provided by Softsense under this plan. Customer may enter into an agreement with a third party for the replacement of such failed Equipment components. A Support Specialist will assist, via telephone, store or other Customer personnel or an agent of Customer in the replacement of all "Non-Technical Components", but will only provide telephone support to a third party or store or other Customer personnel who is a certified Softsense maintenance provider for the replacement of "Technical Components." All Technical and Non-Technical Components are set forth in the Softsense Equipment Maintenance Document, which document shall be made available to Customer upon Customer's request. 1.1.5 Customer will be required to return all items of failed Equipment to Softsense at Customer's risk and expense. Customer must also remove all funds contained in the failed Equipment prior to returning such items to Softsense. Softsense will not be responsible for removing and returning any funds left in the failed Equipment, or for backing-up, removing, protecting or restoring programs, data or removable storage media contained in or operating on any item of failed Equipment, unless agreed to by the parties in writing. 1.1.6 The cost of the replacement components will be included in the base price of the plan, provided that: (i) the Equipment malfunction or failure was not caused by any of the circumstances set forth in Section 1.3 herein; and (ii) Customer returns the failed components within 30 days of Customer's receipt of an outstanding RMA Equipment notice from Softsense. Softsense will issue such notice to Customer upon Customer's failure to return all items of failed Equipment within 30 days from the date such items are diagnosed as defective. If either of the events set forth in subsections (i) or (ii) do so occur, Customer will be charged Softsense's retail price for the replacement component, as set forth in the applicable Proposal. 1.2 On-Site Maintenance Plan ------------------------ 1.2.1 Under this plan, Softsense will provide a toll-free telephone hotline 24-hours a day, seven days a week, which will enable Customer to report Equipment malfunctions or defects to Softsense. Customer will be responsible for notifying Softsense immediately upon discovering an Equipment malfunction or defect. Upon receipt of such notification, a Support Specialist will diagnose the Equipment problem and make a determination as to whether a replacement component is required. If a replacement component is required, Softsense will send replacement components to Customer's Licensed Site as follows: (i) All replacement components stocked locally to the Licensed Site ("Locally Stocked Components") will be delivered within four hours of the Support Specialist's determination that a replacement component is required. Customer 2 acknowledges and agrees that Softsense may subcontract with a third party for storage and delivery of Locally Stocked Components. (ii) All replacement components stocked in the Softsense Depot Center ("Centrally Stocked Components") will be sent by overnight delivery on the same business day that the Support Specialist determines that a replacement component is required if such determination is made prior to 4:30 PM, EST, and by the next business day if such determination is made after 4:30 PM, EST. A listing of the Locally and Centrally Stocked Components is set forth in the Softsense Equipment Maintenance Document, which document shall be made available to Customer upon Customer's request. 1.2.2 The on-site labor required to replace the Technical Components will be made available to Customer under this plan. The labor required to replace all Non-Technical Components will be the responsibility of Customer. Customer acknowledges and agrees that Softsense may subcontract with a third party ("Third-Party Maintenance Provider") for the provision of on-site labor in connection with the replacement of the Technical Components. In the case of on-site labor provided by a Third-Party Maintenance Provider, Customer acknowledges and agrees that Softsense will not be liable to Customer or any third party for any losses or damages of any nature whatsoever arising from the furnishing of services by the Third-Party Maintenance Provider. 1.2.3 Softsense will dispatch a Third-Party Maintenance Provider or a Support Specialist, as the case may be, to perform the on-site labor with respect to the Technical Components within four hours of the Support Specialist's determination that a replacement component is required. The Support Department will provide telephone support, via the toll-free support hotline, to store or other Customer personnel or an agent of Customer for the replacement of all Non-Technical Components. 1.2.4 Softsense will use reasonable efforts to: (i) send or deliver, as the case may be, the replacement components within the response times set forth in Section 1.2.1; and (ii) dispatch the Third-Party Maintenance Provider or Support Specialist, as the case may be, within the response time set forth in Section 1.2.3. Customer acknowledges and agrees that there shall be no penalties associated with Softsense's failure to respond within such response times. 1.2.5 Customer will be required, in the case of the Non- Technical Components, to return all items of failed Equipment to Softsense at Customer's risk and expense. Customer will also be required to remove all funds contained in the failed Equipment prior to returning such items to Softsense. Softsense will not be responsible for removing and returning any funds left in the failed Equipment, or for backing-up, removing, protecting or restoring programs, data or removable storage media contained in or operating on any item of failed Equipment, unless agreed to by the parties in writing. 1.2.6 The cost of the replacement components will be included in the base price of the plan, provided that: (i) the Equipment malfunction or failure was not caused by any of the circumstances set forth in Section 1.3 herein; and (ii) Customer returns the failed components within 30 days of Customer's receipt of an outstanding RMA Equipment notice from Softsense. Softsense will issue such notice to Customer upon 3 Customer's failure to return all items of failed Equipment within 30 days from the date such items are diagnosed as defective. If either of the events set forth in subsections (i) or (ii) do so occur, Customer will be charged the Softsense's retail price for the replacement component, as set forth in the applicable Proposal. 1.3 Equipment Maintenance Limitations ---------------------------------- 1.3.1 Equipment returned for reasons other than malfunction or defect, including, without limitation, reasons relating solely to physical appearance, aesthetic quality or other cosmetic factors, will not be considered by Softsense as qualifying for Equipment Maintenance Services, regardless of the plan, at no additional charge hereunder. 1.3.2 Malfunctioning Equipment or damage to Equipment caused by the following circumstances will not be considered by Softsense as qualifying for Equipment Maintenance Services, regardless of the plan, at no additional charge hereunder: (i) Failure to operate the Equipment continually in a suitable operating environment as designated by Softsense or the manufacturer of the Equipment; (ii) Use of the Equipment for other than data processing purposes or neglect or abuse of the Equipment; (iii) Accident, disaster (including, but not limited to, flood, fire and lightning); (iv) Alteration by Customer or any third party other than Softsense. 1.4 Term and Termination -------------------- 1.4.1 The maintenance term shall commence as of the Effective Date, and, subject to Section 1.4.2, shall remain in effect for an initial term of one year and shall automatically renew thereafter for successive one-year terms. The Effective Date or renewal date, as the case may be, will apply to all items of Equipment purchased and installed at a Licensed Site during the then- current term. 1.4.2 If Customer fails to pay any of the Equipment Maintenance Service fees due hereunder, Softsense has the right to suspend or terminate such Equipment Maintenance Services or any part thereof. The Equipment Maintenance Services may also be terminated by either party, without cause, upon 60-days prior written notice to the other party, such termination to take effect upon expiration of the then-current term. 1.5 Withdrawal Softsense may withdraw certain items of Equipment ---------- from Equipment Maintenance Services at each Licensed Site: (i) upon 30-days prior written notice to Customer, should any item of Equipment be discontinued by the original equipment manufacturer, or if such item of Equipment is no longer eligible for service by the original equipment manufacturer; or (ii) upon 60-days prior written notice to Customer, under all other circumstances, provided that under both subsections (i) and (ii), Softsense makes a suitable replacement available to Customer in the event of a malfunction or defect. 4 2. SOFTWARE SUPPORT SERVICES ------------------------- 2.1 First Line Support Plan ----------------------- 2.1.1 Under this plan, Softsense will provide Software Support Services directly to the Licensed Site. As part of these Services, Softsense will provide a toll-free telephone hotline 24-hours a day, seven days a week, which will enable Customer to report Software problems and receive assistance in resolving Software problems from a Support Specialist. Customer will be responsible for immediately notifying Softsense of any Software problems. Upon receipt of such notification from Customer, Softsense will assign a severity level to the reported Software problem in accordance with the below schedule. Thereafter, Softsense will use best efforts to respond to Customer's call and diagnose the Software problem within the estimated response period designated below for the applicable severity level. In the event a problem with the Software cannot be diagnosed via the toll-free hotline, Softsense may use a computer modem to remotely control the Software at the Licensed Site. Software problem diagnosis will include a determination as to whether: (i) the reported Software problem constitutes an Error or a Software irregularity, interruption or malfunction other than an Error; (ii) the reported problem is excluded from Software Support Services, as specified in Section 2.5 below. 2.1.2 In the event the reported problem is excluded from Software Support Services under Section 2.5 below, Softsense shall notify Customer promptly with its rationale for such a determination, and where appropriate, will direct Customer to refer the problem to a Customer "support representative" mutually selected by the parties. 2.1.3 If, in Softsense's opinion, the reported problem constitutes an Error, Customer will be responsible for providing Softsense with sufficient documentation, if any, in order for Softsense to reproduce the reported Error. If the Error is verified, Softsense will use best efforts to provide Customer with a temporary "fix" within the estimated resolution times designated below for the applicable severity level and shall include the Error correction in a future Upgrade. In the event that the verified Error is not, in Softsense's opinion, valid or reproducible, Softsense shall notify Customer promptly with its rationale for such a determination. 2.1.4 If, in Softsense's opinion, the reported problem constitutes a Software irregularity, interruption, or malfunction other than an Error, Softsense will provide Customer with the necessary technical assistance to enable Customer to correct the problem or to otherwise become operational within the estimated resolution times designated below for the applicable severity level. 5 Severity Level Definition ------------------------- Severity 1 Customer is unable to use the Software or the problem results in a critical impact on Customer's operations. Severity 2 Customer is able to use the Software, but in Customer's reasonable determination, Customer is severely restricted in doing so. Severity 3 Customer is able to use the Software with limited functions which are not critical to Customer's overall operations. Severity 4 There is no impact to running the Software. Estimated Response Time ----------------------- Severity 1 Softsense will respond within 10 minutes of Customer's initial call. Severity 2 Softsense will respond within 1 hour of Customer's initial call. Severity 3 Softsense will respond within 2 hours of Customer's initial call. Severity 4 Softsense will respond within 24 hours of Customer's initial call. Estimated Resolution Time ------------------------- Severity 1 Softsense will provide a fix or bypass within 4 hours of its diagnosis. Severity 2 Softsense will provide a fix or bypass within 24 hours of its diagnosis. Severity 3 Softsense will provide a fix/correction in a future Upgrade. Severity 4 Softsense will provide a fix/correction in a future Upgrade. 2.2 Second Line Support Plan Under this plan, Customer-designated ------------------------ representatives (the "Customer Help Desk") will provide the first line of Software support 6 directly to the Licensed Site. If the Customer Help Desk, using its best efforts, is unable to resolve a Software problem after two attempts, the Licensed Site or Customer Help Desk will notify Softsense and Softsense will provide Software Support Services set forth in Section 2.1 above directly to the Licensed Site. The determination as to whether the Licensed Site or Customer Help Desk will notify Softsense shall be made by Softsense after taking into consideration factors such as the technical capabilities of the Customer Help Desk employees. 2.3 All Standard Upgrades Softsense will provide standard --------------------- Upgrades for the Software installed at each Licensed Site, regardless of the support plan chosen by Customer. The content and timing the Upgrades will be determined by Softsense in its sole reasonable discretion. All requests for Enhancements other than those included in a standard Upgrade shall be submitted to Softsense in the form of an Order for Professional Services pursuant to Section 6.2.2 of the Agreement, and shall be subject to Softsense's acceptance pursuant to Section 3.6.1 of the Agreement. 2.4 Term and Termination -------------------- 2.4.1 The Software support term shall commence as of the Effective Date, and, subject to Section 2.4.2, shall remain in effect for an initial term of one year and shall automatically renew thereafter for successive one-year terms. The Effective Date or renewal date, as the case may be, will apply to all Software ordered and installed at a Licensed Site during the then- current term. 2.4.2 If Customer fails to pay any of the fees for the Software Support Services due hereunder, Softsense has the right to suspend or terminate such Software Support Services or any part thereof. Customer may terminate the Software Support Services upon 60-days prior written to Softsense, such termination to take effect upon expiration of the then-current term. Customer may request that Softsense reinstate Software Support Services at any time after a termination by Customer, provided however, that Customer pays to Softsense the per-site annual Software Support fee in effect during each year it did not receive Software Support Services from Softsense. 2.5 Software Support Limitations: ----------------------------- (i) Software defects, abnormal operation of the Software or inability to operate the Software resulting from Customer's misuse or improper use of the Software or Equipment, use of the Software or Equipment by untrained personnel or personnel who require additional training from Customer, improper entry of data in connection with the Software or from combining or merging the Software with any computer equipment or computer programs not supplied by Softsense (or not approved in writing by Softsense to be combined or merged with the Software) will not be considered by Softsense as qualifying for Software Support Services, at no additional charge hereunder; (ii) Softsense shall not be responsible for providing Software Support Services if the request for technical assistance arises solely from the inability of Customer personnel to operate the Software in conformity with store or Customer operational procedures, including, but not limited to product pricing and cash management policies; 7 (iii) Softsense shall not be responsible for providing Software Support Services for any version of a Software program other than the most recent Upgrade, provided, however, that Softsense shall continue to support the most recent superseded Upgrade for 90 days from the date of the general distribution of the most current Upgrade. 8 EX-10.2 6 STOCK TRANSFER AND REDEMPTION AGREEMENT Exhibit 10.2 STOCK TRANSFER AND REDEMPTION AGREEMENT --------------------------------------- THIS STOCK TRANSFER AND REDEMPTION AGREEMENT ("Agreement") is made and entered into as of the 29th day of May, 1995, by and between SOFTSENSE COMPUTER PRODUCTS INC., a New York corporation (the "Company") and THOMAS BARRELLA ("Barrella"), an individual resident of the State of Georgia. W I T N E S S E T H: - - - - - - - - - - WHEREAS, as of the 29th day of May, 1995, the Company, Barrella and Logic Shop, Inc. ("LSI") executed and delivered that certain Agreement and Plan of Reorganization and Distribution, a copy of which is annexed hereto as Exhibit A --------- (the "Reorganization Agreement"), whereby the Company, Barrella and LSI agreed to effect the transfer of the automotive systems division of the Company to LSI and subsequent thereto to transfer to Barrella all of the issued and outstanding capital stock of LSI in exchange for certain capital stock of the Company (the "Split-Off"); and WHEREAS, immediately prior to the execution of this Agreement, the Company transferred to LSI certain assets, rights, properties and businesses relating to the automotive systems division of Softsense, all as more fully described in that certain Blanket Bill of Sale, Assignment and Assumption Agreement which was executed and delivered by LSI and the Company, a copy of which is annexed hereto as Exhibit B; and --------- WHEREAS, the Company and Barrella intend that the Split-Off will constitute a tax-free reorganization under Sections 368(a)(1)(D) and 355(a)(1) of the Internal Revenue Code of 1986, as amended, and desire to consummate the Split- Off in accordance with the terms and conditions more fully set forth below; NOW, THEREFORE, for and in consideration of the premises, the mutual covenants contained herein and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Consummation of Split-Off. ------------------------- 1.1 Stock Transfer and Redemption. Simultaneously with the execution and ----------------------------- delivery of this Agreement, Barrella shall deliver to the Company the certificate or certificates representing 31.25 shares of the Common Stock, no par value per share, of the Company (the "Softsense Common Stock"), duly endorsed, or accompanied by a duly executed stock power, effectively transferring the Softsense Common Stock to the Company, free and clear of any and all liens, claims, charges and encumbrances. Simultaneously therewith the Company shall deliver to Barrella (i) 7.292 shares of original issue Class A Common Stock of the Company and (ii) the certificate or certificates representing all 2,000,000 shares of the issued and outstanding common stock, no par value per share, of LSI (the "LSI Stock"), duly endorsed, or accompanied by a duly executed stock power, effectively transferring the LSI Stock to Barrella, free and clear of any and all liens, claims, charges and encumbrances. 1.2 Further Assurance. Each of the parties shall, without further ----------------- consideration or payments, execute such documents and other papers and take such further actions as may be reasonably required or desired to evidence or more effectively carry out the stock transfers referenced in Section 1.1 above or such other transactions as are contemplated by this Agreement. 1.3 Name Usage Agreement. Barrella hereby covenants and agrees that -------------------- neither he nor LSI will now or hereafter, directly or indirectly, utilize the "Softsense" name, or any name confusingly similar thereto or a derivative thereof, as or in connection with a trademark, trade name, service mark, certification mark, or corporate or other business name, without the Company's prior written consent which may be granted, withheld or conditioned by the Company in it sole discretion. Barrella, on behalf of himself and on behalf of LSI, acknowledges and agrees that the "Softsense" name and the right to utilize the same for commercial purposes is the exclusive property of the Company and its affiliates, and for himself and for LSI hereby disclaims any right, title or interest in or to the same. Barrella will not, and will not permit LSI to, do or omit to do any act or thing, the doing or omission of which would contest, assist others to contest or in any way impair or tend to impair the Company's right, title or interest in or to the "Softsense" name or any registration relating thereto. 1.4 Resignations. Barrella hereby resigns all offices and directorships ------------ held in the Company or any of its direct or indirect subsidiaries (other than LSI), effective immediately upon the execution and delivery of this Agreement. 2. Representations and Warranties. ------------------------------ 2.1 Representation and Warranties from Barrella. As an inducement to the ------------------------------------------- Company's execution and delivery of this Agreement, and with knowledge that the Company is relying thereon, Barrella hereby represents and warranties (i) that Barrella is the sole owner of the Softsense Common Stock being transferred to the Company by Barrella, (ii) such Common Stock evidences and constitutes all of Barrella's equity interest in the Company or its direct or indirect subsidiaries, and there are no outstanding options, warrants, rights, commitments or agreements of any nature, kind or character relating to the issuance or purchase of any additional shares of the capital stock of the Company or any of its direct or indirect subsidiaries held legally or beneficially by Barrella, (iii) Barrella has full right, power and capacity to make, execute and perform this Agreement and the transactions contemplated herein, (iv) this Agreement and the stock powers and other instruments or documents delivered by Barrella hereunder constitute the valid and legally binding obligations of Barrella enforceable in accordance with their respective terms, and no further action on the part of Barrella is required in connection with the consummation of the transactions contemplated by this Agreement, (v) the Blanket Bill of Sale, Assignment and Assumption Agreement, a copy of which is annexed hereto as Exhibit B, was duly executed and delivered by LSI and --------- constitutes the valid and legally binding obligation of LSI enforceable in accordance with its terms, and (vi) the Softsense Common Stock being transferred and conveyed to the Company under this Agreement is being transferred and conveyed free and clear of all liens, encumbrances, charges or claims of any nature, kind, or character. 2.2 Representation and Warranties from the Company. As an inducement to ---------------------------------------------- Barrella's execution and delivery of this Agreement, and with knowledge that Barrella is relying thereon, the Company hereby represents and warranties (i) that the Company is the sole owner of the LSI Stock being transferred to Barrella hereunder, (ii) the LSI Stock evidences and constitutes all of the Company's equity interest in LSI, and there are no outstanding options, warrants, rights, commitments or agreements of any nature, kind or character relating to the issuance or purchase of any additional shares of the capital stock of LSI held legally or beneficially by the Company, (iii) the authorized capital stock of the Company consists of 400 shares of Common Stock, of which 93.75 shares are issued and outstanding and 200 shares of Class A Common Stock of which 3.125 shares are issued and outstanding and to the knowledge of the Company, except for the warrants granted Emro Marketing Company and certain repurchase rights pursuant to the Stock Redemption Agreement between the Company and Lawrence Parker, there are no 2 outstanding options, warrants, rights, commitments, or agreements of any nature, kind or character relating to the issuance or purchase of shares of capital stock of the Company, (iv) the Company has full right, power and authority to make, execute and perform this Agreement and the transactions contemplated herein, (v) this Agreement and the stock powers and other instruments or documents delivered by the Company hereunder constitute the valid and legally binding obligations of the Company enforceable in accordance with their respective terms, and no further action on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, (vi) the Blanket Bill of Sale, Assignment and Assumption Agreement, a copy of which is annexed hereto as Exhibit B, was duly executed and delivered by --------- the Company and constitutes the valid and legally binding obligations of the Company enforceable in accordance with its terms, and (vii) the LSI Stock is being transferred and conveyed to Barrella under this Agreement, free and clear of all liens, encumbrances, charges or claims of any nature, kind or character. 3. Acquisition of Class A Common Stock. Barrella acknowledges that the ----------------------------------- Class A Common Stock issued to Barrella by the Company pursuant to the terms hereof, has not been registered under the Securities Act of 1933, as amended (the "1933 Act") or the securities laws of any state, in reliance upon exemptions from registration contained in the 1933 Act and applicable state securities laws and that the Company's reliance upon such exemption is based in part upon Barrella's representations, warranties and agreements contained in this Agreement. To induce the Company to enter into this Agreement and to issue the Class A Common Stock, Barrella warrants and represents, as of the date hereof as follows: (a) Barrella is acquiring the Class A Common Stock for his own account, with the intention of holding the Class A Common Stock for investment, with no present intention of dividing or allowing others to participate in this investment or of reselling or otherwise participating, directly or indirectly, in a distribution of the Class A Common Stock; and Barrella shall not make any sale, transfer or other disposition of the Class A Common Stock without registration under the 1933 Act and any applicable securities laws of any state or unless an exemption from registration is available under those laws. (b) Except as otherwise noted, Barrella and/or his purchaser representative has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Class A Common Stock. (c) Barrella has been given the opportunity to ask questions of, and receive answers from the Company concerning the business of the Company and has been provided with such other information as Barrella desired in order to evaluate the investment. (d) Barrella is not purchasing the Class A Common Stock as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, or presented at any seminar or meeting, or any solicitation of a subscription by a person not previously known to Barrella in connection with investments in securities generally. 4. Release of Guarantees. The Company shall use its best efforts to --------------------- obtain the release of Barrella from his personal guaranty of any outstanding obligations of the Company, including without limitation Barrella's guaranty of that certain Agreement for Wholesale Financing dated August 19, 1993, between the Company and AT&T Commercial Finance Corporation and Barrella's guaranty of any obligations of the Company to Lawrence D. Parker. In the event that the Company is unable to obtain any 3 such releases, the Company agrees to indemnify, defend and hold harmless Barrella from and against the contingent liabilities represented thereby. 5. Survival of Representations and Warranties. All of the representations ------------------------------------------ and warranties of Barrella and the Company contained in this Agreement shall survive the execution of this Agreement. 6. Restrictions Upon the Transfer of the Stock. Barrella agrees that he ------------------------------------------- will not make any Disposition of Class A Common Stock, other than a Permitted Disposition, except as provided in this Agreement. Any purported transfer in violation of any provision of this Agreement shall be null and void and shall not operate to transfer any interest or title to the purported transferee. Whenever used in this Agreement, the following terms shall have the meanings set forth below: "Appraised Value" shall mean the value of each share of Class A Common Stock --------------- as determined in accordance with Section 6.3. "Disposition" shall mean any sale, gift, or other transfer, whether outright ----------- or as security, inter vivos or at death, with or without consideration, voluntary or involuntary, of all or any part of any right, title, or interest (including but not limited to voting rights) in or to any Class A Common Stock other than a Permitted Disposition. "Permitted Disposition" shall mean any transfer of the Class A Common Stock --------------------- of Barrella (i) to not more than three (3) members of his immediate family, which shall be limited to Barrella's spouse and lineal descendants or (ii) upon Barrella's death, to an heir or legatee; provided, however, that such family member, heir or legatee acknowledges in writing that he, she or it will be bound by, and the Class A Common Stock transferred will be subject to, this Agreement; and further provided that, in the event of the death of Barrella, neither the Company nor the other shareholders of the Company (the "Shareholders") have elected to repurchase the Class A Common Stock pursuant to Section 6.2 hereof. 6.1 Right of First Refusal. ---------------------- 6.1.1. Condition to Transfer. If Barrella desires to sell any Class A --------------------- Common Stock (other than pursuant to a Permitted Disposition), he shall first offer such Class A Common Stock to the Company and the other Shareholders by giving them notice of his intention to sell the Class A Common Stock. Such notice shall name the proposed transferee, the number of shares to be transferred, the price per share, and the terms of payment. Following receipt of such notice by the non-offering Shareholders and the Company, the non-offering Shareholders and the Company may exercise an option in the manner provided by subsection 6.1.2 to purchase all, but not less than all, of the offered Class A Common Stock in the discretion of each purchaser, at a price equal to the price specified in the notice. 6.1.2 Exercise of Option. The Company shall have first option to purchase ------------------ all of the offered Class A Common Stock (or any part provided one or more Shareholders elect to purchase all offered Class A Common Stock that the Company does not purchase). The Company may exercise its option by giving written notice, which must state the number of shares the Company elects to purchase, and the price and terms of purchase, to Barrella within 10 days after its receipt of Barrella's notice. If the Company elects to purchase none or less than all of the offered Class A Common Stock, the non-offering Shareholders shall have an option to purchase all, but not less than all, of the offered Class A Common Stock that the 4 Company elects not to purchase, exercisable by giving notice to all Shareholders and the Company within 30 days after its receipt of notice from Barrella. Each non-offering Shareholder shall have the right to purchase a proportion of the offered Class A Common Stock (to the extent not purchased by the Company) equal to the ratio that the Common Stock and/or Class A Common Stock owned by such non-offering Shareholder bears to the total Common Stock and/or Class A Common Stock owned by all of the non-offering Shareholders who elect to exercise their purchase option (or in such other proportion as is unanimously agreed to among the Shareholders who elect to exercise their purchase option). The Company or non-offering Shareholders or both may purchase all of the offered Class A Common Stock but may not together purchase less than all of the offered Class A Common Stock. If the Company elects to purchase more shares than any other offeree, it shall state in its notice of exercise the date for the closing of the purchase, which shall not be less than 45 nor more than 60 days after its receipt of notice from Barrella. If any Shareholder exercises his option to purchase more shares than any other offeree, including the Company, he shall state in his notice of exercise, with a copy to the Secretary of the Company, the purchase price of the shares and the terms of purchase and a date for the closing of the purchase by all accepting offerees. Such date for closing shall be not less than 45 nor more than 60 days after the date of such accepting Shareholder's receipt of notice from Barrella. The Secretary of the Company shall promptly mail a copy of such notice of exercise to all accepting offerees to advise them of the time of closing. 6.1.3 Failure to Exercise. If the right of first refusal provided above is ------------------- not exercised as to all of the offered Class A Common Stock, if the exercise by the non-offering Shareholders and the Company is not made within the time specified in subsection 6.1.2, or if the purchase by the non-offering Shareholders or the Company is not consummated within the time specified in subsection 6.1.2 through no fault of Barrella, Barrella may transfer the offered Class A Common Stock to the proposed purchaser, at the price and on the terms and conditions set forth in the notice of intention sent by Barrella. As a condition to such transfer, Barrella shall obtain the written acknowledgement of the transferee that the transferee will be bound by, and the Class A Common Stock transferred will be subject to, this Agreement. If the transfer of Class A Common Stock by Barrella to the proposed purchaser named in the notice of intention is not made within 30 days after the date Barrella became free to transfer, the right to transfer in accordance with the notice shall expire. In such event this Agreement, including without limitation this Article VI, shall remain in full force and effect as to the offered Class A Common Stock. 6.1.4 Closing. At the closing the purchasers shall deliver the required ------- consideration, and Barrella shall deliver the offered Class A Common Stock, duly endorsed for transfer and with any and all required revenue stamps attached. 6.2 Company's Right of Repurchase Upon Death. ---------------------------------------- 6.2.1 Optional Repurchase by the Company. The Company shall have the ---------------------------------- right, but not the obligation, to purchase all (but not less than all) of the Class A Common Stock of Barrella in the event of his death at a price equal to its Appraised Value, at any time following the death of Barrella. As used in Sections 6.2 and 6.3 of this Agreement, the term "Barrella" shall be deemed to include any transferee of the Class A Common Stock as a result of a Permitted Disposition. The right of the Company set forth in this subsection 6.2.1 may be exercised by written notice from the Company to the estate of Barrella, specifying the amount of the Appraised Value and the time (which shall be not more than ten business days following the date of giving such written notice) and place for closing the Company's purchase of such shares. The Company's purchase of such shares of Class A Common Stock shall take place in accordance with such notice. 5 6.2.2 Assignment of Option to Repurchase by Company. The Company may --------------------------------------------- assign its rights under subsection 6.2.1 hereof to all of the Shareholders other than the estate of Barrella, such that each such other Shareholder shall have the right to purchase his pro rata share of the Class A Common Stock of Barrella, or such other portion of the Class A Common Stock of Barrella as shall be mutually agreed among the Company and all of the Shareholders, so long as, in the aggregate, the Company and the other Shareholders purchase all of the Class A Common Stock of Barrella. 6.2.3 Installment Payment of Purchase Price Upon Death. Any payment of the ------------------------------------------------ purchase price for the Class A Common Stock of Barrella may be made in cash or in an initial installment, payable at the closing, of 20% of the total price, with the balance to be paid in 5 equal annual installments of principal and interest beginning on the first day of the thirteenth month following the date of the closing. The obligation to pay the balance of the purchase price shall be evidenced by a promissory note bearing interest at a fluctuating rate per annum equal at all times to the rate published by the Wall Street Journal as its ------------------- Corporate Prime Rate, plus two percent (2%). Such note shall provide for acceleration upon the default in any installment payment which is not cured within thirty (30) days after written notice and shall give the purchaser of the Class A Common Stock the option of prepayment without premium or penalty in whole at any time and in part from time to time after the calendar year of sale. The purchaser shall pledge the purchased Class A Common Stock to secure payment of the note, pursuant to a stock pledge agreement. 6.3 Determination of Appraised Value. For purposes of this Agreement the -------------------------------- Appraised Value of the Class A Common Stock shall mean the fair market value as determined by an independent appraiser mutually agreeable to the representative of Barrella's estate and the Company. If the representative of Barrella's estate and the Company are not able to agree on an independent appraiser within thirty (30) days of the receipt by the representative of Barrella's estate of notice that the Company desires to determine the Appraised Value then the Company and the representative of Barrella's estate shall each promptly select an appraiser. If either the Company or the representative of Barrella's estate fails to select an appraiser within twenty (20) days of a written demand by the other, the fair market value of the Class A Common Stock shall be determined solely by the appraiser selected by the party giving the written demand. Each of the appraisers, within ninety (90) of their appointment, shall determine the fair market value of the Class A Common Stock. If the lower of the two appraisals is equal to or in excess of the product of eighty-five one hundredths (.85) times the higher appraisal, then the two appraisals shall be averaged, and the averaged appraisal amount shall be the fair market value for purposes of this Agreement. If the lower of the two appraised values is less than the foregoing product, then the two selected appraisers shall, within twenty (20) days, jointly select a third appraiser, who shall then have forty-five (45) days within which to arrive at a fair market value, at which time the value determined by the third appraiser shall be averaged with the closer of the two previously determined values to determine the fair market value for purposes of this Agreement. The cost of obtaining the appraisals shall be paid by the non- offering Shareholders (and the Company if it is an offeree of the Class A Common Stock) and fifty percent (50%) thereof shall be credited against the purchase price for the shares of the Class A Common Stock. 7. Legend on Stock. --------------- 7.1 Form of Legend. Upon the execution of this Agreement, the Company's -------------- Secretary shall endorse the Class A Common Stock certificate to be received by Barrella with the following legend: The shares of Class A Common Stock represented by this certificate are held subject to, and transfer of such shares 6 restricted by, the repurchase terms of a Stock Transfer and Redemption Agreement, dated as of the 29th day of May, 1995, a copy of which is on file at the office of the Company. No transfer of any share represented by this certificate shall be valid unless made in accordance with the terms of the Agreement. A copy of this Agreement shall be filed with the Company's Secretary. 7.2 Intention of Parties. The parties to this Agreement intend that the -------------------- legend conform to the provisions of section 8-204 of the Uniform Commercial Code as adopted in the Company's state of incorporation. This legend may be modified from time to time by the Board of Directors to conform to any amendments to this Agreement or to section 8-204 of the Uniform Commercial Code as adopted in the Company's state of incorporation. 8. Working Capital. To facilitate the orderly transfer of the --------------- automotive systems division to LSI and to induce Barrella to enter into this Agreement, at the closing of the transactions contemplated in this Agreement, Softsense agrees to loan LSI $30,000 pursuant to a promissory note to be executed and delivered by LSI in substantially the form of Exhibit C. --------- 9. Indemnification. --------------- 9.1 Indemnification by Barrella. Barrella hereby covenants and agrees --------------------------- that he shall, and shall cause LSI to, now and forever indemnify, defend and hold the Company, and its successors and assigns, harmless from and against any and all losses, liabilities, costs, expenses and damages of any nature, kind or character which are incurred in connection with or as a result of (i) any breach of any representation or warranty contained in Section 2.1 of this Agreement, (ii) any breach by Barrella of any covenant contained in this Agreement, (iii) any breach by Barrella or LSI of any warranty, representation or covenant contained in any of the agreements or documents entered into or provided in connection with the Split-Off including the Blanket Bill of Sale, Assignment and Assumption Agreement, a copy of which is annexed hereto as Exhibit B, (iv) the --------- pending litigation filed by Sage Micro Systems, Inc. (but only to the extent, if any, the defense thereof or any settlement or judgment is not covered and paid for by insurance). 9.2 Indemnification by the Company. Company hereby covenants and agrees ------------------------------ that it shall now and forever indemnify, defend and hold Barrella, and his successors and assigns, harmless from and against any and all losses, liabilities, costs, expenses and damages of any nature, kind or character which are incurred in connection with or as a result of any breach of any representation or warranty contained in Section 2.2 of this Agreement, any failure of the Company to obtain the releases of the personal guaranty(ies) of Barrella referred to in Article 4, any breach by the Company of any covenant contained in this Agreement or any breach by the Company of any warranty, representation or covenant contained in any of the agreements or documents entered into or provided in connection with the Split-Off including the Blanket Bill of Sale, Assignment and Assumption Agreement, a copy of which is annexed hereto as Exhibit B. --------- 10. Arbitration. ----------- All disputes and claims relating to any provision hereof or relating to or arising out of the parties relationship or creation or termination thereof (including, without limitation, any claims that any provision 7 of this Agreement or any obligation of Barrella or of Company is illegal or otherwise unenforceable or voidable under law, ordinance or ruling) shall be settled by arbitration at the office of the American Arbitration Association in Atlanta, Georgia, in accordance with the United States Arbitration Act (9 USC, (S) 1 et seq.) and the commercial arbitration rules of the American Arbitration -- --- Association. Barrella and the Company each consents and submits to the jurisdiction and venue of the trial courts of Fulton County, Georgia, and also to the jurisdiction and venue of the United States District Court for the Northern District of Georgia for purposes of enforcing this provision. All awards of the arbitration shall be binding and non-appealable except as otherwise provided in the United States Arbitration Act. Judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall take place at a time noticed by the American Arbitration Association regardless of whether one of the parties fails or refuses to participate. The foregoing provision shall not preclude either party from bringing an action in any court of competent jurisdiction for injunctive or other provisional relief as necessary or appropriate. 8 11. Tax Matters. ----------- 11.1 Election. Barrella acknowledges that he and the Company have entered -------- into this Agreement with the understanding and expectation that the Company will be taxed as an "S corporation" under (i) the tax laws of the United States; (ii) the tax laws of the State of Georgia; and (iii) unless otherwise agreed to by a majority of the Shareholders, under the tax laws of each state where such status (or similar status) is available and in which at any time the Company does business or any Shareholder is resident. Barrella covenants and agrees that he will use his best efforts not do any act or fail to do any act, the commission or omission of which would cause the termination of the S corporation election of the Company, unless such action or failure to act has the consent of each other Shareholder. Barrella further covenants and agrees that, notwithstanding any other provision of this Agreement, the Company shall have no obligation to recognize or effect on the transfer records of the Company any transfer of any security by Barrella which would, in the opinion of counsel to the Company, cause or have the effect of termination of the S-corporation election of the Company. Barrella (and his spouse) shall take all necessary and appropriate steps and execute all necessary and appropriate consents and other documents required to make each election to be taxed as an S corporation effective under the laws of the United States and the respective states in which the Company files an election to be an S corporation. 11.2 Inadvertent Termination of S Corporation Status. In the event of an ----------------------------------------------- inadvertent termination of the Company's S corporation election, then Barrella and the Company agree to take appropriate action under Section 1362(f) of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations thereunder to request a determination of inadvertent termination from the Commissioner of Internal Revenue allowing the Company to be treated as or continuing to be an S corporation, and if a waiver of the terminating event is not granted, to request consent for an early reelection of S corporation status under Section 1362(g) of the Code and the regulations thereunder. 11.3 Shareholder Termination of Interest. In the event Barrella terminates ----------------------------------- his entire interest in the stock of the Company, Barrella agrees to file an election under Code Section 1377(a)(2) to close the tax year of the Company as of the date of such termination for federal income tax accounting purposes. 11.4 Allocation of Income or Loss in S Termination Year. If the Company's S -------------------------------------------------- election is terminated during any taxable year of the Company, Barrella agrees to make such elections and sign such consent forms as may be required, and the Company will allocate all tax items between the short tax year ending on the date immediately prior to the terminating event and the short tax year beginning with the date of the terminating event in accordance with Code Section 1362(e)(3). 11.5 Power of Attorney. Barrella (and his spouse) hereby irrevocably ----------------- constitutes and appoints the President of the Company, or any successor, with power of substitution, his or her true and lawful attorney-in-fact and agent, to execute, acknowledge, verify, swear to, deliver, record and file, in his (or his spouse's) name, place and stead, all consents, instruments, documents and certificates that may from time to time be required by the laws of the United States, the State of Georgia, or any other relevant state, to effectuate, implement and continue the valid existence of the Company as an S corporation (or similar status). This power of attorney is a special power and shall not be terminated upon the incapacity, disability or incompetence of Barrella (or spouse) and shall not be revoked and shall survive the assignment or transfer by Barrella (or spouse) of all or part of his or her Stock in the Company. The existence of this power shall not preclude execution of any such instrument by Barrella (or spouse) individually on any such matter. -9- 12. Miscellaneous. ------------- 12.1 Waivers and Consents. All waivers and consents given hereunder shall -------------------- be in writing. No waiver by any party hereto of any breach or anticipated breach of any provision hereof by any other party shall be deemed a waiver of any other contemporaneous, preceding or succeeding breach or anticipated breach, whether or not similar, on the part of the same or any other party. 12.2 Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed to have been given only if and when (i) personally delivered, or (ii) three (3) business days after mailing, postage prepaid, by certified mail, or (iii) when delivered (and receipted for) by an overnight delivery service, or (iv) when first sent by telex, telecopier or other means of instantaneous communication provided such communication is promptly confirmed by personal delivery, mail or an overnight delivery service as provided above, addressed in each case as follows: (a) If to Barrella: Thomas Barrella 4035 North Stratford Road Atlanta, Georgia 30342 (b) If to Company: Softsense Computer Products Inc. 1155 Hammond Drive Suite E-5200 Atlanta, Georgia 30328 Attention: President Either Barrella or the Company may change the address(es) for the giving of notices and communications to him or it, as the case may be, by written notice to the other party in conformity with the foregoing. 12.3 Headings. The Article and Section headings contained in this Agreement -------- are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 12.4 Governing Law. The interpretation and construction of this Agreement, ------------- and all matters relating hereto, shall be governed by the laws of the State of Georgia, without giving effect to the principles of conflicts of laws. 12.5 Parties in Interest. This Agreement shall inure to the benefit of, and ------------------- be binding upon, Barrella and the Company, and their respective successors and assigns. 12.6 Section References. Any reference in this Agreement to a section or ------------------ subsection shall be deemed to include a reference to any subsidiary sections whenever the context requires. 12.7 Gender. Masculine, feminine and neuter terms shall be interchangeable ------ (and shall include a corporation, a partnership, or another entity), and shall be singular and plural, where the context makes a change of gender or number appropriate. -10- 12.8 Counterparts. This Agreement may be executed in two or more ------------ counterparts, all of which taken together shall constitute one and the same instrument. 12.9 Entire Agreement. This Agreement, including all schedules annexed ---------------- hereto, contains the entire understanding of the parties hereto with respect to the subject matter contained herein or therein, and supersedes all prior or contemporaneous written or verbal arrangements or agreements regarding the same. 12.10 Amendments. This Agreement may not be changed orally. This ---------- Agreement may be changed only by an agreement in writing signed by Company and Barrella. 12.11 Severability. In case any provision in this Agreement shall be held ------------ invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions hereof will not in any way be affected or impaired thereby. 12.12 Attorneys' Fees. If any legal proceeding is brought for the --------------- enforcement of this Agreement, or because of an alleged breach, default or misrepresentation in connection with any provision of this Agreement or other dispute concerning this Agreement, the successful or prevailing party shall be entitled to recover reasonable attorneys' fees and other costs incurred in that proceeding, in addition to any other relief to which it may be entitled. 12.13 Interpretation. Should any provision of this Agreement require -------------- judicial or arbitral interpretation, it is agreed that the court or arbitrator interpreting or construing the same shall not apply the presumption that the terms of any such provision shall be more strictly construed against one party or the other by reason of the rule of construction that a document is to be construed most strictly against the party who itself or through its agent prepared the same, it being agreed that the agents of all parties have participated in the preparation of this Agreement. IN WITNESS WHEREOF, the Company and Barrella have executed this Agreement, under seal, as of the day and year first above written. "COMPANY" SOFTSENSE COMPUTER PRODUCTS INC. By: /s/ Erez Goren --------------------------------------- Title: President --------------------------------- Attest: Thomas Barrella ----------------------------------- Title: --------------------------------- [CORPORATE SEAL] -11- "BARRELLA" By: /s/ Thomas Barrella (SEAL) ----------------------- Thomas Barrella -12- EXHIBIT A --------- AGREEMENT AND PLAN OF REORGANIZATION AND DISTRIBUTION This AGREEMENT AND PLAN OF REORGANIZATION AND DISTRIBUTION (the "Agreement") made as of the 29th day of May, 1995 among Softsense Computer Products Inc. ("Softsense"), a New York corporation, Logic Shop, Inc. ("LSI"), a Georgia corporation, and Thomas Barrella ("Barrella"), an individual shareholder of Softsense. WHEREAS, LSI is a newly organized Georgia corporation; WHEREAS, the parties desire to transfer to LSI the Softsense automotive systems division, including the Compu-Car Care, Compu-Central and Compu-Local products, in exchange for 2,000,000 shares of the common stock, no par value per share, of LSI; WHEREAS, thereafter the parties desire to split-off LSI to Barrella in exchange for stock of Softsense in a manner intended to be a tax-free reorganization and a tax-free split-off under Sections 368(a)(1)(D) and 355(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the parties agree as follows: 1. Transfer of Properties and Assumption of Liabilities. In exchange for ---------------------------------------------------- 2,000,000 shares of capital stock of LSI, Softsense will transfer to LSI certain assets used primarily in the Softsense automotive systems division, including the Compu-Car Care, Compu-Central and Compu-Local products, and LSI will assume or take subject to certain liabilities of such division. 2. Distribution of Controlled Stock. Immediately after the transfer of -------------------------------- assets and liabilities set forth in Section 1 hereto, Softsense will immediately distribute to Barrella all 2,000,000 shares of the issued and outstanding capital stock of LSI and 7.292 shares of Softsense Class A Common Stock in exchange for all 31.25 shares of Softsense Common Stock owned by Barrella. The value of the LSI stock and Softsense Class A Common Stock and the value of the Softsense Common Stock surrendered by Barrella will be determined as of the date of the transfer by Softsense's Board of Directors using such independent valuation advice as they deem necessary. [THIS SPACE INTENTIONALLY LEFT BLANK] -13- 3. Miscellaneous. This Agreement constitutes the entire agreement and ------------- understanding between the parties and supersedes all prior agreements and understandings related hereto. This Agreement shall be governed by the laws of the State of Georgia. IN WITNESS WHEREOF, the undersigned have executed this Agreement or caused it to be executed by their duly authorized officers effective as of the date first written above. SOFTSENSE COMPUTER PRODUCTS INC. By: --------------------------------------- Its: -------------------------------------- LOGIC SHOP, INC. By: --------------------------------------- Its: -------------------------------------- ------------------------------------------ THOMAS BARRELLA -14- EXHIBIT B --------- BLANKET BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT THIS BLANKET BILL OF SALE, ASSIGNMENT AND ASSUMPTION AGREEMENT ("Assignment") is made and entered into as of the 29th day of May, 1995, by and between SOFTSENSE COMPUTER PRODUCTS INC., a New York corporation (the "Transferor") and LOGIC SHOP, INC., a Georgia corporation (the "Transferee"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, Transferor is in the business of developing, licensing and distributing computer software for use in the automotive care field under the trade names Compu-Car Care, Compu-Central and Compu-Local (the "Subject Business"); and WHEREAS, Transferor is the sole shareholder of Transferee and the parties hereto desire that Transferor transfer to the Transferee the Subject Business as a going concern, any goodwill associated therewith, and those certain assets, rights, properties and business of Transferor used by, or relating to, the Subject Business and more specifically described in Exhibit A annexed hereto --------- (collectively, the "Transferred Assets"), but specifically excluding, without limitation, the assets, rights, properties and business described in Exhibit B --------- attached hereto (collectively, the "Excluded Assets"); and WHEREAS, the parties hereto further desire that Transferee assume all of the liabilities and obligations relating to the Transferred Assets, if any, and certain liabilities and obligations relating to the Subject Business, all as more particularly described in Exhibit C annexed hereto (collectively, the --------- "Assumed Liabilities"); and WHEREAS, the aforementioned transaction is being effected as part of a tax free split-off in accordance with the provisions of Sections 368(a)(1)(D) and 355(a)(1) of the Internal Revenue Code of 1986, as amended; NOW, THEREFORE, KNOW ALL MEN BY THESE PRESENTS THAT for and in consideration of the premises, the mutual covenants contained herein, and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged and confessed, the parties hereto covenant and agree as follows: 1. Transfer of Transferred Assets. The Transferor does hereby grant, ------------------------------ bargain, sell, assign, transfer, convey and deliver to Transferee, and its successors and assigns, forever, all of the Transferor's right, title and interest in, to, and under the Transferred Assets. 2. Contingent Assets. Should the assignment of any of the Transferred ----------------- Assets under this Assignment require a third party consent as a condition to assignment and such consent has not been obtained as of the date hereof (any such asset being referred to as a "Contingent Asset"), Transferor, for itself and its successors and assigns, hereby covenants and agrees to take all commercially reasonable steps and incur all reasonable and ordinary costs necessary to obtain such consent promptly. Until such consents have been obtained, the Transferred Assets assigned hereunder shall not include the Contingent Assets, however, immediately upon obtaining such consent, the Contingent Asset to which such consent relates -15- shall be deemed, without further action of any kind, to be a Transferred Asset that is assigned by Transferor to Transferee pursuant to this Assignment. 3. Assumption of Liabilities. The Transferee does hereby assume all of ------------------------- the Assumed Liabilities, including, without limitation, the liabilities and obligations relating to the leases and contracts included as part of the Transferred Assets, and Transferee agrees that it shall fully and timely pay, perform and discharge all of the Assumed Liabilities, when due in accordance with their respective terms. Transferee shall indemnify and hold harmless the Transferor from and against any and all claims, liabilities, losses, damages, costs and expenses (including attorneys' fees and court costs) which Transferor may suffer or incur arising out of the Transferee's failure to fulfill its obligations under Sections 3 or 4 of this Assignment. 4. Contingent Obligations. Notwithstanding anything contained herein to ---------------------- the contrary, the Assumed Liabilities shall not include any obligation which relates to a Contingent Asset for which a required third party consent has not been obtained (any obligation relating thereto being referred to as a "Contingent Obligation"). However, immediately upon obtaining such consent, the Contingent Obligation to which such consent relates shall be deemed, without further action of any kind, to be an obligation included within the Assumed Liabilities. Notwithstanding the foregoing, Transferee shall fully pay and discharge when due in accordance with their respective terms any and all obligations accruing after the date hereof with respect to those certain Contingent Obligations for which and during the period in which Transferee is receiving the benefits of the Contingent Assets relating thereto; provided, however, that Transferee may, at its election, exercised in good faith, void its obligation to assume a Contingent Obligation if during the period in which consent is being sought any material default occurs under the Contingent Asset relating thereto and such material default results from the acts or omissions of Transferor, and Transferee is willing to forego any additional benefit under or with respect to such Contingent Asset and agrees that such Contingent Asset shall not be included within the Transferred Assets. 5. Further Assurances. Each party covenants and agrees that from and ------------------ after the date hereof, each will execute, deliver and acknowledge (or cause to be executed, delivered and acknowledged), from time to time, at the request of the other and without further consideration, all such further instruments and take all such further action as may be reasonably necessary or appropriate to confirm or more effectively carry out the provisions and intent of this Assignment; provided, however, that all recording and filing costs shall be the responsibility of the requesting party. 6. Employee Matters. As of the date hereof, all employees employed by the ---------------- Transferor exclusively for the Subject Business and listed on Exhibit D (the --------- "Transferred Employees") shall be made available to the Transferee for hire, and the Transferee shall offer employment, as of the date hereof, to the Transferred Employees at no less than the same compensation rate described on Exhibit D. --------- The Transferee shall be solely responsible for severance pay obligations, if any, arising on or after the date hereof with respect to all Transferred Employees. 7. Disclaimer of Warranties. TRANSFEROR IS GRANTING, BARGAINING, SELLING, ------------------------ ASSIGNING, TRANSFERRING, CONVEYING AND DELIVERING THE TRANSFERRED ASSETS HEREUNDER IN "AS IS" AND "WHERE IS" CONDITION. TRANSFEROR MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT THERETO AND SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. -16- 8. Arbitration. All disputes and claims relating to any provision hereof ----------- (including, without limitation, any claims that any provision of this Assignment or any obligation of Transferor or of Transferee is illegal or otherwise unenforceable or voidable under law, ordinance or ruling) shall be settled by arbitration at the office of the American Arbitration Association in Atlanta, Georgia, in accordance with the United States Arbitration Act (9 USC, (S) 1 et -- seq.) and the commercial arbitration rules of the American Arbitration - --- Association. Transferee and Transferor each consents and submits to the jurisdiction and venue of the trial courts of Fulton County, Georgia, and also to the jurisdiction and venue of the United States District Court for the Northern District of Georgia for purposes of enforcing this provision. All awards of the arbitration shall be binding and non-appealable except as otherwise provided in the United States Arbitration Act. Judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof. The arbitration shall take place at a time noticed by the American Arbitration Association regardless of whether one of the parties fails or refuses to participate. The foregoing provision shall not preclude either party from bringing an action in any court of competent jurisdiction for injunctive or other provisional relief as necessary or appropriate. 9. Entire Agreement. This Assignment, including all schedules and ---------------- exhibits annexed hereto, supersedes all prior agreements and undertakings between the parties hereto with respect to the subject matter contained herein, constitutes the entire agreement of the parties with respect to the subject matter hereof, and may not be modified, amended or terminated except by a written instrument specifically referring to this Assignment signed by the party to be so bound by such modification, amendment or termination. 10. Headings. The section headings contained in this Assignment are for -------- reference purposes only and shall not affect in any way the meaning or interpretation of this Assignment. 11. Counterparts. This Assignment may be executed in two or more ------------ counterparts, all of which taken together shall constitute one and the same instrument. 12. Time of the Essence. Time shall be of the essence with respect to the ------------------- performance of any obligation or duty hereunder. 13. Governing Law. The interpretation and construction of this Assignment, ------------- and all matters relating thereto, shall be governed by the internal laws of the State of Georgia without giving effect to the principles of conflicts of laws. 14. Interpretation. Should any provision of this Assignment require -------------- judicial or arbitral interpretation, it is agreed that the court or arbitrator interpreting or construing the same shall not apply a presumption that the terms of any such provision shall be more strictly construed against one party or the other by reason of the rule of construction that a document is to be construed most strictly against the party who itself or through its agent prepared the same, it being agreed that the agents of all parties hereto have participated in the preparation of this Assignment. 15. Parties in Interest. This Assignment shall be binding upon and shall ------------------- inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. IN WITNESS WHEREOF, the parties hereto have caused this Assignment to be executed and delivered, under seal, as of the date and year first above written. -17- "Transferor" Signed, sealed and delivered SOFTSENSE COMPUTER PRODUCTS INC. in the presence of: By: ------------------------------ Title: - ---------------------- --------------------------- Notary Public Attest: -------------------------- My Commission Expires: Title: --------------------------- "Transferee" Signed, sealed and delivered LOGIC SHOP, INC. in the presence of: By: ----------------------------- Title: - ---------------------- -------------------------- Notary Public Attest: -------------------------- My Commission Expires: Title: --------------------------- -18- EXHIBIT C PROMISSORY NOTE $30,000 May 29, 1995 FOR VALUE RECEIVED, the undersigned (hereafter referred to as "Maker"), promises to pay to the order of SOFTSENSE COMPUTER PRODUCTS INC. (hereafter referred to as "Payee"; Payee, and any subsequent holder(s) hereof, being hereafter referred to as "Holder"), at the address of Maker at 1155 Hammond Drive, Suite E-5200, Atlanta, Georgia 30328, or at such other place as Holder may designate to Maker in writing from time to time, the principal sum of THIRTY THOUSAND AND NO/100 DOLLARS ($30,000), together with interest on so much thereof as is from time to time outstanding and unpaid, at the rate hereinafter set forth, in lawful money of the United States of America, such principal and said interest to be paid in the following manner: From and after the date hereof (until maturity) interest on the outstanding principal indebtedness evidenced hereby shall accrue at the rate of eight percent (8%) per annum and shall be computed on a simple interest basis. The outstanding principal amount and accrued interest on this Note shall be due and payable in full on August 31, 1995. This Note may be prepaid in whole or in part at any time. If the outstanding principal and all accrued interest is not paid when due, interest shall accrue on the outstanding principal balance of this Note from the due date and for so long as such default continues, at the rate equal to eighteen percent (18%) per annum. Time is of the essence of this Note. Presentment for payment, demand, protest and notice of demand, dishonor, protest and non-payment and all other notices are hereby waived. No indulgences granted from time to time shall be construed as a waiver of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or any other right granted hereunder or by the laws of the State of Georgia; and Maker hereby expressly waives the benefit or any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Georgia. If from any circumstances whatsoever, fulfillment of any provision of this Note or of any other instrument evidencing or securing the indebtedness evidenced hereby, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law with regard to obligations of like character and amount, the, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other instrument evidencing or securing the -19- indebtedness evidenced hereby that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity. This Note shall not be transferred or otherwise disposed of by the Holder without the prior written consent of the Maker. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. IN WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written. "Maker" LOGIC SHOP, INC. By: ------------------------------------------ Title: ----------------------------------- -20- EX-10.3 7 1995 INCENTIVE STOCK OPTION PLAN EXHIBIT 10.3 ------------ SOFTSENSE COMPUTER PRODUCTS, INC. 1995 INCENTIVE STOCK OPTION PLAN 1. PURPOSE The purpose of Softsense Computer Products, Inc.'s 1995 Incentive Stock Option Plan (the "Plan") is to encourage and enable eligible directors, officers and employees of Softsense Computer Products, Inc. (the "Company") and its subsidiaries to acquire proprietary interests in the Company through the ownership of Common Stock of the Company. The Company believes that directors, officers and key employees who participate in the Plan will have a closer identification with the Company by virtue of their ability as shareholders to participate in the Company's growth and earnings. The Plan also is designed to provide motivation for participating directors, officers and key employees to remain in the employ of and to give greater effort on behalf of the Company. It is the intention of the Company to have the Plan qualify as an "incentive stock option plan" under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and the regulations promulgated thereunder. Accordingly, the provisions of the Plan shall be construed so as to extend and limit participation in a manner consistent with the requirements of that section of the Code. 2. DEFINITIONS The following words or terms shall have the following meanings: (a) "Agreement" shall mean an incentive stock option agreement between the Company and an Eligible Employee pursuant to the terms of this Plan. (b) "Average Market Price" shall mean the mean between the high "bid" and low "ask" prices as of the close of business for the Company's shares of Common Stock in the over-the-counter market, as reported by the National Association of Securities Dealers, Inc. Automated Quotation System (or other national quotation service). If the Company's Common Stock is not regularly traded in the over-the- counter market but is registered on a national securities exchange, "Average Market Price" shall mean the closing price of the Company's Common Stock on such national securities exchange. (c) "Board of Directors" shall mean the Board of Directors of the Company or the Executive Committee of such Board. (d) "Committee" shall mean the committee appointed by the Board of Directors to administer the Plan. (e) "Common Stock" shall mean the no par value Common Stock of the Company. (f) "Company" shall mean Softsense Computer Products, Inc., a Georgia corporation. (g) "Current Value" shall mean the value of each Share as determined in accordance with Section 9(c). (h) "Disposition" shall mean any sale, gift, or other transfer, whether outright or as security, inter vivos or at death, with or without consideration, voluntary or involuntary, of all or any part of any right, title, or interest (including but not limited to voting rights) in or to any Shares other than a Permitted Disposition. (i) "Eligible Employee(s)" shall mean a person or persons regularly employed by the Company or a Subsidiary. (j) "Optionee" shall mean an Eligible Employee having a right to purchase Common Stock under an Agreement. (k) "Option(s)" shall mean the right or rights granted to Eligible Employees to purchase Common Stock under the Plan. (l) "Permitted Disposition" shall mean any transfer of the Shares of Optionee upon Optionee's death, to an heir or legatee; provided, however, that such heir or legatee acknowledges in writing that he, she or it will be bound by, and the Shares transferred will be subject to, the Plan; and further provided that, the Company has not elected to repurchase the Shares pursuant to Section 9(b) hereof. (m) "Plan" shall mean this Softsense Computer Products, Inc. 1995 Incentive Stock Option Plan. (n) "Shares," "Stock" or "Common Stock" shall mean shares of the no par value Common Stock of the Company. (o) "Subsidiary" shall mean any corporation, if the Company owns or controls, directly or indirectly, a majority of the voting stock of such corporation. (p) "Ten Percent Owner" shall mean an individual who, at the time an Option is granted, owns directly or indirectly more than ten percent (10%) of the total combined voting power of all classes of stock of the Company. 3. EFFECTIVE DATE The effective date of the Plan (the "Effective Date") shall be the date the Plan is adopted by the Board of Directors or the date the Plan is approved by the shareholders of the Company, whichever is earlier. The Plan must be approved by the affirmative vote of not less than a majority of the votes entitled to be cast thereon, which shareholder vote must be taken within twelve (12) months after the date the Plan is adopted by the Board of Directors. Such shareholder vote shall not alter the Effective Date of the Plan. In the event shareholder approval of the adoption of the Plan is not obtained within the aforesaid twelve (12) month period, then any options granted in the intervening period shall be void. -2- 4. SHARES RESERVED FOR PLAN The shares of the Company's Common Stock to be sold to Eligible Employees under the Plan may at the election of the Board of Directors be either treasury shares or shares originally issued for such purpose. The maximum number of shares which shall be reserved and made available for sale under the Plan shall be 2,500,000. Any shares subject to an Option which for any reason expires or is terminated unexercised may again be subject to an Option under the Plan. 5. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Board of Directors of the Company or the Committee. The Committee shall be comprised of not less than two (2) members appointed by the Board of Directors of the Company from among its members. No member of the Board of Directors shall be appointed or serve as a member of the Committee, and any such appointment or service immediately and automatically shall terminate, in the event that such person is not a disinterested person. As used herein, the term "disinterested person" means a director who is not, during the one year prior to service as an administrator of the Plan, or during such service, granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any of its affiliates (as such term is defined in the General Rules and Regulations of the Securities Exchange Act of 1934, as amended). Within the limitations described herein, the Board of Directors of the Company or the Committee shall administer the Plan, select the Eligible Employees to whom Options will be granted, determine the number of shares to be optioned to each Eligible Employee and interpret, construe and implement the provisions of the Plan. Board of Directors and Committee members shall be reimbursed for out-of-pocket expenses reasonably incurred in the administration of the Plan. If the Plan is administered by the Board of Directors, a majority of the members of the Board of Directors shall constitute a quorum, and the act of a majority of the members of the Board of Directors present at any meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Board of Directors shall be the acts of the Board of Directors. If the Plan is administered by the Committee, the Committee shall select one of its members as Chairman and shall hold its meetings at such times and places, and pursuant to such rules consistent with the Plan, as it may determine. A majority of the members of the Committee shall constitute a quorum, and the acts of a majority of the members present at any meeting at which a quorum is present, or acts approved in writing by a majority of the members of the Committee shall be the acts of the Committee. 6. ELIGIBILITY Options may be granted only to Eligible Employees. -3- 7. DURATION OF THE PLAN The Plan shall remain in effect until all shares subject to or which may become subject to the Plan shall have been purchased pursuant to Options granted under the Plan; provided that Options under the Plan must be granted within ten (10) years from the Effective Date. 8. QUALIFIED INCENTIVE OPTIONS It is intended that Options granted under the Plan shall be qualified incentive stock options under the provisions of Section 422 of the Code and the regulations thereunder or corresponding provisions of subsequent revenue laws and regulations in effect at the time such Options are granted. Such Options shall be evidenced by stock option agreements in such form and not inconsistent with this Plan as the Committee shall approve from time to time, which agreements shall contain in substance the following terms and conditions: (a) Price. The purchase price for shares purchased upon exercise will be ----- the Average Market Price on the day the Option is granted, as determined by the Board of Directors or the Committee, or, if the Stock is not traded in the organized markets, then the price shall be the fair market value of the Stock as determined in good faith by the Board of Directors or the Committee, but in no case less than the par value of such stock; provided further that the purchase price of stock deliverable upon the exercise of a qualified incentive option granted to a Ten Percent Owner shall be not less than one hundred ten percent (110%) of the Average Market Price or fair market value on the day the Option is granted, as determined by the Board of Directors or the Committee, but in no case less than the par value of such stock. (b) Number of Shares. The Agreement shall specify the number of shares ---------------- which the Optionee may purchase under such Option. (c) Exercise of Options. The shares subject to the Option may be ------------------- purchased in whole or in part by the Optionee in accordance with the terms of the Agreement, from time to time after shareholder approval of the Plan, but in no event later than ten (10) years from the date of grant of the Option. Notwithstanding the foregoing, shares subject to an Option granted to a Ten Percent Owner shall be exercisable no later than five (5) years from the date of grant of the Option. (d) Medium and Time of Payment. Stock purchased pursuant to an Agreement -------------------------- shall be paid for in full at the time of purchase. Payment of the purchase price shall be in cash or shares of the Common Stock of the Company, or a combination of cash and shares of the Common Stock of the Company. Upon receipt of payment, the Company shall, without transfer or issue tax, deliver to the Optionee (or other person entitled to exercise the Option) a certificate or certificates for such shares. (e) Rights as a Shareholder. An Optionee shall have no rights as a ----------------------- shareholder with respect to any shares covered by an Option until the date of issuance of the stock certificate to the Optionee for such shares. Except as otherwise expressly provided in the Plan, no adjustments shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. -4- (f) Nonassignability of Option. No Option shall be assignable or -------------------------- transferable by the Optionee except by will or by the laws of descent and distribution. During the lifetime of the Optionee, the Option shall be exercisable only by him or her. (g) Effect of Termination of Employment or Death. In the event that an -------------------------------------------- Optionee during his or her lifetime ceases to be an employee of the Company or of any subsidiary of the Company for any reason (including retirement) other than death or permanent and total disability, any Option or unexercised portion thereof which was otherwise exercisable on the date of termination of employment shall expire unless exercised within a period of three (3) months from the date on which the Optionee ceased to be an employee, but in no event after the term provided in the Optionee's Agreement. In the event that an Optionee ceases to be an employee of the Company or of any subsidiary of the Company for any reason (including retirement) prior to the time that an Option is exercisable, his or her Option shall terminate and be null and void. In the event that an Optionee during his or her lifetime ceases to be an employee of the Company or any subsidiary of the Company by reason of death or permanent and total disability, any Option or unexercised portion thereof which was otherwise exercisable on the date such Optionee ceased employment shall expire unless exercised within a period of one (1) year from the date on which the Optionee ceased to be an employee, but in no event after the term provided in the Optionee's Agreement. Permanent and total disability as used herein is as defined in Section 22(e)(3) of the Code. In the event of the death of an Optionee, the Option shall be exercisable by his or her personal representatives, heirs or legatees, as provided herein. (h) Recapitalization. In the event that dividends are payable in Common ----------------- Stock of the Company or in the event there are splits, subdivisions or combinations of shares of Common Stock of the Company, the number of Shares available under the Plan shall be increased or decreased proportionately, as the case may be, and the number of Shares deliverable upon the exercise thereafter of any Option theretofore granted shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price. (i) Reorganization. In case the Company is merged or consolidated with -------------- another corporation and the Company is not the surviving corporation, or in case the property or stock of the Company is acquired by another corporation, or in case of a separation, reorganization, recapitalization or liquidation of the Company, the Board of Directors of the Company, or the Board of Directors of any corporation assuming the obligations of the Company hereunder, shall either (i) make appropriate provision for the protection of any outstanding Options by the substitution on an equitable basis of appropriate stock of the Company, or of the merged, consolidated or otherwise reorganized corporation which will be issuable in respect to the shares of Common Stock of the Company, provided only that the excess of the aggregate fair market value of the shares subject to option immediately after such substitution over the purchase price thereof is not more than the excess of the aggregate fair market value of the shares subject to option immediately before such substitution over the purchase price thereof, or (ii) upon written notice to the Optionee provide that the Option (including the shares not then exercisable) must be exercised within sixty (60) days of the date of such notice or it will be terminated. -5- (j) General Restriction. Each Option shall be subject to the requirement ------------------- that if at any time the Board of Directors shall determine, in its discretion, that the listing, registration or qualification of the Shares subject to such Option upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issue or purchase of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Board of Directors. 9. RESTRICTIONS UPON THE TRANSFER OF SHARES Optionees shall not make any Disposition of Shares, other than a Permitted Disposition, except as provided in this Section 9. Any purported transfer in violation of any provision of this Section 9 shall be null and void and shall not operate to transfer any interest or title to the purported transferee. (a) Right of First Refusal. ---------------------- (i) Condition to Transfer. If Optionee desires to make a --------------------- Disposition of any Shares, he shall first offer such Shares to the Company by giving it notice of his intention to dispose of the Shares. Such notice shall name the type of Disposition, the proposed transferee, the number of shares to be transferred, the price per share, and the terms of payment. Following receipt of such notice by the Company, the Company may exercise an option in the manner provided by subsection 9(a)(ii) to purchase all, but not less than all, of the offered Shares, at a price equal to the price specified in the notice. (ii) Exercise of Option. The Company may exercise its option by ------------------ giving written notice, which must state the number of shares the Company elects to purchase, and the price and terms of purchase, to Optionee within 10 days after its receipt of Optionee's notice. The Company may purchase all of the offered Shares but may not purchase less than all of the offered Shares. If the Company elects to purchase all the offered Shares, it shall state in its notice of exercise the date for the closing of the purchase, which shall not be less than 45 nor more than 60 days after its receipt of notice from the Optionee. (iii) Failure to Exercise. If the right of first refusal provided ------------------- above is not exercised as to all of the offered Shares, if the exercise by the Company is not made within the time specified in subsection 9(a)(ii), or if the purchase by the Company is not consummated within the time specified in subsection 9(a)(ii) through no fault of the Optionee, the Optionee may transfer the offered Shares to the proposed purchaser, at the price and on the terms and conditions set forth in the notice of intention sent by the Optionee. As a condition to such transfer, the Optionee shall obtain the written acknowledgement of the transferee that the transferee will be bound by, and the Shares transferred will be subject to, the terms of such Optionee's Agreement. If the transfer of Shares by the Optionee to the proposed purchaser named in the notice of intention is not made within 30 days after the date the Optionee became free to transfer, the right to transfer in accordance with the notice shall expire. In such event the provisions of this Section 9 shall remain in full force and effect as to the offered Shares. -6- (iv) Assignment of Option by Company. The Company may assign its ------------------------------- rights under subsection 9(a)(ii) hereof to any of the then current shareholders of the Company other than the Optionee, such that such shareholder shall have the right to purchase the Shares of the Optionee, or such portion of the Shares of the Optionee as shall be mutually agreed between the Company and such shareholder, so long as, in the aggregate, the Company and such shareholder purchase all of the Shares of the Optionee. (v) Closing. At the closing the Company shall deliver the required ------- consideration, and the Optionee shall deliver the offered Shares, duly endorsed for transfer and with any and all required revenue stamps attached. (b) Company's Right of Repurchase Upon Termination of Employment or Death. --------------------------------------------------------------------- (i) Optional Repurchase by the Company. The Company shall have the ---------------------------------- right, but not the obligation, to purchase all (but not less than all) of the Shares of Optionee in the event he ceases to be an employee of the Company or any subsidiary of the Company for any reason (including retirement) or in the event of his death (a "Termination Event"), at a price equal to its Current Value, at any time following the Termination Event. The right of the Company set forth in this subsection 9(b)(i) may be exercised by written notice from the Company to the Optionee or the estate of the Optionee, as the case may be, specifying the amount of the Current Value and the time (which shall be not more than ten business days following the date of giving such written notice) and place for closing the Company's purchase of such shares. The Company's purchase of such Shares shall take place in accordance with, and at the time and place specified in, such notice. (ii) Assignment of Option to Repurchase by Company. The Company may --------------------------------------------- assign its rights under subsection 9(b)(i) hereof to any of the then current shareholders of the Company other than the Optionee or the estate of the Optionee, as the case may be, such that such shareholder shall have the right to purchase the Shares of the Optionee, or such portion of the Shares of the Optionee as shall be mutually agreed between the Company and such shareholder, so long as, in the aggregate, the Company and such shareholder purchase all of the Shares of the Optionee. (iii) Installment Payment of Purchase Price Upon Death. Any payment ------------------------------------------------ of the purchase price for the Shares of an Optionee may be made in cash or in an initial installment, payable at the closing, of 20% of the total price, with the balance to be paid in 4 equal annual installments of principal and interest beginning on the first day of the thirteenth month following the date of the closing. The obligation to pay the balance of the purchase price shall be evidenced by a promissory note bearing interest at the rate of 9% per annum. Such note shall provide for acceleration upon the default in any installment payment which is not cured within thirty (30) days after written notice and shall give the purchaser of the Shares the option of prepayment without premium or penalty in whole at any time and in part from time to time after the calendar year of sale. The purchaser shall pledge the purchased Shares to secure payment of the note, pursuant to a stock pledge agreement. (c) Determination of Current Value. The Current Value of each Share of ------------------------------ the Company shall be the Average Market Price on the date of the Termination Event, as determined by the Board of Directors, or, if the Shares are not traded in the organized markets, then the price shall be the fair -7- market value of the Shares determined in good faith by the Board of Directors, but in no case less than the par value of such stock. (d) Termination of Restrictions on Shares. The restrictions imposed by ------------------------------------- and the rights in favor of the Company set forth in Section 9 shall terminate in full at such time as the Company's Common Stock is publicly traded on a national securities exchange or on The Nasdaq Stock Market. 10. AMENDMENT OF THE PLAN The Plan may at any time or from time to time be terminated, modified or amended by the affirmative vote of not less than a majority of the votes entitled to be cast thereon by the Company's shareholders. The Board of Directors may at any time and from time to time modify or amend the Plan in any respect, except that without shareholder approval the Board of Directors may not (1) increase the maximum number of shares for which Options may be granted under the Plan either in the aggregate or to any Eligible Employee (other than increases due to changes in capitalization as referred to in Section 8(h) hereof), or (2) reduce the option price or waiting period (except as otherwise expressly provided in the Plan in the case of a reorganization of the Company as referred to in Section 8(i) hereof), or (3) extend the period during which Options may be granted or exercised, or (4) change the class of employees eligible for incentive stock options under Section 6 hereof, or (5) to otherwise materially modify (within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended) the requirements as to eligibility for participation in the Plan, or (6) to otherwise materially increase (within the meaning of Rule 16b-3 of the Securities Exchange Act of 1934, as amended) the benefits accruing to participants under the Plan. The termination or any modification or amendment of the Plan shall not, without the written consent of an Optionee, affect his or her rights under an Option or right previously granted to him or her. With the written consent of the Optionee affected, the Board of Directors or the Committee may amend outstanding option agreements in a manner not inconsistent with the Plan. Without employee consent, the Board of Directors may at any time and from time to time modify or amend outstanding option agreements in such respects as it shall deem necessary in order that Options granted hereunder shall comply with the appropriate provisions of the Code and regulations thereunder which are in effect from time to time respecting "Qualified Incentive Options." 11. LIMITATION ON NUMBER OF SHARES THAT MAY BE PURCHASED The aggregate fair market value (determined at the time the Option is granted) of the shares with respect to which incentive stock options are exercisable for the first time by an Optionee during any calendar year (under all incentive stock option plans of the Company) shall not exceed $100,000. 12. BINDING EFFECT All decisions of the Board of Directors or the Committee involving the implementation, administration or operation of the Plan or any offering under the Plan shall be binding on the Company, all Eligible Employees participating in the Plan, and on all persons eligible or who become eligible to participate in the Plan. -8- EX-10.4 8 LOAN AGREEMENT EXHIBIT 10.4 LOAN AGREEMENT -------------- THIS LOAN AGREEMENT ("Agreement"), dated as of the 28th day of June, 1996, is made and entered into on the terms and conditions hereinafter set forth, by and between SOFTSENSE COMPUTER PRODUCTS, INC., a Georgia corporation ("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Lender"). RECITALS: -------- WHEREAS, Borrower has requested that Lender make available to Borrower a term loan in the original principal amount of Three Million Dollars and No/100ths Dollars ($3,000,000.00) (the "Loan") on the terms and conditions hereinafter set forth, and for the purpose(s) hereinafter set forth; and WHEREAS, in order to induce Lender to make the Loan to Borrower, Borrower has made certain representations to Lender; and WHEREAS, Lender, in reliance upon the representations and inducements of Borrower, has agreed to make the Loan upon the terms and conditions hereinafter set forth. AGREEMENT: --------- NOW, THEREFORE, in consideration of the agreement of Lender to make the Loan, the mutual covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows: ARTICLE 1 THE LOAN -------- 1.1 Evidence of Loan Indebtedness and Repayment. Subject to the terms and ------------------------------------------- conditions hereof, Lender shall make the Loan to Borrower by wire transfer in immediately available funds. The Loan shall be evidenced by a Secured Promissory Note in the original principal amount of Three Million and No/100ths Dollars ($3,000,000.00), substantially in the form of Exhibit A attached hereto and incorporated herein by this reference (the "Note"), dated as of the date hereof, executed by Borrower, in favor of Lender. The Loan shall be payable in accordance with the terms of the Note. The Note, this Agreement and any other instruments and documents executed by Borrower, any guarantor of Borrower, or any shareholder of Borrower, now or hereafter evidencing, securing or in any way related to the indebtedness evidenced by the Note are herein individually referred to as a "Loan Document" and collectively referred to as the "Loan Documents." 1.2 Processing Fee. Borrower shall pay a processing fee of $75,000 to -------------- Lender at closing. 1.3 Purpose(s) of Loan and Use of Proceeds. The purposes of the Loan -------------------------------------- shall be to provide working capital to Borrower, and to pay all costs and expenses incurred by the parties hereto in connection with the making and documenting of the Loan, including attorneys' fees and expenses. The proceeds of the Loan shall not be used for any other purpose. 1.4 Prepayment. Borrower may prepay the indebtedness evidenced by the ---------- Note in whole or in part at any time and from time to time without premium or penalty. ARTICLE 2 REPRESENTATIONS AND WARRANTIES ------------------------------ 2.1 Borrower's Representations. Borrower hereby represents and warrants -------------------------- to Lender as follows: (a) Corporate Status. Borrower is a corporation duly organized, ---------------- validly existing and in good standing under the laws of the State of Georgia; and has the corporate power to own and operate its properties, to carry on its business as now conducted and to enter into and to perform its obligations under this Agreement and the other Loan Documents to which it is a party. Borrower is duly qualified to do business and in good standing in Georgia and each other state in which a failure to be so qualified and in good standing would have a material adverse effect on (a) the property, business, operations or financial condition of Borrower and its Subsidiaries (as hereafter defined) taken as a whole or (b) the ability of Borrower to perform its obligations under the Loan Documents (collectively, a "Material Adverse Effect"). (b) Subsidiaries. Schedule 2.1(b) hereto is a complete list of each ------------ corporation, partnership, joint venture, limited liability company or other business organization (the "Subsidiary" or, with respect to all such organizations, the "Subsidiaries") in which Borrower or any Subsidiary owns, directly or indirectly, any capital stock or other equity interest, or with respect to which Borrower or any Subsidiary, alone or in combination with others, is in a control position, which list shows the jurisdiction of incorporation or other organization and the percentage of stock or other equity interest of each Subsidiary owned by Borrower. Each Subsidiary which is a corporation is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and is duly qualified to transact business as a foreign corporation and is in good standing in the jurisdictions listed in Schedule 2.1(b), which are the only jurisdictions where the properties owned or leased or the business transacted by it makes such licensing or qualification to do business as a foreign corporation necessary, and no other jurisdiction has demanded, requested or otherwise indicated that (or inquired 2 whether) it is required so to qualify. Each Subsidiary which is not a corporation is duly organized and validly existing under the laws of the jurisdiction of its organization. The outstanding capital stock of each Subsidiary which is a corporation is validly issued, fully paid and nonassessable. Borrower and the Subsidiaries have good and valid title to the equity interests in the Subsidiaries shown as owned by each of them on Schedule 2.1(b), free and clear of all liens, claims, charges, restrictions, security interests, equities, proxies, pledges or encumbrances of any kind other than Permitted Liens (as hereafter defined) and other than as set forth on Schedule 2.1(b). Except where otherwise indicated herein or unless the context otherwise requires, any reference to Borrower herein shall include Borrower and all of its Subsidiaries. (c) Authorization. Borrower has full legal right, power and authority ------------- to conduct its business and affairs. Borrower has full legal right, power and authority to enter into and perform its obligations under the Loan Documents, without the consent or approval of any other person, firm, governmental agency or other legal entity. The execution and delivery of this Agreement, the borrowing hereunder, the execution and delivery of each Loan Document to which Borrower is a party, and the performance by Borrower of its obligations thereunder are within the corporate powers of Borrower and have been duly authorized by all necessary corporate action properly taken, have received all necessary governmental approvals, if any were required, and do not and will not contravene or conflict with any material provision of law, any applicable judgment, ordinance, regulation or order of any court or governmental agency, the articles of incorporation or bylaws of Borrower, or any material agreement binding upon Borrower. The officer(s) executing this Agreement, the Note and all of the other Loan Documents to which Borrower is a party are duly authorized to act on behalf of Borrower. (d) Validity and Binding Effect. This Agreement and the other Loan --------------------------- Documents are the legal, valid and binding obligations of Borrower, enforceable in accordance with their respective terms, subject to limitations imposed by bankruptcy, insolvency, moratorium or other similar laws affecting the rights of creditors generally or the application of general equitable principles. (e) Capitalization. As of the date hereof, the authorized capital -------------- stock of Borrower consists solely of 30,000,000 shares of capital stock with 20,000,000 shares designated no par value per share ("Voting Common Stock"), of which 6,857,132 shares are issued and outstanding (the "Voting Common Shares") and 1,050,601 shares of which shall be reserved for issuance upon exercise of the Stock Purchase Warrant dated as of the date hereof and issued to Lender (the "Warrant") and with 10,000,000 shares designated as Class A Common Stock, no par value per share ("Class A Common Stock") (Voting Common Stock and Class A Common Stock are sometimes referred to herein collectively as "Common Stock"), of which 1,142,889 shares are issued and outstanding ("Class A Shares") (the Voting Common Shares and the Class A Shares are sometimes referred to herein collectively as the "Shares"); provided, however, that the number of shares reserved for issuance upon exercise of 3 the Warrant shall be increased from time to time in accordance with the terms of the Warrant. As of the date hereof, Borrower shall not have outstanding any stock or securities convertible or exchangeable for any shares of its Common Stock or containing any profit participation features, nor shall it have outstanding any rights or options to subscribe for or to purchase its Common Stock or any stock or securities convertible into or exchangeable for its Common Stock or any stock appreciation rights or phantom stock plans, except as set forth on Schedule 2.1(e) and for the Warrant. Schedule 2.1(e) accurately sets forth the following with respect --------------- to all outstanding options and rights to acquire the Common Stock from Borrower: (i) the total number of shares issuable upon exercise of all outstanding options, (ii) the range of exercise prices for all such outstanding options, (iii) the number of shares issuable, the exercise price and the expiration date for each such outstanding option and (iv) with respect to all outstanding options, warrants and rights to acquire Borrower's capital stock other than the Warrant, the holder, the number of shares covered, the exercise price and the expiration date. As of the date hereof, Borrower shall not be subject to any obligation (contingent or otherwise) to repurchase, redeem, retire or otherwise acquire any shares of its capital stock or any warrants, options or other rights to acquire its capital stock, except as set forth in the Warrant or on Schedule 2.1(e). As --------------- of the date hereof, all of the outstanding shares of Borrower's capital stock shall be validly issued, fully paid and nonassessable. Except as set forth on Schedule 2.1(e), there are no statutory or contractual preemptive --------------- rights, rights of first refusal, anti-dilution rights or any similar rights, held by stockholders or option holders of Borrower, with respect to the issuance of the Warrant or the issuance of the Common Stock upon exercise of the Warrant. All such rights granted in the documents listed on Schedule 2.1(e) have been effectively waived with regard to the issuance --------------- of the Warrant, the exercise of the Warrant and the issuance of the Common Stock upon exercise of the Warrant. Assuming the accuracy of certain representations to be made by the holder of the Warrant, Borrower has not violated any applicable federal or state securities laws in connection with the offer, sale or issuance of any of its capital stock, and the offer, sale and issuance of the Warrant hereunder does not require registration under the Securities Act of 1933, as amended or any applicable state securities laws. To the best of Borrower's knowledge, there are no agreements among Borrower's stockholders with respect to any other aspect of Borrower's affairs, except as set forth on Schedule 2.1(e). --------------- (f) Trademarks, Patents, Etc. Schedule 2.1(f) is an accurate and ------------------------ complete list of all patents, trademarks, tradenames, trademark registrations, service names, service marks, copyrights, licenses, formulas and applications therefor owned by Borrower or used or required by Borrower in the operation of its business, title to each of which is, except as set forth in Schedule 2.1(f) hereto, held by Borrower free and clear of all adverse claims, liens, security agreements, restrictions or other encumbrances other than Permitted Liens. To the knowledge of Borrower, there is no infringement action, lawsuit, claim or complaint which asserts that Borrower's operations violate or infringe the rights or the trade names, trademarks, trademark 4 registration, service name, service mark or copyright of others with respect to any apparatus or method of Borrower or any adversely held trademark, trade name, trademark registration, service name, service mark or copyright, nor is Borrower in any way making use of any confidential information or trade secrets of any person except with the consent of such person. (g) No Conflicts. Consummation of the transactions hereby ------------ contemplated and the performance of the obligations of Borrower under and by virtue of the Loan Documents will not result in any breach of, or constitute a default under, any mortgage, security deed or agreement, deed of trust, lease, bank loan or credit agreement, corporate charter or bylaws, agreement or certificate of limited partnership, partnership agreement, license, franchise or any other instrument or agreement to which Borrower is a party or by which Borrower, or its respective properties may be bound or affected which, individually or in the aggregate, could have a Material Adverse Effect or to which Borrower has not obtained an effective waiver. (h) Litigation. There are no actions, suits or proceedings pending, ---------- or, to the knowledge of Borrower, threatened, against or affecting Borrower or involving the validity or enforceability of any of the Loan Documents at law or in equity, or before any governmental or administrative agency which if adversely determined could have a Material Adverse Effect; and to Borrower's knowledge, Borrower is not in default with respect to any order, writ, injunction, decree or demand of any court or any governmental authority. (i) Financial Statements. The financial statements of Borrower, dated -------------------- April 30, 1996, attached hereto as Schedule 2.1(i)(A), are true and correct in all material respects have been prepared on the basis of accounting principles consistently applied, and fairly present the financial condition of Borrower as of the date(s) thereof. No material adverse change has occurred in the financial condition of Borrower since the date(s) thereof, and no additional borrowings have been made by Borrower since the date(s) thereof other than as set forth on Schedule 2.1(i)(B). (j) Other Agreements; No Defaults. Borrower is not a party to ----------------------------- indentures, loan or credit agreements, leases or other agreements or instruments, or subject to any articles of incorporation or corporate restrictions that could have a Material Adverse Effect. Borrower is not in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument material to its business to which it is a party, including but not limited to this Agreement and the other Loan Documents where such default, individually or in the aggregate with any other defaults, could reasonably be expected to have a Material Adverse Effect, and no other default or event has occurred and is continuing that with notice or the passage of time or both would constitute a default or event of default under any of same. 5 (k) Compliance With Law. Borrower has obtained all material ------------------- licenses, permits and approvals and authorizations necessary or required in order to conduct its business and affairs as heretofore conducted and as hereafter intended to be conducted except where the failure to have any such license, permit, approval or authorization would not have a Material Adverse Effect. To Borrower's knowledge, Borrower is in compliance with all laws, regulations, decrees and orders applicable to it (including but not limited to laws, regulations, decrees and orders relating to environmental, occupational and health standards and controls, antitrust, monopoly, restraint of trade or unfair competition), except to the extent that noncompliance, in the aggregate, cannot reasonably be expected to have a Material Adverse Effect. (l) Debt. Schedule 2.1(l) is a complete and correct list of all ---- credit agreements, indentures, purchase agreements, promissory notes and other evidences of indebtedness, guaranties, capital leases and other instruments, agreements and arrangements presently in effect providing for or relating to extensions of credit (including agreements and arrangements for the issuance of letters of credit or for acceptance financing) in respect of which Borrower, or any of the properties thereof is in any manner directly or contingently obligated; and the maximum principal or face amounts of the credit in question that are outstanding and that can be outstanding are correctly stated, and all liens of any nature given or agreed to be given as security therefor are correctly described or indicated in such Schedule. (m) Taxes. Except as set forth on Schedule 2.1(m), Borrower has ----- filed or caused to be filed all tax returns that to Borrower's knowledge are required to be filed (except for returns that have been appropriately extended), and has paid, or will pay when due, all taxes shown to be due and payable on said returns and all other taxes, impositions, assessments, fees or other charges imposed on them by any governmental authority, agency or instrumentality, prior to any delinquency with respect thereto (other than taxes, impositions, assessments, fees and charges currently being contested in good faith by appropriate proceedings, for which appropriate amounts have been reserved). To the knowledge of Borrower, no tax liens have been filed against Borrower, or any of the property thereof. (n) Small Business Concern. Borrower, together with its "affiliates" ---------------------- (as that term is defined in Title 13, Code of Federal Regulations, (S) 121.103), is a "small business concern" within the meaning of the Small Business Investment Act of 1958, as amended, and the regulations promulgated thereunder. The information set forth in the Small Business Administration Forms 480, 652 and Part A of Form 1031 regarding Borrower upon delivery, pursuant to Section 4.1 hereof, will be accurate and complete in all material respects. Borrower does not presently engage in, and it will not hereafter engage in, any activities which, and Borrower will not, directly or indirectly, use the proceeds from the Loan for any purpose for which a Small Business Investment Company is prohibited from providing funds by the Small Business Investment Act and the regulations thereunder, including Title 13, Code of Federal Regulations (S)107.720. 6 (o) Certain Transactions. Except as set forth on Schedule 2.1(o) -------------------- hereto, Borrower is not indebted, directly or indirectly, to any of its shareholders, officers, or directors or to their respective spouses or children, in any amount whatsoever; none of said shareholders, officers or directors or any members of their immediate families, are indebted to Borrower or have any direct or indirect ownership interest in any firm or corporation with which Borrower has a business relationship, or any firm or corporation which competes with Borrower, except that shareholders, officers and/or directors of Borrower may own no more than 4.9% of outstanding stock of publicly traded companies which may compete with Borrower. No officer or director of Borrower or any member of their immediate families, is, directly or indirectly, interested in any material contract with Borrower. Borrower is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation. (p) Statements Not False or Misleading. No representation or ---------------------------------- warranty given as of the date hereof by Borrower contained in this Agreement or any schedule attached hereto or any statement in any document, certificate or other instrument furnished or to be furnished by Borrower to Lender pursuant hereto, taken as a whole, contains or will (as of the time so furnished) contain any untrue statement of a material fact, or omits or will (as of the time so furnished) omit to state any material fact which is necessary in order to make the statements contained therein or herein, in light of the circumstances under which they were made, not misleading. (q) Margin Regulations. Borrower is not engaged in the business of ------------------ extending credit for the purpose of purchasing or carrying margin stock. No proceeds received pursuant to this Agreement will be used to purchase or carry any equity security of a class which is registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended. (r) Significant Contracts. Schedule 2.1(r) is a complete and correct --------------------- list of all contracts, agreements and other documents pursuant to which Borrower receives revenues in excess of $25,000 per fiscal year. To the knowledge of Borrower, each such contract, agreement and other document is in full force and effect as of the date hereof and Borrower knows of no reason why such contracts, agreements and other documents would not remain in full force and effect pursuant to the terms thereof. (s) Environment. Borrower has duly complied with, and its business, ----------- operations, assets, equipment, property, leaseholds or other facilities are in compliance with, the provisions of all federal, state and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations promulgated thereunder, except to the extent that failure to do so would not have a Material Adverse Effect. Borrower has been issued and will maintain all required federal, state and local permits, licenses, certificates and approvals relating to (1) air emissions; (2) discharges to surface water or groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage, transportation or disposal of toxic or hazardous substances or wastes (which shall include any and all 7 such materials listed in any federal, state or local law, code or ordinance and all rules and regulations promulgated thereunder as hazardous or potentially hazardous); or (6) other environmental, health or safety matters, except to the extent that failure to do so would not have a Material Adverse Effect. Borrower has not received notice of, or knows of, facts which might reasonably be deemed to constitute a material violation of any federal, state or local environmental, health or safety laws, codes or ordinances, and any rules or regulations promulgated thereunder with respect to its businesses, operations, assets, equipment, property, leaseholds, or other facilities. To the knowledge of Borrower, except in accordance with a valid governmental permit, license, certificate or approval, there has been no emission, spill, release or discharge into or upon (1) the air; (2) soils, or any improvements located thereon; (3) surface water or groundwater; or (4) the sewer, septic system or waste treatment, storage or disposal system servicing the premises, of any toxic or hazardous substances or wastes at or from any premises owned or leased by Borrower in connection with the operation of its business. Borrower has not received any complaint, order, directive, claim, citation or notice by any governmental authority or any person or entity with respect to (1) air emissions; (2) spills, releases or discharges to soils or improvements located thereon, surface water, groundwater or the sewer, septic system or waste treatment, storage or disposal systems servicing the premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) the use, generation, storage, transportation or disposal of toxic or hazardous substances or waste; or (6) other environmental, health or safety matters affecting Borrower or its business, operations, assets, equipment, property, leaseholds or other facilities. Borrower has no indebtedness, obligation or liability (absolute or contingent, matured or not matured), with respect to the storage, treatment, cleanup or disposal of any solid wastes, hazardous wastes or other toxic or hazardous substances (including without limitation any such indebtedness, obligation, or liability with respect to any current regulation, law or statute regarding such storage, treatment, cleanup or disposal). (t) Fees; Commissions. Except as set forth in Schedule 2.1(t), ----------------- Borrower has not agreed to pay any finder's fee, commission, origination fee (except for the processing and commitment fees due pursuant to Section 1.2) or other similar fee or charge to any person or entity with respect to the Loan and investment transactions contemplated hereunder. (u) ERISA. Borrower is in compliance in all material respects with ----- all applicable provisions of ERISA (as defined in Section 3.11 hereof). Neither a reportable event nor a prohibited transaction (as defined in ERISA) has occurred and is continuing with respect to any Plan (as defined in Section 3.11 hereof); no notice of intent to terminate a Plan has been filed nor has any Plan been terminated; no circumstances exist which constitute grounds entitling the Pension Benefit Guaranty Corporation (together with any entity succeeding to or all of its functions, the "PBGC") to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings; neither Borrower nor any commonly controlled entity (as defined in ERISA) has completely or partially 8 withdrawn from a multiemployer plan (as defined in ERISA); Borrower and each commonly controlled entity has met its minimum funding requirements under ERISA with respect to all of its Plans and the present fair market value of all Plan property exceeds the present value of all vested benefits under each Plan, as determined on the most recent valuation date of the Plan and in accordance with the provisions of ERISA and the regulations thereunder for calculating the potential liability of Borrower or any commonly controlled entity to the PBGC or the Plan under Title IV of ERISA; and neither Borrower nor any commonly controlled entity has incurred any liability to the PBGC under ERISA. (v) Title to Properties. Borrower has good, marketable and insurable ------------------- title to, or valid leasehold interests in, all its real properties and good title to its other assets, free and clear of all liens other than Permitted Liens (as defined in Section 3.15 hereof) and the liens set forth on Schedule 2.1(v). (w) Material Adverse Effect. Since April 30, 1996, no event has ----------------------- occurred which has resulted or which Borrower reasonably believes could be expected to result in a Material Adverse Effect. No default or event of default under any other material agreement will occur as a result of the transactions contemplated by this Agreement or by the Warrant. (x) Financial Solvency. Borrower is not entering into the ------------------ arrangements contemplated by this Agreement and the other Loan Documents with actual intent to hinder, delay or defraud either present or future creditors. On and as of the date hereof on a pro forma basis after giving effect to the transactions contemplated by the Loan Documents and to all debts incurred or to be created in connection herewith: (i) the present fair salable value of the assets of Borrower (on a going concern basis) will exceed the probable liability of Borrower on its debts (including its contingent obligations); (ii) Borrower has not incurred, nor does it intend to or believe that it will incur, debts (including contingent obligations) beyond its ability to pay such debts as such debts mature (taking into account the timing and amounts of cash to be received from any source, and of amounts to be payable on or in respect of debts); and the amount of cash available to Borrower after taking into account all other anticipated uses of funds is anticipated to be sufficient to pay all such amounts on or in respect of debts, when such amounts are required to be paid; and (iii) Borrower will have sufficient capital with which to conduct its present and proposed business and the property of Borrower does not constitute unreasonably small capital with which to conduct its current business at present levels of operations. 9 For purposes of this Section 2.1(y) "debt" means any liability on a (i) right to payment whether or not such a right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured; or (ii) right to an equitable remedy for breach of performance if such breach gives rise to a payment, whether or not such a right to an equitable remedy is reduced to judgment, fixed, contingent, unmatured, disputed, undisputed, secured, or unsecured. (y) Offering of Note and Warrant. Neither Borrower nor anyone acting ---------------------------- on its behalf has offered the Note, the Warrant or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof, with, any person other than Lender and not more than 35 other institutional investors. Neither Borrower nor anyone acting on its behalf has taken, or will take, any action which would subject the issuance or sale of the Note and Warrant to Section 5 of the Securities Act of 1933, as amended, or the registration or qualification provisions of the blue sky laws of any state. (z) Registration Rights. Except as described in the Warrant, ------------------- Borrower is not under any obligation to register under the Securities Act of 1933, as amended, or the Trust Indenture Act of 1939, as amended, any of its presently outstanding securities or any of its securities that may subsequently be issued. (aa) Employees. Borrower has no current labor problems or disputes --------- which have resulted, or Borrower reasonably believes could reasonably be expected to result in, Material Adverse Effect. (ab) Issuance Taxes. All taxes imposed on Borrower in connection with -------------- the issuance, sale and delivery of the Note, the Warrant and the capital stock issuable upon exercise of the Warrant have been or will be fully paid, and all laws imposing such taxes have been or will be fully satisfied by Borrower. (ac) List of Deposit Institutions. Schedule 2.1(ac) hereto sets forth ---------------------------- ---------------- a true and complete list of all deposit institutions at which Borrower has or maintains an account or deposits of any kind. (ad) Locations and Names. Except as set forth on Schedule 2.1(ad)(A) ------------------- Borrower has not, during the five years preceding the date of this Agreement, been known as or used any other corporate, trade or fictitious name, nor acquired all or substantially all of the assets, capital stock or operating units of any person. Borrower has not, during the five years preceding the date of this Agreement, had a business location at any address other than addresses set forth on Schedule 2.1(ad)(B). 10 ARTICLE 3 COVENANTS AND AGREEMENTS ------------------------ Borrower covenants and agrees that during the term of this Agreement: 3.1 Payment of Obligations. Borrower shall pay the indebtedness evidenced ---------------------- by the Note according to the terms thereof, and shall timely pay or perform, as the case may be, all of the other obligations of Borrower to Lender, direct or contingent, however evidenced or denominated, and however and whenever incurred, including but not limited to indebtedness incurred pursuant to any present or future commitment of Lender to Borrower, together with interest thereon, and any extensions, modifications, consolidations and/or renewals thereof and any notes given in payment thereof. 3.2 Financial Statements and Reports. Borrower shall furnish to Lender -------------------------------- (i) as soon as practicable and in any event within ninety (90) days after the end of each fiscal year of Borrower, a consolidated balance sheet of Borrower as of the close of such fiscal year, a consolidated statement of earnings and retained earnings of Borrower as of the close of such fiscal year and a consolidated statement of cash flows for Borrower for such fiscal year, prepared in accordance with generally accepted accounting principles consistently applied ("GAAP"), audited by an independent certified public accountant acceptable to Lender and certified by an officer of Borrower and accompanied by a certificate of the President of Borrower, stating that to the best of the knowledge of such officer, Borrower has kept, observed, performed and fulfilled each covenant, term and condition of this Agreement and the other Loan Documents during the preceding fiscal year and that no Event of Default, as herein defined, has occurred and is continuing (or if an Event of Default has occurred and is continuing, specifying the nature of same, the period of existence of same and the action Borrower has taken or proposes to take in connection therewith), (ii) within fifteen business (15) days of the end of each calendar month, a consolidated balance sheet of Borrower as of the close of such month and a consolidated statement of earnings and retained earnings of Borrower as of the close of such month, all in reasonable detail (including financial information for the preceding six (6) months), and prepared substantially in accordance with GAAP (except for the absence of footnotes and subject to year-end adjustments), and (iii) with reasonable promptness, such other financial data as Lender may reasonably request. 3.3 Maintenance of Books and Records; Inspection. Borrower shall -------------------------------------------- maintain its books, accounts and records in accordance with GAAP, and after reasonable notice from Lender, shall permit Lender, its officers, employees and any professionals designated by Lender in writing, at Borrower's expense, to visit, inspect and/or audit any of its properties, books and financial records, and to discuss its accounts, affairs and finances with Borrower or the principal officers of Borrower during reasonable business hours, all at such times as Lender may reasonably request; provided that such visit, inspection and/or audit shall not (i) occur more frequently than annually unless an Event of Default shall have occurred and be continuing and (ii) no such visit, inspection and/or audit shall materially interfere with the 11 conduct of Borrower's business. Borrower shall reimburse Lender for all reasonable fees and costs incurred in connection with such visits, audits or inspections. 3.4 Insurance. Without limiting any of the requirements of any of the --------- other Loan Documents, Borrower shall maintain in amounts customary for entities engaged in comparable business activity (i) to the extent required by applicable law, worker's compensation insurance (or maintain a legally sufficient amount of self insurance against worker's compensation liabilities, with adequate reserves, under a plan approved by Lender, such approval not to be unreasonably withheld or delayed) and (ii) fire and "all risk" casualty insurance on its properties against such hazards and in at least such amounts as are customary in Borrower's business. Borrower will make reasonable efforts to obtain and maintain public liability insurance in an amount, and at a cost, deemed reasonable to the Borrower's Board of Directors. At the request of Lender, Borrower will deliver forthwith a certificate specifying the details of such insurance in effect. 3.5 Taxes and Assessments. Borrower shall (i) file all tax returns and --------------------- appropriate schedules thereto that are required to be filed under applicable law, prior to the date of delinquency, (ii) pay and discharge all taxes, assessments and governmental charges or levies imposed upon Borrower upon its income and profits or upon any properties belonging to it, prior to the date on which penalties attach thereto, and (iii) pay all taxes, assessments and governmental charges or levies that, if unpaid, might become a lien or charge upon any of its properties; provided, however, that Borrower in good faith may contest any such tax, assessment, governmental charge or levy described in the foregoing clauses (ii) and (iii) so long as appropriate reserves are maintained with respect thereto. 3.6 Corporate Existence. Borrower shall maintain its corporate existence ------------------- and good standing in the state of its incorporation, and its qualification and good standing as a foreign corporation in each jurisdiction in which such qualification is necessary pursuant to applicable law. 3.7 Compliance with Law and Other Agreements. Except where the failure to ---------------------------------------- do so would not have a Material Adverse Effect, Borrower shall maintain its business, operations and property owned or used in connection therewith in compliance with (i) all applicable federal, state and local laws, regulations and ordinances governing such business operations and the use and ownership of such property, and (ii) all agreements, licenses, franchises, indentures and mortgages to which Borrower is a party or by which Borrower or any of its properties is bound. Without limiting the foregoing, Borrower shall pay all of its indebtedness promptly in accordance with the terms thereof, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 3.8 Notice of Default. Borrower shall give written notice to Lender of ----------------- the occurrence of any default, event of default or Event of Default under this Agreement or any other Loan Document promptly upon the occurrence thereof. 12 3.9 Notice of Litigation. Borrower shall give notice, in writing, to -------------------- Lender of (i) any actions, suits or proceedings instituted by any persons whomsoever against Borrower, or affecting any of the assets of Borrower, wherein the amount at issue is in excess of Twenty-Five Thousand and No/100ths Dollars ($25,000.00), and (ii) any dispute, not resolved within sixty (60) days of the commencement thereof, between Borrower on the one hand and any governmental regulatory body on the other hand, which dispute, if adversely determined, could reasonably be expected to have a Material Adverse Effect. 3.10 Conduct of Business. Borrower will continue to engage in a business ------------------- of the same general type and manner as conducted by it on the date of this Agreement. Without Lender's prior written consent, Borrower shall not modify or change any terms or conditions of any contracts and/or agreements to which Borrower is a party on the date hereof which modification or change could reasonably be expected to have a Material Adverse Effect. 3.11 ERISA Plan. If Borrower has in effect, or hereafter institutes, a ---------- pension plan that is subject to the requirements of Title IV of the Employee Retirement Income Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29 U.S.C.A. (S) 1001 et seq. (1975), as amended from time to time ------ ("ERISA"), then the following warranty and covenants shall be applicable during such period as any such plan (the "Plan") shall be in effect: (i) Borrower hereby warrants that no fact that could reasonably be expected to constitute grounds for the involuntary termination of the Plan, or for the appointment by the appropriate United States District Court of a trustee to administer the Plan, exists at the time of execution of this Agreement, (ii) Borrower hereby covenants that throughout the existence of the Plan, Borrower's contributions under the Plan will meet the minimum funding standards required by ERISA and Borrower will not institute a distress termination of the Plan, and (iii) Borrower covenants that it will send to Lender a copy of any notice of a reportable event (as defined in ERISA) required by ERISA to be filed with the Labor Department or the Pension Benefit Guaranty Corporation, at the time that such notice is so filed. 3.12 Dividends, Distributions, Stock Rights, etc. Borrower shall not -------------------------------------------- declare or pay any dividend of any kind (other than stock dividends payable to all holders of any class of capital stock), in cash or in property, on any class of the capital stock of Borrower, or purchase, redeem, retire or otherwise acquire for value any shares of such stock, nor make any distribution of any kind in cash or property in respect thereof, nor make any return of capital of shareholders, nor make any payments in cash or property in respect of any stock options, stock bonus or similar plan (except as required or permitted hereunder), nor grant any preemptive rights with respect to the capital stock of Borrower, without the prior written consent of Lender, except for (i) cash dividends or distributions made to Borrower's shareholders in amounts not to exceed federal and state tax liability owned by each such shareholder on account of the net income of Borrower as long as the Borrower is and remains and "electing small business corporation" for purposes of Subchapter S of the Internal Revenue Code of 1986, as amended, (ii) scheduled payments to Mr. Lawrence D. Parker pursuant to that certain Stock Repurchase Agreement dated as of October 31, 1994, (iii) the exercise of Borrower's right to repurchase shares held by Mr. Thomas Barrella at 13 a price not to exceed $1.88/per share; (iv) the exercise of the Borrower's rights of first refusal and repurchase pursuant to the Borrower's rights of first refusal and repurchase pursuant to the Borrower's 1995 Incentive Stock Option Plan (up to but not exceeding $100,000 per year); provided that no payments shall be made pursuant to the foregoing if at the time such payment is to be made an Event of Default exists or existed within the previous six (6) months. 3.13 Guaranties; Loans; Payment of Debt. Without Lender's prior express ---------------------------------- written consent, Borrower shall not guarantee nor be liable in any manner, whether directly or indirectly, or become contingently liable after the date of this Agreement in connection with the obligations or indebtedness of any person or entity whatsoever, except for (i) the endorsement of negotiable instruments payable to Borrower for deposit or collection in the ordinary course of business, and (ii) guaranties of obligations of Subsidiaries incurred in the ordinary course of business (other than guaranties with respect to money borrower). Without Lender's prior express written consent, Borrower shall not (i) make any loan, advance or extension of credit to any person other than in the normal course of its business, or (ii) make any payment on any debt for money borrowed (other than (A) regularly scheduled payments, without acceleration, made in the ordinary course of business and (B) regularly scheduled payments with respect to that certain Promissory Note issued by the Borrower to Mr. Lawrence D. Parker). 3.14 Debt. Without the express prior written consent of Lender, Borrower ---- shall not create, incur, assume or suffer to exist indebtedness of any description whatsoever, (excluding (i) the indebtedness evidenced by the Note, (ii) the endorsement of negotiable instruments payable to Borrower for deposit or collection in the ordinary course of business, (iii) indebtedness incurred in the ordinary course of business (each of which, individually, does not exceed $25,000), (iv) the indebtedness listed on Schedule 2.1(l) hereto, (v) purchase money indebtedness incurred after the date hereof in an aggregate principal amount at any time not exceeding $150,000, and (vi) additional indebtedness of Borrower up to but not exceeding $150,000 at any time outstanding). 3.15 No Liens. Borrower shall not create, incur, assume or suffer to exist -------- any lien, security interest, security title, mortgage, deed of trust or other encumbrance upon or with respect to any of its properties, now owned or hereafter acquired, except the following permitted liens (the "Permitted Liens"): (a) liens in favor of Lender; (b) liens for taxes or assessments or other governmental charges or levies if not yet due and payable; (c) liens in connection with the leasing of equipment in favor of the Lessor of such equipment; (d) liens described on Schedule 2.1(l) hereto; 14 (e) carriers, warehousemen's, mechanic's materialmen's, repairmen's or other like liens arising in the ordinary course of business which are not overdue for a period of more than 60 days or which are being contested in good faith; (f) pledges or deposits under worker's compensation, unemployment insurance and other social security legislation; (g) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; (h) easements, rights of way, restrictions and other similar encumbrances incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on use of property or minor imperfection in title thereto; (i) additional liens upon real and/or personal property acquired after the date hereof (by purchase, construction or otherwise), each of which liens (a) existed on such property prior to the time of its acquisition or (b) was created solely for the purposes of securing indebtedness representing, or incurred to finance, refinance or refund, the cost of such property; (j) additional liens upon real and/or personal property created after the date hereof, provided that the aggregate indebtedness secured thereby and incurred on or after the date hereof shall not exceed $150,000 in the aggregate at any time outstanding; and (k) any, extension, renewal or replacement of the foregoing, provided that the liens permitted hereunder shall not be permitted to spread to cover any additional indebtedness or property (other than the substitution of like property). 3.16 Mergers, Consolidations, Acquisitions and Sales. Except as set forth ----------------------------------------------- on Schedule 3.16 hereto, without the prior written consent of Lender, Borrower ------------- shall not (a) be a party to any merger, consolidation or corporate reorganization, nor (b) purchase or otherwise acquire all or substantially all of the assets or stock of, or any partnership or joint venture interest in, any other person, firm or entity, nor (c) sell, transfer, convey, grant a security interest in or lease all or any substantial part of its assets, nor (d) create any Subsidiaries nor convey any of its assets to any Subsidiary. 3.17 Transactions With Affiliates. Except as set forth on Schedule 3.17 ---------------------------- ------------- hereto, Borrower shall not enter into any transaction, including, without limitation, the purchase, sale or exchange of property or the rendering of any service, with any affiliate, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to Borrower than Borrower would obtain in a comparable arm's length transaction with a person not an affiliate; provided that any affiliate who is an 15 individual may serve as a director, officer or employee of Borrower or any of its Subsidiaries and receive reasonable compensation for his or her service in such capacity. For the purposes of this Section 3.17, "affiliate" shall mean a person, corporation, partnership or other entity controlling, controlled by or under common control with Borrower. 3.18 Environment. Borrower shall be and remain in compliance in all ----------- material respects with the provisions of all federal, state and local environmental, health, and safety laws, codes and ordinances, and all rules and regulations issued thereunder; notify Lender promptly of any notice of a hazardous discharge or environmental complaint received from any governmental agency or any other party; notify Lender promptly of any hazardous discharge from or affecting Borrower's premises; proceed with due diligence to contain and remove the same, in compliance with all applicable laws; promptly pay any fine or penalty assessed in connection therewith; permit Lender to inspect the premises, to conduct tests thereon, and to inspect all books, correspondence, and records pertaining thereto; and at Lender's request, and at Borrower's expense, provide a report of a qualified environmental engineer, satisfactory in scope, form, and content to Lender, and such other and further assurances reasonably satisfactory to Lender that the condition has been corrected. ARTICLE 4 CONDITIONS TO CLOSING --------------------- 4.1 Closing of the Loan. The obligation of Lender to fund the Loan on the ------------------- date hereof (the "Closing Date") is subject to the fulfillment, on or prior to the Closing Date, of each of the following conditions: (a) Borrower shall have performed and complied in all material respects with all of the covenants, agreements, obligations and conditions required by this Agreement. (b) Lender shall have received an opinion of the Borrower's counsel, Smith, Gambrell & Russell, dated the Closing Date, in form and substance satisfactory to Lender's counsel, Chambliss & Bahner, PLLC. (c) Borrower shall have delivered to Lender the Note executed by Borrower. (d) Borrower shall have delivered to Lender a Stock Purchase Warrant executed by Borrower, in a form acceptable to Lender. (e) Borrower shall have delivered to Lender a Security Agreement executed by Borrower (in form acceptable to Lender) and related UCC-1 Financing Statement(s) (in form acceptable to Lender) executed by Borrower. (f) Borrower shall have delivered to Lender Pledge and Security Agreements (all in a form acceptable to Lender) and related stock proxies, stock powers, and stock certificates (all in form acceptable to Lender), executed by each shareholder of 16 Borrower, respectively, and related stock pledge letters (all in form acceptable to Lender) executed by Borrower. (g) Borrower shall have delivered to Lender a Pledge and Security Agreement (in a form acceptable to Lender) and related stock proxy, stock power, and stock certificate (all in form acceptable to Lender), executed by Borrower, and related stock pledge letter (in a form acceptable to Lender) executed by Borrower's subsidiary. (h) Borrower shall have delivered to Lender the Small Business Administration Forms 480, 652 and 1031 (Parts A and B) completed by Borrower. (i) Borrower shall have delivered to Lender a Small Business Administration Economic Impact Assessment completed by Borrower, in a form acceptable to Lender. (j) Borrower shall have delivered to Lender a Landlord's Consent and Subordination of Lien, executed by Borrower's landlord, in a form acceptable to Lender. (k) Lender shall have received copies of the articles of incorporation and other publicly filed organizational documents of Borrower, certified by the Secretary of State or other appropriate public official in the jurisdiction in which Borrower is incorporated. (l) Lender shall have received certified (as of the date of this Agreement) copies of all corporate action taken by Borrower, including resolutions of its Board of Directors, authorizing the execution, delivery and performance of the Loan Documents. (m) Lender shall have received a certificate as to the legal existence and good standing of Borrower, issued by the Secretary of State or other appropriate public official in the jurisdiction in which Borrower is incorporated. (n) Lender shall have received certificates of the Secretaries of State or other appropriate public officials as to Borrower's qualification to do business and good standing in each jurisdiction in which a failure to be so qualified would have a material adverse effect on its financial positions or its ability to conduct its business in the manner now conducted and as hereafter intended to be conducted. (o) Borrower shall have delivered to Lender a Collateral Assignment of Membership Interest executed by Borrower (in form acceptable to Lender) and related UCC-1 Financing Statement(s) (in form acceptable to Lender) executed by Borrower with respect to Borrower's membership interest in Prysm Tech, L.L.C. (p) Borrower shall have delivered to Lender a Trademark and Patent Security Agreement executed by Borrower (in form acceptable to Lender) and related UCC-1 Financing Statement(s) (in form acceptable to Lender) executed by Borrower. 17 (q) Borrower shall have delivered to Lender a Collateral Assignment of Note executed by Borrower, in a form acceptable to Lender, together with all original promissory notes held by Borrower. (r) Borrower shall have delivered to Lender a Copyright and Royalty Security Agreement executed by Borrower (in form acceptable to Lender). ARTICLE 5 DEFAULT AND REMEDIES -------------------- 5.1 Events of Default. The occurrence of any of the following shall ----------------- constitute an Event of Default hereunder: (a) Default by Borrower in the payment of the principal of or interest on the indebtedness evidenced by the Note in accordance with the terms of the Note, which default is not cured within five (5) days; (b) Any misrepresentation by Borrower, any guarantor of Borrower, or any shareholder of Borrower as to any material matter hereunder or under any of the other Loan Documents, or delivery by Borrower of any schedule, statement, resolution, report, certificate, notice or writing to Lender that is untrue in any material respect on the date as of which the facts set forth therein are stated or certified; (c) Failure of Borrower, any guarantor of Borrower, or any shareholder of Borrower to perform any of its material obligations, covenants or agreements under this Agreement, the Note or any of the other Loan Documents; (d) Borrower (i) shall generally not pay or shall be unable to pay its debts as such debts become due; or (ii) shall make an assignment for the benefit of creditors or petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (iii) shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any such petition or application filed or any such proceeding commenced against it in which an order for relief is entered or an adjudication or appointment is made; or (v) shall indicate, by any act or intentional and purposeful omission, its consent to, approval of or acquiescence in any such petition, application, proceeding or order for relief or the appointment of a custodian, receiver or trustee for it or a substantial part of its assets; or (vi) shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of sixty (60) days or more; (e) Borrower shall be liquidated, dissolved, partitioned or terminated, or the charter thereof shall expire or be revoked; 18 (f) A default or event of default shall occur under any of the other Loan Documents and, if subject to a cure right, such default or event of default shall not be cured within the applicable cure period; (g) Borrower shall default in the timely payment or performance of any obligation now or hereafter owed to Lender in connection with any other indebtedness of Borrower now or hereafter owed to Lender; (h) Borrower shall have defaulted and continue to be in default in the timely payment or performance of any other indebtedness or obligation, which in the aggregate exceeds Seventy-Thousand and No/100ths Dollars ($75,000.00) or materially adversely affects Borrower's financial condition; (i) Neither Erez Goren nor Alon Goren shall be significantly involved in the management and/or daily operations of Borrower. With respect to any Event of Default described above that is capable of being cured and that does not already provide its own cure procedure (a "Curable Default"), the occurrence of such Curable Default shall not constitute an Event of Default hereunder if such Curable Default is fully cured and/or corrected within thirty (30) days (fifteen (15) days, if such Curable Default may be cured by payment of a sum of money) of notice thereof to Borrower given in accordance with the provisions hereof; provided, however, that this provision shall not require notice to Borrower and an opportunity to cure any Curable Default of which Borrower has had actual knowledge for the requisite number of days set forth. 5.2 Acceleration of Maturity; Remedies. Upon the occurrence of any Event ---------------------------------- of Default described in subsection 5.1(d), the indebtedness evidenced by the Note as well as any and all other indebtedness of Borrower to Lender shall be immediately due and payable in full; and upon the occurrence of any other Event of Default described above, Lender at any time thereafter may at its option accelerate the maturity of the indebtedness evidenced by the Note as well as any and all other indebtedness of Borrower to Lender; all without notice of any kind. Upon the occurrence of any such Event of Default and the acceleration of the maturity of the indebtedness evidenced by the Note: (a) Lender shall be immediately entitled to exercise any and all rights and remedies possessed by Lender pursuant to the terms of the Note and all of the other Loan Documents; and (b) Lender shall have any and all other rights and remedies that Lender may now or hereafter possess at law, in equity or by statute. 5.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred ------------------------------ upon or reserved to Lender by this Agreement or any of the other Loan Documents is intended to be exclusive of any other right, power or remedy, but each and every such right, power and remedy shall be cumulative and concurrent and shall be in addition to any other right, power 19 and remedy given hereunder, under any of the other Loan Documents or now or hereafter existing at law, in equity or by statute. No delay or omission by Lender to exercise any right, power or remedy accruing upon the occurrence of any Event of Default shall exhaust or impair any such right, power or remedy or shall be construed to be a waiver of any such Event of Default or an acquiescence therein, and every right, power and remedy given by this Agreement and the other Loan Documents to Lender may be exercised from time to time and as often as may be deemed expedient by Lender. 5.4 Proceeds of Remedies. Any or all proceeds resulting from the exercise -------------------- of any or all of the foregoing remedies shall be applied as set forth in the Loan Document(s) providing the remedy or remedies exercised; if none is specified, or if the remedy is provided by this Agreement, then as follows: First, to the costs and expenses, including, without limitation, reasonable attorney's fees incurred by Lender in connection with the exercise of its remedies; Second, to the expenses of curing the default that has occurred, in the event that Lender elects, in its sole discretion, to cure the default that has occurred; Third, to the payment of the obligations of Borrower under the Loan Documents (the "Obligations"), including but not limited to the payment of the principal of and interest on the indebtedness evidenced by the Note, in such order of priority as Lender shall determine in its sole discretion; and Fourth, the remainder, if any, to Borrower. ARTICLE 6 TERMINATION ----------- 6.1 Termination of this Agreement. This Agreement shall remain in full ----------------------------- force and effect until the later of (i) the Maturity Date (as defined in the Note), or (ii) the payment by Borrower of all amounts owed to Lender, at which time Lender shall cancel the Note and deliver it to Borrower; provided, however, that if at any time Borrower has satisfied all obligations to Lender, Borrower may terminate this Agreement by providing written notice to Lender. ARTICLE 7 MISCELLANEOUS ------------- 7.1 Performance By Lender. If Borrower shall default in the payment, --------------------- performance or observance of any covenant, term or condition of this Agreement, which default is not cured within the applicable cure period, then Lender may, at its option, pay, perform or observe the same, and all payments made or costs or expenses incurred by Lender in connection therewith 20 (including but not limited to reasonable attorney's fees), with interest thereon at the highest default rate provided in the Note (if none, then at the maximum rate from time to time allowed by applicable law), shall be immediately repaid to Lender by Borrower and shall constitute a part of the Obligations. Lender shall be the sole judge of the necessity for any such actions and of the amounts to be paid. 7.2 Successors and Assigns Included in Parties. Whenever in this ------------------------------------------ Agreement one of the parties hereto is named or referred to, the heirs, legal representatives, successors, successors-in-title and assigns of such parties shall be included, and all covenants and agreements contained in this Agreement by or on behalf of Borrower or by or on behalf of Lender shall bind and inure to the benefit of their respective heirs, legal representatives, successors-in- title and assigns, whether so expressed or not. 7.3 Costs and Expenses. Borrower agrees to pay all reasonable costs and ------------------ expenses incurred by Lender in connection with the making of the Loan, including but not limited to filing fees, recording taxes, indebtedness taxes, and reasonable attorneys' fees, promptly upon demand of Lender. Borrower further agrees to pay all premiums for insurance required to be maintained by Borrower pursuant to the terms of the Loan Documents and all of the out-of-pocket costs and expenses incurred by Lender in connection with the collection of the Loan, amendment to the Loan Documents, or prepayment of the Loan, including but not limited to reasonable attorneys' fees, promptly upon demand of Lender. 7.4 Assignment. The Note, this Agreement and the other Loan Documents may ---------- be endorsed, assigned and/or transferred in whole or in part by Lender, and any such holder and/or assignee of the same shall succeed to and be possessed of the rights and powers of Lender under all of the same to the extent transferred and assigned. Lender may grant participations in all or any portion of its interest in the indebtedness evidenced by the Note, and in such event Borrower shall continue to make payments due under the Loan Documents to Lender and Lender shall have the sole responsibility of allocating and forwarding such payments in the appropriate manner and amounts. Borrower shall not assign any of its rights nor delegate any of its duties hereunder or under any of the other Loan Documents without the prior express written consent of Lender. 7.5 Time of the Essence. Time is of the essence with respect to each and ------------------- every covenant, agreement and obligation of Borrower hereunder and under all of the other Loan Documents. 7.6 Severability. If any provision(s) of this Agreement or the ------------ application thereof to any person or circumstance shall be invalid or unenforceable to any extent, the remainder of this Agreement and the application of such provisions to other persons or circumstances shall not be affected thereby and shall be enforced to the greatest extent permitted by law. 7.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law. -------------------------------------------------------------- Anything in this Agreement, the Note or any of the other Loan Documents to the contrary notwithstanding, in no event whatsoever, whether by reason of advancement of proceeds of the 21 Loan, acceleration of the maturity of the unpaid balance of the Loan or otherwise, shall the interest and loan charges agreed to be paid to Lender for the use of the money advanced or to be advanced hereunder exceed the maximum amounts collectible under applicable laws in effect from time to time. It is understood and agreed by the parties that, if for any reason whatsoever the interest or loan charges paid or contracted to be paid by Borrower in respect of the indebtedness evidenced by the Note shall exceed the maximum amounts collectible under applicable laws in effect from time to time, then ipso facto, ---------- the obligation to pay such interest and/or loan charges shall be reduced to the maximum amounts collectible under applicable laws in effect from time to time, and any amounts collected by Lender that exceed such maximum amounts shall be applied to the reduction of the principal balance of the indebtedness evidenced by the Note and/or refunded to Borrower so that at no time shall the interest or loan charges paid or payable in respect of the indebtedness evidenced by the Note exceed the maximum amounts permitted from time to time by applicable law. 7.8 Article and Section Headings; Defined Terms. Numbered and titled ------------------------------------------- article and section headings and defined terms are for convenience only and shall not be construed as amplifying or limiting any of the provisions of this Agreement. 7.9 Notices. Any and all notices, elections or demands permitted or ------- required to be made under this Agreement or any of the Loan Documents shall be in writing, signed by the party giving such notice, election or demand and shall be delivered personally, telecopied, or sent by certified mail or overnight via nationally recognized courier service (such as Federal Express), to the other party at the address set forth below, or at such other address as may be supplied in writing and of which receipt has been acknowledged in writing. The date of personal delivery, telecopy or telex or two (2) business days after the date of mailing (or the next business day after delivery to such courier service), as the case may be, shall be the date of such notice, election or demand. For the purposes of this Agreement: The Address of Lender is: Sirrom Capital Corporation Suite 200 500 Church Street Nashville, TN 37219 Attention: Kathy Harris Telecopy: 615/726-1208 with a copy to: Chambliss & Bahner, PLLC 1000 Tallan Building Two Union Square Chattanooga, TN 37402 Attention: J. Patrick Murphy, Esq. Telecopy: 423/265-9574 22 The Address of Borrower is: Softsense Computer Products, Inc. 1000 Alderman Drive Suite A Alpharetta, GA 30202 Attention: John Heyman Telecopy: 770/772-3057 with a copy to: Smith, Gambrell & Russell Promenade II, Suite 3100 1230 Peachtree Street, N.E. Atlanta, GA 30308 Attention: John R. Schneider, Esq. Telecopy: 404/815-3509 7.10 Entire Agreement. This Agreement and the other written agreements ---------------- between Borrower and Lender represent the entire agreement between the parties concerning the subject matter hereof, and all oral discussions and prior agreements are merged herein; provided, if there is a conflict between this Agreement and any other document executed contemporaneously herewith with respect to the Obligations, the provision of this Agreement shall control. The execution and delivery of this Agreement and the other Loan Documents by the Borrower were not based upon any fact or material provided by Lender, nor was the Borrower induced or influenced to enter into this Agreement or the other Loan Documents by any representation, statement, analysis or promise by Lender. 7.11 Governing Law and Amendments. This Agreement and all of the Loan ---------------------------- Documents shall be construed and enforced under the laws of the State of Tennessee applicable to contracts to be wholly performed in such State except to the extent certain rights and privileges may be granted Lender under applicable federal laws in which event federal law shall control. No amendment or modification hereof shall be effective except in a writing executed by each of the parties hereto. 7.12 Survival of Representations and Warranties. All covenants, ------------------------------------------ representations and warranties contained herein or in any of the Loan Documents, or made by or furnished on behalf of the Borrower in connection herewith or any of the Loan Documents, shall survive the execution and delivery of this Agreement and all other Loan Documents and shall continue in full force and effect so long as the Obligations are unpaid. 7.13 Jurisdiction and Venue. Borrower hereby consents to the non-exclusive ---------------------- jurisdiction of the United States District Court for the Middle District of Tennessee, as well as to the jurisdiction of all courts from which an appeal may be taken from such courts, for the purpose of any suit, action or other proceeding arising out of any of its obligations arising under this Agreement or any other Loan Documents or with respect to the transactions contemplated hereby, and expressly waives any and all objections it may have as to venue in any of such courts. 23 7.14 Waiver of Trial by Jury. LENDER AND BORROWER HEREBY WAIVE TRIAL BY ----------------------- JURY IN ANY ACTIONS, PROCEEDINGS, CLAIMS OR COUNTER-CLAIMS, WHETHER IN CONTRACT OR TORT, AT LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATING TO THIS AGREEMENT OR THE LOAN DOCUMENTS. 7.15 Counterparts. This Agreement may be executed in any number of ------------ counterparts and by different parties to this Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same Agreement. 7.16 Construction and Interpretation. Should any provision of this ------------------------------- Agreement require judicial interpretation, the parties hereto agree that the court interpreting or construing the same shall not apply a presumption that the terms hereof shall be more strictly construed against one party by reason of the rule of construction that a document is to be more strictly construed against the party that itself or through its agent prepared the same, it being agreed that the Borrower, Lender and their respective agents have participated in the preparation hereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or have caused this Agreement to be executed by their duly authorized officers, as of the day and year first above written. LENDER: ------ SIRROM CAPITAL CORPORATION, a Tennessee corporation By: /s/ Kathy Harris ----------------------------------------- Title: Vice President -------------------------------------- BORROWER: -------- SOFTSENSE COMPUTER PRODUCTS, INC., a Georgia corporation By: /s/ John Heyman ----------------------------------------- Title: VP/CFO -------------------------------------- 24 EX-10.4.1 9 FIRST AMENDMENT TO LOAN AGREEMENT EXHIBIT 10.4.1 FIRST AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS --------------------------------- THIS FIRST AMENDMENT TO LOAN AGREEMENT AND LOAN DOCUMENTS ("Amendment") dated as of the 25th day of September, 1996, is made and entered into on the terms and conditions hereinafter set forth, by and between SOFTSENSE COMPUTER PRODUCTS, INC., a Georgia corporation ("Borrower"), and SIRROM CAPITAL CORPORATION, a Tennessee corporation ("Lender"). W I T N E S S E T H: ------------------- WHEREAS, Lender made a term loan to Borrower in the original principal amount of Three Million and No/100ths Dollars ($3,000,000.00) (the "Loan") on the terms and conditions set forth in that certain Loan Agreement dated as of June 28, 1996, by and between Lender and Borrower (as now or hereafter amended, the "Loan Agreement"); capitalized terms used herein but not otherwise defined shall have the meanings ascribed thereto in the Loan Agreement; and WHEREAS, the Loan is further evidenced and secured by certain agreements, documents and instruments as more particularly described in the Loan Agreement and defined therein as the "Loan Documents"; and WHEREAS, Borrower desires to borrow from Lender and Lender desires to lend to Borrower One Million Five Hundred Thousand and No/100ths Dollars ($1,500,000.00) (the "Additional Loan"), all on the terms and conditions set forth in the Loan Agreement, secured and evidenced by among other things (a) a security interest in certain personal property granted pursuant to that certain Security Agreement dated as of June 28, 1996, by and between Lender and Borrower (the "Security Agreement"); and (b) a security interest in certain intellectual property granted pursuant to that certain Trademark and Patent Security Agreement dated as of June 28, 1996, by and between Lender and Borrower. WHEREAS, this Amendment shall amend the Loan Documents. AGREEMENT: --------- NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Borrower and Lender hereby agree as follows: 1. The second sentence of Section 1.1 of the Loan Agreement is hereby amended to read in its entirety as follows: The Loan shall be evidenced by (i) a promissory note (the "First Note") in the original principal amount of $3,000,000, substantially in the form of Exhibit A attached hereto and incorporated herein by this reference, dated June 28, 1996, executed by Borrower in favor of Lender, and (ii) a promissory note (the "Second Note") in the original principal amount of $1,500,000, substantially in the form of Exhibit A attached to the Amendment and incorporated herein by this reference, of even date with the Amendment, executed by Borrower in favor of Lender (the First Note and the Second Note shall be referred to herein collectively as the "Note"). 2. The obligations of Borrower in connection with and/or relating to the Additional Loan are further evidenced and/or secured by the Loan Documents. 3. Upon satisfaction of the conditions set forth in Section 9 hereof, Lender shall immediately disburse the proceeds of the Additional Loan to Borrower by wire transfer upon instructions therefor given to Lender. 4. Borrower hereby represents and warrants to Lender that all of the representations made in Section 2.1 of the Loan Agreement are (i) now applicable to Borrower and (ii) true and correct as of the date hereof, except as modified or supplemented by Schedule A attached hereto and incorporated herein by this ---------- reference. 5. The covenants and agreements in Article III of the Loan Agreement shall remain in full force and effect. 6. Borrower hereby represents and warrants to Lender that all representations regarding Borrower's location(s) set forth in Section 3(f) of the Security Agreement are true and correct as of the date hereof. 7. Borrower shall pay to Lender a processing fee of $15,000 in connection with the Additional Loan. 8. Borrower shall use the proceeds of the Additional Loan for working capital. 9. The obligation of Lender to fund the Additional Loan on the date hereof is subject to Borrower's satisfaction of each of the following: (a) delivery to Lender of a Secured Promissory Note executed by Borrower, substantially in the form of Exhibit A attached hereto; (b) delivery to Lender of a Stock Purchase Warrant executed by Borrower, substantially in the form of Exhibit B attached hereto, together with a warrant valuation letter in form and substance acceptable to Lender; (c) delivery to Lender of an opinion of Smith, Gambrell & Russell, as Borrower's counsel, of even date herewith, in form and substance acceptable to Lender's counsel, Chambliss & Bahner; and 2 (d) delivery to Lender of resolutions of Borrower, Board of Directors authorizing the Additional Loan, the issuance of the stock purchase warrant in connection therewith and the reservation of the shares to be issued in connection with such warrant. 10. The terms "Loan Document" and "Loan Documents" as defined in the Loan Agreement are amended to include this Amendment and any and all other documents relating to the Loan or the Additional Loan (i) by and between Borrower or any other person or entity and Lender or (ii) executed by Borrower or any other person or entity in favor of Lender. 11. Except as modified and amended hereby, the Loan Documents shall remain in full force and effect. IN WITNESS WHEREOF, the parties hereto have executed this Amendment, or have caused this Amendment to be executed by their duly authorized officers, as of the day and year first above written. BORROWER: LENDER: - ------ ------ SOFTSENSE COMPUTER SIRROM CAPITAL CORPORATION, PRODUCTS, INC., a Tennessee corporation a Georgia corporation By: /s/ John Heyman By: /s/ Kathy Harris ------------------------------ ---------------------------- Title: VP/CFO Title: Vice President ------------------------- ------------------------- 3 EX-10.5 10 PROMISSORY NOTE DATED 3-27-96 EXHIBIT 10.5 ------------ PROMISSORY NOTE FOR VALUE RECEIVED, Softsense Computer Products, Inc. ("Softsense"), a Georgia corporation, with offices at 1000 Alderman Drive, Suite A, Alpharetta, Georgia 30202, does hereby promise to pay to Emro Marketing Company ("Emro"), a Delaware corporation, with offices at 500 Speedway Drive, Enon, Ohio 45323, the sum of Eight Hundred Seventy-Two Thousand Five Hundred One Dollars and No Cents, ($872,501.00) with interest accruing on any unpaid principal amount, from February 16, 1996 until the principal amount is paid in full, at a rate of 6% per annum. The principal amount of this Note shall be paid in five (5) equal installments of One Hundred Seventy Four Thousand Five Hundred Dollars and Twenty Cents ($174,500.20), each due on the five (5) succeeding anniversary dates of the date of execution of this Note. Accrued and unpaid interest shall be due and paid no less frequently than at such time as installments of principal are due. Prepayments of principal and/or interest may be made without penalty; provided, however, that no prepayment shall reduce the principal installment amount (except to the extent that all principal shall have been paid) or interest due on any due date for such payments. Any payment hereunder received by Emro Marketing Company or any subsequent holder of this Note shall first be applied to any accrued and unpaid interest and then to any outstanding principal balance. Unless Softsense is advised otherwise by written notice sent to Softsense at its address as first written above, by certified mail, return receipt requested, postage prepaid, payments shall be made by Wire Transfer to Emro's account at National City Bank, Cleveland, Ohio, Account No. 2856689 (Emro Marketing Collections), ABA Routing Number 041000124. In the event of non-payment or incomplete payment of any installment of principal or interest when due, Emro shall advise Softsense of such by written notice sent to Softsense at its address first written above, by certified mail, return receipt requested, postage prepaid. Such notice shall be deemed delivered to Softsense upon the earlier of receipt by Softsense or five (5) days after mailing by Emro. If payment of all amounts then due are not made within five (5) days of delivery of such notice, Softsense shall be deemed to be in default of its obligations under this Note. In such event Emro, at its option and without further notice to Softsense, shall be entitled to declare all amounts of unpaid principal and interest owed under this Note immediately due and payable and shall be entitled to proceed with legal action to collect such amounts plus its reasonable attorney's fees and costs of collection. This Note is given pursuant to the provisions of Section 8 of Addendum No. 1 to the Softsense Computer Products, Inc. Compu-Touch Software License Support and Equipment Purchase Agreement dated May 27, 1994, between Softsense and Emro and the provisions of a certain Letter of Understanding dated February 16, 1996, signed by the parties and represents a rebate due to Emro from Softsense for the purchase of Nine Hundred and Forty Five (945) Software sets by Emro on and after May 27, 1994. This Note shall be governed by and construed in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, Softsense Computer Products, Inc., by and through its duly authorized representative, with full corporate authority to do so, does cause this Note to be executed at Alpharetta, Georgia this 27th day of March, 1996. SOFTSENSE COMPUTER PRODUCTS, INC. Attest: /s/ Alon Goren By: /s/ John Heyman -------------------------- ------------------------------------- Its Secretary Name: John Heyman ----------------------------------- (seal) Title: Vice President and Chief Financial ---------------------------------- Officer ------- EX-10.6 11 PROMISSORY NOTE DATED 10-31-94 EXHIBIT 10.6 ------------ PROMISSORY NOTE $473,086 October 31, 1994 FOR VALUE RECEIVED, the undersigned (hereafter referred to as "Maker"), promises to pay to the order of LAWRENCE D. PARKER (hereafter referred to as "Payee"; Payee, and any subsequent holder(s) hereof, being hereafter referred to as "Holder"), at the address of Maker at 1155 Hammond Drive, Suite E-5200, Atlanta, Georgia 30328, or at such other place as Holder may designate to Maker in writing from time to time, the principal sum of FOUR HUNDRED SEVENTY-THREE THOUSAND EIGHTY-SIX AND NO/100 DOLLARS ($473,086), together with interest on so much thereof as is from time to time outstanding and unpaid, at the rate hereinafter set forth, in lawful money of the United States of America, such principal and said interest to be paid in the following manner: From and after the date hereof (until maturity, whether by acceleration or otherwise) interest on the outstanding principal indebtedness evidenced hereby shall accrue at the rate of eight percent (8%) per annum and shall be computed on a simple interest basis. During the period from November 1, 1994 to December 31, 1994 accrued interest on this Note shall be due and payable on November 30, 1994 and on December 31, 1994 ($3,154 per month). Thereafter, the outstanding principal amount and accrued interest of this Note shall be due and payable in thirty-six (36) equal installments of $14,824.80 per month on the last day of each month during the period from January 1, 1995 through December 31, 1997. This Note may not be prepaid in whole or in part. This Note is the "Note" referred to in, and is entitled to the benefits of, the Stock Repurchase Agreement and the Guaranty dated as of the date hereof by and between the Payee and the Maker and its affiliates, the terms of which by this reference are incorporated herein. It is hereby expressly agreed that should any default be made in the payment of any installment as stipulated above, then, and in such event, the principal indebtedness evidenced hereby, together with all unpaid interest accrued thereon, shall, at the option of Holder and without notice or demand to Maker, at once become due and payable and may be collected forthwith, regardless of the stipulated date of maturity. A default in the payment of any installment shall not be deemed to have occurred until thirty (30) days after written notice to the Maker by the Holder of his failure to receive any installment when due. Interest shall accrue on the outstanding principal balance of this Note from the date of any default hereunder and for so long as such default continues, regardless of whether or not there has been an acceleration of the indebtedness evidenced hereby as set forth herein, at the rate equal to eighteen percent (18%) per annum. Time is of the essence of this Note. Presentment for payment, demand, protest and notice of demand, dishonor, protest and non-payment and all other notices are hereby waived. No failure to accelerate the debt evidenced hereby by reason of default, acceptance of a past due installment, or indulgences granted from time to time shall be construed (i) as a novation of this Note or as a reinstatement of the indebtedness evidenced hereby or as a waiver of such right of acceleration or of the right of Holder thereafter to insist upon strict compliance with the terms of this Note, or (ii) to prevent the exercise of such right of acceleration or any other right granted hereunder or by the laws of the State of Georgia; and Maker hereby expressly waives the benefit of any statute or rule of law or equity now provided, or which may hereafter be provided, which would produce a result contrary to or in conflict with the foregoing. No extension of the time for the payment of this Note or any installment due hereunder, made by agreement with any person now or hereafter liable for the payment of this Note, shall operate to release, discharge, modify, change or affect the original liability of Maker under this Note, either in whole or in part, unless Holder agrees otherwise in writing. This Note may not be changed orally, but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. This Note is intended as a contract under and shall be construed and enforceable in accordance with the laws of the State of Georgia. If from any circumstances whatsoever, fulfillment of any provision of this Note or of any other instrument evidencing or securing the indebtedness evidenced hereby, at the time performance of such provision shall be due, shall involve transcending the limit of validity presently prescribed by any applicable usury statute or any other applicable law with regard to obligations of like character and amount, then, ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, so that in no event shall any exaction be possible under this Note or under any other instrument evidencing or securing the indebtedness evidenced hereby that is in excess of the current limit of such validity, but such obligation shall be fulfilled to the limit of such validity. This Note shall not be transferred or otherwise disposed of by the Holder without the prior written consent of the Maker. As used herein, the terms "Maker" and "Holder" shall be deemed to include their respective heirs, successors, legal representatives and assigns, whether by voluntary action of the parties or by operation of law. IN WITNESS WHEREOF, Maker has executed this Note under seal on the date first above written. "Maker" SOFTSENSE COMPUTER PRODUCTS INC. By: /s/ Erez Goren -------------------------- Title: President -------------------- -2- EX-10.7 12 CONSULTING AGREEMENT EXHIBIT 10.7 ------------ CONSULTING AGREEMENT This Consulting Agreement is made and entered into as of the 31st day of October, 1994, by and between LP TECHNOLOGIES, INC., a Florida corporation (hereinafter referred to as the "Consultant") and SOFTSENSE COMPUTER PRODUCTS INC., a New York corporation (hereinafter referred to as the "Company"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Company is engaged in the business of designing, developing, manufacturing and marketing software application products for the convenience store and fast food industries and for the quick-lube and oil change marketplace (the "Business"); and WHEREAS, the Company desires to engage the Consultant to provide certain consulting services to the Company all as more fully set forth in this Agreement; and WHEREAS, Consultant has agreed to provide certain consultation services, all upon the terms and conditions more fully set forth herein; and NOW, THEREFORE, for and in consideration of the premises, the mutual covenants contained herein, and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, the parties hereto covenant and agree as follows: 1. Consultant Services. Subject to the terms and conditions of this ------------------- Agreement, the Company hereby engages Consultant as an independent consultant, and Consultant hereby accepts said engagement with the Company. During the term hereof, the Consultant shall render to the Company such services (hereinafter referred to as the "Services") of an advisory or consultative nature as the Company may reasonably request, so that the Company may have the benefit of Consultant's experience and knowledge of the affairs of the Company and of Consultant's reputation and contacts in the Business, and Consultant will be available for advice and counsel to the officers and directors of the Company. The Services to be provided by Consultant to the Company hereunder shall include the following: (a) Select the best technology to exploit the growing fields of virtual reality, multimedia and computer simulations. (b) Create a platform consisting of "building blocks" which the Company can use to create new products; (c) Keep current on developing technologies and present its findings to the Company's senior management at the Company's headquarters on a quarterly basis (and reduce the content of the presentation to hard copy); and (d) Perform an audit of the Company's development program not less than twice annually, in accordance with the following: (i) Review backup procedures: Verify that the Company's ------------------------- development program has been making sufficient backups and that these backups are in a secure place. To ensure that this is being done, one or more backups will be restored into a temporary directory to confirm that they have been made properly and are in working order. This will also ensure that the restoration process is functioning. (ii) Review version control: Ensure version control is being used ---------------------- for all major development projects. To ensure that version control is being used, one or more previously checked in versions will be restored to a temporary directory and compiled to make sure that the code is synchronized, and that the development environment needed to compile the code is readily available. (iii) Review third party software: Review the number of third party --------------------------- development software products in use, and ensure that the proper number of licenses have been purchased, and that the products are being used in accordance with the terms of the license agreements. (iv) Development manager interviews: Interview development managers ------------------------------ to gain their perspective on the development function. (v) Summary report: Compile and present a summary report to senior --------------- management. Consultant shall devote not less than 40 hours per audit of the Company's development program. (e) Consultant shall provide such services, and other duties for which Consultant is qualified by knowledge or experience, as the Company may from time to time request. Consultant's services and duties shall be performed in a competent and professional manner but the Company shall not direct the Consultant in the manner in which it performs its services or duties hereunder. 2. Compensation. For all the Services to be performed under this ------------ Agreement, the Company shall pay to the Consultant (i) the sum of One Hundred and Fifty Thousand Dollars ($150,000) on or before November 30, 1994 and (ii) the sum of Fourteen Thousand Dollars ($14,000) per month (the "Monthly Fee") on the last day of each month during the five (5) year period beginning on January 31, 1995 and ending on December 31, 1999. Notwithstanding the foregoing, on January 1, 1996 and on each January 1 thereafter during the term of this Agreement, Consultant may, in its discretion, increase the Monthly Fee by an amount not to exceed 5% per year. -2- Consultant shall be solely responsible for payment of any and all expenses incurred by Consultant in the performance of its services hereunder and Consultant shall not be entitled to reimbursement from the Company for any such expenses. 3. Policies. If Consultant performs Services at the Company's offices, -------- Consultant shall observe business hours, holiday schedules and all policies and security rules of the Company in connection with the performance of the Services hereunder. 4. Rights and Product. Except as otherwise agreed to by the parties, all ------------------ information, reports, studies, object or source codes (including computer program platforms which may be used to create various application software products), flow charts, diagrams, ideas, inventions and improvements, and any other tangible or intangible material of any nature whatsoever produced by or as a result of any of the Services, and all copies or derivations of any of the foregoing ("Work Product"), shall be jointly owned by the Company and Consultant, it being the intention of the parties that all Work Product be deemed jointly conceived and developed by the parties hereto, and the parties shall jointly own all related patent, trademark, copyright or other tangible or intangible rights whatsoever. Both during and after Consultant's engagement under this Agreement, each party agrees to execute, at no additional consideration, any documents, applications or other instruments reasonably requested by the other party in order to make any patent, trademark or copyright applications with respect to the Work Product, or otherwise to perfect, evidence or defend the parties' ownership of such Work Product. The parties agree to share the expenses related to the foregoing. 5. Warranty and Indemnification by Consultant. The Consultant represents ------------------------------------------ and warrants to the Company that none of the Services rendered or Work Product provided to the Company will in any way violate or infringe upon any patent, trademark, copyright or other rights of third parties or violate any laws. Consultant shall indemnify the Company and hold it harmless against any claim or action which alleges that the use of the Work Product in the manner suggested by Consultant infringes any patent, trademark, copyright, or other proprietary right of any third party or violates any law, and Consultant shall pay all costs and damages of the Company (including reasonable attorneys' fees) provided that the Company notifies Consultant promptly of any such claims. Notwithstanding anything contained in this Paragraph 5 to the contrary, Consultant shall have no liability or indemnification obligations hereunder with respect to any act or omission done at the express direction of the Company, and the Company shall indemnify Consultant and hold it harmless from and against any claim or action which results from any act or omission of the Consultant which is taken at the express direction of the Company. 6. Confidential Information. The Consultant acknowledges and agrees that ------------------------ all tangible and intangible information obtained or developed (i) in connection with the prior employment with the Company of any affiliate of Consultant and (ii) in connection with the performance and execution of this Agreement, is deemed by the Company and shall be considered to be confidential and proprietary information ("Confidential Information") containing valuable business information -3- and trade secrets of the Company relating to its business practices and critical to its competitive position in the marketplace. Confidential Information shall not include information which is or becomes information in the public domain through no action on the part of Consultant. Confidential Information may include, but is not limited to, technical information such as formulas, patterns, devices, computer program source and object codes, compositions, inventions, processes, specifications, research, methods and know- how; business information such as financial statements, sales reports, cost- price information, sales policies, employee lists, margins, expenses, profits, sources of supply and distribution, lists of customers and active prospective clients or suppliers and matters related to the Company's future development or strategy. The Consultant shall not disclose, directly or indirectly, any Confidential Information or use Confidential Information in any way except for the purpose of rendering the Services under this Agreement. All lists, printouts, reports, files, records, documents, computer program source and object codes, drawings, blueprints, specifications, manuals, letters, notes, notebooks, sketches, formulas, memoranda, codes, and similar items, whether in tangible form or stored by electronic means, coming into Consultant's possession during the term of this Agreement, shall remain the exclusive property of the Company (and if prepared by Consultant, the joint property of the Company and Consultant), and, upon termination of this Agreement, the Consultant agrees to deliver all tangible materials containing Confidential Information (including all copies thereof) which are in Consultant's possession or control and to delete or destroy any Confidential Information maintained by Consultant on electronic media (other than jointly owned materials, a copy of which may be retained by Consultant). The Consultant agrees to ensure that any consultant, employee, agent or subcontractor of a Consultant permitted access to any portion of the Confidential Information in the course of his or her employment is advised of the proprietary and confidential nature of the Confidential Information and that any such person shall be required by a Consultant as a condition of his or her assignment to the Company to sign a Confidentiality and Nondisclosure Agreement agreeing personally to abide by the restrictions contained herein. The Consultant agrees to notify the Company promptly and in writing of any circumstances of which Consultant has knowledge relating to any possession, use or knowledge of any portion of the Confidential Information by any authorized person. Consultant's obligations hereunder shall survive the expiration or termination of this Agreement for a period of three (3) years; provided, however, that with respect to any item of Confidential Information which rises to the level of a trade secret under applicable law, the Consultant's obligations hereunder shall, to the fullest extent permitted by applicable law, survive the expiration of said three (3) year period and forever remain in full force and effect. The Company's rights under this Agreement are in addition to those rights the Company has under the common laws or applicable statutes for the protection of trade secrets. Nothing contained herein shall be deemed to prohibit Consultant from making any disclosure required by law; provided, however, that prior to making any such disclosure Consultant shall provide the Company with reasonable notice in order that the Company may seek a protective order should it so desire. 7. Remedies, Injunction. The Consultant acknowledges that any breach or -------------------- threatened breach by Consultant of paragraph 6 above could cause the Company irreparable harm which cannot be compensated by payment of damages. Accordingly, in the event of any breach or -4- threatened breach by Consultant of paragraph 6 of this Agreement, Consultant agrees that the Company, in addition to any other rights, remedies or damages available to the Company at law or in equity, should be entitled to injunctive relief in order to prevent or restraint any such breach or threatened breach by Consultant. Consultant further acknowledges and agrees that the covenants contained in paragraph 6 of this Agreement are necessary for the protection of the Company's legitimate business interests, are reasonable in scope and content, and will not prevent the Consultant from earning a livelihood. 8. Indemnity and Insurance. The Consultant agrees to indemnify the ----------------------- Company for any liability or expense incurred by the Company due to claims for personal injury or property damage arising out of or in connection with Consultant's performance of the Services, as well as from any claim for payment of compensation, salary, taxes, or other benefits asserted by or with respect to any employee of Consultant. Consultant agrees to maintain worker's compensation, general liability and automobile liability insurance in an amount sufficient to protect against all reasonably foreseeable risks in connection with the performance of the Services. 9. Term and Termination. This Agreement shall commence on the date shown -------------------- above and shall continue in full force and effect thereafter until December 31, 1999. The Company may immediately terminate this Agreement for cause at any time. "Cause" as used herein shall be limited to non-compliance by Consultant with the requirements of paragraph 1(d) of this Agreement. The expiration, cancellation or termination of this Agreement, for whatever reason, will not discharge or relieve either party from any obligation which accrued prior to such expiration, cancellation or termination, will not relieve any party that has breached this Agreement from liability for damages resulting from such breach and will not destroy or diminish the binding force and effect of any of the provisions of this Agreement that expressly, or by reasonable implication, come into or continue in effect on or after cancellation or termination hereof. 10. Independent Contractor. The parties each acknowledge that their ---------------------- relationship under this Agreement is that of independent contractors. Neither party shall have authority to bind the other party to any contract or agreement of any kind, and shall not hold itself out to any party as having such authority. Consultant shall be solely responsible for and shall pay when due all worker's compensation, payroll, income, social security and other taxes of any kind whatsoever due with respect to the work performed by Consultant or any subcontractor of Consultant. 11. Notices. All notices and other communications hereunder shall be in ------- writing and shall be deemed to have been given only if and when (i) personally delivered, or (ii) three (3) business days after mailing, postage prepaid, by certified mail, or (iii) when delivered (and receipted for) by an overnight delivery service, or (iv) when first sent by telex, telecopier or other means of instantaneous communication provided such communication is promptly confirmed by personal delivery, mail or an overnight delivery service as provided above, addressed in each case as follows: -5- (a) If to the Consultant to: LP Technologies, Inc. 101 South Old Coachman Road Apartment 222 Clearwater, Florida 34625 Attention: Lawrence D. Parker, President with a copy in like manner to: Thomas E. Raines, Esq. 3941 Holcomb Bridge Road, Suite 200 Norcross, Georgia 30092 (b) If to the Company to: Softsense Computer Products Inc. 1155 Hammond Drive, Suite E-5200 Atlanta, Georgia 30328 Attention: President with a copy in like manner to: Smith, Gambrell & Russell 3343 Peachtree Road, N.E. Suite 1800 Atlanta, Georgia 30326 Attention: Richard G. Greenstein, Esq. The Consultant, on the one hand, and the Company, on the other hand, may change the address(es) for the giving of notices and communications to them or to it, as the case may be, and/or copies thereof, by written notice to the other parties in conformity with the foregoing. 12. Miscellaneous. ------------- (a) This Agreement shall not be amended or modified except by a writing executed by both parties. (b) A waiver of any default by either party of any of the terms and conditions of this Agreement shall not be deemed to be a continuing waiver or a waiver of any other provisions of this Agreement, but shall apply solely to the instances to which such waiver is granted. (c) This Agreement shall be binding upon and inure to the benefit of the Company and Consultant and their respective successors and assigns. -6- (d) This Agreement shall be governed by the laws of the State of Georgia without regard to its rules governing conflicts of law. (e) This Agreement represents the entire understanding of the parties concerning the subject matter hereof and supersedes all prior or contemporary communications, agreements and understandings, whether oral or written, relating to the subject matter hereof. (f) If any provision of this Agreement shall be held to be illegal, invalid or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. The parties shall use their reasonable efforts to substitute the illegal, invalid, or unenforceable provision by a legal, valid or enforceable one approximating as closely as possible the original intent of the parties. (g) No liability shall result to either party from delay in performance or from nonperformance caused by circumstances beyond the reasonable control of the party affected, including but not limited to, acts of God, fire, flood, explosion, war, action or request of governmental authority, accident, labor trouble or shortage, inability to obtain material, power, equipment or transportation, or any other circumstances of a similar or different nature beyond the reasonable control of the party so failing; provided, however, that the party suffering the force majeure shall diligently attempt to remove such cause or causes and shall promptly notify the other party of its extent and probable duration; and further provided that events of force majeure shall not affect or delay the Company's obligation to pay, when due, any sum owing under this Agreement. (h) Should any provision of this Agreement require judicial or arbitral interpretation, it is agreed that the court or arbitrator interpreting or construing the same shall not apply the presumption that the terms of any such provision shall be more strictly construed against one party or the other by reason of the rule of construction that a document is to be construed most strictly against the party who itself or through its agent prepared the same, it being agreed that both parties or their respective agents have participated in the preparation of this Agreement. (i) All disputes and claims relating to any provision hereof or relating to or arising out of the parties relationship or creation or termination thereof (including, without limitation, any claims that any provision of this Agreement or any obligation of Consultant or of the Company is illegal or otherwise unenforceable or voidable under law, ordinance or ruling) shall be settled by arbitration at the office of the American Arbitration Association in Atlanta, Georgia, in accordance with the United States Arbitration Act (9 USC, (S) 1 et seq.) and the rules of the American Arbitration Association. The Consultant consents and submits to the personal jurisdiction and venue of the trial courts of DeKalb County, Georgia, and also to the personal jurisdiction and venue of the United States District Court for the Northern District of Georgia for purposes of enforcing this provision. All awards of the arbitration shall be binding and non-appealable except as otherwise provided in the United States Arbitration Act. Judgment upon the award of the arbitrator may be entered in any court having jurisdiction thereof. The arbitration -7- shall take place at a time noticed by the American Arbitration Association regardless of whether one of the parties fails or refuses to participate. The foregoing provision shall not preclude either party from bringing an action in any court of competent jurisdiction for injunctive or other provisional relief as necessary or appropriate. Each party hereto shall pay any and all expenses, including attorneys' fees, incurred by such party in connection with such arbitration proceeding, unless otherwise determined by the arbitrator. The parties agree that the arbitration proceedings, and the amount of any award thereunder, shall be confidential and shall not be disclosed to third parties, except with the prior written approval of the other party to this Agreement or as required by law. (j) Any reference in this Agreement to a section shall be deemed to include a reference to any subsidiary sections whenever the context requires. (k) The captions of the sections and subsidiary sections of this Agreement are included for reference purposes only and are not intended to be a part of the Agreement or in any way to define, limit or describe the scope or intent of the particular provision to which they refer. (l) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties have executed this Agreement, under seal, as of the date first written above. "COMPANY" SOFTSENSE COMPUTER PRODUCTS INC. By: /s/ Erez Goren ------------------------------------- Title: President "CONSULTANT" LP TECHNOLOGIES, INC. By: /s/ Lawrence D. Parker ------------------------------------- Lawrence D. Parker, President -8- AMENDMENT NO. 1 TO CONSULTING AGREEMENT This Amendment ("Amendment No. 1") to the Consulting Agreement (the "Agreement") between LP Technologies, Inc. ("Consultant") and Softsense Computer Products Inc. (the "Company") dated October 31, 1994 is entered into as of the 24th day of October, 1995. WHEREAS, under the Agreement, Consultant has agreed to provide certain consulting services (the "Services") for the Company during the five year period between October 31, 1994 and December 31, 1999; WHEREAS, Consultant desires to suspend providing Services under the Agreement between September 30, 1995 and December 31, 1997, which suspension the Company has approved, provided Consultant resumes providing Services on January 1, 1998 and continues providing Services through December 31, 2001; WHEREAS, to ensure Consultant resumes providing Services, the Company agrees to pay Consultant a nominal monthly fee during the suspension period. NOW, THEREFORE, for and in consideration of the mutual premises and representations contained herein, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree to amend the Agreement as follows: 1. Capitalized terms used but not otherwise defined herein shall have the meaning as set forth in the Agreement. 2. Notwithstanding anything to the contrary in the Agreement, Services to be provided by Consultant hereunder shall be suspended during the period beginning September 30, 1995 and concluding December 31, 1997 (the "Suspension Period"). Upon conclusion of the Suspension Period, Consultant shall resume providing Services under the Agreement and shall continue through December 31, 2001. 3. Section 2, Compensation, is hereby modified by deleting the first full ------------ paragraph thereof in its entirety and replacing it with the following: "For all the Services to be performed under this Agreement, the Company shall pay to Consultant: (i) the sum of One Hundred and Fifty Thousand Dollars ($150,000) on or before November 30, 1994; (ii) the sum of Fourteen Thousand Dollars ($14,000) per month (the "Monthly Fee") on the last day of each month during the period beginning on January 31, 1995 and ending on September 30, 1995; (iii) a Monthly Fee of Two Thousand Five Hundred Dollars ($2,500) on the last day of each month during the Suspension Period; (iv) the sum of Sixteen Thousand Two Hundred and Seven Dollars ($16,207) on the last day of each month during the calendar year 1998; (v) the sum of Seventeen Thousand and Seventeen Dollars -1- ($17,017) on the last day of each month during the calendar year 1999; (vi) the sum of Seventeen Thousand Eight Hundred and Sixty Eight Dollars ($17,868) on the last day of each month during the calendar year 2000; (vi) and Eighteen Thousand Seven Hundred and Sixty One Dollars ($18,761) on the last day of each month during the calendar year 2001." 4. Section 9, Term and Termination, is hereby modified by deleting the -------------------- first sentence in its entirety and replacing it with the following: "This Agreement shall commence on the date shown above and shall continue in full force and effect thereafter until December 31, 2001." 5. Except as expressly amended herein, the Agreement shall remain in full force and effect. IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 as of the date first written above. "Company" Softsense Computer Products Inc. By: /s/ John Heyman ------------------------------------- John Heyman Title: Vice President and Chief Financial Officer "Consultant" LP Technologies, Inc. By: /s/ Lawrence D. Parker -------------------------------------- Lawrence D. Parker Title: President -2- EX-10.8 13 COMMERCIAL LEASE AGREEMENT EXHIBIT 10.8 ------------ GREATER ATLANTA COMMERCIAL BOARD OF REALTORS, INC. COMMERCIAL LEASE AGREEMENT May 1994 THIS LEASE is made by and among Digital Communications Associates, Inc., (hereinafter called "Landlord"), and Softsense Computer Products, Inc. (hereinafter celled ("Tenant"), and Bryant & Associates, Inc. (hereinafter called "Broker"). WITNESSETH: PREMISES 1. Landlord, for and in consideration of the rents, covenants, agreements, and stipulations hereinafter mentioned, provided for and contained herein to be paid, kept and performed by Tenant, leases and rents unto Tenant, and Tenant hereby leases and takes upon the terms and conditions which hereinafter appear, the following described property (hereinafter called the "Premises"), to wit: See Exhibit "B" and being known as Building B, 1000 Alderman Drive, Alpharetta, GA 30202. No easement for light or air is included in the Premises, comprised of 25,000 +/- square feet. TERM 2. The Tenant shall have and hold the Premises for a term of five (5) years beginning on the 1 day of February, 1995, and ending on the 31 day of January, 2000, at midnight, unless sooner terminated as hereinafter provided. RENTAL 3. Tenant agrees to pay to Landlord at the address of Landlord as stated in this Lease, without demand, deduction or setoff, an annual rental of $181,250.00 payable in equal monthly installments of $15,104.17 in advance on the first day of each calendar month during the term hereof. Upon execution of this Lease, Tenant shall pay to Landlord the first full month's rent due hereunder. Rental for any period during the term hereof which is for less than one month shall be a prorated portion of the monthly rental due. LATE CHARGES 4. If Landlord fails to receive all or any portion of a rent payment within ten (l0) days after it becomes due, Tenant shall pay Landlord, as additional rental, a late charge equal to ten percent (10%) of the overdue amount. The parties agree that such late charge represents a fair and reasonable estimate of the costs Landlord will incur by reason of such late payment. SECURITY DEPOSIT 5. Tenant shall deposit with Landlord upon execution of this Lease one month's rent $15,104.17 as a security deposit which shall be held by Landlord, without liability to Tenant for any interest thereon, as security for the full and faithful performance by Tenant of each and every term, covenant and condition of this Lease of Tenant. If any of the rents or other charges or sums payable by Tenant to Landlord shall be overdue and unpaid or should Landlord make payments on behalf of Tenant, or should Tenant fail to perform any of the terms of this Lease, then Landlord may, at its option, appropriate and apply the security deposit, or so much thereof as may be necessary to compensate Landlord toward the payment of the rents, charges or other sums due from Tenant, or towards any loss, damage or expense sustained by Landlord resulting from such default on the part of Tenant; and in such event Tenant shall upon demand restore the security deposit to the original sum deposited. In the event Tenant furnishes Landlord with proof that all utility bills have been paid through the date of Lease termination, and performs all of Tenant's other obligations under this Lease, the security deposit shall be returned in full to Tenant within thirty (30) days after the date of the expiration or sooner termination of the term of this Lease and the surrender of the Premises by Tenant in compliance with the provisions of this Lease. UTILITY BILLS 6. Tenant shall pay all charges for garbage collection or other sanitary services. COMMON AREA COSTS; RULES AND REGULATIONS 7. The Rules and Regulations attached hereto are made a part of this Lease. Tenant agrees to perform and abide by those Rules and Regulations and such other Rules and Regulations as may be made from time to time by Landlord, and the Windward Business Center. USE OF PREMISES 8. The Premises shall be used for light assembly, distribution and general office purposes only and no other. The Premises shall not be used for any illegal purposes, nor in any manner to create any nuisance or trespass, nor in any manner to vitiate the insurance or increase the rate of insurance on the Premises. ABANDONMENT OF THE PREMISES 9. Tenant agrees not to abandon or vacate the Premises during the term of this Lease and agrees to use the Premises for the purposes herein leased until the expiration hereof. TAX AND INSURANCE ESCALATION 10. Tenant shall pay upon demand by Landlord as additional rental during the term of this Lease, and any extension of renewal thereof, the amount by which all taxes (including but not limited to, ad valorem taxes, special assessments and any other governmental charges) on the Premises for each tax year exceed all taxes on the Premises for the tax year 1995. In the event the Premises are less than the entire property assessed for such taxes for any such tax year, then the tax for any such year applicable to the Premises shall be determined by proration on the basis that the rentable floor area of the Premises bears to the rentable floor area of the entire property assessed. If the final year of the Lease term fails to coincide with the tax year, then any excess for the tax year during which the term ends shall be reduced by the pro rata part of such tax year beyond the Lease term. If such taxes for the year in which the Lease terminates are not ascertainable before payment of the last month's rental, then the amount of such taxes assessed against the Property for the previous tax year shall be used as a basis for determining the pro rata share, if any, to be paid by Tenant for that portion of the last Lease year. Tenant shall further pay, upon demand, its pro rata share of the excess cost of fire and extended coverage insurance including any and all public liability insurance on the building over the cost for the first year of the Lease term for each subsequent year during the term of this Lease. Tenant's pro rata portion of increased taxes or share of excess cost of fire and extended coverage and liability insurance, as provided herein, shall be payable within fifteen (15) days after receipt of notice from Landlord as to the amount due. INDEMNITY; INSURANCE 11. Tenant agrees to and hereby does indemnify and save Landlord harmless against all claims for damages to persons or property by reason of Tenant's use or occupancy of the Premises, and all expenses incurred by Landlord because thereof, including attorney's fees and court costs. Supplementing the foregoing and in addition thereto, Tenant shall during the term of this Lease and any extension or renewal thereof, and at Tenant's expense, maintain in full force and effect comprehensive general liability insurance with limits of $500,000.00 per person and $l,000,000.00 per incident, and property damage limits of $100,000.00, which insurance shall contain a special endorsement recognizing and insuring any liability accruing to Tenant under the first sentence of this paragraph 11, and naming Landlord as additional insured. Tenant shall provide evidence of such insurance to Landlord prior to the commencement of the term of this Lease. Landlord and Tenant each hereby release and relieve the other, and waive its right of recovery, for loss or damage arising out of or incident to the perils insured against which perils occur in, on or about the Premises, whether due to the negligence of Landlord or Tenant or their Brokers, employees, contractors and/or invitees, to the extent that such loss or damage is within the policy limits of said comprehensive general liability insurance. Landlord and Tenant shall, upon obtaining the policies of insurance required, give notice to the insurance carrier or carriers that the foregoing mutual waiver of subrogation is contained in this Lease. -2- REPAIRS BY LANDLORD 12. Landlord agrees to keep in good repair the roof, foundations and exterior walls of the Premises (exclusive of all glass and exclusive of all exterior doors) and underground utility and sewer pipes outside the exterior walls of the building, except repairs rendered necessary by the negligence or intentional wrongful acts of Tenant, its brokers, employees or invitees. If the Premises are part of a larger building or group of buildings, then to the extent that the grounds are common areas, Landlord shall maintain the grounds surrounding the building, including paving, the mowing of grass, care of shrubs and general landscaping. Tenant shall promptly report in writing to Landlord any defective condition known to it such Landlord is required to repair and failure so to report such conditions shall make Tenant responsible to Landlord for any liability incurred by Landlord by reason of such conditions. REPAIRS BY TENANT 13. Tenant accepts the Premises in their present condition and as suited for the uses intended by Tenant. Tenant shall, throughout the trial term of this Lease, and any extension or renewal thereof, at its expense, maintain in good order and repair the Premises, including the building, heating and air conditioning equipment (including but not limited to replacement of parts, compressors, air handling units and heating units) and other improvements located thereon, except those repairs expressly required to be made by Landlord hereunder. Unless the grounds are common areas of a building(s) larger than the Premises, Tenant further agrees to care for the grounds around the building, including paving, the mowing of grass, care of shrubs and general landscaping. Tenant agrees to return the Premises to Landlord at the expiration, or prior to termination of this lease, in as good condition and repair as when first received, natural wear and tear, damage by storm, fire, lightning, earthquake or other casualty one excepted. ALTERATIONS 14. Tenant shall not make any alterations, additions, or improvements to the Premises without Landlord's prior written consent. Tenant shall promptly remove any alterations, additions, or improvements constructed in violation of this Paragraph 14 upon Landlord's written request. All approved alterations, additions, and improvements will be accomplished in a good and workmanlike manner, in conformity with all applicable laws and regulations, and by a contractor approved by Landlord, free of any liens or encumbrances. Landlord may require Tenant to remove any alterations, additions or improvements (whether or not made with Landlord's consent) at the termination of this Lease and to restore the Premises to its prior condition, all at Tenant's expense. All alterations, additions and improvements which Landlord has not required Tenant to remove shall become Landlord's property and shall be surrendered to Landlord upon the termination of this Lease, except that Tenant may remove any of Tenant's machinery or equipment which can be removed without material damage to the Premises. Tenant shall repair, at Tenant's expense, any damage to the Premises caused by the removal of any such machinery or equipment. REMOVAL OF FIXTURES 15. Tenant may (if not in default hereunder) prior to the expiration of this Lease, or any extension or renewal thereof, remove all fixtures and equipment which it has placed in the Premises, provided Tenant repairs all damage to the Premises caused by such removal. DESTRUCTION OF OR DAMAGE TO PREMISES 16. If the Premises are totally destroyed by storm, fire, lightning, earthquake or other casualty, this Lease shall terminate as of the date of such destruction and rental shall be accounted for as between Landlord and Tenant as of that date. If the Premises are damaged but not wholly destroyed by any such casualties, rental shall abate in such proportion as use of the Premises has been destroyed and Landlord shall restore the Premises to substantially the same condition as before damage as speedily as is practicable, whereupon full rental shall recommence. GOVERNMENTAL ORDERS 17. Tenant agrees, at its own expense, to comply promptly with all requirements of any legally constituted public authority made necessary by reason of Tenant's occupancy of the Premises. Landlord agrees to comply promptly with any such requirements if not made necessary by reason of Tenant's occupancy. It is mutually agreed, however, between Landlord and Tenant, that if in order to comply with such requirements, the cost to Landlord or Tenant, as the -3- case may be, shall exceed a sum equal to one year's rent, then Landlord or Tenant who is obligated to comply with such requirements may terminate this Lease by giving written notice of termination to the other party by certified mail, which termination shall become effective sixty (60) days after receipt of such notice and which notice shall eliminate the necessity of compliance with such requirements by giving such notice unless the party giving such notice of termination shall, before termination becomes effective, pay to the party giving notice all cost of compliance in excess of one year's rent, or secure payment of said sum in manner satisfactory to the party giving notice. CONDEMNATION 18. If the whole of the Premises. or such portion thereof as will make the Premises unusable for the purposes herein leased, are condemned by any legally constituted authority for any public use or purposes, then in either of said events the term hereby granted shall cease from the date when possession thereof is taken by public authorities, and rental shall be accounted for as between Landlord and Tenant as of said date. Such termination, however, shall be without prejudice to the rights of either Landlord or Tenant to recover compensation and damage caused by condemnation from the condemnor. It is further understood and agreed that neither the Tenant nor Landlord shall have any rights in any award made by the other by any condemnation authority notwithstanding the termination of the Lease as herein provided. Broker may become a party to the condemnation proceeding for the purpose of enforcing his rights under this paragraph. ASSIGNMENT AND SUBLETTING 19. Tenant shall not, without the prior written consent of Landlord, which shall not be unreasonably withheld, assign this Lease or any interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any party other than the Tenant. Consent to any assignment or sublease shall not impair this provision and all later assignments or subleases shall be made likewise only on the prior written consent of Landlord. The assignee of Tenant, at the option of Landlord, shall become liable to Landlord for all obligations of Tenant hereunder, but no sublease or assignment by Tenant shall relieve Tenant of any liability hereunder. EVENTS OF DEFAULT 20. The happening of any one or more of the following events (hereinafter any one of which may be referred to as an "Event of Default") during the term of this Lease, or any renewal or extension thereof, shall constitute a breach of this Lease on the part of the Tenant: (A) Tenant fails pay the rental as provided for herein; (B) Tenant abandons or vacates the Premises; (C) Tenant fails to comply with or abide by and perform any other obligation imposed upon Tenant under this Lease; (D) Tenant is adjudicated bankrupt; (E) a permanent receiver is appointed for Tenant's property and such receiver is not removed within sixty (60) days after written notice from Landlord to Tenant to obtain such removal; (F) Tenant either voluntarily or involuntarily, takes advantage of any debt or relief proceedings under the present or future law, whereby the rent or any part thereof is, or is proposed to be reduced or payment thereof deferred; (G) Tenant makes an assignment for benefit of creditors; or (H) Tenant's effects are levied upon or attached under process against Tenant, which is not satisfied or dissolved within thirty (30) days after written notice from Landlord to Tenant to obtain satisfaction thereof. REMEDIES UPON DEFAULT 21. Upon the occurrence of an Event of Default, Landlord, in addition to any and all other rights or remedies it may have at law or in equity, shall have the option of pursuing any one or more of the following remedies: (A) Landlord may terminate this Lease by giving notice of termination, in which event this Lease shall expire and terminate on the date specified in such notice of termination, with the same force and effect as though the date so specified were the date herein originally fixed as the termination date of the term of this Lease, and all rights of Tenant under this Lease and in and to the Premises shall expire and terminate, and Tenant shall remain liable for all obligations under this Lease arising up to the date of such termination and Tenant shall surrender the Premises to Landlord on the date specified in such notice; (B) Landlord may terminate this Lease as provided in paragraph 21(A) hereof and recover from Tenant all damages Landlord may incur by reason of Tenant's default, including, without limitation, a sum which, at the date of such termination, represents the then value of the excess, if any, of (i) the monthly rental and additional rent for the -4- period commencing with the day following the date of such termination and ending with the date hereinbefore set for the expiration of the full term hereby granted, or (ii) the aggregate reasonable rental value of the Premises (less reasonable brokerage commissions, attorneys' fees and other costs relating to the reletting of the Premises) for the same period, all of which excess sum shall be deemed immediately due and payable; (C) Landlord may, without terminating this Lease, declare immediately due and payable all monthly rental and additional rent due and coming due under this Lease for the entire remaining term hereof, together with all other amounts previously due, at once; provided, however, that such payment shall not be deemed a penalty or liquidated damages but shall merely constitute payment in advance of rent for the remainder of said term; upon making such payment, Tenant shall be entitled to receive from Landlord all rents received by Landlord from other assignees, tenants and subtenants on account of the Premises during the term of this Lease, provided that the monies to which Tenant shall so become entitled shall in no event exceed the entire amount actually paid by Tenant to Landlord pursuant to this clause (C) less all costs, expenses and attorneys' fees of Landlord incurred in connection with the reletting of the Premises; or (D) Landlord may, from time to time without terminating this Lease, and without releasing Tenant in whole or in part from Tenant's obligation to pay monthly rental and additional rent and perform all of the covenants, conditions and agreements to be performed by Tenant as provided in this Lease, make such alterations and repairs as may be necessary in order to relet the Premises, and, after making such alterations and repairs, Landlord may, but shall not be obligated to, relet the Premises or any part thereof for such term or terms (which may be for a term extending beyond the term of this Lease) at such rental or rentals and upon such other terms and conditions as Landlord in its sole discretion may deem advisable or acceptable; upon each reletting, all rentals received by Landlord from such reletting shall be applied first, to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord, second, to the payment of any costs and expenses of such reletting, including brokerage fees and attorneys' fees, and of costs of such alterations and repairs, third, to the payment of the monthly rental and additional rent due and unpaid hereunder, and the residue, if any, shall be held by Landlord and applied against payments of future monthly rental and additional rent as the same may become due and payable hereunder; in no event shall Tenant be entitled to any excess rental received by Landlord over and above charges that Tenant is obligated to pay hereunder, including monthly rental and additional rent; if such rental received from such reletting during any month are less than those to be paid during the month by Tenant hereunder, including monthly rental and additional rent, Tenant shall pay any such deficiency to Landlord, which deficiency shall be calculated and paid monthly; Tenant shall also pay Landlord as soon as ascertained and upon demand all costs and expenses incurred by landlord in connection with such reletting and in making any alterations and repairs which are not covered by the rentals received from such reletting; notwithstanding any such reletting without termination, Landlord may at any time thereafter elect to terminate this Lease for such previous breach. Tenant acknowledges that the Premises are to be used for commercial purposes, and Tenant expressly waives the protections and rights set forth in Official Code of Georgia Annotated Section 44-7-52. EXTERIOR SIGNS 22. Tenant shall place no signs upon the outside walls or roof of the Premises except with the written consent of the Landlord. Any and all signs placed on the Premises by Tenant shall be maintained in compliance with governmental rules and regulations governing such signs, as well as Windward Business Center rules and regulations, and Tenant shall be responsible to Landlord for any damage caused by installation, use or maintenance of said signs, and all damage incident to such removal. LANDLORD'S ENTRY OF PREMISES 23. Landlord may card the Premises "For Rent" or "For Sale" ninety (90) days before the termination of this Lease. Landlord may enter the Premises at reasonable hours to exhibit the Premises to prospective purchasers or tenants, to inspect the Premises to see that Tenant is complying with all of its obligations hereunder, and to make repairs required of Landlord under the terms hereof or to make repairs to Landlord's adjoining property, if any. EFFECT OF TERMINATION OF LEASE 24. No termination of this Lease prior to the normal ending thereof, by lapse of time or otherwise, shall affect Landlord's right to collect rent for the period prior to termination thereof. -5- SUBORDINATION 25. At the option of Landlord, Tenant agrees that this Lease shall remain subject and subordinate to all present and future mortgages, deeds to secure debt or other security instruments (the "Security Deeds") affecting the Building or the Premises, and Tenant shall promptly execute and deliver to Landlord such certificate or certificates in writing as Landlord may request, showing the subordination of the Lease to such Security Deeds, and in default of Tenant so doing, Landlord shall be and is hereby authorized and empowered to execute such certificate in the name of and as the act and deed of Tenant, this authority being hereby declared to be coupled with an interest and to be irrevocable. Tenant shall upon request from Landlord at any time and from time to time execute, acknowledge and deliver to Landlord a written statement certifying as follows: (A) that this Lease is unmodified and in full force and effect (or if there has been modification thereof, that the same is in full force and effect as modified and stating the nature thereof); (B) that to the best of its knowledge there are no uncured defaults on the part of Landlord (or if any such default exists, the specific nature and extent thereof); (C) the date to which any rent and other charges have been paid in advance, if any; and (D) such other matters as Landlord may reasonably request. Tenant irrevocably appoints Landlord as its attorney-in-fact, coupled with an interest, to execute and deliver, for and in the name of Tenant, any document or instrument provided for in this paragraph. QUIET ENJOYMENT 26. So long as Tenant observes and performs the covenants and agreements contained herein, it shall at all times during the Lease term peacefully and quietly have and enjoy possession of the Premises, but always subject to the terms hereof. NO ESTATE IN LAND 27. This Lease shall create the relationship of Landlord and Tenant between the parties hereto. No estate shall pass out of Landlord. Tenant has only a usufruct not subject to levy and sale, and not assignable by Tenant except by Landlord's consent. HOLDING OVER 28. If Tenant remains in possession of the Premises after expiration of the term hereof, with Landlord's acquiescence and without any express agreement of the parties, Tenant shall be a tenant at will at the rental rate which is in effect at end of this Lease and there shall be no renewal of this Lease by operation of law. If Tenant remains in possession of the Premises after expiration of the term hereof without Landlord's acquiescence, Tenant shall be a tenant at sufferance and commencing on the date following the date of such expiration, the monthly rental payable under Paragraph 3 above shall for each month, or fraction thereof during which Tenant so remains in possession of the Premises, be twice the monthly rental otherwise payable under Paragraph 3 above. ATTORNEY'S FEES 29. In the event that any action or proceeding is brought to enforce any term, covenant or condition of this Lease on the part of Landlord or Tenant, the prevailing party in such litigation shall be entitled to recover reasonable attorney's fees to be fixed by the court in such action or proceeding, in an amount at least equal to fifteen percent of any damages due from the non- prevailing party. Furthermore, Landlord and Tenant agree to pay the attorney's fees and expenses of (A) the other party to this Lease (either Landlord or Tenant) if it is made a party to litigation because of its being a party to this Lease and when it has not engaged in any wrongful conduct itself, and (B) Broker if Broker is made a party to litigation because of its being a party to this Lease and when Broker has not engaged in any wrongful conduct itself. RIGHTS CUMULATIVE 30. All rights, powers and privileges conferred hereunder upon parties hereto shall be cumulative and not restrictive of those given by law. -6- WAIVER OF RIGHTS 31. No failure of Landlord to exercise any power given Landlord hereunder or to insist upon strict compliances by Tenant of its obligations hereunder and no custom or practice of the parties at variance with the terms hereof shall constitute a waiver of Landlord's right to demand exact compliance with the terms hereof. AGENCY DISCLOSURE 32. Landlord and Tenant hereby acknowledge that Broker has acted as an agent for both parties in this transaction and will be paid a real estate commission by Landlord. BROKER'S COMMISSION 33. Broker has rendered valuable service by assisting in the creation of the landlord-tenant relationship hereunder. The commission to be paid in conjunction with the creation of the relationship by this Lease has been negotiated between Landlord and Broker and Landlord hereby agrees to pay Broker as compensation for Broker's services in procuring this Lease and creating the aforesaid landlord-tenant relationship pursuant to a separate commission agreement. LIMITATION OF BROKER'S SERVICES AND DISCLAIMER 34. Broker is a party to this Lease for the purpose of enforcing its rights under Paragraph 33 above. Tenant must look solely to Landlord in regards to all covenants, agreements and warranties herein contained, and Broker shall never be liable to Tenant in regard to any matter which may be by virtue of this Lease. It is understood and agreed that the commissions payable to Broker under Paragraph 33 above are compensation solely for Broker's services in assisting in the creation of the landlord-tenant relationship hereunder; accordingly, Broker is not obligated hereunder on account of payment of such commissions to furnish any management services for the Premises. Landlord and Tenant acknowledge that the Greater Atlanta Commercial Board of REALTORS, Inc. has furnished this Commercial Lease Agreement form to its members as a service and that it makes no representation or warranty as to the enforceability of this Commercial Lease Agreement form. PURCHASE OF PROPERTY BY TENANT 35. In the event that Tenant and/or its subsidiaries or affiliates acquires title to the Premises or any part thereof, or any premises as an expansion of, addition to or substitution for the Premises at any time during the term of this Lease, or any renewals thereof, or within six (6) months after the expiration of the term hereof or the extended term hereof, Landlord shall pay Broker a commission on the sale of the Premises in lieu of any further commission which otherwise would have been due under this Lease. Such commission, as negotiated between the parties, shall be two (2) percent (2%) of the gross sales price, payable in full at closing. ENVIRONMENTAL LAWS 36. Landlord represents to the best of its knowledge and belief, (A) the Premises are in compliance with all applicable environmental laws, and (B) there are not excessive levels (as defined by the Environmental Protection Agency) of radon, toxic waste or hazardous substances on the Premises. Tenant represents and warrants that Tenant shall comply with all applicable environmental laws and that Tenant shall not permit any of his employees, brokers, contractors or subcontractors, or any person present on the Premises to generate, manufacture, store, dispose or release on, about or under the Premises any toxic waste or hazardous substances which would result in the Premises not complying with any applicable environmental laws. Tenant agrees to provide Landlord a list of hazardous substances used by Tenants to conduct its business. Tenant agrees to notify Landlord of changes to such list in the future conduct of business. The hazardous substances list is made part of this agreement and is shown as Attachment ( ). TIME OF ESSENCE 37. Time is of the essence of this Lease. -7- DEFINITIONS 38. "Landlord" as used in this Lease shall include the undersigned, its heirs, representatives, assigns and successors in title to the Premises, "Tenant" shall include the undersigned and its heirs, representatives, assigns and successors, and if this Lease shall be validly assigned or sublet, it shall include also Tenant's assignees or subtenants as to the Premises covered by such assignment or sublease. "Broker" shall include the undersigned, its successors, assigns, heirs and representatives. "Landlord", "Tenant" and "Broker" include male and female, singular and plural, corporation, partnership or individual, as may fit the particular parties. NOTICES 39. All notices required or permitted under this Lease shall be in writing and shall be personally delivered or sent by U.S. Certified Mail, return receipt requested, postage prepaid. Broker shall be copied with all required or permitted notices. Notices to Tenant shall be delivered or sent to the address shown below, except that upon Tenant's taking possession of the Premises, then the Premises shall be Tenant's address for notice purposes. Notices to Landlord and Broker shall be delivered or sent to the addresses hereinafter stated, to wit: Landlord:DCA Attention: Bill Pritts - 1000 Alderman Dr. - Alpharetta, GA 30202 Tenant: Softsense Computer Products, Inc. - Attn: Legal Services Division 1155 Hammond Drive, Suite E-S200, Atlanta, GA 30328 Broker:Bryant & Associates - 3350 Peachtree Road, Suite 1250, Atlanta, GA 30326 All notices shall be effective upon delivery. Any party may change his notice address upon written notice to the other parties. ENTIRE AGREEMENT 40. This Lease contains the entire agreement of the parties hereto, and no representations, inducements, promises or agreements, oral or otherwise, between the parties, not embodied herein, shall be of any force or effect. No subsequent alteration, amendment, change or addition to this Lease, except as to changes or additions to the Rules and Regulations described in paragraph 7, shall be binding upon Landlord or Tenant unless reduced to writing and signed by Landlord and Tenant. SPECIAL STIPULATIONS 41. Any special stipulations are set forth in the attached Exhibit A. Insofar as said Special Stipulations conflict with any of the foregoing provisions, said Special Stipulations shall control. Tenant acknowledges that Tenant has read and understands the terms of this Lease and has received a copy of it. IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals, in triplicate. LANDLORD: /s/ W.E. Putta (SEAL) ----------------------------------------- _________________________________________(SEAL) Date and time executed by Landlord: 12/19/94 ------------- -8- TENANT: /s/ Thomas J. Barrella (SEAL) ------------------------------------------ __________________________________________(SEAL) Date and time executed by Tenant: 12/19/94 -------------- BROKER: /s/ Jeff Pugh (SEAL) ------------------------------------------ __________________________________________(SEAL) Date and time executed by Broker: 12/19/94 -------------- -9- EXHIBIT A SPECIAL STIPULATIONS 1. TENANT'S AND LANDLORD'S RIGHT OF EARLY TERMINATION. Either Landlord -------------------------------------------------- or Tenant reserves the right to terminate this lease upon the following terms and conditions: (a) If Tenant is unable to secure expansion space of at least 25,000 SF in the second or third anniversary then Tenant, at its option, may elect to cancel this lease by written notice with no further liability or penalty to Tenant; (b) Should Tenant, by written notice to Landlord, elect to cancel this Lease at the end of the second anniversary of this Lease. Upon cancellation of the Lease, Tenant will reimburse Landlord for all remaining unamortized leasehold allowances as provided by Landlord one (1) month's security deposit, plus any outstanding commissions due to broker based upon the cancelable portion of the Lease; (c) Should Landlord elect to recapture Tenant's lease space, by written notice, Tenant shall have no further liability to Landlord. All written notices of Lease cancellation or expansion options shall be no less than nine (9) months prior to date of cancellation, delivery by certified mail with return receipt requested. 2. RIGHT OF REFUSAL ON EXPANSION SPACE. So long as there is no event of ----------------------------------- default or event or condition which, with giving of notice, the passage of time, or both, could mature into an event of default on the part of Tenant under this Lease, Landlord agrees that Tenant shall have the first right to lease additional space to allow the Tenant to consolidate its operations on one contiguous floor on terms and conditions mutually acceptable to Tenant and Landlord. Landlord and Tenant will make its best efforts to satisfy all of the lease terms and conditions. 3. TENANT IMPROVEMENT ALLOWANCE. Landlord and Tenant agree that ---------------------------- Landlord's architect shall complete the design of the proposed office floor plans. The cost of preparing the drawings, specifications, finish schedules and the like will be part of the Tenant Costs outlined below. Landlord agrees to deliver to Tenant, as soon as is reasonably possible, the proposed final working drawings, specifications, and finish schedules for the Tenant Improvements, and Tenant shall have the right to approve or disapprove such drawings and make changes as required by Tenant. Once Tenant notifies Landlord that the drawings and specifications are acceptable, then Landlord will proceed to obtain a price schedule for the completion of the Tenant Improvements. Landlord and Tenant agree that Landlord's contractor shall construct the Tenant Improvements. Upon Landlord's receipt of acceptance drawings and specifications, Landlord shall obtain from Landlord's contractor a detailed price schedule for the Tenant Improvements, and will submit the same to Tenant for its approval. If Tenant disapproves such price schedule, Tenant agrees to work promptly with Landlord's architect to alter the drawings and specifications as necessary to cause the price schedule to be acceptable to Tenant. The aggregate cost for the Tenant Improvements, once approved by Tenant, shall be referred to as the "Tenant Improvement Costs." Landlord shall pay the Tenant Improvements Costs equal to the amount of $100,000. Tenant Costs shall include the Tenant Improvement Cost; the cost of preparing and finalizing all drawings, specifications, finish schedules and the like; fees for architects, engineers and interior designers incurred by Landlord in connection with the Tenant Improvement; the cost of making any and all changes in and to the drawings and specifications and any increase or decrease cost in the Tenant Improvement Cost resulting therefrom through the term of this Lease. In the event that the Tenant Costs exceed $100,000, then such excess cost shall be the responsibility of Tenant. Tenant shall pay to Landlord's contractor any such amount in excess of $100,000 pursuant to the terms mutually agreed upon by Tenant and Landlord's contractor. 4. OCCUPANCY. Provided the Lease space is suitable of occupancy, Tenant --------- shall have the right to occupy the space on January 15, 1995. 5. ADDITIONAL RENT. Commencing with the second year of the Lease, Tenant --------------- will pay as additional rent to Landlord the lesser of (a) one-half ( 1/2) of the preceding calendar year's increase in Consumer Price Index (CPI); or (b) two and one-half percent (2.5%) of the net annual rent. For the purposes of this lease escalation, both Tenant and Landlord agree that the net annual rent is $6.00 per square foot. 6. EVIDENCE OF INSURANCE. By the Beginning Date and upon each renewal of --------------------- its insurance policies, Tenant shall give certificates of insurance to Landlord. If Tenant fails to give the required certificate within thirty (30) days after notice of demand for it, the Landlord may obtain and pay for that insurance and receive reimbursement from the Tenant. 7. (A) TERMINATION BY LANDLORD. Landlord may terminate this Lease at any ----------------------- time without penalty by giving nine (9) months advance written notice to Tenant. This Lease shall end on the date specified in the termination notice, which date shall be at least nine (9) months after the date notice is given. In the event that the Premises is partially damaged, but not wholly destroyed, by any casualty and the Landlord determines, in its sole judgement, that restoration of the Premises is impractical, Landlord may terminate this Lease as of the date of the damage. (B) RENT ADJUSTMENT. If the Lease is canceled as provided above, then the --------------- Rent, Additional Rent, and other charges shall be payable up to the cancellation date. Landlord shall promptly refund to Tenant any prepaid, unaccrued Rent, Additional Rent plus Security Deposit, if any, less any sum then owing by Tenant to Landlord. 8. CONDEMNATION AWARDS AND DAMAGES. Landlord reserves all rights to ------------------------------- damages paid because of any partial or entire taking of the Premises. Tenant assigns to Landlord any right Tenant may have to the damages or award. Further, Tenant shall not make claims against Landlord or the condemning authority for damages. Broker shall have no rights under any condemnation proceeding. Notwithstanding anything else in Paragraph 8, Tenant may claim and recover from the condemning authority a separate award for Tenant's moving expenses, business dislocation damages, Tenant's personal property and fixtures, the unamortized costs of leasehold improvements paid for by Tenant, excluding the Landlord's Buildout described in this Lease, and any other award that would not substantially reduce the award payable to Landlord. Each party shall seek its own award, as limited by this Paragraph 8, at its own expense, and neither shall have the right to the award made to the other. 9. COMPLIANCE WITH LAWS. Tenant shall comply with all Applicable Laws: -------------------- (i) regarding the physical condition of the Premises, but only to the extent the Applicable Laws pertain to the particular manner in which Tenant uses the Premises; or (ii) that do not relate to the physical condition of the Premises but relate to the lawful use of the Premises and with which only the occupant can comply, such as laws governing maximum occupancy, workplace smoking, and illegal business operations, such as gambling. 10. RIGHT TO ENTER. -------------- PERMITTED ENTRIES. Landlord and its agent, servants, and employees ----------------- may enter the Premises at reasonable times, and at any time if an emergency, without charge, liability, or abatement of Rent, to: (i) examine the Premises; (ii) make repairs, alterations, improvements, and additions either required by the Lease or advisable to preserve the integrity, safety, and good order of part or all of the Premises or Building; (iii) provide janitorial and other services required by the Lease; (iv) comply with Applicable Laws under Paragraph 10; (v) show the Premises to prospective lenders or purchasers and during the ninety (90) days immediately before this Lease ends to prospective Tenants, accompanied, if requested by Tenant, by a Tenant representative; (vi) post notices of nonresponsibility; and (vii) remove any Alterations made by Tenant in violation of Paragraph 14 of the Lease. 11. PARTIAL INVALIDITY. If any Lease provision is invalid or ------------------ unenforceable to any extent, then that provision and the remainder of this Lease shall continue in effect and be enforceable to the fullest permitted by law. 12. GOVERNING LAW. This Lease shall be governed by the laws of the state ------------- in which the Building is located. A-2 13. LEASE NOT AN OFFER. Landlord gave this Lease to Tenant for review. It ------------------ is not an offer to lease. This Lease shall not be binding unless signed by both parties and an originally signed counterpart is delivered to Tenant by December 31, 1994. 14. RECORDING. Recording of this Lease is prohibited except as allowed in --------- this paragraph. Landlord may execute and record, at the cost of the Landlord, a short form memorandum describing the Premises and stating this Lease's Term, its Beginning and Ending Dates, and other information the Landlord may include. 15. HOLDOVER. -------- (A) HOLDOVER STATUS. If Tenant continues occupying the Premises --------------- after the Term ends (Holdover) then: (i) If the Holdover is with Landlord's written consent, it shall be a month-to-month tenancy, terminable on thirty (30) days advance notice by either party. Tenant shall pay at the beginning of each month Rent and Additional Rent that is five (5) percent higher than the amount due in the last full month immediately preceding the Holdover period unless Landlord specifies a lower or higher Rent and Additional Rent in the written consent; (ii) If the Holdover is without Landlord's written consent, then Tenant shall be a tenant-at-sufferance. Tenant shall pay by the first day of each month twice the amount of Rent and Additional Rent due in the last full month immediately preceding the Holdover period and shall be liable for any damages suffered by Landlord because of Tenant's Holdover. Landlord shall retain its remedies against Tenant who holds over without written consent. (B) HOLDOVER TERMS. The Holdovers in Paragraph 10.4(a) shall be on -------------- the same terms and conditions of the Lease except: (i) the Term; (ii) Rent and Additional Rent; (iii) the Quiet Possession provision is deleted; (iv) Landlord's obligation for services and repairs is deleted; (v) the Holdover provision is deleted; and (vi) the Tenant Improvement provision is deleted. 16. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease or any ------------------------- interest hereunder, or sublet the Premises or any part thereof, or permit the use of the Premises by any other party other than the Tenant. 17. MORTGAGES APPROVAL REQUIRED. This Lease shall be subject to and --------------------------- contingent upon Landlord's receiving the approval of all of the terms and conditions contained herein by NationsBank, N.A. Landlord agrees to use its reasonable efforts to secure such approval. If such approval cannot be obtained, Landlord shall notify Tenant, Landlord shall return to Tenant the first month's rent and security deposit delivered to Landlord pursuant to Paragraph 3 and 5 of the Lease, and this Lease shall terminate and all rights, obligations and liabilities of the parties hereunder shall be released and discharged. A-3 EX-10.9 14 OFFICE LEASE EXHIBIT 10.9 ------------ OFFICE LEASE - ---------------------------------------------------------------------- OFFICE LEASE BETWEEN ATTACHMATE CORPORATION ----------------------------------------------------------------- LANDLORD AND SOFTSENSE COMPUTER PRODUCTS, INC. ----------------------------------------------------------------- TENANT PREMISES 18,047 +/- Usable Sq. Ft. 1000 Alderman Drive Alpharetta, GA 30202 SECTION -- BASIC LEASE PROVISIONS 1.01. Date and parties. This lease (Lease) is made June 30, 1995, between ATTACHMATE CORPORATION (Landlord) and SOFTSENSE COMPUTER PRODUCTS, INC. (Tenant). Landlord is a corporation, organized under the laws of Washington, with principal offices at 3617 131st Avenue SE, Bellevue, WA 98006 and a business office at 1000 Alderman Drive, Alpharetta, GA 30202. Tenant is a corporation organized under the laws of New York, with offices at 1000 Alderman Drive, Alpharetta, GA 30202. 1.02. Premises. Landlord leases to Tenant certain office space (Premises) as shown cross-hatched on the attached floor plans (Exhibit A) that contains 18,047 +/- total usable square feet in the building known as 1000 Alderman Drive, Alpharetta, GA (Building). The Premises contain the fixtures and any improvements now installed plus any improvements required by paragraph 1.05, but excluding any artwork, furniture and equipment now installed. Tenant and its agents, employees, and invitees have the non-exclusive right with others designated by Landlord to the free use of the common areas in the Building for the common areas' intended and normal purpose. Common areas include elevators, sidewalks, parking areas, driveways, hallways, stairways, public bathrooms, common entrances, lobby, cafeteria, and other similar public areas and access ways. Landlord may change the common areas if the changes do not materially and unreasonably interfere with Tenant's access to the Premises or use of them. 1.03. Use. Tenant shall use the Premises as a general office for the development and sale of computer systems only, unless Landlord gives its advance written consent to another use and the applicable laws, ordinances, regulations, or restrictive covenants do not permit the Premises to be used by Tenant for such general offices. Tenant shall not create a nuisance or use the Premises for any immoral or illegal purposes. Tenant agrees to perform and abide by the then- current Rules and Regulations, a copy of which are attached hereto and hereby made a part of this Lease, as promulgated by the Landlord and as reasonably amended from time to time by the Landlord. Tenant also agrees to perform and abide by such rules and regulations as may be issued from time to time by Windward Business Center. 1.04. Term. 1.04(a). Term. The Lease Term begins September 1, 1995 or the date the Premises are substantially completed, whichever is later (Commencement Date). Tenant may take possession and occupy the Premises after the Premises are substantially completed according to paragraph 1.04(c) and Landlord delivers actual possession of the Premises. All of the terms and conditions shall apply to Tenant when Tenant takes possession of the Premises, however, Rent shall not commence until the Commencement Date. The Lease ends (Ending Date) 60 months from the Commencement Date, unless ended earlier under this Lease. 1.04(b). Holdover Status. If Tenant continues occupying the Premises after the Term ends (Holdover), then all terms and conditions of this Lease shall continue to apply except that: (i) if the Holdover is with Landlord's written consent, it shall be a month-to-month tenancy, terminable on thirty (30) days advance notice by either party and Tenant shall pay to Landlord at the beginning of each month Rent and Additional Rent that is five (5) percent higher than the amount due in the last full month immediately preceding the Holdover period unless Landlord specifies a lower or higher Rent and Additional Rent in the written consent; or (ii) if the Holdover is without Landlord's written consent, then (A) Tenant (1) shall be a tenant- at-sufferance; (2) shall pay to Landlord by the first day of each month twice the amount of Rent and Additional Rent due in the last full month immediately preceding the Holdover period; and (3) shall be liable for any damages suffered by Landlord because of Tenant's Holdover and (B) Landlord shall retain its remedies against Tenant who holds over without written consent. -1- 1.04(c). Substantial completion. Landlord shall use its best efforts to substantially complete the Premises by September 1, 1995. Substantially complete means: (i) completing Tenant's Improvements (paragraph 1.05) so that (A) Tenant can use the Premises for their intended purposes without material interference to Tenant conducting its ordinary business activities and (B) the only incomplete items are minor or insubstantial details of construction, mechanical adjustments, or finishing touches like touch-up plastering or painting; (ii) Tenant, its employees, agents, and invitees, have ready access to the Building and Premises through the lobby, entranceways, elevators, and hallways; (iii) the decoration, fixtures, and equipment to be installed by Landlord are installed and in good operating order; and (iv) the Premises are ready for the installation of any equipment, furniture, fixtures, or decoration by Tenant that Tenant will install. 1.04(d). Inspection and Punchlist. Before the Commencement Date, the parties shall inspect the Premises and prepare a punchlist. The punchlist shall list incomplete, minor, or insubstantial details of construction; necessary mechanical adjustments; and needed finishing touches. Landlord will complete the punchlist items within thirty (30) days after the Commencement Date. 1.05. Improvements. Landlord will provide at its expense a Tenant Improvement Allowance of $5.00 per rentable square foot, within which Landlord shall make improvements to the Premises in accord with Exhibit B (Improvements). The Improvements shall be completed in a good and workmanlike manner and comply with all applicable laws, ordinances, rules, and regulations of governmental authorities. 1.06. Parking and Use. The Tenant shall have the right to use the parking spaces serving the building of which the Premises is a part on a non-exclusive basis, in common with the other tenants thereof, and to use the access driveways and allocated parking spaces for its business purposes and those of its agents, employees or invitees. The Landlord reserves the right to allocate designated parking spaces if Landlord chooses, provided that Landlord assigns no fewer than 8.72% of the available parking spaces to Tenant. The Landlord and Tenant mutually agree that they will not block, hinder or otherwise obstruct the access driveways and parking areas so as to impede the free flow of vehicular traffic in and out of the Premises. The tenant may not utilize any portion of the land outside of the Premises for any use, including but not limited to outside storage of raw materials or finished products. Tenant shall place no signs upon the outside land, walls or roof of the Premises except with the express, prior written consent of the Landlord. Any and all signs placed of the Premises by the Tenant, subject to the Landlord's permission as described above, shall be maintained in compliance with governmental rules and regulations governing signs, as well as the Landlord's then-current Rules and Regulations and the Windward Business Center rules and regulations, and Tenant shall be responsible to Landlord for any damage caused by installation, use or maintenance of said signs, and all damage incident to such removal. SECTION 2 -- RENT AND SECURITY 2.01. Rent. Tenant shall pay to Landlord a fee of $ 1,398,642.00 for the Term as rent (Rent), payable in monthly installments of $23,310.70. Commencing with the payment due on the thirteenth (13th) month of the Lease, Tenant will pay as additional monthly rent (Additional Rent) to Landlord the sum of the following fees: (i) the amount by which all taxes, including but not limited to ad valorem taxes, special assessments and any other governmental charges, on the Premises, or on the pro rata portion of the entire property that can be allocated to the Premises, which at time of execution of this Lease is 8.72%, for each tax year of the Term exceed taxes on the Premises for the tax year 1995; (ii) its pro rata share of the excess cost of fire and extended coverage insurance, including any and all public liability insurance on the Building over the cost for the first year of the Term -2- for each subsequent of the term, although it will be Landlord's responsibility to carry a comtomary level of fire and extended coverage insurance; and (ii) the lesser of (a) one-half (1/2) of the preceding calendar year's increase in the Consumer Price Index (CPI); or (b) two and one- half percent (2.5%) of the net annual rent. For purposes of the preceding sentence, the parties agree that the net annual rent is based on $15.50 per square foot. The Rent and Additional Rent shall be paid: (i) without advance notice, demand, offset, or deduction; (ii) by the first day of each month during the Term; and (iii) to Landlord at 3617 131st Avenue SE, Bellevue, Washington 98006, or as Landlord may specify in writing to Tenant. If the Term does not begin on the first day or end on the last day of a month, the Rent or Additional Rent for that partial month shall be prorated by multiplying the monthly Rent or Additional Rent by a fraction, the numerator of which is the number of days of the partial month included in the Term and the denominator of which is the total number of days in the full calendar month. If Tenant fails to pay part or all of the Rent or Additional Rent (paragraph 2.02(e)) within ten (10) days after it is due, the Tenant shall also pay: (i) a late charge equal to 3 percent of the unpaid Rent and Additional Rent, plus (ii) interest at 12 percent per annum or the maximum then allowed by applicable law, whichever is less, on the remaining unpaid balance, retroactive to the date originally due until paid, but the interest accumulation shall stop after thirty (30) days unless Landlord gives Tenant notice within 30 days of the date payment was due of Tenant's failure to pay Rent or Additional Rent. 2.02. Personal Property Tax. Before delinquency, Tenant shall pay taxes assessed during the Term against trade fixtures or personal property placed by Tenant in or on the Premises. If these taxes are assessed against the Building, Tenant shall pay its share of the taxes to Landlord within ten (10) days after receiving Landlord's written statement setting forth the amount of taxes applicable to Tenant's property and the basis for the charge to Tenant. Tenant's failure to pay within the ten-day period shall entitle Landlord to the same remedies it has upon Tenant's failure to pay Rent or Additional Rent. 2.03. Security Deposit. Upon execution of this Lease, the Tenant shall deposit $23,310.70 (Security Deposit) with Landlord to secure Tenant's performance of its Lease obligations. If Tenant defaults Landlord may, after giving five (5) days advance notice to Tenant, without prejudice to Landlord's other remedies, apply part or all of the Security Deposit to cure Tenant's default. If Landlord so uses part or all of the Security Deposit, then Tenant shall within ten (10) days after written demand, pay Landlord the amount used to restore the Security Deposit to its original amount. Landlord may mix the Security Deposit with its own funds and is without liability to Tenant for any interest on the Security Deposit. Any part of the Security Deposit not used by Landlord as permitted by this paragraph shall be returned to Tenant within thirty (30) days after the Lease ends. If Landlord sells, transfers, conveys or assigns the Building, then Landlord shall be relieved of any liability or obligation for the Security Deposit, except with regard to Landlord's transfer obligation of the Security Deposit under paragraph 5.03(a). SECTION 3 -- AFFIRMATIVE OBLIGATIONS 3.01. Compliance with Laws. Tenant shall comply with all applicable laws, ordinances, rules, and regulations of governmental authorities (Applicable Laws) (i) regarding the physical condition of the Premises, but only to the extent the Applicable Laws pertain to the particular manner in which Tenant uses the Premises; or (ii) that do not relate to the -3- physical condition of the Premises but relate to the lawful use of the Premises and with which only the occupant can comply, such as laws governing maximum occupancy, workplace smoking, and illegal business operations, such as gambling. 3.02. Services and Utilities. 3.02.(a). Services. Landlord shall provide at its expense: (i) heating, ventilation, and air conditioning (HVAC) for the Premises to maintain temperatures for comfortable use and occupancy and will cooperate with Tenant to insure comfortable working conditions in those areas where Tenant personnel will be working 24 hours per day, seven days per week; (ii) hot and cold water sufficient for drinking, lavatory, toilet, and ordinary cleaning purposes to be drawn from approved fixtures in the Premises; (iii) electricity, except as provided in paragraph 3.02(c), to the Premises that provides electric current in reasonable amounts necessary for normal office use, lighting, and HVAC; (iv) maintenance of common areas which shall include cleaning, HVAC, illumination, lawn care, and landscaping; and (v) security for the building common areas provided that (A) Tenant utilizes Landlord's then current security system; (B) the security available in no way replaces, but only supplements, Tenants own security; and (C) Landlord is not responsible, nor will be held responsible by Tenant, its agents, employees or invitees, for security of any kind, including but not limited to security from any criminal acts such as arson, theft, sabotage, looting, vandalism, destruction of property, riot, assault, battery, murder or any other act of like violence, to the Premises or for the protection of Tenant, its agents, employees or invitees. 3.02.(b). 24 Hour Access. Tenant, and its employees, shall have access to the Premises twenty-four (24) hours a day, seven (7) days a week. Landlord may restrict access by requiring persons to show a badge or identification card issued by Landlord. Landlord shall not be liable for denying entry to any person unable to show the proper identification. Landlord may temporarily close the Building if required because of a life-threatening or Building- threatening situation. Landlord shall use its best efforts to close the Building during nonbusiness hours only. If, however, the Building must be closed during business hours, then the Rent and Additional Rent shall abate during any closing that lasts more than eight (8) hours. 3.02.(c). Extra Services. Tenant is responsible for paying for all additional services that it receives, including but not limited to office cleaning or other sanitary services. Whenever Tenant is using excess services because of high electricity consumption installations, Landlord will directly charge Tenant for the extra use. Landlord may require that special, high electricity consumption installations of Tenant such as computer or reproduction facilities (except personal computers or normal office photocopy machines) be separately sub-metered for electrical consumption at Tenant's cost. Tenant's charges for the utilities provided above shall be Landlord's actual cost of labor and utilities. Tenant's failure to pay the charges above within thirty (30) days of receiving a proper and correct invoice shall entitle Landlord to the same remedies it has upon Tenant's failure to pay Rent or Additional Rent. -4- 3.02.(d). Interruption of Services. (i) Interruptions. Landlord does not warrant that any services Landlord supplies will not be interrupted. Services may be interrupted because of accidents, repairs, alterations, improvements, or any reason beyond the reasonable control of Landlord. Except as noted in (ii) below, any interruption (except for those caused by willful misconduct or gross negligence by Landlord) shall not: (A) be considered an eviction or disturbance of Tenant's use and possession of the Premises; (B) make Landlord liable to Tenant for damages; (C) abate Rent or Additional Rent; or (D) relieve Tenant from performing Tenant's Lease obligations. (ii) Remedy. If any essential services (such as HVAC, electricity, water) supplied by Landlord are interrupted, and the interruption does not result from the negligence or willful misconduct of Tenant, its employees, invitees, or agents, Tenant shall be entitled to an abatement of Rent and Additional Rent. The abatement shall begin on the fifth consecutive business day of the interruption. The abatement shall end when the services are restored. If any interruption under (i) above prohibits Tenant from occupying space for more than 30 consecutive days, Tenant may cancel the lease without further liability. 3.03. Repairs and Maintenance. 3.03(a). Tenant's Care of Premises. Tenant shall: (i) keep the Premises and fixtures in good order; (ii) make or request Landlord to make at Tenant's expense repairs and replacements to the Premises or Building needed because of Tenant's misuse or primary negligence; (iii) repair and replace special equipment or decorative treatments installed by or at Tenant's request and that serve the Premises only; and (iv) not commit waste. 3.03(b). Surrendering the Premises. Upon the Ending Date or the date of the last extension Term, if any, ends, whichever is later or upon earlier termination of this Lease, Tenant shall surrender the Premises to Landlord in the same broom clean condition as they existed on the Commencement Date, except for ordinary wear and tear or loss due to casualty or condemnation. On surrender, Tenant shall remove from the Premises its personal property, trade fixtures, and any alterations required to be removed under paragraph 4.01 and repair any damage to the Premises caused by the removal. Any items not removed by Tenant as required above shall be considered abandoned. Landlord may dispose of abandoned items as Landlord chooses and bill Tenant for the cost of their disposal, minus any revenues received by Landlord for their disposal. SECTION 4 -- NEGATIVE OBLIGATIONS 4.01 Alterations. 4.01(a). Definitions. "Alterations" means alterations, additions, substitutions, installations, changes, and improvements, but excludes minor decorations and the Improvements Landlord is to make under paragraph 1.05 and Exhibit B. -5- 4.01(b). Consent. Tenant shall not make Alterations without the Landlord's prior written consent. Any alterations made by Tenant under this paragraph shall be at Tenant's expense and will be accomplished in a good and workmanlike manner and in conformity with all applicable laws, regulations and ordinances. The Alterations shall belong to Landlord when this Lease ends. Nevertheless, Tenant may remove its trade fixtures, furniture, equipment, and other personal property if Tenant promptly repairs any damage caused by their removal. 4.02. Assignment and Subleasing. Tenant shall not transfer, mortgage, encumber, assign, permit the use of or sublease all or part of the Premises without the express written consent of Landlord. For the purposes of this Lease, a substantial change in control of the business decision making authority or voting rights of the Tenant shall constitute a transfer, along within all other reasonable constructions of the word transfer, and Landlord agrees to not unreasonably withhold its consent in the event that a control of business transfer as defined above occurs. SECTION 5 -- INSURANCE 5.01 Insurance. 5.01(a). Property Insurance. Tenant shall keep its personal property and trade fixtures in the Premises insured with "all risks" insurance in an amount to cover one hundred (100) percent of the replacement cost of the property and fixtures. Tenant shall also keep any non-Building standard improvements made to the premises at Tenant's request insured to the same degree as Tenant's personal property. 5.01(b). Liability Insurance. Tenant shall maintain contractual and comprehensive general liability insurance, including public liability and property damage, with a minimum combined single limit of liability of one million dollars ($1,000,000.00) for personal injuries or deaths of persons occurring in or about the Building and Premises. 5.01(c). Wavier of Subrogation. Tenant waives claims arising in any manner in its favor and against the Landlord for loss or damage to Tenant's property located within the Building. 5.01(d). Insurance Criteria. Insurance policies required by this Lease shall: (i) be issued by insurance companies licensed to do business in the state of Georgia with general policyholder's ratings of at least "A" and a financial rating of at least "XI" in the most current Best's Insurance Reports available as of the date in paragraph 1.01, and if the Best's ratings are changed or discontinued, the parties shall agree to an equivalent method of rating insurance companies or in the event that the parties cannot agree, they shall submit the dispute to arbitration under paragraph 10.01; (ii) name the Landlord party as an additional insured as its interest may appear; (iii) provide that the insurance may not be canceled or materially changed in the scope or amount of coverage unless fifteen (15) days' advance notice is given to the Landlord; (iv) be primary policies--not as contributing with, or in excess of, the coverage that the Landlord may carry; (v) be permitted to be carried through a "blanket policy" or "umbrella" coverage; and (vi) be maintained during the entire Term and any extension Terms. 5.01(e). Evidence of Insurance. By the Commencement Date, and upon each renewal of its insurance policies, Tenant shall give certificates of insurance to the Landlord. The certificate shall specify amounts, types of coverage, the waiver of subrogation, and the insurance criteria listed in paragraph 5.0l(d). The policies shall be renewed or replaced and maintained by the Tenant. If Tenant fails to give the required certificate within thirty (30) days after notice of demand for it, the Landlord may obtain and pay for that insurance and receive reimbursement from the Tenant. -6- 5.02. Tenant's Indemnity. Tenant indemnifies, defends, and holds Landlord harmless from claims: (i) for personal injury, death, or property damage; (ii) for incidents occurring in or about the Premises or Building; and (iii) caused by the negligence or willful misconduct of Tenant, its agents, employees, or invitees. The above indemnity obligations include, but are not limited to, the Tenant's obligation to indemnify and hold the Landlord harmless against any claim, damage, liability, cost, penalty or fine which the Landlord may suffer as a result of air, water or ground pollution caused by the Tenant in its use of the Premises. When a claim, if any, is caused by the joint negligence or willful misconduct of Tenant and Landlord or Tenant and a third party unrelated to Tenant, except Tenant's agents, employees, or invitees, Tenant's duty to defend, indemnify, and hold Landlord harmless shall be in proportion to Tenant's allocable share of the joint negligence or willful misconduct. 5.03. Limitation of Landlord's Liability. 5.03.(a). Transfer of Premises. Landlord may transfer, assign and/or convey any part of or interest in the Building where the Premises are located, or any of Landlord's rights under this Lease. If Landlord assigns its interest in such building or its rights under this Lease, Landlord shall be released from any further obligations under this Lease; Landlord shall transfer the Tenant's Security Deposit to the new owner or new landlord, provided that the Landlord is not required to lay claim against the Security Deposit because of damage to the Premises by Tenant; and Tenant shall look sold to Landlord's successor in interest for performance of said obligations. 5.03.(b). Liability for Money Judgment. If Landlord, its employees, officers, or partners are ordered to pay Tenant a money judgment because of Landlord's default, Tenant's sole remedy to satisfy the judgment shall be limited to: (i) Landlord's interest in the Building and Land including the rental income and proceeds from sale; and (ii) any insurance or condemnation proceeds received because of damage or condemnation to, or of, the Building or Land that are available for use by Landlord. SECTION 6 -- LOSS OF PREMISES 6.01. Damages. 6.01(a). Definition. "Relevant Space" means: (i) the Premises as defined in paragraph 1.02, excluding Tenant's non-Building-Standard fixtures; (ii) access to the Premises; and (iii) any part of the Building that provides essential services to the Premises. 6.01(b). Repair of Damage. If the Relevant Space is damaged in part or whole from any cause and the Relevant Space can be substantially repaired and restored within one hundred and twenty (120) days from the date of the damage using standard working methods and procedures, Landlord shall at its expense promptly and diligently repair and restore the Relevant Space to substantially the same condition as existed before the damage. This repair and restoration shall be made within one hundred -7- and twenty days (120) from the date of the damage unless the delay is due to causes beyond Landlord's reasonable control. If the Relevant Space cannot be repaired and restored within the one hundred and twenty (120) day period, then either party may, within ten (10) days after determining that the repairs and restoration cannot be made within one hundred and twenty (120) days (as prescribed in paragraph 6.01(c)), cancel the Lease by giving notice to the other party. Nevertheless, if the Relevant Space is not repaired and restored within one hundred and twenty (120) days from the date of the damage, then Tenant may cancel the Lease at any time after the one hundred and twentieth (120th) day and before the later of when the premises are restored or the one hundred and fiftieth (150th) day following the date of damage. Tenant shall not be able to cancel this Lease if its willful misconduct causes the damage unless Landlord is not promptly and diligently repairing and restoring the Relevant Space. 6.01(c). Determining the Extent of Damage. If the parties cannot agree in writing whether the repairs and restoration described in paragraph 6.01(b) will take more than one hundred and twenty (120) days to make, then the determination will be submitted to arbitration under paragraph 10.01. 6.01(d). Abatement. Unless the damage is caused by Tenant's willful misconduct, the Rent or Additional Rent shall abate in proportion to that part of the Premises that is unfit for use in Tenant's business. The abatement shall consider the nature and extent of interference to Tenant's ability to conduct business in the Premises and the need for access and essential services. The abatement shall continue from the date the damage occurred until the date that the Landlord completes the repairs and restoration to the Relevant Space or the part rendered unusable and notice to Tenant that the repairs and restoration are completed, or until Tenant again uses the Premises or the part rendered unusable, whichever is first. 6.01(e). Tenant's Property. Notwithstanding anything else in Section 6, Landlord is not obligated to repair or restore damage to Tenant's trade fixtures, furniture, equipment, or other personal property, or any Tenant improvements other than those listed in Exhibit B, except for damages caused by Landlord's willful misconduct or gross negligence and only to the extent not covered by Tenant's insurance. 6.01(f). Damage to Building. If: (A) more than forty (40) percent of the Building is damaged and the Landlord decides not to repair and restore the Building; (B) any mortgagee of the Building shall not allow adequate insurance proceeds for repair and restoration; (C) the damage is not covered by Landlord's insurance (which Landlord will use reasonable commercial efforts to maintain coverage comparable to what Landlord is currently carrying); or (D) the Lease is in the last twelve (12) months of its Term, then Landlord may cancel this Lease. To cancel, Landlord must give notice to Tenant within thirty (30) days after the Landlord knows of the damage. The notice must specify the cancellation date, which shall be at least thirty (30) but not more than sixty (60) days after the date notice is given. 6.01(g). Cancellation. If either party cancels this Lease as permitted by paragraph 6.01, then this Lease shall end on the day specified in the cancellation notice. The Rent, Additional Rent, and other charges shall be payable up to the cancellation date and shall account for any abatement. Landlord shall promptly refund to Tenant any prepaid, unaccrued Rent or Additional Rent, accounting for any abatement, plus security deposit, if any, less any sum then owing by Tenant to Landlord. -8- If Landlord cancels this lease as permitted by paragraph 6.01, then Landlord must also cancel all other similarly affected Tenant leases in the Building. 6.02 Condemnation. 6.02(a). Definitions. The terms "eminent domain," "condemnation," "taken," and the like in paragraph 6.02 include (A) taking for public or quasi-public use and (B) private purchases in place of condemnation by any authority authorized to exercise the power of eminent domain. 6.02(b). Entire Taking. If the entire Premises or the portions of the Building required for reasonable access to, or the reasonable use of, the Premises are taken by eminent domain, this Lease shall automatically end on the earlier of: (i) the date title vests; or (ii) the date Tenant is dispossessed by the condemning authority. 6.02(c). Partial Taking. If the taking of a part of the Premises materially interferes with Tenant's ability to continue its business operations in substantially the same manner and space then Tenant may end this Lease on the earlier of: (i) the date when title vest; (ii) the date Tenant is dispossessed by the condemning authority; or (iii) sixty (60) days following notice to Tenant of the date when vesting or dispossession is to occur. If there is a partial taking and this Lease continues, then the Lease shall end as to the part taken and the Rent and Additional Rent shall abate in proportion to the part of the Premises taken and Tenant's pro rata share shall be equitably reduced. 6.02(d). Termination by Landlord. If title to a part of the Building other than the Premises is condemned, and in the Landlord's reasonable opinion, the Building should be restored in a manner that materially alters the Premises, Landlord may cancel this Lease by giving notice to Tenant. Cancellation notice shall be given within sixty (60) days following the date title vested. This Lease shall end on the date specified in the cancellation notice, which date shall be at least thirty (30) days but not more than ninety (90) days after the date notice is given. 6.02(e). Rent Adjustment. If the Lease is canceled as provided in paragraphs 6.02(b), (c), or (d), then the Rent, Additional Rent and other charges shall be payable up to the cancellation date, and shall account for any abatement. Landlord, considering any abatement, shall promptly refund to Tenant any prepaid, unaccrued Rent plus Security Deposit, if any, less any sum then owing by Tenant to Landlord. 6.02(f). Repair. If the Lease is not canceled as provided for in paragraphs 6.02(b), (c), or (d), then Landlord at its expense shall promptly repair and restore the Premises to the condition that existed immediately before the taking, except for the part taken, to render the Premises a complete architectural unit, but only to the extent of the condemnation award received for the damage. 6.02(g). Awards and Damages Landlord reserves all rights to damages paid because of any partial or entire taking of the Premises. Tenant assigns to Landlord any right Tenant may have to the damages or award. Further, Tenant shall not make claims against Landlord or the condemning authority for damages. Notwithstanding anything else in Paragraph 6.02(g), Tenant may claim and recover from the condemning authority a separate award for Tenant's moving expenses, business dislocation damages, Tenant's personal property and fixtures, the unamortized costs of leasehold improvements paid for by Tenant, excluding the Landlord's Buildout described in paragraph 1.05 -9- and Exhibit B. Each party shall seek its own award, as limited by paragraph 6.02(g), at its own expense, and neither shall have any right to the award made to the other. 6.02(h). Temporary Condemnation. If part or all of the Premises are condemned for a limited period of time (Temporary Condemnation), this Lease shall remain in effect. The Rent or Additional Rent and Tenant's obligations for the part of the Premises taken shall abate during the Temporary Condemnation in proportion to the part of the Premises that Tenant is unable to use in its business operations as a result of the Temporary Condemnation. Landlord shall receive the entire award for any Temporary Condemnation. SECTION 7 -- DEFAULT 7.01. Tenant's Default. 7.01(a). Defaults. Each of the following, whether alone or together, constitutes a default (Default): (i) Tenant's failure to pay Rent or Additional Rent within seven (7) days after Tenant receives notice from Landlord of Tenant's failure to pay Rent or Additional Rent; (ii) Tenant's failure to pay Rent or Additional Rent by the due date, at any time during a calendar year in which Tenant has already received three notices of its failure to pay Rent or Additional Rent by the due date; (iii) Tenant's failure to perform or observe any other Tenant obligation after a period of thirty (30) business days or the additional time, if any, that is reasonably necessary to promptly and diligently cure the failure after receiving notice from Landlord setting forth in reasonable detail the nature and extent of the failure and identifying the applicable Lease provision(s); (iv) Tenant's abandoning or vacating the Premises if Tenant fails to timely pay the Rent or Additional Rent by the due date; and (v) Tenant's failure to vacate or stay any of the following within ninety (90) days after they occur: (A) petition in bankruptcy is filed by, or against, Tenant; (B) Tenant is adjudicated as bankrupt or insolvent; (C) a receiver, trustee, or liquidation is appointed for all or a substantial part of Tenant's property; or (D) Tenant makes an assignment for the benefit of creditors. 7.02. Landlord's Remedies 7.02(a). Remedies. Landlord, in addition to the remedies given in this Lease or under the law, may do any one or more of the following if Tenant commits a Default under paragraph 7.01: (i) end this Lease, and Tenant shall then surrender the Premises to Landlord; and (ii) with process of law enter and take possession of the Premises, alter locks and other security devices at the Premises and/or remove Tenant, with or without having ended the Lease. Tenant waives claims for damages by reason of Landlord's reentry, repossession, or alteration of locks or other security devices and for damages by reason of any legal process. -10- 7.02(b). No Surrender. Landlord's exercise of any of its remedies or its receipt of Tenant's keys shall not be considered an acceptance or surrender of the Premises by Tenant. A surrender must be agreed to in a writing signed by both parties. 7.02(c). Rent. If Landlord ends this Lease or ends Tenant's right to possess the Premises because of a Default, Landlord may hold Tenant liable for Rent, Additional Rent and other indebtedness accrued to the date the Lease ends. Tenant shall also be liable for the Rent, Additional Rent and other indebtedness that otherwise would have been payable by Tenant during the remainder of the Term had there been no Default, reduced by any sums Landlord receives by reletting the Premises during the Term. 7.02(b). Other Expenses. Tenant shall also be liable for that part of the following sums paid by Landlord and attributable to that part of the Term ended due to Tenant's Default: (i) reasonable broker's fees incurred by Landlord for reletting part or all of the Premises prorated for that part of the reletting Term ending concurrently with the then current Term of this Lease; (ii) the cost of removing and storing Tenant's property; (iii) the cost of minor repairs, alterations, and remodeling necessary to put the Premises in a condition reasonably acceptable to a new Tenant; and (iv) other necessary and reasonable expenses incurred by Landlord in enforcing its remedies. 7.02(e). Payment. Tenant shall pay the sums due in paragraphs 7.02(c) and (d) within thirty (30) days of receiving Landlord's proper and correct invoice for the amounts. Landlord is not entitled to accelerated Rent or Additional Rent. During each action to collect, Landlord shall be limited to the amount of (A) any sums due under paragraph 7.02(c) that would have accrued had the Lease not been ended and (B) sums due under paragraph 7.02(d) that have been incurred by Landlord and are now payable by Landlord. 7.03. Exception to Cure Periods. The cure period in paragraph 7.01 (a)(iii) does not apply to failure to maintain the insurance required by paragraph 5.01. 7.04. Self-Help. If Tenant defaults, the Landlord may, without being obligated and without waiving the Default, cure the Default. The Landlord may enter the Premises to cure the Default. The Tenant shall pay the Landlord, upon demand, all costs, expenses, and disbursements incurred by the Landlord to cure the Default. 7.05. Survival. The remedies permitted by Section 7 and the indemnities in paragraph 5.02 shall survive the ending of this Lease. SECTION 8 -- NONDISTURBANCE 8.01. Subordination. 8.01(a). Mortgages. Subject to paragraph 8.01(b), this Lease is subordinate to existing or subsequent mortgages covering the Building. 8.01(b). Mortgages Approval Required. This Lease shall be subject to, and contingent upon, Landlord's receiving the approval of all of the terms and conditions contained herein by Bank of America National Trust and Savings Association. Landlord agrees to use its reasonable efforts to secure such approval. If such approval cannot be obtained, Landlord shall notify Tenant before Tenant occupies space, Landlord shall return to Tenant the first month's rent and security deposit delivered to Landlord pursuant to Paragraph 2.03 of the Lease, and this Lease shall terminate and all rights, obligations and liabilities of the parties hereunder shall be released and discharged. 8.01(c). Foreclosures. If any mortgage is foreclosed, then: -11- (i) this Lease shall continue; (ii) Tenant's quiet possession shall not be disturbed provided that Tenant is not in Default; (iii) Tenant will attorn to and recognize the mortgagee or purchaser at foreclosure sale (Successor Landlord) as Tenant's landlord for the remaining Term; and (iv) the Successor Landlord shall not be bound by: (A) any payment of Rent or Additional Rent for more than one month in advance, except the Security Deposit and free rent, if any, specified in the Lease, (B) any amendment, modification, or ending of this Lease without Successor Landlord's consent after the Successor Landlord's name is given to Tenant unless the amendment, modification, or ending is specifically authorized by the original Lease and does not require Landlord's prior agreement or consent, and (C) any liability for any act or omission of a prior Landlord. 8.01(d). Self-Operating. Paragraph 8.01 is self-operating. However, Tenant shall promptly execute and deliver any documents needed to confirm this arrangement. 8.02. Estoppel Certificate. 8.02(a). Obligation. Tenant shall from time to time, within ten (10) business days after receiving a written request by the Landlord, execute and deliver to the Landlord a written statement. This written statement, which may be relied upon by the Landlord and any third party with whom the Landlord is dealing, shall certify: (i) the accuracy of the Lease document; (ii) the Commencement and Ending Dates of the Lease; (iii) that the Lease is (A) unmodified and in full effect, or (B) in full effect as modified, stating the date and nature of any and all modifications; (iv) whether, to the Tenant's knowledge, the Landlord is in default or whether the Tenant has any claims or demands against the Landlord and, if so, specifying the Default, claim or demand; and (v) to other correct and reasonably ascertainable facts that are covered by the Lease terms. 8.02(b). Remedy. The Tenant's failure to comply with its obligation in paragraph 8.02(a) shall be a Default. Notwithstanding paragraphs 7.01(a)(iii) and 7.03, the cure period for this Default shall be five (5) business days after the Tenant receives notice of the Default. 8.03. Quiet Possession. If Tenant is not in default and subject to the Lease terms and the above encumbrances, Landlord warrants that Tenant's peaceable and quiet enjoyment of the Premises shall not be disturbed by the Landlord or anyone acting for or through the Landlord. SECTION 9 -- LANDLORD'S RIGHTS 9.01. Mechanic's Liens 9.01(a). Discharge Lien. Tenant shall, within twenty (20) days after receiving notice of any mechanic's lien for material or work claimed to have been furnished to the Premises on Tenant's behalf and at Tenant's request, except for work contracted by Landlord including the Improvements described in paragraph 1.05 and Exhibit B: -12- (i) discharge the lien; or (ii) post a bond equal to the amount of the disputed claim with companies reasonably satisfactory to Landlord. If Tenant posts a bond, it shall contest the validity of the lien. Tenant shall indemnify, defend, and hold Landlord harmless from losses incurred from these liens. 9.01(b). Landlord's Discharge. If Tenant does not discharge the lien or post the bond within the twenty (20) day period, Landlord may pay any amounts, including interest and legal fees, to discharge the lien. Tenant shall then be liable to Landlord for the amounts paid by Landlord. 9.01(c). Consent not Implied. Paragraph 9.01 is not a consent to subject Landlord's property to these liens. 9.02. Right to Enter. 9.02(a). Permitted Entries. Landlord and its agents, servants, and employees may enter the Premises at reasonable times, and at any time if an emergency, without charge, liability, or abatement of Rent or Additional Rent, to: (i) examine the Premises; (ii) make repairs, alterations, improvements, and additions either required by the Lease or advisable to preserve the integrity, safety, and good order of part or all of the Premises or Building; (iii) provide janitorial and other services; (iv) comply with Applicable Laws; (v) show the Premises to prospective lenders or purchasers and during the ninety (90) days immediately before this Lease ends to prospective tenants, accompanied, if requested by Tenant, by a Tenant representative; (vi) post notices of nonresponsibility; (vii) remove any Alterations made by Tenant in violation of paragraph 4.01; and (viii) post "For Sale. signs and, during the one hundred and twenty (120) days immediately before this Lease ends, post "For Lease" signs. 9.02(b). Entry Conditions. Notwithstanding paragraph 9.02(a), entry is conditioned upon Landlord causing the least practical interference to Tenant's business. 9.03. Right to Terminate. Landlord may terminate this Lease at any time without penalty by giving nine (9) months advance written notice to Tenant. This lease shall end on the date specified in the termination notice, which date shall be at least nine (9) months after the date that the notice was sent. If the Lease is terminated as provided above, then the Rent, Additional Rent and other charges shall be payable up to the termination date. Landlord shall promptly refund to Tenant any prepaid, unaccrued Rent, Additional Rent plus Security Deposit, if any, less any sum then owing by Tenant to Landlord. SECTION 10 -- DISPUTES 10.01. Arbitration. 10.01(a). Procedure. For disputes subject to arbitration under paragraph 10.01(c) that are not resolved by the parties within ten (10) days after either party gives notice to the other of its desire to arbitrate -13- the dispute, the dispute shall be settled by binding arbitration by the American Arbitration Association in accord with its then-prevailing rules. Judgment upon the arbitration award may be entered in any court having jurisdiction. The arbitrators shall have no power to change the Lease provisions. The arbitration panel shall consist of three arbitrators, one of whom shall be selected by the Tenant, one of whom shall be selected by the Landlord, and one of whom shall be mutually agreed upon by the parties and who must be a real estate attorney actively engaged in the practice of law for at least the last five (5) years. Both parties shall continue performing their Lease obligations pending the award in the arbitration proceeding. The arbitrators shall award the prevailing party reasonable expenses and costs, including reasonable attorneys' fees pursuant to paragraph 11.02, plus interest on the amount due at eighteen (18) percent per annum or the maximum amount then allowed by applicable law, whichever is less. 10.01(b). Payment. The losing party shall pay to the prevailing party the amount of the final arbitration award. If payment is not made within ten (10) business days after the date the arbitration award is no longer appealable, then in addition to any remedies under the law: (i) if Landlord is the prevailing party, it shall have the same remedies for failure to pay the arbitration award as it has for Tenant's failure to pay the Rent or Additional Rent; and (ii) if Tenant is the prevailing party, it may deduct any remaining unpaid award from its monthly payment of Rent, Additional Rent, or other charges. 10.01(c). Arbitration. The following disputes are subject to arbitration: (i) any disputes that the parties agree to submit to arbitration; (ii) the date when the Premises arc substantially completed; (iii) the amount of any abatement of Rent and Additional Rent because of damage or condemnation; (iv) determination of the party that must comply with Applicable Laws under paragraph 3.01; (v) whether the utilities are being provided in the quality and quantity required by paragraph 3.02; (vi) whether Tenant may abate Rent and Additional Rent or cancel the Lease under paragraph 3.02(e)(ii); (vii) whether Landlord's withholding of consent is unreasonable or unduly delayed under paragraph 4.01(a) and (b); (viii) whether either party can cancel the Lease under Sections 6 or 7; and (ix) any allocation required under paragraph 2.02. SECTION 11 -- MISCELLANEOUS 11.01. Broker's Warranty. The parties warrant that Bryant & Associates is the only broker they dealt with on this Lease. The party who breaches this warranty shall defend, hold harmless and indemnify the nonbreaching party from any claims or liability arising from the breach. Landlord is solely responsible for paying the commission of Bryant & Associates. 11.02. Attorneys' Fees. In any litigation or arbitration between the parties regarding this Lease, the losing party shall pay to the prevailing party all reasonable expenses and court costs including attorneys' fees actually incurred by the prevailing party. A party shall be considered the prevailing party if: -14- (i) it initiated the litigation and substantially obtains the relief it sought, either through a judgment or the losing party's voluntary action before arbitration (after it is scheduled), trial, or judgment; (ii) the other party withdraws its action without substantially obtaining the relief it sought; or (iii) it did not initiate the litigation and judgment is entered for either party, but without substantially granting the relief sought. 11.03. Notices. All notices under this Lease shall be in writing and sent by registered or certified mail, postage prepaid, as follows: To Tenant: At the Premises To Landlord: c/o Attachmate Corporation, 3617 131st Ave. SE, Bellevue, WA 98006, Attn: Legal Department Either party may change these persons or addresses by giving notice as provided above. Tenant shall also give required notices to Landlord's mortgagee after receiving notice from Landlord of the mortgagee's name and address. Notice shall be considered given and received on the latest original delivery or attempted delivery date as indicated on the postage receipt(s) of all persons and addresses to which notice is to be given. 11.04. Partial Invalidity. If any Lease provision is invalid or unenforceable to any extent, then that provision and the remainder of this Lease shall continue in effect and be enforceable to the fullest extent permitted by law. 11.05. Waiver. The failure of either party to exercise any of its rights is not a waiver of those rights. A party waives only those rights specified in writing and signed by the party waiving its rights. 11.06. Construction. 11.06(a). Construction Against Drafter. The parties chose this Lease document because it is fair to both parties and shall be construed as if both parties were equally responsible for drafting the provision. If any Lease provision is modified or added by the parties, then the rule of construction of construing against the drafter shall apply to the modified or added provision. If the Lease's fairness is materially affected because of the cumulative effect of the changes, additions, or deletions (paragraph 11.06(b)), then paragraph 11.06 shall be void. 11.06(b). Deletions. If the parties delete any provision or part of a provision, the Lease will be interpreted as if the deleted language was never part of the Lease. This paragraph is subject to the rule in paragraph 11.06(a) concerning any changes, additions or deletions that materially affect the Lease's fairness. 11.07. Binding on Successors. This Lease shall bind the parties' heirs, successors, representatives, and permitted assigns. 11.08. Governing Law. This Lease shall be governed by the laws of the state in which the Building is located. 11.09. Insurance Increase. If due to Tenant's particular use of the Premises the Landlord's insurance rates are increased, Tenant shall pay the increase. 11.10. Lease not an Offer. Landlord gave this Lease to Tenant for review. It is not an offer to lease. This Lease shall not be binding unless signed by a duly authorized representative of both parties and an originally signed counterpart is delivered to Tenant by June 30, 1995. This Lease shall create the relationship of Landlord and Tenant between the parties hereto. No estate shall pass out of Landlord. Tenant has only a usufruct not subject to levy or sale and not assignable by Tenant except by Landlord's prior, written consent. 11.11. Recording. Recording of this Lease is prohibited except as allowed in this paragraph. At the request of either party, the parties shall promptly execute and record, at the cost of the requesting party, a short form memorandum -15- describing the Premises and stating this Lease's Term, its Commencement and Ending Dates, and other information the parties agree to include. 11.12. Survival of Remedies. The parties' remedies shall survive the ending of this Lease when the ending is caused by the Default of the other party. 11.13. Authority of Parties. Each party warrants that it is authorized to enter into the Lease, that the person signing on its behalf is duly authorized to execute the Lease, and that no other signatures are necessary. 11.14. Business Days. Business days means Monday through Friday inclusive, excluding the following holidays or the days on which the holidays are designated for observance: New Year's Day, President's Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, the day after Thanksgiving Day and Christmas Day.. Throughout this Lease, wherever "days" are used the term shall refer to calendar days. Wherever the term "business days" is used the term shall refer to business days. 11.15. Early Termination. Either Landlord or Tenant reserves the right to terminate this lease under the following terms and conditions: (a) by Tenant at the end of the second anniversary of this Lease upon 9 months written notice prior to the second anniversary of this Lease; or (b) by Landlord in the event that Landlord elects to recapture the Premises upon 9 months written notice prior to such recapture. Upon any termination of the Lease by Tenant, Tenant shall (a) reimburse Landlord for all unamortized Tenant Improvement Allowance in accordance with the schedule on Exhibit C, (b) pay a termination fee equal to one months rent, and (c) pay Landlord all outstanding commissions due to the Broker based upon the canceled portion of this Lease. 11.16. Entire Agreement. This Lease contains the entire agreement between the parties about the Premises and Building. Except for the Rules and Regulations document, this Lease shall be modified only by a writing signed by both parties. 11.17. Definition of Lease. This Lease consists of the following: (i) Title Page; (ii) Sections 1 through 11; (iii) Signature Page; (iv) Rules and Regulations; and (v) Exhibits A through C. 11.18. Time. Time is of the essence of this Lease. TENANT ACKNOWLEDGES THAT TENANT HAS READ AND UNDERSTANDS THE TERMS AND CONDITIONS OF THIS LEASE AND HAS RECEIVED A COPY OF IT. IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals. LANDLORD: ATTACHMATE CORPORATION /s/ Scott L. Dumma SIGNATURE /s/ W.E. Pritts - ------------------------------ ------------------------------- WITNESS ________________________________________ NAME W.E. Pritts ----------------------------------- TITLE Vice President ----------------------------------- -16- TENANT: SOFTSENSE, INC. /s/ W.J. Zudall SIGNATURE /s/ Erez Goren - ----------------------------- ------------------------------- WITNESS ________________________________________ NAME Erez Goren ----------------------------------- TITLE President ----------------------------------- -17- RULES AND REGULATIONS 1. Signs. Landlord retains the right to regulate the manner of display of the ----- exterior signs, placards, pictures, advertisements, names or notices. Landlord shall have the right to remove any exterior sign, placard, picture, advertisement, name or notice which has not been approved by Landlord or is being displayed in a non-acceptable manner without notice to and at the expense of the Tenant. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Tenant, except as provided otherwise in Exhibit B. Tenant shall not place anything or allow anything to be placed near the glass of any window, door partition or wall which may appear unsightly from outside of the Premises. Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promotion or advertising the business of Tenant except as Tenant's address. 2. Nuisance. Tenant shall not use, keep or permit to be used or kept noxious -------- gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to the Landlord or others by reason of noise, odors and/or vibrations. No animals or birds shall be brought in or kept in or about the Premises or the Building. No Tenant shall make or permit to be made any disturbing noises or disturb or interfere with neighboring Buildings, or with those having business with such occupants by the use of any musical instrument, radio, phonograph, alarm, or unusual noise. No Tenant shall throw anything out of doors or down the passageways. 3. Permitted Use. The Premises shall not be used except as otherwise ------------- specified in the Lease Agreement. No Tenant shall occupy or permit any portion of the Premises to be occupied for the manufacture or sale of liquor, narcotics, or tobacco in any form. The Premises shall not be used for lodging or sleeping or for any retail sales on premises or for illegal purposes. 4. Premises Closure. Tenant shall see that the doors of the Premises are ---------------- closed and securely locked before leaving the Building and that all water faucets, water apparatus and Electricity within the Premises are entirely shut off before Tenant or Tenant's employees leave the Building, except to the extent necessary to the operation of Tenant's business and monitored. Tenant shall be responsible for any damage to the Building or other Tenants caused by Tenant's negligent failure to entirely shut off all water faucets, water apparatus and electricity. 5. Disorderly Conduct. Landlord reserves the right to exclude or expel from ------------------ the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations. 6. Fire Regulations. Tenant agrees that it shall comply with all fire ---------------- regulations that may be issued from time to time by Landlord and Tenant also shall provide Landlord with the names of a designated responsible employee to represent Tenant in all matters pertaining to fire regulations. 7. Emergency Information. Upon written request of Landlord, Tenant will --------------------- provide Landlord with names and telephone numbers to contact in case of emergency. 8. No Antennas. Tenant shall not install any radio or television antenna, ----------- loudspeaker or other devices on the roof or exterior walls of the Building, without Landlord's prior knowledge and written consent which shall not be unreasonably withheld or delayed. Tenant shall not interfere with radio or television broadcasting or reception from or in the Building or the Project. 9. Prohibited Uses. No cooking shall be done or permitted on the Premises --------------- without Landlord's consent, except that use by Tenant of Underwriters' Laboratory approved equipment for brewing coffee, tea, hot chocolate and similar beverages or use of refrigerators or microwave ovens for employee use shall be permitted, provided that all use of Tenant's equipment is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations. 10. Security of Premises. Tenant assumes any and all responsibility for and -------------------- agrees to use its best efforts to protect its Premises from theft, robbery and pilferage, which includes keeping doors locked and other means of entry to the Premises closed. 11. Lease. These Rules and Regulations are in addition to and shall be made a ----- part of, the terms, covenants, agreements and conditions of Tenant's Lease, and shall be construed consistent with the Lease, if possible, however, if provisions of this Rules and Regulations are otherwise inconsistent with the specific terms and provisions of the Lease Agreement, such terms and conditions of the Lease Agreement shall supersede and take precedence over these Rules and Regulations. 12. Additional Rules. Landlord reserves the right to make such other ---------------- reasonable Rules and Regulations as, in its reasonable judgment, may from time to time be needed for safety and security, for care and cleanliness of the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional or modified Rules and Regulations which are adopted by Landlord. Said additional or modified Rules and Regulations shall be delivered by Landlord to Tenant and upon delivery shall be immediately enforceable. 13. Parking. ------- a. Landlord hereby grants to Tenant, its employees and invitees a nonexclusive license to use the designated parking areas on an unreserved, first come, first serve basis for the parking of motor vehicles during the term of this Lease. Parking is prohibited in such areas as may be reasonably designated by Landlord or Landlord's agent from time to time. b. Landlord shall not be liable for damage to vehicles, persons, or any consequential loss suffered by Tenant, its employees, invitees, licensees, suppliers, agents, the driver or owner. c. Tenant or its customers, suppliers, employees or invitees shall not use motor homes or other similar vehicles in the parking areas and shall not leave vehicles in the parking area overnight or for any extended period of time, nor park any vehicles in the parking areas other than automobiles, motorcycles, motor driven or non-motor driven bicycles or four-wheeled trucks not more than 20 feet in length. Provided that, from time to time, Tenant may park passenger automobiles overnight. d. All directional signs and arrows must be observed. The speed limit within all parking areas shall be 5 miles per hour. e. Landlord or its agents shall have the right to cause to be removed any car of Tenant, its employees, invitees, licensees, or agents, that may be parked in unauthorized areas or in violation of governmental authority. Tenant agrees to be liable to Landlord, for any and all claims, losses, damages and attorneys' fees and costs of litigation asserted or arising in respect to or in connection with the removal of Tenant's, its employees' or guest's vehicle and for all expenses incurred by Landlord in connection with such removal. f. Landlord reserves the right to modify and/or adopt such other Rules and Regulations for the parking facilities. Landlord may refuse to permit any person who violates these rules and Regulations to park in the parking facilities, and any violation shall subject the car to removal at the owner's expense. Landlord agrees to work with appropriate representatives of Tenant in carrying out any of the above which requires removal of any vehicles. -2- EX-21.1 15 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 Subsidiares of the Registrant Liberty Systems International, Inc., a Georgia corporation EX-23.1 16 CONSENT OF ARTHUR ANDERSEN LLP [LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE] Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our reports (and to all references to our firm) included in or made a part of this registration statement. /s/ ARTHUR ANDERSEN LLP Atlanta, Georgia December 10, 1996 EX-27 17 ARTICLE 5 FINANCIAL DATA SCHEDULE
5 YEAR 9-MOS DEC-31-1995 DEC-31-1996 JAN-01-1995 JAN-01-1996 DEC-31-1995 SEP-30-1996 164,550 882,178 0 0 665,679 3,564,387 41,500 50,000 1,802,716 2,422,382 2,708,416 7,280,827 1,700,935 2,454,656 670,266 1,183,459 4,234,939 10,014,232 6,372,469 7,835,486 0 0 0 0 0 0 73 73 (3,154,387) 3,489,259 4,234,939 10,014,232 15,881,995 19,986,230 15,881,995 19,986,230 12,162,716 14,246,158 12,162,716 14,246,158 5,819,849 6,401,781 0 0 166,478 305,565 (1,860,756) (394,772) (709,165) (145,635) (1,151,591) (249,137) 0 0 0 0 0 0 (1,151,591) (249,137) (.10) (.02) 0 0
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